CETV

Central European Media Enterprises Ltd. (CETV)

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Industry: Consumer Services
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Central European Media Enterprises (CETV)

Q3 2012 Earnings Call

October 31, 2012 10:00 am ET

Executives

Romana Wyllie - Vice President of Corporate Communications

Adrian Sarbu - Chief Executive Officer, President and Director

David Sach - Chief Financial Officer and Executive Vice President

Anthony Chhoy - Executive Vice President of Strategic Planning and Operations

Daniel Penn - Executive Vice President, Secretary and General Counsel

Analysts

Tim Hamby - Janco Partners, Inc., Research Division

Michal Potyra - UBS Investment Bank, Research Division

Vivek Khanna - Deutsche Bank AG, Research Division

Pavel Ryska - J & T Banka, A.S., Research Division

Andrzej Knigawka - ING Groep N.V., Research Division

Presentation

Operator

Hello, my name is Zach. I will be your conference operator today. At this time, I would like to welcome everyone to the Central European Media Enterprises' Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, October 31, 2012. It is now my pleasure to turn the floor over to Romana Wyllie, Vice President of Corporate Communications. Ms. Wyllie, you may begin your conference.

Romana Wyllie

Thank you. Good morning, good afternoon or good evening to each of you, and welcome to CME's Third Quarter 2012 Investor Conference Call.

We are broadcasting our earnings call via a video webcast to enable you to see the management team in action. You can join us via the link on our homepage, www.cme.net. There, you can also download the presentation slides, which we will refer to during this call. You can find them on our Homepage on the left side.

The participants of today's call will be CME's President and Chief Executive Officer, Adrian Sarbu.

Adrian Sarbu

[Foreign Language] and good afternoon.

Romana Wyllie

Chief Financial Officer, David Sach.

David Sach

Good afternoon.

Romana Wyllie

Anthony Chhoy, Executive Vice President, Strategic Planning and Operations.

Anthony Chhoy

Good afternoon.

Romana Wyllie

And our General Counsel, Daniel Penn.

Daniel Penn

Good afternoon.

Romana Wyllie

Before I turn to Adrian, let me read the usual Safe Harbor statement. Our presentation today will contain forward-looking statements. Actual results may vary materially from those expressed or implied due to various factors. Important factors that contribute to such risks include, but are not limited to, those factors set forth under the Risks section in our SEC filings, including the Form 10-Q filed earlier today, as well as the following: the effects of the economic downturn and Eurozone instability in our markets and the extent and timing of any recovery; decreases in TV advertising spending and the rate of development of the advertising markets in the countries in which we operate; and our ability to access external sources of capital as needed.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in our filings. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise.

During this call, we will refer to certain financial information that is not in U.S. GAAP. Please see the appendix to the presentation and Note 16 to our financial statements in our Form 10-Q for a reconciliation to U.S. GAAP financial measures.

And now, please turn to Page 4 of our presentation, and I will pass you over to Adrian.

Adrian Sarbu

Thank you, Romana, and good morning and good afternoon, everyone. Our third quarter results and the prospects for the full year 2012 indicate that our markets have not recovered. In 2012, advertising spending has not matched our expectations. We were successful in addressing our capital structure and debt maturities, but we were unable to achieve our sales and free cash flow target.

In the third quarter, macroeconomic conditions remain difficult, and TV ad markets continued to decline. Advertisers spent less than last year, buying the same amount of GRPs. In these adverse conditions, we succeeded to maintain stable market shares as our audience leadership remain unchallenged in all markets.

We also continued to execute our own strategy: One Content, Multiple Distribution. With a focus on content as differentiating factor, Media Pro Entertainment growing revenues by 49% and New Media and Voyo growing revenues by 34% at constant rates confirmed the validity of this strategy.

During the year, we launched 4 new channels. Despite that, we succeeded to hold local currency cost flat not in our Broadcast division in the third quarter. But now, we see new challenges ahead of us.

David?

David Sach

Thank you, Adrian. Please turn to Slide 5. Real GDP in our territories was flat during the third quarter of 2012, which was down from the 1.8% growth rate reported for the full year 2011. This was the result of a combination of the slowdown in export growth and ongoing tight fiscal measures in some of the countries in our region.

Television advertising spending in our markets declined overall by 7% in the third quarter, driven by weakening GDP and private consumption compared to 2011 and lower pricing by our competitors. We believe that a full recovery of TV advertising markets in our region continues to be hampered by concerns surrounding the levels of European sovereign debt, uncertainty about the future of the euro and a general lack of confidence about economic growth in our countries.

Consensus forecast of GDP and private consumption for the fourth quarter indicate that they will both stay relatively flat, as exports and austerity measures remain unchanged. Given these relatively stable overall macroeconomic projections, we were expecting the rate of decline in the television advertising markets to improve in the fourth quarter.

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