Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CETV > SEC Filings for CETV > Form 10-Q on 30-Oct-2013All Recent SEC Filings

Show all filings for CENTRAL EUROPEAN MEDIA ENTERPRISES LTD

Form 10-Q for CENTRAL EUROPEAN MEDIA ENTERPRISES LTD


30-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As used herein, the term "2016 Fixed Rate Notes" refers to our 11.625% senior notes due 2016; the term "2017 Fixed Rate Notes" refers to the 9.0% senior secured notes due 2017 issued by our wholly owned subsidiary, CET 21 spol. s
r.o. ("CET 21"); the term "Senior Notes" refers collectively to the 2016 Fixed Rate Notes and 2017 Fixed Rate Notes; the term "2015 Convertible Notes" refers to our 5.0% senior convertible notes due 2015, the term "2013 Convertible Notes" refers to our previously outstanding 3.5% senior convertible notes due 2013 and the term "Convertible Notes" refers collectively to the 2013 Convertible Notes and the 2015 Convertible Notes. The term "Time Warner" refers to Time Warner Inc. The term "TW Investor" refers to Time Warner Media Holdings B.V. The exchange rates used in this report are as at September 30, 2013, unless otherwise indicated. Contents
I. Forward-looking Statements

II. Overview

III. Analysis of the Results of Operations and Financial Position

IV. Liquidity and Capital Resources

V. Critical Accounting Policies and Estimates

I. Forward-looking Statements
This report contains forward-looking statements, including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms "believe", "anticipate", "trend", "expect", "plan", "estimate", "forecast", "should","intend" and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors" as well as the following: our ability to access external sources of capital in light of our current significant liquidity constraints and our poor financial performance; the impact of our efforts to increase our revenues and recapture advertising market share in the Czech Republic; decreases in television advertising spending and the rate of development of the advertising markets in the countries in which we operate; the effect of the economic downturn and Eurozone instability in our markets and the extent and timing of any recovery; our success in implementing our initiatives to diversify and enhance our revenue streams; the extent to which our debt service obligations restrict our business; our ability to make cost-effective investments in television broadcast operations, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; changes in the political and regulatory environments where we operate and application of relevant laws and regulations; and the timely renewal of broadcasting licenses and our ability to obtain additional frequencies and licenses. 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 this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes included elsewhere in this report.


Index

II. Overview Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in six countries in Central and Eastern Europe. From January 1, 2013, we manage our business on a geographical basis with six operating segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia. These operating segments, which are also our reportable segments, reflect how our operations are managed by segment managers, how our operating performance is evaluated by our chief operating decision makers and the structure of our internal financial reporting. We have changed our presentation of certain components of our operating expenses to better reflect how cost centers are managed under our new operating model, with no impact on consolidated operating loss or cash flows. The change in our reportable segments has been reflected in Item 1, Note 18, "Segment Data", as well as in the tables below, and the corresponding information for comparable periods has been recast to conform to the current period presentation. The change in composition of our operating segments had no impact on previously reported consolidated net revenues or consolidated net loss for the three and nine months ended September 30, 2012. We evaluate the performance of our segments based on Net Revenues and OIBDA. OIBDA, which includes program rights amortization costs, is determined as operating income / loss before depreciation, amortization of intangible assets and impairments of assets. Items that are not allocated to our segments for purposes of evaluating their performance and therefore are not included in their OIBDA, include stock-based compensation and certain other items. Our key performance measure of the efficiency of our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to Net Revenues. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component in determining management bonuses. Intersegment revenues and profits have been eliminated on consolidation. OIBDA and free cash flow, as defined below, may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures. For additional information regarding our business segments, see Item 1, Note 18, "Segment Data". The following analysis contains references to like-for-like or constant currency percentage movements ("% Lfl"). These references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on like-for-like or constant currency percentage movements as well as actual percentage movements ("% Act") (which includes the effect of foreign exchange). Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the three and nine months ended September 30, 2013 and September 30, 2012.

Executive Summary

Our financial results for the three and nine months ended September 30, 2013 were negatively impacted by the adverse reaction of advertisers and agencies to our initiative to increase television advertising prices in the Czech Republic, which resulted in their withdrawing or withholding advertising from our channels. The decrease in our television advertising revenues was only partially offset by increases in carriage fees in Bulgaria and Romania.
The decline in OIBDA significantly outpaced the decline in revenues during the three months ended September 30, 2013. This decrease in OIBDA is primarily attributable to an increase in content costs of US$ 15.1 million, including US$ 9.0 million of accelerated amortization of program rights, US$ 4.2 million of restructuring charges, US$ 6.4 million of severance costs, and approximately US$ 5.0 million of operating and other costs, as well as a weaker dollar. The decline in OIBDA in the nine months ended September 30, 2013 was impacted by these increased costs as well as the significant fall in revenues compared to the same period in the prior year.
Due to our targeted investments in programming and channel launches, prime-time audience shares across our networks increased in the third quarter of 2013 compared to the corresponding period of 2012 in all but two of our countries. This included gains of five percentage points in the Czech Republic, four percentage points in the Slovak Republic, four percentage points in Romania and three percentage points in Croatia. These audience shares give us a strong advantage over our competition, and we intend to capitalize on this by concentrating our efforts on improving the monetization of our audiences, especially in the Czech Republic.
We previously expected the consumption of GRPs by advertisers in the Czech Republic during the fall season of this year to return to levels similar to that of 2012. Based on a combination of the current level of commitments, the continued weakness in demand for GRPs from advertisers during October as the fall season rolls out, and on-going feedback from advertisers and agencies on GRP consumption for the remainder of the year, we no longer believe this will be the case. We expect our TV advertising revenues in the Czech Republic for the full year 2013 to be significantly below that of 2012. In addition, TV advertising revenues in the Slovak Republic may also continue to decline during the fall season.
The top operational priority for management is to improve the performance of our operations in the Czech Republic, with a particular focus on restoring the demand for advertising on our television channels there while protecting the pricing gains realized during the year. Based on conversations with advertisers during October, we currently expect a significant improvement in TV advertising revenues in the Czech Republic next year compared to anticipated results for 2013, but we do not expect to reach 2012 levels in 2014. We anticipate a similar trend in our consolidated results for 2014, and expect to build upon them in 2015.
The results for the quarter benefited from an increase in carriage fees and subscription revenues when compared to the third quarter of 2012. This was due to successful carriage fee negotiations in Bulgaria during the first quarter of 2013, as well as contracts in Romania with the largest cable and satellite operators signed toward the middle of 2013. Negotiations of carriage fees with the remaining cable and satellite operators in Romania are taking longer than previously anticipated and consequently those revenues may be lower than previously estimated. Furthermore, negotiations of carriage fees for our main channel in the Czech Republic are taking longer than anticipated and are unlikely to be concluded before the end of this year. As a result, we expect the additional increases in carriage fee revenues will be delayed to early 2014. We are taking a harder look at the cost structure across the Company and identifying ways to operate with a more effective cost base. This resulted in an expansion of our previously announced restructuring plans. We incurred restructuring charges amounting to US$ 8.9 million year-to-date and expect restructuring charges for the full year to be approximately US$ 20.0 million. This should result in approximately US$ 30.0 million of annual savings compared to 2012 once the restructuring is complete. We also will incur severance costs of approximately US$ 7.1 million in total for the third and fourth quarters of 2013.
Going forward, we plan to focus on building our core television broadcasting assets in each country. As such, we are in the process of reviewing alternatives for some of our non-core businesses, including potential divestitures of some or all of these assets. While some of these businesses have market leading positions and strong financial performance, we believe that the Company is better served by a focus on our core businesses.


Index

Due to the level of negative free cash flow anticipated for 2013, we will need additional capital and we are currently evaluating all options available to us, including debt and equity financings, asset sales and the renegotiation of payment obligations with a number of major suppliers. In this respect, we are in discussion with Time Warner Inc. regarding a possible capital transaction, including debt, to address our liquidity position. These discussions are preliminary and there are no assurances regarding the ultimate outcome. If we are unable to secure additional financing, we will be unable to meet our debt service obligations and generally fund our operations sometime within the next twelve months.
Executive Management Changes
On August 21, 2013, Adrian Sarbu resigned as President, Chief Executive Officer, and Director of the Company.

Michael Del Nin and Christoph Mainusch were appointed as co-Chief Executive Officers of the Company, effective September 16, 2013.

On October 29, 2013, David Sach, Chief Financial Officer, left the Company. David Sturgeon, Deputy Chief Financial Officer, has been appointed as the Company's Acting Chief Financial Officer and a search is planned for a permanent replacement.

Anthony Chhoy, Executive Vice President and Head of Strategic Planning and Operations, will leave the Company on November 15, 2013.

Market Information
The following table sets out our estimates of the year-on-year changes in real
GDP, real private consumption and the television advertising market in our
countries for the nine months ended September 30, 2013:
                                             For the Nine Months Ended September 30, 2013
                                                             Real Private
                                                              Consumption      TV Ad Market
Country                                 Real GDP Growth            Growth            Growth
Bulgaria                                            0.5  %            0.1  %             (5 )%
Croatia                                            (1.1 )%           (1.2 )%             (4 )%
Czech Republic                                     (1.6 )%           (0.7 )%            (11 )%
Romania*                                            1.8  %            0.1  %             (2 )%
Slovak Republic                                     0.7  %            0.4  %             (6 )%
Slovenia                                           (2.8 )%           (3.2 )%             (8 )%
Total CME Markets                                  (0.2 )%           (0.5 )%             (7 )%

*Romanian market excludes Moldova.
Source: CME estimates based on market consensus for real GDP and real private consumption, and internal estimates for TV ad market growth.
Following a weak start driven by faltering confidence and a slowdown in exports, the economies of the countries in which we operate are estimated to have stabilized in the first nine months of 2013. We expect on-going fiscal consolidation will continue to hold back economic activity. However, an expected improvement in real private consumption during 2014 should be a key driver in stimulating advertising spending.
We estimate that the TV advertising markets in our countries have decreased by 7% on average in the nine months ended September 30, 2013 compared to the previous year. The most significant decrease is in the Czech Republic where the market is estimated to have decreased by 11% due in large part to our pricing initiatives described above. This also had a negative impact on the TV advertising market in the Slovak Republic. The decrease in Slovenia is attributable to recent banking sector problems and political instability. Segment Performance
Our total Net Revenues and OIBDA by segment is as follows:

                                                NET REVENUES
                            For the Three Months Ended September 30, (US$ 000's)
                                                                      Movement
                               2013                2012           % Act       % Lfl
Bulgaria              $      17,925       $      15,128            18.5  %     12.2  %
Croatia                      10,938               9,827            11.3  %      6.2  %
Czech Republic               39,363              51,566           (23.7 )%    (25.6 )%
Romania                      45,775              39,847            14.9  %      7.2  %
Slovak Republic              13,275              17,633           (24.7 )%    (28.6 )%
Slovenia                     10,212              10,013             2.0  %     (3.3 )%
Intersegment revenues        (1,650 )            (3,922 )        Nm (1)      Nm (1)
Total net revenues    $     135,838       $     140,092            (3.0 )%     (7.5 )%

(1) Number is not meaningful.


Index

                                                NET REVENUES
                            For the Nine Months Ended September 30, (US$ 000's)
                                                                      Movement
                               2013                2012           % Act       % Lfl
Bulgaria              $      58,594       $      57,414             2.1  %      0.3  %
Croatia                      40,827              39,564             3.2  %      2.1  %
Czech Republic              121,854             187,377           (35.0 )%    (34.4 )%
Romania                     141,836             134,975             5.1  %      2.7  %
Slovak Republic              52,198              61,595           (15.3 )%    (16.6 )%
Slovenia                     43,412              46,440            (6.5 )%     (7.8 )%
Intersegment revenues        (5,596 )            (8,618 )        Nm (1)      Nm (1)
Total net revenues    $     453,125       $     518,747           (12.7 )%    (13.4 )%

(1) Number is not meaningful.

OIBDA
                               For the Three Months Ended September 30, (US$ 000's)
                                                                        Movement
                                   2013              2012           % Act        % Lfl
Bulgaria                 $        1,601       $       498          Nm (1)       Nm (1)
Croatia                              16              (717 )        Nm (1)       Nm (1)
Czech Republic                   (3,772 )          11,232          Nm (1)       Nm (1)
Romania                          (3,702 )           3,881          Nm (1)       Nm (1)
Slovak Republic                  (6,092 )          (3,061 )         (99.0 )%     (85.1 )%
Slovenia                         (4,000 )          (1,606 )        (149.1 )%    (132.2 )%
Eliminations                       (171 )            (192 )        Nm (1)       Nm (1)
Total operating segments        (16,120 )          10,035          Nm (1)       Nm (1)
Corporate                       (16,324 )          (6,527 )        (150.1 )%    (140.5 )%
Consolidated OIBDA       $      (32,444 )     $     3,508          Nm (1)       Nm (1)

(1) Number is not meaningful.

OIBDA
                               For the Nine Months Ended September 30, (US$ 000's)
                                                                        Movement
                                  2013               2012           % Act       % Lfl
Bulgaria                 $       3,105       $      2,653            17.0  %     17.3  %
Croatia                          3,585              6,242           (42.6 )%    (41.6 )%
Czech Republic                 (10,291 )           65,899          Nm (1)      Nm (1)
Romania                          5,216             14,509           (64.0 )%    (64.6 )%
Slovak Republic                (10,216 )           (1,188 )        Nm (1)      Nm (1)
Slovenia                         2,072              7,247           (71.4 )%    (71.0 )%
Eliminations                       197               (828 )        Nm (1)      Nm (1)
Total operating segments        (6,332 )           94,534          Nm (1)      Nm (1)
Corporate                      (39,728 )          (29,854 )         (33.1 )%    (33.1 )%
Consolidated OIBDA       $     (46,060 )     $     64,680          Nm (1)      Nm (1)

(1) Number is not meaningful.


Index

Bulgaria
Television advertising spending in Bulgaria declined 5% in the nine months ended September 30, 2013 compared to the prior year. The Bulgaria segment reported net revenues of US$ 17.9 million and US$ 58.6 million for the three and nine months ended September 30, 2013, respectively, compared to US$ 15.1 million and US$ 57.4 million in the same periods in 2012, increases of 18% and 2%, respectively, on an actual basis, or increases of 12% and less than 1% on a constant currency basis. Our Bulgaria operations reported a decline in television advertising revenues in the nine months ended September 30, 2013 primarily due to the impact of our negotiations with a major satellite operator in Bulgaria during the first three months of the year regarding our carriage fee revenues, which resulted in lower coverage and audience shares when transmission of our channels was suspended during these negotiations. Following the successful conclusion of the majority of our negotiations with the cable, satellite and IPTV operators in Bulgaria, our carriage fee revenues doubled during the third quarter of 2013 compared to the corresponding period of the prior year. This more than offset the small decrease on a constant currency basis in television advertising revenue during the third quarter of 2013 compared to 2012.
Costs charged in arriving at OIBDA increased by 12% and 1% for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. On a constant currency basis, costs increased by 6% and decreased by less than 1% compared to the same periods in 2012 due primarily to an increase in content costs during the third quarter as we responded to increased competition by investing further in our programming.
Our Bulgaria segment reported OIBDA of US$ 1.6 million and US$ 3.1 million for the three and nine months ended September 30, 2013, respectively, compared to US$ 0.5 million and US$ 2.7 million in the same periods in 2012, an increase of US$ 1.1 million and US$ 0.4 million.
Croatia
Television advertising spending in Croatia declined 4% in the nine months ended September 30, 2013 compared to the prior year. The Croatia segment reported net revenues of US$ 10.9 million and US$ 40.8 million for the three and nine months ended September 30, 2013, respectively, compared to US$ 9.8 million and US$ 39.6 million in the same periods in 2012, increases of 11% and 3% on an actual basis, or 6% and 2% on a constant currency basis. This primarily reflected the increase in our advertising prices coupled with a slight increase in GRPs sold during the third quarter.
Costs charged in arriving at OIBDA increased by 4% and 12% in the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. On a constant currency basis costs decreased by 2% and increased by 10% in 2013 compared to the same periods in 2012 primarily as a result of an increased investment in programming, which was partially offset by a decrease in other costs during the third quarter of 2013 compared to 2012.
Our Croatia segment generated OIBDA of less than US$ 0.1 million and US$ 3.6 million for the three and nine months ended September 30, 2013, respectively, compared to an OIBDA loss of US$ 0.7 million and OIBDA of US$ 6.2 million in the same periods in 2012, an increase of US$ 0.7 million and a decrease of US$ 2.6 million.
Czech Republic
Our advertising pricing initiatives in the Czech Republic were met with significant resistance from certain media agencies and clients in the first nine months of the year. Certain advertisers and agencies have not agreed to new pricing terms and have continued to hold back some of their investments in advertising on our channels. As a result of this decrease in GRPs consumed, the television advertising market in the Czech Republic is estimated to have decreased by 11% for the nine months ended September 30, 2013 compared to the prior year. This is a slight improvement from the estimated decrease of 14% in the market during the first half of 2013 reflecting spending from clients that started advertising on our channels again during the third quarter. This resulted in net revenues of US$ 39.4 million and US$ 121.9 million for the three and nine months ended September 30, 2013 compared to US$ 51.6 million and US$ 187.4 million in the same periods in 2012, decreases of 24% and 35% on an actual basis, or 26% and 34% on a constant currency basis. Despite the slight improvement in the market, we expect our TV advertising revenues in the Czech Republic for the full year 2013 to be significantly below that of 2012 based on a combination of the current level of commitments, the continued weakness in demand for GRPs from advertisers during October as the fall season rolls out, and on-going feedback from discussions with advertisers and agencies on GRP consumption for the remainder of the year. Furthermore, negotiations of carriage fees for our main channel in the Czech Republic are taking longer than anticipated and are unlikely to be concluded before the end of this year. Costs charged in arriving at OIBDA increased for the three and nine months ended September 30, 2013 by 7% and 9%, respectively, compared to the same periods in 2012. On a constant currency basis costs increased 4% and 9% for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012, reflecting the continuing investment in our audience through investment in locally-produced content and the launch of three new channels since July 2012.
Our Czech Republic segment reported OIBDA losses of US$ 3.8 million and US$ 10.3 million for the three and nine months ended September 30, 2013 compared to OIBDA of US$ 11.2 million and US$ 65.9 million in the same periods in 2012, a decrease of US$ 15.0 million and US$ 76.2 million. Romania
Television advertising spending in Romania declined 2% in the nine months ended September 30, 2013 compared to the prior year. The Romania segment reported net revenues of US$ 45.8 million and US$ 141.8 million for the three and nine months ended September 30, 2013, respectively, compared to US$ 39.8 million and US$ 135.0 million in the same periods in 2012, increases of 15% and 5% on an actual basis, or 7% and 3% on a constant currency basis. Our television advertising revenues increased during the third quarter of 2013 compared to 2012 as the increases in advertising prices more than offset the decrease in GRPs consumed. Net revenues also benefited from an increase in carriage fees following the successful negotiation of contracts with a majority of cable and satellite operators in Romania. Negotiations of carriage fees with the remaining cable and satellite operators in Romania are taking longer than previously anticipated and consequently those revenues may be lower than previously estimated. As a result, . . .

  Add CETV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CETV - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.