CTC Media, Inc. Q1 2008 Earnings Call Transcript

| About: CTC Media, (CTCM)


Quarter Year Q1 2008 Earnings Call

April 29, 2008 9:00 a.m. EST


Alexander Rodnyansky - CEO

Boris Podolsky - CFO

Vladimir Khanumyan - COO


Sohail Ahmer - Lusight Research

Julia Gordeyeva - Ing

Ben Mogil - Thomas Weisel Partners

William Kirby - Novesti Capital

Alexander Wisch - S&P Equity Research

Anna Kurbatova - Unicredit Aton

David Ferguson - Renaissance Capital


Good day ladies and gentlemen, and welcome to CTC Media’s First Quarter 2008 conference call. At this time all participants are on a listen only mode. We will be conducting a question and answer session toward the end of the conference. This conference call is being webcast and an audio version of the call will be available on the company’s website for two weeks.

As a reminder, this conference is being recorded for replay purposes. You should all have received CTC Media’s fourth quarter earnings release that was issued today. If you have not received the release, please visit the company’s website at www.ctcmedia.ru. Please refer to the earnings release for reconciliation of non-GAAP measures to the most comparable GAAP measures.

Before we begin today's call, CTC Media would like to remind everyone that this conference call may contain certain forward-looking statements relating to future events, future financial performance, strategies, expectations, competitive environments, regulations and availability of resources.  Such forward-looking statements are based upon current expectations that involve risks and uncertainties.

Actual results may differ materially from those stated in any forward-looking statements, based on a number of factors and other risks which are more specifically identified in CTC Media's filings with the SEC.  And now I will like to turn the call over to Mr. Alexander Rodnyansky, Chief Executive Officer of CTC Media. Please go ahead, sir. 

Alexander Rodnyansky

Thank you Operator. Good day everyone and welcome to the CTC Media First Quarter Earnings conference call. I’m joined here by Boris Podolsky our Chief Financial Officer, and Vladimir Khanumyan our Chief Operating Officer.

In the first quarter of 2008 CTC Media continues to achieve solid financial growth, and has certainly taken advantage of Russia’s robusted market by making continuous tries in the execution of our growth strategy. For the first quarter of 2008, we posted the year over year earnings growth of 31.3% or if that increase 24.7% year over year to 55.2 million. And that income grew 48.3% to 41.7 million over the first quarter of 2007.

In March, CTC announced the definitive agreement to acquire DTV Group from MTG AB for a total cash consideration of approximately 395 million and completed the acquisition on April 16th. We have made an initial cash payment of 190 million and expect to make the final payment by the end of the second quarter after securing financing.

The acquisition of DTV Group’s national [inaudible] television network and the group of 28 owned and operated stations in Russia will allow CTC to further capitalize on Russia’s booming advertising markets while giving [inaudible] to our broadcasting capabilities and audience reach.

DTV’s primarily male audience aligns itself nicely with our established CTC [inaudible] brands. That attract young and dynamic audiences. DTV reaches currently around 54% of the urban households and our near term goal is to reach approximately 70%, which is where Domashny our second network is now.

In addition, it permits CTC to enhance advertiser value by offering a multi-channel package that captures audiences in various demographics across Russia. We believe our core strength in the developing reach viewer content, maintaining loyal audiences across our stations and building efficient programming structures make the integration of DTV into the CTC family valuable and accretive in the near to mid term.

We’re going to be working to relaunch the new DTV in the fall to take advantage of the traditionally strong fall viewing period. At the end of March CTC [inaudible] casting on channel 31 group in Kazakhstan with a programming schedule consisting of CTC’s content, approximately 60% the first time as well as local Kazakhstan programming and foreign [inaudible] specifically for channel 31.

CTC’s proven format has driven initial ratings up to almost 10% in April of 2008 from 7% in 2007. The channel currently broadcasts several CTC most popular sitcoms such as My First Nanny, and Daddy’s Girls, as well as CTC’s original hit series Cadets.

A number of well established and newly launched CTC shows will also air on Channel 31 including The Brainiest, Good Jokes, and Just Kidding me with a significant amount of the air time devoted to programming in the Kazakh language.

The combination of both CTC’s proven Russian language programming and local productions permits us to enhance the channels appeal to both viewers and advertisers alike. In April, we began commercial broadcasting of CTC’s Uzbekistan. And it is off to a good start with all proven of well-know CTC formats that are yet new for the viewers such as Cadets, My First Nanny, Mothers and Daughters, and Story in Detail [ph]. While the Uzbek television advertising market is in it’s infancy, we believe the long-term growth opportunity in Uzbek is highly attractive. With our early more advantage programming and regional expertise, we will remain in a unique position to how it is shaped and developed the Uzbek TV landscape.

We also recently announced we have extended our relationship with the Walt Disney Company with a multi-year licensing agreement. This agreement highlights our commitment to providing our viewers with the best entertainment programming and will be a terrific compliment to our local productions.

CTC viewers will enjoy a wide range of features, live action series, animated series and made for TV movies by the Walt Disney Company. Under the agreement CTC will broadcast Disney content from 2:00 p.m. to 4:00 p.m. in this time slot within key animated series block with such shows as Aladdin, The Little Mermaid, Duck Tales, Chip and Dale Rescue Rangers, and Kim Possible.

Finally, the Russian and Kiev markets continue to see robust advertising growth and they benefited from the strong economic growth and consumer confidence. Industry forecast for the growth of the Russian TV advertising market in 2008 remains in the 25% to 30% range. And CTC is well positioned to deliver premium programming and the sought after viewers’ local and national advertisers are looking to reach.

Turning to the performance of our CTC Network in the first quarter, our audience share was in line with the fourth quarter and marginally impacted by the historically softer viewer shift period around the holidays in January. The CTC Network will list an audience share of 8.8% in the quarter, down from 8.9 in the fourth quarter, and 9.3 in the first quarter of 2007.

At the same time, in our target 6 to 54 age demographic, we delivered 11.4% audience share in the quarter, just one percentage point down from 11.5% in the first quarter of 2007. Once again, highlighting our ability to deliver premium viewers to our advertisers and demonstrate in CTCs increasing [inaudible] level.

Our spring schedule, which launched in late February and early March, featured several successful shows including a new season of Daddy’s Girls, our most successful Russian sitcom, [inaudible] drama series staring the principal actress from Boy Look Pretty and [ph], a series about school girls and the Cadet’s Pelov [ph], which all performed well in line with our expectations.

Rinesky [ph], produced by one of our newly acquired production studios, Costa Film [ph] was a success with our target with drawing 17.6% target audience share in weekday prime time. And we expect to launch a new season already this fall.

Our efforts to revamp our weekend program schedule remain ongoing. And we hope to more efficiently tailor our strategy to better [inaudible] both our viewers and advertisers needs. In April we launched a new APM [ph] a weekday drama series about medical students, which is called in Russia Yaldipshu [ph] or I Cure [ph]. And we are about to have another premiere in mid-May, a new comedy series called Heartbreakers. It will fall in the 9:00 p.m. weekday slot.

Turning to Domashny, we're extraordinarily proud of its ability to build upon its strong performance and continue to increase its audience share year-over-year. For the first quarter of 2008 the Domashny’s audience share grew to 2.3% compared to 2.0 in the fourth quarter of 2007 and 1.9% during the first quarter of last year.

The Domashny Network audience share is the target demographic share of males age 25 to 60 of 2.9% was up from 2.3% in the first quarter of 2007. The Domashny [inaudible] remains the highest in the industry.

This continuously improving performance of the Domashny network was lead by a strong lineup of Russian and foreign weekday and weekend prime time series as well as Russian day time shows.

We are pleased with the development of the Domashny channel, which viewed as network and stations combined, increase the trend in the year-over-year by over 60% to 18.9 million on the back of strong audience share and market growth.

With regard to our distribution platform, we're always [inaudible] seeking opportunities to expand our reach and bring our quality entertainment programming to new emphasis across our market. This includes the addition of new affiliates and no deliberated stations.

In the first quarter of 2008 we turned our CTC unmanned repeater in Petrozavodsk into an owned and operated station to gain access to the local advertising market. Also in April of 2008 we acquired a 100% interest in CTC Saratov. Our efforts to increase the audience reach remain in the area of four plus specifically for our Domashny, and DTV networks as we seek to maximize their ratings performance.

Now I'd like to turn the call over to Boris Podolsky, our Chief Financial Officer who will cover the financial results.

Boris Podolsky

Thank you, Alexander. I will like now take you through our financial results for the first quarter in more details. Our first quarter results show solid revenue and OIBDA growth. Consolidated first quarter operating revenues increased by 51.3% to $136.7 million as compared to 104.1 million in last year's first quarter. At the same time our advertising revenue in Russia increased by 37.6% year-on-year and amounted to 134.4 million in Q1 2008, up from $97.7 million in Q1 of last year.

Our operating revenue is substantially driven by the sale of national and local advertising, which is priced in rubles. And during Q1 the rubles [inaudible] gained against U.S. dollar creating a positive currency impact which contributed approximately 8% or 8.3 million to our overall revenue growth for the first quarter of 2008.

The CTC Network remains the biggest contributor to our results and accounts for approximately 72% in our consolidated group revenues for Q1. Its first quarter advertising revenues amounted to 96.7 million, a 36.9% increase over Q1 2007, primarily driven by increase in advertising prices partially offset by decrease amount of available inventory.

Some licensing revenue at the CTC network level decreased by 78% to $1.3 million in Q1 2008 from 6 million in Q1 2007, primarily due to the sale of certain Russian miniseries originally commissioned by us, the first channel in Russia in first quarter of 2007.

The Domashny Network first quarter advertising revenues increased to $15.5 million up in press with 81.3% over Q1 2007 when advertising revenues were 8.5 million. The margin growth was impacted by strong ratings that resulted in greater advertising sales at high rate.

Our television station groups first quarter advertising revenues increased 20.6% year-over-year to 22.2 million and contributed to 16.5% to our total advertising revenues in Q1 versus 18.9% in Q1 of 2007.

Beginning March 2008 with completion of acquisition of the interest in Channel 31 group of companies in Kazakhstan, CTC media added an additional business segment the Commonwealth of Independent States group or CIS. In Q1 2008 Channel 31 Group of companies added approximately $700,000 in advertising revenues to the CTC's media group total advertising revenues.

Now turning to our expenses. Total operating expenses during the first quarter of 2008 increased by 27.6% to 83.7 million as compared to 65.6 million in the first quarter of 2007. At the same time operating expenses decreased as a percentage of total operating revenues from 63 to 61%.

The decrease was primarily driven by a decrease of amortization by sub-licensing rights, depreciation and amortization expenses and increase in absolute terms and as a percentage of revenue as well decrease in SG&A expenses as a percentage of revenue. Decreasing SG&A expenses as a percentage of revenue is mainly due to a reduction in stop base compensation expenses and advertising and marketing expenses.

The decrease in depreciation and amortization expenses was principally caused by a change in the way in which we account for our broadcasting licenses. From January 2008 out broadcasting licenses will no longer be amortized by tested for the impairment on an annual basis.

Amortization of programming rights, our most significant expense item, increased by 58.4% to 54.4 million an increase as a percentage of revenue from 33% in Q1 of 2007 to almost 40% in Q1 2008. The increase in amortization of programming rights was primarily driven by increased prices particular for Russian-produced new shows and foreign movies.

We also had an increase in impairment charges from $700,000 in Q1 2007 to 5.1 million in Q1 2008, due to one off charge connected to relative underperformance of the Russian [inaudible] which was launched in the first quarter of 2008.

Net income for the quarter was 41.7million compared to 28.1 million for the three months ended March 31, 2007. At the same time our effective tax rate was 26% in Q1 of this year and 50% for the three months ended March 31, 2007 last year.

Decrease in the effective tax rate in the first quarter 2008 relates to change of [inaudible] or deduction of certain advertising expenses. In previous periods certain advertising expenses were not deducted for profit tax purposes. In the first quarter of this year, based on analysis of legislation, additional documentation as well as core practices and communication with our general auditors, management made a decision to take an additional deduction on certain type of expenses.

The [inaudible] has most noticeable effect on the effective tax rate in Q1 of this year, we currently expect a favorable impact on 2008 annual effective tax rate will be up to one percentage point compared to 2007 levels.

With that I would like to move now to discussion on our working capital and cash flow position. The company remains free cash flow positive with 25.1 million net cash generated for the quarter and we had zero debt at the end of the quarter.

With the closing of [inaudible] DTV acquisition on April 16th, we used $119 million in cash and expect the final payment of approximately $205 million to be paid from the proceeds of commercial debt financing by the end of the second quarter of 2008. On April 3rd we received our first ever credit rating from Standard and Poor's. CTC Media was assigned BD minus long-term credit rating with a stable outlook.

Now, I will like to update you on our 2008 full-year financial guidance. For the full-year ending December 31st, 2008 we expect our Russian business to generate total operating revenue in the range of 600 to 650 million with a consolidated OIBDA margin in the range of 45 to 48%. This is consistent with our previous communication to the market.

Please note that this guidance does not include expected revenues and OIBDA contribution from the original flat wired DTV group. We're currently in the process of the detailed budgeting for the DTV end group and will be able to provide you with more color on expected DTV's expected contribution to our 2000 financial results with our second quarter conference call.

ON the CIS, the company expects combined Khuzestan and Uzbekistan operations to generate approximately 2 to 3% of the CTC Media consolidated revenue for the year and to have a positive contribution to the group OIBDA in absolute terms.

The first quarter was a very exciting time for CTC. We've had quite a few strategic developments. I'm optimistic that the year ahead will continue to reinforce the value we strive to bring to our shareholders. I will now turn the call back over to Alexander. Alexander?

Alexander Rodnyansky

Thank you, Boris. Before Questions and answers let me conclude by saying that we begin 2008 by executing on a number of expansion initiatives, the build up on our network [inaudible] television station brand. We believe that these initiatives bring significant synergies to CTC due to our compelling programming, broadcasting expertise and proven ability to target highly coveted television audiences.

Generating a higher return for our shareholders remains at the forefront of our strategic expansion initiative as we continue to take advantage of the growing TV market in both Russia and the CIS territories. And now I'd like to turn the call over for the questions. Operator?

Question-and-Answer Session


Thank you. (Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Our first call comes from Sohail Ahmer of Lusight Research. Please go ahead.

Sohail Ahmer - Lusight Research

Good afternoon. My question is in regard to the DTV acquisition. I have three questions. First, just to clarify if CTC's buying 100% of DTV? Secondly, I was wondering if you could provide some idea as to what was done net income is for DTV?

And finally, it seems that CTC has made 10 times revenues for DTV whereas CTC itself trades at about six times revenue so I'm wondering isn't this a little bit expensive of an acquisition? And isn't this in some way destroying shareholder value?

Alexander Rodnyansky

Well, thank you for the question. I will try to tackle it. Yes, we do acquire 100% ownership in the DTV group of companies so it's 100% owned and operated by CTC Media effective April 16 from the time we closed this transaction.

In terms of, actually your third question and I'll answer that, the purchase price was [inaudible]. The company's policy is only value acquisitions to the shareholders so although on their one year multiples, as in your question, this may seem excessive, that is not the way we look at this acquisition because obviously we have operated that based on the adjusted multiples so it's not just one year number that is number one.

Number two, if you look at their recent transactions on the Russian market in terms of acquiring various channels by other media companies or groups, financial groups, this transaction actually has the lowest multiples when compared to the percent of all the shares acquired. So in this sense we think that this was a very good transaction for the company particularly taking into account variable robust growth of the Russian advertising market. And we do view this as a value acquisition to the shareholders.

Answering your second question, we have actually made some extensive disclosures on DTV financial performance at the time we have completed a [inaudible] transaction at first and the CTC or DTV for three to five years.

Sorry, the DTV we have been OIBDA over the three to five years. We target to be at the level of 30% and was said on the call earlier we are now in the middle of our budgeting process for this operation so we will be very happy to provide you more color on this in our Q2 conference call.

Boris Podolsky

Let me add as well with the acquisition of the DTV TV, CTC Media has positioned itself extraordinarily well on the Russian market, providing to advertisers the audience complementary to young dynamic audience of CTC and the male audience of Domashny and created quite a unique advertising proposal.

So at the end of the day, we would be able to come out with the unique synergies in terms of sale then average together production programming which would definitely make us look optimistically at the real [inaudible] acquisition at the DTVs purchase.

Sohail Ahmer - Lusight Research

Well actually, do you think you can get some sort of a benefit in terms of advertising rates if you for example have a broader network on which to distribute your advertising? Is that what you're saying?

Alexander Rodnyansky

Right. Actually we think we would definitely be able to negotiate the new advertising for DTV and Domashney trying to band all three our networks together. So speaking, you know, shortly we don't see the difference of GRPs delivered by all our networks.

This is the only difference we can see. This is just the reach of every, any given network. So we are in the position to start the negotiations after we've come out -- we will be able to come up with a budget and new brand I would say, restyled or a launched brand of DTV to the, you know, the advertising world talking to us in regards to what I already said.

Sohail Ahmer - Lusight Research

All right. Just finally would you be able to tell me offhand an example of recent acquisition in the media sector in Russia?

Alexander Rodnyansky

The most well known acquisitions are done by Brotz Media [ph]. That was a network for TV 3 acquired for 550 million, the same 2% of audience share like DTV delivered line in 2007. The two music networks MTV has been acquired by the same company, Brotz Media [ph] for in a total consideration 360 million with 1% of audience share in four plus.

I am trying to provide just four plus just to give you a flavor of [inaudible] of the audience. And MusicTV, another music channel, music network acquired by the group owned by one of the leading Russian entrepreneurs Ali Sherif Manov [ph] in the consideration of 400 million for 1.1% audience share. That's three major acquisitions happened last, let's say 16 months or 18 months in Russia.

Sohail Ahmer - Lusight Research

Thank you.


At this time our next question comes from Julia Gordeyeva of Ing. Please go ahead.

Julia Gordeyeva - Ing

Good afternoon gentlemen. Two questions more technical in nature. I have noticed that you have reported quite high acquisition of programming in [inaudible] rates on your cash flow statement for this quarter, which is about $69 million and accounts for 50% of your current quarterly revenues. I was just hoping to get your comment if this is a one off, if it's a timing issue or if you are now basically forced to pay more now in advance or what's happening there?

And my second question would be on the sustainability of the effective tax rate that you showed this quarter, which was a very good result. Can we extrapolate that into the future or was this a one off? Thanks.

Alexander Rodnyansky

Okay. I will start with the easier question on the effective tax rate thank you for the question. As I know just on my speech, we currently see this as more a one off thing, impacted the Q1 more significantly than it will have impact on full year.

For full year we currently estimate that our effective tax rate will be approximately one percentage point lower than it had been for the full year of 2007. So that is more a one off type of thing for the Q1 effect.

Speaking of the program rights, that relates - the prior cost of the program relates to a couple factors and number one of them I would say is the timing issue because it's, you know, it's a negotiation process and obviously sublicensing as well. So that's first and foremost as a timing issue.

The second, we show the second inflation to that number is inflation in the cost of the programming acquisition rights we actually do keep and continue to experience year-on-year. So those two factors result in the higher numbers you can see.

Julia Gordeyeva - Ing

This means that overall for the year we should be expecting a bit higher programming rights expenditure than, you know, compared to the levels of the first quarter?

Boris Podolsky

You're talking about cash spent or amortization of the programming rights as a percentage of revenues?

Julia Gordeyeva - Ing

I'm talking about, well, amortization since your cash costs are increasing, I mean obviously this will somehow have to translate into amortization down the road.

Boris Podolsky

Okay. Well, in terms of the amortization actually we had a one off charge which I again noticed in my speech. That is related to the right of certain, of two Russian products we saw relatively underperformed in Q1.

So that contributed to the higher effective share of amortization of the programming rights as a percentage of revenues. And in Q1 of last year in general for the year we do not expect any significant increase in the percentage of amortization rights as a percentage of revenue year-on-year.

Julia Gordeyeva - Ing

Okay. All right. Thanks.


Thank you. Our next question comes from Ben Mogil of Thomas Weisel Partners. Please go ahead.

Ben Mogil - Thomas Weisel Partners

Hi guys, good morning. So a couple of questions, first of all on the overall Russian ad market can you give us a sense of what the ad market grew like just in the quarter so we can get a sense of how you outperformed the first of the overall market?

Second question is on DTV. From a modeling perspective should we assume the deal closed as of April 16th or does it still sort of close or are you going to start it July 1st?

And then I think lastly in terms of sort of the competitive M&A environments, do you have a sense of how many FTA networks you think you can own in Russia before there's going to be some regulatory push back? And with the recent deal with, you know, buying out with CETV, buying out the minority partners in Ukraine, is that a market that's of interest to you guys as well? Thanks.

Alexander Rodnyansky

All right. Let me - good morning. Let me tell you so for the advertising market is expected to grow in the year by all the agencies and most importantly is providing this [inaudible] information and the range from 25 to 30%. But we do not have the proper numbers for the first quarter for it.

Let me say of all the DTV acquisition. At the moment we do not have the generally in Russia [inaudible] efforts available economically available, but still we are looking for any opportunities to acquire the, any network which would allow us to come out with the even more attractive advertising proposal to our clients.

We definitely are interested in expansion over the most let's say promising markets of the former [inaudible] in Ukraine, one of the most attractive ones. Definitely we are looking for acquisitions that could be and should be the value added to the company.

Ukraine is quite, not just fast growing market, but also market which demonstrates high level of consolidation. So to put it mildly, this is overheated market so that's why we try to find a way to enter the market exactly like we did with Kazakhstan, finding the proper partner interested with the high level of expertise of CTC Media to demonstrate similar success to CTC success story in Ukraine and to allow us to enter with the cash element of the deal, the value asset to the company which would be taken by the market as an upside.

That's why we are working in the Ukraine and some other countries which demonstrate some previous, you know, pretty attractive growth performance right now, but we would definitely keep you updated once we manage to rate our operations in Kazakhstan and Uzbekistan we are already in a position to do our CS operations in a similar to Kazakhstan successful launch way. Did I forget something.


Thank you. (Operator instruction). Our next question comes from William Kirby [ph] of Novesti Capital [ph]. Please go ahead.

William Kirby - Novesti Capital

Yes, thank you. Just coming back to inflation in cash programming rights, what sort of levels of year-on-year inflation are you seeing and how much of that can you mitigate by making programs in house? Thank you.

Alexander Rodnyansky

All right. Thank you for the question. In terms of the programming rights inflation, first of all there are a couple things have to be mentioned when talking about the subject matter. One is the programming mix. So we actually have a different inflation rates depending on whether the programs we are acquiring are domestically produced or they are projects from the major Hollywood studios. So that's number one.

And we are sort of trying to maintain the mix of those and the Hollywood produced products tend to historically, and we continue to see that have a lower inflation rate so we grow it at a lower rate than Russian-produced content.

In general we see, if you take the mix of the program and we usually don't go into the specifics, into the much details for commercial reasons. You have to understand that. We see about 25% inflation in the mix of programs year-on-year.

William Kirby - Novesti Capital

Okay. Thank you.


Thank you. Our next question comes from Ben Mogil from Thomas Weisel Partners. Please go ahead.

Ben Mogil - Thomas Weisel Partners

Oh, hi. This is a quick follow-up. On the third question which I had before was in terms of the DTV acquisition timing. Are you, from a modeling perspective, should you assume that this starts a the beginning of Q3 or in fact does this sort of start April 16th, so-called the beginning of Q2?

Alexander Rodnyansky

It started the beginning of April 16th.

Ben Mogil - Thomas Weisel Partners

Great. Thank you, very much.


Thank you. Our next question comes from Alexander Wisch from S&P Equity Research. Please go ahead.

Alexander Wisch - S&P Equity Research

Hi gentlemen. A couple of questions. One is the incentive on margins of the DTV acquisition. I was modeling DTV for MPG on the margins and they were able to achieve last year were in single digits. In the first quarter this year they were able to get 18%. What's the effect that you forecast on your margins from the DTV acquisition?

And the other question is regarding the financing of DTV. What sort of banking facility you have in place for the second quarter and what's going to be the impact of that on your debt level? And what sort of debt level are you comfortable with?

Boris Podolsky

Thank you. On your question on the financing of the DTV acquisition, apparently talking to a number of international banks about arranging for the syndicated loan facility and the amount of the facility is going to be up to the $200 million.

Hence we have not signed the mandate letters yet. I am not at the liberty to disclose much more details on that, but we are fairly comfortable that's what we will be able to secure initial financing for this transaction on good market terms and to complete this transaction in June in order., so there’s some financing.

In terms of actual debt level, we currently envision as in debt to ABJ level we'll get about two times. That is our target ratio and that is I think is our outlook on the optimal capital structure at this point.

Now talking on the DTV margins and I understood from your questions that you've been looking this when you modeled the MPG. This is going to be very different case for us because the way DTV was run and operated by MPG is going to be different when it's compared to us.

As Alexander already mentioned we will refocus or I guess channel more target on the different audience. We will have a different or somewhat different approach to the programming as well as the programming costs.

So we will have somewhat diluted effect on us in 2008 as a result of this for the obvious reasons but as I already mentioned, over three to five years our current business plan implies 30% OIBDA margin for this channel.

And again, I will repeat myself, we are in the middle of the budgeting process right now so we will be happy to talk about this in much more detail and provide you more details at our Q2 conference call.

Alexander Wisch - S&P Equity Research

Thank you


Thank you. Our next question comes from Anna Kurbatova of Unicredit Aton. Please go ahead.

Anna Kurbatova - Unicredit Aton

Good afternoon. My question is on the pace of DTV revenue in the first quarter. If you could provide some guidance, what is their gain in growth? Have they achieved the growth rates above of the market or in line with the market or just something? Thank you.

Boris Podolsky

At this point we cannot disclose that information for obvious reasons as the company just changed hands over and we have not exactly agreed with the seller on the type of historical information and the detail on the historical information that can be.

We need to rate it obviously as, you know, as U.S. public company where we have strict reporting requirements and this information will be disclosed in our Q2 financial presentations and results. But at this point we cannot do that.

Anna Kurbatova - Unicredit Aton

Okay. Thank you.


Thank you. Our next question comes from David Ferguson of Renaissance Capital. Please go ahead.

David Ferguson - Renaissance Capital

Yes, good afternoon everyone. I just wanted to go back over the DTV margin one more time. The reason is I remember on the acquisition conference call you did say that you thought you would be able to deliver the 45 to 48% margin with DTV and I just wondered if you were able to confirm or deny that sort of statement? That's the first question.

And then the second question on the revenue, can you just give us a feel about how we should look at [inaudible] revenue over the next 12 months over the course of the year? That's it. Thank you.

Boris Podolsky

Thank you, David. I will answer your first question that 40 to 45% range of margins on DTV as you correctly recalled, we pointed out as a more longer term target for the DTV. We currently see this level of margins achievable five years and onwards. So in the near-term perspective, you know, next three to five years, we are looking at a 50% margin levels as I indicated -

Alexander Rodnyansky

For DTV.

Boris Podolsky

For DTV. So that's your margin questions.

David Ferguson - Renaissance Capital

Sorry, I guess what I was really getting at that was the 45 to 48% guidance for 2008 for CTC Group. If I recall correctly you'd said that in terms of whatever DTV brings this year to the group you thought you'd still be able to deliver within that 45 to 48% range. And so that's what I really just wanted to clarify.

Boris Podolsky

Yes. We do believe that we can maintain the margins to this level.

Alexander Rodnyansky

Yes. That's why we can defend the guidance. David, hi. Your question on sublicensing, as you probably know this is not the major business of CTC Media but mostly we do sell our product to some countries where we don't yet operate. Primarily this is Ukraine.

So on some sales specifically do you, major sale I forgot what year it was, done in Russia when we sell some serious commission by the first channel to this leading network in Russia. So this year it takes some time as Boris already said, we expect some sales to be done in terms of Ukraine and some other Russian networks and we will definitely keep you posted.

This year is going to be a - we are not able probably to provide you the numbers because you understand this is a question of negotiations and pricing policies of CTC. But we expect of course some sort of sublicensing agreement to appear in the close future.

David Ferguson - Renaissance Capital

Okay. That's great, guys. Thanks very much.

Alexander Rodnyansky

Thank you, David.


Thank you. There appears to be no further questions at this time. I would like to turn our phone back to Mr. Rodnyansky for any closing comments.

Alexander Rodnyansky

Well, thank you very much for your attention. We will definitely try to keep you posted of new developments of the company. And we expect the CTC Media to capitalize on the fast growth of the Russian advertising market and thank everybody for joining this call.


Thank you. This concludes today's CTC Media's first quarter 2008 conference call. You may now disconnect and have a great day.

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