CME Sees Return to Net Profit in 2011 as Advertising Recovers

"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," Sarbu said at the CME headquarters in London, in an interview granted to Bloomberg.

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 company does not anticipate any costs connected to the devaluing of assets in 2009, according to Sarbu.

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.

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, Bloomberg notes.

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, according to Bloomberg.

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."

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.

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 CME group operates large television networks in six central and eastern European states, with a total population of 97 million people.

The company’s television stations are located in Bulgaria (TV2 and Ring TV) Croatia (Nova TV), the Czech Republic (TV Nova, Nova Cinema, Nova Sport), Romania (PRO TV, PRO TV International, Acasa, PRO Cinema, Sport.ro and MTV), Slovakia (Markíza, Nova Sport), Slovenia (POP TV, Kanal A) and Ukraine (Studio 1+1, Studio 1+1 International, Kino).

CME is listed on Nasdaq in the United States of America and on the Prague Stock Exchange.

 

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