Initiation of Coverage of Cable TV Channel a Play on Russia's Rapidly

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MARKETING MATERIAL

RUSSIAN EQUITY RESEARCH: MEDIA

O2 TV BUY

114% INITIATION OF COVERAGE Upside 15 April 2008

S Initiation of coverage of cable TV channel We are initiating coverage of O2 TV channel. Existing shareholders are ready to sell about 25% of the asset, with the channel’s total equity value at USD 40.0mn. Based on our DCF valuation and peer group comparison, we derive a fair value of USD 85.5mn, implying 114% potential upside.

Analyst: Sergey Vasin S A play on Russia’s rapidly growing media market Junior Analyst: Kirill Klokov Russia’s advertising market reached USD 8.6bn in 2007, making it the 6th largest market in +7.495.933.33.16 [email protected] Europe, and up from the 20th in 2000. We believe the market has potential to grow much further given that Russia’s media market was only USD 60.6 per capita in 2007, which Sales: compares to USD 360.6 per capita in the UK and USD 251.9 per capita in Germany. London +44.020.7439.68.81 Moscow +7.495.933.33.02 S TV advertising should remain the main driver of Russian media market Rating BUY

TV accounts for about 49% of the total Russian media market. Despite constant growth in Fair Value, USD 000 85,531 TV advertisement prices, TV remains the cheapest way to advertise in terms of Cost per Current Enterprise Value, USD 000 44,986 Thousand Contacts (CPT). In 2007 CPT on TV equaled USD 2.0 whereas on Radio it was Net debt, USD 000 4,986 USD 6.2. Given Russia’s booming economy we expect the demand for TV advertisements Current Equity Value, USD 000 40,000 to grow, pushing prices up, and the segment to remain the main driver of Russia’s media Number of Shares, 000 1,000 market.

S O2 TV is a play on the growing demand for niche Cost of Equity, % 18,7 channels Cost of Debt (after tax), % 7.2 % of Debt 11.1% TV majors have started to lose their audience shares to smaller channels with specific % of Equity 88.9% content and high focus on customer needs. In 2005-2007 the top 6 Russian channels lost WACC, % 17.4 7ppts to small niche channels such as O2 TV. Niche channels provide customers with

programming for specific interests, which naturally benefits advertisers seeking to reach customer groups with particular interests.

S Different valuation scenarios suggest larger upside potential We perform different valuation scenarios for O2 TV based on assumptions of TV ratings and media inflation. We also carry out a peer group comparison based on recent M&A deals between TV channels across Russia. Our optimistic scenario suggests a fair value of USD 181.2mn compared to the base case scenario valuation of only USD 85.5mn. We note however that we consider the base case more appropriate taking into account O2 TV’s current size and risks associated with the company’s development.

Summary Valuation and Financials

Revenues, USD 000 EBITDA, USD 000 EBITDA margin, % Net Income, USD 000 P/E (x) EV/EBITDA (x) EV/Revenues (x) 2007E 2,792 -833 n/a -1,379 n/a n/a 15.9 2008E 12,230 1,403 11% 820 48.8 31.5 3.6 2009E 25,789 7,050 27% 5,350 7.5 6.3 1.7 2010E 44,953 15,151 34% 11,503 3.5 2.9 1.0

FOR PROFESSIONAL INVESTORS ONLY

This report must be read with the disclaimer, disclosure and analyst certifications on the last page

Table of Contents

Investment case...... 3 Risks ...... 4 Advertising market in Russia ...... 4 O2 TV...... 10 Company network ...... 10 TV advertisements and GRP inventory...... 11 Financial statements ...... 12 Recent results – 2007 RAS ...... 12 Profit and loss account outlook ...... 13 Cash flow and balance sheet ...... 17 Valuation ...... 18 DCF assumptions...... 18 Valuation scenarios ...... 19 Peer group valuation ...... 22 Appendix ...... 24 General industry terms and abbreviations...... 24

15 April 2008

Investment case

We are initiating coverage of O2 TV channel, a 24/7 cable-based channel with content focused on young people aged 15-35. The channel reaches 315 cities and towns across Russia.

Existing shareholders are ready to sell about 25% of the asset. The total equity value of the channel is USD 40.0mn. Our DCF analysis suggests a fair value of USD 85.5mn, implying 114% potential upside.

The company is aiming to become a pan-Russia channel with ratings and coverage comparable with Russia’s top 20 channels. By the end of 2008, the company expects to be included in TNS Gallup Media’s federal panel, which should allow the company to increase the liquidity of its GRP (Gross Rating Point) inventory and, as a result, increase revenues more than 4.5 times in 2008. We note however that this process is incomplete and although we can not guarantee the inclusion of the company, the possibility remains high.1

O2 TV is a direct play on Russia’s booming advertising market. The market grew to USD 8.6bn in 2007 according to the Association of Communication Agencies (AKAR), making it the 6th largest market in Europe and up from the 20th largest in 2000. We expect the market to grow much further given that Russia’s media market was only USD 60.6 per capita in 2007, which compares to USD 360.6 per capita in the UK and USD 251.9 per capita in Germany.

TV accounts for about 49% of the total Russian media market. Despite recent sharp growth in prices, TV remains the cheapest method of advertising in terms of Cost per Thousand Contacts (CPT). In 2007 CPT on TV equaled USD 2.0 whereas on Radio it was USD 6.2. In our opinion TV should remain the main factor in Russia’s media market as given Russia’s booming economy, we expect demand for TV advertising should continue to grow pushing advertising prices up.

TV majors have started to lose their audience shares in favor of small channels with specific content and high focus on customer needs. In 2005-2007 the top 6 Russian channels lost 7ppts to smaller niche channels such as O2 TV. Niche channels provide customers with programming for specific interests and benefit advertisers seeking to reach particular customer groups.

We have carried out different valuation scenarios for O2 TV based on assumptions of TV ratings and media inflation. We have also performed a peer group valuation based on recent M&A deals between TV channels across Russia. The optimistic scenario suggests a fair value of USD 180mn whereas the base case scenario implies only USD 85mn. We note however that we consider the base case as more appropriate taking into account O2 TV’s current size and the risks associated with the company’s development.

1 TNS Gallup Media provides TV channels with measurements of audience shares and thus raises the profile of a TV channel among large advertisers. As a result more advertisers can trust their budgets to TV channels whose audience shares are approved by TNS Gallup Media. In order to be included into TNS Gallup Media’s federal panel O2 TV needs to increase its technical coverage and TV ratings to the levels of the top 20 channels.

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Risks

The company has a very poor level of disclosure of financial results. The 2007 figures were the first to be audited, and in our model we also use management estimates which may not be accurate. Note that we adjust our WACC calculation to reflect these risks.

The company has a very poor balance sheet with a negative book value of USD 3.0mn and a negative net debt/EBITDA ratio of 2.3x in 2007. The company’s debt should be paid off in May 2008. If the company failed to raise some funds soon, it might go bankrupt. However, at the same time the company is looking to carry out a private placement in order to cover these expenses.

We have based our valuation on the capex program suggested by the company’s management. Should the company alter its capex program, this might affect our valuation.

O2 TV’s financials depend on the TV ratings of its programs. If the company were to fail to generate the ratings levels which we have modeled, this might have negative implications on the company’s financials and therefore our valuations.

There is the possibility that other advertising mediums could expand faster than TV, implying that TV channels would lose market share. Nevertheless, we expect that the fast growth rate of the overall advertising market should cover any loss of market share by the TV segment.

Russia’s advertising market, including TV, is subject to state regulation. For example, in 2007 the government restricted the level of advertising time permitted to 12 minutes per hour and then in 2008 reduced it further to 9 minutes. Any future potential changes are an additional risk to our valuation as they could affect pricing and general market developments. Nevertheless, we do not expect to see any further reductions.

Advertising market in Russia

Russia’s advertising market is relatively new and rather small in terms of size when compared to the EU or US markets. However, the Russian market has been showing strong growth in recent years, growing to USD 8.6bn in 2007 making it the 6th largest market in Europe. Going forward, we expect that growth should slow as the market matures from its current “start-up” stage. Nevertheless, AKAR estimates that in terms of advertising market size Russia should move from 14th place in the world in 2007 to 6th place by 2010. Furthermore, Zenith Optimedia, a UK-based media company, forecasts that only a small number of countries, which can be seen in the chart below, should see faster expansion than Western European markets over the period 2007-2010.

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Chart 1: Top 10 fastest-growing advertising markets. 2007-2010E, % growth over the period

180

150

120

0 Kazakhstan Belarus Serbia Egypt Russia Moldova

Source: Zenith Optimedia

Advertising spending per capita and as a percentage of GDP are still relatively low in Russia. We expect the main driver in Russia in the next several years should be strong GDP growth, with GDP per capita approaching the levels of mature economies such as the UK, US and Japan. In our view this should result in an increase in advertising spending. Ofcom estimates that in 2006 Russia’s TV advertising spending per capita was USD 19.0, implying only 0.13% of the country’s 2007 PPP adjusted GDP per capita of USD 14,600. Going forwards, we expect that as Russia’s economy develops, this ratio should move towards the levels of countries such as the UK and Japan which had 2006 ratios of 0.33% and 0.44% respectively.

Chart 2: GDP per capita vs TV advertising spending, 2006

160 Japan

140

120 Italy UK Ireland 100 Spain Canada 80 Germany Sweden Poland 60 France Netherlands 40 Brazil 20 Russia TVadvert spend per capita, USD 0 0 1020304050 GDP per capita, USD '000

Source: CIA Factbook, Ofcom

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The Russian Ministry for Economic Development and Trade (MERT) forecasts growth of real GDP at 6.3% in 2008, 6.2% in 2009 and 6.4% in 2010. If we take into account that the advertising market is still in the early stages of development, we expect the market to outperform real GDP growth over the period 2008-2012 (please see table below for details).

Table 1: Russian advertising market development, 2006-2012E, RUB bn

2006 2007E 2008E 2009E 2010E 2011E 2012E

Total market 176 220 269 321 370 412 445 % growth y-o-y 24% 25% 22% 19% 15% 11% 8% Source: AKAR

AKAR expects the total Russian advertising market to grow from RUB 220bn in 2007 to RUB 445bn by 2012, or at a 15% CAGR over the period. We see no reason why the advertising market should not achieve this level, and might even exceed it, as the Russian market is far from reaching the levels seen in mature economies in Western Europe.

In terms of advert per capita, in 2007 the Russian advertising market generated only USD 60.6, which compares to USD 360.6 in the UK, USD 251.9 in Germany and USD 123.3 in Poland. In our opinion, these figures suggest that the Russian market still has significant growth potential, possibly reaching USD 130 per capita in 2012, according to AKAR estimates.

Booming TV advertising market

The TV advertising market is one of the most attractive in terms of size and growth potential as it is the only medium with nationwide reach. In 2006 the Russian TV advertising market reached RUB 85.9bn, or about 49% of the total market according to AKAR. We note that in Russia TV comprises a larger proportion of the advertising market than in the US (33%) and the UK (32%). At the same time, TV accounts for an even larger proportion of the advertising markets in the Czech Republic (51%), Poland (51%), Mexico (64%) and Brazil (65%). We expect Russia’s TV market to reach 55% of the market by 2014.

Chart 3: Russian advertising market breakdown, 2006

Internet, Others, 2% 1% Outdoor, 18%

TV, 49%

Print, 25%

Radio, 5%

Source: AKAR

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The Russian TV advertising market grew from RUB 14.9bn in 2001 to RUB 85.9bn in 2006, or at a 42% CAGR. Going forwards, we expect growth to slow down to a 17% CAGR over the period 2007-2012 as the market should start to mature. This suggests that our estimates are roughly in line with AKAR’s forecast for the Russian TV advertising market reaching about RUB 245bn by 2012. In contrast, Zenith Optimedia estimates only 2-5% growth in the Western European market over the same period.

Table 2: Russian TV advertising market development, 2006-2012E, RUB bn

2006 2007E 2008E 2009E 2010E 2011E 2012E

TV advert market 85.9 110.0 140.0 170.0 200.0 225.0 245.0 % growth y-o-y 30% 28% 27% 21% 18% 13% 9% % of total market 49% 50% 52% 53% 54% 55% 55% Source: AKAR

As can be seen in tables 1 and 2, the Russian TV advertising market is growing faster than the overall market on the back of a low Cost per Thousand Contacts with the audience (CPT), and media inflation of the TV advertising market due to industry regulation. We discuss these factors in more detail later in the report.

Niche channels gaining audience share

The major source of TV advertisements comes from free-to-air channels. This therefore makes it difficult for new channels to enter the market, and thus provides some protection, at least in theory, of the market shares of existing players. The industry leaders are 6 channels with a combined 71.5% total market share in 2007.

Table 3: Audience shares of top 6 channels, %

First Russia NTV CTC Ren-TV TNT Total

2005 23.0 22.6 11.2 10.3 4.9 6.6 78.6 2006 21.3 19.6 12.8 10.3 4.2 6.0 74.2 2007 21.0 17.0 13.7 8.8 4.3 6.7 71.5 Source: Video International

In spite of the apparent dominance of these 6 channels, we note however, that these channels have lost 7 ppts of their total market share over the period 2005- 2007. If we examine the audience shares of smaller channels over the same period, it appears that viewers are moving towards niche TV channels such as Domashny (Home Channel) which targets female viewers, or the music channel Muz-TV.

Table 4: Audience shares of selected niche channels, % Home Culture Sport Channel DTV TV-3 Muz-TV MTV 7TV Total

2005 2.5 1.8 1.3 1.5 1.9 1.0 1.1 0.3 11.4 2006 2.6 2.5 1.4 1.7 2.3 1.3 1.0 0.3 13.1 2007 2.4 1.9 1.9 1.8 2.2 1.4 1.0 0.2 12.8 Source: Video International

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Niche channels provide advertisers with the opportunity to focus advertising campaigns on specific audiences and, as a result, quite often charge advertisers an extra premium for this service.

The ability of these channels to target its audience can be measured by affinity index. This index shows proportion of targeted audience in total audience of the channel. If index is higher than 100% the channel covers specific audience effectively.

For example, using the affinity index advertisers with products intended for woman aged 18-54 can see that it may be more profitable to use Home Channel, whose index for this group is 119%, rather than First Channel whose index is 99% for the same group.

Chart 4: Affinity index, 2007

119% 111% 110% 105% 104% 99% 98%

67% 64%

18+ Men 18-54 Woman 18-54

Home Channel First Channel DTV

Source: Video International

While for men aged 18-54 DTV shows the highest affinity index of 110%. We note that O2 TV has an affinity index of 234% for men aged 18-35, providing the channel with some competitive advantage over other less focused channels.

Although we expect the continuation of audience shares moving towards small but specific TV channels, we are not suggesting that the market leaders should lose their positions completely. In our view, the majors should continue to produce high quality content and thus large advertisers should continue to work with them.

Media inflation supports prices

Recently introduced new laws have significantly decreased the supply of advertising time available. In 2007 the government restricted the number of TV advertisements permitted to 12 minutes per hour, and then reduced it further at the beginning of 2008 to 9 minutes per hour.

TV channels are paid per Gross Rating Point (GRP) attributable to each 15 second slot of advertising on TV, rather than per minute of advertising. GRP depends on the

15 April 2008

audience shares and viewer ratings of a particular program. More popular programs, with higher audience shares, have higher GRPs and thus generate more revenues for the channel. Thus in this report we analyze GRP inventory and not the number of minutes of advertising.

As a result of the new laws the total GRP inventory of the top 6 channels has fallen from 1,847 in 2005 to 1,630 in 2007, while prices for advertisements have grown by 30% over the period.

Chart 5: Total GRP inventory of top 6 channels vs TV media inflation 2000 350% 300% 1500 250% 200% 1000 150% 500 100% 50% 0 0% 2005 2006 2007 2008 2009

GRP invent ory TV media inflation

Source: Video International

The decrease in TV advertising space has been accompanied by a growth in demand on the back of Russia’s booming economy, resulting in high media inflation. Video International estimates media inflation at 31% in 2007, rising to 53% on average in 2008.

All these factors should benefit TV channels. Although it should be expected that high inflation should compel some advertisers to move away from TV to other media sources, we nevertheless argue that this should not be a very large proportion as TV remains the cheapest way to advertise, if assessed on a CPT basis.

Chart 6: Cost per Thousand Contacts, 2007, USD

16.17

9.75

6.15

TV Radio Newspapers Magazines

Source: Initiative

With a CPT of only USD 2.0 TV is 3 times cheaper than Radio at USD 6.15 and 8

9 | 15 April 2008

times cheaper than magazines at USD 16.17. Although TV can suffer from the issue of a low level of focus on specific audience groups, we note however, that the expansion of small niche channels should address this problem. As a result we expect that there should be some scope for the development of cable TV channels directed at particular audience groups.

We should also add that we are not convinced that the Russian TV advertising market should develop in the same way as in the US, and do not expect to be able to make relevant comparisons between the two markets for some time. For example, in Russia due to the lower standard of living compared to in the US, products which feature heavily in advertising include telecoms, beverages, detergents and beer. Whereas the top 5 categories featured in the US are cars, telecoms, financial services, retail and pharmaceuticals. In our view, it should take some time before the Russian market is comparable to the US in this respect.

O2 TV

O2 TV was launched in 2004 by existing shareholders and the company's managers are the major stakeholders. The company's CEO owns 83%, other top management own 5% and the remaining 12% belongs to Granit Consulting Ltd.

O2 TV is a 24/7 cable-based channel with content aimed at young people aged 15- 35. The channel reaches 315 cities and towns across Russia.

The company has its own production facilities and produces more than 155 hours of its own programming each month. The channel divides its programs into three blocks: info-entertainment, news and music.

In September 2007 TNS Gallup Media started calculating 02 TV’s audience ratings. This allows O2 TV to more accurately analyze its profile and, more importantly, demonstrate to advertisers the link between audience figures and the channel’s prices, i.e. how the channel can be used to target specific customer groups.

According to recent results for the 5 largest cities within O2 TV’s coverage, some 69% of the channel’s audience are young people aged 16-34, 56% of which are male.

The company’s main priority is to be included into federal panel of TNS Gallup Media, as discussed above, in order to be able to increase the liquidity of its GRP inventory and sell-out ratio.

Company network O2 TV distributes its signal via more than 350 cable TV providers across Russia. The channel distributes its content via a partnership network, in the same way as the companies CTC Channel, TNT and RBC TV, which are among the top 20 channels in Russia. In Moscow O2 TV is included in most cable TV provider’s packages including the majors Stream TV Akado and Corbina.

The company also distributes its signal over the satellite TV provider Yamal. Furthermore, in 2008 the company plans to be included into EUTELSAT satellite, which distributes the content of Russia NTV+, one of the major players in pay TV.

The current technical coverage (see appendix for definition) of the channel is about 30mn people, including 3mn in the Moscow region. By the end of 2008 the company plans to increase its technical coverage to 60mn, or about 58% of Russia’s urban population. We might expect some increase in technical coverage in the future, however, in our view we would expect the current planned increase in coverage level would cover almost all of the targeted audience.

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Going forwards, O2 TV may also benefit from the Russian government’s plans to launch 100% digital TV across the country by 2015-2016. The channel might be included in so-called social or base packages of state-funded TV channels, thus increasing O2 TV’s coverage to the 100% level. However, we note this is only a possibility and thus we do not model this scenario in this report.

Table 5: Households covered by O2 TV signal, March 08

Number of Number of cable Households, 000 provider partners

North-West Region 757 42 Volga Region 1,747 68 Far-East Region 543 37 Ural Region 856 24 Southern Region 842 24 Central Region, incl. Moscow 1,765 101 Siberian Region 2,262 43 CIS 174 14 Satellite TV (Tricolor) 1,500 1 Total 10,446 354 Source: Company data

Yamal satellite, which covers Russia, the CIS and part of central Europe is the main distributor of O2 TV’s signal. If O2 TV were to form an agreement with NTV+ and thus get access to EUTELSAT, the company would also have coverage across all of Western Europe, thus potentially reaching Russian-speaking audiences living in this region.

TV advertisements and GRP inventory TV advertisements are the main source of revenues for O2 TV. The company is paid per Gross Rating Point (GRP) attributable to each 15 second slot of advertising. As discussed above, GRP depends on the audience shares and viewer ratings of a particular program, with more popular programs with higher audience shares generating higher GRPs and more revenues for the channel.

Table: 6 GRP Inventory calculation

2008E 2009E 2010E 2011E 2012E

Number of 15 sec slots a year, 000 210.2 210.2 210.2 210.2 210.2 Sell-out ratio, % 13% 18% 23% 28% 33% Av. Annual Rating (TVR), % 0.30% 0.45% 0.60% 0.60% 0.60% Annual GRP inventory, 000 8.2 17.0 29.0 35.3 41.6 Source: IFC Metropol estimates

O2 TV has 3 advertisement blocks per hour, as stipulated by the law introduced in 2007 discussed above. Each 3 minute bock consists of only 2 minutes of advertisements which O2 TV has sold, while the remaining time is allocated to the company’s regional partners who then sell the slots on to other advertisers. O2 TV is not paid for advertisements sold via its regional partners, but uses these slots as a method of payment for the channel’s signal distribution in regional cable networks.

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In total O2 TV is able to generate about 210,240 of 15 second advertising slots a year, although the company does not sell 100% of these slots. By the end of 2008 the company expects to have a 13% sell-out ratio of advertisements meaning that only about 27,331 advertising slots are forecast to be sold over the year. Going forwards the company is looking to increase its sell-out ratio to 33% by 2012, which we consider a conservative estimate given that RBC for example sells 90% of its available slots.

The next step in our model is to calculate GRP inventory. To do this we multiply the total number of 15 second slots available for sale by the average annual TV rating (TVR) of the channel’s programs.

By the end of 2008 we expect O2 TV to see TVR of 0.3%, implying that the company should generate a GRP inventory of about 8,500 in 2008. Going forwards, we model TVR increasing in line with expanding technical coverage.

The company forecasts its long-term TVR rating at 1.3%, which is at the level of channels such as Muz-TV and MTV. However, we prefer to be more conservative in our model and estimate O2 TV’s maximum rating at 0.6%. If our forecasts prove too conservative, and the rating reaches the 1.3% level, this would affect our revenues estimates. As a result, in our valuation section below we have run a separate optimistic scenario which assumes higher TV ratings for the company’s programs.

Production

O2 TV produces its own programs, a proportion of which it sells to other channels, generating about 7% of the company’s revenues. The company does not consider outsourcing as a key source of revenues and uses it merely as add-on to its business. Going forwards we expect the company to continue generating about 4% of total revenues out of its production facilities.

Future projects

The company’s management is also considering acquiring a number of small niche channels across Russia, with the aim of expanding the audience base beyond the male 15-35 group already covered.

Furthermore, the company is considering the purchase a number of Internet sites in order to generate additional growth potential from Internet advertising, another booming market in Russia.

However, due to the lack of specific information and the high level of uncertainty about these company plans, we prefer to ignore them at the current stage and thus do not include them in our model. As soon as more information on these possible projects becomes available, we would review our valuation of the company in a future report.

Financial statements

Recent results – 2007 RAS O2 TV is more of a start-up rather than a well-established company with a long financial history. 2007 was the first year that the company produced audited results according to Russian Accounting Standards (RAS).

The company saw revenues of USD 2.8mn for the full year 2007, with almost 66% generated in the 4Q 07. Full year SG&A expenses were USD 3.6mn in 2007, with 25% of these expenses coming in the 4Q 07.

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The large proportion of revenues generated in the 4Q was the result of the seasonal factor that the majority of advertisers tend to spend most of their budgets in the last quarter of the year. Thus the 4Q is usually strong for media companies.

Table 7: RAS 2007 audited results, USD ‘000

2007 2006 4Q07

Revenues 2,792 266 1,843 COGS 28 0 48 Gross profit 2,764 266 1,795 SG&A 3,557 885 905 Operational profit -793 -620 890 Interest recieved 3 2 1 Interest paid 482 12 118 Other income 17 0 3 Other expenses 123 6 83 Pretax profit -1,379 -635 692 Net profit -1,379 -635 692 Source: Company data

Overall O2 TV saw net losses of USD 1.4mn in 2007. We note the company therefore paid no taxes. Going forwards we expect the company to recover and see net income of USD 0.8mn in 2008.

Note that for the sake of this report we have used the company’s audited results. At the same time we can add that, in accordance with the management’s own accounting, the company has generated about USD 463.6mn of revenues which are not recognised under RAS.

Profit and loss account outlook Revenues breakdown

As discussed above TV advertising is the main source of revenues for O2 TV. In 2008 we expect the company to sell about 8,200 GRP based on assumptions shown in the previous section. By 2012 we expect GRP inventory to reach the 41,600 level.

Table 8: Advertisement revenues calculation, USD 000

2008E 2009E 2010E 2011E 2012E

Annual GRP inventory, 000 8.2 17.0 29.0 35.3 41.6 Av. price per GRP, USD 1,200 1,260 1,323 1,389 1,459 TV advert revenues, USD 000 9,839 21,457 38,384 49,065 60,718 Source: Company data, IFC Metropol estimates

If we assume an average price per GRP of USD 1,200 by the end of 2008, which is in line with management expectations, we would expect O2 TV should generate USD 9.8mn of advertising revenues in 2008. For the sake of conservativeness we assume only 5% annual media inflation for GRP. In our opinion this is a very low estimate as according to Video International, media inflation for the whole market should be at the 55% level in 2008 and grow 30% y-o-y in 2009-2010.

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Even with just a 5% annual increase in prices we would expect O2 TV’s revenues from advertising to jump from USD 9.8mn in 2008 to USD 60.7mn in 2012, or at a 58% CAGR over the period. Growth should be driven by an increase in the sell-out ratio of GRP inventory and a rise in the TV ratings of O2 TV’s programming.

Table 9: Revenues breakdown, USD 000

2007A 2008E 2009E 2010E 2011E 2012E

Advertising N/A 9,839 21,457 38,384 49,065 60,718 % growth y-o-y 118% 79% 28% 24% % of total revenues 80% 83% 85% 85% 84% Sponsorship N/A 1,581 3,072 4,768 6,496 8,120 % growth y-o-y 94% 55% 36% 25% % of total revenues 13% 12% 11% 11% 11% Production N/A 810 1,260 1,800 2,500 3,125 % growth y-o-y 56% 43% 39% 25% % of total revenues 7% 5% 4% 4% 4% Total revenues 2,792 12,230 25,789 44,953 58,061 71,963 % growth y-o-y 338% 111% 74% 29% 24% Source: Company data, IFC Metropol estimates

Another business area with high correlation to TV advertising is that of sponsorship. The idea is not to sell actual GRP or time for advertising, but rather to sell sponsorship of a whole event or a special program with a targeted audience. For instance, iPod sponsors the Grammy awards; Michelin sponsors Formula-1. These events have targeted audiences with particular interests and thus benefit advertisers. We expect sponsorships to generate USD 1.6mn of revenues in 2008, and comprise 11-12% of total revenues going forwards.

Overall we expect the company’s revenues to reach USD 119.0mn by 2015, i.e. to grow at 38% CAGR over the period 2008-2015.

Operational costs

The company had 173 employees as of March 2007 and the average salary was USD 815 per month. We expect the company to increase its efficiency going forwards. For instance, CTC media had 1,100 employees in 2006 and revenues of USD 370.7mn, or USD 337,000 per employee, while O2 TV had revenues of only USD 15,474 per employee. We expect O2 TV to spend USD 2.6mn on wages in 2008. In 2009 we forecast the company to expand significantly, seeing wages and salaries reach USD 8.9mn in 2009, followed by USD 15.7mn in 2010. Looking forwards, we forecast wages and salaries expenses to account for 39% of total expenses in 2015.

Another main cost factor for the company is marketing expenses. In 2008 the company should see an abnormal level of expenses at USD 5.7mn due to the one- off contract with Almakor media, an advertising agency. O2TV produced advertisements for Almakor as a way of payment for a marketing campaign. After 2009 we expect marketing expenses to drop to the level of 9% of revenues.

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Table 10: Operational costs breakdown, USD 000

2007A 2008E 2009E 2010E 2011E 2012E

Wages and salaries -2,587 -8,882 -15,714 -22,063 -28,066 % growth y-o-y - 243% 77% 40% 27% % of total revenues -21% -34% -35% -38% -39% Network support -637 -3,000 -3,900 -5,100 -6,477 % growth y-o-y - 371% 30% 31% 27% % of total revenues -5% -12% -9% -9% -9% Marketing and advertising -5,740 -2,400 -3,850 -4,950 -6,477 % growth y-o-y - -58% 60% 29% 31% % of total revenues -47% -9% -9% -9% -9% General and administration expenses -102 -250 -307 -429 -720 % growth y-o-y - 146% 23% 40% 68% % of total revenues -1% -1% -1% -1% -1% Other operating expenses -1,762 -4,206 -6,031 -8,171 -10,075 % growth y-o-y - 139% 43% 35% 23% % of total revenues -14% -16% -13% -14% -14% Total operating expenses before depreciation -3,519 -10,827 -18,738 -29,802 -40,714 -51,814 % growth y-o-y 208% 73% 59% 37% 27% % of total revenues -89% -73% -66% -70% -72% Source: Company data, IFC Metropol estimates

EBITDA margin

We should note that in the media business costs are largely fixed and the main method for increasing EBITDA is through a gain in TVR and therefore increasing revenues. If O2 TV’s ratings are higher than we expect the company could see an EBITDA margin higher than our 2008 estimate of 11%. Our base case scenario, with a long-term estimated TVR of 0.6%, forecasts EBITDA margin at 28% in 2012, and 26% in 2015. If we were to assume a TVR of 1.2%, i.e. in line with management estimates, then we could expect a 40% EBITDA margin. However, we reiterate our preference for our base case scenario, believing it to be a more likely scenario.

15 | 15 April 2008

Table 11: Profit and loss account summary, USD 000

2007A 2008E 2009E 2010E 2011E 2012E

Total revenues 2,792 12,230 25,789 44,953 58,061 71,963 % growth y-o-y 338% 111% 74% 29% 24% Total operating expenses before depreciation -3,519 -10,827 -18,738 -29,802 -40,714 -51,814 % growth y-o-y 208% 73% 59% 37% 27% % of total revenues -126% -89% -73% -66% -70% -72% EBITDA -833 1,403 7,050 15,151 17,348 20,150 % growth y-o-y -268% 402% 115% 15% 16% % margin -30% 11% 27% 34% 30% 28% Depreciation -66 -245 -516 -899 -1,161 -1,439 % growth y-o-y 271% 111% 74% 29% 24% % of total revenues -2% -2% -2% -2% -2% -2% Income from operations -899 1,159 6,535 14,251 16,186 18,711 % growth y-o-y -229% 464% 118% 14% 16% % margin -32% 9% 25% 32% 28% 26% Interest expense and similar items, net -479 -317 0 0 0 0 % growth y-o-y -34% % of total revenues -17% -3% 0% 0% 0% 0% Income before taxation and minority interest -1,379 841 6,535 14,251 16,186 18,711 Income tax expense 0 -202 -1,568 -3,420 -3,885 -4,491 % growth y-o-y 677% 118% 14% 16% % of pretax profit 0% -24% -24% -24% -24% -24% Net income -1,379 639 4,966 10,831 12,302 14,220 % growth y-o-y -146% 677% 118% 14% 16% Source: Company data, IFC Metropol estimates

Interest expenses

As of the end of 2007 the company had a net debt of USD 4.8mn and a net debt to EBITDA ratio of negative 2.3x. The company is required to pay back all of its debt in 2008, providing additional risk to our valuation.

We expect the company to successfully pay its debt in 2008, and thus in our base case we do not assume any further debt issues. We therefore do not model any interest expense payments after 2008.

Net Profit

Although O2 TV was not profitable in 2007, we nevertheless expect the company to break even in 2008, with a net profit margin of 7%. Going forwards, we look for fast development in the company, and as a result expect O2 TV to show a net income margin of 20% after 2012.

For the sake of our model, we assume the company pays income tax of 24% every year after breaking even in 2008.

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Cash flow and balance sheet

Table 12: Base case scenario balance sheet, USD 000

2007A 2008E 2009E 2010E 2011E 2012E

Total non-current assets 1,965 2,038 2,038 2,038 2,038 2,038 Total current assets 3,873 11,962 19,274 32,181 46,419 62,975 Total assets 5,838 14,000 21,312 34,218 48,457 65,013 Total shareholders' equity -1,689 9,023 14,970 26,322 38,677 53,672 Total non-current liabilities 111 0 0 0 0 0 Total current liabilities 7,416 4,977 6,342 7,896 9,780 11,341 Total Liabilities and Equity 5,838 14,000 21,312 34,218 48,457 65,013 Source: Company data, IFC Metropol estimates

Currently the company’s balance sheet is overburden with debt, demonstrating a net debt of USD 4.9mn and total assets of USD 5.8mn. The commonly used ratios of net debt to equity and net debt to EBITDA are meaningless, as in 2007 O2 TV had negative EBITDA of USD 0.8mn and negative shareholders' equity of USD 1.7mn. However, under our base case scenario, we expect the company to pay off its debt in 2008 and not raise any more going forward.

Table 13 Base case scenario net debt estimates, USD 000

2007A 2008E 2009E 2010E 2011E 2012E

Net debt/(Net Cash) 4,986 -4,721 -7,738 -16,350 -25,959 -37,949 Net debt/Equity -3.0x -0.5x -0.5x -0.6x -0.7x -0.7x Net debt/EBITDA -6.0x -3.4x -1.1x -1.1x -1.5x -1.9x Source: Company data, IFC Metropol estimates

Thus under our base case scenario we forecast the company to generate net cash of USD 4.7bn in 2008, mainly on the back of an expected private equity deal, raising USD 10.0mn of equity in May 2008.

Cash flow

We do not expect the company to generate positive free cash flow until 2009, when we estimate USD 3.0mn of excess cash flow. By 2012 we are looking for USD 12.0mn of free cash flow on the company’s balance sheet. Note however that our estimates are based upon our base case scenario with a minimal level of capex involved. Should the company increase its capex in order to purchase other assets, the company’s free cash flow might stay negative for a longer period. However, we do not model this additional capex due to a lack of information on its possible use.

Moreover, these cash flow estimates are based on the assumption that the company will raise USD 10.0mn of private equity in 2008 and will pay back debt of USD 5.0mn, due to be paid in May 2008.

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Table 14: Base case scenario cash flow statement summary, USD 000

2008E 2009E 2010E 2011E 2012E

Cash flows from operating activities -802 3,533 9,510 10,771 13,429 Cash flows from investing activities -318 -516 -899 -1,161 -1,439 Free cash flow -1,120 3,017 8,611 9,610 11,990 Cash flows from financing activities 4,988 0 0 0 0 Cash at the beginning of the year 26 3,893 6,910 15,521 25,131 Cash at the end of the year 3,893 6,910 15,521 25,131 37,121 Source: Company data, IFC Metropol estimates

Valuation

DCF assumptions We value O2 TV by means of a DCF and a peer group comparison. We prefer to focus on the DCF valuation, as this takes into account longer-term influences on the valuation process and avoids the volatility of short-term peer group comparisons.

Our long-term growth rate projection for O2 TV is 3.5%, which is in line with our general policy for Russian companies. Russia is not a mature economy, such as in Western Europe or the U.S, and thus we note recent government estimates have suggested a real GDP growth of as much as 7% per annum for the next 20 years. Taking into account the expected high growth rate for at least the next 10 years we could, in theory, use 7% as the perpetuity growth rate. However, in order to keep our valuation conservative, we use 3.5% in our model, which is slightly above the levels that should be experienced longer-term in a mature economy.

We use a risk-free rate of 4.7%, based on the 5-year US Treasury yield of 3.7%, and adjusted by 1% for a Russia specific premium.

The country risk premium is based on a standard equity risk (the historical 4% difference in the performance of stocks and bonds adjusted for an RTS excess volatility factor of 1.25, based on a trailing 12-month standard deviation of daily returns of the RTS and S&P 500) to derive an equity premium of 9.7%.

We then adjust the equity cost to take into account company specific risks/anomalies. O2 TV is not a publicly-traded company and might have problems with refinancing of debt. We apply a 3% premium for the lack of liquidity as an IPO is only planned for 2H 09, and we apply a 6% premium to adjust for the size and risk of potential bankruptcy. Overall, therefore, we estimate an 18.7% company cost of equity.

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Table 15: WACC calculations

Cost of equity calculation Risk-free rate 4.7% Standard equity risk premium 4.0% Excess RTS volatility factor 1.25 Base cost of equity 9.7% Liquidity risk premium 3.0% Other risk premium 6.0% Company cost of equity 18.7% Cost of debt (after tax) 7.2% % Equity 88.9% % Debt 11.1% WACC 17.4% Source: Company data, IFC Metropol estimates

O2 TV has a 9.5% average cost of debt, which after tax equates to a 7.2% cost of debt. Overall we derive a WACC of 17.4%. Although this WACC may seem high if we take into account that for CTC Media we used a WACC of only 11.5%, however, the size of O2 TV, its stage of development and some financial risks associated with the company oblige us to apply this higher WACC in our valuation model.

Valuation scenarios We have performed two sets of valuation scenarios for O2 TV based on different assumptions of TV ratings, sell-out ratio and capex program.

Base case scenario

We describe our base case scenario through out the report. This scenario assumes a long-term TVR of 0.6% and a maximum sell-out ratio of 53% by 2017. We also assume a rather conservative 26% EBITDA margin in the long-term after 2014.

We model capex at 1% of revenues, implying just network support capex after 2009, when the company should reach its targeted technical coverage of 60mn people.

Under our base case scenario we estimate the company’s revenues growing at a 31% CAGR over the period 2008-2017.

19 | 15 April 2008

Table 16: Base case scenario DCF valuation, USD 000

2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Revenues 12,230 25,789 44,953 58,061 71,963 86,752 102,566 118,987 136,700 143,535 % growth 338% 111% 74% 29% 24% 21% 18% 16% 15% 5% EBIT 1,159 6,535 14,251 16,186 18,711 21,688 25,642 28,557 32,808 34,448 % growth 464% 118% 14% 16% 16% 18% 11% 15% 5% % of revenues 9% 25% 32% 28% 26% 25% 25% 24% 24% 24% Less taxes on EBIT (1-t) -188 -1,568 -3,420 -3,885 -4,491 -5,205 -6,154 -6,854 -7,874 -8,268 Tax rate -16% -24% -24% -24% -24% -24% -24% -24% -24% -24% Add Depreciation & amortization 245 516 899 1,161 1,439 1,735 2,051 2,380 2,734 57 % of revenues 2% 2% 2% 2% 2% 2% 2% 2% 2% 0% (Increase)/decrease in NWC -1,642 -1,949 -2,220 -2,692 -2,159 -2,603 -3,077 -2,975 -4,101 -4,607 % of revenues -13% -8% -5% -5% -3% -3% -3% -3% -3% -3% Less Net capex -318 -516 -899 -1,161 -1,439 -1,735 -2,051 -2,380 -2,734 -1,768 % of revenues 3% 2% 2% 2% 2% 2% 2% 2% 2% 1% Net free cash flow -744 3,017 8,611 9,610 12,061 13,880 16,411 18,729 20,833 22,676 % growth -506% 185% 12% 26% 15% 18% 14% 11% 9% Source: Company data, IFC Metropol estimates

Table 17: Base case scenario DCF valuation, USD 000

PV of Cash Flow 50,774 +Terminal Value 39,743 Enterprise Value 90,516 -Net Debt/(Cash) 4,986 Equity Value 85,531 Source: Company data, IFC Metropol estimates

Overall we derive a fair value for O2 TV of USD 85.5mn in our base case scenario, suggesting 114% upside from the asset’s current price. Though this may seem overly conservative, we consider this the more likely scenario.

Optimistic scenario

Here we perform a different scenario in which we assume the following:

The company plans to spend about USD 20mn over the period 2008-2010 on a significant number of acquisitions of Internet websites and small niche TV channels. In this scenario we model this capex and plan revenues from the new assets at about 7% of total company revenues in the long-term.

Moreover we model a more aggressive long-term sell-out ratio of 70% after 2016 vs only 53% in the base case scenario.

We also suggest that the TV rating could be as high as 1.0% after 2015 vs only 0.6% in our base case scenario.

Using all these assumptions above we have modeled a separate DCF for the company.

15 April 2008

Table 18: Optimistic scenario DCF valuation, USD 000

2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Revenues 12,230 33,741 54,963 81,286 112,031 147,880 189,264 234,283 296,554 341,037 % growth 176% 63% 48% 38% 32% 28% 24% 27% 15% EBIT 1,159 14,328 24,061 28,960 29,128 36,970 47,316 56,228 71,173 81,849 % growth 1137% 68% 20% 1% 27% 28% 19% 27% 15% % of revenues 9% 42% 44% 36% 26% 25% 25% 24% 24% 24% Less taxes on EBIT (1-t) -193 -3,295 -5,532 -6,761 -6,856 -8,792 -11,329 -13,495 -17,082 -19,644 Tax rate -17% -23% -23% -23% -24% -24% -24% -24% -24% -24% Add Depreciation & amortization 245 675 1,099 1,626 2,241 2,958 3,785 4,686 5,931 2,046 % of revenues 2% 2% 2% 2% 2% 2% 2% 2% 2% 1% (Increase)/decrease in NWC -1,642 -1,949 -2,220 -2,692 -3,361 -4,436 -5,678 -5,857 -8,897 -10,811 % of revenues -13% -6% -4% -3% -3% -3% -3% -3% -3% -3% Less Net capex -5,318 -10,506 -1,099 -1,626 -2,241 -2,958 -3,785 -4,686 -5,931 -3,410 % of revenues 43% 31% 2% 2% 2% 2% 2% 2% 2% 1% Net free cash flow -5,749 -747 16,310 19,507 18,911 23,742 30,309 36,876 45,195 53,659 -87% -2,282% 20% -3% 26% 28% 22% 23% 14% Source: Company data, IFC Metropol estimates

Table 19: Optimistic scenario DCF valuation, USD 000

PV of Cash Flow 92,485 +Terminal Value 93,693 Enterprise Value 186,178 -Net Debt/(Cash) 4,986 Equity Value 181,192 Source: Company data, IFC Metropol estimates

Based on our optimistic scenario we derive a fair value for O2 TV of USD 181.2mn, suggesting 353% upside potential from the asset’s current market price of USD 40.0mn. Note however that we do not think this scenario is likely to happen and show it here only for the sake of completeness.

Sensitivity analysis

O2 TV’s valuation is influenced mainly by TV ratings and media inflation. We have performed a sensitivity analysis based on these two factors, using our base case scenario assumptions for the rest of the model.

Here we can estimate a fair value for the company under a worst case scenario, in which O2 TV’s long-term TVR does not exceed 0.3% (1Q 08 level) and we forecast media inflation at only a very conservative 5%. Note that, as discussed above, the Russian government recently forecast inflation for the economy at 11.5% in 2008.

21 | 15 April 2008

Table 20: Sensitivity table, USD 000 Media Inflation TVR 0.3% 0.6% 0.9% 1.0% 29,616 66,112 105,637 3.0% 34,558 75,069 118,945 5.0% 40,037 85,531 133,748 7.0% 46,112 96,087 150,213 9.0% 52,847 108,377 168,517 Source: Company data, IFC Metropol estimates

Even in this worst case scenario, the company’s fair value is USD 40.0mn, which is in line with the current market value.

Peer group valuation For the sake of completeness, we have carried out a peer group comparison. However, we do not consider this method very appropriate given O2 TV’s lack of domestic publicly-traded peers. Moreover, international peers also differ significantly in their respective exposure to media markets and levels of development and debt.

We note that the growth outlook for the Russian industry remains much higher than in Europe, which in our view explains the majority of the valuation disparities, thus making the comparison less applicable.

International peers

Table 21: International peer group multiples comparison Company name Country PE EV/EBITDA (x) EV/Revenues (x) 2007E 2008E 2009E 2007E 2008E 2009E 2007E 2008E 2009E

CVC US USA 39.63 22.10 15.27 7.79 7.24 6.87 2.51 2.40 2.31 511 HK Hong Kong 13.23 12.05 11.84 8.80 8.06 7.67 3.68 3.52 3.27 TVTN IN India 12.69 9.83 8.30 7.19 5.70 4.65 2.09 1.74 1.49 TFI FP France 34.32 28.06 34.55 20.38 18.15 19.44 3.23 3.16 3.07 A3TV SM Spain 23.57 23.99 25.69 16.24 17.21 18.92 4.87 4.76 4.71 UTV LN Britain 27.71 25.29 23.12 27.26 23.46 21.74 6.51 5.82 5.54 Median 25.64 23.05 19.20 12.52 12.64 13.29 3.46 3.34 3.17 O2 TV Russia NA 48.8 7.5 NA 31.5 6.3 15.9 3.6 1.7 Source: Company data, IFC Metropol estimates

We based our multiples for O2 TV on the current EV of USD 44.2mn and the market value of USD 40.0mn, i.e. the value at which current investors are ready to sell the asset. This market value is in line with the fair value we derive from our worst case scenario, as described above.

As can be seen our international peer group comparison table, O2 TV looks extremely cheap. For example, a comparison of the international peer group’s multiples to the current value of O2 TV suggests an estimated 2009 PE upside of

15 April 2008

156%, an estimated 2009 EV/EBITDA upside of 111% and an estimated 2009 EV/Revenues upside of 86%.

Russian peers

Table 22: Most recent acquisitions of O2 TV’s Russian peers

Company Date Buyer Stake, % EV, USD mn Pentration, mn Audience share

TV-3 Oct-06 Prof-Media 100 550 65 2.5 2x2 Feb-06 Prof-Media 100 30 1.5 Rambler-TV Jan-07 Prof-Media 100 23 40 0.43 MTV Russia + VH1 Jun-07 Prof-Media 100 360 100.6 1 7TV Nov-06 Mr. Usmanov 50 100 48.6 0.3 Muz-TV Jul-06 Mr. Usmanov 75 400 60 1 Ren-TV Dec-06 Abros 750 120 5.1 DTV Feb-06 CTC Media 100 395 1.8 Source: Company data, IFC Metropol estimates

Although there are no publicly-traded TV companies in Russia which could be described as direct peers for O2 TV, we have seen a number of acquisitions of TV channels recently. We can therefore use multiples from these deals listed above to value O2 TV.

Some companies such as MTV and Muz-TV could be rather good comparisons for O2 TV because they are niche channels with audience shares around the same level as O2 TV. O2 TV argues that it could have the same TVR as Muz-TV, MTV or 2x2 in only a few years.

Table 23: Multiples of O2 TV channel’s closest Russian peers

Company EV, USD 'mn Revenues EBITDA EV/Revenues (x) EV/EBITDA (x)

TV-3 550 50 25 11.0 22.0 Rambler-TV 23 2.15 -1.4 5.4 NA MTV Russia + VH1 360 NA 16 NA 22.5 7TV 100 10 NA 11.1 NA Muz-TV 400 60 33 6.7 12.1 Ren-TV 750 145 59.74 5.2 12.6 DTV 395 42.5 6 9.3 65.8 Median 8.0 22.0 Source: Company data, IFC Metropol estimates

We can see that for the recent acquisitions the median EV/Revenues came in at 8.0x and EV/EBITDA at 22.0x.

We can apply these multiples to O2 TV’s estimated financials for 2008. The 2008 estimates have been used in order to form a conservative valuation. These multiples suggest a valuation for O2 TV within the range of USD 30.9mn to USD 97.6mn, with a median of USD 64.2mn. Finally, in order to adjust for the risk associated with the company’s small size we apply a 30% discount to the valuation.

23 | 15 April 2008

Table 24: O2 TV’s valuation based on its Russian peers’ multiples

2008

Valuation based on EV/EBITDA 30,868 Valuation based on EV/Revenues 97,596 Median 64,232 EV Discounted by 30% 44,962 Net Debt 4,986 Equity Value 39,977 Source: Company data, IFC Metropol estimates

Using the multiples of O2 TV’s Russian peers, we derive an enterprise value for O2 TV of USD 45.0mn. We then subtract the net debt and end up with an equity value for O2 TV of USD 40.0mn. This valuation is, as described above, in line with the current price of USD 40.0mn, which the companies existing shareholders are ready to sell at.

Note however that we prefer to focus on our base case scenario DCF valuation, suggesting a fair value for O2 TV of USD 85.5mn.

Appendix

General industry terms and abbreviations • Affinity index. An index calculated by a channel’s share of its target audience by that channel’s audience share. An index above 100 means the TV channel is suitable for targeting that particular audience group. An index below means that suggests the channel reaches different audience groups and thus cannot be viewed as an appropriate means for the target group.

• Audience Share or the size of any channel’s audience, either in absolute terms (actual number of viewers) or in relative terms (a percentage of the total viewers in any one group, for example).

• Coverage or the percentage of households that can receive a TV signal, whether or not they actually watch it. This is also sometimes described as ‘technical penetration’.

• Cost per Thousand (CPT) or the actual cost of reaching 1,000 people.

• Cost per Point (CPP) or the cost per rating point. A CPP of USD 1,000/GRP means it costs USD 1,000 to achieve 1% of the population viewing a single 15 second advertising slot.

• Gross Rating Point (GRP) or the inventory of 15-second advertising points available. A rating, or the percentage, of either a whole population or any sub-group watching a particular channel at any given 15 second point. A 2% rating means that for any given 15 second time interval, 2% of the available population or group, is watching that channel.

• GRP inventory is the sum of GRP of all advertisement films which were shown within a year.

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• TVR (TV rating) or the percentage of the audience watching a given channel. TVR of 1% means that the channel is watched by 1% of all people that have the technical capacity to receive it.

25 | 15 April 2008

Hawk Sunshine Philip Townsend Igor Rubin Alexander Zakharov Head of Investment Banking Head of Research Co-Head of Equities Co-Head of Equities Telephone: +7.495.933.33.07 Telephone: +7.495.223.08.85 Telephone: +7.495.933.38.83 Telephone: +7.495.933.33.06 E-mail: [email protected] E-mail: townsend [email protected] E-mail: rubin [email protected] E-mail: zakharov [email protected] Research Philip Townsend Alexei Kokin Senior Analyst Telephone +7.495.223.08.85 Senior analyst Telephone +7.495.933.33.16 Telecommunications E-mail townsend [email protected] Oil and Gas E-mail kokin [email protected] Sergey Vasin Alexander Nazarov Analyst Telephone +7.495.933.33.16 Senior analyst Telephone +7.495.223.08.89 Telecommunications and Media E-mail vasin [email protected] Oil and Gas E-mail nazarov [email protected] Kirill Klokov Natalia Shutova Junior analyst Telephone +7.495.933.33.16 Junior analyst Telephone +7.495.933.33.16 Telecommunications E-mail klokov [email protected] Oil and Gas E-mail shutova [email protected] Mark Rubinstein Alexander Eremin Senior analyst Telephone +7.495.223.08.86 Junior analyst Telephone +7.495.933.33.16 Banking E-mail [email protected] Oil and Gas E-mail eremin [email protected] Nadezda Timokhova Chris Pearson Junior analyst Telephone +7.495.933.33.16 Senior analyst Telephone +7.495.933.33.16 Banking E-mail timohova [email protected] Metals and Mining E-mail [email protected] Leila Sharifullina Maxim Khudalov Junior analyst Telephone +7.495.933.33.16 Senior analyst Telephone +7.495.933.33.16 Banking E-mail sharifullina [email protected] Metals and Mining E-mail khudalov [email protected] Dmytry Terekhov Victor Kulikov Senior analyst Telephone +7.495.933.33.16 Junior analyst Telephone +7.495.933.33.16 Utilities E-mail terehov [email protected] Metals and Mining E-mail kulikov [email protected] Svetlana Grizan Airat Khalikov Analyst Telephone +7.495.933.33.16 Junior analyst Telephone +7.495.933.33.16 Utilities E-mail grizan [email protected] Metals and Mining E-mail halikov [email protected] Irina Prokopyeva Andrew Risk Analyst Telephone +7.495.933.33.16 Editor Telephone +7.495.933.33.16 Consumer Goods E-mail prokopyeva [email protected] E-mail risk [email protected] Alexander Kondratiev Ilya Glotin Production Telephone +7.495.933.33.16 Editor Telephone +7.495.933.33.16 E-mail kondratiev [email protected] E-mail glotin [email protected]

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