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CME Sees Return to Net Profit in 2011 as Advertising Recovers
July 1, 2009, Bloomberg
Central European Media Enterprises Ltd., the operator of television stations in Eastern Europe that sold a stake to Time Warner Inc. in March, may return to net profit in 2011 as companies resume spending on advertising, President and Chief Operating Officer Adrian Sarbu said.
"Taking into account elements such as impairment charges or currency moves, we expect to return to profit in 2011," Sarbu said in an interview in the company's offices in London June 29. "We see a market rebound probably at the end of 2009, in some markets in 2010."
Central European Media Enterprises, or CME as the company is known, posted a net loss of $44.4 million in the first quarter compared with net profit of $14.4 million a year earlier as revenue from advertising declined and the company took a charge at its Bulgarian operations. CME doesn't expect any impairment charges this year, Sarbu said.
The second quarter of 2009 was as "difficult" as the previous, Sarbu said. The decline in profitability in percentage points from a year earlier is likely to be similar to the first quarter, according to the executive.
CME's main markets all suffered "similarly" from the economic slump. CME said in April it expects business conditions to remain "harsh" in 2009 to 2010.
Economic Crisis
Founded in 1993 by Ronald Lauder, an heir to the Estee Lauder Cos. Cosmetics company, CME operates 22 television channels and reaches 97 million people in Bulgaria, Ukraine, Slovenia, Slovakia, Romania, Croatia and the Czech Republic.
In 2008, it generated about 37 percent of its revenue from the Czech market.
CME has reduced costs and offered promotions and discounts on advertising in a bid to offset a decline in revenue as companies cut marketing amid the economic crisis.
Global advertising spending is estimated to fall 4.4 percent to $425 billion this year, according to a recent forecast from GroupM, the parent company of WPP's Plc media agencies.
OMD, a Czech media market researcher, expects the Czech TV advertising market to shrink 27 percent in 2009, it said on its Web site in April.
"No doubt this year is maybe the most difficult for CME ever as advertisers are very cautious and budgets remain restricted," Patrick Vyroubal, a Prague-based analyst at Atlantik Financial Markets, said by phone yesterday. "We do expect a slight rebound in 2010. Solving the situation in Ukraine and Bulgaria is really a key task for them as they are leaking lots of cash there." Vyroubal rates CME a "buy."
Ukraine, Bulgaria
Sarbu is "actively" working to solve the funding of the company's unprofitable Ukrainian and Bulgarian units.
"Some investors were urging us not to put more money in, some to sell it and some to keep it," he said. "We're actively looking for an optimum solution."
CME will create a so-called special purpose vehicle, which will enable it "practically" to split the Ukrainian and Bulgarian businesses from its main markets, including the Czech Republic. "This will help us to preserve our liquidity and improve our ability to refinance the company."
CME, which had net debt of $1 billion as of March 31, is "confident" of meeting obligations. "We don't see any reason now why we shouldn't," Sarbu said.
Controlling Costs
The broadcaster agreed to sell a 31 percent stake to Time Warner Inc. for $241.5 million in March. "We'll marry our and their content in our distribution, and we'll work together in product development," Sarbu said.
CME, which delayed the start of an MTV-branded channel in the Czech Republic from the first quarter, is ready to broadcast between five and ten channels in each country, when market conditions become favorable and the company returns to a "positive bottom line," he said.
Acquisitions are "not our priority," Sarbu said.
"What matters today is maintaining liquidity, controlling costs and debt financing." CME aims to maintain about $300 million of cash as a cushion to run operations, he added.
Polish Gazeta Prawna reported in June that CME is among the companies interested in buying a stake in Polish broadcaster TV Puls.
The broadcaster plans to announce second-quarter results on July 29, CME's Corporate Communications Vice President Romana Tomasova said.
For additional information, please contact:
Romana Wyllie
Vice President of Corporate Communications
Central European Media Enterprises
Krizeneckeho nam. 1078/5
152 00 Praha 5
Czech Republic
+420 242 465 525
romana.wyllie@cme-net.com
