Interview with Michael Del Nin, Co-CEO of Central European Media Enterprises

March 16, 2017

Source: Reuters News 

INTERVIEW - Central Europe broadcaster CME says market growth to help cut debt costs

By Jason Hovet

PRAGUE, March 16 (Reuters) - Broadcaster Central European Media Enterprises (CME) expects growth in its markets this year to pave the way for another cut in borrowing costs as it seeks to start paying down its heavy debt load, Co-Chief Executive Michael Del Nin said.

The company, which owns television stations in six central and eastern European countries, has already had rising earnings in the past few years and is now cutting borrowing costs.

It also wants to pay off some of its longstanding debt left over from various missteps before and after the global financial crisis nearly a decade ago. At the end of 2016 that stood at a gross $1.01 billion.

Earlier this month, CME announced a debt repricing deal with its main shareholder Time Warner that cut its weighted average borrowing cost by 150 basis points to 7.25 percent.

Under the deal, its average cost of borrowing could drop further to 6.00 percent if its net leverage ratio fell below 6-times from a current level of just below 7-times.

"I think there is a path to going under 6x this year, that is going to depend in large part on OIBDA growth and free cash flow generation this year," Del Nin, who joined CME in 2013, said in an interview at CME's headquarters in Prague on Wednesday.

Last year, CME's core profit of operating income before depreciation and amortisation (OIBDA) rose to $150 million, up 21 percent at constant exchange rates, beating its outlook of 18-20 percent growth. It ended the year with cash flow before interest payments of $96 million, also above guidance.

Most of the debt is in term loans guaranteed by Time Warner, which started buying into the company in 2009. It holds a 47 percent voting stake but has a 75 percent share on a fully diluted basis factoring in warrants it holds.


CME's earliest debt maturity is a 251 million euro ($269.60 million) loan that it can begin repaying from November, one year before it is due. CME has said it would use share warrant proceeds, worth up to $107 million at the strike price and exercisable until May 2018, and cash generation to repay the debt.

"What you will probably see through the course of the year is a little bit of cash build-up so we can keep the money ready and, come November, begin to chip away at that," Del Nin said.

Besides a reduction in borrowing costs connected to its net leverage ratio, CME could get another 50 basis point cut if it brings its debt below 815 million euros.

But this reduction cannot factor in warrant proceeds and Del Nin said this extra cut should be viewed more as "a bonus that one day may come but I would not put too much emphasis on it."

CME will provide earnings and cash flow guidance for 2017 when it presents first-quarter earnings and Del Nin declined to comment on chances of matching last year's core profit growth.

He said, though, that all CME's advertising markets - the Czech Republic, Romania, Slovakia, Slovenia, Croatia and Bulgaria - will grow this year.

"We do expect to continue to grow the business. Margins will continue to improve. We expect carriage fee revenue growth will be even stronger than advertising growth this year," he said.

Last year, carriage fees and subscriptions accounted for 12 percent of CME's total revenue of $638 million. While TV advertising remains the biggest chunk of revenue, Del Nin said the hope was for carriage fees and subscriptions to become a bigger income source in the future.

"We expect double-digit growth in carriage fees and subscriptions (in 2017)," he said.


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