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CTC Media, Inc (NASDAQ:CTCM)

Q2 2013 Earnings Call

August 06, 2013 9:00 am ET

Executives

Ekaterina Ostrova - Director of Corporate Communications and Investor Relations

Yuliana Slashcheva - Chief Executive Officer

Nikolay Surikov - Chief Financial Officer and Company Secretary

Analysts

Edward Hill-Wood - Morgan Stanley, Research Division

Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division

Igor Semenov - Deutsche Bank AG, Research Division

Anna Lepetukhina - Sberbank Investment Research

Anastasia Obukhova - VTB Capital, Research Division

Nick Robinson - Renaissance Capital, Research Division

Operator

Good morning and good afternoon, ladies and gentlemen. Welcome to CTC Media's Second Quarter 2013 Results Conference Call. [Operator Instructions] This call is being webcast, and an audio version of the call will be available on the company's website. The call is also being recorded for replay purposes.

I will now hand over the call to Katya Ostrova, CTC Media's Director of Corporate Communications and Investor Relations.

Ekaterina Ostrova

Thank you, operator, and thank you, everyone, for joining the call today. The purpose of this call is, of course, to discuss our second quarter results, but we're also pleased to have this opportunity to introduce you to CTC Media's newly appointed CEO, Yuliana Slashcheva, who joined the company just last week. Yuliana is on the call today along with Nikolay Surikov, our CFO, who will run through the key operating and financial highlights. And then, as always, we'll move on to the Q&A session.

We trust that you have received our earnings press release, which was issued earlier today. If you haven't got a copy, it is available from our website at ctcmedia.ru. Please refer to the earnings press release for the reconciliation of non-GAAP measures to the most comparable GAAP measures. A live webcast of today's call is also available from the Investor Relations section of our website.

And before we begin, we would like to remind everyone that today's call may contain certain forward-looking statements based on the environment as we currently see it and, as such, does include certain risks and uncertainties. So please refer to our SEC filings for more information on the specific risk factors that could cause actual results to differ materially.

And now I will turn the call over to our new CEO, Yuliana Slashcheva.

Yuliana Slashcheva

Thank you, Katya. And thank you, everyone, for joining us on the call today. It's a great honor for me to join CTC Media, such a successful and well-positioned company with a long history and very strong culture. The CTC brand is one of the most popular in the Russian TV market. And its appeal has now spread to a number of other international markets with a Russian-speaking population.

My own background, as you have read, probably, is in the establishment and development of a number of high-growth businesses related to media, as well as the period working in the management of the leading Russian regional energy company. I'm used to leading companies that are changing fast in the industry segments which are also growing very rapidly. My most recent role was in managing a group of companies that grew 5x in terms of stock and revenues over the past 8 years under my management. I was leading a highly creative and professional team, which covered a number of disciplines, including research, branding, advertising, marketing and communications. I also gained essential experience in creating and managing a wide range of digital projects. And this experience will be extremely useful as we look to build CTC Media's online presence.

I am less than a week in this new role and new set of responsibilities, but I have already attended my first regular strategy review session with the top management and with the board, where all the key top managers of the company discussed their approaches and their strategic plans for the next several years. It's clear that CTC Media has a number of major opportunities over the coming quarters and years, and we are determined to evaluate and fully exploit all these opportunities by accelerating along with the strategic path that has already been set.

I do believe that digitalization is coming to the Russian market in a very rapid and very quick approach. More and more video is being consumed online. The nature of popular entertainment programming is evolving, and the business is becoming more and more international. We are well positioned in all of those areas, and we'll continue to develop them.

Above all, we are now focused on enhancing our ratings and taking advertising market share so that we can outperform on that increasingly fragmented market. We are also confident that Russia is set to become the largest TV ad market in Europe over the next couple of years. We do have scale and popular brands that deliver attractive and complementary audiences. So within next quarters and years, we'll have to deliver more: more interesting programming and more creative content that will grow our viewer shares. This means owning and creating more content ourselves, as well as acquiring the hottest new formats and extending the lives of these properties online and on other platforms to create more close contact with our viewers.

I have met with all of the members of the management team to the moment and will be working intensely with them over the coming weeks and months to review all of their strategic -- our joint, now, strategic and operational plans. I believe that a highly motivated, stable and well-organized team of creative, talented people is essential for our future, is essential for the success of the company and for the creation of the long-term and sustainable value. The path is set, and we are delivering in line with the 2013 plan set out earlier this year. I will do all that I can to accelerate this development, as well as to look for new, related growth opportunities in which to invest. Effective 2-way communication and a trustworthy relationship with you, with each of you, are priorities that I understand for myself as the CEO. And I am looking forward to meeting all of you in person in the coming weeks and months.

That's all I wanted to say in my introduction. And I will now hand the call over to Nikolay Surikov, who is the Chief Financial Officer, for his comments on our second quarter performance. Please, Nikolay.

Nikolay Surikov

Thank you, Yuliana. Good morning and good afternoon, everyone. Thanks for joining us today. Our second quarter results indicate significant further progress for the business. Currency fluctuations again affected our reported U.S. GAAP results this quarter as the Russian ruble depreciated by 5% against the dollar. 95% of our revenue and most of our expenses are ruble based, so I will discuss the year-on-year changes in local currency terms.

Our revenues were up 13% in ruble terms. This is above the estimated 11% growth of the Russian television ad market. The market is still expected to grow by up to 10% in 2013, which would mean lower growth in the second half of the year when compared to the estimated 12% growth in the first half, and reflect the high growth comps in the second half of the year. We are on track to meet the previously provided outlook to increase our Russian TV advertising revenues in line with the market for the full year.

At this time, our channels national inventory is approximately 95% contracted for 2013. Market indicators are variable, and any adverse change in economic conditions and performance will, of course, impact television advertising spending. But as of today, we have not adjusted our expectations for the ad market performance for the rest of the year.

The market outperformance in Q2 reflected higher viewing shares for the CTC Channel, higher sellout for Domashny and growth in sponsorship revenues. As a result, our Russian channels national inventory was fully sold out in the quarter, with a broadly stable power ratio of 1.5.

Sublicensing revenues grew 71% year-on-year in ruble terms in Q2. This did partially reflect the timing of sublicensing sales to broadcasters in Ukraine and Russia in the quarter and should not, therefore, be viewed as an indicative growth rate for the full year. Our OIBDA margin was slightly down year-on-year at 28% in the second quarter, as programming expenses increased more than revenues. This is in line with our previous indication that content costs would be front loaded this year. We continue to expect programming expenses to be stable as a percentage of advertising revenues for the full year and for our OIBDA margin to be similar to the 2012 level at approximately 32%.

Looking at our Russian channels audience shares now. Our 3 Russian channels' combined audience share was up year-over-year in the 10- to 45-year-old group and enabled us to further strengthen our position as the second-largest Russian TV media house in terms of viewership. Audience fragmentation continued to have an effect, with free TV channels again taking audience share, but CTC was the only channel among the top 6 that grew its share in the quarter.

We are very pleased with the CTC Channel's ratings dynamics. Its viewing share was up to 11.6% in the second quarter, compared to 10.2% in the second quarter of last year. The channel also increased its target audience share compared to the first quarter of 2013. This performance was driven by successful prime time shows such as Kitchen, Traffic Light, Think Like A Woman and Voronini [ph] as well as foreign movies and animations. It remains our objective to grow CTC's average audience share for the full year. We're continuing in the fall with a new series of proven projects, such as Kitchen, The 80’s, Voronini [ph], as well as a number of promising new shows, including comedy formats and the much talked-about dramedy series about a youth hockey team, Molodezhka.

The viewing shares for Domashny and Peretz were down year-on-year, but from record levels of 2012. Our focus at the moment is on maintaining the higher audience shares for these channels and effectively monetizing this increased reach. Domashny is attracting commercially valuable younger audiences. That is why the channel is growing its revenues faster than the market. Peretz continues to develop its focus on age share and by action-driven [ph] positioning. The channel has around 10 premieres planned for the upcoming fall season, and we are looking forward to the new launches later this year.

As for the new media, we continue to broaden our presence on digital platforms in Russia and already reached almost 9 million unique visitors per month in Q2. We've also launched an innovative touch-free mobile recipe app on the Domashny brand. It uses a motion-activated technology that allows you to navigate through the app without touching the screen, which is extremely useful in case you are in the middle of cooking process. Overall, we are building more and more attractive proposals for our advertisers who are interested in expanding their coverage beyond traditional media.

Commenting on the year-over-year cost development in the quarter. Our total operating expenses were up 16% in ruble terms. Direct operating costs were up 2% in rubles, largely due to the joint effect of higher transmission costs relating to the digital broadcasting infrastructure, as well as the increased technical penetration of Domashny and Peretz.

SG&A expenses were up 8% in ruble terms, which mainly reflected high advertising and promotion expenses due to the timing of the ad campaigns in each of the CTC Media's Russian channels.

Programming costs were up 18% in ruble terms and reflected the relatively more expensive content mix for our channels. We've had 35 more -- 35% more hours of the first Russian -- first-run Russian content compared to last year and also more foreign content on the CTC Channel. The high programming expenses for the Domashny channel reflected high volumes of more expensive Russian series and movies. Content costs for Peretz were up primarily due to high volume of locally produced sketch coms.

Depreciation and amortization expenses were up 71% year-on-year in ruble terms in the quarter and in line with the impact of the amortization of our analog licenses since October last year due to the planned transition from analog to digital broadcasting. Our effective tax rate was 36% in the second quarter of 2013, up from 34% last year. This was primarily due to the recognition of one-off foreign tax credits that were deducted from our U.S. income tax in 2012.

Moving to our cash flow and balance sheet items. Our net cash flow from operating activities was down year-on-year to $49 million in the first 6 months of 2013 and primarily reflected the net effect of increased advertising sales and higher cash spent on acquisition of programming. As we disclosed earlier, we had approximately $20 million in cash content payments transferred from the fourth quarter of 2012 into 2013. Net of this transfer effect, we expect our programming cash spending to grow broadly in line with the amortization of content in our income statement.

Net cash used in investment activities amounted to $17 million in the first 6 months of 2013 and reflected cash deposits of $15 million and cash capital expenditure on cable connections and broadcasting equipment of $2 million.

We also repurchased approximately 1.3 million shares in the market for approximately $60 million during the quarter for use in our stock incentive plan. We therefore generated $47 million of free cash flow in the quarter and ended the period with net cash of $142 million.

The board has now approved the next quarterly dividend of $0.16 per share or approximately $25 million in total to be paid out at the end of September. It remains our intention to pay an aggregate of approximately $100 million in quarterly cash dividends in 2013, which reflect our philosophy to return surplus free cash flow to shareholders.

We would now be happy to open the floor to any questions you might have. Operator, over to you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Edward Hill-Wood from Morgan Stanley.

Edward Hill-Wood - Morgan Stanley, Research Division

I have 2 questions, please. Firstly, just on advertising outlook. You haven't changed your forecast or your expectations for the full year. Could you just give us a sense of whether or not you see the risk being on the upside, just given the stronger first half, or just a little bit more color on the dynamics of advertising, particularly in the third quarter? And then the second question is for Yuliana, who I know you've just started your role, so it's very early days, but you did say that you do expect digitization to accelerate and fundamentally change the market. And I just think, conceptually, do you think that CTC, with 32% EBITDA margins and a dividend, is not investing enough to make that transition?

Nikolay Surikov

Okay, thanks for your question. On the first question about our outlook for the full year, we still reconfirm the 10% growth -- up to 10% growth of the market, and we believe that the second 6 months of the year will be -- the growth will be less than in the first 6 months period. As of now, we don't see any negative behavior from our clients, and no any cancellations of advertisements for the second half of the year. So that's why we haven't changed anything from the outlook perspective. So from -- yes, as I told, we believe that there will be a slowdown in the second half of the year. So as of now, unfortunately, no additional information from the market. So all our advertisers just reconfirmed their intention for imagery to be bought by them. So irrespective of these negative comments from state authorities like economic development and from World Bank, nothing new. On the second question, Yuliana will...

Yuliana Slashcheva

Okay. Yes, as you mentioned it correctly, it's just a week in this new role. And I do need to take some more investigation and analysis of the current situation with the digitalization and the money, which was spent or will be spent on that process. However, I can already tell you that CTC Media built a digital broadcasting facility in Moscow, and it was done already, with the CapEx around $60 million in 2011. The library, the main content, which belongs to the company, is digitalized. So no more CapEx required for these issues, only distribution costs which we will take on that. However, we do think that growing further and being -- trying to be the first or one of the first and the best on this new open market for TV content, which will be very complementary with the Internet, smartphones and other platforms, we will have to go for some M&A deals and some investments. However, we don't have any specific in pipeline at the moment.

Edward Hill-Wood - Morgan Stanley, Research Division

That's great. Could I just ask, in terms of your planning, in terms of your communication with the market, would you -- should we expect you to have a period of review and maybe come back to the market maybe in the third quarter results or something like that with a more detailed plan? Is that something we should expect? Or should -- are you trying to get on with your [indiscernible]?

Yuliana Slashcheva

Look, as I said in my introductory remarks, I have already -- I have joined for just one strategic review session with the top managers and board. That's to regulate work done in the company during the last months. And we are -- I will be very precise in working with each of the top managers on their strategic plans for, like, next years -- for the several next years, but more precisely for the upcoming year. And as soon as -- it will take some time, and it will also need some of my upgrade and view as the person joining from the other markets, but knowing very well a lot of issues which are very closely related to media, like, I already said, branding, marketing and communication. And when we are ready, when we do finalize those strategic plans, as soon as we are ready, we will come up with them and talk to you and, of course, make you aware of those strategic plans. But unfortunately, I can't give you the timing now just because I'm only 1 week here.

Operator

Your next question comes from the line of Alexander Vengranovich from OTKRITIE.

Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division

I have 2 questions, if I may. So first, probably, to continue with digital media. So I just wanted to ask you whether, Yuliana, you have some sort of initiatives in mind which we can already see in the first half of this year with regards to that revenue stream? So far, we see that it's a very small proportion of CTC Media revenues. And whether you see there should be some boost of revenues even this year? And just some small follow-up here. Can you please kind of break down, even, the current rating and where it comes from? Is it purely like desktops and tablets, or maybe also some proportion of the revenue comes from Smart TV sets? Because I see that you have some good progress here with regards to Smart TV, whether this actually, the stream, generates any revenue? And kind of a second question. That's with regard to the shift to digital transmission. So I see that, in the second quarter and the third quarter this year, you still paid very little amount out of this, like, $6 million, which you should pay for the digital transmission this year. Is there any kind of a big delay with regards to the digital transmission and how it's progressed so far? And as far as I understood previously, you expected that cost to be a part of your guidance. So in case this the whole process would be delayed, should we expect some potential improvement in profitability guidance on the back of that?

Yuliana Slashcheva

Okay. Alexander, [indiscernible] one by one. I will take some of the questions, and then I'll pass to Nikolay to answer some of your -- I'll answer the first -- try to answer the first question. Again, coming back to the timing which I'm in this new role in the company is only 7 days today. It will -- I will need some time to come up with a real like digital strategic plan and -- which will tell and show us the possibilities to boost revenues next year and the forthcoming years. I definitely can't talk now about any possibilities to boost the revenues this year because I need to sit down with the integrated producers and with the content holders inside CTC Media and to see what content, which they have now, which content which is ready for upcoming new season in autumn is relevant for the new media, will be relevant to go to the Internet, Smart TV, on the smartphone, so any other devices. That will take some time. We will, of course, and I will personally spend much of my time continuing the existing projects such as Videomore, Domashniy portal and other transmedia projects, which were already started by the commercial direction. And I will try to add as much as I can of my own experience and maybe attracting some bright and creative people from Internet to go on with this direction and this concrete part of our possible revenue boost as soon as possible. But we'll -- you should understand it will, anyway, take time. I will pass it to Nikolay to answer 2 other questions. Thank you.

Nikolay Surikov

Yes, thank you, Yuliana. Speaking about the revenue from our digital media, we expect that, for the year, it will be just several millions of dollars in revenues, so you understand that it's very immaterial from our total revenue. We have around 9 million unique monthly users on all our additional platforms. And around 87% are coming from the web, and the rest are coming from Smart TV and mobile, so speaking about the share of different platforms in our digital effort. The second question, about digital expense. We already published before that we expect the total amount expensed for this year for both channels, so for CTC and Domashny, will be about $6 million. And as of now, we don't have any information from the state authorities about any delays in the program of digitalization. That's why, on one question, it's nothing new. So we still believe that it will be constructed on time. If we receive any new additional information, of course, we will share with you on our quarterly press releases and quarterly calls.

Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division

Okay. Nikolay, can I just have a quick question here? Am I right to say that the $6 million for sure is included in your profitability guidance for this year? So any...

Nikolay Surikov

Of course. Yes, of course.

Operator

Your next question comes from the line of Igor Semenov from Deutsche Bank.

Igor Semenov - Deutsche Bank AG, Research Division

Yuliana, again, sorry, maybe not a fair question, given that you're just a week on the job, but you're talking about M&A in the Internet space. I mean, you did a disclaimer that you don't have anything concrete, but at the same time, why do you think M&A is more appropriate route and -- rather than growing expertise in-house, for example? And M&A, again, you -- to what kind of -- I presume this is a Russian company that you're talking about, the Russian Internet project in the media space.

Yuliana Slashcheva

Igor, thank you for your question. Okay, coming back to what I already said, we are always looking on the potential and non-organic growth opportunities. And we will be looking on the mostly Russian companies on the Internet, that's right. As I said, we don't have any specific in the pipeline at the moment, but we are open for any interesting and attractive possibilities in M&A at the right price. Speaking about those which will have the most synergy with CTC is, of course, we will be looking on them, Internet projects, existing projects or the ones which we can build up from scratch ourselves, which are more related to TV than, for example, to non-profile businesses -- non-profile CTC Media businesses. So we possibly will be looking for anything that can build a chain barrier -- I'm sorry, the value chain for us to add value to our existing platforms. We do have content, and we have a very strong brand of CTC brand and the channel brand. And we can be very synergetic with a number of different Russian -- existing Internet projects, which desperately need content and are always searching for attractive brands. So that's where we'll be looking. We are rather open. We have ideas, but as I said, once again, we don't have any special companies in mind now, which we can -- we'll be ready to disclose yet.

Igor Semenov - Deutsche Bank AG, Research Division

But why M&A? Why not develop expertise in-house, for example? I mean, you have [indiscernible] for example.

Yuliana Slashcheva

Good question. Yes, Igor, very good question. Actually, I -- we are planning to do both. We do plan to build up some of the services and some of the projects ourselves using our in-house expertise, and that is why I said that we will need to attract a couple of bright and professional people from the Internet market into in-house, into the team. But we also do think that some of the Internet spheres, some of the sectors are already occupied by very professional players, and the price of entering this market by ourselves will be very -- could be too high and too long in timing. So that is why we are also looking on the possibilities of buying something which already exists, but only in case when we understand that it's very synergetic and complementary to what we already have and what we can provide.

Operator

Your next question comes from the line of Anna Lepetukhina from Sberbank.

Anna Lepetukhina - Sberbank Investment Research

I have couple of questions. My first question is on the second digital multiplex. I want to understand whether you've made decision on participation in the tender for the vacant position. My second question is on your revenues growth guidance. Can you please explain how you're going to achieve it, given, especially, slowdown in the growth in revenues from Peretz channel? Because when I look at the first half growth numbers, it implies growth of roughly 8% for advertising revenues, whereas we see advertising markets slowing down due to the high base effect of last year and Olympic games and football. So which channel, in your view, will enable you to kind of outperform the market in the second half of the year?

Yuliana Slashcheva

Thank you, Anna. I will take the first question, and we'll ask Nikolay to take the second one. Regarding the vacant place in the second multiplex for Peretz and whether we will be pitching for it or not, this decision is being discussed now. We haven't made a decision yet. We need some more time inside for internal discussions before we make this decision between the management and also with the board. You know that the price of the second multiplex is much higher than of the third one. We are definite we need a place for Peretz in the third multiplex. That is no question. But whether we are ready to pay more for the second and go and pitch for it, we are not sure yet. So as soon as we make this decision, we will inform you about that. And now I pass to Nikolay for the second question.

Anna Lepetukhina - Sberbank Investment Research

Sorry, excuse me, can I just follow up? Do you mean that the third multiplex will be cheaper than the second multiplex?

Yuliana Slashcheva

Of course, much. The difference in price for participating in the third one would be essentially, we do think, several times less than for the second one.

Anna Lepetukhina - Sberbank Investment Research

And what gives you the reason to think so? Because as far as I understand, the whole new network should be rolled out for the third digital multiplex. Just for me to understand.

Yuliana Slashcheva

That's based on many discussions with the people who are dealing currently with the rules and procedures for the third multiplex. That's where we take this information from, and we already understand that the audience will be different. I'll ask Katya, because she was dealing with that, to help me on this.

Ekaterina Ostrova

Yes. Anna, Katya here. We don't have the exact pricing for the participation in the third multiplex yet, and we expect it to be announced later this year with the tender for the third multiplex. But according to the information we have in the market, the coverage of the third multiplex will only include cities with a population of 50,000 people or more, whereas the coverage of the first and the second multiplex will be covering the whole Russia. Basically, the 0-plus population cities. So effectively, the cost of reaching the 50,000-plus cities definitely is much less than the cost of reaching the whole Russia. And the infrastructure that has to be built for that is definitely much less difficult than the infrastructure for the first 2 multiplexes. So that is the reason for the difference in the costs.

Yuliana Slashcheva

And for us to think about it and -- like not making decisions, like, quickly about if we need to pitch for the place in the second or not.

Nikolay Surikov

Okay. Speaking of the second question about our revenue guidance for the second half of the year. We believe that the growth in sellout for Domashny and Peretz and the growth of -- in target audience share of CTC will help us to outperform the market. Why we are so, like, confident in this is because, for speaking about CTC channel, we have several very promising premieres coming in the fall season: as we talked about already, Molodezhka, the Last of the Mohicans and also continuations of our successful series, like Voronini, Kitchen and The 80's. We believe that these are the top hits of the season for CTC and for the whole television market. That's why we are quite confident that CTC will perform well. And for Domashny and Peretz, our main focus, as I talked about, will be mostly on sellout. So this is our task for our sales guys to welcome it and to help to grow the total revenue of the group.

Anna Lepetukhina - Sberbank Investment Research

Sorry, but can I just ask a follow-up about Peretz? But in the second quarter, growth of the Peretz channel was just 6%. And as far as I understand, you couldn't increase revenues by increasing sellouts for Peretz. You could do it for Domashny, but not for Peretz. And its volume share keeps going down.

Nikolay Surikov

Now if you look on the first 6 months results of Peretz, the growth from revenue was 15%. This means that it was above the market. Plus not only sellouts, I need to add that we also are awaiting results of the 10 new premieres that will come in fall season in Peretz. So we also are quite confident that these premieres will be successful. So this will also help us to grow our revenue from Peretz.

Operator

Your next question comes from the line of Anastasia Obukhova from VTB Capital.

Anastasia Obukhova - VTB Capital, Research Division

It's Anastasia Obukhova calling from VTB Capital, Moscow, Russia. I have a few questions, if I may. To Yuliana, did you manage to look at the long-term strategic plan rumored by the media? And potentially, the company usually comes up, like, by the time of the Board of Director. And what do you like there, and what you would disagree with the kind of key issue, key points of this plan? Also, what are the -- in your view, as a marketing specialist and PR specialist, what are the key problems of CTC Media, overseen by the market, from your point of view as a marketing, PR? And especially, I think, you accepted this role to benefit from your extensive expertise in this field. And also, could you please elaborate more on Internet strategy? I didn't get a thing. Is it revenue sharing, or how are we going to monetize it? Because for 2 years, we have been hearing on this digitalization of the company. And it was a lot of noise, a lot of publicity, but the monetization result is very -- was very modest. And also, given that -- this is the fourth question. Given this is not really kind of maybe successful trend when the person from non-IT, Internet media joins the company, like looking at the Ramalan [ph] experience or Google experience, do you -- could you could just name such, like, maybe great examples when the person from kind of non-related area but with a very extensive experience in other fields who are, in the globally or in Russia, becomes a head of the company? And can it bring out to any level? If there is no such examples, like, in your mind, could you please maybe name a few persons you would love to follow model in managing the media company?

Yuliana Slashcheva

Okay, Anastasia, a lot of questions. So I will try to take them one by one. Do you mind if I start from the last one about the examples? I can give you the very close example, which is very well known at the Russian market: Alexander Izosimov, who moved from the Mars, the Swiss company, to VimpelCom to rule the big telecom and retail operator and make it the leading company on the market, also being the American public company, managing it with a very open mind -- in a very open-minded way, getting together a very talented team. That's the Russian example. There is another good example, the guy named Adam Crozier who ran Saatchi & Saatchi advertising agency in London then became the head of the Football Association of Great Britain before becoming CEO of the Royal Mail, CEO, and then the CEO of ITV, the UK's leading commercial broadcaster. And this guy is coming from my industry. And Saatchi & Saatchi is the company, the type Mikhailov & Partners always was. I would say we were even doing more than Saatchi & Saatchi because their segment was more narrow than the one in Mikhailov & Partners. So that's the last one. Now about the strategic plan, the first question you asked. I did have an opportunity to get acquainted with the strategic approaches and the plans of the top managers towards the development of each of their divisions. There are several, about 10 to 15 strategic holders, I would say, in the company, people who are working on the big face of their strategy and who are making the strategic plans of their own divisions. I can't disclose any information from those plans yet because, as I said, they are in the process of being created at the moment. They do need to take some more discussions, and I want to participate in the most strategic sessions with all of those people. However, I can tell you that I was very impressed by the quality of their approach to these strategic plans, which I reviewed already, and the quality of the top managers by themselves, of how well they understand the market where they are operating, how well they understand the problems and trends of this market and how well they do see the possibilities and points of growth. As I said, as soon as we'll be ready, we will make these strategic plans public to an extent which we are allowed to do it by the regulators. On the key problems, as the person from being outside, my view on the key problems of CTC Media, I would say that -- as a professional, I would say that marketing of the products and channels and the people who are doing CTC as the brand is one of the problems, and I do plan to enhance the marketing. I also think that the company, being, of course, a public company, being very much regulated inside and outside and having very, very solid and very strict business processes inside, maybe lacks some creativity. There were no really bright, creative people who have joined the company within the last couple of years. At least, I don't know of any, and my first initial conversations inside the company proved my assumption. So that's what I do think that the company needs. It needs some additional creative blood to come into the company, more open and creative approaches to products and programming and maybe some new ideas also coming from the close peers like digital, like Internet. That is why we do plan to attract not just creative producers from TV, but also creative people from the Internet. That's what I do plan to develop, and that's where I do think we can make some serious development. There is a the third thing, which is very important. The company, at the moment, lacks diversification and synergy at the same time. I think that diversifying the business, going to another platforms, going digital in the Internet, going to Smart TV, going online and offline in the other possible devices, the company needs a very serious synergy and complementary approach in between the channels, from the point of view of the content, from the point of view of creative people who are sharing -- who will share their ideas in between. That's another issue I plan to focus on. But overall, the company -- I need to say that the company is in a very good shape, and that's what I was seeing from outside. As I already said in the beginning, very strong team, very strong brand, one of the most wanted brands from the point of view of the client because I was, you can say, on the client side for TV before. So they're one of the most wanted brands and, generally, very well managed. Financial performance, it is very good, and strong profitability, which is obvious to you as well. The last one, about digitalization. The question about digitalization is probably the hardest one for me at the moment because of such a small timing of my

[Audio Gap]

Yuliana Slashcheva

We are very sorry we broke down. As far as I understand, out of Anastasia's 4 questions, you've heard some answers for 3. The online strategy is the one that you were not hearing, right? Okay.

Okay, then I'll go back to the online strategy. And I was saying that probably, the last question about the online strategy is the hardest for me to answer at the moment because of such a short experience which I'm in the company. As I already said, digital, the online strategy, the approaches to the strategy and the ways how the company could be developing in this area were prepared inside the company. And I already had a review of that with the top managers. However, that's where I want to give my own input because I did have experience in building up and developing Internet projects for the clients. So I do understand the sector pretty well, and I would like to spend more time with the people inside who are working the online strategy before I'll be able to talk more precisely about that. I was also speaking before about the plans to attract a couple of really bright, professional people from the Internet inside the company to enhance this division and to help us to work -- to continue working and to finalize this online strategy and our approaches to being on the Internet, on Smart TV and on all kinds of devices. That's the one of the priority issues for me. But to answer your question, why the company didn't boost its revenues from this sector before, I unfortunately can't answer because I need some time to investigate and analyze that issue.

Operator

You have another question that comes from the line of Nick Robinson from Renaissance Capital.

Nick Robinson - Renaissance Capital, Research Division

Just one question. On the CTC Channel, obviously, very strong performance in terms of year-on-year improvement in audience share. But that seems to have not translated so well to outperformance in terms of revenues, only 1% ahead of the market. You mentioned in the notes that this is down to a decrease in the overall viewership among 10 to 45 year olds. Is that something -- is that a one-off for the quarter, or is that a trend? And if so, how does that impact expectations around the channel's revenue numbers for the second half of the year?

Nikolay Surikov

Thank you very much for your question. The main reason for not transforming the growth in audience share into the revenue growth was, as we told before, decrease in total viewership for the channel. So as of now, actually, we asked our researchers to invest more time into this issue and to understand whether this is the continuing thing or it's only one-off for the second quarter. So as of now, we really don't think -- we don't have information that it will continue in the future. But in the last year, the viewership was up 8% actually for...

Yuliana Slashcheva

In 2012.

Nikolay Surikov

In 2012, yes, it was plus 8%, so...

Yuliana Slashcheva

However, this year it decreased. The viewership decreased 5% totally in the audience which we are mostly interested in, 10-45. And this audience...

Nikolay Surikov

In the second quarter for CTC. So you see that we have, like, controversial trends, and we will see further in the third quarter what will happen.

Operator

There are no further questions at this time. Please continue.

Nikolay Surikov

Okay, thank you, all. To summarize, I would like to highlight the following for you. We are very pleased with the performance of our spring season premieres for our flagship CTC Channel, and we also have a strong content pipeline for the fall season. Russian TV advertising market is expected to grow by up to 10% in ruble terms, but macro indicators are unclear at this time. We also have approximately 95% of our national advertising inventory contracted for the year and expect our Russian television advertising revenues to grow in line with the market.

Our programming expenses growth is weighted to the first half of 2013, with content costs as a proportion of revenue expected to be stable for the full year. We therefore expect our group OIBDA margin to be stable year-on-year at around 32%. We also reconfirm our intention to pay higher year-on-year dividend to our shareholders this year, with the next payment due at the end of September.

Yuliana Slashcheva

Thank you, Nikolay. And from my perspective, I wanted to say that I'm really glad to be here and to have had this opportunity to talk to you today. The company is in good shape, operationally and financially, and we have set a clear development path. But we need to accelerate our development now, and that is my clear focus and my clear priority. Thank you very much for joining us in today's call, and we look forward to meeting you. I personally look forward to meeting you over the coming weeks and months in person. Goodbye, and thank you again.

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