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Central European Media Enterprises (NASDAQ:CETV)

Q4 2012 Earnings Call

February 27, 2013 9:00 am ET

Executives

Adrian Sarbu - Chief Executive Officer, President and Director

Romana Wyllie - Vice President of Corporate Communications

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

Daria Fomina - Goldman Sachs Group Inc., Research Division

Tim Hamby - Janco Partners, Inc., Research Division

Mark Olson - RBS Research

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

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

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

Vivek Khanna - Deutsche Bank AG, Research Division

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

Jean-Yves Guibert - BNP Paribas Global Markets

Gavin McKeown

Operator

Thank you. Good morning, good afternoon, or [Foreign Language] to each of you and welcome to CME's Fourth Quarter and Full Year 2012 Investor Conference Call. We are broadcasting our earnings call via video webcast to enable you to see the management team in action. You can join us by 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 [Foreign Language].

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.

Daniel Penn

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. Important factors that contribute to such risks include, but are not limited to, those factors set forth under risk factors in our SEC filings including the Form 10-K filed earlier today, as well as the following: the effect of economic downturn and eurozone instability in our markets and the extent and timing of any recovery; decreases in TV advertising spending and the rate of development of the advertising markets in the countries in which we operate; our ability to access external sources of capital and to successfully diversify and enhance our earnings. 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 our filings.

Forward-looking statements speak only as of the date, and we undertake no obligation to publicly update or review any forward-looking statements whether as a result of new information, future development or otherwise. 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 18 to our financial statements in our Form 10-K for a reconciliation to U.S. GAAP financial measures.

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. Our 2012 results showed that our markets remain tough. TV advertising spending declined a further 6% in 2012, driven by weakening GDP, reluctance of consumers to spend in an austerity environment, reduction of advertising budgets and underfulfillment of commitments by certain global clients, and last, but not least, aggressive discounting by competitors. Cost constraints over the last 3 years hampered our ability to strengthen our audience and increase advertising prices.

However, in a tough 2012, we maintained our audience and market leadership. We reduced our debt and extended our debt maturity profile, so that there is no debt due until November 2015. We ended the year with $140 million of cash, which is significantly higher than our October guidance. And as of today, we have $180 million of cash in the balance sheet.

We continue to diversify our revenues. Media Pro Entertainment and Voyo revenues grew double-digit at constant rates.

In 2012, we learned a lot. We believe that advertising spending is at the crossroads, and we see the necessity to increase prices. Changes in consumption patterns means we should seek faster growth in non-advertising revenues including carriage fees. Strengthening audience share with additional local content and new channels is key to supporting our advertising pricing initiatives. We can achieve further savings going forward by structuring our operations and reducing non-core cost. We have to continue deleveraging to free up resources to grow our business. Tough times require bold actions and we are taking them. David?

David Sach

Thank you, Adrian. Please turn to Slide 5. We estimate the real GDP in our territories remained flat during 2012 and was down from the 2% growth in the previous year. This was the result of a slowdown in exports and ongoing austerity measures in most of our countries. Consumer confidence in our markets was impacted by concerns about the European sovereign debt situation, and we continue to see real private consumption lag GDP growth, declining by 1%. This lack of growth in our region led to a decrease in TV advertising spending of 6%. Although the outlook in that market is uncertain, analysts currently expect low single-digit real GDP and private consumption growth in 2013 with variation for country to country depending on the timing and strength of recovery.

Moving to Slide 6. At constant rates, our consolidated net revenues declined by 2% compared to last year, primarily due to the decline in television advertising spending. This decline was partially offset by the growth in revenues in Media Pro Entertainment and New Media. At actual exchange rates, our consolidated revenues decreased by 11%. At constant rates, overall costs increased by 2%, reflecting the launch of 5 new channels, accelerated programming amortization of $19 million and lowered [ph] cost in our faster growing Media Pro Entertainment and New Media businesses. Our costs were lowered by 7% at actual rates in 2012.

As mentioned by Adrian, we will reorganize the business in 2013 to operate under our country-based model. This new operating model will help us reduce our cost base going forward. We expect to incur restructuring cost of between $15 million and $20 million in 2013, and anticipate annual savings of up to $25 million from this restructuring when completed.

Consolidated OIBDA for 2012 decreased by 16% at constant rates or by 25% at actual rates. As we've progressed throughout 2012, we had expected the recovery in television advertising spending, particularly in the fourth quarter, because advertisers had told us that they were going to honor their full year commitments. When this situation changed in October, our future outlook became more uncertain and we made downward revisions to our previous estimates of medium-term future cash flows. As a result, we recorded an impairment charge of $523 million in respect of goodwill, intangible and tangible assets. This impairment was comprised mainly of goodwill in Czech of approximately $300 million and Broadcast licenses in Bulgaria and Romania of almost $200 million.

Adrian will now present the Broadcast highlights.

Adrian Sarbu

I'd like you to turn to Slide 7. In all our markets, we continue to be the undisputed audience leader and generated the majority of the advertising inventory. To match the expectations of certain demographic segments and advertisers' demand, and utilizing our existing library sources, we successfully launched 2 male channels: Fanda in the Czech Republic and Dajto in Slovakia; 2 female channels: Acasa Gold in Romania and bTV Lady in Bulgaria, one comedy channel, SMÍCHOV in the Czech Republic. And early this year, we launched Telka, a new Nova classic channel in the Czech Republic; and Fooor, a comedy channel in Slovakia. The new channels will help us strengthen our audience share leadership in these markets. Our average market shares were solid and stable in 2012 at 64%. David?

David Sach

Turning to Slide 8. As mentioned previously, a number of advertisers indicated in October that they no longer intended to honor their previous spending commitments, which negated an expected recovery in television advertising spending in 2012. Consequently, we experienced a decrease in revenues of 6% at constant rates in Broadcast, in line with the decline in television advertising spending in our markets. Revenues declined by 14% at actual rates.

Broadcast cost increased by 1% on a constant currency basis. This was due to the launch of 5 new channels that mainly utilize existing foreign content library resources and accelerated programming amortization of $19 million, primarily related to expiring foreign programming content for which we were unable to renegotiate extensions to the license periods. Excluding these one-time costs, Broadcast costs were again lower than the prior year.

Looking forward, we have been negotiating new contracts with our foreign suppliers of programming to achieve significantly lower prices, better selections of product and additional window rights. We intend to use these savings to increase our output of local programming that drives our prime time audience shares. This should enable us to enhance our leading audience positions while continuing to lower our like-for-like Broadcast costs.

Our Broadcast OIBDA of $148 million was down by 23% on a constant currency basis or 30% at actual rates. Adrian?

Adrian Sarbu

Let's move to Slide 9 and let me point to a few content highlights. The growth of Media Pro Entertainment proves the validity of our business model: One Content, Multiple Distribution. It has produced for our channels a number of fiction blockbusters with outstanding performance: the Rose Garden Clinic and brand-new drama series Gympl in the Czech Republic, Top Notch in Slovenia, Lara's Choice in Croatia and Las Fierbinti in Romania. Some of our reality and entertainment shows boosted our prime time audience shares such as Restaurant is Looking for a Boss and X Factor in Slovenia; Got Talent in Romania; Wife Swap in the Czech and Slovak Republic, MasterChef in Croatia and Romania; and Voice in Czech, Slovakia and Romania. David?

David Sach

Please move to Slide 10. Media Pro Entertainment delivered a revenue increase of 22% at constant rates or 10% at actual rates. Third-party revenues increased by 21% to $91 million and accounted for 45% of total Media Pro revenues. This growth was helped by up full year's contribution from Bontonfilm, which is purchased at the end of the second quarter of 2011. Costs increased by 15% in constant currency terms, as a result of the higher third-party activity. Media Pro reported OIBDA of $16 million in 2012 compared to $4 million in 2011, an improvement of $12 million. Back to Adrian.

Adrian Sarbu

Thank you, David. Please turn to Slide 11. Voyo, our leading subscription video-on-demand service, has been growing its subscriber base. At the end of 2012, Voyo exceeded 100,000 subscribers across our 6 markets. We continue to enlarge the Voyo library with over 1,200 titles available in the Czech Republic and aim to offer over 1,500 titles in each CME territory. Our website traffic grew by 16% year-on-year and attracted over 12 million visitors per month. We launched a number of new sites and portals in all our countries, and we are aiming to achieve at least the top 3 position in all our markets in terms of website traffic. David?

David Sach

Adrian, thank you. Please turn to Slide 12. The Internet advertising market increased by 2% in 2012 across our territories. In this market, our New Media segment reported an increase in net revenues of 30% in constant currencies or 19% at actual rates, helped by a significant increase in subscription revenues, driven by the higher number of Voyo subscribers. Cost increased by 38% at constant rates, primarily due to investments in enlarging the Voyo library to drive future Voyo subscriber growth. We are looking to increase our investments in content to drive higher subscriber growth where there are good returns. We reported an OIBDA loss of $4 million.

Please move to Slide 13. During the year, we undertook several transactions, reducing our debt by $173 million. We also improved that debt maturity profile, extending our nearest senior debt repayment to November 2015. Free cash flow was negative $62 million for the full year compared to negative $3 million in 2011, but better than we guided in October. The reduction in free cash flow was mainly the result of lower cash receipts attributable to the decline in the TV advertising markets.

We ended the year with $140 million of cash, and that increased the balance to over $100 million as of today. Our current liquidity is sufficient to meet our financial obligations for 2013. Regardless, we must start delivering positive free cash flows. In order to achieve this goal, we will need television advertising revenues and carriage fees to increase. We are fully aware that our high leverage and interest cost limit our growth potential. We continue to look at opportunities to improve our liquidity and reduce our debt. In this respect, we are in discussions with Time Warner about its possible participation in a public or private equity offering.

I'll now give you back to Adrian for final remarks.

Adrian Sarbu

Let's move to Slide 14. There is no doubt that our markets will continue to be challenging in 2013. We are prepared to face these challenges and take bold actions. Slow consumption growth and reduced advertisers' budgets continue to put pressure in advertising spending. In order to reverse the downward spending trend, we are increasing prices in prime time in all markets. In the Czech Republic, we are targeting double-digit price increases. To support these actions, we are investing more in audience share in prime time in all our markets.

We need also to get our fair share of the revenues that carriers get for distributing our channels to cable, satellite and IPTV. With the best-performing channels in each market, we are targeting significant increases in fees per subscriber. In Bulgaria we successfully concluded the majority of negotiations with operators. Romania will follow in the next 6 months. Continued pressure on TV advertising and changing of consumption patterns require new distribution means for our content. Our investments in Voyo, new media and content position us to capture growth in Internet advertising and drive non-advertising revenues faster than in 2012.

We need to increase our cash generation and achieve positive free cash flow. In such a way, we will streamline our operating model and reduce our non-core cost to better execute our One Content, Multiple Distribution strategy country by country.

As David mentioned, we are exploring options to improve our liquidity and reduce our debt, including each with new equity.

In execution of these actions, we expect to meet resistance from other players in the market, which may impact our revenues in the first half of 2013. But with strong leadership position in all our countries, no debt due until November 2015, and the support of all our major shareholders, we are looking forward into 2013 with confidence that we can build upon our strengths and increase our revenues. Romana?

Romana Wyllie

Thank you, Adrian. That concludes the formal presentation, and we are now going to move to the Q&A. So operator, please open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Romana Wyllie

So the first question comes from Alex Balakhnin from Goldman Sachs.

Daria Fomina - Goldman Sachs Group Inc., Research Division

This is actually Daria Fomina from Goldman Sachs. We have a couple of questions from our Chief [ph] first, on ad markets. One of your competitors on their recent results gave a more positive comment on the ad market dynamics at the end of the year and out for the first half of 2013. Where does this difference in the outlook for the market come from between you and competitors? And then my second question would be on your programming strategies, particularly in Czech Republic. In the third quarter reporting, you said that the audience share you see in Czech Republic is lowering your view and you would want to increase it. How have you adjusted your programming strategy and when do you expect to see the results from the audience share, from the adjustment to programming?

Romana Wyllie

So the first question, regarding the ad markets, Anthony or David?

David Sach

I'll take that one. So Daria, obviously, we have a larger share of the advertising markets than our competitors. So it will be our revenues that will drive the ad market much more than theirs. So I would take from that, that our numbers are probably more accurate than theirs. And it's a lack of visibility into our numbers when they report that causes some of these differences.

Romana Wyllie

The second question is about the programming strategy and to audience share, especially in the Czech Republic. Anthony?

Anthony Chhoy

Just in the Czech Republic, in the fourth quarter, we remained a strong lead in the market. We've got 39% prime time audience share. Our strategy here is to continue to invest in the local content and new channels, which we've started to do. And we've launched 2 new channels last year in the Czech Republic. We already launched another one this year, in order to match the expectations of the viewers and to improve our audience share to over 40%, which is critical to support advertising pricing initiatives that we're taking this year.

Romana Wyllie

Does that answer your questions, Daria?

Daria Fomina - Goldman Sachs Group Inc., Research Division

It does. I actually have a small follow-up question. On the Czech Republic audience and revenue shares, where do you see the limits for your power ratio?

Romana Wyllie

Anthony?

Anthony Chhoy

It depends on the success of the implementation of our advertising pricing initiatives. Based on the annual commitments that we've signed to date, the double-digit price increase that we've managed to achieve gives us encouragement that we will be out to boost our brand power going forward.

Romana Wyllie

Okay. Next question is from Tim Hamby from Janco Partners.

Tim Hamby - Janco Partners, Inc., Research Division

I just wanted to see if I could get a little bit more color around your comments that you are going to be restructuring your operating model and cutting down core cost. You just mentioned that there is going to be more of the country-based approach you're going to take. But I wanted to see if you can maybe elaborate a little bit more on what that new strategy will be.

Romana Wyllie

Okay. David?

David Sach

In terms of the operating model that we're putting in place, we've spent the last 3 years building up this One Country, Multiple Distribution model. And we obviously needed some support at the center in order to do that. And therefore, the divisional structure that we had in place supported that structure and enabled us to build that structure. Now we feel that structure is in place. We feel the best place that we need to implement that one country -- the One Content, Multiple Distribution strategy is down at the country level, and this is all about enabling that so we can continue to diversify those revenues and grow that revenue base.

Romana Wyllie

Tim, do you have any other questions?

Tim Hamby - Janco Partners, Inc., Research Division

That's it.

Romana Wyllie

The next question comes from Mark Olson from RBS.

Mark Olson - RBS Research

If you could just quickly -- you mentioned first half revenues will be a lot softer. I may have missed the comments surrounding on it. A little bit more color as to why you're expecting it to be significantly softer?

Romana Wyllie

So David or Anthony?

Anthony Chhoy

Mark, we do expect our revenues to be impacted during the first half as we made initial resistance against our pricing initiatives. But I mentioned earlier that to date, we have signed between 28% to 58% -- 50% of the annual budget commitments across our 6 markets. In the Czech Republic, we achieved double-digit price increase. The other 5 markets, we've achieved single-digit increase. So that gives us encouragement, but we do expect some turbulence as these negotiations aren't easy as you can imagine.

Mark Olson - RBS Research

Okay. Are you providing any guidance on CapEx or well, not, for 2013 at this point in time?

Romana Wyllie

David?

David Sach

No, we're not. We're in the low $30 millions in terms of the CapEx, which I think all of you know is roughly the maintenance level for our CapEx. And we're not providing any specific guidance. But I imagine we'll continue with that sort of level.

Mark Olson - RBS Research

One last one, if I may, what about the capital structure. Could you update us?

Romana Wyllie

Yes. You are breaking up a bit.

Mark Olson - RBS Research

Okay. Sorry. I just want if you can just quickly comment on what you feel is a sustainable net leverage and possible timing of a Time Warner assistance, if you will, on increasing your liquidity through a possible private equity offering?

Romana Wyllie

So the first part, about the leverage, David?

David Sach

Yes. So I've always said I wanted to get down to a 4x net debt to OIBDA level. Obviously, with the OIBDA under pressure due to these advertising markets, that's making our leverage ratio target very difficult to get to at the moment. So as we mentioned in the presentations, we are in discussions with Time Warner about a potential equity offering. Obviously, an equity offering would help us reduce the leverage. You saw this year -- in 2012, we took $173 million out of the debt. And we want to continue reducing that debt. So when we do get that OIBDA back growing at 4x leverage target, it will be achievable.

Romana Wyllie

Mark, do you have any other questions?

Mark Olson - RBS Research

No, I'm fine. No.

Romana Wyllie

So our next question comes from Pavel Ryska from J&T Bank.

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

My 2 questions are first, on the financial level. First one is, can you be more specific on the free cash flow projection for this year? Can you give any term of what we can expect? Second one is, you mentioned that as of now, you have around $180 million of cash. The difference from the end of last year, where does it come from?

Romana Wyllie

So both questions for David?

David Sach

Okay. In terms of free cash flow guidance in 2013, no, we're not giving any. I will tell you that we are renegotiating those foreign supply contracts that I mentioned before, and that should help us improve the 2013 free cash flow, but again it's going to be very difficult for us to get to positive free cash flow, which is obviously what we need to achieve, okay, without increases in those advertising prices and those carriage fees. But we'll see when as we execute our strategy and how close we can get to that target. In terms of the $180 million of cash, obviously, we've been managing our payments quite closely. But quite a bit of that improvement comes from prepayments that we put in place, a prepayment requirement in order for these advertisers to get locked in prices as part of the annual commitment. So that's driving quite a bit of that increase.

Romana Wyllie

Okay. We have Nomura, Ajay Agrawal, in the queue.

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

Just 2 questions, please. The first one is on your new sales policy that got implemented from January. Just if you can give us some color on what have been the reaction of advertisers and the agencies towards the new sales policy, that's the first question. And the second question, I mean, in terms of your financial initiatives, if you can give us some color on any of the assets return you're trying -- looking to dispose, those are the 2 questions.

Romana Wyllie

So the first question about the pricing strategy and reactions of advertisers. Anthony?

Anthony Chhoy

Ajay, as you can appreciate -- we do have some initial resistance from some of the agencies and also some of the clients. But on the same side, the fact that we've signed a mere 36% of the annual commitments in the Czech Republic, we're closed to signing another 14% to reach 50%. And with that we've achieved double-digit price increases. That gives us a lot of encouragement that we are on track to successfully executing this strategy going forward.

Romana Wyllie

The second question was about our financial initiatives and potential disposal of asset. David?

Adrian Sarbu

Yes. Ajay, so I talk about the potential equity offering. I'm not going to say how much more than I did before on that. And regarding the asset disposal, yes, we are looking at disposals of non-core assets being our cinema and radio businesses. With that current liquidity, we don't see the need to look at asset disposals of core businesses. We would only do that if absolutely necessarily.

Romana Wyllie

Ajay, does that answer your questions?

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

Yes, I guess. I mean, if I can ask another question. Another question regarding on the carriage fees. I mean, if you can give us some color on what kind of growth are you seeing in the carriage fees and the amount of carriage fees that you're generating at present?

Romana Wyllie

Sure. Anthony?

Anthony Chhoy

Ajay, Adrian already mentioned in his speech we do have the best-performing channels in each market. So we are targeting significant increases in the fee per subscriber to get our fair share of the revenues that the carriers have been getting from distributing our channels through cable, satellite, IPTV. You may have seen in the press, we have successfully concluded the majority of these negotiations in Bulgaria, where carriage fee revenues we expect at least double in 2013. That's in Bulgaria. In Romania, negotiations are still ongoing and we expect to conclude that in the next 6 months.

Romana Wyllie

We have quite a few more questions and people in the queue. So next one, ING, Andrzej Knigawka.

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

On Czech Republic, there was some interview with Jan Andrusko in January, which indicated that your advertising share in Czech Republic fell almost 60% in January. Are you improving situation in February or is it pretty much the same reaction from advertisers in Czech Republic in February, March to date?

Romana Wyllie

Anthony?

Anthony Chhoy

Andrzej, as mentioned already, we do have initial resistance from some agencies and advertising clients, especially the bigger ones. Now, that's obviously impacted the revenues in the early part of the year. But these are low seasons. It's not the critical months. The critical months is in the high seasons, I mean, spring and fall. And even though the pacing of the annual commitments that's been signed to date, it's behind last year. The fact that we've achieved double-digit price increases already on those that are signed, I mean, gives us great confidence going forward to continue to pursue this bold strategy of ours.

Romana Wyllie

Any other questions, Andrzej?

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

Yes. 2 more, actually. Did the talks with Bulsatcom in Bulgaria were completed? Did you agree the carriage fees levels with Bulsatcom?

Anthony Chhoy

Andrzej, we did successfully concluded that, and we achieved the targets that we set for ourselves with Bulsatcom.

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

And the last one, actually are regarding fourth quarter numbers. There seem to be quite an increase in cost for Romania in that particular quarter on OIBDA margin. There was only 1% and like the OpEx was almost compatible to Czech Republic and the revenue was growing. So there seems to be a cost issue in Romania in that quarter. Can you explain what was behind it?

Romana Wyllie

David?

David Sach

Yes. In Romania, we took, of that accelerated programming amortization that I talked about previously, $10 million of that was in Romania. So in the fourth quarter, we go through our budgeting and during that budgeting process, we schedule what's going to happen in the following year in 2013. And we realized in that scheduling process that some of the programming associated or some of the programs associated with our foreign programming commitments in that country were going to expire. And therefore, we're going to have to take some accelerated amortization, which we did in Romania. But that's a one-time cost that won't be repeated.

Romana Wyllie

We have Vivek Khanna from Deutsche Bank on the line.

Vivek Khanna - Deutsche Bank AG, Research Division

I just had one question for David, actually. With regards to the restructuring, and you highlighted the quantum of the expense and what the expected savings would be. I was just wondering if you could give us a little bit of color as to the timing as to when you expect to incur them, a, in a P&L basis and then, purely on a cash basis also.

Romana Wyllie

Okay. David?

David Sach

So, yes, I think the cash is going to mirror the restructuring cost and the savings. So the P&L and cash flow will pretty much be in line. In terms of the restructuring costs, we believe all of that will be incurred in 2013. Regarding the savings, we're probably aimed to get a portion of that $25 million, possibly up to half of that $25 million in 2013, because it will be phased obviously throughout the year.

Romana Wyllie

We have [indiscernible] from Canavarie [ph] on the line.

Unknown Analyst

Some of my questions have already been answered, but I just wanted to have a bit more clarity around the pricing that you're trying to implement for all the markets because just looking at Slide 7, which basically lacks audience share pretty much on all the markets. How do you play these price increases versus regaining or keeping the market share that you have?

Romana Wyllie

Anthony?

Anthony Chhoy

Bogdan, in terms of our audience share performance last year, we did maintain our audience share leadership. But as part of the actions that will allow us to be successful with implementing our advertising pricing initiatives, we do need to strengthen our audience share leadership. We are taking actions in that regard while investing in local content and also in new channels that utilizes the existing foreign content library resources.

Romana Wyllie

We have Will Smith from Jefferies on the line.

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

I guess, first one, I just wanted to clarify. Anthony, did you say earlier that 50% of the Czech clients had accepted the price increases or did I mishear that?

Anthony Chhoy

Will, we have signed to 36% of the annual budget commitments to date. We are very close to signing another 14%. So we have good visibilities for 50% of the annual budget commitments to date. And of those, about 50%, we have achieved double-digit price increases on them.

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

So that leads me into, I guess, a question for David. You mentioned you're not going to give free cash flow guidance right now and to really get it back up to a positive number. Do you kind of -- you can try that beyond that 50% number or the 14% as we've got good visibility enough to get you over the hurdle to where your cash flow break even points are?

David Sach

Yes, Yes, Will. We will need to get significantly more than that 50% to get close to our free cash flow positive number.

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

Okay, great. And a quick last one, I think you guys have previously given commentary on your comfort levels with the consensus expectations. Do you have any thoughts on what's out there for 2013 right now?

Romana Wyllie

David?

David Sach

We gave some macroeconomic guidance. Most analysts are predicting very little growth in our territories, so 1% GDP and something similar on private consumption. With that level of growth on the macroeconomic situation, that is not going to be sufficient to drive growth in the TV advertising market. So if growth on the macro level does tend to be that low sort of single digit number, it will be challenging advertising spending markets in 2013.

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

Okay. But to add to my previous comments -- that comfort level was was consensus for sales and I'm the seen sectors and factors in that.

David Sach

Say the question?

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

The commentary on consensus right now...

Romana Wyllie

It's really hard to hear you, Will. Maybe, let's take your questions off-line after the call because the line is really bad and it's breaking up. Is that okay?

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

Okay.

Romana Wyllie

We have our next question coming from Jean-Yves Guibert from BNP Bank.

Jean-Yves Guibert - BNP Paribas Global Markets

A quick question, if I may. Regarding -- my initial regard, as you shared you're are going to renegotiate with Time Warner your content agreement. Could you provide us with more detail in terms of timing as to when this content agreement needs to be renewed? And in relation with your current discussion with Time Warner as a shareholder, could we expect huge, I mean, anything [indiscernible] come we are after a possible submission of Time Warner in a private equity offering? Would you compromise on the renegotiation of your content agreement with Time Warner?

Romana Wyllie

So the first part, Anthony?

Anthony Chhoy

Jean-Yves, we do have long-term programming contracts with the major studios including Warner Bros. That gradually expires starting this year. We do renegotiate new deals according to our programming strategy and our scheduling needs. So with these, we are targeting significantly lower volumes and lower prices, better selection of products and also trying to get additional window rights. We do intend to use these savings going forward to increase the output of our local content, and this drives our prime time audience shares. So we do intend to continue to contain our programming cost going forward as well.

Romana Wyllie

Anthony, regarding the potential equity offering, talks with Time Warner, I think we said what we could have said. But David, do you want to add anything?

David Sach

Yes, our shares owned at the Time Warner level, obviously, the programming negotiations are down at the Warner Bros. level. Time Warner, rightly left its operating companies to negotiate the programming deals without interfering so. There is the leverage to be had in the negotiation of those 2 aspects.

Romana Wyllie

We have one last question coming from Pavel Ryska from G&T Bank again.

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

I want to get back to the cost side. Speaking of the long-term contracts, can you say that there is a specific period time, maybe this year or next year, when the bulk of your long-term contracts that will expire and you can renegotiate it? Or is it a more continuous skewed process?

Romana Wyllie

Anthony.

Anthony Chhoy

Pavel, these long-term programming contracts expire gradually. So it's not all in the one go in 2013 because we do sign these at various stages of the year in the past.

Romana Wyllie

We have the next question coming from Pioneer Investments, Gavin McKeown.

Gavin McKeown

So I appreciate that it's difficult for you to comment on a lot of the issues regarding Time Warner. But given that you have been through the process back in May and June, or about share common [ph] even more perspective today. And does the discussion that you have at this stage leads to that valuation or did you really have regional [ph] agreement today more to do with independent director been satisfied that equity given away?

Romana Wyllie

David?

David Sach

Yes, Gavin, we just can't comment on those negotiations and how far they're along and what issues we're discussing. So unfortunately, sorry, I can't give you much more than what we said.

Romana Wyllie

That was the last question of today's call. As there are no more questions in the queue, so let me thank you for joining us today. We look forward to seeing you all shortly. Goodbye.

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