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Press releases | Archive 2008

RBC achieves strong revenue growth of 45% and strengthens its position on Russian advertising market in 2007

Business highlights

  • Total media revenue grows 45% to $193m
  • RBC successfully completes the spin-off of the IT business and becomes a pure media play, offering exceptional exposure to the Internet, TV and print media segments in Russia
  • RBC makes heavy investments in the mass market Internet segment to capitalize on the fast growth of the Russian online audience
  • RBC's total Internet audience surges 112% to 29.7mln unique users per month
  • RBC TV significantly increases its audience in Russia, and in Moscow in particular (up 89%)
  • RBC strengthens its position in the print media segment, delivering 175% revenue growth
  • High quality of RBC's products and strong demand for advertising drive ad prices up 20-30% on average for the majority of the company's media
  • RBC successfully places 20.74mln shares and raises $187m in December to finance further media acquisitions
  • RBC is assigned 'B+' long-term credit rating with stable outlook by S&P

Key consolidated figures for the full year 20071

USD mln 20072 20063 % Change
Revenue 193 133 45%
EBITDA from core business (pre-expansion costs)4 58 46 26%
Consolidated EBITDA (post-expansion costs) 24-26 46 (43-48%)

Moscow, February 19, 2008 - Today, RBC Information Systems (RTS, MICEX: RBCI) released its preliminary financial results for the full year 2007.

"RBC achieved excellent results in 2007, which was a pivotal year for the company. First of all, we successfully divested the IT business, which is now a separately listed company called Armada, with a very strong management team, broad product portfolio and aggressive growth strategy. Secondly, in response to the rapid growth of the general Internet audience in Russia, RBC significantly expanded its position in the consumer Internet segment through a number of acquisitions and start-up projects. As a result, our monthly Internet audience more than doubled and reached 29.7mln people in 2007. Moreover, non-business Internet sites contributed a total of $7m to the company's revenue in 2007, although our primary task for the year was to build a large general audience. Incurred expansion costs temporarily squeezed RBC's profitability last year, but we are confident that the investments we have made will enable us to achieve meaningful revenue streams from the general interest Internet and capture a sizable market share going forward", commented RBC Chairman and CEO German Kaplun.

"In addition, RBC increased its presence in the print media and television segments. Our business titles and interior & design publications demonstrated very strong revenue growth. Moreover, we further diversified our portfolio of niche titles and entered into partnership agreements with prominent foreign magazines, for example, The Economist. In 2007, RBC TV made a significant step forward with the expansion of its coverage and audience in Russia, and in Moscow in particular.

On the whole, I am confident that RBC is exceptionally well positioned to benefit from the current favorable trends on the Russian advertising market. In 2008, we will continue to execute on our strategy, and plan to make a string of value-accretive acquisitions, primarily in the Internet and television fields", German Kaplun added.

The company exceeded its initial sales target for the year, reporting $193m in revenue compared with the initially projected range of $170-180m. RBC's total revenue advanced 45%, up from $133m in 2006 on the back of dynamic expansion of advertising sales and contributions from acquisitions in the print media and Internet segments. The company's top-line growth was also bolstered by strong advertising spending in Russia. RBC gained a larger market share, outpacing the total media market growth5 in Russia last year. In the total revenue mix, Media Services accounted for 55% of the total RBC revenue, Print Publications contributed 23% and RBC TV brought in the remaining 22%.

EBITDA and Net Profit
In 2007, RBC embarked on a strategy of expansion and investment in the consumer Internet segment in Russia, which was approved by the Board of Directors at the beginning of the year. Additionally, the company increased its footprint in the print media segment and continued to enhance coverage of its business television station.

The company invested approximately $145m in various acquisitions and start-up projects in 2007. This figure consists of (1) amounts spent on acquisitions and start-up projects in the consumer Internet segment, (2) investments made in the RBC Daily project, (3) money spent on the acquisition of a regional broadcasting station and three print media titles, (4) and a one-off payment to Mostelecom for the distribution of RBC TV's signal in Moscow.

Of the $145m spent, about 77% are expected to be capitalized and the remaining 23% are expected to be expensed in 2007. Expansion costs, which temporarily affected RBC's profitability in 2007, mainly consist of advertising and labor costs associated with the launch of start-up Internet projects and, to a smaller effect, expenses related to the development of RBC Daily.

RBC's EBITDA from the core business (i.e. pre-expansion costs) reached $58m in 2007. At a consolidated level (i.e. post-expansion costs), RBC's EBITDA amounted to between $24-26m in 2007.

In terms of consolidated net profit, RBC delivered performance, which was close to break-even in 2007. RBC management expects that further development of the consumer Internet segment will have a neutral effect on the company's consolidated EBITDA in 2008, which is forecasted to increase to $75-85m.

Full year revenue breakdown6

USD mln 2007 2006 % Change
Media Services 107 82 30%
  - Internet advertising & services 94 57 65%
  - Other7 13 25 (48%)
RBC TV 42 35 20%
Print Publications 44 16 175%
Total revenue 193 133 45%

Media Services. Revenue from Media Services advanced 30% from $82m in 2006 to $107m in the year under review, primarily due to strong sales in Internet advertising, which was backed by creation of new advertising spots, price increases in April and September and contributions from acquisitions in the consumer Internet segment.

Revenue from Internet advertising & services surged 65% to $94m in 2007 as compared to $57m in 2006. Of that amount, $88m came from Internet advertising, which represents a 70% increase in 2007. The achieved growth is in line with the general expansion of the Russian online spot market8 . Utilization of advertising capacities on RBC's business-related web sites remained close to 100% on the back of very high demand from customers, which prompted a rise in online advertising rates in April and September 2007 for a total of 25-30%, depending on the web site.

In 2007, RBC made around twenty acquisitions in the area of mass market Internet services as well as developed new web properties for both business and general audiences. Overall, RBC spent approximately $105m in the general interest Internet, with around 78% of this amount spent on acquisitions. The spheres of the company's interest include such online media as dating services, online gaming and entertainment sites, web hosting services, blogs, social networks, photo and video sharing services, Internet payment systems, contextual advertising networks, and digital content services.

The most significant projects implemented in 2007 include an acquisition of Loveplanet.ru, the second largest dating service in Russia. The portal's audience soared 315% to 8.3mln unique visitors per month since the acquisition, while sales increased 5 times in December 2007 from the year ago level. Additionally, RBC consolidated seven web-hosting companies, which made the company a number one player in this niche with a 25% market share. The company registered over 250,000 domain names in the .RU zone, which represents a 21% market share. Among other major projects is the launch of the Smotri.com video sharing website, which is currently the leading Russian portal in this field with the audience of approximately 5mln unique visitors per month. Lately RBC has begun using the 'in-video' advertising format by showing five-second pre-roll ads in some videos. At the end of 2007, RBC announced that it had entered the booming contextual advertising segment through the acquisition of a contextual advertising network. All new RBC's Internet sites and services contributed $7m to the total revenue of the company in 2007.

RBC finished the year with the total Internet audience of its sites consisting of about 29.7mln unique visitors per month, which is a 112% increase compared to 14mln monthly users in 2006. The growth came mostly from non-business Internet resources acquired and launched by RBC during 2007. RBC is moving significantly ahead of its initial plan to build a monthly Internet audience of 50 million users by 2010.

Other. This revenue item, which mainly consists of marketing communications revenue, reached $13m in 2007. This is in line with the company's strategy of focusing on selling advertising capacities on its own web properties, rather than acting as the agent for third-party websites. Business conferences and contests continued to bring healthy revenue streams. For example, RBC organized two business conferences in the Netherlands and Japan, and held six national awards, including the Finansoviy Olymp national business contest, which was acquired in the period under review.

The total number of RBC's advertising clients on the Internet, in TV and print exceeded 3,500 in 2007. As in previous years, the company's own strong sales force brought the majority of RBC's advertising revenue. At the same time, RBC continued cooperation with many large advertising agencies on a non-exclusive basis.

RBC TV's revenue went up 20% from $35m in 2006 to $42m in 2007 largely due to the continuing dynamic audience growth across Russia, increase in advertising prices and capacity utilization.

According to an independent research conducted by COMCON-Media in November 2007, RBC TV's audience in Russia increased 39% from levels reached in November 2006, getting to12mln viewers per month. The weekly audience rose 34% to 8.9mln people, and the daily audience surged 68% to 4.6mln. The main growth driver for RBC TV is expansion of its audience in Moscow, which, according to COMCON-Media, advanced 89% in 2007. Such strong growth in the capital city became possible due to the cooperation with Mostelecom, the owner of the leading cable network in Moscow. RBC management intends to further expand the channel's penetration in Moscow, and expects it to reach about 85% by the end of 2008.

RBC TV's audience expansion enabled RBC to increase capacity utilization of advertising time to 50% on average, and raise advertising rates on the channel by 25%.

Under its regional business expansion program, RBC launched a regional broadcasting studio in St. Petersburg in order to start adding local content to the programming schedule in North West Russia. According to the management, this step is expected to have a positive effect on the channel's viewership statistics in the region and increase the volume of advertising sales.

In 2008, RBC is planning to acquire a number of regional broadcasting stations in order to enhance penetration and audience share in the major Russian cities, which will give the RBC TV channel a higher ability to increase ad rates. If television market trends in Russia remain strongly positive, RBC TV will consider a new upward adjustment of advertising rates in summer 2008.

Print Publications. Revenue from Print Publications soared 175% to $44m in 2007 as compared to $16m in 2006. This growth was driven by the consolidation of full-year results of EDI S PRESS Holding, the leading Russian publisher in the architecture & design segment, which was acquired by RBC in the middle of 2006. The top-line growth was also bolstered by strong performance of RBC's business titles.

During 2007, RBC magazine and RBC Daily newspaper achieved very strong audience growth results. According to TNS Gallup Media, the average issue readership (AIR) of the RBC Daily business newspaper in Moscow reached 90,000 people from May to October 2007, which represents 34% growth against the results of the first survey conducted for the period of December 2006 through February 2007. The average issue readership of the RBC magazine in Moscow went up 28% from 158,300 to 201,900 people during the same period of time.

Strong demand for advertising in RBC's business titles prompted a 20% advertising price increase in April 2007 in the RBC magazine and led to growing ad sales. Owing to these positive developments, RBC magazine reached the break even point last year, while RBC Daily is expected to reach break even by the end of 2008, as per the business plan.

In the period under review, RBC made a number of acquisitions in the fastest growing print media niches and entered into a number of valuable partnership agreements. For example, RBC signed an exclusive agreement to publish content of The Economist weekly in the RBC magazine and on the corporate site www.rbc.ru. RBC's subsidiary, EDI S PRESS Holding, broadened its product portfolio and acquired the Kvartirny Otvet interior design magazine, thus filling the gap in the product line targeting mass audiences. Additionally, it received exclusive rights to publish the prominent Italian architecture, design and art magazine Domus. Among other major RBC's projects in the print media segment in 2007, was acquisition of the Nashi Dengi magazine dedicated to personal finances and the Kvadratny Metr weekly covering real estate news. The management expects that these developments are set to boost the company's advertising sales due to creation of additional advertising places and strong synergy with RBC's other media products, as well as will further strengthen RBC's position in the press. Nevertheless, the longer-term focus of the company will be on the Internet and television.

Outlook for 2008

Total media revenue is estimated to reach about $265-275m. Revenue from Internet advertising & services is expected to expand by approximately 60%. The revenue growth of the Print Publications is estimated at about 35%, while RBC TV is forecasted to deliver roughly 25-30% revenue growth. Consolidated EBITDA is expected to reach $75-85m.

1 All figures do not include discontinued operations (OAO Armada's results). All amounts are translated from RUR to USD at the closing rate of December 31, 2007
2 Financial data for 2007 is based on management accounts in accordance with IFRS
3 Based on financial statements for the year 2006 and management accounts
4 Expansion costs, which temporarily affected RBC's profitability in 2007, mainly consist of advertising and labor costs associated with the launch of start-up Internet projects and, to a smaller effect, expenses related to the development of RBC Daily 5 The Russian media market expanded 34% in 2007, according to the forecast of ZenithOptimedia dated December 2007
6 Based on financial statements for the year 2006 and management accounts
7 "Other" revenue mainly consists of marketing communications
8 Based on the forecast of ZenithOptimedia, December 2007

Cautionary note regarding forward-looking statements

Some of the information in this press release may contain statements of future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions, and involve known and unknown risks and uncertainties. It is possible that the company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm's future results, see "Risk Factors" in the company's latest Annual Report on www.rbcinfosystems.com. RBC assumes no obligation to update any forward-looking information contained in this document.

Press and investor contacts:
Egor Timofeev
Tel: +7 (495) 363-1111
Email: pr@rbc.ru
Web: www.rbcholding.com