CEE broadcaster CME upbeat advertising will return

By bne IntelliNews July 28, 2011

Nicholas Watson in Prague -

The broadcaster Central European Media Enterprises (CME) eked out a small profit in the second quarter and remains "comfortable" with analysts' positive forecasts for the whole year, even as advertising markets in the six Central and Eastern European markets in which it operates remained in the doldrums.

Attributable net income for the Nasdaq-listed broadcaster came in at $968,000, which was a turnaround from the net loss of $21.1m in the first quarter, but far below $165.2m for the same period last year when it booked a large one-off gain of $300m from the sale of its struggling Ukrainian operations.

CME's revenue in the period rose a better-than-expected 23.8% to $249.7m, helped by foreign exchange effects and strong performances on the smaller markets of Croatia and especially in Bulgaria, which offset a worse-than-expected revenue growth in the company's main market of the Czech Republic and a still-struggling Romania. "According to our calculations, [Czech] revenues dropped approximately 3% year on year in local currency terms, which is very disappointing given the fact that the main competitor in the country, TV Prima, achieved a 24% year-on-year local currency revenue growth," says Josef Nemy, an analyst with Komercni Banka.

Adrian Sarbu, CME's president and CEO, noted that: "Our operations performed better than advertising markets, which in the second quarter contracted by 3%. However, based on continuing improvements in macroeconomic indicators, we foresee a growth trend in all our TV advertising markets in the second half of the year."

Despite the sovereign debt crisis in the Eurozone and the local government austerity measures, CME is optimistic economists' predictions that the recovery in the region's economies and private consumption will bear out. As such, "We foresee TV advertising picking up in the second half of this year and remain confident all our TV advertising markets will start to grow in second half of 2011," Sarbu told analysts on a conference call following the earnings release.

Indeed, CME said on the conference call it remains on track for positive cash flow for the full year and reiterated that it's "comfortable" with analysts' predictions that revenues will be approximately $831m in 2011 and operating income before depreciation and amortisation, or Oibda, will come in at $168m.

Broadcasters too are clearly betting that the medium-term prospects for the region's television business remain favourable, driven by a convergence of advertising spending with Western Europe. CME puts total ad spending per capita in Western Europe at $248, but at only $44 in the markets in which it operates. In 2009, Time Warner acquired a 31% stake in CME for $241.5m and the US cable company is also one of the main candidates to buy ITI Group's 56% stake in Polish broadcaster TVN, worth about $1.3bn.

CME shares, listed on the Nasdaq and in Prague, jumped 6.32% by the close in Prague, but are still down 18.25% since the start of the year.

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