Hello my name is Tasha. I will be your conference operator today. At this time, I would like to welcome everyone to the Central European Media Enterprises third quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise.
After the speaker’s remarks there will be a question-and-answer period. (Operator instructions) As a reminder this conference call is being recorded today October 27, 2009. It is now my pleasure to turn the floor over to Romana Tomasova, Vice President of Corporate Communications. Ms. Tomasova, you may begin your conference.
Good morning or good afternoon to each of you, and welcome to CME's third 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 Charles Frank who will give you the formal presentation. We are also joined today by our General Counsel, Daniel Penn and Vice President Anthony [Choi] and Mark Wyllie.
Before I turn to Adrian, let me read the usual Safe Harbor statement. Our presentation today will contain forward-looking statements. For 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 that is not in US GAAP, please see the appendix of the presentation for our reconciliation to US GAAP financial measures. In addition, our segment financial information that is presented in local currencies is not in US GAAP. We do not provide reconciliation to these numbers as the US GAAP amounts our expressed in US dollars in our financial statements.
Additional information on our segment data is provided in note 18 to our financial statements on page 45 of our 10-Q. And now, over to Adrian.
Good afternoon or good morning. 2009 has been the most difficult year in CME history. A year ago none of us would have believed how the markets would behave in 2009 and it was bad. GDP and advertising spend declined in our markets with any focus made at the beginning of the year. TV advertising spend was at 30% lower than in 2008 to the level of 2007 and in some countries to the level of 2006. We expected our markets to reach the bottom in the third quarter and we are there. This is a new starting point. 2009 has been a very tough year for us and inevitably our third quarter results reflect the effects of our markets.
On October 15, I gave the full-year guidance for consolidated EBITDA of $60 million to $70 million. Facing the crisis we tried to protect our main values, brand, people and our key product. We strengthened our audience share in all core markets. We increased market share in our core markets. We brought in strong partners who share our vision. We improved our liquidity by controlling operating costs, CapEx and refinancing $545.5 million of debt.
We really find CME as a vertically integrated media company. Our markets are at the bottom. We’ve learned a lot. We have been in a strong position than our competitors. And looking forward to 2010 and beyond, when our markets return to growth, we believe in our ability to outperform.
I would like you to turn to slide five of our presentation. In quarter three, the advertising spending in our core markets declined by about 30%. Traditionally, this is the weakest quarter of the year. As a response we continue to pursue the market share and we achieved an increase of up to 7% compared with last year. Despite a downturn environment, we maintained our brand strength, leadership and we started to implement a new operational model of a strong content division. In third quarter, our core market reached the bottom and we are prepared for a recovery in 2010, when our goal is to outperform the market.
Lets move to slide six. In the Czech Republic, we increased our year-on-year market share to 72%. TV Nova's outstanding prime time audience share of 47% was driven by the ongoing success of the in-house produced local series "Rose Garden Medical" and the original soap opera Ulice.
In Romania, our advertising market share increased to 56% from 54% year-on-year. Newly launched in-house produced reality show "The Farm" is the leader in its slot with an average audience share of 23%.
In Slovakia TV Markiza increased its advertising market share by 7% to 67% and recovered audience share with a successful launch of the first Czechoslovak "Superstar" delivering the spectacular audience share of around 46%. The audience share in Slovakia was also boosted by the successful launch of a new female oriented channel Doma. Doma generated 2.8% average share audience in our sales target group of women 12-54 year old.
In Slovenia, our market share grew to 77% from 71 and our channel generated a 46% prime time audience share driven by locally produced reality show "Celebrity farm" and the original sitcom "It's Nice to Be a Neighbour"
Our Croatian business, Nova TV grew advertising share to 30% from 26% year-on-year. We maintained our market leadership with 26% prime time audience share driven by the "Got Talent" reality show and the news. In third quarter we launched our first original drama series "The Best Years" delivering 33% audience share, another example of successful original scripted fiction produced by us.
Let's turn to page seven, and look at the development of our New Media business. In New Media, we continued to grow traffic at a rapid pace in a cost effective manner, we have achieved the 43% year-on-year increase in daily unique visitors. We have successfully launched the first online TV channel, max.si in Slovenia and implemented a new version of our video player in all market. We’re focused on maximizing our revenues by exploiting our brands and content across different platforms.
Now let’s talk about our developing operations on slide eight; as it predicted in your frame the TV expanding in local currency has back vigorously. Ukraine is the only market where it started to significantly increase prices in the fourth quarter and reach the sell out rate of 100%. The third season of entertainment show "Dance for you" opened with 12% audience share and it is a leader in its slot and it’s growing. Earlier this year, we announced the deal with Igor Kolomoisky to sell 49% of our Ukrainian business in exchange for $100 million and TET TV; we expect to close this transaction in the fourth quarter 2009. With three complimentary positioned stations, our operational delivered stronger audience share in 2010. In Bulgaria, we fully re launched PRO.BG and RING.BG channels and we have seen their first positive results. The UEFA Football League delivered a 14% audience share, and Bulgarian National Football League 11% audience share. As we promised, we continue to evaluate several options to achieve leadership and profitability more quickly.
And now over to our CFO, Charles Frank.
Thank you, Adrian. I would like to walk you through some of the key items in our financial statements. Please turn to slide nine, which sets out the key operational performance figures for the third quarter. We made significant market share gains; they include the Czech and Slovakia Republics, Romania, Slovenia and Croatia. The gains in market share, however, could not compensate for the fall in the overall TV Ad market and the decline in the US dollar and value of our local currencies. US dollar revenues fell 29% for our core operations and 33% for all seven operations including Bulgaria and Ukraine.
In constant currency terms, Q3 revenues from all operations are up by 22% compared to last year. Thus the strong dollar accounted for about one third of the decline in dollar revenues. The third quarter percentage decline in constant currency was the same as in the first half of 2009 thus indicating, clearly, we are at the bottom of the cycle.
In the fourth quarter of 2009 we expect that local currencies will be stronger relative to the US dollar than they were in the same quarter in 2008. Therefore, unlike in the first three quarters of this year US dollars fourth quarter revenues in 2009 are likely to benefit from US dollar weakness relative to last year. Among our core operations, cost in the Czech Republic, Romania and Croatia fell a lot between 13% and 25% in US dollar terms and between 4% and 19% in constant currency terms. In Slovenia, cost rose in the third quarter, over the same period last year but this was followed two quarters of significant cost productions. However, the quarter three cost of our operations in Slovakia rose 16% in dollars and 22% in terms of constant currency compared to last year and the Q3 increase followed cost increases in the two previous quarters in constant currency. This was part of the constant position to protect the brand in Slovakia in the face of the loss of audience share in the early part of this year to Joj, one of our competitors. The launch of TV Doma and the investment that we made in programming have enabled us to make significant progress in recovering newly all of the audience share that we lost.
The large Q3 cost reductions in three of our core operations were partially offset by increases in two of them as a consequence our Q3 costs and all of our core operations declined 12% in US dollars but only 1% in constant currencies. Among our developing operations Q3 costs in Ukraine decreased by 37% in US dollars but increased in constant currency by 8% compared to last year. Thus the decline in cost was all the result of a massive devaluation of the revenue year-on-year.
In Bulgaria, Q3 cost in US dollars increased by nearly three times over last year. This increased is explained entirely by the fact that full operations in the Bulgarian market commenced only late in the third quarter of 2008. Overall US dollar cost in our developing operations decrease by 2% but rose 55% in constant currency terms relative to last year.
Total third quarter cost before interest, tax, depreciation and amortization declined 12% in US dollars that increased 5% in constant currency compared to last year. We took a number of steps to reduce our cost base in the first part of this year including head count and salary reductions, deferral or cancellation of a number of development projects and managing our broadcast schedule to reduce programming amortization cost. However, by far the majority of our cost about 70% of programming cost, while it would have been possible to reduce programming cost by more, we believe that it would have been at the expense of a loss of audience and market share in some of our territories.
As noted above most of the increase in our programming cost was driven by the start-up operations in Bulgaria and increased competition in Slovakia. About $8.8 million of the increase was attributable to accelerated amortization and write downs of our programming library. In addition some 60% of our programming cost represents the cost of acquired programming, which is subject to automatic price escalation and is denominated in US dollars, thus we have not been able to offset the decline in advertising revenues rising from the severe market conditions and the weakness of our local currencies.
As a result, our EBITDA was negative for the first time since the third quarter of 2001 and declined by $46 million in the third quarter compared to last year. Our core operations, however, have remained EBITDA positive, but the EBITDA margins of the core operation have declined from 30% to 13%.
Let's move to slide 10; we suffered an operating loss of a $106 million for the first nine months of the year after incurring an impairment charge of $82 million in the first quarter. We were not required to record any impairment charges in the second or third quarters excluding the impairment charge. Our operating income for the year-to-date fell by a $176 million as a result of adverse market conditions. Net cash used in continuing operations was $22 million compared to $172 million generated in the same month period of 2008, a result of the continuing difficult conditions in which we are operating. We had a cash outflow of $34 million in respect of CapEx, which is 43% lower than the same period last year, following our delay or cancellation of certain capital expenditure projects. Our free cash flow, by which, I mean cash generated from operations less capital expenditures, for the nine months’ period was negative $56 million compared to a $113 million positive in the first nine months of 2008. However, despite our overall operating cash outcome, our core operations actually remain cash flow positive than aggregate during the first nine months of this year.
During the quarter we issued EUR440 million of new fixed rate notes and used the proceeds to repay existing debt in the amount of EUR373 million, approximately $545 million. After costs and the redemption premium, we received $46 million euros on a roughly $67 million of additional cash. The refinancing of the 2005 notes maturing in 2012 has two key benefits. Firstly, we have significantly improved the maturity profile of our debt and the earliest maturity debt of our senior debt is now 2013. Secondly, we have increased our financial flexibility since the covenants that are applied to the new notes are less restrictive than those of the old 2005 notes. Thus liquidity will not be an issue for the company for at least the next four years and that’s frees us to focus on operational performance, improvements and cost control. At the end of September, cash and cash equivalent totaled $523 million and total liquidity including undrawn lines $560 million.
Let’s turn to slide 11. On slide 11 we show our full year 2009 guidance exactly as we presented it on Investor Day in Prague two weeks ago. We expect to generate a little more than $700 million of revenues and $60 million to $70 million of EBITDA. Our core operations are expected to generate almost 200 million of EBITDA while our developing operations would generate EBITDA losses of almost a $100million. When revenues declined 30% as they did this year as a result of depressed market and local currency weakness it's not easy and it would not necessarily be wise to increase cost by the same percentage amount. Conversely, as markets recover, we do not expect that cost will increase at the same rate plus we were optimistic that the recoveries will result in higher margins and accelerated growth in the EBITDA.
Let me turn it back to Adrian.
Two weeks ago we hosted our Investor Day in Prague and we carefully listened to your feedback and questions. Many of you asked about our cost structure and you required some guidance on cost going forward. Our key strategy is to protect our audience and brands. In 2009, we reduced our headcount across our operations by over 20% and significantly reduce overhead costs and CapEx spends. We will continue to reduce our programming cost while maintaining our high audience share and brand strength. In 2010, our cost will grow less than our revenues.
Many questions concerning Ukraine and the circumstances under which we would be preferred to exercise the put option review of Igor Kolomoisky. We believe we have a future in Ukraine as our channels are positioning to achieve leadership. We will contemplate exercising the put option, if the prospect would be no longer attractive. We will follow our financial discipline.
You expressed concerns about our investments in Bulgaria. Any start-up operation requires significant investment. We are in the process of building our audience share in Bulgaria. We have secured strong programming and launched local shows which are expected to improve our audience share in the future. Notwithstanding this, we are evaluating several options to achieve leadership more quickly.
Last but not the least many questions were asked about our future market growth. The strong market share which we enjoy in our core markets will be converted into higher revenues as long as recovery starts. We will operator in a disciplined way managing our cost in CapEx in order to improve our margins. In addition to that, we enhanced our liquidity position to $560 million.
Please turn to slide 13. During our meeting in Prague, we invited three respected in macroeconomy from three different international banks, BNP, ING and JPMorgan. Although their views differed in terms of speed of recovery, they all agreed that in 2010, we should see macroeconomic growth in our region.
Let’s walk to slide 14. This slide shows the analyst consensus for GDP recovery across our market in 2010, we reached the bottom but our markets have not started growing yet. In 2010, we expect TV advertising to follow GDP growth.
Please turn to slide 15. In 2010, we see a modest advertising market recovery but this is a recovery and our goal is to outperform the market as we did in the past.
Let’s move to slide 16. In these times of crisis, we focused on operating efficiently but also on creating future value. In 2010, we will leverage on our strength. That means our people, brands, low cost operational expertise, audience and market leadership, local content and growing new media platform. And we would stay focused on our priorities; we aim to bring Ukraine and Bulgaria to break-even fast; expand the multi-channel operating model; integrate MediaPro Entertainment and grow our content division; we will fuel our growth through disciplined organic expansion and partnerships; we aim to double new media traffic and increase revenues; maintain adequate liquidity; deliver positive free cash flow after interest and taxes in core markets; and work towards deleveraging the company.
We are strongly focused on delivering improved margin in 2010. In order to achieve that we need a high quality product at the lowest cost possible and we need higher revenue. Our strength in market share is the ideal platform for the years to come. We are committed to stay the leader in the region as a highly profitable vertical integrated media company.
And now I will pass you back to Romana.
Let’s go to accept the questions and hopefully we will cover everything and just everything that we didn’t cover in our presentation. So operator if you can call for questions that would be great.
Surely. (Operator Instructions) And we'll take our first question from [Demetri Zuke] with Citigroup. Please go ahead.
My first question is for Adrian, please. Adrian what is the current visibility into the last two months of the fourth quarter this year and could you perhaps give us the sell out ratios for the Czech Republic and Romania. And my second question is from your previous experiences in the broadcasting industry and from your experience in the broadcasting cycles how suddenly could the improvements in the demand for advertising actually appear and what would be the key signs locally that we should be watching out for when looking for the advertising recovery? Thanks
We have a reasonable visibility for the fourth quarter because we are already in the fourth quarter and you got the guidance remarks for the full year. So probably Czech Republic and Romania sell out ratio would exceed 80% in the fourth quarter. In fact, it's 86% in Romania and I was wrong more that 70% in Czech Republic. The second question, if I understand right is how do we track signs of recovery in the market, this was the meaning of the question?
Yes that’s right, yeah.
As you very well know and we spoke about this during the year. The behavior of the advertisers changed. We were very generous to them and the result is they feel less obliged to communicate their intentions and therefore today when normally we start, they start negotiating the contracts for 2010, we have almost no visibility. Looking back to the experience, we have no experience honestly with such a crisis neither me your or anybody in this conference because such a crisis in the region never occurred, but my view is that the advertisers are prepared to spend vigorously next year. They will dimension their request for inventory according to the behavior to the market. So this year, this fall, we will probably see the advertisers coming and asking for the same special treatment which they enjoyed this year. I am sure that they have already booked reserves, budgeted reserves in the event the market will grow to spend more as they spent this year. That’s my expectation.
We’ll take our next question from Ben Mogil with Thomas Weisel Partners. Please go ahead.
Ben Mogil - Thomas Weisel Partners
My question for you this morning is sort of more on Ukrainian front. What it seemed is that you decided not to exercise the put to go forward there, could you drop the programming expense significantly there both for the last three months but also for the full nine months, what’s your anticipation of what it going to be a normal programming spend both entirely produced that acquired programming should be say for 2010 if you decide not to exercise the put?
The results of Ukraine today, the audience results are normal and normal mirror about decisions which we made one-year ago, nine months ago, six months ago in respect of programming. Once we close the dea which is expected as we say in the fourth quarter in this quarter; we will start spending in programming because our goal for 2010 is to significantly increase our audience share. We will have not only one channel, one plus one; we will have three channels with almost national coverage. So these channels require programming. We plan in advance. We know what we want to do in respect of the positioning of each channel and we have resources in standby in order to be committed for. So the answer is after we close without spending on programming, those commitments which are not already executed because as you know a decision on programming sometimes is a decision which covers two years. What I would like to emphasize is that I understand certain emotions in respect of our intention to exercise or not the put.
I think we made very clear in our presentation. We are quite disciplined in respect of financial management. We are aware of the potential of the Ukrainian market as we are aware of the risks of the Ukrainian market because we were there. If following the closing, the Ukrainian market will not perform according to the model which we define; it’s obviously that we contemplate exercising the put. Until then, especially because to achieve a successful year 2010, we have to already make decisions and we did already. We consider ourselves in a normal process of operation and we are looking in 2010 to increase our audience share. The market came back in Ukraine, if we don’t increase our audience share, we'll not be able to monetize at a higher price this audience. The fourth quarter 2009 was a little bit surprise for us due to the energy with which the advertising spending in Grivna came back. We could have even, I may say, we could have even captured more money if we would have invested more in the fourth quarter but we didn’t do exactly because they acted discipline. We wait to close with Kolomoisky we wait for this $100 million to be put in the operation and then we will do the next steps.
Ben Mogil - Thomas Weisel Partners
Okay thank you and then I think one last question. In terms of cost structure any let's assume that for the worst case scenario, the markets in 2010 performs say weaker than you expected are their more operational or corporate cost opportunities that you see or did you do most of the cutting this year?
You talk about CME as a whole
Ben Mogil - Thomas Weisel Partners
Yes not market specific.
Also in respect of cost, we have a habit and they are saying there is no end of cost cutting and cost analysis. So if there are rooms, there is room to cut cost, there is room to cut cost. You can cut cost as much as you want but cost is dependent on what you want to achieve in respect of audience and if this audience is required as it was required this year to increase our market share. Definitely, you have to look at which cost to cut. As you know 60% to 70% of our cost are content costs. These are quite variable. Most of our fixed cost; people, overhead, technical cost and the others were analyzed and dramatically. I also want to remind you that we are the lowest cost operator in the region. When the programming cost appear variable, should we decide to operate at the central level of audience, we will maintain the cost, should we decide to lower the level of audiences in certain market, maybe I don’t know in Slovenia we don’t need to run at 46% maybe its enough to run on 40% audience share, definitely will pull the lever and the cost will go down. These is an action which luckily can be taken any given day and the reaction in the market may follow in a couple of months sometimes in even inside one month, if we talk about programming which has a short life cycle.
Ben Mogil - Thomas Weisel Partners
Okay Great, Thank you.
What I wanted to emphasize is that we don’t imagine our cost growing next year higher than the revenue, either revenues will be single-digit, our cost should be flat or lower single digit. And I want to repeat this to be very clear.
We will take our next question from Murray Arenson from Janco Partners. Please go ahead.
Murray Arenson - Janco Partners
Thank you good morning, couple of different questions, one I will ask one more brief follow-up on the Ukraine just trying to figure out if there are key metrics that you have in mind when you say you going to check it against your model or if it’s a totality of things you will be looking at in trying to assess that. Secondly, I wanted to ask you if you've done anything new with respect to building up planned channels with Time Warner if there’s been any activity on that front. And then my last question was just looking at capital expenditures. I know you said you reduce some and you delayed others and I just wondered if you could provide more color on that and how that breaks down. Thanks.
We have the metrics in Ukraine. One is the growth of the TV Ad market. Today it grew in local currency. If the Grivna will stay devaluated longer than we expected, this is one issue which we have to address or the second one. The first one is as the spending in Grivna is currently coming back to minimum the level with 2008. The other metric is our ability to generate audience in a market which has three other competitors which are quite ambitious, have financial resources, this is Inter, Pinchuk and Akhmetov, when I say Inter its another conjugal owner there, which qualifies as an (inaudible) still. So we follow carefully the behavior of these players in the markets. If they will act irrational as they acted this year, we may also take into account the perspective of achieving audience leadership which is our operating model. We always talk about entering the market, achieving leadership and then monetizing this leadership. That’s the second metric. Plus there are all other risks from political ones to various other ones which we follow. What is important is to emphasize that the new partnership which we secured in Ukraine gives us quite significant low risk in operating in this country in the future. So married with our operational expertise we still believe that this will lead to audience leadership and success in Ukraine. If not we'll have no emotion.
Second question, in Time Warner, we are contemplating fulfilling our memorandum of understanding and launching cinema channels with Time Warner. This will not happen very soon because as we said the portfolio of the channels which we have on standby will be launched only when the market will be able or each market in those markets which will be able to absorb them. Absorb means a perspective of growth respective of high and fast audience share increase and perspective of fast returns. Today, we are not pushed by any needs. When we had a need in Slovakia, we launched the channel even in 2009 which was a bad year. And I explained why. For 2010, we don’t see any need to launch a channel but we have, I must say as many channels as channels on standby as we need to launch in any market.
With respect of CapEx we didn’t finalize our budget assumptions, financial assumptions for next year. I can switch to our collegue Anthony Choi, who can give you a flavor about how we will see the CapEx in next year.
I think the reference was for 2009 and we choose that CapEx spend and by at least 80% follow the nine months for year-to-date and that’s due to delaying replacements of all the brands and also keeping our CapEx at just the maintenance level notwithstanding this we do have some refurbishment of the office and studio facilities in Bulgaria as well. But for the year 2009, we do plan to end the year with less than 30% of CapEx and for this year. And we will continue to be very prudent with our CapEx investment in 2010 as well just focusing on the maintenance CapEx requirements plus also to ensure that we still have a good HD equipment for the future.
We will take our next question from Fred Kooij from Blue Bay. Please go ahead.
Fred Kooij - Blue Bay
Thanks. The question has been answered.
We will move next to Margaret Kalvar with Harding Loevner. Please go ahead.
Margaret Kalvar - Harding Loevner
I have two questions. The first is do you think that there was any change in the share of television in total ad spend that your main customers did. In other words, it was eluded to that they may have shifted towards more promotional on the spot activity rather than television. And I was wondering, if you could comment on that if indeed it was true and if you see it as a trend or a possible threat and then the second question is do you have any targets or long-term comments you can make regarding cost savings from your vertical integration particularly if you integrate the MediaPro acquisition.
In our presentation which is on our website made on the Investor Meeting in Prague we addressed this issue of share of TV advertising and the total volume of advertising. This year, the share of television advertising increased across all our markets for a simple reason. TV as a dominant medium decreased the prices and subsequently the advertisers chose to spend their money more in television than especially in print media and other media. The trend which we foresee in our market is an increase of the share of TV advertising markets. We pointed out, if I am right, around 62% in 2011 from almost 60% or less than 60% in 2009. So on a short-term or even on the medium-term the free to air television will remain the dominant solution for advertisers in our region. We also, as they say, foresee an increase of the share of internet at the expense again of print.
With respect of our target in cost savings, we have a target. The integration of MediaPro in fact there is reconstruction of the whole content division, it’s a very complex process. And we had to run this process near a crisis and we do it. And our targets are first of all related to the cost of our local content. We believe that integrated the cost of our local entertainment, reality entertainment and fiction should be maintained if not decreased and there are targets and there are solutions, one simple solution is the fact that from now on we will not develop one product for one country we will develop one product for almost all the countries which means automatically allow cost for this product in every country. The other option which we have is to change the balance the ratio of our own programs we have imported, acquired program but this is a subject of further analysis. So we have our lots of targets in decreasing our cost introduction services in any type of activity related to content. And in the same time the most important benefit which we see very quickly is that our broadcasting operations will become pure broadcasting operation. So the metric, the cost of broadcasting operations which we plan to match the benchmark across our countries would be much better understood by everybody. So this will be the first benefit which we hope to reveal to you next year.
Margaret Kalvar - Harding Loevner
Okay thank you very much.
Charles wants to add something
Yeah I am just going to add that keep in mind that approximately half of media probed sales revenues are sales to up of the CME.
Margaret Kalvar - Harding Loevner
And so therefore its, assuming, roughly a 10% margin which I think is above correct that alone will give you a savings of $4 million or $5 million, that’s not including what I regard is the longer term cost benefits of using the studios more efficiently, using the personnel more efficiently and so on. So we do think this is a very cost effective logic.
Margaret Kalvar - Harding Loevner
Okay thanks very much.
(Operator Instructions) We’ll take our next question from Laurie Davidson from Goldman Sachs. Please go ahead.
Laurie Davidson - Goldman Sachs
First question is just over Bulgaria and Ukraine. Are you still thinking there about $250 million of cash loses, and when you say break-even, what’s your kind of target in terms of year there? Secondly, if we were to see, if we just taking the forecast on your slides and we were to see market growth across your, in local currency next year across your territories of, lets say 6%, what kind of OpEx increase would be see with, I know you said less than top line growth, if we just get a feel for exactly what that ratio is? And then lastly, could you just give us the options you are considering for Bulgaria as well as give an update on that? Thank you?
For the first question, Charles do you want answer?
Well yes, I think we did put $250 million in a special purpose financing subsidiary and in the Netherlands we feel that’s more than sufficient actually to bring the two to break-even and keep in mind we’re also searching rather diligently for solutions that will get us to break-even a lot more quicker than we would do otherwise.
And don’t write off this $250 million.
You're right. On the cost growth, on the cost placement here so I hope we can keep it pretty close to zero, but we'll see how that all works up.
We already announced several times today that we plan to keep the costs under the revenue increase, the cost increase. Options for Bulgaria was the last question if I am right?
Laurie Davidson - Goldman Sachs
Yeah, there are two options, could be more but we see two options. One is to continue to operate in a free player market or contribute to the simplification of this environment in line with regulatory environment also and find a way to consolidate our operation with one of our players in the market. These are the two options. I don’t see other ones. We invested in Bulgaria. We believe in our ability to generate audience and value there, that’s what we are doing, what we are doing in every market. And if our target in Bulgaria for break-even in 2012 is achievable, we believe it is achievable. Obviously, consolidating with one of our operation and one of our competitors would bring a faster break-even, depends on which costs.
And at this time there are no further questions. I would like to turn the floor back to Romana Tomasova. Please go ahead.
Thank you to all of you for joining us today. We had 110 people on the call and I think it’s an indication of the interest that CME has attracted. I want to also thank to all the (Inaudible) people that came to Prague to our Investor Day two weeks ago and as always we are available individually for questions. And thank you for your attention on this call, participations and we look forward to seeing you all again shortly. Bye, bye.
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