profmedia limited international financial reporting ... · the board of directors has not declared...

Profmedia Limited

International Financial Reporting StandardsConsolidated Financial Statements andIndependent Auditor’s Report

31 December 2012

Contents

REPORT OF THE BOARD OF DIRECTORS 1

INDEPENDENT AUDITOR’S REPORT 4

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated statement of financial position 6Consolidated statement of comprehensive income 7Consolidated statement of changes in shareholders’ equity 8Consolidated statement of cash flows 9

Notes to the consolidated financial statements

1. General Information 102. Basis of Preparation 113. Summary of Significant Accounting Policies 124. Critical Accounting Estimates and Judgements 194. Critical Accounting Estimates and Judgements (Continued) 205. Change in Accounting Estimates 216. Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements 217. Segment Information 228. Balances and Transactions with Related Parties 279. Property, Plant and Equipment 2810. Intangible Assets 2911. Goodwill 3112. Available-for-sale Investments 3313. Other Non-current assets 3414. Receivables and Loans 3415. Other Current Assets 3516. Cash and Cash Equivalents 3517. Share Capital and Share Premium 3518. Non-Controlling Interest 3619. Borrowings 3620. Other Non-Current Liabilities 3721. Trade and Other Payables 3822. Provisions 3823. Other Current Liabilities 3824. Revenue 3925. Employment Related Costs 3926. Other Operating Expenses, Net 3927. Finance Income and Costs 4028. Income Tax 4029. Discontinued operations and disposal of subsidiary 4230. Commitments 4331. Operating Environment and Contingencies 4432. Business Combinations 4633. Financial Risk Management 4734. Events after the Reporting Period 52

PROFMEDIA LIMITED

BOARD of DIRECTORS and OTHER OFFICERS

Board of Directors

Olga Flaat NikolaouEkaterina KolmakovaMaria Lyajina

Company Secretary

CYPROSERVUS CO. LIMITEDArch. Makariou III, 284FORTUNA COURT BLOCK B, 3

rdfloor

CY – 3105, Limassol, Cyprus

Registered office

Griva Digeni & Anastasi SioukriPAMELVA COURT, Flat/Office 204PC-3035, Limassol, Cyprus

PROFMEDIA LIMITED

1

Report of the Board of Directors

The Board of Directors presents its report together with the audited consolidated financial statements of Profmedia Limited(the “Company”) and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2012.

Principal activity

The principal activity of the Group, which is unchanged from last year, is the management of various media assets whichconduct their business under the “ProfMedia” brand name (including any interest earning activities). The Group is a leadingRussian integrated multi-media group providing quality entertainment to audiences across a wide spectrum of media. Weown and manage a large number of well-known Russian media brands targeting attractive demographics in each of thefollowing segments: TV broadcasting, filmed content production and distribution, radio broadcasting and digital. During2011 the Group also operated a film exhibition segment, which was sold on 30 December 2011, refer for details to thesection on discontinued operations below.

TV broadcasting segment – this segment consists of a family of three national Free-to-Air (“FTA”) networks – TV3,MTV Russia and 2x2 – focusing on entertainment content for audiences in those demographics attractive to advertisers.TV3 is a mystery, science fiction and fantasy network with the target audience of 25-59 year olds. MTV Russia is anentertainment and music network targeting 14 to 34 year-olds. 2x2 is a progressive animation network targeting audience of11 to 34 year- olds.TV3 currently holds 2 broadcast licenses which give us the right to broadcast in 49 cities, covering mostmajor measured advertising markets in Russia. MTV Russia, which operates under a license from MTV International, holds2 broadcast licenses which give us the right to broadcast in 30 cities in Russia. In September 2012 the Group notified theMTV network about its intention to cease using the MTV trademark and from June 2013 it is planned to re-launch MTVchannel under a new brand name and with entertainment content focused on wider target audience of 14 to 44 years-olds.2x2 is an animation channel with FTA broadcasting in 14 cities in Russia while the rest of the national coverage is achievedmainly though contracts with local cable operators. In the view of TV digitalization and switch of FTA networks to digitalmultiplexes, it was decided that 2x2 will continue building its national coverage via cable networks.

Content production and distribution segment – the Company owns a controlling stake in Dreamlight Media HoldingLimited and its subsidiaries operating under the Central Partnership brand. Central Partnership is one of the largestentertainment content companies in Russia, holding the rights to more than 1,400 feature films and 4000 hours of TV series,and is engaged in the production, acquisition and distribution of filmed content including feature films, TV series and TVfilms. Central Partnership distributes its own content, acquired content and third-party content from major motion picturestudios including, on an exclusive basis, Paramount Pictures, and from independent motion picture studios including LionsGate Entertainment and Studio Canal +. In May 2012 Central Partnership launched its own production studio in orderto increase efficiency of investment in production and enhance control over the financial and creative aspects of filmproduction.

Radio broadcasting segment – includes radio stations consolidated under VKPM Invest Company Limited (VKPM). Thesegment is represented by Avtoradio, NRJ, Humour FM and Radio Romantika. VKPM's stations represent a diverse arrayof radio formats, with Autoradio and Radio Energy (“NRJ”) broadcasting adult contemporary and hit music, respectively,Humor FM being the first comedy radio station in Russia, Radio Romantika specifically targeting the female audience andonline streaming through 101.ru. These formats are broadcast over a network of owned and operated stations in Moscowand in other major cities in Russia. In addition VKPM has franchise agreements with local broadcasters for re-broadcastingof its formats. Most notably, as of the end of 2012, the flagship Avtoradio format is carried by over 300 local broadcastingpartners in Russia and in other markets.

Digital segment – this segment is represented by Rambler brand and Afisha (both online and publishing operations ofAfisha) consolidated under the subsidiary PM Web Limited (PM Web). In 2011 the Group’s Consolidated FinancialStatements presented the New Media (Rambler Media and Afisha internet business) and Publishing (Afisha publishingbusiness) operating segments separately, Starting from 2012 segment split was revised and united business unit ispresented in single segment named Digital (Note 7).

As at 31 December 2011 Rambler and Afisha were core businesses of subsidiary Rambler Media Limited. In September 2012Rambler Media Limited was liquidated in the process of legal restructuring of the Group, but operations remained within theGroup under the subsidiary PM Web.

PM Web is a diversified Russian language media, entertainment, services and content delivery company which operatesvarious internet properties including a Russian language internet portal Rambler.

Other PM Web properties include the Top100 rating system, free e-mail service, on-line newspaper Lenta.ru, pricecomparison website Price.ru, contextual advertising company Begun and a number of entertainment related projects (suchas games, Rambler Kassa, etc.). Rambler is one of the leaders in the Russian-speaking internet with a monthly reach of15.6 million in December 2012 (TNS Web Index, 100 000+, 12-54). The segment also includes a very successful generalentertainment information website Afisha.ru as well as Nightparty.ru and Eda.ru. By the end of 2012 year the number oflocalised regional versions of afisha.ru reached 27 (including Moscow and three versions in Ukraine).

Afisha publishes the bi-weekly magazine Afisha, the monthly magazine Afisha-Mir, the monthly magazine Afisha-Eda andthe Afisha travel guides. Afisha also operates the Afisha Atelier, a team of professional journalists and designers who workon Afisha’s magazines and websites and provide contract publishing solutions to customers for establishing magazines andwebsites.

PROFMEDIA LIMITED

2

Discontinued operations

Film exhibition segment – this segment is presented as a discontinued operation for the year ended 31 December 2011following the sale of the subsidiary CP Invest (Overseas) Limited to Applecourt Holdings Limited (the “Parent Company”) on30 December 2011. CP Invest (Overseas) Limited with its subsidiaries operates chains of multiplexes under the CinemaPark and, since June 2011, Kinostar de Luxe brands. The latter was added through the acquisition on 2 June 2011 whenthe Group acquired 100% of RSM HoldCo LTD which together with its subsidiary operates a chain of multiplexes under theKinostar de Luxe brand.

Cinema Park with Kinostar de Luxe is the largest cinema operator in Russia, both in terms of the number of digital screenswith 3D capability in Russia and is the largest cinema operator in terms of the total number of screens in the Country.

Review of developments, position and performance of the Group’s business

In 2012 the Group continued its development in all the segments except for the film exhibition segment as explained above.

TV broadcasting segment – In September 2012 the Group notified the MTV network about its intention to cease using theMTV trademark and from June 2013 it is planned to re-launch MTV channel under a new brand name and withentertainment content focused on wider target audience.

Content production and distribution segment – In May 2012 Central Partnership launched its own production studioin order to increase efficiency of investment in production and enhance control over the financial and creative aspectsof film production.

Digital segment – In November 2012 the Group increased its stake in ZAO Begun to 100% through purchasing theremaining 49.9%.

Principal risks and uncertaintiesThe principal risks and uncertainties that the Group faces are disclosed in Note 4 – Critical Accounting Estimates andJudgements, Note 31 – Operating Environment and Contingencies and Note 33 – Financial Risk Management.

Future developments

Our strategy is aligned with the key success factors of our recent history: to provide broad audience reach to advertisersand highly monetisable audiences through our multimedia platform delivering high quality integrated entertainment contentand services, and driving digital convergence, all supported by ProfMedia’s high standards of operational professionalism.We believe our strategy will allow us to succeed in our goal to increase our profitability by expanding our customer baseand increasing its monetization by:

1 Increasing our market share by delivering high quality content and services to our audiences includinginvestments in own products;

2 Continuing to build, develop and utilize superior infrastructure and technology to support our multimediaentertainment platform;

3 Focusing all our businesses on operational excellence and increase of operational efficiency;

Results

The Group’s consolidated statement of financial position as of 31 December 2012, consolidated statement ofcomprehensive income, consolidated statement of cash flows and consolidated statement of changes in shareholders’equity for the year then ended are set out on pages 6 – 9. The financial position, development and performance of theGroup as presented in these consolidated financial statements are considered to be appropriate.

Dividends

The Board of Directors has not declared any dividends for the year ended 31 December 2012.

Share capital

Share capital as at 31 December 2012 and 31 December 2011 consists of 719,368 issued and fully paid ordinary shares ofUSD 1 each and share premium amounted to RUB 34,101 million and RUB 35,557 million respectively. The sharepremium account was reduced during 2012 following a special resolution of the Company’s shareholders which wasvalidated by a court order.

Board of Directors

The members of the Board of Directors as at 31 December 2012 and at the date of this report are shown on page 6. All ofthem were members of the Board throughout the 2012 year.

In accordance with the Company’s Articles of Association all the Directors retire and, being eligible, offer themselves for re-election.

There were no significant changes in the assignment of responsibilities and remuneration of the Board of Directors.

PROFMEDIA LIMITEDCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED31 DECEMBER 2012(in millions of Russian Roubles, unless otherwise stated)

7

The accompanying notes on pages 10-52 form an integral part of these consolidated financial statements.

Notes 2012 2011CONTINUING OPERATIONS

REVENUE 24 15,972 14,200

OPERATING EXPENSESEmployment related costs 25 3,310 3,029Advertising expenses 3,076 2,774Amortization of intangible assets other than of film rights 7,10 2,746 2,470Amortization of film rights 10 1,985 1,550Asset impairment 7,9,10 1,615 1,338Content costs 1,048 1,323Goodwill impairment 11 - 2,102Gain on disposal of associate 12 - (441)Other operating expenses, net 26 1,975 2,287

OPERATING PROFIT/(LOSS) 217 (2,232)Finance income 27 106 35Finance costs 27 (1,195) (2,443)

LOSS BEFORE TAX (872) (4,640)Income tax (expense)/benefit 28 (253) 4

LOSS FOR THE YEAR FROM CONTINUING OPERATIONS (1,125) (4,636)

DISCONTINUED OPERATIONS

Profit for the year from discontinued operations 29 - 4,509

LOSS FOR THE YEAR (1,125) (127)Attributable to:

Equity holders of the parent (805) (114)Non-controlling interest 18 (320) (13)

(1,125) (127)

OTHER COMPREHENSIVE INCOME

Loss on revaluation of Available-for-sale investments 12 (138) -

TOTAL COMPREHENSIVE LOSS FOR THE YEAR (1,263) (127)Attributable to:

Equity holders of the parent (943) (114)Non-controlling interest 18 (320) (13)

(1,263) (127)

PROFMEDIA LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARENDED 31 DECEMBER 2012(in millions of Russian Roubles, unless otherwise stated)

8

The accompanying notes on pages 10-52 form an integral part of these consolidated financial statements.

Attributable to equity holders of the Company

Non-contro-

llinginterest

TotalEquityNote

Sharecapital

Sharepremium

Addi-tional

paid-incapital

Reva-luationreservefor AFSinvest-ments

Accu-mulated

deficit TotalBalance at1 January 2011 19 35,557 3,331 - (10,410) 28,497 696 29,193

Loss for the year-

- - - (114) (114) (13) (127)

Total comprehensiveloss -

- - - (114) (114) (13) (127)

Dividends declared 18 (129) (129)Acquisition of non-controlling interest

18 - - - - - - (5) (5)

Total contributions byanddistributions to ownersof thecompany

- - - - - - (134) (134)

Balance at31 December 2011

19 35,557 3,331 - (10,524) 28,383 549 28,932

Loss for the year - - - - (805) (805) (320) (1,125)Loss on revaluation ofAvailable-for-saleinvestments

12 - - - (138) - (138) - (138)

Total comprehensiveloss

- - - (138) (805) (943) (320) (1,263)

Share premiumreduction

17 - (1,456) - - - (1,456) - (1,456)

Exchange ratedifference on Sharepremium reduction

17 - - (524) - - (524) - (524)

Acquisition of non-controlling interest

18 - - - (164) (164) 106 (58)

Total contributions byanddistributions to ownersof thecompany

- (1,456) (524) - (164) (2,144) 106 (2,038)

Balance at31 December 2012

19 34,101 2,807 (138) (11,493) 25,296 335 25,631

PROFMEDIA LIMITEDCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012(amounts in tables are presented in millions of Russian Roubles)

The accompanying notes on pages 10-52 form an integral part of these consolidated financial statements.9

Note 2012 2011Loss for the period (1,125) (127)Adjusted for:Amortisation of intangible assets other than of film rights 7,10 2,746 2,470Amortization of film rights 10 1,985 1,550Depreciation of property, plant and equipment 7,9 275 254Interest expense, net 27 1,144 1,455Income tax expense/(benefit) 28 253 (4)Changes in allowance for doubtful debt 26 52 121Gain from remeasurement of contingent purchase consideration 26 - (134)Gain from accounts payable write-off 26 (20) (121)Asset impairment 9,10 1,615 1,338Goodwill impairment 11 - 2,102(Reversal)/accrual of the tax provision other than on income, net 22 (198) 8Effect of exchange rate changes on financial assets and liabilities 27 (55) 953Gain on disposal of associate 12 - (441)Gain on correction of consideration transferred for the acquiree after themeasurement period

32 (36) -

Loss on sale of property, plant and equipment and intangible assets 26 8 31Share of profit of associates 26 (36) (1)Gain on sale of subsidiaries 29 (152) (4,701)Loss for the year from discontinued operations 29 - 186Loss on initial recognition of financial guarantee liability, net of tax 29 320Gain on offsetting the related party loans 29 - (314)Amortization of finance guarantee liability 26 (70) -Government grants amortization 26 (233) (280)Program rights purchased (2,791) (2,617)Cash from operating activities before changes in working capital 3,362 2,048Increase in receivables and loans and other current assets (198) (63)Increase in trade and other payables and other current liabilities 348 140Income tax paid (470) (366)Cash inflow from continuing operations 3,042 1,759Cash inflow from discontinued operations - 1,397

Total cash inflow from operations 3,042 3,156

Cash flow from investing activitiesPurchase of property, plant and equipment (198) (264)Purchase of intangible assets (excluding program rights) (2,429) (2,393)Proceeds from sale of intangible assets 3 46Proceeds from sale of subsidiaries 195 -Purchase of additional shares of Available-for-sale investments 12 (64) -Acquisition of associates 32 (21) -Acquisition of subsidiaries, net of cash acquired 32 (277) (5,042)Repayment of short-term loans 10 -Interest received on bank deposits 42 35Return of part of consideration transferred for the acquiree 32, 26 36 -Short-term loans granted (10) -Government grants received 20 253 250Net cash used in investing activities of continuing operations (2,460) (7,368)Net cash used in investing activities of discontinued operations - (506)

Total net cash used in investing activities (2,460) (7,874)

Cash flows from financing activitiesProceeds from borrowings 4,556 5,984Proceeds from bonds issue 19 209 100Repayment of borrowings (4,096) (4,115)Acquisition of non-controlling interest 18 (58) (8)Interest paid (1,018) (1,195)Net cash (used in)/ received from financing activities of continuing operations (407) 766Net cash received from financing activities of discontinued operations - 2,564

Total net cash (used in)/ received from financing activities (407) 3,330

Net increase/(decrease) in cash 175 (1,388)Effect of foreign exchange rates on cash (3) 3Cash and cash equivalents at the beginning of the period 16 851 2,236Cash and cash equivalents at the end of the period 16 1,023 851

Non-cash itemsPurchase of property, plant and equipment in finance lease - 96Settlement of receivable from shareholder against share premium andadditional paid-in capital reduction

17 1,980 -

Non-cash consideration for the sale of discontinued operations 29 - 4,996

PROFMEDIA LIMITEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012(amounts in tables are presented in millions of Russian Roubles)

10

1. General Information

Description of the business

Profmedia Limited (the “Company”) was incorporated on 17 August 2004 in accordance with the laws of the Republic ofCyprus. Its registered office is at Griva Digeni & Anastasi Sioukri, PAMELVA COURT, Flat/Office 204, P.C. 3035, Limassol,Cyprus, and it is a holding company for a group of companies which conduct their business under the “ProfMedia” brandname (together referred to as the “Group” or “PM Group”).

The Group’s principal place of business is the Russian Federation and the Commonwealth of Independent States (CIS).

These consolidated financial statements were authorised for issue by the Board of Directors on 27 February 2013.

As of 31 December 2012 and 31 December 2011 95% of the Company’s share capital was owned by Applecourt HoldingsLimited (the “Parent Company”), 4% by Interros International Investments Limited, both members of the Interros Group, and1% by a third party. The ultimate controlling party of the PM Group in 2012 and 2011 was Mr. Vladimir Potanin.

The Group’s structure for the consolidated financial statements includes the following significant subsidiaries:

Participation/ownership interestName of subsidiary Core business (Brand) 31 December 2012 31 December 2011PM Web Limited Internet portal (Rambler),

Internet portals and publishing(Afisha)

100% 100%

Begun Internet advertising 100% 50.1%VKPM Invest Company Limited (VKPM) Radio broadcasting (VKPM) 100% 100%Dreamlight Media Holding Limited(DMH)

Content production and distribution(Central Partnership)

74.55% 74.55%

Independent Network Television HoldingLimited (INTH)

TV broadcasting (MTV, TV3, 2x2) 100% 100%

Prof-Media Business Solutions (PMBS) Back-office services for Groupcompanies

100% 100%

Prof-Media Management Management services 100% 100%

The Group is a leading Russian integrated multi-media group providing quality entertainment to audiences across a widespectrum of media. It owns and manages a large number of well-known Russian media brands in each of the followingsegments: TV broadcasting, filmed content production and distribution, radio broadcasting and digital.

During 2011 the Group also operated a film exhibition segment: this segment is presented as a discontinued operation for theyear ended 31 December 2011 following the sale of the subsidiary CP Invest (Overseas) Limited on 30 December 2011(referto Note 29).

As at 31 December 2011 Rambler and Afisha were core businesses of subsidiary Rambler Media Limited. In September 2012Rambler Media Limited was liquidated in the process of legal restructuring of the Group, but operations remained within theGroup under the subsidiary PM Web limited.

In November 2012 the Group increased its stake in ZAO Begun to 100% through purchasing the remaining 49.9%.

TV broadcasting segment – this segment consists of a family of three national Free-to-Air (“FTA”) networks – TV3, MTVRussia and 2x2 – focusing on entertainment content for audiences in those demographics most attractive to advertisers.TV3 is a mystery, science fiction and fantasy network with the target audience of 25-59 year olds. MTV Russia is anentertainment and music network targeting 14 to 44 year olds. 2x2 is a progressive animation network, targeting audience of11 to 34 year olds. TV3 currently holds broadcast licenses which give us the right to broadcast in 49 cities and towns,covering most major measured advertising markets in Russia. MTV Russia, which operates under a license from MTVInternational, holds broadcast licenses which give us the right to broadcast in 30 cities in Russia. In September 2012 theGroup notified the MTV network about its intention to cease using the MTV trademark and from June 2013 it is planned to re-launch MTV channel under a new brand name and with entertainment content focused on wider target audience of 14 to 44years-olds. 2x2 is an animation channel with FTA broadcasting in 14 cities in Russia while the rest of the national coverage isachieved mainly though contracts with local cable operators. In the view of TV digitalization and switch of FTA networks todigital multiplexes, it was decided that 2x2 will continue building its national coverage via cable networks.

Content production and distribution segment – the Company owns a controlling stake in Dreamlight Media HoldingLimited and its subsidiaries operating under the Central Partnership brand. Central Partnership is one of the largestentertainment content companies in Russia, holding the rights to more than 1,400 feature films and 4000 hours of TV series,and is engaged in the production, acquisition and distribution of filmed content including feature films, TV series and TV films.Central Partnership distributes its own content, acquired content and third-party content from major motion picture studiosincluding, on an exclusive basis, Paramount Pictures, and from independent motion picture studios including Lions GateEntertainment and Studio Canal +. In May 2012 Central Partnership launched its own production studio in order toincrease efficiency of investment in production and enhance control over the financial and creative aspects of filmproduction.


11

1. General Information (Continued)

Radio broadcasting segment – includes radio stations consolidated under VKPM Invest Company Limited (VKPM). Thesegment is represented by Avtoradio, NRJ, Humour FM and Radio Romantika. VKPM's stations represent a diverse array ofradio formats, with Avtoradio and Radio Energy (“NRJ”) broadcasting adult contemporary and hit music, respectively, HumorFM being the first comedy radio station in Russia, Radio Romantika specifically targeting the female audience and onlinestreaming through 101.ru. These formats are broadcast over a network of owned and operated stations in Moscow and inother major cities in Russia. In addition VKPM has franchise agreements with local broadcasters for re-broadcasting of itsformats. Most notably, as of the end of 2012, the flagship Avtoradio format is carried by over 300 local broadcasting partnersin Russia and in other markets.

Digital segment – this segment is represented by Rambler brand and Afisha (both online and publishing operations ofAfisha) consolidated under the subsidiary PM Web Limited (PM Web). In 2011 the Group’s Consolidated FinancialStatements presented the New Media (Rambler Media and Afisha internet business) and Publishing (Afisha publishingbusiness) operating segments separately, Starting from 2012 segment split was revised and united business unit ispresented in single segment named Digital(Note 7).

As at 31 December 2011 Rambler and Afisha were core businesses of subsidiary Rambler Media Limited. In September 2012Rambler Media Limited was liquidated in the process of legal restructuring of the Group, but operations remained within theGroup under the subsidiary PM Web.

PM Web is a diversified Russian language media, entertainment, services and content delivery company which operatesvarious internet properties including the Russian language internet portal Rambler.

Other PM Web properties include the Top100 rating system, free e-mail service, on-line newspaper Lenta.ru, pricecomparison website Price.ru, contextual advertising company Begun and a number of entertainment related projects (such asgames, Rambler-Kassa, etc.). Rambler is one of the leaders in the Russian-speaking internet with a monthly reach of 15.6million in December 2012 (TNS Web Index, 100 000+, 12-54). The segment also includes a very successful generalentertainment information website Afisha.ru as well as Nightparty.ru and Eda.ru. By the end of 2012 year the number oflocalised regional versions of afisha.ru reached 27 (including Moscow and three versions in Ukraine).

Afisha publishes the bi-weekly magazine Afisha, the monthly magazine Afisha-Mir, the monthly magazine Afisha-Eda and theAfisha travel guides. Afisha also operates the Afisha Atelier, a team of professional journalists and designers who work onAfisha’s magazines and websites and provide contract publishing solutions to customers for establishing magazines andwebsites.

Film exhibition segment (Discontinued as at 31 December 2011) – this segment is presented as a discontinued operationfor the year ended 31 December 2011 following the sale of the subsidiary CP Invest (Overseas) Limited to the ParentCompany on 30 December 2011. CP Invest (Overseas) Limited with its subsidiaries operates chains of multiplexes under theCinema Park and, since June 2011, Kinostar de Luxe brands. The latter was added through an acquisition on 2 June 2011when the Group acquired 100% of RSM HoldCo LTD which together with its subsidiary operated a chain of multiplexes underthe Kinostar de Luxe brand.

Cinema Park with Kinostar de Luxe is the largest cinema operator in Russia, both in terms of the number of digital screenswith 3D capability in Russia and is the largest cinema operator in terms of the total number of screens in the Country.

2. Basis of Preparation

The consolidated financial statements of Profmedia Limited have been prepared in accordance with International FinancialReporting Standards (IFRS), as adopted by the European Union (EU), and the requirements of the Cyprus Companies Law,Cap. 113. As of the date of the authorisation of the consolidated financial statements, all International Financial ReportingStandards issued by the International Accounting Standards Board (IASB) that are effective as of 1 January 2012 have beenadopted by the EU through the endorsement procedure established by the European Commission, with the exception ofcertain provisions of IAS 39 “Financial Instruments: Recognition and Measurement” relating to portfolio hedge accounting.

These consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.

Management has prepared these consolidated financial statements on a going concern basis, refer to Note 33 (c) formanagement's conclusions on the appropriateness of the going concern assumption.

The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accountingestimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant tothe consolidated financial statements are disclosed in Note 4 and Note 5. Due to the inherent uncertainty in making thoseestimates, the actual results reported in future periods may differ from those estimates.

The Group companies maintain their accounting records in accordance with the laws and regulations of the country of theirincorporation. The Company maintains its accounting records in accordance with IFRS as adopted by the EU. All subsidiariesof the Group incorporated in the Russian Federation maintain their accounting records in accordance with RussianAccounting Standards (“RAS”). RAS differ substantially from those standards generally accepted under IFRS. Accordingly,the consolidated financial statements which have been prepared based on the Group companies’ Russian statutoryaccounting records reflect those adjustments necessary for such consolidated financial statements to be presented inaccordance with IFRS as adopted by the EU.


12

3. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financialstatements of the Group have been prepared on the basis that the accounting policies of the consolidated companies areeither the same or harmonised to the accounting policies applied at the Group level.

Functional Currency and Translation

The Group’s companies’ functional currency is the Russian Rouble (RUB), as their businesses are transacted primarily inRussian Roubles. Transactions denominated in foreign currencies are translated at the exchange rate at the date of thetransaction. Foreign currency assets and liabilities held at the balance sheet date are translated at the closing balance sheetrate and the resulting exchange gain or loss is recognised in the consolidated profit or loss for the year.

As of 31 December 2012 and 2011, the exchange rate established by the Central Bank of Russian Federation wereUSD 1= RUB 30.3727 and USD 1 = RUB 32.1961, respectively.

Consolidation

These consolidated financial statements incorporate the financial information of Profmedia Limited and all its subsidiaries.Subsidiaries are fully consolidated from the date on which the control is transferred to the Group.

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financialand operating policies generally accompanying a shareholding of more than one half of the voting rights.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.

The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilitiesincurred or assumed, to the former owners of the acquiree and the equity interests issued by the group, including fair value ofassets and liabilities from contingent consideration arrangements. Acquisition-related costs are expensed as incurred. Theresults of subsidiaries acquired or disposed of during the year are included in the consolidated profit or loss for the year fromthe effective date of acquisition or up to the effective date of disposal, as appropriate. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any non-controlling interest. Contingent liabilities for income and other taxesassumed in a business combination are measured at fair value, being the amount that a third party would charge to assumethose liabilities, and estimated using probability weighted average approach or single best estimate approach adjusted for apremium that a willing knowledgeable party would charge for assuming such a liability. Liabilities for taxes other than onincome are measured subsequently at the higher of the amount recognised initially and the amount required by IAS 37.Income tax liabilities recorded at fair value in a business combination are subsequently recorded at the higher of the amountinitially recognised or the amount required by IAS 12. The group recognises any non-controlling interest in the acquiree on anacquisition- by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognisedamounts of acquiree’s identifiable net assets. Goodwill is initially measured as the excess of the aggregate of theconsideration transferred and the fair value (or the present ownership instruments’ proportionate share in the recognisedamounts of the acquiree’s identifiable net assets) of non-controlling interest over the net identifiable assets acquired andliabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the differenceis recognised in profit or loss.

The Group applies the economic entity model to account for transactions with owners of non-controlling interest. Anydifference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as acapital transaction directly in equity. The Group recognises the difference between sales consideration and carrying amountof non-controlling interest sold as a capital transaction in the statement of changes in equity.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred.

Investments in Associates

Associates are entities over which the Group has significant influence, but not control, generally accompanying ashareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for by the equitymethod of accounting and are initially recognised at cost. The Group’s share of the post-acquisition profits or losses ofassociates is recorded in the consolidated profit or loss for the year as share of result of associate, and its share of post-acquisition other comprehensive income in associates is recognised in the Group’s other comprehensive income.

Discontinued Operations

A discontinued operation is a component of the Group that either has been disposed of, or that is classified as held forsale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiaryacquired exclusively with a view to resale. Earnings and cash flows of discontinued operations, if any, are disclosedseparately from continuing operations with comparatives being re-presented.


13

3. Summary of Significant Accounting Policies (Continued)

Disposals of subsidiaries and associates

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to itsfair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amountfor the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. Inaddition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted foras if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previouslyrecognised in other comprehensive income are recycled to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share ofthe amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and provision for impairment.

Minor repair costs and maintenance are expensed when incurred. The cost of replacing major parts or components ofproperty, plant and equipment items are capitalised and replaced parts are retired.

Land is not depreciated.

Depreciation of other property, plant and equipment is calculated using the straight-line method. The periods over which theassets are depreciated approximate their estimated useful economic lives and are as follows:

Category Useful LifeBuildings 30 – 50 yearsProduction equipment 1.5 – 10 yearsVehicles 3 – 5 yearsOffice equipment 3 – 5 yearsLeasehold improvements 3 – 6 yearsOther assets 3 – 6 years

Construction in progress includes expenses related to the acquisition and construction of property, plant and equipment,including the relevant overhead costs directly attributable to the cost of construction. These assets are depreciated beginningwith their commissioning date using the same method as is applied to all other assets of that type. Construction in progressalso includes prepayments made by the Group for the purchase of property, plant and equipment.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

At each reporting date management assesses whether there is any indication of impairment of property, plant andequipment, by comparing the recoverable amount, which is determined as the higher of an asset’s fair value less costs to selland its value in use, to the asset’s carrying amount. Any impairment loss is recognised in the consolidated profit or loss for theyear.

Leases

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownershipfrom the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis overthe lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset togetherwith any further terms for which the lessee has the option to continue to lease the asset, with or without further payment,when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Intangible Assets

The Group has the following types of intangible assets.

(i) Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combinationthat are not individually identified and separately recognised. Goodwill is carried at cost less accumulatedimpairment losses, if any.

(ii) Film and program rights

Film rights library includes the rights acquired from third party producers (defined as productions not undertakenor primarily financed by the Group itself), production costs of films produced within the Group (in-house and co-productions), co-productions and the cost of development of new projects. The Group generally has exclusiverights over license term for the films acquired from third parties and perpetual exclusive rights for in-house and co-produced films. Film rights are recorded at cost when the film is available for exhibition, as defined in the termsand conditions of the relevant purchase agreements.


14


Intangible assets (Continued)

(ii) Film and program rights (Continued)

Program rights consist of movies, series and entertainment programs licensed from both Western and Russianprogram distributors. The Group generally has limited, non-exclusive, all-Russia broadcast rights for its programs,licensed for a fixed cost per fixed number of runs over a fixed license term. The Group records program rightswhen a liability to pay for them has been established, the licensing period has commenced and the programmaterial has been received by the Group.

Film and program rights are amortised based on the consumption of their economic benefits. Film rights areamortised using the individual-film-forecast-computation method based on the ratio of actual revenues generatedby a film (or a group of similar films) to the estimated remaining unrecognised ultimate revenue as of thebeginning of the reporting period. Revenue forecasts and useful lives do not exceed a period of 10 years. Ultimaterevenue forecasts for individual films (or groups of similar films) are continually reviewed by management and theamortisation method and useful lives are revised accordingly.

Program rights that have a limited number of showings are amortised based on the number of runs andmanagement estimated allocation of generated revenues on a run-by-run basis. Program rights with unlimitedruns are amortised on a straight-line basis over the period of the license term.

(iii) Broadcast licenses

Broadcast licenses are granted by governmental authorities along with other operating licenses to allow televisionand radio broadcasting in a particular region of Russia. Broadcast licenses have generally renewable terms of fiveyears.

For VKPM (Radio broadcasting segment), and TV3 and MTV (TV broadcasting segments), management havedetermined that broadcast licenses have an indefinite useful life since management expect to be able to renewthe existing broadcast licenses of the Group indefinitely at an insignificant cost (Note 4 (ii) and 31).

For 2x2 (TV broadcasting segments), management have determined that air broadcast licenses have a finiteuseful life since management has taken a decision to develop 2x2 as a cable channel and therefore does notintend to apply for renewal of 2x2 air broadcast licenses (Note 5 and 31).

(iv) Cable contracts

Cable contracts are an integral part of the Group’s ability to deliver content to its TV audience and thus areinterlinked with the terms and limitations being set by the Broadcast licenses. These assets were also determinedto have indefinite lives for the reasons similar to broadcast licenses (Note 4(iii)).

(v) Network affiliation agreements

Network affiliation agreements are an integral part of the Group’s ability to deliver content to its TV audience.Network affiliation agreements acquired in a business combination are measured at their fair value at the date ofacquisition. All the network affiliation agreements relate to MTV channel. The management has determined thatthese assets have a finite useful life since management has taken a decision to re-launch MTV channel under anew brand and therefore considers its expected churn rate will increase. The useful life of these network affiliationagreements was determined to be 8 years (Note 5).

Network affiliation agreements arising in ordinary course of business are normally of insignificant cost andexpensed when incurred.

(vi) Trade marks and domain names

Acquired domain names, trademarks and copyrights licenses are capitalised on the basis of the costs incurred toacquire and bring them to use. These costs are amortised on a straight-line basis over their estimated useful lives(3 to 15 years).

(vii) Software

Acquired software is capitalised on the basis of the cost incurred to acquire and bring it to use. For internallygenerated software, development costs that are directly associated with such identifiable and unique softwarecontrolled by the Group are recorded as intangible assets if an inflow of incremental economic benefits exceedingcosts is probable. Capitalised costs include staff costs of the software development team and an appropriateportion of the relevant overhead costs. All other costs associated with computer software, such as maintenance,are expensed when incurred. All these costs are amortised on a straight-line basis over their estimated usefullives (1 to 10 years).


15


Intangible assets (Continued)

(viii) Intangible assets in progress

Intangible assets in progress represent mainly prepayments for film and program rights from third parties andcosts of development of new films within the Group. The typical production cycle for such films is within the rangeof 1.5 to 2.5 years. Intangible assets in progress are carried at cost, which consist of the cost of material, labourand appropriate overhead expenses. Development costs for films not produced are written off at the earlier of thetime a decision is made not to develop the script or the expiry of the exploitation rights.

(ix) Amortisation

Amortisation of intangible assets is included in operating expenses.

(ix) Cash flows for purchase of intangible assets

Management differentiates between program rights and all other intangible assets purchased for the purposes ofpresentation of cash outflows in relation to these purchases. Cash outflows relating to program rights are reflectedin cash flows from operating activities as management believes that these rights have shorter term economicbenefits flowing from them (with program runs being between 1 and 3 years) and thus are more akin to operatingactivities rather than investing activities. Cash outflows relating to all film rights are presented in cash flows frominvesting activities as such assets are long term in nature with extended revenue generating profiles.

Impairment of Non-current Assets

(i) Impairment of Goodwill

The Group tests goodwill for impairment at least annually as well as when there are indications that goodwill maybe impaired. Goodwill is allocated to the cash-generating units (CGU), or groups of cash-generating units, that areexpected to benefit from the synergies of the business combination. For TV broadcasting segment, the CGU is abroadcasting format, for all other segments the CGU comprises the entire business unit.

The recoverable amounts of each of the cash-generating units is determined as the higher of an asset’s fair valueless costs to sell and its value in use. The value-in-use is determined using estimated discounted cash flow. Thefair value less costs to sell is usually determined using observable market prices for the same or similar assets.

If the recoverable amount of a CGU or a group of CGUs is less than the carrying amount, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets ofthe CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period.

(ii) Impairment of other non-current assets

The Group tests other assets with an indefinite useful life for impairment at least annually as well as when thereare indications that such assets may be impaired. Other assets with an indefinite useful life are tested forimpairment within the same CGUs or groups of CGUs as goodwill.

An impairment loss, recognised for a non-current asset (other than goodwill) in prior years is reversed if there hasbeen a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Financial Assets and Liabilities

The Group recognises financial assets and liabilities on the consolidated statement of financial position when it becomes aparty to the contractual provisions of the instrument.

(i) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits on demand in banks, short-term highly liquidinvestments with original maturity less than three months and bank overdrafts. Cash and cash equivalents arecarried at amortised cost using the effective interest method which approximates their current fair value.

(ii) Trade receivables and loans receivable

Trade receivables and loans receivable are recorded initially at fair value and subsequently measured atamortised cost using the effective interest method. Generally, this results in their recognition at nominal value lessany impairment provisions.

(iii) Available-for-sale investments

Available-for-sale investments are initially recorded and subsequently carried at fair value. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year as finance income when the Group’s rightto receive payment is established and it is probable that the dividends will be collected. All other elements ofchanges in the fair value are recognised in other comprehensive income until the investment is derecognised orimpaired at which time the cumulative gain or loss is reclassified from other comprehensive income to profit orloss for the year.


16


Financial Assets and Liabilities (Continued)

(iv) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequentlycarried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemptionvalue is recognised in the profit or loss over the period of the borrowings using the effective interest method.

(v) Trade payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised costusing the effective interest method.

(vi) Royalty liabilities

Agreements for the acquisition of film rights contain the requirement for the Group to pay a royalty based on thelevel of revenue generated by the actual distribution of such films or programs.

Therefore a financial liability is recognised in respect of royalties at the time when the Group enters into the salesagreement, as an unconditional contractual obligation for the Group to pay such royalty in cash when the film hasbeen distributed. The royalty liabilities are initially recognised at fair value (measured at the discounted value offuture expected payments under the agreements).

An adjustment to the royalty liability is recorded based on the actual receipt of funds for the sale of film or programrights by the Group. Subsequent to initial recognition, royalty liabilities are measured at amortised cost, withchanges in the liability recognised directly in the consolidated profit or loss for the year within content costs.

(vii) Financial guarantees

Financial guarantees are irrevocable contracts that require the Group to make specified payments to reimbursethe holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due inaccordance with the terms of a debt instrument. Financial guarantees are initially recognised at their fair value,which is normally evidenced by the amount of fees received. The fair value of financial guarantees issued torelated parties is determined with reference to market prices of similar instruments. This amount is amortised on astraight line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measuredat the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimateof expenditure required to settle the obligation at the end of the reporting period.

Derecognition of Financial Assets

The Group derecognises financial assets when: (a) the assets are redeemed or the rights to cash flows from the assets haveotherwise expired; or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into aqualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of theassets; or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control.Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated thirdparty without needing to impose additional restrictions on the sale.

Derecognition of Financial Liabilities

The Group derecognises a financial liability (or a part of a financial liability) from its statement of financial position only whenthe obligation specified in the relevant contract is discharged or cancelled or expires. A substantial modification in terms of anexisting financial liability is accounted for as an extinguishment of the original financial liability and the recognition of a newfinancial liability. The Group considers modification in terms to be substantial if the discounted present value of the cash flowsunder the new terms is at least 10 per cent different from the discounted present value of the remaining cash flows of theoriginal financial liability or if the nature of the liability has changed substantially. Any difference between the carrying amountof a financial liability extinguished and the consideration paid, including any non-cash assets transferred or liabilitiesassumed, is recognised in profit or loss.

Share capital, share premium and additional paid-in capital

Ordinary shares are classified as share capital. Any excess of the fair value of consideration received over the par value ofshares issued is recorded as share premium in equity. Gains and losses on transactions with owners in their capacity asowners, including contributions by and distributions to owners and changes in ownership interests in subsidiaries that do notresult in a loss of control, are recognised within additional paid-in capital in equity.

Dividends

Dividends are recognised as a liability and deducted from equity at the reporting date only if they are declared before or onthe reporting date.


17


Value Added Tax and Income Tax

Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of the receivables fromcustomers; or (b) delivery of the goods or services to customers. Input VAT is generally recoverable against output VAT uponreceipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales andpurchases is recognised in the consolidated statement of financial position on a gross basis and disclosed separately as anasset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for the grossamount of the debtor, including VAT.

For the Group’s subsidiaries incorporated in the Russian Federation, income taxes have been computed in accordance withthe laws of the Russian Federation. Taxable income of these subsidiaries is subject to federal and local income tax. As at andthroughout the year ended 31 December 2012 the income tax rate in the Russian Federation was 20% (2011: 20%).Subsidiaries incorporated in Cyprus are subject to income tax at 10% (2011: 10%).

The income tax charge/credit is comprised of current tax and deferred tax and is recognised in the consolidated profit or lossfor the year unless it relates to transactions that are recognised, in the same or a different period, directly in equity, or othercomprehensive income.

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits orlosses for the current and prior periods. The provision for current income tax includes income tax obligations of the Russianand Cypriot companies of the Group, determined under applicable Russian and Cypriot legislation enacted or substantivelyenacted by the reporting date.

Deferred tax is accounted for using the liability method in respect of temporary differences arising from differences betweenthe carrying amount of assets and liabilities in the IFRS consolidated financial statements and the corresponding tax basisused in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it isprobable that future taxable profit will be available against which the deductions can be utilised. Deferred income tax assetsand liabilities of the Group are offset only within the individual subsidiaries when they relate to income taxes levied by thesame taxation authority and the Group intends to settle its tax assets and liabilities on a net basis. The deferred income tax isnot accounted for if it arises from the initial recognition of an asset or a liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax isdetermined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and areexpected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, exceptwhere the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporarydifference will not reverse in the foreseeable future.

The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities arerecorded for income tax positions that are determined by management as more likely than not to result in additional taxesbeing levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of taxlaws that have been enacted or substantively enacted by the end of the reporting period and any known court or other rulingson such issues.

Provisions

Provisions are recognised when the Group has legal or constructive obligations as a result of a past event for which it isprobable that an outflow of economic benefits will be required to settle the obligations, and the amount of the obligations canbe reliably estimated in monetary terms. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determinedby considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow withrespect to any one item included in the same class of obligations may be small.

Provisions for taxes other than on income, and related interest and penalties, are recognised when the Group has a presentobligation, and a reliable estimate of the amount can be made. A provision is recognised for taxes and interest when theybecome payable according to law. The provisions are maintained, and updated if necessary, for the period over which therespective tax positions remain subject to review by the tax authorities. In Russia, this period is 3 years from the year of filing.

Provisions for taxes other than on income, interest and penalties are calculated based on management’s best estimate of theobligation, in accordance with rates set out in the respective laws in effect at the reporting date.

Provisions for income taxes are presented in the income tax payable line of the consolidated statement of financialposition and the income tax expense line of the consolidated profit or loss for the year. Related interest and penaltiesare presented within the provision line of the consolidated statement of financial position and other operatingincome/expense in the consolidated profit or loss for the year.


18


Employee Benefits

Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave andsick leave, bonuses, and other benefits (such as health insurance) are accrued in the year in which the associated servicesare rendered by the employees of the Group.

In accordance with Russian legislative requirements the Group companies make all social contributions, includingcontributions to the state pension fund, social security fund and medical insurance funds.

The social security contributions are expensed as incurred.

The Group has no other liabilities in respect of retirement and other benefit obligations.

Content costs and advertising expenses

Content costs consist of expenditures on various purchased content, including royalty. Content costs are expensed whenassociated film, TV or radio program is released or run. Royalties are expensed when associated liability is recognised oradjusted.

Cost of advertising is expensed when the corresponding advertisement is run.

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantialtime to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets, if thecommencement date for capitalisation is on or after 1 January 2008.

Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.

The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifyingassets. Borrowing costs capitalised are calculated at the group’s average funding cost (the weighted average interest cost isapplied to the weighted average expenditures on the qualifying assets), except to the extent that funds are borrowedspecifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less anyinvestment income on the temporary investment of those borrowings are capitalised.

Revenue Recognition

Revenue is generally recognised when it is probable that the economic benefits associated with the transaction will transfer tothe Group and the amount of revenue can be measured reliably. Revenues are recognised on an accrual basis, net of valueadded tax and after eliminating sales within the Group. The Group classifies its revenue as follows.

(i) Revenue from distribution of film rights

Revenues from the distribution of film rights are recognised when the licence term for the purchaser of the filmrights has begun and broadcast-ready materials have been delivered to the purchaser. Such agreements arereviewed to assess whether the Group has exposure to the significant risks and rewards associated with therendering of services and therefore is principal rather than agent to the contract. If the Group is acting as aprincipal, the amounts received (or receivable) from customers are considered as Group’s revenue and relevantexpenses are not netted-off in profit and loss. In contrast, if the Group is acting as an agent, the Group’s revenueis only its commission.

Revenues from the distribution of video rights are recognised when the licence term for the purchaser of the videorights has begun and relevant video units are sold by sellers.

Advances received generally relate to contracts for the licensing of theatrical and television product which hasalready been produced and the recognition of revenue for such completed product is principally dependent uponthe commencement of the availability period for telecast under the terms of the related licensing agreement.

(ii) Revenue from advertising

The Group recognises advertising revenues after the advertising had been aired or published, and the collectionof amounts from customers is reasonably assured. Advertising revenues are recognised net of rebates. TheGroup recognises agency commissions as either a reduction of revenue (when the advertising commissions areclosely related to revenue) or as commissions expense (when an advertising agency provides value-addedservices to the Group).

The Group recognises revenue in relation to TV advertising based on the actual delivery of advertising spots to aspecified amount of viewers, such calculation is described as gross rating points (GRPs) and the calculation isperformed using the information provided by an external provider, TNS Gallup


19


Revenue Recognition (Continued)

(iii) Revenue from publishing

Revenues from publishing include subscription revenues and revenues from the retail distribution of printedproducts. Subscription revenues are based on subscription agreements with customers and are recognised in theperiod when the products are delivered to the customers. Revenues from the retail distribution of printed productsare recognised upon the shipment of such printed products, net of buy-backs and sales returns, which areestimated based on historical rates.

Other revenues

Other revenues include cinema bar sales, revenue from interactive and other services, retransmitted broadcastingand leases and subleases.

Government Grants

The Group receives grants for certain Russian produced films from the Federal Fund for Social and Economic Support(“the Cinema Fund”). Government grants, including non-monetary grants at fair value, are recognised only when there isreasonable assurance that the Group will comply with the conditions attached to them, and that the grants will be received.Government grants are amortised in accordance with the period over which the completed cost of the related film isamortised and reflected in the consolidated profit or loss for the year as other income.

If an agreement on a government grant requires a royalty-based fee payable to the Cinema Fund, the Group recognises theliability for the fee to the Cinema Fund when the relative government grant is recognised. The liability is measured at its fairvalue being the best estimate of the cash required to settle the liability.

Government grants related to assets are presented in the statement of financial position by setting up the grant asdeferred income.

Non-controlling interest in Group's Subsidiaries Organised in the Form of Limited Liability Companies

Non-Controlling equity participants in the Group's subsidiaries organised in the form of limited liability companies have a rightto request redemption of their interests in these subsidiaries in cash. The Group’s obligation to redeem gives rise to afinancial liability for the present value of the redemption amount even though the obligation is conditional on the equityparticipant exercising the right. It is impractical to determine the fair value of this liability as it is unknown when and ifparticipants will withdraw from the subsidiaries. As a practical expedient, the Group measures the liability presented as “Non-controlling interest in LLC subsidiaries” at the IFRS carrying value of the net assets attributable to such non-controlling equityparticipants. The liability is classified as non-current because the Group has an unconditional right to defer redemption for atleast twelve months after the balance sheet date. Share in results of LLC subsidiaries for the year attributable to non-controlling interest is presented within “Other operating expenses, net” line of the statement of comprehensive income.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operatingdecision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reportedseparately.

4. Critical Accounting Estimates and Judgements

Preparation of consolidated financial statements requires the Group to make estimates and judgements that affect theapplication of policies and reported amounts. Estimates and judgements are continually evaluated and are based onhistorical experience and other factors, including expectations of future events that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates. Judgements that have the most significant effect on theamounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amountof assets and liabilities within the next financial year include:

(i) Impairment of goodwill and other indefinite-lived assets

The Group tests at least annually whether goodwill and other indefinite-lived assets have suffered anyimpairment. The recoverable amounts of each of our cash-generating units have been determined as the higherof an asset’s fair value less costs to sell and its value in use. The value-in-use is determined using estimateddiscounted cash flow. The fair value less costs to sell is usually determined using observable market prices for thesame or similar assets. Refer to Note 11.

Goodwill is allocated to the cash-generated units. If the recoverable value of CGU’s net assets exceeds itsrecoverable amount the impairment loss is allocated at first on goodwill than on other assets to the highest of itsfair value less cost to sell, its value in use or zero.


20

4. Critical Accounting Estimates and Judgements (Continued)

(ii) Useful economic life of broadcast licenses

For VKPM (Radio broadcasting segment), the Group determined the useful lives of radio broadcast licenses to beindefinite. Management determined this based on a number of factors as detailed below:

The future digitalisation of radio broadcasting is considered to be remote;The renewal of radio broadcasting licenses does not require significant costs;There has been a continued history of current licenses being renewed;There has been increased stability in the Russian political and economic environments.

For TV3 and MTV (TV broadcasting segment), the Group determined the useful lives of broadcasting licenses tobe indefinite. Management determined this based on a number of factors as detailed below:

Management believes the digital licenses to be awarded as a result of the third multiplex competition (Note31) should be effectively considered an extension of existing analog licenses, as also awarded on theregional basis;Having analysed the competitive environment and the expected criteria of the competition Managementbelieves that TV3 and MTV will win the third multiplex competition in the regions currently covered withanalog licenses;Management expects no significant additional expenses will be incurred in connection with the switch todigital broadcasting technology (Note 31);There has been a continued history of current licenses being renewed;There has been increased stability in the Russian political and economic environments.

One of the most critical assumptions used in making this change in estimated lives is the expected win of the thirdmultiplex competitions. Should TV3 and MTV be unable to win the competition in the regions currently coveredwith analog licenses, management will reassess the useful life of licenses. As a result the Group will startamortizing TV broadcast licenses and may recognize an impairment loss in the maximum amount of up toRUB 15,918 million (the carrying value of the existing TV3 and MTV broadcast licenses).

(iii) Useful life of cable contracts

Management determined the useful lives of cable contracts to be indefinite based on the following factors asdetailed below:

Expected digitalization does not affect cable contracts;No additional expenses are expected to be incurred in connection with maintenance of cable contracts;There is no history of termination of existing cable contracts;There has been increased stability in the Russian political and economic environments.

(iv) Amortisation of film and program rights

As disclosed in Note 3 ultimate revenue forecasts for individual films or groups of similar films and allocation ofgenerated revenues on a run-by-run basis for certain TV programs are continually reviewed by management andthe amortisation method and useful lives are revised accordingly. The change in these estimates may lead tochanges in the Group’s amortisation, asset impairment and related tax consequences.

(v) Recognition of result from sale of a subsidiary

In December 2011 the Group sold 100% of shares of CP Invest (Overseas) Limited to the Parent Company (referto Note 29). Management exercised its judgement and recognized the gain on this sale in profit and loss ratherthan in equity because not all of the Group’s shareholders were treated equally in this transaction. By recordingthe gain on sale within profit and loss, the gain is fairly allocated to each shareholder proportionally to theirownership interest.

(vi) Presentation of film distribution and internet advertising revenue: gross versus net

Management have determined that in some agreements for film distribution and internet advertising the Group isan agent as third party has exposure to the significant risks and rewards associated with the rendering ofservices. The Group therefore records revenue received (or receivable) from customers as revenue and relevantexpenses are netted-off in profit or loss for the year. If the amounts were shown gross, revenue from distributionof film rights would increase by RUB 1,146 million (2011: RUB 2,011 million) and advertising revenue wouldincrease by RUB 281 million (2011: 127) with a corresponding increase in operating expenses.


21

5. Change in Accounting Estimates

2x2 TV broadcast licenses

In 2012 Management changed its estimate of the useful life of broadcast licenses of 2x2 and changed its amortisation policyas described below.

Starting from December 2012, based on the result of the second multiplex competition (Note 31), the Group determined theuseful lives of 2x2 TV broadcasting licenses to be finite since management does not intend to renew these licenses upontransition to digital TV. The useful lives of these broadcasting licenses were determined based on expected pattern of switchto digital broadcasting technology in Russian regions (from 2014 to 2017). Should this pattern be revised, management willreassess the useful lives of such licenses and revise the appropriate amortisation charge accordingly.

Network affiliation agreements

In 2012 Management changed its estimate of the useful life of network affiliation agreements of MTV and changed itsamortisation policy as described below.

Starting from December 2012, based on the announced MTV re-launch (Note 1), the useful life of network affiliationagreements relating to MTV channel has been reassessed as finite as management expects their churn rate to increase. Theuseful life of these network affiliation agreements was determined to be 8 years.

One the most critical assumptions used in this decision is expected churn of the network affiliation agreements. Should theexpectations of management change, management will reassess the useful life of network affiliation agreements.

Amortisation of film rights

During the year ended 31 December 2012 management have revised ultimate revenue forecasts for future periods for certainfilms.

The effect of the change in estimates of the ultimate revenue forecasts for film rights on the result for the year ended 31December 2012 is an increase in the amortisation of film rights of RUB 208 million, an increase in the asset impairment ofRUB 464 million and an increase in the income tax benefit of RUB 134 million with a corresponding increase in the net lossfor the year of RUB 538 million. Had the estimates not changed these amounts would have been recognised as part of theamortisation of film rights over the next 9 years.

6. Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements

During the current year the Group adopted all the new and revised International Financial Reporting Standards (IFRS) thatare relevant to its operations and are effective for accounting periods beginning on 1 January 2012. This adoption did nothave a material effect on the accounting policies of the Group. At the date of approval of these financial statements thefollowing financial reporting standards and amendments to these reporting standards were issued by the InternationalAccounting Standards Board but were not yet effective:

1. IFRS 9 “Financial Instruments” (and subsequent amendments to IFRS 9 and IFRS 7) (effective for annual periodsbeginning on or after 1 January 2015, not yet adopted by the EU);2. IFRS 10 “Consolidated Financial Statements” (effective for annual periods beginning on or after 1 January 2013,not yet adopted by the EU);3. IFRS 11 “Joint Arrangements” (effective for annual periods beginning on or after 1 January 2013, not yet adoptedby the EU);4. IFRS 12 “Disclosure of Interests in Other entities” (effective for annual periods beginning on or after 1 January2013, not yet adopted by the EU);5. IFRS 13 “Fair Value Measurement” (effective for annual periods beginning on or after 1 January 2013);6. IAS 19 (revised 2011) 'Employee benefits' (effective for annual periods beginning on or after 1 January 2013);7. IAS 24 (revised), 'Related party disclosures' (effective for annual periods beginning on or after 1 January 2013);8. IAS 27 “Separate Financial Statements” (revised 2011) (effective for annual periods beginning on or after 1January 2013; not yet adopted by the EU);9. IAS 28 “Investments in Associates and Joint Ventures” (revised 2011) (effective for annual periods beginning on orafter 1 January 2013);10. Amendments to IFRS 7 “Financial Instruments: Disclosures” on Offsetting Financial Assets and Financial Liabilities(effective for annual periods beginning on or after 1 January 2013);11. Amendments to IAS 32 “Financial Instruments: Presentation” on Offsetting Financial Assets and FinancialLiabilities (effective for annual periods beginning on or after 1 January 2014);12. IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” (effective for annual period beginning on orafter 1 January 2013);13. Annual improvements 2011 (effective for annual periods beginning on or after 1 January 2013; not yet adopted bythe EU);14. Amendments to IFRS 10,11 and 12 on transition guidance (effective for annual periods beginning on or after 1January 2013; not yet adopted by the EU);15. Amendments to IFRS 10, 12 and IAS 27 on consolidation for investment entities (effective for annual periodsbeginning on or after 1 January 2014; not yet adopted by the EU).16. Amendments to IAS 1 “Presentation of Financial statements” (effective for annual periods beginning on or after 1July 2012).


22

6. Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements (Continued)

The Board of Directors expects that the adoption of these financial reporting standards in future periods will not have amaterial effect on the financial statements of the Group, with the exception of the following:

1. IFRS 9, “Financial Instruments”. IFRS 9 is the first standard issued as part of a wider project to replace IAS 39.IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories forfinancial assets: amortised cost and fair value. The basis of classification depends on the entity’s business model andthe contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financialassets and hedge accounting continues to apply;

2. IFRS 10, “Consolidated Financial Statements”. The objective of IFRS 10 is to establish principles for thepresentation and preparation of consolidated financial statements when an entity controls one or more other entity topresent consolidated financial statements. It defines the principle of control, and establishes controls as the basis forconsolidation. It sets out how to apply the principle of control to identify whether an investor controls an investee andtherefore must consolidate the investee. It sets out the accounting requirements for the preparation of consolidatedfinancial statements.

3. IFRS 13, “Fair Value Measurement”. IFRS 13 aims to improve consistency and reduce complexity by providing aprecise definition of fair value and a single source of fair value measurement and disclosure requirements for useacross IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it shouldbe applied where its use is already required or permitted by other standards.

The Group is considering the implications of these financial reporting standards, the impact on the Group and the timing of itsadoption by the Group.

7. Segment Information

The Group has identified its operating committee, consisting of the President and Vice-Presidents of the Group, as the chiefoperating decision maker (“CODM”).

The Group has identified its reportable segments based on the information reviewed by the CODM about the types ofproducts and services from which revenue is generated as follows:

TV broadcasting – television advertising, retransmitted broadcasting;Content production and distribution – distribution of own, acquired and third-party film content;Radio broadcasting – radio advertising, radio retransmitted broadcasting;Digital – internet advertising, advertising and retail distribution of printed products, as well as delivery of interactiveand other services;Other – operating segments that account for less than 10% of the total reportable segments’ net profit or loss,revenue and assets.

Information about the TV3, 2x2 and MTV operating segments is provided to the CODM. These segments have beenaggregated into one TV broadcasting segment as they have similar economic characteristics and provide similar services tosimilar customers in similar markets.

In August 2010 the Group made a decision to unite Rambler Media and Afisha with a view to develop a united digitalplatform.

In December 2011 the Group disposed of the Film exhibition segment which comprised cinema theatres operations, includingcinema distribution and cinema bar sales (refer to Note 29).

The operating committee assesses the performance of the operating segments based on adjusted EBITDA as a primarymeasure. Adjusted EBITDA is calculated as the difference between revenue and cost of sales, commercial, general andadministrative expenses as described below. The operating committee reviews net profit or loss as a secondary measure toassess segment performance. The operating committee also reviews consolidated adjusted EBITDA which is reconciled tototal segment adjusted EBITDA by segments through the adjustments explained below.

Revenue from external parties reported to the operating committee is measured in accordance with revenue recognitionaccounting policy. Sales between segments are accounted for in accordance with the same policies.

The other segment is presented mainly by the Group’s head office. The head office’s revenues mainly comprises revenuefrom managerial services to the Group’s subsidiaries and income from office subleases.

Cost of sales include expenses associated with direct costs related to production or delivery of the segment products orservices: content costs, amortisation of program rights (TV and Radio broadcasting segments), payroll, replication of filmcopies, distribution expenses, distribution (broadcasting) costs.

Gross margin is defined as the difference between revenue (excluding inter-segment revenue) and cost of sales.

Commercial expenses include all sales-related costs. General and administrative expenses comprise all remaining operatingexpenses of general nature.

Net income is the net segment result and is equivalent to net profit (loss) for the year attributable to the equity holders of theparent.

No revenues from transactions with a single external customer amount to 10% or more of the Group’s revenues. All theGroup’s operating segments operate in the same geographical area – the Russian Federation.

Segment information for the main reportable business segments of the Group for the years ended 31 December 2012 and2011 is set out below.


23

7. Segment Information (Continued)

TV

Bro

ad

casti

ng

Co

nte

nt

pro

du

cti

on

an

dd

istr

ibu

tio

n

Rad

ioB

road

casti

ng

Dig

ital

All

oth

er

seg

men

ts

To

talre

po

rtab

leseg

men

ts

Elim

inati

on

san

du

nallo

cate

dit

em

s

To

tal

31 December 2012Revenue 7,678 3,712 2,301 2,898 1,097 17,686 (1,714) 15,972Inter-segment revenue (631) (67) (22) (6) (988) (1,714) 1,714 -Revenue from external customers 7,047 3,645 2,279 2,892 109 15,972 - 15,972

Cost of sales 3,608 782 611 1,601 137 6,739 (383) 6,356Gross margin 4,070 2,930 1,690 1,297 960 10,947 (1,331) 9,616Commercial expenses 1,993 861 607 748 66 4,275 (673) 3,602General and administrative expenses 547 430 463 392 659 2,491 (620) 1,871Adjusted EBITDA 1,530 1,639 620 157 235 4,181 (38) 4,143Depreciation and amortization ofbroadcast licenses, network affiliationagreements, trade mark and domainname, software and other intangibleassets 64 23 68 283 99 537 219 756Amortization of film rights - 1,985 - - - 1,985 - 1,985Asset impairment 1,014 575 - - 5 1,594 21 1,615Loss/(Gain) on sale of assets 78 - - 3 (130) (49) 59 10Amortization of government grants - (192) - - - (192) 2 (190)Share of (profit)/loss of associates - - 2 (38) (2) (38) 2 (36)Finance cost 432 88 142 148 1,061 1,871 (676) 1,195Finance income (286) (1) - (23) (474) (784) 678 (106)Income tax expense/(benefit) 190 121 88 (16) 8 391 (138) 253Amortisation of financial guaranteeliability (6) - - - - (6) (64) (70)Other (income)/expense onassignment of intercompany loans - - - 551 (551) - - -Legal restructuring expenses 2 - - 45 47 (47) -Other (income)/expense 4 - (8) - 24 20 (12) 8Gain on correction of considerationtransferredfor the acquiree afterthe measurementperiod (Note 32) - - - - (36) (36) - (36)LLC participations - - 36 - - 36 - 36Non-controlling interest - - (73) - (73) (247) (320)(Gain)/Loss on disposal of subsidiary(Note 29) - - - - 199 199 (351) (152)Net profit/(loss) attributable toequity holders of the parent perconsolidated statement ofcomprehensive income 38 (960) 292 (723) 32 (1,321) 516 (805)


24


TV

Bro

ad

casti

ng

Co

nte

nt

pro

du

cti

on

an

dd

istr

ibu

tio

n

Film

exh

ibit

ion

(Dis

co

nti

nu

ed

in2011)

Rad

ioB

road

casti

ng

Dig

ital

All

oth

er

seg

men

ts

To

talre

po

rtab

leseg

men

ts

Elim

inati

on

san

du

nallo

cate

dit

em

s

To

tal

31 December 2011Revenue 5,655 4,305 5,717 1,823 2,868 1,019 21,387 (7,187) 14,200Inter-segment revenue (73) (441) (9) (16) (8) (932) (1,479) 1,479 -Revenue from externalcustomers 5,582 3,864 5,708 1,807 2,860 87 19,908 (5,708) 14,200

Cost of sales 3,231 1,165 3,843 546 1,507 137 10,429 (4,174) 6,255Gross margin 2,424 3,140 1,874 1,277 1,361 882 10,958 (3,013) 7,945Commercial expenses 1,232 846 142 485 672 111 3,488 (353) 3,135General and administrativeexpenses 386 346 538 472 365 912 3,019 (910) 2,109Adjusted EBITDA 806 1,948 1,194 320 324 (141) 4,451 (1,750) 2,701Depreciation andamortization of trade markand domain name, softwareand other intangible assets 50 18 716 62 239 92 1,177 (510) 667Amortization of film rights - 1,550 - - - - 1,550 - 1,550Asset impairment 277 352 250 - 22 - 901 437 1,338Goodwill impairment - - - - - - - 2,102 2,102(Gain)/loss on sale of assets 53 6 6 (7) 12 (4,571) (4,501) 4,534 33Dividend income (48) - - - - - (48) 48 -Amortization of governmentgrants - (202) - - - - (202) 12 (190)Share of (profit/)loss ofassociates - - - 1 (5) (1) (5) 4 (1)(Profit)/loss from discontinuedoperations - - - - - - - (4,509) (4,509)Finance cost 550 106 1,199 202 57 2,259 4,373 (1,930) 2,443Finance income (303) (4) (6) (1) (27) (648) (989) 954 (35)Income tax expense 163 222 (6) 29 (11) 15 412 (416) (4)LLC participations - - - 32 - - 32 - 32Gain on reclassification ofassociate to Available-for-Sale investments - - - - (441) - (441) - (441)Other income (61) - - (18) - (154) (233) 76 (157)Non-controlling interest - - - (6) - (6) (7) (13)Net profit/(loss) attributableto equity holders of theparent perconsolidated statement ofcomprehensive income 125 (100) (965) 20 484 2,867 2,431 (2,545) (114)


25


Reportable segments’ net profit/(loss) is reconciled to consolidated net loss as follows:

2012 2011Net (loss)/profit for reportable segments (1,321) 2,431Unallocated:Amortisation of difference between carrying amounts determined as a part of purchasemethod of accounting and historical cost of intangible assets

(219) (206)

Impairment of intangible assets recognised as part of business combinations accounted for atthe Group level (i)

(21) (689)

Impairment of goodwill recognised as part of business combinations accounted for at theGroup level (ii)

- (2,102)

Reversal of provision for taxes other than on income (iii) - 7Deferred income tax benefit (iv) 138 422Non-controlling interest on consolidation level (v) 247 7Elimination of intercompany dividends - (48)Unrealised (gain)/loss on intercompany transactions (50) 48Unrealised gain on intercompany sale of investments ( vi) - (1,669)Consolidation adjustment to the result of sale of discontinued operations ( vii) - 2,005Cost of financial guarantee liability recorded at consolidation level in discontinued operations(Note 29)

- (400)

Amortisation of financial guarantee liability recorded at consolidation level (Note 26, 29) 70 -Consolidation adjustment to the result of disposal of subsidiary ( Note 29) (viii) 351 -Deferred income tax benefit on cost of financial guarantee liability recorded at consolidationlevel in discontinued operations (Note 29)

- 80

Total loss attributable to equity holders of the parent perconsolidated statement of comprehensive income

(805) (114)

Unallocated amounts in the above reconciliation are as follows:

(i) Impairment of intangible assets recognised as part of business combinations accounted for at the Group level –impairment of fair value arising on acquisition of subsidiaries accounted for at the Group level (as opposed toimpairment of fair value relating to acquisition at the level of entities included in particular segment);

(ii) Impairment of goodwill recognised as part of business combinations accounted for at the Group level –impairment of goodwill arising on acquisition of subsidiaries accounted for at the Group level (as opposed toimpairment of goodwill and fair value relating to acquisition at the level of entities included in particular segment);

(iii) Provisions for taxes other than on income – release of provisions on taxes other than on income that areaccounted for on consolidation level;

(iv) Deferred income tax (expense)/benefit – deferred income tax is not analysed by management on segment leveland is recognised on consolidation level;

(v) Non-controlling interest on consolidation level – non-controlling interest recorded at the Group level (as opposedto non-controlling interest recorded at the operating segment level).

(vi) Unrealised gain on intercompany sale of investments – elimination of unrealised intercompany gain fromtransfer of subsidiaries from other segments to the Film exhibition segment;

(vii) Consolidation adjustment of the results from CP Invest sale at the Group level (refer to Note 29);(viii) Consolidation adjustment to the result of disposal of subsidiary - consolidation adjustment to the result from the

sale of the subsidiary Kareno Investments Limited at the Group level (refer to Note 29).


26


The Group’s management also reviews total assets by segments and additions to non-current assets.

TV

Bro

ad

casti

ng

Co

nte

nt

pro

du

cti

on

an

dd

istr

ibu

tio

n

Film

exh

ibit

ion

(Dis

co

nti

nu

ed

in2011)

Rad

ioB

road

casti

ng

Dig

ital

All

oth

er

seg

men

ts

To

talre

po

rtab

leseg

men

ts

Elim

inati

on

san

du

nallo

cate

dit

em

s

To

tal

2012Total assets 11,309 5,412 - 2,554 3,278 6,747 29,300 16,155 45,455Additions to non-current assets 3,371 2,354 - 112 277 92 6,206 (111) 6,0952011Total assets 10,892 5,335 - 2,424 3,329 8,505 30,485 16,740 47,225Additions to non-current assets 2,850 1,826 - 130 533 102 5,441 (51) 5,390

Segment assets include various items engaged in its business activities and are presented by the following:

TV Broadcasting – broadcast licenses and cable network contracts, own and licensed program rights,broadcasting and office equipment and goodwill related to acquired broadcasting stations;Content production and distribution – film rights library represented by own and licensed films and variousTV content;Film exhibition – multiplex cinemas located in various cities in the Russian Federation including owned andleased buildings, cinema and office equipment and bar inventories This segment was discontinued as at31 December 2011 (refer to Note 29);Radio Broadcasting – broadcast licenses for its formats for various cities in the Russian Federation, goodwillrelated to acquired broadcasting stations and broadcasting and office equipment;Digital – licensed and own software, domain names and web-sites, computer and office equipment, trademarkand goodwill;

In 2011 the Group combined Rambler Media and Afisha to a united business unit named “Digital” with a view to develop aunited digital platform. Although the combination resulted in a new combined segment “Digital”, as the operating committeeassessed the performance of united business unit, in 2011 the Group’s Consolidated Financial Statements continued topresent the New Media (Rambler Media and Afisha internet business) and Publishing (Afisha publishing business) operatingsegments separately. Starting from 2012 united business unit is presented in single segment named Digital.

The effect of representation of New media and Publishing segments in united Digital segment comparative to 2012presentation is as follows:

As originally presentedAs presented in unitedsegment for 2011 year

31 December 2011 Publishing New Media Digital

Total assets 410 2,919 3,329

Revenue 491 2,377 2,868Inter-segment revenue (7) (1) (8)Revenue from external customers 484 2,376 2,860Cost of sales 210 1,297 1,507Gross margin 281 1,080 1,361

Commercial expenses 168 504 672General and administrative expenses 11 354 365Adjusted EBITDA 102 222 324Depreciation and amortization of trade mark anddomain name, software and other intangible assets

- 239 239

Asset impairment - 22 22Loss on sale of assets - 12 12Share of profit of associates - (5) (5)Finance cost - 57 57Finance income - (27) (27)Income tax expense - (11) (11)Gain on reclassification of associate to Available-for-Sale investments

- (441) (441)

Non-controlling interest - (6) (6)Total loss attributable to equity holders of the parentper consolidated statement of comprehensive income

102 382 484


27


All segment assets also include cash and equivalents, receivables and loans, prepayments and other current assets relatedto each particular segment and exclude intercompany investments that are not analysed by CODM on segment level.

Reportable segments’ assets are reconciled to total assets as follows:

2012 2011Segment assets for reportable segments 29,300 30,485Unallocated:Difference between carrying amounts determined as a part of purchase method ofaccounting and historical cost of intangible assets 16,670 16,935Goodwill (i) 7,367 7,423Eliminations (ii) (8,886) (8,543)Deferred tax assets (iii) 1,004 925Total assets per consolidated statement of financial position 45,455 47,225

Unallocated amounts in the above reconciliation represent the following:

Goodwill – goodwill arising on acquisitions of subsidiaries accounted for at the Group level (as opposed togoodwill relating to acquisitions at the level of entities included in a particular segment);Eliminations – various items eliminated on consolidated level, primarily intercompany receivables and loans;Deferred tax – deferred tax assets are not analysed by management on segment level.

8. Balances and Transactions with Related Parties

Information on transactions with the Group’s Parent Company, parties related by means of common ownership and controland other related parties, as defined by IAS 24 (revised) “Related Party Disclosures” is presented below unless otherwisedisclosed elsewhere in these consolidated financial statements and the notes thereto. In considering each possible relatedparty relationship, attention is directed to the substance of the relationship, not merely the legal form.

Information on the Parent Company and the ultimate controlling party is presented in Note 1.

Transactions and balances between the Group and related parties are as follows:

Note 2012 2011Parent CompanyReceivables and loans 14 - 1,989Gain on sale of subsidiary 29 - 5,015Key management personnelRegular salaries 71 98Annual bonuses 33 35Board of directorsRegular compensation 6 6Companies under common control of the ultimate controlling partyRevenue 349 -Advertising expenses 13 -Interest expense - 446Receivables and loans 39 34Cash and cash equivalents - 52Amortisation of Financial guarantee liability 26 70 -Financial guarantee liability 23 330 400Trade and other payables 10 3Companies having significant influence over Group’s subsidiariesRevenue - 19Trade and other payables - 5Royalty expenses - 88AssociatesAdvertising expenses 157 168

Key management personnel is defined as the President and the Vice-Presidents (Chief Operating Officer, Chief FinancialOfficer and Chief Investment Officer).

In May 2011 the Group borrowed RUB 4,881 million from a related party under common control at 8 % annual interest forthree years to finance the acquisition of RSM HoldCo. At the end of the year 2011 the loan was repaid.

In September 2011 the Group issued a guarantee to Sberbank for a loan in the amount of RUB 4,000 million obtained by itsrelated party in 2011 with maturity in September 2017 (refer to Note 23).

In December 2011 the Group sold 100% of shares owned of CP Invest (Overseas) Limited to the Parent company (refer toNote 29).


28

9. Property, Plant and Equipment

Property, plant and equipment, net of accumulated depreciation, as of 31 December 2012 and 2011 consisted of thefollowing:

Lan

d

Bu

ild

ing

s

Pro

du

cti

on

eq

uip

men

t

Veh

icle

s

Off

ice

eq

uip

men

t

Leaseh

old

imp

rovem

en

t

Co

nstr

ucti

on

inp

rog

ress

Oth

er

To

tal

Cost at 1 January 2011 4 2,344 2,099 45 613 1,339 860 95 7,399Accumulated depreciationand impairment - (244) (753) (22) (390) (294) (56) (33) (1,792)Carrying amount at1 January 2011 4 2,100 1,346 23 223 1,045 804 62 5,607

Additions - - 54 9 41 125 583 3 815Acquisitions of subsidiaries - 2,642 359 - 129 1,403 5 11 4,549Transfers - 374 418 9 (68) 236 (958) (11) -Disposals - (138) (10) (3) - - (16) (12) (179)Depreciation charge - (141) (382) (11) (98) (228) - (12) (872)Impairment - - - - - (21) (15) - (36)Disposal of subsidiaries (referto Note 29) (4) (4,803) (1,388) (11) (80) (2,248) (341) (26) (8,901)Cost at 31 December 2011 - 61 743 28 549 468 62 45 1,956Accumulated depreciationand impairment - (27) (346) (12) (402) (156) - (30) (973)Carrying amount at31 December 2011 - 34 397 16 147 312 62 15 983

Additions - 5 59 8 35 39 49 - 195Acquisitions of subsidiaries - - 23 - - - - - 23Transfers - - 29 1 - - (31) 1 -Disposals - - - (2) (4) (13) (1) (20)Depreciation charge - (5) (111) (6) (70) (78) - (5) (275)Disposal of subsidiaries (referto Note 29) -

- (3) - - - - - (3)

Cost at 31 December 2012 - 65 899 29 481 488 67 49 2,078Accumulated depreciationand impairment -

(31) (505) (12) (373) (215) - (39) (1,175)

Carrying amount at31 December 2012 -

34 394 17 108 273 67 10 903


29

10. Intangible Assets

Intangible assets other than goodwill, net of accumulated amortisation, as of 31 December 2012 and 2011 consisted of thefollowing:

Film

san

dp

rog

ram

rig

hts

Bro

ad

cast

licen

ses

Cab

leco

ntr

acts

an

dn

etw

ork

aff

ilia

tio

nag

reem

en

ts

Tra

de

mark

s&

do

main

nam

es

So

ftw

are

Oth

er

Inta

ng

ible

assets

inp

rog

ress

To

tal

Cost at 1 January 2011 12,387 20,747 3,497 2,846 730 96 2,051 42,354Accumulated amortisationand impairment (8,047) (2,609) (210) (1,220) (370) (44) - (12,500)Carrying amount at1 January 2011 4,340 18,138 3,287 1,626 360 52 2,051 29,854

Additions 3,325 - - 22 163 51 1,498 5,059Acquisitions of subsidiaries - 228 - 275 141 216 - 860Transfers 1,298 5 - - 39 - (1,342) -Disposals (4) - - - (12) (2) (33) (51)Disposal of subsidiaries (Referto Note 29)

- - - (1) (19) (192) - (212)

Amortisation of intangibleassets other than of film rights

(2,056) - - (345) (95) (72) - (2,568)

Amortisation of film rights (1,550) - - - - - - (1,550)Impairment (612) (687) (2) (235) - - (16) (1,552)Cost at 31 December 2011 15,108 20,294 3,495 2,858 996 114 2,158 45,023Accumulated amortisationand impairment

(10,367) (2,610) (210) (1,516) (419) (61) - (15,183)

Carrying amount at31 December 2011

4,741 17,684 3,285 1,342 577 53 2,158 29,840

Additions 4,246 59 - 8 189 32 1,361 5,895Acquisitions of subsidiaries(Refer to Note 32)

- 379 - - - - - 379

Transfers 942 17 - 2 74 53 (1,088) -Disposals - - - - (5) - (30) (35)Disposal of subsidiaries (Referto Note 29)

- - - - - (28) (2) (30)

Amortisation of intangibleassets other than of film rights

(2,265) (10) (17) (290) (139) (25) - (2,746)

Amortisation of film rights (1,985) - - - - - - (1,985)Impairment (1,521) - (42) - - (5) (47) (1,615)

Cost at 31 December 2012 18,248 20,749 3,453 2,874 1,219 121 2,352 49,016Accumulated amortisationand impairment

(14,090) (2,620) (227) (1,812) (523) (41) - (19,313)


4,158 18,129 3,226 1,062 696 80 2,352 29,703

The impairment charge of RUB 1,615 million (2011: RUB 1,552 million) consists of RUB 993 million (2011: RUB 290 million)recognised in respect of program rights (TV broadcasting segment) due to MTV re-launch and change of program policy onTV3, RUB 575 million (2011: RUB 338 million) in respect of film library (content production and distribution segment), RUB 42million (2011: RUB 2 million) related to network affiliation agreements due to their termination (TV broadcasting segment) andRUB 5 million related to other intangible assets impairment. Also in the year ended 31 December 2011 the impairmentcharge included RUB 687 million in respect of broadcasting licences (TV broadcasting segment) and RUB 235 millionrecognised in respect of Kinostar de Luxe brand (Film exhibition segment, discontinued as at 31 December 2011).

Management determines the recoverable amount of the film library using the individual-film-forecast-computation method –refer to Notes 3 and 4. The pre-tax discount rate used for calculation of each film’s remaining revenue is 16%.

If the revised estimated pre-tax discount rate applied to the film’s discounted remaining revenue had been 2% higher thanmanagement’s estimates, the Group would need to recognise an additional impairment charge of RUB 29 million and relatedincome tax benefit of RUB 6 million.

If the revised estimated film’s discounted remaining revenues had been 15% lower than management’s estimates, the Groupwould need to recognise an additional impairment charge of RUB 128 million and related income tax benefitof RUB 26 million.


30

10. Intangible Assets (Continued)

The intangible assets comprising of broadcast licenses, cable contracts and network affiliation agreements were tested forimpairment within the test of goodwill (refer to Note 11). Broadcast licenses as of 31 December 2012 and 2011 consisted ofthe following:

MTV TV3 2x2 VKPM Total

Cost at 1 January 2011 3,614 15,169 738 1,226 20,747Accumulated Amortization and Impairment (179) (2,255) (128) (47) (2,609)

Carrying amount at 1 January 2011 3,435 12,914 610 1,179 18,138

Acquisitions of subsidiaries - 101 59 68 228Transfers - - 5 - 5Impairment - (687) - - (687)Cost at 31 December 2011 3,614 14,584 802 1,294 20,294Accumulated Amortization and Impairment (179) (2,256) (128) (47) (2,610)

Carrying amount at 31 December 2011 3,435 12,328 674 1,247 17,684

Acquisitions - - - 59 59Acquisitions of subsidiaries 120 35 116 108 379Transfers - - - 17 17Amortisation - - (10) - (10)Cost at 31 December 2012 3,734 14,619 918 1,478 20,749Accumulated Amortization and Impairment (179) (2,256) (138) (47) (2,620)Carrying amount at 31 December 2012 3,555 12,363 780 1,431 18,129

Cable contracts and network affiliation agreements as of 31 December 2012 and 2011 consisted of the following:

MTV TV3 2x2 Total

Cost at 1 January 2011 1,925 726 846 3,497Accumulated Amortization and Impairment - (101) (109) (210)

Carrying amount at 1 January 2011 1,925 625 737 3,287

Impairment (2) - - (2)Cost at 31 December 2011 1,923 726 846 3,495Accumulated Amortization and Impairment - (101) (109) (210)

Carrying amount at 31 December 2011 1,923 625 737 3,285Amortisation (17) - - (17)Impairment (42) - - (42)Cost at 31 December 2012 1 881 726 846 3 453Accumulated Amortization and Impairment (17) (101) (109) (227)Carrying amount at 31 December 2012 1 864 625 737 3 226


31

11. Goodwill

Goodwill by business units as of and for the years ended 31 December 2012 and 2011 consisted of the following:

Rambler Afisha TV3 DMH 2x2 VKPM MTV CPI TotalCost at 1 January 2011 5,872 240 3,368 1,837 270 329 2,128 - 14,044Accumulated impairmentlosses at 1 January 2011

(56) - (1,297) (393) - (51) (961) - (2,758)

Carrying amount at1 January 2011

5,816 240 2,071 1,444 270 278 1,167 - 11,286

Acquisitions of subsidiaries - - 31 - - 5 - 3,520 3,556Disposal of subsidiaries (refer toNote 29)

- - - - - - - (3,520) (3,520)

Impairment charge - - (2,102) - - - - - (2,102)Cost at 31 December 2011 5,872 240 3,399 1,837 270 334 2,128 - 14,080Accumulated impairmentlosses at 31 December 2011

(56) - (3,399) (393) - (51) (961) - (4,860)


5,816 240 - 1,444 270 283 1,167 - 9,220

Acquisitions of subsidiaries (referto Note 32)

- - - - 3 5 19 - 27

Cost at 31 December 2012 5,872 240 3,399 1,837 273 339 2,147 - 14,107Accumulated impairmentlosses at 31 December 2012

(56) - (3,399) (393) - (51) (961) - (4,860)


5,816 240 - 1,444 273 288 1,186 - 9,247

In 2011 the Group combined Rambler Media and Afisha to a united business unit named “Digital” with a view to develop aunited digital platform (Note 1). The combination resulted in a new combined segment Digital as the operating committeeassesses the performance of united operating segments. The combination did not affect the composition of CGUs either asAfisha and Rambler businesses provide different services to different customers in different markets and will continue to beseparate CGUs in the merged business unit.

For the purpose of impairment testing, goodwill is allocated to the CGU’s as disclosed above. In 2012 the recoverableamounts of Rambler was determined as the fair value less costs to sell. For other CGUs the recoverable amounts in 2012were determined based on value-in-use analyses. In 2011 the recoverable amounts of TV3 and MTV were determined as thefair value less costs to sell. For other CGUs the recoverable amounts in 2011 were determined based on value-in-useanalyses.

In 2012 the recoverable amount of the Rambler CGU’s was determined using the fair value less costs to sell. The fair value ofRambler was determined based on the enterprise value to revenue (EV/R) multiple. The value of the EV/R multiple wasdetermined based on public available data on Rambler’s peers. The costs to sell were considered to be immaterial. The fairvalue of Rambler is most sensitive to estimations the EV/R multiple. If the revised EV/R multiple used in the fair valueestimation for 2012 had been less than 3, the Group would need to recognise an impairment charge in addition to theamounts disclosed in the financial statements.

The value-in-use calculations were based on available information on past performance and market expectations forrespective business lines within five years, unless a longer period is justified. Management believes, based on pastexperience, that these projections are reliable.


32

11. Goodwill (Continued)

Key assumptions used for these calculations are as follows:

2012 2011

Afisha

Projected period 5 5

Budgeted adjusted EBITDA margin 28% – 33% 18% – 28%

Annualised revenue growth rate in projected period 9% 17%

Growth rate beyond projected period 4% 4%

Pre-tax discount rates 18% 18%

DMH






VKPM






2x2


Budgeted adjusted EBITDA margin 36%-44% 31%-41%



MTV

Projected period 5 N/a

Budgeted adjusted EBITDA margin (30%)-35% N/a

Growth rate beyond projected period 4% N/a

Pre-tax discount rates 18% N/a

TV3

Projected period 5 N/a

Budgeted adjusted EBITDA margin 17%-32% N/a

Growth rate beyond projected period 4% N/a

Pre-tax discount rates 17% N/a

Adjusted EBITDA margin is the relationship of adjusted EBITDA to revenue. For adjusted EBITDA calculation refer to Note 7.The spread in budgeted adjusted EBITDA margin relates to changes in expected growth rates from year to year.Management determined budgeted adjusted EBITDA margin based on past performance and future market expectations.The annual revenue growth rates used are consistent with the forecasts included in industry reports and the developmentstage of each project.

The discount rates used are pre-tax and reflect specific risks relating to the relevant CGUs.

The recoverable amounts are most sensitive to estimations of revenue. For DMH, If the revised estimated revenues used inthe discounted cash flow models for 2012 had been 15% lower than management’s estimates, the Group would need torecognise an impairment charge in the total amount of RUB 2,330 million (RUB 1,444 million relating to goodwill and RUB886 million relating to other assets).

For 2x2, Afisha and VKPM a decrease in the estimated revenue by 15% would not result in any goodwill impairment.


33

11. Goodwill (Continued)

The recoverable amounts of TV3 and MTV (TV broadcasting segment) are most sensitive to the assumption of audienceshare. For MTV, if the revised estimated audience share used in the discount cash flow models for 2012 had been 0.5%higher for 2013 budgeted period and stable for the projected period, the Group would need to recognise an impairmentcharge in the total amount of RUB 9,926 million (RUB 1,186 relating to goodwill and RUB 8,740 relating to other assets). ForTV3, if the revised estimated audience share used in the discount cash flow models for 2012 had been 0.5% higher for 2013budgeted period and stable for the projected period, the Group would need to recognise an impairment charge in the totalamount of RUB 7,604 million (fully relating to other assets).

If the revised estimated pre-tax discount rates applied to the discounted cash flow models for 2012 had been 2% higher thanmanagement’s estimates, the Group would need to recognise the following impairment charge in addition to that recognisedin these financial statements:

Goodwill Other assets Total

TV3 - 1,039 1,039

DMH 307 - 307

Afisha 87 - 87

For MTV, 2x2 and VKPM an increase in the estimated pre-tax discount rate by 2% would not result in any goodwillimpairment.

For DMH, if the revised estimated adjusted EBITDA margins used in the discounted cash flow models for 2013 had been15% lower than management’s estimates, the Group would need to recognise an impairment charge in the total amount RUB923 (fully relating to goodwill).

For 2x2, Afisha and VKPM a decrease in the estimated adjusted EBITDA margins used in the discounted cash flow modelsby 15% would not result in any goodwill impairment.

12. Available-for-sale Investments

In October 2011 the Group’s share in associate IVI.RU Media Limited (hereinafter “IVI”) was diluted to 13% of the votingshares as a result of issuance of additional shares by IVI to other shareholders. Following this transaction the Group lostsignificant influence over IVI and reclassified its interest in IVI as an available-for-sale investment. This was accounted for asa disposal of the investment in associate. The resulting gain of RUB 441 million was recognized within profit and loss in 2011year. The fair value of the Group’s retained interest in IVI as of October 2011 was determined in the amount of RUB 481million with reference to the price paid by the other shareholders to buy additional share issue of IVI. Managementdetermined that there were no significant changes in the fair value of its investment in IVI between October 2011 and31 December 2011.

In September 2012 the Group’s share in IVI was diluted to 10 % as a result of issuance of preference voting shares by IVI.The fair value of the Group’s retained interest in IVI as at 30 September 2012 was determined in amount RUB 414 millionwith reference to the price paid by the shareholders to buy preference share issue of IVI. Management determined that therewere no significant changes in the fair value of its investment in IVI other than a loss in the amount of RUB 7 million due to themovement in exchange rates between September 2012 and 31 December 2012.

The movements in the Available-for-sale investments are as follows:

2012 2011Carrying amount at 1 January 481 -Reclassification of interest in IVI from associate to available-for-sale investment at fair value

- 481

Purchases 64 -Fair value loss (138) -Carrying amount at 31 December 407 481


34

13. Other Non-Current Assets

Other non-current assets as of 31 December 2012 and 2011 consisted of the following:

2012 2011Investments in associates 147 138Advances paid 54 72Other 12 44Total other non-current assets 213 254

Investments in associates represent the Group’s interests between 20% and 50% in two regional television stations, internetadvertising agency and two internet projects (2011: two regional television stations and internet advertising agency).

Advances paid consist of long-term rent deposits, lease prepayments, amounts paid to third parties in respect of purchases ofregional TV stations and prepayments for services of cable operators.

14. Receivables and Loans

Receivables and loans as of 31 December 2012 and 2011 consisted of the following:

2012 2011Receivable from the Parent company (see Note 8) - 1,989Trade accounts receivable 2,128 1,980Other accounts receivable 181 98Short term loans 65 61Less impairment loss provision (282) (296)Total trade and other receivables 2,092 3,832

The carrying amounts of receivables and loans approximate their fair value.

The receivable from the Parent as at 31 December 2011 in the amount RUB 1,989 million arose from the sale of CP Invest(refer to Note 29). On 19 January 2012 the main part of receivable in the amount of RUB 1,940 million (USD 61,515thousand) was settled by a reduction in the share premium attributable to the Parent Company with corresponding differencebetween the amount of receivable as at 31 December 2011 and the settled amount has arisen due to exchange ratesmovements and has been recorded as reduction of Additional Paid in Capital (refer to Note 17). In March 2012 the remainingamount of RUB 8 million (USD 258 thousand) was settled by cash payment.

Short-term loans represent RUB-denominated loans to the third parties bearing an interest of 12% and a USD-denominatedloan to a third party bearing an interest of 0% (these third parties were previously recognised as related parties).Management believes there is limited concentration of credit risk with respect to trade receivables as the Group has a largeand dispersed customer base.

The carrying amounts of the Group's trade accounts receivable and short-term loans are denominated in the followingcurrencies:

2012 2011Trade and other receivablesRussian Roubles 1,810 3,551US dollars 211 204Euros 6 16Short-term loansRussian Roubles 12 5US dollars 53 56

2,092 3,832

Movements in the impairment loss provision of trade accounts receivable are as follows:

2012 2011At 1 January 296 374Provision for receivables impairment 105 172Receivables written off during the year as uncollectible (62) (199)Allowance recovered upon receipt of cash from customers (53) (51)Exchange rate difference (4) -At 31 December 282 296

There is no impairment loss provision relating to short-term loans as of 31 December 2012 and 2011.


35

15. Other Current Assets

Other current assets as of 31 December 2012 and 2011 comprised the following:

2012 2011Advances paid, net of impairment provision 193 369Value Added Tax (VAT) receivable 423 360Inventory 37 28Prepaid expenses 20 24Other taxes receivable 17 11Other 40 9Total other current assets 730 801

In 2012 the Group recorded an impairment provision for advances paid in the amount of RUB 6 million within “Bad debtprovision” in other operating expenses(2011: RUB 9 million).

16. Cash and Cash Equivalents

Cash and cash equivalents as of 31 December 2012 and 2011 comprised the following:

2012 2011Cash on hand 1 1Cash in third party bank accounts 475 187Cash in related party bank accounts (refer to Note 8) - 52Term deposits 547 611Total cash and cash equivalents 1,023 851

The carrying amounts of the Group's cash and cash equivalents are denominated in the following currencies:

2012 2011Russian Roubles 960 780US dollars 34 46Euros 29 25

1,023 851

Term deposits represent cash deposited in major western and Russian banks for a period of less than three months. As of31 December 2012 term RUB-denominated deposits bore a weighted average interest rate of 6,5% (2011: 5%) per annum.

17. Share Capital and Share Premium

Under its Memorandum the Company fixed its authorised share capital at 1,983,797 ordinary shares and 21,604 redeemableshares of USD 1 each. Share premium represents the excess of contributions received over the nominal value of sharesissued. Since redeemable shares are accounted for as liabilities under IFRS only details of the ordinary shares are disclosedbelow as follows:

Number of shares Share capital Share premiumAuthorisedOrdinary shares of USD 1 each 1,983,797 60 -Issued

At 1 January 2010 697,764 18 35,557

Conversion of redeemable shares on 5 March 2010to ordinary shares of USD 1 each 21,604 1 -At 31 December 2010 719,368 19 35,557At 31 December 2011 719,368 19 35,557Share premium reduction on 19 January 2012 - - (1,456)At 31 December 2012 719,368 19 34,101

Share capital as at 31 December 2012 and 2011 consisted of 719,368 issued and fully paid ordinary shares and sharepremium amounted to RUB 34,101 million and RUB 35,557 million respectively.

On 19 January 2012 Share premium was reduced by RUB 1,456 million. The amount was estimated by the reference to theweighted average historic exchange rate used for share premium establishment equal to RUB 23.67 per USD 1. Sharepremium reduction was done to offset accounts receivable from the Parent Company for the sale of 100% of shares of CPInvest (Overseas) Limited (refer to Note 29). The movement between the weighted average historical exchange rate and theexchange rate as of 19 January 2012 amounted to RUB 524 million was accounted as reduction of Additionally Paid inCapital of the Group.

Companies registered in Cyprus, which do not distribute 70% of their profits after tax, as defined by the Special Contributionfor the Defence of the Republic Law, during the two years after the end of the year of assessment to which the profits refer,and ultimately held by Cyprus tax resident shareholders are deemed to have distributed this amount as dividend. Specialcontribution for defence should be paid on such deemed dividend while this amount can be reduced by any actual dividendpaid out of the profits of the relevant year at any time. The contribution rate on dividends deemed to arise in 2012 and 2013increased to 20% from 17% which was applied in 2011.

Since the ultimate shareholders of the Company are not Cyprus tax resident, the Company does not fall under the scope ofthe deemed dividend distribution provisions and the special contribution for defence is not due.


36

18. Non-Controlling Interest

Movements in non-controlling interest for the year ended 31 December 2012 and 2011 are presented below:

2012 2011Balance at 1 January 549 696Acquisition of non-controlling interest 106 (5)Loss for the period (320) (13)Dividends declared - (129)Balance at 31 December 335 549

In November 2012 the Group increased its stake in ZAO Begun to 100% through purchasing the remaining 49.9%.

Summarised details of the acquisition are as follows:Book value

Book value of acquired interest in net assets of subsidiaries (106)Loss on purchase of non-controlling interest 164Total purchase consideration 58

In November 2011 the Group increased its stake in CP Invest (Overseas) Limited to 100% after purchasing the remaining0.14% from a third party.

Summarised details of the acquisition are as follows:Book value

Book value of acquired interest in net assets of subsidiaries 5Loss on purchase of non-controlling interest 3Total purchase consideration 8

19. Borrowings

Borrowings as of 31 December 2012 and 2011 consisted of the following:2012 2011

Non-currentLoans 4,467 8,061Finance lease liabilities 1 -Total non-current borrowings 4,468 8,061

CurrentShort-term loans 1,294 325Current portion of non-current loans 3,966 496Current finance lease liabilities 1 -Total current borrowings 5,261 821

Total borrowings 9,729 8,882

The conditions of loans held by the Group are summarised in the table below:

Lender Currency Maturity

Carrying amounts

Effective interest rate31 December

201231 December

2011

Sberbank RUB11% - 12.25%(2011: 11% - 12.25%) June 2013-June 2017

5,536 5,375

Rouble bonds RUB10,50%

July 2015, puttable in July2013

3,042 2,819

UniCredit Bank RUB(2011: MOSPRIME+6.5%)

May 2012-September 2012 - 508

UniCredit Bank USD Libor +5% February 2013 - May 2013 231 -

ING Bank RUB (2011: Mosprime+5,5%) February 2012 - 179

VTB 24 Bank RUB 10,70% December 2013 903 -Other loans USD/RUB Various Various 15 1Total loans 9,727 8,882

As of 31 December 2012 and 2011 the carrying values of the Group’s loans approximate their fair values as interest rates onfixed-rate loans did not significantly deviate from market interest rates at those dates. The fair value of the bonds based onquoted market prices as of 31 December 2012 was RUB 3,036 million (as of 31 December 2011 was RUB 2,805 million).

In May and June 2010 the Group entered into credit facility agreements with Sberbank to draw RUB 3,750 million andRUB 1,650 million at 11% and 12.25% annual interest rate respectively and maturing in May 2016 and June 2017,respectively. The amount of RUB 1,023 million as at 31 December 2012 was classified as short-term portion of non-currentloans due to maturity terms. The Sberbank credit facility agreements provide for certain financial and non-financial covenants.Financial covenants require the ratio for consolidated debt to consolidated earnings before interest, tax, depreciation andamortization to be not higher than 3.5. As of 31 December 2012 there were no breaches of covenants.


37

19. Borrowings (Continued)

Under credit facilities with Sberbank entered in 2010 the Group has debt in the amount of RUB 1,650 million with fixed termof 3 years. The Group is able to extend the debt before its maturity for an additional 4 year period. The Group has accountedfor the option to extend the debt's term beyond its original maturity as an loan commitment (not as embedded derivative).

The Group intended to use the term-extending option available. Accordingly the carrying value of the debt as of31 December 2012 was recalculated applying new terms with the effect of RUB 134 million recognized within financialcosts (Note 27). The amount of RUB 1,518 million was reclassified to non-current liabilities.

On 22 July 2010 the Group issued 5-year bonds for RUB 3,000 million on Moscow’s MICEX Stock Exchange by publicsubscription. The bonds bear a fixed semi-annual coupon of 10.5%. The bonds carry a put option for early redemption afterthe 3 year-period. As of 31 December 2012 the bonds were classified as short-term portion of non-current borrowing withrepayment date on July 2013.

This bond issue was given a long-term rating of B+ (S&P) as of 31 December 2012 (2011: B+). Subsequent to the primaryissue 550,000 bonds were repurchased by the Group and then 461,000 bonds were subsequenty resold. As of 31 December2012 the Group held 89,000 bonds that were available for further placement (2011: 300,000 bonds)

The Group’s borrowings mature as follows:

2012 2011Borrowings due: - within 1 year 5,261 821

- between 2 and 5 years 4,468 8,061Total borrowings 9,729 8,882

The Group’s borrowings are denominated in currencies as follows:

2012 2011Borrowings denominated in: - Russian Roubles 9,498 8,881

- US Dollars 231 1Total borrowings 9,729 8,882

Certain loans are secured by pledges over the subsidiaries’ shares.

All information pertaining to securities granted in connection with the above mentioned loans is presented below.

Amounts securedas at 31 December

NBV of assets pledged asat 31 December

Counterparty Type of collateral 2012 2011 2012 2011

Sberbank Pledge over shares of VKPM, INTH subsidiaries 5,536 5,375 11 11

The Group does not apply hedge accounting and has not entered into any hedging arrangements in respect of its foreigncurrency obligations or interest rate exposures.

20. Other Non-Current Liabilities

Other non-current liabilities as of 31 December 2012 and 2011 consisted of the following:

2012 2011Government grants 244 224LLC participants 132 126Puttable non-controlling interest 42 35Other 15 17Total other non-current liabilities 433 402

Government Grants

A subsidiary within the DMH group has received government grants in respect of certain in-house film productions performedin the Russian Federation. Grants received are free of any repayment obligations. Starting 1 January 2010 grants receivedfrom the Cinema Fund are subject to a royalty-based fee. The fee is accounted as a royalty liability (refer to Note 21).

Government grants, net of accumulated amortisation, as of 31 December 2012 and 2011 consisted of the following:

2012 2011Cost at 1 January 597 437Accumulated amortization (373) (183)Carrying amount at 1 January 224 254

Additions 253 250Amortization of government grants for film production costs (refer to Note 26) (190) (190)Income from government grants for film distribution expenses (refer to Note 26) (43) (90)Cost at 31 December 686 597Accumulated amortization (442) (373)Carrying amount at 31 December 244 224


38

20. Other Non-current Liabilities (Continued)

LLC Participants

LLC participants line represents liability of the Group to non-controlling equity participants in the Group’s subsidiaries(PM Web and VKPM) organised in the form of limited liability companies.

Puttable non-controlling interest

Puttable NCI represents a put option of a non-controlling shareholder in the Rambler Games project. For the year ended31 December 2012 the Group recorded discounting expenses of present value of puttable NCI in the amount ofRUB 7 million within finance cost.

21. Trade and Other Payables

Trade and other payables as of 31 December 2012 and 2011 consisted of the following:

2012 2011Trade accounts payable 2,432 1,602Royalties 875 746Dividends payable 123 129Other accounts payable 330 393Total trade payables 3,760 2,870

Liabilities for royalties relate to unconditional contractual obligations to pay cash as a result of royalty agreements.Management has assessed the liability at 31 December 2012 and 2011 based on the present value of the total futureobligation.

Dividends payable relate to dividends declared in 2010 and 2009 by a subsidiary.

The carrying amounts of the Group’s trade and other accounts payable are denominated in the following currencies:

2012 2011Russian Roubles 2,388 2,114US dollars 1,231 601Euros 141 155

3,760 2,870

22. Provisions

The movements in the provisions for the years ended 31 December 2012 and 2011 are as follows:

2012 2011Carrying amount at 1 January 281 273Additions charged to profit or loss 39 91Reversal charged to profit or loss (237) (83)Carrying amount at 31 December 83 281

All of the above provisions relate to potential liabilities for taxes other than income taxes (VAT, social taxes, etc), relatedinterest and penalties for all taxes, including income tax, arising from the legal structure of the Group and the jurisdictions inwhich various income and expense items are recorded and where they may be deemed to be assessed for tax purposes.These issues are also impacted by the absence of group relief for taxes other than on income between various entities in theGroup.

Management has assessed, based on their interpretation of the relevant tax legislation that it is probable that certain taxpositions taken by the Group would not be sustained, if challenged by the tax authorities. Accordingly, the Group has createdprovisions for the associated undeclared taxes and the related penalties and interest. The balance at 31 December 2012 isexpected to be either fully utilised or released within three years (2011: within three years).

23. Other Current Liabilities

Other current liabilities as of 31 December 2012 and 2011 consisted of the following:2012 2011

Advances received 575 600Salaries payable 328 311Taxes payable 524 540Financial guarantee liability 330 400Other 41 43Total other current liabilities 1,798 1,894

In September 2011 the Group issued a guarantee to Sberbank for the loan obtained by CP Invest in 2011 with maturity inSeptember 2017. As a result of sale of CP Invest (refer to Note 29) the Group has recognised financial guarantee liability inthe consolidated financial statement for the year ended 31 December 2011. The amount of financial guarantee liability wasestimated as a present value of a market premium of 3% of the loan amount per annum discounted at the Group’s averageborrowing rate of 11.15%. The market premium was determined based on observable market prices. Amortisation of financeguarantee liability for the year ended 31 December 2012 was recorded in amount RUB 70 million within other income (refer toNote 26).


39

24. Revenue

Revenues for the years ended 31 December 2012 and 2011 comprised of the following:2012 2011

Advertising revenue 11,435 9,451Revenue from distribution of film rights 3,511 3,826Other revenue 1,026 923Total Revenue 15,972 14,200

25. Employment Related Costs

Employment related costs for the years ended 31 December 2012 and 2011 comprised of the following:

2012 2011Salaries 2,283 2,166Bonuses and benefits 513 482Employment related taxes 514 381Total employment related costs 3,310 3,029

Employment related taxes consist of social contributions, including contributions to the state pension fund, social security fundand medical insurance funds that are made in accordance with Russian legislative requirements. The mass mediacompanies of the Group calculate the contributions at the reduced rate under the legislation, and the rest are applyinggeneral regressive rate.

The Group has no other liabilities in respect of retirement and other benefit obligations.

26. Other Operating Expenses, Net

Other operating expenses, net for the years ended 31 December 2012 and 2011 are comprised of the following:

2012 2011

Air costs 642 562Rent of premises and equipment 289 419Depreciation of property, plant and equipment (refer to Note 9) 275 254Telecommunications 180 173Utilities and materials 151 164Exhibitions and promotional events 137 136Professional fees 132 176Replication of film copies 112 154Fines and penalties other 108 10Business trips 83 77Taxes other than on income 73 114Printing and related materials 72 76Repair and maintenance 54 62Transport and customs 54 60Bad debt provision, net 52 121Audit fees 40 49Share in results of LLC subsidiaries attributable to non-controlling interest 36 32Corporate events 25 25Security expenses 22 20Distribution expenses 21 21Bank charges 20 18Fines and penalties on taxes 12 5Loss on sale of property, plant and equipment 8 31(Reversal)/accrual of tax provisions,net (refer to Note 22) (198) 8Amortization of government grants for film production costs (refer to Note 20) (190) (190)Gain on sale of subsidiaries (152) -Amortization of finance guarantee liability (refer to Note 23) (70) -Income from government grants for film distribution expenses (refer to Note 20) (43) (90)Share of profit of associates (36) (1)Gain on correction of consideration transferred for the acquiree after themeasurement period (refer to Note 32)

(36) -

Gain on write-off of accounts payable (20) (121)Gain from remeasurement of contingent purchase consideration - (134)Other operating income (27) (32)Other operating expenses 149 88Total other operating expenses, net 1,975 2,287

Fees of RUB 2,599 thousand (2011: RUB 1,543 thousand) for statutory audit services and RUB 1,704 thousand (2011: RUB2,728 thousand) for tax consultancy services, were charged by the Company’s statutory audit firm.


40

27. Finance Income and Costs

Finance income/(costs) for the years ended 31 December 2012 and 2011 are comprised of the following:

2012 2011Interest income on bank deposits 51 35Foreign exchange gain, net 55Total finance income 106 35

Interest expense (1,195) (1,490)Foreign exchange loss, net - (953)Total finance costs (1,195) (2,443)

The Group capitalised borrowing costs arising on financing directly attributable to the production of films. The capitalisedinterest for the year ended 2012 was RUB 8 million (2011: RUB 42 million). The capitalisation rate was 11% (2011: 10%).

28. Income Tax

The Group’s income tax expense for the years ended 31 December 2012 and 2011 consisted of the following:

2012 2011Current income tax expense 415 412(Reversal)/Accrual of provision for income tax (11) 17Reversal of tax liabilities for previous years (12) (11)Deferred tax benefit (139) (422)Total income tax expense/(benefit) 253 (4)

The majority of the Group’s operations are in Russia. Therefore, the theoretical tax charge is the Russian statutory rate of20% as it is considered to provide the most meaningful information.

2012 2011

Loss before tax (872) (4,640)Theoretical income tax benefit at statutory rate of 20% (2011: 20%) 174 928Tax effect of items which are not deductible or assessable for taxation purposes:

- Income which is exempt from taxation 19 115- Impairment of goodwill - (420)- Income tax expense on revenue and interest income earned by continuingoperations from discontinued operations

- (134)

- Non deductible expenses (90) (413)- Reversal of provision for taxes other than on income 40 2- Gain on disposal of subsidiary (refer to Note 29) 30 -- Effect of exchange rate differences, net 3 -- Deferred withholding tax on dividends - 11

Reversal of tax liabilities for previous years 12 11Effects of different tax rates in other countries (188) 17Reversal/(Accrual) of provision for income tax 11 (17)Recognition of previously unrecognised deferred tax assets 15 20Unrecognised other potential deferred tax assets (279) (116)Total income tax (expense)/benefit (253) 4

Income tax payable consisted of the following:

2012 2011Current income tax payable 128 70Provision for income tax 166 177Total current income tax liabilities 294 247

Principal risks that cause provision for income tax are described in Note 33.

The movements in the provisions during the years ended 31 December 2012 and 2011 are as follows:

2012 2011Carrying amount at 1 January 177 160Additions charged to profit or loss 34 79Reversal charged to profit or loss (45) (62)Carrying amount at 31 December 166 177

Differences between the IFRS and the Russian statutory taxation regulations give rise to temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movementsin these temporary differences is detailed below and is recorded at the rate of 20%.


41

28. Income tax (Continued)Reconciliation between the expected and the actual taxation charge is provided below:

1 January2012

Businesscombinations

(Charged)/credited to profit or loss

31 December2012

Tax effect of deductible temporary differences and tax loss carry forwards

Tax loss carry-forward 279 - (90) 189Accrued bonuses 18 - (5) 13Unused vacation 22 - (2) 20Difference in accounts receivablecarrying value

67 - (54) 13

Other deductible temporarydifferences

5 - - 5

Financial guarantee liability 80 - (14) 66Accruals 166 54 220Difference in amortisable value offilm and program rights

1,660 - 196 1,856

Difference in depreciable value ofproperty, plant and equipment

28 - 3 31

Net-off with deferred tax liabilities (1,400) - (9) (1,409)Recognised deferred tax asset 925 79 1,004

Tax effect of taxable temporary differences

Difference in amortisable value ofintangible assets other than film andprogram rights

(4,179) (70) 43 (4,206)


(2) - (3) (5)

Difference in recognition of revenuefrom distribution of film rights

(923) - 11 (912)

Other temporary differences (13) - - (13)Net-off with deferred tax assets 1,400 - 9 1,409Recognised deferred tax liability (3,717) (70) 60 (3,727)

1 January2011

Businesscombinations

Disposal ofsubsidiaries

(Charged)/credited to

profit or loss

Charged/(credited) to

profit or lossfrom

discontinuedoperations

31 December2011

Tax effect of deductible temporary differences and tax loss carry forwardsTax loss carry-forward 375 139 (184) (77) 26 279Accrued bonuses 34 - (4) (16) 4 18Unused vacation 23 4 (1) - (4) 22Difference in accounts receivablecarrying value

149 - - (82) - 67

Other deductible temporarydifferences

4 7 (14) 3 5 5

Financial guarantee liability - - - - 80 80Accruals 36 - - 130 - 166Difference in amortisable value offilm and program rights

1,445 - - 215 - 1,660


25 170 (247) 3 77 28

Net-off with deferred tax liabilities (1,325) (43) 32 (72) 8 (1,400)Recognised deferred tax asset 766 277 (418) 104 196 925

Tax effect of taxable temporary differencesDifference in amortisable value ofintangible assets other than film andprogram rights

(4,340) (86) 32 204 11 (4,179)


(14) - - 2 10 (2)

Difference in recognition of revenuefrom distribution of film rights

(962) - - 39 - (923)

Other temporary differences (20) (4) 67 1 (57) (13)Net-off with deferred tax assets 1,325 43 (32) 72 (8) 1,400Recognised deferred tax liability (4,011) (47) 67 318 (44) (3,717)


42

28. Income tax (Continued)

In the context of the Group’s current structure and effective Russian tax legislation, tax losses and current tax assets ofdifferent Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and,accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities areoffset only when they relate to the same taxable entity.

At 31 December 2012, the Group had unused loss carry-forwards available for offset against future profits for which deferredtax assets have not been recognised in the amount of RUB 4,148 million (2011: RUB 3,505 million) with expiry datesbetween 2013 and 2022.

29. Discontinued operations and disposal of subsidiary

Disposal of the subsidiary

In May 2012 the Group sold 85 % of shares held of Kareno Investments Limited to a third party. The subsidiary’s operationsconsisted of distribution and protected storage of digital content. The results of operations until the date of the sale of thesubsidiary were included in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2012.

As a result of disposal of the subsidiary a gain in the amount of RUB 152 million was recorded in other income (refer toNote 26).

Analysis of result from disposal of the subsidiary is as follows:

IFRS carrying amount immediatelybefore the date of sale

Property, plant and equipment 3Intangible assets 30Receivables and loans 3Other current assets 9Cash and cash equivalents 4Long-term borrowings (380)Short-term borrowings (3)Trade and other payables (14)Net assets disposed of 348

Consideration proceeds on assignment of the intercompany loans receivable 187

Loss on assignment of the intercompany loans receivable (383)Gain on disposal 152

Discontinued operations

In December 2011 the Group sold 100% of shares of CP Invest (Overseas) Limited to the Parent Company. The sale pricecomprised of offsetting the related party loans in the amount of RUB 3,026 million, reduction in share premium attributable tothe Parent Company of RUB 1,981 million (USD 61,515 thousand at the exchange rate as of 31 December 2011) and cashconsideration of RUB 8 million (USD 258 thousand at the exchange rate as of 31 December 2011). As of 31 December 2011the share premium was not yet legally reduced and the cash consideration was not yet received. Accordingly, these amountswere included in the receivable from the Parent Company as of 31 December 2011 (refer to Notes 8, 14). During 2012 yearthe receivable from the Parent Company was fully settled (refer to Note 14).

The disposed subsidiary operated a nationwide modern chain of multiplexes under the Cinema Park brand and under theKinostar de Luxe brand.

CP Invest operations represented a separate major line of business for the Group. As a result of the sale these operationshave been treated as discontinued operations for the year ended 31 December 2011. A single amount is shown on the faceof the Consolidated Statement of Comprehensive Income for the year ended 31 December 2011 comprising the post-taxresult of discontinued operations and the post-tax gain recognised on the disposal of the subsidiary. The income andexpenses of CP Invest are reported separately from the continuing operations of the Group.

Analysis of results of discontinued operations is as follows:


43

29. Discontinued operations (Continued)

2011Revenue 5,708Operating expenses (5,034)Operating profit 674Finance costs , net (976)(Loss)/profit before tax from discontinued operations (302)Loss on initial recognition of financial guarantee liability (Note 23) (400)Gain on offsetting the related party loans 314Gain on disposal 4,701Income tax benefit/(expense) on:

(Loss)/profit before tax from discontinued operations 116Gain on offsetting the related party loans -Loss on initial recognition of financial guarantee liability 80Gain on disposal -

Profit for the year from discontinued operations 4,509

The cash flow of CP Invest for the year ended 31 December 2011 is included in the Consolidated Statement of Cash Flowsas cash flow from discontinued operations.

The details of the gain on sale of CP Invest are as follows:

IFRS carrying amount immediately beforethe date of sale

Property, plant and equipment 8,901Intangible assets 212Goodwill 3,520Deferred income tax assets 418Other non-current assets 10Receivables and loans 195Other current assets 197Cash and cash equivalents 103Long-term borrowings (12,213)Deferred income tax liabilities (67)Other non-current liabilities (60)Short-term borrowings (34)Trade and other payables (709)Current income tax liabilities (162)Provisions (16)

Net assets disposed of (295)Consideration receivable for the sale of subsidiary 4,996Gain on disposal 4,701

30. Commitments

The Group’s commitments at 31 December 2012 and 2011 are presented below:

2012 1 yearfrom 1 to 5

yearsmore than

5 years TotalLease commitments 310 962 82 1,354Film and program rights production and acquisitioncommitments 2,826 669 - 3,495Trademark franchise commitments 74 8 - 82Total commitments 3,210 1,639 82 4,931

2011 1 yearfrom 1 to 5

yearsmore than

5 years TotalLease commitments 204 760 287 1,251Film and program rights production and acquisitioncommitments 2,644 475 - 3,119Trademark franchise commitments 113 318 - 431Other 671 - - 671Total commitments 3,632 1,553 287 5,472

Lease Commitments

As of 31 December 2012 and 2011 lease commitments represent lease of office buildings and land.


44

30. Commitments (Continued)

Film Production and Acquisition Commitments

The Group enters into agreements for the acquisition of film rights from third parties at the time at which the films may beeither incomplete or complete, but the entitlement to exhibit has not passed to the Group. The Group also enters into variousagreements for the production of films on an “in-house” basis, for which the exhibition rights remain with the Company. “In-house” production is comprised of films where the Company contracts third parties to participate in the production of therelevant film and finances the film’s production and retains all rights to realise the product. The budget for in-house productionis the value of the Group’s commitment as this is the best known evidence for expenditure to be incurred.

Trademark Franchise Commitments

In 2006 the Group entered into a 5 year agreement for the long term franchise of the NRJ trademark used for operating radiostations under the NRJ brand. In 2011 the agreement was prolonged up to December 2015. Annual payments related to thisagreement are fixed in Euro.

Under the provision of MTV Networks License Agreement the Group shall pay a license fee and a minimum royalty fee forusing the MTV trademark.

The agreement was prolonged in June 2010. According to the agreement the Group shall pay base license fee in the amountof 7.5% p.a. and network operation charge, on-air look and platform fee.

In September 2012 the Group notified the MTV network about its intention to cease using the MTV trademark. The penaltyfor the cessation was determined in the amount of 85 million which was recorded within the other expenses (refer to Note 26)and commitments for future license payments were adjusted accordingly.

Other Commitments

In 2010 the Group entered into a 2-year commission contract to identify and acquire entities possessing broadcastinglicenses in various cities across Russia. In December 2012 the contract expired.

31. Operating Environment and Contingencies

Operating and Regulatory Environment – The Russian Federation displays certain characteristics of an emerging market.Tax, currency and customs legislation is subject to varying interpretations and contributes to the challenges faced bycompanies operating in the Russian Federation.

The international sovereign debt crisis, stock market volatility and other risks could have a negative effect on theRussian financial and corporate sectors.

The future economic development of the Russian Federation is dependent upon external factors and internal measuresundertaken by the government to sustain growth, and to change the tax, legal and regulatory environment.Management believes it is taking all necessary measures to support the sustainability and development of the Group’sbusiness in the current business and economic environment.

Industry Regulation – TV and radio broadcasting and mass media operations in Russia are mainly regulated by certainprovisions of the Russian Constitution, the Civil Code, Federal Laws “On communications”, “On mass media”, “Onadvertising” and other regulations, as well as sub laws issued by the Russian President, the Russian Government, industryspecific sub laws issued by communication and mass media ministries and agencies, and other regulations. Conducting TVand radio broadcasting operations requires compliance with onerous regulations and the successful receipt of operatingpermits. Licenses for TV and radio broadcasting are issued by the Federal Service in the Sphere of Communications,Information Technology and Mass Communications “ROSCOMNADZOR”. TV and radio broadcasters are subject to massmedium registration unless programs are distributed unchanged under the agreement with the broadcaster having thebroadcasting license. Therefore, TV and radio broadcasting operations are conducted on the basis of mass mediumregistration certificates issued by the ROSCOMNADZOR or its legal predecessor. In June 2011 the law “On mass media”was amended (effective in November 2011) to establish new kind of the broadcasting license – the comprehensive license.Starting from November 2011 the broadcaster being the editor of the TV or radio channel has a right to broadcast TV or radiochannel over the whole territory of Russia in any fields of broadcasting(including on-air, satellite and cable) on the basis ofthe comprehensive license.

The Federal Antimonopoly Service, together with its regional agencies, carries out control and supervision over compliancewith advertising legislation, and with antimonopoly legislation as it relates to market domination and control over theacquisition of more than 25% of shares of joint-stock companies or 1/3 of interest in the charter capital of limited liabilitycompanies (as part of a holding structure formation).

Under the Law “On the procedure for foreign investment in commercial enterprises having strategic importance for securingthe national defence and security of the state” (the “Law on Strategic Enterprises”), the definition of a Strategic Enterpriseincludes companies that are engaged in television and/or radio broadcasting in a territory that has at least 50% of the totalpopulation of a respective region (subject) of Russia. The direct or indirect acquisition of control over such subsidiaries by aforeign investor (or its group of companies) is subject to the prior consent, or in limited circumstances, post-transactionapproval, of the Foreign Investments Supervision Commission. Such consent is subject to a determination by the FederalSecurity Service of Russia that the acquisition of control does not threaten the national defence and security of the state.


45

31. Operating Environment and Contingencies (Continued)

In addition, TV and radio broadcasting is subject to all applicable environmental, fire safety and sanitary regulations.

In December 2009 the law “On advertising” was amended (effective in 2011) to prohibit federal TV broadcasters from signingagency agreements with media sales houses that hold a TV advertising market share greater than 35%. Video International,the media sales house that sells all of the Group's national and regional advertising, used to control more than 35% of theRussian TV advertising market. The Group continues to sell all its TV-advertising through Video International; the new agencyagreements with Video International were concluded for the next 5 years up to December 2017. Management believe thatpotential acknowledgement of Video International’s market share as a dominant will not have a material adverse impact onthe contracts already concluded.

Licenses – A significant portion of the Group’s revenue is derived from operations conducted pursuant to licenses issued bythe State authorities. These licenses expire in various years up to 2018.

In 2012, the authorities of the Russian government started the active phase of the previously announced program to converttelevision broadcasting from analog to digital. According to the program, the entire digital spectrum is divided into severalpackages of digital channels (multiplexes). It is planned to organize up to three multiplexes - two federal and one regional. It isexpected that the federal multiplexes will cover almost all of the territory of Russia, while regional ones will cover specificterritories of Russia. The finalization of the switch from analog to digital television broadcasting is planned in 2017.

The first multiplex includes eight all-Russian channels approved on non-competitive basis by a presidential decree. Thecomposition of the federal second multiplex, which consists of ten channels, was determined by competition in December2012. The Group channels were included neither in the first nor in the second multiplexes.

During 2013 - 2014 years the Government plans to select participants of the third regional multiplex through a competitionprocess. The key requirements to the participants of the competition for the third multiplex are expected to be possession ofanalog licenses, social relevancy, a proportion of domestic versus foreign content, and appropriate concept of broadcastingand financial position of a broadcaster. Management believes the Group will be able to satisfy all these criteria and to replaceits analog television broadcast licenses for TV3 and MTV to digital on a region-by-region basis as a result of the competitionsfor the third multiplex and thus ensure the overall coverage no less than these channels have at the reporting date.Management does not expect significant cost to these channels when switching to digital broadcasting.

Taxation – A substantial part of the operations of the Group is conducted in Russia or involves transactions withRussian entities. As a result the Group has certain significant exposure to the Russian taxation and currency controlregimes.

Russian tax and customs legislation is subject to varying interpretations when being applied to the transactions andactivities of the Group. Consequently, tax positions taken by management and the formal documentation supporting thetax positions may be successfully challenged by relevant authorities. Russian tax administration is graduallystrengthening, including the fact that there is a higher risk of review of tax transactions without a clear businesspurpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect oftaxes for three calendar years proceeding the year of review. Under certain circumstances reviews may cover longerperiods.

Amended Russian transfer pricing legislation is effective from 1 January 2012. The new transfer pricing rules appear tobe more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principlesdeveloped by the Organisation for Economic Cooperation and Development. The new legislation provides thepossibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect ofcontrolled transactions (transactions with related parties and some types of transactions with unrelated parties),provided that the transaction price is not on an arm's length basis.

The transfer pricing legislation that is applicable to transactions on or prior to 31 December 2011, also provided thepossibility for tax authorities to make transfer pricing adjustments and to impose additional tax liabilities in respect of allcontrollable transactions, provided that the transaction price differs from the market price by more than 20%.Controllable transactions included transactions with interdependent parties, as determined under the Russian TaxCode, all cross-border transactions (irrespective of whether performed between related or unrelated parties),transactions where the price applied by a taxpayer differed by more than 20% from the price applied in similartransactions by the same taxpayer within a short period of time, and barter transactions. Significant difficulties exist ininterpreting and applying that transfer pricing legislation in practice.

Tax liabilities arising from transactions between companies are determined using actual transaction prices. It ispossible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could bechallenged. The impact of any such challenge cannot be reliably estimated; however, it should not be significant to thefinancial position and/or the overall operations of the entity.


46

31. Operating Environment and Contingencies (Continued)

The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on theposition that these companies are not subject to Russian profits tax, because they do not have a permanentestablishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any suchchallenge cannot be reliably estimated currently; however, it should not be significant to the financial position and/or theoverall operations of the entity.

As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time,interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currentlyestimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible riskthat outflow of resources will be required should such tax positions and interpretations be challenged by the relevantauthorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to thefinancial position and/or the overall operations of the Group. In addition to the above matters, management estimated thatthe Group has other possible obligations from exposure to other than remote contingent customs and tax risks ofRUB 418 million at 31 December 2012 (2011: RUB 971 million). These exposures primarily relate to potential liabilities fortaxes (income, VAT, social taxes, etc.), non-recoverable VAT (where applicable), penalties and late payment interest.

These exposures are estimates that result from uncertainties in interpretation of applicable legislation and relateddocumentation requirements. Management will vigorously defend the entity's positions and interpretations that wereapplied in determining taxes recognized in these financial statements if these are challenged by the authorities.

It is not expected that any material liabilities will arise from the contingent liabilities other than those provided for in Note 22.

Insurance – The insurance industry in the Russian Federation is in the process of development and many forms of insuranceprotection common in developed markets are not yet generally available in Russia. The Group does not fully cover manyrisks that a group of a similar size and nature operating in a more economically developed country would insure.Management understands that until the Group obtains adequate insurance coverage there is a risk that the loss ordestruction of certain assets could have an adverse effect on the Group’s operations and financial position.

Litigation contingencies – The Group has contingent liabilities in respect of legal claims arising in the ordinary course ofbusiness. During the year ended 31 December 2012 the Group was not involved in material litigations and there was nochange in the management estimates in respect of outcome of the previously initiated cases.

Environmental matters – The enforcement of environmental regulation in the Russian Federation is evolving and theenforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates itsobligations under the environmental regulations. As obligations are determined, they are recognised immediately. Potentialliabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated, butcould be material. In the current enforcement climate under the existing legislation, management believes that there are nosignificant liabilities relating to potential environmental damage.

Compliance with covenants – The Group is subject to certain covenants related primarily to its borrowings (refer toNote 19). Non-compliance with such covenants may result in negative consequences for the Group including an increase inthe cost of borrowings and a declaration of default. The Group’s management believes that the Group is in compliance withall covenants.

32. Business Combinations

During 2012 the Group acquired a number of companies holding regional radio broadcast licenses.

Summarised details of the assets and liabilities acquired are as follows:

Carrying amount immediately beforeacquisition

Attributed fairvalue

Intangible assets 2 108Fixed assets 11 11Trade and other receivables 4 4Deferred tax liability - (16)Trade and other payables (5) (5)Short-term loans (11) (11)Fair value of net assets of subsidiary 1 91Goodwill arising from the acquisition 5Total purchase consideration 96Accounts payable as at 31 December 2012 for acquired business (49)Outflow of cash and cash equivalents on acquisition 47

During 2012 the Group acquired a number of companies holding regional television broadcast licenses.


47

32. Business Combinations (Continued)

Summarised details of the assets and liabilities acquired are as follows:

IFRS carrying amountimmediately before acquisition

Attributed fairvalue

Intangible assets - 271Fixed assets 12 12Trade and other receivables 2 2Short-term loans (12) (12)Trade and other payables (1) (1)Deferred tax liability - (54)Fair value of net assets of subsidiary 1 218Gain from bargain purchase (10)Goodwill arising from the acquisition 22Total purchase consideration paid 230Outflow of cash and cash equivalents on acquisition 230

The goodwill is primarily attributable to the Group’s ability to gain a higher share in the TV advertising market.

On 28 June 2012 the Group obtained the right to receive RUB 36 million (USD 1.1 million at the exchange rate as of28 June 2012) from escrow account arranged for the purchase consideration of RSM HoldCo LTD, acquired on 2 June 2011.The amount was included in the other income (refer to Note 26) as a gain arising on the correction of the considerationpaid for an acquisition after the measurement period.

33. Financial Risk Management

Financial Risk Factors

Risk management is an important component of the Group’s activities. Major risks associated with the activities of the Groupcomprise market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk arising from thefinancial instruments it holds. The risk management policies employed by the Group to manage these risks are discussedbelow.

The overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potentialeffects on the financial performance of the Group. To optimise the allocation of the financial resources across the Group, aswell as to secure an optimal return for its shareholders, the Group identifies, analyses and proactively manages theassociated financial market risks. The Group seeks to manage and control these risks primary through its regular operatingand financing activities.

The primary objectives of the financial risk management function are to establish risk limits and then to ensure that theexposure to risks stays within those limits and to ensure proper functioning of internal procedures that would minimise thefinancial risks faced by the Group.

Management of financial risks is the key priority for the Group’s management. As a member of the Group’s management, theChief Financial Officer has certain specific responsibility for this part of the overall risk management system. At the highestlevel, Group’s management retains the ultimate accountability. For practical business purposes, the Group’s managementdelegates responsibilities to central functions and to the operating entities management.

(a) Market Risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of thechanges in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. TheGroup is exposed to market risk primarily related to foreign exchange rates and interest rates. The Group monitors theseexposures. Treasury regards effective management of the market risk as one of its main tasks.

The Group's objective is to reduce, where it deems appropriate to do so, fluctuations in earnings and cash flows associatedwith the changes in interest rates, foreign currency rates and market rates of investments of liquid funds and of the currencyexposures of certain net investments in foreign subsidiaries. The Group doesn't enter into any financial transactionscontaining a risk that cannot be quantified at the time the transaction is completed. The Group only sells existing assets orenters into transactions and future transactions that it confidently expects it will have in the future based on past experience.

(i) Currency risk

Currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of thechanges in the foreign exchange rates. Foreign exchange risk arises from future commercial transactions and assets andliabilities recorded in the statement of financial position and denominated in foreign currencies.

The Group has a currency risk exposure in that certain transactions are US Dollar denominated and therefore if theUS Dollar strengthens against the RUB, this could have a negative impact on the Group. Given the unpredictability incurrency exchange rate movements, this movement can give rise to a material change (either favourable or unfavourable) inthe future.


48

33. Financial Risk Management (Continued)

Financial Risk Factors (Continued)

(a) Market Risk (Continued)

(i) Currency risk (Continued)

All operating entities of the Group use RUB as their functional currency, as the entities’ businesses are transacted primarily inRUB. Some operating units are exposed to currency risk in connection with payments in currencies that are not theirfunctional currencies. Those are mainly repayments of borrowings and payments to international suppliers. Managementperiodically reviews its currency risk exposure, and if determined necessary, will enter into a hedging contract. To date, nohedging contracts have been entered into.

The Group’s operating and business performance indicators are not generally dependent on the fluctuations of any foreigncurrency.

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar and Euro (EUR) exchangerates, with all other variables held constant, of the Group's profit before tax due to changes in fair values of monetary assetsand liabilities.

Increase/(decrease) in exchange rate Increase/(decrease) of profit before tax2012 2011 2012 2011

USD/RUB 15% 15% (175) (44)EUR/RUB 15% 15% (16) 2USD/RUB -15% -15% 175 44EUR/RUB -15% -15% 16 (2)

(ii) Interest rate risk

Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market interest rates.

The Group’s interest rate risk arises primarily from long-term borrowings. The Group manages its net exposure to interestrate risk through the proportion of fixed rate financial debt and variable rate financial debt in its total financial debt portfolio.The risk is managed by the Group by minimizing the proportion of borrowings with floating rates. The Group’s exposure tointerest rates of financial assets and liabilities is detailed in the table below, which demonstrates the sensitivity to a reasonablypossible change in interest rates, with all other variables held constant, of the Group's profit before tax (through the impact offloating rate loans and borrowings).

Increase/(decrease) in basis points Increase/(decrease)of profit before tax2012 2011 2012 2011

RUB 300 300 (7) (20)RUB (300) (300) 7 20

(iii) Price risk

Price risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market prices (other than those arising from interest rate risk or currency risk), whether those changes are causedby factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments tradedin the market.

(b) Credit Risk

Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failingto discharge an obligation.

Financial assets, which potentially give exposure to credit risk, consist principally of trade receivables and cash and cashequivalents. Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. Tomanage this risk the Group periodically assesses the financial reliability of its customers.

The Group has policies and procedures in place to ensure that sales of products and services are made to customers withappropriate credit history. The carrying amount of Group’s cash and cash equivalents, receivables and loans, available-for-sale investment together with the loan in the amount of RUB 4,000 million guaranteed by the Group (refer to Note 23)represents the maximum amount exposed to credit risk.

Although collection of receivables could be influenced by economic factors, management believes that there is no significantconcentration of credit risk and the risk of loss to the Group beyond the provisions already recorded is remote. The Group hasno significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. TheGroup defines counterparties as having similar characteristics if they are related entities within a group operating under thesame brand. Concentration of credit risk did not exceed 3% of gross monetary assets at any time during the years presented.


49


(b) Credit Risk (Continued)

Trade accounts receivable that are less than three months past due are not considered impaired, unless there is a strongevidence of impairment. As of 31 December 2012, trade accounts receivable of RUB 644 million (2011: RUB 636 million)were past due but not impaired. Based on the history of working with its customers, the Group does not consider these tradeaccounts receivable to be impaired. The aging analysis of these receivables is as follows:

2012 2011Up to 3 months 492 4463 to 6 months 64 81Over 6 months 88 109

644 636

As of 31 December 2012, trade receivables of RUB 282 million (2011: RUB 296 million) were past due and impaired. Theaging of these receivables is below.

2012 20113 to 6 months 9 8Over 6 months 273 288

282 296

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external creditrating (if available) or to historical information about counterparty default rates:

Trade and other receivables 2012 2011Individuals 2 2Legal entities:New customers (less than 6 months) 187 19Existing customers (more than 6 months) with no defaults in the past 1,194 3,114Existing customers (more than 6 months)with some defaults in the past, all defaults were fully recovered - -Total trade receivables neither past due nor impaired 1,383 3,135

Short-term loans 2012 2011Counterparties with credit ratingHighest rating S&P: A to AAA, Moody’s: A to Aaa, Fitch: A to AAA - -Medium rating S&P: B to BBB, Moody’s: B to Baa, Fitch: B to BBB - -Counterparties without credit ratingNew contractors (up to 6 months) - -Existing contractors (over 6 months) with no defaults in the past 65 61Total short-term loans 65 61

The above analysis includes only monetary assets and liabilities. Available-for-sale investments are not considered togive rise to any material credit risk.

Cash is placed in financial institutions, which are considered at the time of deposit to have minimal risk of default. Exposure tothese risks is closely monitored and is kept within predetermined parameters. All the bank balances and term deposits areneither past due nor impaired.

Analysis by credit quality of bank balances and term deposits is as follows:Cash and cash equivalents 2012 2011Banks with external credit ratingHighest rating S&P: A to AAA, Moody’s: A to Aaa, Fitch: A to AAA 35 543Medium rating S&P: B to BBB, Moody’s: B to Baa, Fitch: B to BBB 978 249Low rating S&P: C to CCC, Moody’s: C to Caa, Fitch: C to CCC - -Total banks with external credit rating 1,013 792Banks without external credit rating 9 58Total cash and cash equivalents 1,022 850

The remaining balance of cash and cash equivalents is cash on hand.


50


(c) Liquidity Risk

Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financialliabilities.

Ultimate responsibilities for liquidity risk management rests with the Group’s management. The Group manages liquidityrequirements through the use of both short-term and long-term cash flow forecasts. Cash flow forecasting is performed in theoperating entities of the Group. Management of operating entities in cooperation with Central Treasury department monitorsthe liquidity position on a monthly basis to ensure it has sufficient cash to meet operational needs while maintaining sufficientheadroom on its borrowing facilities at all times so that the operating entities do not breach borrowing limits or covenants(where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financingplans, covenants and other requirements compliance. Allocation of borrowed funds within the Group is done through theintercompany loans based on the approved budgets.

The following table details the contractual maturity for the Group’s financial liabilities. The amounts represented are theundiscounted cash flows of financial liabilities. As a result, these amounts will not reconcile to the amounts disclosed on theconsolidated statement of financial position. The amounts represented are based on the earliest date on which the Group canbe required to settle them.

The table includes both principal and interest cash flows.

Not laterthan 1month

Later than1 month and

not later than3 months

Later than3 months andnot later than

1 year

Later than1 year and

not later than5 years

Later than5 years Total

31 December 2012Non-current liabilitiesBorrowings - - - 5,212 - 5,212Other payables - - - 222 - 222

- - - 5,434 - 5,434

Current liabilitiesBorrowings 168 479 5,573 - - 6,220Trade payables 1,491 409 532 - - 2,432Royalties 875 - - - - 875Financial guarantee liability 4,000 4,000Dividends payable 123 123Other payables 320 6 4 - - 330

6,977 894 6,109 - - 13,980

Not laterthan 1month

Later than1 month and

not later than3 months

Later than3 months andnot later than

1 year

Later than1 year and

not later than5 years

Later than5 years Total

31 December 2011Non-current liabilitiesBorrowings - - - 8,219 - 8,219Other payables - - - 176 - 176

- - - 8,395 - 8,395

Current liabilitiesBorrowings 15 189 504 - - 708Trade payables 1,264 322 16 - - 1,602Royalties 746 - - - - 746Dividends payable 129 129Financial guarantee liability 4,000 - - - 4,000Other payables 140 30 226 - - 396

6,294 541 746 - - 7,581


51


(c) Liquidity Risk (Continued)

As of 31 December 2012 current liabilities of the Group exceed its current assets by RUB 7,218 million. The Group’s cashflow projections for the next twelve months indicate a potential liquidity gap attributable to settlement of current borrowingsand financing of MTV re-launch (Note 1). In forming its opinion on going concern as stated in Note 2, management believesthat the Group will generate from operations sufficient cash and will have the ability to obtain financing on reasonable termssufficient to meet its needs. In particular, Management has taken into account the following factors:

The Group is in the process of obtaining short-term credit facilities up to RUB 3,000 million to buy backoutstanding bonds should investors wish to execute their put option. Such bridge financing is expected to bereplaced with a new bond issue once market conditions are favourable;

The Group is re-negotiating terms of existing credit facilities. As an outcome of these discussions Managementexpects that there will be effective prolongation of principal repayments of RUB 1,023 million beyond 2013;

In February 2013 the Group obtained a loan facility of RUB 1,640 million from a third party to finance MTV re-launch;

In 2011 the Group registered bonds with a total value of RUB 6,000 million on Moscow’s MICEX Stock Exchange.No placements occurred in 2011 and 2012. Subject to favourable market conditions, the bonds provide the Groupwith an ability to raise additional funds;

As of 31 December 2012 the Group had available undrawn credit facilities totaling RUB 1,120 million.

Thus the Group’s cash flow projections for the next twelve months indicate that the Group will generate sufficient cashfrom operations to meet its working capital requirements and its planned level of capital expenditure, taking into accountthe available sources of finance.

Capital Risk ManagementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order toprovide returns for shareholders and benefits for stakeholders and to maintain an optimal capital structure to reduce the costof capital.

In order to maintain or adjust the capital structure, the Group may consider returning capital to shareholders, paying dividendsor, conversely, raising debt for potential new acquisitions. The Group considers total capital under management to be equityas shown in the consolidated statement of financial position. The Group’s capital risk management in 2012 is based around adesire to maintain the gearing ratio (debt-to-equity ratio) at approximately 35%:65%.

The gearing ratio (debt-to-equity ratio) as of 31 December is presented below:

2012 2011

Debt 9,729 8,882Borrowings 9,729 8,882

Equity 25,631 28,932Ratio 28:72 23:77

Reconciliation to Categories of Financial Assets and Liabilities

In 2012 and 2011 substantially all financial assets of the Group are receivables and loans. Available-for-sale investments arerecognised as a financial asset at fair value through other comprehensive income. All of the Group’s financial liabilities in2012 and 2011 are carried at amortised cost.

2012 2011Financial assets

Cash and cash equivalents 1,023 851Receivables and loans 2,092 3,832Other current assets

Rent deposits 30 30Available-for-Sale investments 407 481

Total financial assets 3,552 5,194Financial liabilities

Borrowings 9,729 8,882Other non-current liabilities

LLC participants 132 126Option liability 42 35

Trade and other payables 3,760 2,870Total financial liabilities 13,663 11,913


52


Fair Value Estimation

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties,other than in a forced sale or liquidation, and is best evidenced by an active quoted market price.

Available-for-sale investments and derivative financial liabilities are carried in the statement of financial position at their fairvalue. Available for sale investments consist of an investment in IVI.ru. The fair value of this investment is determined basedon recent third parties’ transaction prices for the shares of IVI.ru (Note 12).

Liabilities at fair value through profit and loss consist of a puttable non-controlling shareholder in the Rambler Games project.The fair value of this liability is determined as discounted cash flows calculation based on management projections onperformance of the project (Note 20).

34. Events after the Reporting Period

On 26 February 2013 the Group concluded a loan facility agreement of RUB 1,640 million from a third party to finance MTVre-launch.

Independent Auditor’s Report on pages 4 – 5.

profmedia limited international financial reporting ... · the board of directors has not declared...

Documents