Central European Media Enterprises Management Discusses Q2 2012 Results - Earnings Call Transcript

Central European Media Enterprises (CETV)

Q2 2012 Earnings Call

August 01, 2012 9:00 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

William H. Smith - Jefferies & Company, Inc., Research Division

Tim Hamby - Janco Partners, Inc., Research Division

Vivek Khanna - Deutsche Bank AG, Research Division

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

Daria Fomina - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Hello, my name is Zack. I will be your conference operator today. At this time, I would like to welcome everyone to the Central European Media Enterprises Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, August 1, 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 [Slovak] to each of you, and welcome to CME's Second 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

Good afternoon and bonjour.

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 day.

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. These factors are discussed in details in our SEC filings, including Form 10-Q filed earlier today and posted on our website.

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.

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. In the second quarter of 2012, we reduced our debt by $185 million, with support from our major shareholders, Time Warner and Ronald Lauder. Deleveraging was highly expected and demanded by our investors, and the recent actions are a part of a process that will continue in the future. Time Warner now holds 49.9% of CME. This is a signal of confidence.

Advertising markets were tough in the first half of the year, spending declined by 7% driven mostly by macroeconomic fears. Although the amount of GRPs sold was close to the same period of last year, advertisers were tempted by low quality inventory, provided by our competitors at significant discounts. We do not believe that low quality GRPs can meet the communication needs of our clients. We are the only ones able to offer advertisers the reach and demographic quality needed to support their sales. Despite the decline in advertising markets in the first half of the year, we maintain our undisputed audience and market share leadership in broadcasting. This was, and is our priority.

Our actual revenues were affected by FX depreciation, but in constant currencies, they were flat year-on-year with growth in Media Entertainment and New Media. We continue to expand our content offer with 3 new TV channels and 2 new linear Internet channels and the growing number of TV and cinema rating boosters. Voyo became a leader in the subscription video-on-demand segment in our region. CME is now better positioned to face the challenges of the market with the simplified capital structure, stronger balance sheet, unique business model and potential for organic growth.

David will now walk you through the macroeconomic situation in our region.

David Sach

Thank you, Adrian. Please turn to Slide 5. Our overall real GDP growth in that market was flat in the second quarter 2012, similar to the first quarter, but lower than the full year of 1.8% in 2011. Private consumption was also flat, similar to the first quarter and the full year of 2011. GDP has been impacted by a slowdown in export growth since 2011 and private consumption continues to be affected by ongoing government austerity measures in our region.

Despite flat private consumption, we have seen the TV advertising markets decline by 5% in the first quarter and 8% in the second quarter. We think that uncertainty about the global economic outlook, exacerbated by the Greek and Spanish sovereign debt crisis, made advertisers especially cautious towards the end of the second quarter. We believe that advertises and mainly the large multinational companies, feared that the situation in Europe could deteriorate rapidly, forcing exports to contract shortly in our countries, impacting private consumption.

As Adrian stated, advertisers reacted by switching to lower quality GRPs, which we think is not sustainable. Consensus forecast of GDP in private consumption growth indicate that they will both stay relatively flat for the second half, as exports and government austerity measures remain unchanged. Since the macroeconomic situation in Europe and our region does not look to be severely deteriorating, as previously feared, and many key clients have recently expressed their intention to honor their annual spending commitments, we believe that the trend of spending in the second half will improve compared to the first half. However, confidence in the recovery remains fragile and therefore, the TV advertising markets are still likely to decline in the second half.

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