Sistema mass media announces financial and operational results for the six months of 2012 ended june 30, 2012

SISTEMA MASS MEDIA ANNOUNCES FINANCIAL AND OPERATIONAL RESULTS FOR THE SIX MONTHS OF 2012 ENDED JUNE 30, 2012

05 September 2012. Moscow, Russia. Sistema Mass Media (hereinafter "SMM" or “the Company”), one of the largest media holdings in Russia, announces its unaudited consolidated financial results in accordance with the US GAAP principles for the first 6 months of 2012 ended June 30, 2012. SMM owns and manages STREAM TV Company ("Stream TV"), Russian World Studios (“RWS”), Maxima Advertising Agency ("Maxima"), and DTV. Besides, SMM jointly with VGTRK is founder of joint venture JSC "Lenfilm XXI".

KEY FINANCIAL HIGHLIGHTS

o  Revenue increased by 16.8% compared to H1 2011 to US$ 56.6 million.

o  OIBDA was up by 62.4% compared to H1 2011 to US$ 24.5 million with OIBDA margin of 43.4%.

o  Net loss reduced 10 times compared to H1 2011 to US$ 0.4 million.

o  The debt decreased 5.6% versus H1 2011 to US$ 84.7 million.

FINANCIAL AND OPERATIONAL SNAPSHOT

o  RWS demonstrated sustainably improving financial performance year-on-year driven by growing sales of TV series. RWS’ revenue went up by 33.0%, OIBDA - by 28.2%.

o  Content library grew by 15.2% to 1,511 hours compared to H1 2011. RWS produced 64 hours and sold 81 hours of in-house content in H1 2012.

o  In the reporting period, Stream TV expanded its subscriber base by 21.8% to 6.8 million. Active sales approach and improved efficiency supported OIBDA growth by 33.3% to US$ 5.7 million and net profit by 68.3% to US$ 3.0 million.

o  SMM’s advertising business demonstrated reduced OIBDA loss to US$ 0.3 million.

Commenting on the Company performance in H1 2012, Peter Gerwe, the President (CEO) of Sistema Mass Media, said:

«When I joined Sistema Mass Media at the end of last year, a key priority was to deliver a turnaround in profitability of the group and build a strong platform for future growth.

In the first six months of 2012 much has been done to achieve that aim. We refined our strategy to focus on content generation and distribution platforms, restructured the group and streamlined our costs while building a stronger management team. In the reporting period SMM has demonstrated 16% revenue growth and 62% increase in OIBDA resulting in a tenfold reduction in net loss. Key factors that led to this were complete optimisation of the studio business that should return to profitability in 2013, and excellent operational growth at Stream TV.

In the first six months we have also focused on building our team. We were fortunate to recruit Vladimir Kharumyan who I worked with as CTC Media's Chief Operating Officer to come over to SMM. We have hired a great general counsel in Kirill Abaryshev from Skadden Arps who has really taken control of our legal department and we have hired some terrific people to run our strategy and development office and oversee all our daughter companies. With this new team, we are now aggressively looking to build a solid profitable company by year end and focus on growth in 2013».

FINANCIAL OVERVIEW*

	1H 2012	1H 2011	Change
Revenue	56.6	48.4	16.8%
OIBDA	24.5	15.1	62.4%
OIBDA margin, %	43.4%	31.2%	+12.2 pp
Net income/(loss)	(0.4)	(6.7)	n/a
Debt	84.7	89.4	(5.6%)

* US$ mln., except for OIBDA margin, unaudited financial statements

The SMM's revenues increased by 16.8% year-on-year to US$ 56.6 million due to revenue growth in RWS following successful sales of TV series especially of expensive short series in demand, expanded Stream TV subscriber base, and increased share of revenue from advertising.

In H1 2012, OIBDA increased by 62.4% to US$ 24.5 million while net loss was significantly reduced to US$ 0.4 million due to optimization programme for SG&A expenses implemented at the end of 2011 in each SMM’s segment. In H1 2012, OIBDA margin amounted to 43.4% compared to 31.2% in H1 2011. SG&A expenses significantly decreased by 24.9% to US$ 12.8 million year-on-year.

Capital expenditure (content production and upgrade) decreased by 8.3% to US$ 15.6 million in the reporting period due to the seasonality of the content production cycle. Operating cash flow remained positive confirming sustainable financial position of the Company.

Debt as of June 30, 2012 decreased by 5.6% to US$ 84.7 million compared to the end of H1 2011 with 95% denominated in rubles and 90% classified as long-term debt.

FINANCIAL OVERVIEW BY BUSINESS SEGMENT*

	Revenue		OIBDA		Net Profit
1H 2012	1H 2011	Change	1H 2012	1H 2011	Change	1H 2012	1H 2011	Change
SММ (MC)	0.6	0.6	0.0%	(4.6)	(7.4)	n/a	(6.7)	(9.4)	n/a
Stream TV	9.4	9.9	(5.3%)	5.7	4.3	33.3%	4.2	2.4	77.9%
RWS	39.0	29.3	33.0%	24.6	19.2	28.2%	2.9	0.9	211.6%
Maxima	7.5	8.3	(10.4%)	(0.3)	(0.4)	n/a	(0.2)	(0.2)	n/a
DTV	0.1	0.3	(64.5%)	(0.7)	(0.4)	n/a	(0.3)	(0.2)	n/a
Lenfilm XXI	-	-	-	(0.2)	(0.2)	n/a	(0.2)	(0.2)	n/a
TOTAL	56.6	48.4	16.8%	24.5	15.1	62.4%	(0.4)	(6.7)	n/a

OPERATIONAL RESULTS BY BUSINESS SEGMENT

	1H 2012	1H 2011	Change
Number of channels (Stream TV)	9	9	0.0%
Subscriber base (Stream TV), mln	6.8	5.6	21.8%
Share of revenue from TV distribution to External subscribers (Stream TV), %	72.0%	76.0%	- 4 p. p.
Share of advertising revenue (Stream TV), %	16.0%	9.0%	+ 7 p. p.
In-house production (RWS), hours	64	102	(37.3%)
Content sold (RWS), hours	81	132	(38.6%)
Library (RWS), hours	1 511	1 312	15.2%
RWS Studios utilization (Moscow)	22.0%	48.0%	- 26 pp
RWS Studios utilization (St. Petersburg)	50.0%	60.0%	- 10 pp
Billing (Maxima),mln $	40.8	41.3	(1.3%)

Television

TV broadcasting business of SMM is run by Stream TV, one of the leading producers of free-to-air (FTA) theme channels in Russia, aggregating TV content and providing state-of-the-art television services.

Stream TV produces 9 in-house channels. In H1 2012, the operators base, broadcasting Stream TV original channels, amounted to 641 operators in 523 cities of Russia.

Stream TV is one of the market leaders by the number of the channel subscribers. The total subscriber base of the original Stream TV channels increased by 21.8% year-on-year in H1 2011 and exceeded 6.8 million households (about 20 million viewers) including 1.3 million in CIS countries as a result of organic growth and successful media activities such as participation in the Big Digit National Digital Multi-channel Television Award, where Hunting & Fishing was recognized as the Best Life Style Channel.

In H1 2012, the Stream TV revenue decreased by 5.3% year-on-year as a result of the lower revenues from MTS as it starts aggregating the channels by itself. However, the effect was offset by the growing subscriber base and revenue from advertising. Share of revenue from advertising was by 7 p. p. and reached 16.0%.

Profitable distribution and advertising segments with active promotion approach and reduction of SG&A expenses supported 33.3% OIBDA growth in H1 2011 resulted in OIBDA margin of 61.1% compared to 43.4% in H1 2011.

TV and Film Production

SMM’s TV and film production is overseen by RWS, top-5 television and film producer in Russia and top-3 of providers of film production services in the country. RWS is actively developing its distribution business, having one of the largest library contents on the market. The company owns two studios – in Moscow and St. Petersburg with the total area of 22,000 square meters. RWS cooperates with the leading Russian and foreign TV channels. The RWS series are broadcasted by Channel 1, Russia, CTC, Ren-TV, 1+1 (Ukraine), Channel 9 (Israel), and many others.

In H1 2012, RWS content library grew by 15.2% YoY to 1,511 hours. In H1 2012, RWS produced 64 hours and sold 81 hours of content. The revenue from one sold hour of content more than doubled in H1 2012 compared to H1 2011 and amounted to US$ 0.44 million per hour.

RWS revenues and OIBDA increased by 33.0% and 28.2%, respectively, in the reporting period year-on-year as a result of successful sales of TV series especially of expensive short series in demand while SG&A expenses were reduced by 25.5% to US$ 4.1 million.

Advertising

Advertising business of SMM is developed by Maxima, one of the largest full service advertising agencies providing media buying and selling services for a number of Sistema’s companies and external clients. The company is a leader in radio advertising buying in the Russian regions and is a top-3 outdoor advertising buyer in Russia. The company has an extensive regional network of its own agencies and partners in Russia, Ukraine, and Kazakhstan.

Maxima’s revenue decreased by 10.4% in H1 2012 year-on-year due to decreased sales in Ukraine, however OIBDA loss was reduced to US$ 0.3 million, following SG&A optimization by 22.3% to US$ 0.8 million.

Maxima’s key customers are the MTS, Detsky Mir, ROSNO, Gazprombank, Trust, Renault, Forbes, Binbank, Axel Springer, Solnechnie Produkty, etc. In H1 2012, the company won the VTB 24 Bank media tender, and outdoor advertising pitches of MTS, Starik Khottabich, TNT. Maxima is also managing all media resources of Lifan Motors.

KEY EVENTS OF THE REPORTING PERIOD AND AFTER

o  In the first half of 2012, SMM made some important appointments aimed at improving the efficiency of management.

-  Mr. V. Kharumyan, former CTC Media's Chief Operating Officer, was appointed First Vice President and Managing Director of SMM.

-  Mr. K. Abaryshev, former general counsel at Skadden, Arps, Slate, Meagher & Flom LLP, was appointed Vice President for legal affairs.

OUTLOOK TILL THE END OF 2012

Today SMM is a media holding company operating in three strategic market segments: television, content production, and advertising services.

Till the end of 2012, SMM will stay focused on development across all segments fueling this with active organic growth of its own businesses and M&A/integration with Sistema’s new content businesses.

In the television sector, the Company’s goal is to continue extending subscriber base of its FTA channels both in the internal and external networks.

Developing its film and TV production business, SMM will sustainably drive production volumes and multi-platform distribution, increasing its secondary sales with the rights being released throughout the year.

In advertising, SMM will actively participate in tenders, get size and scale, and develop Sales House, leveraging the relevant selling capabilities.

***

Additional information:
SMM	Sistema JSFC
First Vice President	Investor Relations
Alexey Pushmin	Evgeny Chuikov
Tel: + 7 (4	Tel.: +7 (4
*****@***ru	*****@***ru

JSC “Sistema Mass-Media” (SMM) — is one of the Russia’s largest media holdings that holds leading positions in three strategic market segments: off-the-air television, production/distribution of TV and film content and provision of advertisement services. SMM owns CJSC “STREAM Television Company”, CJSC “Russian World Studios”, JSC “Maxima advertising” and LLC “Digital TV Broadcasting”. Media holding was founded in 1998 and in 2002 became a part of JSFC “Sistema”.

Some of the statements provided in this presentation might include estimations and assumptions in regards to the future events of JSC “Sistema Mass-Media” and JSFC Sistema. Such estimations or assumptions may include the words “expected”, “evaluated”, “intend”, “will be/shall be”, “might be”, as well as other similar words and their negative forms. We would like to inform you that all of such statements must be only considered as assumptions and estimations of the described events, however, the actual situation regarding those assumptions and estimations might be significantly different. It was not intended in this document to reformulate such statements in order to reflect the actual situation and events, which might arise after the stated date, and it also was not intended to reflect or describe the events, that might come but are not expected at the present moment. Because of many factors, the real operating results of JSC “Sistema Mass-Media” and JSFC Sistema might be significantly different from those stated right now in the documents, expressing our expectations and prognoses; such factors may include the changes in the economic conditions, changes in the competitive environment of our economic sector, risks that we might take in connection to operating in Russian Federation, dynamic technological and market changes of our economic sector, as well as many other risks, directly connected to JSC “Sistema Mass-Media”, JSFC Sistema and their business activities.