Central European Media Enterprises (CETV)

Q3 2011 Earnings Call

October 26, 2011 9:00 am ET

Executives

Anthony Chhoy - Executive Vice President of Strategic Planning and Operations

Adrian Sarbu - Chief Executive Officer, President and Director

Daniel Penn - Executive Vice President, Secretary and General Counsel

David Sach - Chief Financial Officer and Executive Vice President

Romana Wyllie - Vice President of Corporate Communications

Analysts

Daria Fomina - Goldman Sachs Group Inc., Research Division

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

Tim Hamby - Janco Partners, Inc., Research Division

Ajay Agrawal - Nomura Securities Co. Ltd., Research Division

Vivek Khanna - Deutsche Bank AG, Research Division

David B. Kestenbaum - Morgan Joseph TriArtisan LLC, Research Division

Unknown Analyst -

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

Presentation

Operator

Hello, my name is Michael, I will be your conference operator today. At this time, I would like to welcome everyone to the Central European Media Enterprises Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 26, 2011. It is now my pleasure to turn the floor over to Romana Wyllie, Vice President of Corporate Communications. Ms. Wiley, you may begin your conference.

Romana Wyllie

Thank you. Good morning, good afternoon or [Slovakian] to each of you, and welcome to CME's Third Quarter 2011 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 homepage, at the bottom-left corner.

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

Adrian Sarbu

[French], and good afternoon.

Romana Wyllie

Chief Financial Officer, David Sach.

David Sach

Good afternoon.

Romana Wyllie

Anthony Chhoy, Executive Vice President Strategic Planning & Operations.

Anthony Chhoy

Good afternoon.

Romana Wyllie

And our General Counsel, Daniel Penn.

Daniel Penn

Hello, everyone.

Romana Wyllie

Before I turn to Adrian, let me read the usual safe harbor statement. Our presentation today will contain forward-looking statements. For these statements, we claim the protection of the Safe Harbor contained in the U.S. Private Securities Litigation Reform Act of 1995, and refer you to the Forward-looking Statements section in our Form 10-Q filed with the Securities and Exchange Commission earlier today for a list of such statements and the factors which could cause future results to differ from those presented in this call.

During this call, we will refer to certain financial information that is not in U.S. GAAP. Please see the appendix to the presentation for a reconciliation to U.S. GAAP financial measures. In addition, our segment financial information that is presented in local currency is not in U.S. GAAP. We do not provide a reconciliation to these numbers, as the U.S. GAAP amounts are expressed in U.S. dollars in our financial statements.

Additional information on our segment data is provided in Note 17 to our financial statements on Page 29 of our 10-Q. 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. When the markets are not generous, you need strong people in business to outperform them. This is CME today.

In the first 9 months of 2011, our TV ad markets declined by 1%. While we doubled our OIBDA from $43 million to $86 million. We have been growing. Although the business environment remains challenging, we decided to give you specific guidance for 2011.

So we expect to generate revenues of $850 million and OIBDA of $166 million, assuming constant exchange rates. Audience leadership and free cash flow generation are and will be our priority this year.

David will now walk you through macroeconomic development and our consolidated financial results.

David Sach

Thank you, Adrian. Please turn to Slide 5. In the third quarter, the consensus forecast shows that GDP grew in all of our markets with aggregate growth of 2%, driven mainly by external demand. Concerns about European debt impacted consumer confidence. As a result, private consumption continued to trail GDP growth, and being flat across our markets.

TV ad spending grew in 4 out of our 6 markets. The Czech market experienced a sixth consecutive quarter of growth rising to 7%. In Slovenia, the market grew 5%, making this the fifth quarter of growth in the past 18 months. TV ad spending also increased in Bulgaria and Croatia by 2% each.

In Slovakia, high unemployment has continued to impact the recovery of private consumption, leading to a decline of 4% in the TV ad market. In Romania, public consumption is estimated to have returned to growth only in the third quarter, and the TV ad markets are still lagging this recovery.

Recently published estimates indicate that GDP and private consumption growth in all markets are expected to be similar in the fourth quarter to that in the third. Consequently, our current outlook for the fourth quarter is 2% growth in aggregate TV ad spending across all of our markets. As the growth in TV ad markets gradually catches up with the growth in GDP and private consumption.

Moving to Slide 6. Our consolidated net revenues in the quarter increased by 23% to $165 million, equating to a 12% increase in constant currencies. All 3 segments contributed to this increase. Total costs increased by 13% to $157 million. But this was almost completely due to the appreciation of our currencies against the U.S. dollar. In constant currency terms, the cost increase was 2%.

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