Central European Media Enterprises Ltd Q1 2009 Earnings Call Transcript

| About: Central European (CETV)

Central European Media Enterprises Ltd (CETV)

Q1 2009 Earnings Call Transcript

April 29, 2009 9:00 am ET

Executives

Romana Tomasova – VP, Corporate Communications

Adrian Sarbu – President and COO

Wallace Macmillan – CFO

Analysts

David Kestenbaum – Morgan Joseph

Ben Mogil – Thomas Weisel Partners

Laurie Hill – Goldman Sachs

Hanning Lance [ph] – WestLB Mellon Asset Management

Matthew Walker – Nomura

Mitch Resnick – Fortis Investment

Thomas Samson – Musinec

Andrzej Knigawka – ING

Radeem Dreumel [ph] – Ulster Bank

Merry Erington [ph] – Janco Partners

Lisich Glaskow [ph] – KBC Securities

Christian Schutz [ph] – Kimco [ph]

Operator

Hello, this is the conference call operator. Welcome to the Central European Media Enterprises first quarter fiscal 2009 earnings conference call. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator instructions) The conference is being recorded. At this time, I would like to turn the conference over to Romana Tomasova of Central European Media. Ms. Tomasova.

Romana Tomasova

Good morning or good afternoon to each of you, and welcome to CME's first quarter 2009 investor conference call. During this call, we will refer to presentation slides, which you can download from our website www.cetv-net.com. You can find them on our homepage at the bottom left corner.

The participants of today's call will be Adrian Sarbu and Wallace Macmillan, who will give you the formal presentation. We are also joined today by our General Counsel, Daniel Penn. Before I turn to Adrian, let me read the usual Safe Harbor statement. Our presentation today will contain forward-looking statements. Through these statements we claim the protection of the Safe Harbor contained in the US Private Securities Litigation Reform Act of 1995, and refer you to the forward-looking statements section in our Form 10-Q filed with the Securities and Exchange Commission earlier today for a list of such statements and the factors, which could cause future results to differ from those presented in this call.

During this call, we will refer to our segment financial information. Certain of these numbers presented in local currencies are not US GAAP numbers. We do not provide reconciliation to these numbers in this presentation as the US GAAP amounts are expressed in US dollars in our financial statements. Additional information on our segment data is provided in note 17 to our financial statements on pages 39 of our 10-Q. And now, over to Adrian.

Adrian Sarbu

Good afternoon or good morning. I told you in February that 2009 would be different than 2008, and it is indeed, dramatically.

I invite you to turn to page four of our presentation. Our advertising market experienced an unprecedented decline in the first quarter 2009. We anticipated this development in December, and took strong actions to minimize its impact on our business. In January, the macroeconomic indicators for all our countries have deteriorated week by week.

In the first quarter, TV ad spending in our core markets fell between 10% and 30%. All the actions we have taken on the revenue and cost side could not offset the magnitude of this decline. In normal business conditions, we expect to have visibility of advertising budgets for the whole year by the end of the first quarter. This was not the case in the first quarter this year.

We used all of the possible trade incentives, which we could create in order to motivate our clients to commit and spend in line with 2008 GRP volumes. But the reality is that uncertainty persists in respect to advertisers fulfilling their full-year commitment. As a result, we cannot forecast revenues beyond the second quarter.

We also believe that our markets have not reached the bottom yet. The financial crisis will still be moving into the real economy for the next few quarters, but we're riding the storm by focusing on preserving our key trends, our audience leadership, the excellent quality of our content, our brand power, and most of all, our people.

For a media company in this business condition, the best possible outcome is to increase market share. I'm very proud that we did this in all our core markets in the first quarter.

Let us move to slide five. You may recall that historically CME has reported segment EBITDA, which excluded any corporate costs. As we integrate our business further, we have decided to report and guide to consolidated EBITDA, including all corporate costs. I am pleased to announce that we met the guidance we gave on 23rd of March for the first quarter revenue and segment EBITDA.

We guided to revenue of $135 to $145 million US, and we delivered $141 million. We guided to segment EBITDA of $18 million to $22 million and we delivered $19.8 million. Last (inaudible) to a consolidated EBITDA of $15.5 million.

Let us look at slide six. In the first quarter, our core operations performed strongly, but the market condition meant that our results were below last year. We delivered EBITDA of $39 million and an EBITDA margin of 29% in our core operations. The more important event from a shareholder perspective was the agreement by Time Warner to invest $241.5 million into CME shares.

This will provide us with liquidity and it sets off a long-term strategic partnership, which we believe will add significant value to our business. We maintained our audience – we maintained our audience share leadership despite rationalizing our programming investment, and most importantly, we increased our market share in our core operations against the background of a deep cut in TV advertising spend.

The Internet is part of our future, and the 85% year-on-year growth in our daily unique Internet visitor to 1.2 million daily users or 24.5 million unique users at the end of March is a positive development for the long term. We are investing carefully now in our Internet business and we will continue to invest to build long-term positions.

Let us look at slide seven. In the Czech Republic, TV Nova had an outstanding prime time audience share of 48%, driven by successful local productions such as (inaudible), and the increasing audience share of Nova film. We increased our year-on-year market share to 70% from 68%.

Our Internet site showed 740% growth compared to last year with 0.6 million average daily unique visitors. In Romania, the ProTV group also grew its audience share to 34% in prime time. Driven by the spring blockbuster series REGINA Carter [ph], which delivered 27% average audience share. The news on pro TV had its strong position and continued to deliver excellent audience share results.

Our advertising market share increased to 56% to 55% year-on-year. In Slovakia, we decided to postpone investment into programming in the first quarter. This resulted in a drop in prime time audience share down to 33%. TV Markíza still remains the leader in the market and increased its advertising market share to 65% from 61%. Our Internet site achieved 82% growth in daily unique visitors in March, following the successful launch at the end of last year.

Let us move to slide eight. Our Slovenian operation had also an outstanding audience share of 48% in prime time, fuelled by successful local productions. We also increased our market share to 76% to 72%. Our Internet site 24 hour.com maintained its leadership and in another positive signal, our Internet business in Slovenia delivered positive EBITDA in the first quarter.

We are especially pleased with the continued development of our Croatian business, Nova TV. We had the successful start to the second season of The Farm reality show, generating an average 36% audience share. We delivered positively in local currency and increased our market share to 36% from 33% year-on-year.

Ukraine is our most challenging market due to deep recession, collapsing currency, and reluctance of advertisers to commit their budgets. The first results of our actions and gradual relaunch are slowly beginning to be seen. In the first quarter, we increased our audience share, driven by our news and the dancing show Bailando, and prime time series (inaudible). Our new in-house sales team, which we have created from scratch achieved 98% sell-out ratio in March. We also successfully completed the integration of the Kino Channel.

In Bulgaria, we're keeping expenditure to the minimum level necessary, until the relaunch of our two channels, TV2 and Ring TV later this year. Our launch will be supported by high-quality local and acquired programs. Let us turn to slide nine.

On the last earnings call, I said that our key task was to maximize liquidity and we did it. On the 23rd of March, we announced that Time Warner agreed to invest 241.5 million in CME. Investors responded very positively to this announcement, which was reflected in our share price growth. Our strategic partnership with Time Warner transcends our liquidity, and expands our operation and financial flexibility.

It brings new resources for channel development, which is a key component of our broadcasting strategy. Last but not least, it complements CME content strength, and potentially opens up opportunities for wider distribution outcome.

Let us turn to slide ten. In our last earnings call in February, I spoke to you about key tasks for 2009. I now want to talk to you about our performance today against these tasks. We increased liquidity through Time Warner investments. We said that we would address the funding issues of our development operations in Ukraine and Bulgaria.

We have presented to the board with a number of options for review, but you will understand that I cannot comment on these in detail during this call. I want to reassure you all that we are still working extremely hard to deliver on our target of a clear solution to the funding needs of these businesses by July 1, 2009.

We maintained our audience share leadership in our core markets, and we increased prime time audience share in most of them by 1 to 2 percentage points. Given the reduction in programming costs, the spread of the HR changes, and that cuts across the business, I'm extremely proud of the way in which our management team has responded. The key people in our organization now are the sales teams and thanks to improvement in our sales quality, and the usual effort to motivate clients to advertise, we increased advertising market share in all our core markets by between 1% and 4%.

We took painful but necessary decisions and we reduced our local currency costs by 10% year-on-year, excluding Bulgaria. We reduced CapEx 16 million, which represents 67% reduction year-on-year, and we will keep it below 50 million this year. We have relocated our London office to a cheaper and smaller premises, and successfully restructured our corporate functions moving some of them to the region.

We expect to reduce our corporate costs by 30% for the full year. As you can see, we have been working extremely hard across the whole business to ensure we maximize liquidity, safeguard EBITDA, and maintain or improve our market positions. The business climate is difficult, but we have excellent brands and people. We know what we have to do and we are doing it every single minute of everyday, and now over to

Wallace.

Wallace Macmillan

Thank you Adrian. I would like to talk to some items of key interest in our financial statements. Slide 11 highlights our operational performance metrics. Our revenues in the first quarter fell by 32% in our core markets, the Czech and Slovak republics, Romania, Slovenia and Croatia and by 37% overall. This reflects both the decline in television advertising spending in our markets, and the impact of the stronger US dollar.

In 2008, our first quarter revenues were unseasonably high due to the incentives given to advertisers to move spending to the historically slower first quarter. In a like-for-like currency basis, our core market revenues fell by 16%. Year-on-year our costs fell by 20% despite the inclusion of $7 million in respect to Bulgaria, which we had not acquired in the first quarter last year.

Approximately 30% of the cost base of our operating segment is not in the local operating currency, and foreign exchange movements increased our operating costs quite significantly year-on-year. In the quarter, our operating segments at $96 million in liquidity write-down costs, most of which were in Ukraine, and about $1 million in redundancies.

In constant currency, excluding Bulgaria, and adjusted for these one-offs, the cost base of our operating segments was reduced by approximately 11%. Corporate costs benefited from the one-time gain of $3.4 million from the assignment of our Lehman Brothers bankruptcy claim. Excluding this benefit, our underlying corporate costs fell by 20% year-on-year, and as Adrian said, this reduction should increase going forward when the full impact of staff reductions is reflected, and due to the relocation to smaller premises for our London offices.

Slide 12 considers key areas of interest from our financial statements. We suffered an operating loss of $85 million in the quarter compared to income of $46 million in the first quarter of 2008. This is after incurring an $82 million impairment charge against (inaudible) assets in the TV2 asset group in Bulgaria. Excluding this impairment charge, our operating income for the first quarter fell $47 million year-on-year as a result of the depressed market conditions.

With this impairment charge, all of our Bulgarian impairment charges have now been written off. The impairment charge has no cash effect, and is not relevant to covenant ratio calculations in respect to our debt. In the first quarter, our cash flow from operations fell by 62 million to 23 million. This was in part offset by a significant reduction in capital expenditure to just $8 million in the quarter compared to $24 million last year. As a result of these, our free cash flow, which I show here as operating cash flow less CapEx, fell by $46 million to $15 million in the quarter.

Net debt, including currency and capital lease obligations, increased by $5 million to $1.008 billion [ph]. This figure includes our convertible debt, the $475 million we are due to repay in 2013 rather than the balance sheet carrying value of $383 million. The balance sheet value reflects the impact of our having adapted a new accounting standard APB 14-1. The new standard modifies the accounting treatment of convertible debt, separating debt and equity components.

This reduced our gross debt on the balance sheet as of December 31, 2008, by $96 million with a corresponding increase in additional paid in capital, and creates an additional non-cash charge to interest expense for the quarter of approximately $4 million.

The full-year impact of adoption will be to increase our interest expense by a non-cash charge of approximately $16 million. We ended the quarter with $339 million of cash in undrawn facilities and overdrafts. Anticipating shareholder approval of the proposed equity issue to Time Warner, we expect receipts of the proceeds of $241 less million costs during the second quarter.

And now back to Adrian.

Adrian Sarbu

I want to talk to you about how we expect our markets to perform in 2009 and 2010. The business conditions will remain harsh. Across all our markets, we are finding that advertisers are reluctant to fulfill spending commitment, in turn giving us extremely limited visibility on our future sales.

Economic forecasts all suggest a difficult 2009, but a return to growth in 2010. The logical conclusion of this is that our market will bottom sometime between the third quarter of 2009 and the first quarter of 2010. We believe that once growth in GDP returns, the rebound will be rapid. We're planning and preparing in the knowledge that the next quarter will be some of the most difficult we have ever dealt with, but we are now convinced that we have the resources to emerge from this crisis as strong as ever.

We will be well positioned to restore our margins, when the markets take off. Before we open the floor the questions, let me say a few words about our guidance. As I mentioned earlier, our revenue visibility remains poor. Analyst economy projections for our market have continued to deteriorate since the start of the year. Although the level of contracts signed with our customers has now reached significant levels in most of our markets, we learn that we have to be cautious in respect to execution.

Similarly on the cost side our decision will be driven by volume market conditions, in particular, the level of our investment in the broadcast schedule as we go through the year, which accounts for two thirds of our cost base, will be driven by both changing market conditions and by the way our competitors react to these in each market.

We review this decision with each station weekly, but it is simply too early to foresee how the full year will develop. We reached a conclusion that we cannot give guidance in this earnings call. We will review this decision as the year develops, and may give guidance in the second quarter earnings call or later, when our visibility for the year improves sufficiently to allow us to do so.

And now I will pass it back to Romana.

Romana Tomasova

So, we welcome questions, and I will pass it over to the operator to open the floor for questions. I see the first one from David Kestenbaum.

Question-and-Answer Session

Operator

(Operator instructions) The first question comes from David Kestenbaum of Morgan Joseph. Please go ahead.

David Kestenbaum – Morgan Joseph

Okay, thanks. Wallace, last quarter I guess you had $414 million of cash in undrawn facilities. That shrank to $339 million this quarter. Can you just talk about the difference there?

Wallace Macmillan

The difference comes from a couple of sources. Obviously, we used up some cash, and that is the terms during the quarter, because of the, for example, in buying – paying for the (inaudible), which we took control of in the quarter, and it is a combination of that and simply operating expenditures.

David Kestenbaum – Morgan Joseph

Okay, so you are able to tap all the facilities that you had credit lines.

Wallace Macmillan

Yes, we drew down on all of our facilities as we said we would and so, but that doesn't ultimately affect our liquidity because we define our liquidity as being a combination of cash and undrawn facilities. The drawdown of the facility doesn't affect our net debt, but we have taken down all of our facilities, as we said we would in the last call.

David Kestenbaum – Morgan Joseph

Okay, and I assume it doesn't look like – and you didn’t union buyback any debt, right?

Wallace Macmillan

No, we didn't.

David Kestenbaum – Morgan Joseph

Okay. Do you expect a normal seasonality that you’ve always had historically in the business and will the second quarter be more robust. I know you're not giving guidance, but we'll see better numbers. I know you had kind of indicated that in the past, but –

Wallace Macmillan

Well, it is very difficult to know what is going to be normal seasonality in current conditions, and we are expecting for the second quarter very similar conditions to the first quarter, and quite how this will play out in the course of the year in terms of seasonality is too early to predict.

Adrian Sarbu

David, I also want to add that for this region, which exists as capital since 20 years, which is the first crisis. So we have no benchmark. This year probably will be in the first benchmark. So we cannot say the same seasonality can be predicted, for once week-by-week the behavior of the advertisers is driven by global developments in business.

David Kestenbaum – Morgan Joseph

Okay.

Adrian Sarbu

So the answer is we shouldn't confirm to you that the pattern, which was used by our market first quarter and third quarter weak, second and fourth strong, will be followed this year.

David Kestenbaum – Morgan Joseph

Okay. And as far as Ukraine, it was down to a lot more than 50%, which was in your previous guidance on that market. Do you think you can get that back in the back half of the year or should we expect a lower number than that 50% decline?

Adrian Sarbu

Ukraine didn't stabilize yet. We have signals at the level of consumer confidence, but we cannot say Ukraine can be predicted. What can be predicted in Ukraine is unpredictable. One season you have weak sales, the other season you have new elections, which means more spending, which is a source of revenue. So, today we cannot say that Ukraine is stabilized.

David Kestenbaum – Morgan Joseph

Okay, thanks.

Operator

The next question comes from Ben Mogil of Thomas Weisel Partners. Please go-ahead.

Ben Mogil – Thomas Weisel Partners

Hi guys. Good morning. Sort of following up on David’s question in terms of the liquidity, I mean if I look at the difference from year-end until the end of the quarter, we are looking at about round about $70 million or so of reduction of liquidity, and I know that you spent $20 million buying out Kino, and making an investment in Ukraine, but when you did generate cash in the quarter, can you sort of help us understand sort of why the liquidity was down so much?

Adrian Sarbu

Yes, there were forex movements in the quarter as well, and beyond there is operating cash movement, we had –

Wallace Macmillan

But these really aren’t the answers, it is the operating cash movement that does move the liquidity down in the quarter, and that’s in the course of interest payments as we go through the year.

Ben Mogil – Thomas Weisel Partners

Okay. In terms of the debt, can you give us any sense on the debt side of how that changed this quarter and I’m sort of halfway to the Qs. So I apologize if you detailed them, is the debt you know on April 30th or 29th, really any different than it was on March 31st other than exchange-rate movements, which I realize are beyond your control?

Adrian Sarbu

Are you referring to my commentary earlier on about the different balance sheet depiction of that.

Ben Mogil – Thomas Weisel Partners

No. What I’m asking is, has the company drawn down on any increase, has the company drawn down any more debt since the quarter end?

Adrian Sarbu

Since the quarter end, no. But by the quarter end, we had already drawn down effectively on all of our revolving facilities. This as we explained in the last earnings call was because we were advised that in current conditions this was the best way to behave.

Ben Mogil – Thomas Weisel Partners

Sure –

Adrian Sarbu

That’s why our cash balances have risen and our (inaudible) has risen equivalently.

Ben Mogil – Thomas Weisel Partners

Sure that makes sense. I think you did a good job of telegraphing that number on the last call. In terms of accounts receivable, are you seeing any increase materially in bad debt. I mean instead of looking through the Q, I think you know, it looked to me like the bad debt ratio was up significantly. Can you talk a little bit about that and you know what kind –

Adrian Sarbu

Sure. We are starting to see an element of slippage in receivables timing, in particular in Romania and a little bit in other markets, but in other markets there just a smaller degree, but there are times that as we are discussing with – negotiating with customers about the best way of trying to encourage sales, we have in some cases allowed an element of slippage in debt payment timing, and under our provisioning basis, we naturally increased our provisions according to an ageing schedule on our debt, and so with the decision in some cases to allow an element of additional hedging on receivables that automatically leads to a slightly higher receivables provision in our markets. So, not in every market but in two or three of our markets, we've seen some slippage in debt outstanding.

Ben Mogil – Thomas Weisel Partners

How does this affect your Czech manufacturing facility?

Adrian Sarbu

It doesn't.

Ben Mogil – Thomas Weisel Partners

There is no sort of cap on what the factor will accept in terms of debt ratios?

Adrian Sarbu

There is no issue that we are approaching, we are seeing at this stage, no, and currently in the Czech Republic, it is not a market where we had any significant slippage in debt outstanding.

Ben Mogil – Thomas Weisel Partners

Okay, and the last question, and then I’ll get off of the queue. Obviously, you've talked a lot about sort of you know, looking to instill soft funding gaps at Bulgaria and Ukraine. I understand the swap of City, and buying Kino, the remainder of Kino out, but at the same time you go out, make another investment, you know, for $10 million or for $12 million in another, you know, Ukrainian company. Is that company profitable? What's the thought of, why to own a10% you know, market that's got obviously, you know no visibility and huge issues. Want to get sense of what your tolerance is for, you know, for that market effectively?

Wallace Macmillan

Well, the (inaudible) investment was part of the overall negotiated deals that we went into, which would eventually give us control, which gave us, has already now given us control of the Kino operation. Getting control of the Kino operation was essential to enable us to reduce costs and to run a full second channel within Ukraine. So, subsequent to gaining control, for example, we have now been able to integrate Kino fully within 1+1. We have been able to utilize our programming liability much more efficiently. We've been able to take out a lot of duplicate cost considerably. The investment in (inaudible), which was a necessary part of that deal, does give us an interest in the media company in Ukraine from which we could see some future benefits, and pick up in interest in areas parallel to those which we ourselves operate in, and it gives us foothold and an ownership, which lets us decide how to deal with what we want to do with that investment at a later day.

Ben Mogil – Thomas Weisel Partners

So you could not buy the remainder of Kino, I know, is why you made that investment. Is that fair to say?

Wallace Macmillan

Well, all negotiations in Ukraine are complex. They always end up with three or four elements to it, and this is one of the elements, which we were happy to accept as part of this negotiation.

Ben Mogil – Thomas Weisel Partners

Okay, fair enough. Thanks a lot. I’ll get off of the queue, and let someone else ask some questions.

Operator

The next question comes from Laurie Davison of Goldman Sachs. Please go ahead.

Laurie Hill – Goldman Sachs

Hi guys. This is Laurie Hill from Goldman. I'm just wondering whether you could break out the OpEx guidance that you're talking about into impact on programming, impact on nonprogramming areas. Secondly, can you just specify why that changed, because I think the last time you were talking about a minus 20% local currency OpEx savings. If you just clarify, what has changed there? And then lastly, if you could just talk about the funding options, which you mentioned on the slide for Ukrainian and Bulgarian operation. Is that referring just to costs savings or you're thinking about actual assets out there? Thanks.

Wallace Macmillan

Laurie, let me take this. The OpEx number of 20% that we talked about in the last call was a target that we saw as being a high-end target. At this stage, as we’ve said on the, as Adrian said in his speech, we are not really wanting to give OpEx guidance in that sense, simply because as you pointed out, ultimately the amount that we are going to be spending on OpEx is going to be driven by some conditions that we still can’t proceed, and we have had some quite significant cuts in the first quarter. We had taken some steps in the first quarter that will also lead to additional cuts later on in the year, but the biggest element of our OpEx during the year is inevitably the biggest kind of component is in our content cost of what is shown on television, and the extent to which we are able to cut in that area, in that important area in our core market is going to be driven by the behavior of our competitors in those markets.

Our first priority is to maintain our leadership, leadership in brand strength in the markets, and so we are only going to be starting to prepare to make cuts. If we believe that we can go do so without substantially risking our audience share leadership. As of today, this probably was your next question, and most of our competitors have so far shown that they are still prepared to invest quite heavily in content. This may not be the case through the balance of the year, but we do not want to give them an opportunity at an earlier stage in the year to start to take inroads against our leadership, and we will not do that.

So I expect that the present level of cuts that we have shown in the first quarter will continue, and will tend to increase, but I don't want to predict a full year number at this stage. With regard to the funding opportunities for our developing markets, as Adrian said there are some, you know, concrete proposals that we are looking at and I really don't want to give any – earlier [ph] told that we should not give any comment on those in detail for reasons, I'm sure you'll completely understand on this call. But as soon as they are announceable, then we will announce them.

Adrian Sarbu

I just made the remark early, we don’t talk about cost side with (inaudible) necessary in Ukraine, and we feel subsequently we will increase our audience share.

Laurie Hill – Goldman Sachs

Understood, and –

Adrian Sarbu

It is definitely – it is definitely a substantial action on the funding.

Wallace Macmillan

Adding to that, if you will, Laurie, in the first quarter on a like-for-like basis leaving currency to one side, excluding Bulgaria, our programming costs, which are the most significant part of our cost base were down 13% year-on-year, and we still increased market share in all of our core markets, but how this is – the flexibility that we have to move with this going forward through the year is simply too early to predict.

Laurie Hill – Goldman Sachs

Okay, and would it be fair to say that the experiment, which you took in Slovakia where you reduced programming spend and so a material loss of audience share, has that been part of the reason, why you’re shying away from the 20%, or are there specific reasons why audience was lost in Slovakia. That does seem to be a worrying precedent, if you did try to push for high programming cost in the second half for instance?

Wallace Macmillan

Let me clarify. We said that it is our target to reduce 20%. What we saw in Slovakia was a good lesson. We were – we chose the first quarter to limit our investment, because we had quite a comfortable advance in audience, and immediately our competitor fueled the investment in programming starting with January, which is not the case in our industry, and they are still doing this. So we corrected the investment during this part of the year in such a way, we will have a comfortable leadership. We'll maintain the gap between us and them, and will have enough leverage in negotiating with the shareholders. You should have leverage when you negotiate increases of prices, and when you negotiate incentives, which you give to advertisers. And the answer is yes, in a way Slovakia was upset, but don't forget that beyond this decrease in audience share, we increased our advertising share.

Laurie Hill – Goldman Sachs

Okay, that is great. Thanks so much.

Operator

The next question comes from Hanning Lance [ph] of WestLB Mellon Asset Management. Please go ahead.

Hanning Lance – WestLB Mellon Asset Management

Hi good afternoon. I mean to say the next quarter was one of the most difficult quarters in history, is it possible to give a rough estimate, how big the EBITDA decline, in your core business maybe at the end of Q1, forward to minus 50%, is it going to increase or will be roughly at this level, what is your estimate for that?

Wallace Macmillan

Hanning, we have never in the past given quarterly guidance, and especially in these conditions we don't want to do so. All that we can say is what we have said just now, which is that we expect trading conditions in the second quarter to be similar to those in the first quarter. Ultimately in this business, I will just supply some good years as well as some bad years, quarterly numbers don't really mean very much. It has to be the full year, because of the impact of seasonality, but particularly in current conditions, where the behavior of advertisers is nontypical. There is nothing to be read into particular quarterly numbers, but we do expect that the second quarter is going to be a tough quarter.

Hanning Lance – WestLB Mellon Asset Management

Okay, understood. And second question, can I get some guidance on your expected cash spending in 2009, Q1 was quite a low number, what is the full-year expectations for this?

Wallace Macmillan

Again, I'm afraid I'm feeling like a parrot, the same type of replies, we're not guiding to results or to cash for the full year, because those same elements that make our results to disclose allow us to give guidance have the same impact on cash. We are in a fortunate position that we have, especially with the anticipated Time Warner cash injection on a forward liquidity basis, but which allows us operational and financial flexibility, but we aren't guiding to the impact for the year.

Hanning Lance – WestLB Mellon Asset Management

Okay, what about the cash cost the Time Warner injection?

Wallace Macmillan

They are simply going to be normal fees. We haven't given a number for that yet, but when we get the – but when we receive the cash, then we are going to publish those.

Hanning Lance – WestLB Mellon Asset Management

Okay, thank you.

Operator

The next question comes from Matthew Walker of Nomura. Please go ahead.

Matthew Walker – Nomura

Hi good afternoon. Just a couple of questions, you mentioned the attempt to get advertisers to commit to the full year with incentives, I was wondering if you could share with us what kind of incentives you were offering, and how they differed the previous years, and then second question is on working capital and credit, has there been an increased risk from bad debt in any of these markets, and have you seen, and of your customers in financial distress? What are the measures that you have taken on collections in respect?

Adrian Sarbu

In respect to incentives Matthew, I will give you the main principle. Once we are provider of the largest amount of GRPs in our market, we are looking to keep advertisers, advertising or consuming with a similar amount of GRP in 2008 for a given period. The details of these offers are definitely part of our expertise. We have already examples, when our competitors luckily reacted, but reacted quite slow.

So we want to keep this, let us say ideas a little bit uncommunicated, but mostly the concept is that knowing the reluctance of advertisers to commit, knowing the difficulties, which they face looking at their sales in, let us say the first quarter, we are encouraging them by offering them extra GRPs or discounted GRPs to keep the communication, to keep the consumption at the level of 2008, where we can afford. This is the kind that we call it stimulus package, we're not a government or US Treasury, but we can afford to do something in order to keep the market moving. As a result, the answer, the response was quite positive depending on the strategy of each advertiser.

What we couldn't get in full was a full commitment for execution, for fulfillment of the contract they signed. So advertisers are cautious about the future market conditions, and that is why we cannot say we have a contract of 100 points, they will be following them, executed on date [ph]. What we will continue to do is to support as much as we can advertisers to communicate. But this is done for a limited period of time, and it is designed specifically to keep them on air, so they will not be able to say that they didn't sell because they didn't communicate. We will help them communicate, than we will see the results, how the market will react, how the consumers will react to the same level of communication. This is our principle.

Wallace Macmillan

Matthew, let me take up your question, working capital, which I think was looking at, mainly looking at bad debt risk. And as of today, we don't see as yet, asset particular increase in bad debt risk. This can change going forward, but we have put in place new principles, revised principles, worked out with our local channel directors and local sales directors to decide with which customers we are prepared to take an extension in payment terms, what category, what types of customer, and which customers, we will consider to be at risk, and which we would take, require a cash advance to do so. We have actually had an approach from a number of clients in several markets asking if they could get substantial discount increases in the event that they paid us cash upfront, cash with order. And we have declined these because right now our primary issue as we see it is to optimize sales rather than optimizing cash flow, because as long as we are confident the cash flow will come, then it is a matter of managing the total results that is more important to us.

And so although we have allowed the aging [ph] in a couple of markets to extend, this has been on a controlled bases with known customers, and that will be in exchange in many cases for additional advance commitment orders.

Matthew Walker – Nomura

I want to make a quick follow-up, which was related to an earlier discussion from the audience, your increased audience in the market, even though you have taken the programming cost down, and you mentioned that other people are carrying on investing. Does that mean that the other guys have been investing at the same level that they were in 2008, but you just had better programming or what are they telling us?

Wallace Macmillan

In some markets even more Matthew, but let us not forget with the exception of MTG in Czech Republic and Slovenia and Bulgaria, we actually don’t differ to end our RTL in Croatia. We are facing competitors, which are locals, whose business model is slightly different than ours. What I can predict is none of our competitors will end the year in black but in red. The way they did it, they saw an opportunity to take market, to take audience share from us and then to convert it into market share. It happened in the first quarter that we preempted it. And these are the results.

Matthew Walker – Nomura

Okay, thank you very much.

Operator

The next question comes from Mitch Resnick of Fortis Investments. Please go ahead. Mr. Resnick, your line is open. Please go ahead.

Mitch Resnick – Fortis Investments

Hi, probably it would help to fight took my phone off mute. Thank you for taking my questions. On the drawdown of the credit facility as of the end of March, do you intend to repay the credit facility with proceeds from Time Warner?

Wallace Macmillan

The reason that we drew down the credit facilities is not because we needed to use the cash for anything in particular, and you will see that that cash is pretty much sitting on our balance sheet. Today our cash balance has increased more dramatically in the quarter. And it was simply because the best advice that we have had is that in current global markets and banking conditions, if you have credit facilities, the advice you get three months ago, four months ago, was that you should test them, and we did, and I repaid them. And then the advice that came, if you got them, it is best to draw them. And so we did. And so simply as we go through this next period, we will probably hold on to these, and then at some stage decide to repay them when the mood of the market changes. But there is no other ulterior motive in drawing them down. At some stage, I'm sure we would be liking to repay them.

Mitch Resnick – Fortis Investments

And if I say you receive the proceeds from Time Warner since the close of the books on March 31st, is that correct?

Wallace Macmillan

No, we're expecting to receive the proceeds sometime during this quarter. We have first afford to take a shareholder vote on this at our annual general meeting, and then certain steps have to be taken at some stage later in the quarter or be involved receiving the proceeds.

Mitch Resnick – Fortis Investments

Okay, and then you just said the cash balance was higher than what we see here?

Wallace Macmillan

No, I am sorry. I'm saying the cash balance at March 31 was substantially higher than December 31st.

Mitch Resnick – Fortis Investments

Right okay, correct, yes.

Wallace Macmillan

And that is because of the drawing down.

Mitch Resnick – Fortis Investments

Drawdown, yes, I know. I saw that and I was just wondering if you planned to (inaudible) receive proceeds from Time Warner, and you'll repay the credit facility. And then on the credit facility, you said that the impairment charge would have no effect on the covenants for the credit facility. Are you, I apologize if this is in the Q, I haven't read it yet, are you sort of quite comfortable with where you are on covenants, and can you describe what those covenants are, and perhaps provide sort of percentage of room on our covenants?

Wallace Macmillan

Sure. We have got two covenants. We've got two main ratios in our covenants, and one is the gross leverage ratio, which is under covenant definitions of debt and EBITDA, we shouldn’t exceed 4.5, and if we do exceed 4.5, it places restrictions on the amount of additional debt that we can drawdown. And we do now exceed that 4.5, as of the end of the quarter that the ratio was 4.6.

The other covenant was interest coverage ratio, which is the two times ratio by the end of the quarter we were lower than that at 3.2. The fact that we have gone beyond the gross leverage ratio, does not constitute a breach of the covenants. These are in current not maintenance covenants. It simply puts restrictions on our ability to draw down additional debt outside certain baskets that are defined in the covenants. And so I think that answers the question.

Mitch Resnick – Fortis Investments

Yes, it does. Is there a point, you have gone through that – is there a point where you would be required to sort of repay what you have already drawn on the credit facility?

Wallace Macmillan

Only if we reach the covenants and we are simply going through that ratio doesn't constitute a breach of the covenants.

Mitch Resnick – Fortis Investments

Right, what does constitute a breach of the covenants?

Wallace Macmillan

If we didn't pay the interest, and if we having gone beyond the ratio then took have additional debt outside the allowed basket, and I think the ratio worsened even further, and all the normal list of things that you have in the covenants and warranties. That said, but simply going through this ratio, because it is a current ratio, covenant and not a maintenance covenant does not have any impact on covenant breach.

Mitch Resnick – Fortis Investments

Okay, that is good color. Thank you. And then, again I apologize, I haven't introduced to Q, if there wasn’t sort of grants, and the cash was same, I might have missed the cash interest and cash taxes for the quarter, would you be able to provide those?

Wallace Macmillan

We don’t actually put those in our Qs. We give these annually in our K document, but not in our Qs for some reason, but that is something which I must look to modify going forward. But it is not something which will publicize, and not a number which I have here. I – we would, however, point out that when you are looking at our interest charge, the interest expense that we have is actually broken down on page 38, note 16, and that overall charge includes a number of elements which are non-cash, which are quite apparent in that analysis on page 38 in the Q.

Mitch Resnick – Fortis Investments

Okay, so they come back into cash, and then on the cash taxes?

Wallace Macmillan

And again, we don't actually have the numbers that we have published, and I don't have that number just in front of me. I apologize.

Mitch Resnick – Fortis Investments

Okay, and on Bulgaria, I'm not at all familiar with business as some others, and I notice that there wasn’t revenue on EBITDA in the quarter, so I'm assuming that you have either deconsolidated or it sounds like you relaunched and just basically taken it off-line. Is that what happened, there is no business there for the first quarter?

Adrian Sarbu

Bulgaria is a start-up, which we acquired after the first quarter last year, and as a start-up it has got very, very low revenue. We acquired this, but it was effectively a (inaudible) company, when we acquired it. We are currently running it – we are building up the infrastructure, and we intend to actually relaunch these two stations that we have in the second half of this year. And that is why, just now you are not seeing anything significant in the way of revenues, but we are still seeing some costs as we get ready for that relaunch. And that is also why there are no comparative figures for last year. So it really is a start-up market.

Mitch Resnick – Fortis Investments

Okay, all right. Thank you very much.

Operator

The next question comes from Thomas Samson of Musinec. Please go ahead.

Thomas Samson – Musinec

Hello. The first question is just to clarify regarding your bank debt at the station level at the whole core level, can you clarify that they are low maintenance covenants whatsoever on that facility?

Wallace Macmillan

In the revolving debt that we hold at station level there are maintenance covenants, but we are well, well – these are secured on local station assets. And we are well within the headroom of those maintenance covenants. Those are not an issue, and that is the answer.

Thomas Samson – Musinec

Okay thank you, and then the other question is regarding the Ukrainian and Bulgarian operations, if you were to decide to close down those operations, would there be a significant one-off cost involved to close down those operations?

Wallace Macmillan

If we decided to simply pull the plug, turn out the lights, lock the door and throw the key away, then there would be a one-off cost. But inevitably because part of the liability of those operations, I assume, we want to continue to pay those liabilities, because many of those liabilities are to the same suppliers of programming, the US Studios, for example, that supplies also in other market. And it would be very damaging to our relationship simply if we were to do that. But we wouldn't need to do that. These assets, although they are trading in difficult market environments just now, have hold up value, and it would be possible to find some sort of a buyer. But we are, as I just said earlier looking at a number of options to try and find a way of reducing the exposure to cash trade [ph] from those developing markets as we go through this more difficult period.

Thomas Samson – Musinec

Okay, and just to follow up on that, so by the end of July you will have some kind of decision made on this, is that right?

Wallace Macmillan

That is our target. That is what we set with our target on the first, on the last earnings call, yes.

Thomas Samson – Musinec

Okay, thank you. Then the last question is regarding the proceeds that you will get from the Time Warner investment, are you considering potential debt buybacks?

Wallace Macmillan

We are very sympathetic about that idea, and clearly the benefit to our shareholders with our debt trading currently at lower levels is clear, and also the fact that we have – we would like to have a time on the stage the reduce the size of a debt for gearing ratio purposes, but we have to try and balance a number of things. We have to try and balance gearing on the one hand, and we have to try and balance our audience show, we have to try and balance our liquidity and our profitability.

Right now of all of these, managing liquidity is probably first and foremost, and this does not preclude the possibility at some stage that we will start to take back some or all of our debt, but we haven't made a decision yet to do so. Although I'm not saying this is something that we have discussed quite actively both at management and board levels. So, we are very sympathetic to the idea that we need to make sure that first and foremost, a, run the business, and b, sustain a comfortable level of liquidity, which obviously at the time of the Time Warner injection adds to make sure that we can depart from the end of this process, return to growth with all of our assets drawn.

Thomas Samson – Musinec

Okay thank you very much.

Operator

(Operator instructions) The next question comes from Andrzej Knigawka of ING. Please go ahead.

Andrzej Knigawka – ING

Yes, good afternoon. Wallace, can you give us what is the current cash burn on a monthly basis or what it was in the first quarter ‘09 for the group overall, including CapEx and OpEx and excluding any external funding?

Wallace Macmillan

Andrzej, you have on the slide the free cash flow numbers, which we published, and the monthly numbers for the cash flow. It is a seasonal business and we are going through very unusual economic times, and it is not a very useful number. And in terms of going forward, we said we are not going to guide to the way that our sales results or cash is going to look going forward from here. So other than the cash flow, the free cash flow numbers, which I had given to you I don't want to make a further comment on that.

Andrzej Knigawka – ING

So you are referring to $17 million of free cash flow, which was before the interest cost right? Or was it including interest cost in the first quarter?

Wallace Macmillan

The free cash flow in the first quarter is after capital expenditures and after interest costs. That was $14.7 million.

Andrzej Knigawka – ING

14.7, okay, good. Now, can you give us an indication what will be the use of proceeds from the Time Warner deal?

Wallace Macmillan

These are for general corporate purposes, as we said in the 8-K when we published it. And what the proceeds to us from Time Warner is the flexibility, both operationally and financially to make the right decisions as we go through the year. It means that we don't need to cut costs that we think could damage the long-term value of the business, and it gives us time to time, the right mix of financing structure going forward as the overall liquidity needs, as we go through the rest of this recession become clearer to us. It gives us the flexibility not to have to take immediate reaction, but be able to respond responsibly for the best value of the business in both of those areas.

Andrzej Knigawka – ING

Okay, that is a pretty general statement.

Wallace Macmillan

We didn’t take the money in order to buy something specific. We bought it really to as we said at the time to augment our liquidity, because in the current environment having liquidity flexibility gives us options, and in theory, which for the next few quarters, it is going to be difficult trading, having options is very valuable.

Andrzej Knigawka – ING

Okay, let me put the question the other way around, without Time Warner injection, how likely would it be that you would have difficulty repaying your interest on that in the second quarter or third-quarter some time?

Wallace Macmillan

We don't think that would be a problem, but on the other, we don't intend to go anywhere near that margin, and the Time Warner injection, as I said gives us a very good margin. But even without the Time Warner injection, we have confidence that we will be able to make our interest payments, absolutely.

Andrzej Knigawka – ING

And the final one is on the debt buyback, I know you mentioned that it was a discussion on the board and the management team, what to do with that, but you know in March that traded at $0.30 to $1 at some point in time. Now it is above $0.50, and you know it seems to be a very straightforward way to create value for our shareholders buying $3 of debt and paying $1 for it, especially given that your viewing it pretty high, and instead you went for a Time Warner deal, which in some respect is quite controversial. Now the question is, why not buy back the debt if it was so cheap?

Wallace Macmillan

But as I said before, we are quite sympathetic to the idea, and our first priority on the venture, first of all to ensure that we have liquidity security as we go through the rest of this downturn, and also to ensure that we are able to maintain the brand leadership in our core market. Once we are absolutely convinced that we can manage both of those priorities and have cash left over, then certainly looking at some amount of a debt buyback is quite possible, and something that both management and the board of CME have considered and believe it could be something that could be advantageous to shareholders, but only after those first two elements.

Adrian Sarbu

Let me give you a simple answer. We spoke about the markets not reaching the bottom. Until those markets will not reach the bottom, even the $300 million cushion of liquidity I don't consider satisfactory for this company.

Andrzej Knigawka – ING

Well, I understand. So you must be looking at some quite, you know, difficult quarters to come given that in the first quarter you know, the company was free cash flow positive after –

Adrian Sarbu

Let's not forget what we were –

Andrzej Knigawka – ING

After interest.

Adrian Sarbu

What we were Andrzej in November when I had the conference company

all, in February when I had the conference call, and where we are now, and it is my obligation to look forward again until the markets will not reach the bottom and start growing, we're thinking of even increasing this cost cushion.

Andrzej Knigawka – ING

Okay, that’s very helpful. Thank you guys.

Adrian Sarbu

That's why I said the main reason for Time Warner at the price that we issued the capital was this. Let's not forget two months ago all of you were speaking about how not be able to avoid bankruptcy. I'm not afraid of talking about it. Now let's – we can talk about spending some money, which will come through Time Warner during this quarter. One day will come. I'm happy to tell you what we plan to do. We don't exclude the idea of buying back debt, as we said. But we need enough operation flexibility, because this year the difficulties – this quarter the difficulties are also part of the big opportunity. As we promise to you, we want to get out of this crisis even stronger than we entered.

Wallace Macmillan

Andrzej let me add one more fact to that, and that is as you recall from previous conversations, and our revolving credit facilities do amortize over a period of time. We expect that there was a headwind of about $65 million this year, and that more next year, and so we want to make sure that we have sufficient liquidity margin on top of that amortization, and on top of the need to keep our business strong to get to a place where it does not even cross the minds of any investor that we are unable to see our way through this crisis and to come out powerfully at the end of it.

Andrzej Knigawka – ING

And this $60 million is –

Romana Tomasova

We have a very long queue of questions here. So can we have this off-line with you and to move on with other questions with other people, so that everybody has a chance to ask.

Andrzej Knigawka – ING

Yes, of course. Thank you very much.

Wallace Macmillan

Thanks Andrzej.

Operator

The next question comes from Radeem Dreumel [ph] of Ulster Bank. Please go ahead.

Radeem Dreumel – Ulster Bank

Good morning. A couple of questions I wanted to ask you, you mentioned that now you tried to sell GRPs as seen in the last year. I wanted to ask you in the first quarter, was the decline based on the lower enterprises or was it caused by – that you didn't sell all the GRPs available. It is my first question, if you could comment on that?

Adrian Sarbu

Actually in the first quarter usually you’ll sell between 40% and 60% of the GRPs, which we deliver. This is a quarter of low commitments and low execution and low booking, especially January and February.

Radeem Dreumel – Ulster Bank

My question was probably aimed at if the declines in the receivables more caused by your bookings in the year-on-year comparison or by lower prices, advertising prices?

Wallace Macmillan

As a general rule, every market is born slightly differently but overall the numbers were slightly different. In the first couple of months, the sell-out ratios were quite low and that's largely because demand is very, very low in the marketplace, and prices did adjust downwards in almost every market. By the time you got to the end of the quarter because of some of the steps that we took on the sales side, we were in a place where our sell out ratios in most markets were actually very high, and in some cases higher even than previous years, and it's through these various techniques, but we managed to take a larger share of the available monies in the market that has been replaced in previous years. And so, absolutely sales were down and that is the combination of price and also volume, but by managing the different components, we ended up taking higher market share in all of our core markets.

Radeem Dreumel – Ulster Bank

Thanks. My second question in Czech Republic there was recently a launch of a second program (inaudible). There are also other new programs coming on. Do you see any impact on your audience in the first or in April 2009 – or this year in the second quarter?

Wallace Macmillan

No.

Radeem Dreumel – Ulster Bank

Okay. My last question goes to – you mentioned some synergies with Time Warner being your partner are going to be your partner. So is it going to be some kind of programming cost savings, or what synergies do you actually anticipate? Thanks.

Wallace Macmillan

Time Warner is an equity partner. So Time Warner alongside is an investor on the commercial relationship between Time Warner and CME, there would be the normal relationship. So we don't expect Time Warner to sell less of the allowed price to us. They have to sell with the prices of the market. We see synergies, first of all, we see a joint effort in developing and launching more channels, and we made this very precise in the press release in March, and also we see synergies in developing content usable in the region, and outside the region, and when I say content, it is TV programming and beyond.

Radeem Dreumel – Ulster Bank

Okay, thanks. That's all my questions.

Wallace Macmillan

Thank you.

Operator

The next question comes from Merry Erington [ph] of Janco Partners. Please go ahead.

Merry Erington – Janco Partners

Thank you. I just had two questions. One actually is a brief follow-up on what you just mentioned on the Time Warner content side. I kind of wondered if you – are you at a stage where you have kind of critical path, or can you give us some ideas as to how many different channels were you looking at and what markets you might be seeing in those?

Wallace Macmillan

Well, we’ll start working with Time Warner after closing. Until then we have just plans, which were drastic. Definitely, we're looking to have cinema channels in all our markets, and not one but more. And definitely, we are looking to increase our output of local content, mostly fiction based on their capability, based on their strong library of scripts and formats, and based on our own library of scripts and formats, and based on this both companies require some human resources talent. So these are mainly the two areas, where we plan to work together. Expanding the market channel strategy of more product, more channels, and producing more content for the region and for outside the region.

Merry Erington – Janco Partners

Okay, and then and I got disconnected for a bit. So I apologize if I missed it, but I wanted to ask you about the Ukraine and maybe give us your updated view on the political situation over there, and how that might be having an impact either on the timing or value of whatever next steps you take with the Ukrainian property?

Wallace Macmillan

In Ukraine, there are expected elections in the fall, also parliamentary and presidential elections in the first month of 2010. So on one side, political environment, which is as volatile as it was in the last five years, nothing different. And it is volatile even for the actors or the players there. On the other side, we are strong in Ukraine, a strong private sector, and a strong market driven by consumption increase. Today it is weakened by the decrease of currency, and subsequently decrease of consumption, which is not so strong in local currency, but the depreciation is quite deep.

So we are looking to the developments in the political area with experience, which we head from now on. We expect, as I said, an increase in spending on the political side, and we are looking, trying to understand which would be the trend in commercial spending. So far, the short terming of the advertisers in the European market, it is even shorter and more volatile in Ukraine, and that is why what we see in – what we act, the way we act in our markets with some incentive packages on a quarter or beyond the quarter here in Ukraine, we're talking about discovering weeks and months. But there is more and more settle down of the moods of the advertisers, and we were able due to our, let’s say, appropriate sales quality to take advantage of this, and that is why we are running with almost 100% sell out ratio in prime time.

Merry Erington – Janco Partners

Yes, thank you.

Operator

The next question comes from Lisich Glaskow [ph] of KBC Securities. Please go ahead.

Lisich Glaskow – KBC Securities

Yes. Hi, good afternoon. First question, let me confirm my logic that in the second quarter, we should be expecting local currency EBITDA margins to be higher than what you’ve generated in the first quarter on the back of higher seasonal sales as well as some kind of progress in payments, for instance, in Slovakia and Romania, your first Q margins were around 20% or 22%. Should it be quite substantially lower in the second quarter?

Wallace Macmillan

Lisich, as I said, all that I'm going to say today that we aren’t giving any future guidance for –

Lisich Glaskow – KBC Securities

Right. But it’s kind of a more of a logic question. If you’re going to confirm my logic that that due to more higher seasonal sales and kind of more progress in cost containment, these margins should be higher in the second quarter or is my thinking maybe too risky?

Wallace Macmillan

Looking at the two messages which we gave you, one is formalizing our results in the first quarter, and the second that we foresee in the second quarter same market conditions, you will find by yourself, the answer. Let's not forget that the deep decrease in revenues, which we cannot foresee today or forecast accompanied by different level of spending in the second quarter, all the players are fueling the programming schedule. It would bring a different answer as yours or the expected answer of yours.

Lisich Glaskow – KBC Securities

All right.

Wallace Macmillan

We gave you enough elements to have a logical decision of yours.

Lisich Glaskow – KBC Securities

Yes, okay.

Adrian Sarbu

In a normal year, you’d be absolutely correct, the normal seasonality, which give us ultimately to those numbers in the second quarter. This year since it is different and we don't have enough experience here to be able to predict even full results for the second quarter at this stage. So we can’t give you an answer.

Lisich Glaskow – KBC Securities

Okay, fair enough. Second question on the corporate cost, let me understand the corporate cost in the first quarter were only $4.2 million, and is this directly comparable to $14 million that were generated in the fourth quarter of ‘08 and why such a vast difference?

Wallace Macmillan

It is always better to compare quarter-on-quarter.

Lisich Glaskow – KBC Securities

Yes, exactly. Quarter-on-quarter.

Wallace Macmillan

So comparing the quarter of this year with the same quarter last year, and you see that the corporate costs were $4.2 million against $9.8 million last year, but as I mentioned earlier on, we benefited this year from a $3.4 million upside, which included in corporate cost that reduced the total cost number, when we had an even debt [ph]. Excluding that our corporate cost would be $7.6 million. The remaining reduction of 20% is a straightforward saving, cash saving year-on-year. So we did have a one-time item there, which reduced them by an additional $3.4 million, but even given that’s one side, we had a genuine 30% cash saving of corporate cost year-on-year.

Lisich Glaskow – KBC Securities

Okay, that’s true. My next question relates to your statement that you've increased your market share in all your main markets, and in local currency revenues in the Czech Republic were down in the first quarter by 18% as I can see from your presentation, and at the same time you wrote in your statement that market in Czech Republic, the TV ad market declined by roughly 15% in the first quarter. Is that contradictory to your statement that you gained market share?

Wallace Macmillan

There is no contradiction. Market share refers to the share of the budget of the advertisers, which you take from their budget.

Lisich Glaskow – KBC Securities

But if your revenues fell more than the entire market, does they mean automatically that you lose market share, not gain.

Wallace Macmillan

We did not lose market share because it is related to pricing, and our revenues have got more elements than just almost sales, what we are looking at is smarter advertising markets. So when we measure that, we actually get market share gain of about 2% of it in the Czech Republic.

Lisich Glaskow – KBC Securities

All right, and the last question is on impairments. Should we expect further impairments going forward in the second quarter more precisely?

Wallace Macmillan

Well, if I thought today when filing the accounts that we were going to be having impairments immediately afterwards, reflecting those today, and when we do an impairment calculation, which is fairly complex, we look at various long-term cash flow models for each of our markets, if not asset class for each of the markets. It is absolutely true there is a lot of detail in our Q on this.

Before answering the question, I just refer you to page 18 and 19 in the Q, which talks about this in great detail, but if we find that the cost of capital in any of our market continues to increase or if we find that the medium term cash flow projections continues to worsen, it is quite possible that we would have additional impairments. These impairments as I mentioned are evaluation exercises, which are conducted according to rules, which are necessarily designed for the very extreme market conditions that we currently face. So it becomes at one level a technical exercise, but it is absolutely certain that the – and the headroom for every asset in every market and every company, not just us, for this kind of exercise will have reduced, and further reduction would put the possibility of additional impairment at – make it a real possibility as we go through the year, yes.

Lisich Glaskow – KBC Securities

Okay. Thanks a lot. That’s all.

Operator

The next question comes from Christian Schutz [ph] of Kimco [ph]. Please go-ahead.

Christian Schutz – Kimco

Yes, thank you very much for taking my question. I got a basic question on your markets in general from reading across what the advertising agencies say that they actually still get a decent performance out of Q1 from you reaching sort of mismatch with what you are seeing. Are they getting more active and gaining a greater share of the entire cake there and thus representing an additional headwind or is this simply not comparing apples-to-apples.

Wallace Macmillan

Repeat that question please, Christian. I didn’t understand clearly the question.

Christian Schutz – Kimco

Sorry. From what the advertising agencies see and report, they still report growth from Central Eastern Europe, and I’m wondering how this compares to what you are seeing. Are they getting a greater share of the entire advertising cake and that you are giving higher discounts, and thus their higher activity creates additional headwind beyond what you see in the current market environment?

Wallace Macmillan

I think we are positive reading very different reports. We – certainly it may be that the finding in some cases, but it is no elemental Central Eastern Europe. It turns out better in other markets, and I’ve read reports saying that some investment in Central Eastern Europe is being cut back less in some – by some agencies because they foresee the potential for greater future growth, but certainly in the markets in which we operate in the first quarter, the advertising – the total advertising markets across all media have fallen by large percentages ranging between 10% and 30% in our main markets and by over 60% in Ukraine.

And that’s looking across all media. If you compare the results of the advertising agencies, they incorporate more types of revenue than the revenues from advertising bookings. So we practically cannot compare their results with ours. If their forecast was that the market in the first quarter 2009, TV ad markets grew compared to 2008. This is a good piece of comedy.

What is the case though and this maybe where your misunderstanding is rising is that the old sectors in the advertising markets declined, but the decline in television was less than the decline in some other media. So, for example my understanding is that print declined more sharply, and as a result television as a sector grew its share of the total advertising pie, but that total pie was much more a pie in all of our markets.

Christian Schutz – Kimco

Thank you very much. That's very helpful.

Operator

The next question comes from Mitch Resnick of Fortis Investments. Please go-ahead.

Mitch Resnick – Fortis Investments

Thank you for taking my follow-up, but my question has been answered. Thank you.

Operator

At this time, the conference [ph] call will now turn the conference back over to management for closing remarks.

Romana Tomasova

Thank you very much to all of you participating in today's call. We have 110 participants, and if you have any additional questions, please call me or (inaudible). We will be very happy to answer them off-line. Thank you for joining us and we're looking forward to talking to you in the near future.

Operator

Thank you all very much for participating in the Central European Media Enterprises first quarter fiscal 2009 earnings conference call. This concludes today's event. You may disconnect your line.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!