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Central European Media Enterprises (NASDAQ:CETV)

Q2 2011 Earnings Call

July 27, 2011 9:00 am ET

Executives

Anthony Chhoy - Executive Vice President of Strategic Planning and Operations

Adrian Sarbu - Chief Executive Officer, President and Director

Daniel Penn - Executive Vice President, Secretary and General Counsel

David Sach - Chief Financial Officer and Executive Vice President

Romana Wyllie - Vice President of Corporate Communications

Analysts

Tim Hamby

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

Ajay Agrawal - Nomura Securities Co. Ltd.

Benjamin Mogil - Stifel, Nicolaus & Co., Inc.

Krzysztof Kaczmarczyk - Crédit Suisse AG

Unknown Analyst -

Andrzej Knigawka - ING Groep N.V.

Operator

Hello. My name is Michael. I will be your conference operator today. At this time, I would like to welcome everybody to the Central European Media Enterprises Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, July 27, 2011. It is now my pleasure to turn the floor over to Romana Wyllie, Vice President of Corporate Communications. Ms. Wyllie, you may begin your conference.

Romana Wyllie

Thank you. Good morning, good afternoon or davryden [ph] to each of you and welcome to CME's second quarter 2011 investor conference call. We are broadcasting our Earnings Call via a video webcast enable you to see the management team in action. You can join us via the link on our homepage, www.cetv-net.com. There, you can also download the presentation slides which we will refer to during this call. You can find them on our homepage at bottom left corner. The participants of today's call will be CME’s President and Chief Executive Officer, Adrian Sarbu.

Adrian Sarbu

Good afternoon and bonjour.

Romana Wyllie

Chief Financial Officer, David Sach.

David Sach

Good afternoon.

Romana Wyllie

Anthony Chhoy, Executive Vice President, Strategic Planning & Operations.

Anthony Chhoy

Good afternoon.

Romana Wyllie

And finally, our General Counsel, Daniel Penn.

Daniel Penn

Hello.

Romana 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 U.S. 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 certain financial information that is not in U.S. GAAP. Please see the appendix to the presentation for a reconciliation to U.S. GAAP financial measures. In addition, our segment financial information that is presented in local currency is not in U.S. GAAP. We do not provide a reconciliation to these numbers as the U.S. GAAP amounts are expressed in U.S. dollars in our financial statements.

Additional information on our segment data is provided in Note 17 to our financial statements on Page 26 of our 10-Q. And now, over to Adrian.

Adrian Sarbu

Good morning and good afternoon, everyone, and thank you for joining us today. We are very pleased with the results of the second quarter. Please turn to Slide 4.

Our revenues increased by 24% year-on-year to $250 million, and our OIBDA grew by 36% to $63 million. Our results came in ahead of analyst expectations, putting us firmly on track to deliver on our targets for the full year. CME operations performed better than the advertising markets, which in the second quarter contracted by 3%. The strong results were driven by our powerful brands, leading Golean [ph] shares in broadcasting and fast growth in the Media Pro Entertainment and New Media divisions.

We delivered positive free cash flow in the first 6 months of 2011 and we are on target to deliver positive free cash flow for the full year. We also completed the acquisition of Bontonfilm, a leading theatrical and home entertainment company in the Czech Republic and Slovak Republic, which will have a positive impact on our operating results in the future.

For the second half of the year, we foresee a growth trend in all our TV advertising markets based on continuing improvements in macroeconomic indicators. CME is best positioned in the region to take advantage of this trend and deliver growth in revenues, OIBDA and cash flow. And now, over to David who will review the macroeconomic situation in our region and our second quarter consolidated performance.

David Sach

Thank you, Adrian. Please turn to Slide 5. All six of our markets experienced GDP growth in the second quarter averaging 2% in aggregate. GDP growth continues to be driven by manufacturing and exports but we are now seeing marked improvements in indicators such as wages and employment. As a result, private consumption is now estimated to be positive in our countries although continuing to lag GDP growth.

Despite the return to growth of private consumption, our TV advertising markets declined in aggregate by 3% in the second quarter, reversing the positive trend of the first quarter. There was a noticeable and significant drop in spending in the 6 weeks following Easter in most countries when most markets returned to growth in June, and have continued to grow in July.

Although advertisers continue to be cautious in their spending due to negative sentiment surrounding local government austerity measures introduced during the past year in our countries, and the sovereign debt crisis in Western Europe, we believe that sustained improvement in the macroeconomic indicators will encourage advertisers to spend more, leading to market growth in the second half of the year.

Moving to Slide 6. Our net revenues for the second quarter increased by 24% on actual exchange rates or 7% at constant rates to $250 million. All 3 of our segments increased revenues compared to the same period last year.

The broadcast division benefited from market share gains and the bTV acquisition. Media Pro Entertainment was bolstered by higher third-party revenues in distribution and production. Our New Media Division has been effective in monetizing the double digit growth in traffic to our websites. Total costs increased by 20% in actual rates, or by 6% on a constant currency basis. This increase reflects mainly the acquisition of bTV, investment in Doma TV in Croatia and higher distribution and production activity in MPE. All of our segments reported increased OIBDA in the second quarter. In total, OIBDA was a $63 million, 36% higher than last year. And now, back to Adrian.

Adrian Sarbu

I invite you to turn to Slide 7 of our presentation, highlighting the achievements of the Broadcast division. Almost all our operations increased audience and market shares and we remain undisputed leaders in all 6 markets.

In the Czech Republic, we are maintaining our audience and market share leadership. Nova Group delivered almost 60% of the commercial GRPs on the market. During the quarter, we decided not to provide the same level of discounts as our competitors. This decision impacted our market share slightly without affecting our leadership and power ratio. As the demand for advertising grows, we expect to increase our market share. In Romania, we strengthened our audience share leadership and market share. We delivered 40% of commercial GRPs on the market.

In Slovakia, we continued to deliver strong results. We strengthened our audience share leadership from 34% to 36% and increased our market share by 6 percentage points to 69%. Markíza channels delivered almost 60% of commercial GRPs on the market.

In Bulgaria, we are the leader with a complete multi-channel model. Our Bulgarian channels increased market share to 65%, and delivered almost 60% of commercial GRPs on the market.

In Slovenia, we maintained our disputed audience and market leadership. Our Slovenian channels delivered almost 80% of commercial GRPs on the market.

And finally, our Croatian business, Nova Group, strengthened its audience leadership in the market and increased market share by 11 percentage points to 49%. Nova Group sold over 50% of commercial GRPs on the market. And now over to David, who will walk you through broadcast financials.

David Sach

Let's turn to Slide 8. The broadcast segment increased revenues by 20% at actual exchange rates in the second quarter, or 4% on a constant currency basis. Our operations in Bulgaria was the main driver and the increase as a result of our significant market share gain and the acquisition of bTV.

We also gained significant market share in Croatia and Slovakia, with slight improvements in Romania and Slovenia. In the Czech Republic, our market share was impacted because we again refrained from cutting our prices as our competitors did. We are convinced that this is the right strategy as we soon head into the critical fall season. Improving market conditions and our continuing strong audience shares of over 40% in the Czech Republic will place us in a strong position as we will likely end up as the only supplier with available inventory.

Broadcast cost increased 18% of actual exchange rates or 3% on a constant currency basis compared to the same period in 2010. This increase relates primarily to the acquisition of bTV in Bulgaria, and launch of the new channel, Doma, in Croatia. Excluding the impact of the bTV acquisition and the investment in Doma in Croatia, broadcast costs fell by 2% in the first half, and we anticipate these costs will be flat or down for the full year.

I would like to stress the broadcast cost on the same like-for-like basis have fallen over the past 18 months while we have strengthened our overall audience leadership. Strict cost control will continue to be a priority going forward. Our Broadcast segment generated OIBDA of $76 million in the second quarter, an increase of 25% compared to the same period last year. Adrian will now discuss the MPE operations.

Adrian Sarbu

Let's move to Slide 9, and let me point to just a few highlights of our content division. Media Pro Entertainment took off in the second quarter. The division delivered 684 hours of local content to CME broadcasters. This content is the most important driver of our strong TV brands. We produced the largest number of hours of local content in the region, delivering spectacular audience shares which differentiates us from our competitors.

Let me point to a few of the best performing shows in our markets. Rose Garden Medical in Czech and Slovak Republic. Best Years in Croatia and Got Talent in Slovenia and Romania. In the second quarter, Media Pro distribution licensed 156 hours of original fiction to third parties worldwide and increased revenues from third parties by 95%. It is worth mentioning, that Media Pro music produced a #1 worldwide dance hit, MR Saxobeat. Now over to David who will give you Media Pro Entertainment financials.

David Sach

Please turn to Slide 10. Media Pro Entertainment increased its second quarter revenues by 34% at actual exchange rates or 18% on a constant currency basis compared to the same period in 2010.

Approximately 32% of revenues came from third parties compared to 22% last year. We expect this percentage to increase to over 40% for the full year, helped by the acquisition of Bontonfilm. Cost increased by 32% in actual exchange rates or 17% in constant currency turns, mainly as a result of the higher third-party activity. Media Pro Entertainment segment reported positive OIBDA of nearly $1 million for the quarter and remains on track to achieve our target of positive OIBDA for the full year.

Over to Adrian, again, to discuss our New Media operations.

Adrian Sarbu

Thank you, David. Please turn to Slide 11. Our new media audience continued to grow in the second quarter. We focused on strengthening the core products of our portfolio, news porters, niche website and television-related websites. Overall, traffic grew by 21% year-on-year and reached 11 million average monthly visitors. We continue to see increases in traffic in our paid content platforms, VOYO, in the Czech Republic, where we now have 900,000 visitors per month. We have launched VOYO on mobiles and expanded our library by adding Warner Bros. titles. VOYO is now operating in the Czech Republic and Croatia. We are prepared to launch it in all our countries by the end of the third quarter and expand it to include subscription VOD packages. Now, over to David again.

David Sach

Thank you, Adrian. Let's turn to Slide 12. Our New Media segment increased revenues by 58%, mainly due to increases in our web portfolio and the growth in unique users and video views.

New media reported than OIBDA loss of $0.5 million, which was a significant improvement over the loss of $1.4 million incurred in the same period last year, representing an improvement of 66%.

Please turn to Slide 13. Free cash flow for the first 6 months was positive $50 million, an improvement of $55 million over the same period last year, reflecting stronger OIBDA growth and the benefits of our initiatives to further improve working capital. We remain on target to deliver positive free cash flow for the full year. We ended the half year with liquidity of roughly $300 million. We have sufficient liquidity to pay all debt maturities through May 2014.

Let's turn to Slide 14. In the first half, we refinanced $259 million of our 2013 convertible notes extending these maturities to 2015. We also repurchased $24 million of our fixed rate notes due in 2016. These actions have resulted in a significant improvement to our maturity profile. At the end of the first half, we had net debt of $1.3 billion. We are confident that we have sufficient liquidity to manage our upcoming debt maturities but we will continue to refinance and repurchase our debt should opportunities appear attractive to us. Adrian will now provide some closing remarks.

Adrian Sarbu

Let's turn to Slide 15, and let's talk about our current view of 2011. Most analysts are predicting that GDP in private consumption will continue to grow in our markets, despite the sovereign debt crisis in Western Europe and local government austerity measures. The medium term prospects for the region are still favorable driven by convergence of TV advertising spending with Western Europe. We foresee TV advertising spending picking up in the second half of the year and we remain confident that all our TV advertising markets will start to grow in the second half of 2011.

Between 2009 and 2011, we consistently outperformed the market, thanks to our strong brands and leading audience shares. We are rigorously managing cost with the objective to expand margins and maintain positive free cash flow this year. We extended and smoothed out our debt maturities and started deleveraging through OIBDA growth. Our new business model: One content, multiple distributions, build on our strong content engine in each country of operation, will enable us to diversify from advertising to paid and subscription revenues, positioning CME as a industry trendsetter in our region.

And now, for those of you who expect guidance, I would like to reiterate that we are comfortable with the current analyst consensus for 2011 of approximately $831 million for revenues and $168 million for OIBDA. On September 21, at our investor day in London, we'll give you more details on each country operation and specific guidance for 2011. As most of you expressed interest in attending this event, I look forward to meeting many of you there and to deliver good news.

And now, I'll pass it back to Romana.

Romana Wyllie

Thank you, Adrian. That concludes the formal presentation. We are now going to move to Q&A, so operator, please open the line for questions.

Question-and-Answer Session

Romana Wyllie

The first question comes from Ben Mogil from Stifel, Nicolaus.

Benjamin Mogil - Stifel, Nicolaus & Co., Inc.

I just wanted to drill down into some of the segment -- countries or segment-by-segment operation, particularly Ukraine -- sorry, particularly Romania and Czech which sort of on a local currency basis still continued to show negative numbers. Can you talk a little bit about that?

Anthony Chhoy

I'll start off with Romania. Just in the second quarter, the local currency TV ad market declined by 7%, whereas our local currency revenues declined by 6%, which is slightly less than the market decline and that's largely due to some increase in our market share to 58%. I just want to point out there that we still remain the strong audience leader in the market and managed to increase our prime time audience share to 31% while keeping cost almost flat there in that particular market. Now in the Czech Republic, we still retained a strong market share of 66% and sold almost 60% of the commercial GRPs in the market. Now our market share there was slightly impacted by our pricing strategy, not to discount to the level of our competitors to avoid the future price erosion. So there, we still remain, yes, the strong audience leader in the market, whereas we kept local currency cost to lower than the prior year. So as we control the critical mass of inventory in the markets in the Czech Republic, we believe that our pricing strategy will benefit us in the fall and also in future years. So that's for Czech as well.

Benjamin Mogil - Stifel, Nicolaus & Co., Inc.

Okay. And so maybe even going sort of even more macro, when I look at your Slide 5, which sort of has a nice chart showing GDP on the left and TV ad market on the right. You're seeing GDP growth now for basically first half of the year, pretty good GDP growth, and yet you're still sort of seeing the TV markets down and they really have been down for a while now. What makes you feel comfortable that the TV is a lagging and not a leading indicator?

David Sach

Yes, TV ad markets do tend to lag the GDP. So GDP, as you know, in most of our countries, they're export-driven, so they had to wait until Western Europe recovered and then obviously, these economies have recovered and you can see they're doing well in terms GDP growth, but the private consumption has been lagging the GDP growth. And you can clearly see though on Slide 5 there, the type of consumption now is going to be positive for the first time since we went into a recession. And particularly, what we like about that is the wages and employment, some of the key drivers or key components of private consumption are now improving. And with wages and employment improving, they should be the drivers that will get the advertisers to come back and drive our TV ad market. So that's what makes us confident that in the second half, we will see the TV ad markets improve because private consumption, particularly wages and employment, have improved.

Romana Wyllie

Next question comes from Ajay Agrawal from Nomura.

Ajay Agrawal - Nomura Securities Co. Ltd.

Couple of questions, please. If you can shed some light on your market share gains in Bulgaria, Croatia and Slovak Republic? Just want to know exactly what is driving the market share gains over there? Second question is on the cost savings in Bulgaria. It would be really helpful if you can tell us what kind of consolidation benefits and the cost synergies that you're seeing in the Bulgarian operation. And the third one is on the Czech Republic. It was mentioned on the last call that you're saving your inventory for the best quarters of the year, like second quarter and the fourth quarter. But still we see some audience share decline in this quarter. So how do you see that, I mean year, for the full year?

Anthony Chhoy

Okay, I'll do country by country. We'll start off with Slovakia. You see we managed to increase our market share there by 6 points to 69% and that's largely due to us strengthening our audience share to 36% and also the sales and efforts from our local management team and who actually have adapted to some very flexible pricing policies there. So to gain that share in Slovakia. But also I want to note that in Slovakia, we managed to increase that audience share while reducing our local currency cost by 6% year-on-year in the second quarter. So that's Slovakia. We go to Croatia. Again, it was an impressive increase in the market share by 49% there in the second quarter. Again, large contributor with the launch of Doma which contributed to about 4% average prime time audience share in the second quarter and also our sales team there managing to price the inventory of our Doma. Our Doma inventory there relatively in line with the Nova pricing as well. So that's Croatia. On that, there was very impressive performance from the local team there. In Bulgaria, we now have a fully-developed multichannel model. We managed to strengthen our audience share, that's 51% in the second quarter. But the big gain there was that even though the markets declined by 9% in the second quarter in Bulgaria, our local management team, managed to drive local currency revenues there by 31%. So that's really contributed to the impressive margin expansion in Bulgaria in particular in the second quarter. In terms of the cost savings for Bulgaria that you've mentioned, again, we acquired bTV on the 19th of April last year. So we're packaging now the whole multichannel model and for us, it's to strengthen our audience leadership in that particular market. But more importantly, it's to increase our market share, which we managed to successfully do in the second quarter to 65%. So I think that's how you should look at Bulgaria. Now I'll go and answer on the Czech, Czech Republic, about the audience share. But we still retain a strong prime time audience share of 43% in the second quarter. But this is in line with the demands of the market itself. So I think I already mentioned to Ben there that we achieved, maintained a strong audience leadership there with local -- with lower-level currency cost in the second quarter. Now I think, if we can boost our GRP delivery if the market requires more GRPs. But we felt that it wasn't necessary in the first half.

Romana Wyllie

Thank you, Anthony. Any other questions? Ajay?

Ajay Agrawal - Nomura Securities Co. Ltd.

Just a follow-up. In terms of cost savings in Bulgaria, would it be possible for you to give some kind of a guidance in terms of absolute numbers?

David Sach

No, we're not going to do that. Obviously, we've got some difficult markets that we've been dealing with in Bulgaria and our team there has done a terrific job on the market shares as you can see. So you can assume that all those improvements in the results are driven by the cost-saving initiatives that were taken. So most of that, again, it's cost savings that are driving the big improvement in OIBDA given those difficult markets.

Romana Wyllie

Next question comes from Krzys Kaczmarczyk from Crédit Suisse.

Krzysztof Kaczmarczyk - Crédit Suisse AG

Basically 3 questions. The first one is on the advertising growth in the second half. You are clearly saying that you expect the advertising spending to start picking up in the second half. Now the question is, is it based on your best estimate or is this based on your discussion with media houses and key advertisers and you already see that they are willing to spend more in the second half of this year versus the first half? So this is basically the first question. The second question is related to content-related expenses. As David pointed out, you expect this cost category to remain broadly flat or decline in the second half of the year. I'm looking right now in the performance of the first 6 months, and at that time, your revenue in the Czech Republic and Romania key markets, revenue declined on the local -- on the constant currency basis by single digits. Now at the same time, cost of programming remained high to flat or marginally increased. Does that imply that you expect the market to recover in the second half? Your revenues start picking up, and at the same time, to cut or keep content-related cost flat. Is this really realistic? So this is basically second question. And the third question is related with Bulgaria. Because we should take into account the fact that Bulgaria has not been fully consolidated in the second quarter of last year. And we should take it out. And on the adjusted basis, what was the revenue growth assuming that Bulgaria was fully consolidated in the second quarter? And all those OIBDA in the second quarter of last year, assuming that it will be fully consolidated for the entire second quarter.

Romana Wyllie

I think the first question goes to Anthony regarding the expected spending, pick-up in spending in the second half.

Anthony Chhoy

I think David already mentioned on the macro side but I think it's -- I'll do in terms of the discussions with the advertiser and clients. I'd just like to highlight that we've enclosed the annual sales and contracts in each of our markets in that range between 75% and 92%, depending on the market itself. Now the top advertisers, they have been cautious in committing hard budgets in the first half. However, I think that we have recently started additional negotiations with them to increase their initial 2011 budget commitments and have had successes to date. I'm not going to highlight which particular clients for obvious reasons. But we believe that they're going to increase their spending in the second half, especially if they are successful in selling their own products. So that's the first question on that. I think the second one was on the cost. On the cost, yes. I'll just, Krzys, highlight again that our strategy is to remain the strong leader in the markets without increasing our overall cost. So we'll continue to invest in the local programming to maintain this strong audience leadership, and also to deliver the necessary output of GRPs in line with the demand of the market. So we achieved that in the first half and we are confident that we'll be able to do the same for the rest of the year. I think that's on the cost piece.

Romana Wyllie

And the last question was about Bulgaria and if we fully consolidate Bulgaria...

Anthony Chhoy

On Bulgaria, I'll just highlight that in Q2 2010, our OIBDA margin there was 7%. This year, or Q2 this year, is 22%. Now we acquired bTV on April 19. So you're talking about a couple of weeks on that. But in terms of the difference there, so we've again -- I'll highlight again that we managed to increase our revenue significantly, 31% local currency revenues in the market declined by 9%. So OIBDA improvement there is the combination of, again, investing the right amount of content to maintain our audience leadership there but also to, I think, significantly increase our market share, which we successfully did, 65% in the quarter.

Romana Wyllie

Okay, does that answer your question?

Krzysztof Kaczmarczyk - Crédit Suisse AG

Yes, it does. If I may, just for clarity on the first question regarding advertising markets growth. When you speak to media houses or key advertisers, do you see them waiting for the consumption to increase, which would trigger a potential increase in advertising spending? Or you think that they will start spending to stimulate the market? What is their attitude? How do you see it?

Anthony Chhoy

I think it's a combination. I think, it's at the moment, again, given the macro improvements, the private consumption increasing in most of our markets, the overall markets. So I think it's -- they are starting to be a bit more confident and we started to notice that after the -- I think it's the 6 weeks lull in spending after the Easter. They have started to boost the market consumption in June and it looks pretty positive as well in July. So on the back of that, that gives us quite a lot of confidence that the trend will continue for the rest of the year.

David Sach

I'll probably add that historically we've seen advertisers try to get ahead of the resumption in private consumption when we're seeing some previous downturns. So it's unusual that they're not getting ahead of it. We mentioned in our speech about the negative sentiment surrounding Western Europe, but surrounding Greece and some of the other countries in Western Europe, causing negative sentiment. That's obviously been going on for a while and that situation seems to be getting a little bit better. So we would expect now that the advertisers to do what they've traditionally done, which is, with increases in private consumption, start spending again.

Romana Wyllie

So next question comes from Janco Partners, from Tim Hamby.

Tim Hamby

Just wanted to see if you can talk a little bit about the traction that you're getting in the Media Pro revenues that you're receiving from third parties that are actually outside of your core markets. Kind of see what kind of growth you're getting there?

Anthony Chhoy

I think David already mentioned in his speech that in Media Pro, we've done almost doubled our third-party revenues at $16.5 million in the second quarter. That represents around about 32% of the total Media Pro revenues in a particular quarter, up from 22%, I mean Q2 2010. I think that increase comes from a range of other business units and production, production services in our home video entertainment distribution as well there, and also the rights distribution. So I think it's across-the-board. I think it's -- I think both David and Adrian mentioned about us, obviously, licensing over 150 hours of own original MP content as well to third-parties. So I think it's -- for us, the Media Pro added gross, especially with the production of more of our own content and with expansion of our distribution platforms, which we aided with the Bonton acquisition. Plus, as we roll out VOYO across our territories, we're going to get new revenue streams and windows and that's going to be added to enable us to monetize more of our own content. So for us, this is going to give us an incremental benefit to the group.

Tim Hamby

And do you have any have kind of a target as far as what you want those third-party revenues to make up of your Media Pro revenues?

Anthony Chhoy

Absolutely. For us, we expect that to increase to, I think for this year, around about 40% of the total Media Pro revenues but we want to push this to 50% as quick as possible. And we're confident we're going to be able to achieve that quite soon.

Romana Wyllie

Next question comes from Tom Singlehurst from Citi. Tom?

Unknown Analyst -

Tom Singlehurst here from Citigroup. I have 2 questions. They're a bit basic, I apologize. Still ramping up overnight. But the first question is on ad spend by category. I noticed in previous results for the presentation, you sort of already shown that the -- it's actually a great [ph] market for most skewed [ph] to our space, sort of more core, at categorically speaking, [indiscernible], et cetera, et cetera. I was wondering whether within the mix across the first half you're seeing any change by category, by market. Is there anything interesting going on there? The second question is on leverage. You mentioned that you're having [indiscernible] deleveraged the group by the increasing or the -- the question I have is the whether was any low-hanging fruit [indiscernible] think about working capital investment that may enhance free cash flow in the next couple of quarters, couple of years?

David Sach

I'll take your cash flow question first. So I know these calls, we talk about the cash flow. So we're focused on ensuring that we reach a positive free cash flow for this year. And that is the combination, obviously, of greatly improving the OIBDA and very carefully managing the working capital. So we do spend quite a bit of time ensuring that we stretch out payables and collect those receivables, manage our capital expenditures. So we're hitting all of those and managing all of those levers to ensure that we maximize our free cash flow. And in terms of deleveraging the company, that's going to be about OIBDA growth. And right now, we're looking at a leverage of 7x net debt to OIBDA for this year based on the latest analyst expectations, which is a significant improvement from last year. So rest assured we're doing everything possible in that area.

Anthony Chhoy

And just in terms of the sectors, the advertising sectors there, we obviously sell to clients in a variety of sectors: food and beverage, telecoms, cosmetics, tourist sheets [ph], et cetera. So now in terms of the, I think, which sectors to increase the spending, the first half. That varies by market, but in general, I think the automotive banking, finance and retail sectors increased their spending in the first half and we expect that trend to continue in the second half.

Romana Wyllie

Does that answer your question?

Unknown Analyst -

Yes.

Operator

[Operator Instructions]

Romana Wyllie

Next question comes from Pavel Ryska from J&T Bank.

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

I have basically 3 questions. First of them, today we've seen some quite positive news on your overall EBITDA margin or OIBDA margin, if you wish. Do you expect speaking year on year to improve your OIBDA margins for the rest of the year. And maybe in this pace that we've seen in the second quarter. Second question is, can you develop more on the current situation in Slovakia because, for me, this was the biggest surprise of your results that there was quite a high margin in Slovakia although still at the end of last year, you had certain difficulty in maintaining your market share. Is it the case that you no longer feel the need to incur a high cost to maintain the market share so that you can save some and can this relatively high margin in Slovakia continue to stay? And then finally, a very brief question on your New Media segment. Can you give any very brief guidance on its performance in terms of EBITDA for this year? Is it going to stay in a loss or will it post a profit very roughly?

Romana Wyllie

Okay, so the first question regarding the OIBDA margin, it's Adrian.

Adrian Sarbu

Pavel, it's our business to increase our OIBDA margin, to maximize them to the real possible level in the industry. And we pointed out several times that in broadcasting, we think, in this region, operating with 40% EBITDA margin is something which should be seen as normal. We have operations with 40% EBITDA margin, this is the Czech Republic in broadcasting. So to your question is, yes, we are looking to increase our OIBDA margin at the level of broadcasting division as well as the level of CME. And not only this year but also in the future. Slovakia, it was a case which we pointed out this quickly in the fourth quarter last year. We had the management on performance there. We changed the management. We addressed the key issues on the cost side, mostly programming on the sales side. And the new management succeeded to increase audience share dramatically. In fact, you could see -- the second quarter doesn't reveal the real dynamic because it's discounted by World Champion Hockey -- World Hockey Championship. Otherwise, the audience exception these days in Slovakia grew to almost 38%, if not 40%. And in respect of sales, it's a new team with a new energy, with new skills and they succeeded to outperform.

Romana Wyllie

And the last question is about New Media and guidance. On New Media, whether there will be [indiscernible].

Anthony Chhoy

Pavel, can't give the guidance here, but obviously we'll do that on the investor day. But you can see from the strong performance in the second quarter in New Media division where we've increased our revenues by almost up to 40% local currency terms while keeping the cost almost flat there. So limiting the investment $2.5 million. So we are -- which is significant improvement from last year. So we are moving in the right direction and we're going to fuel this particular division with a lot more investment and move towards more paid content.

Romana Wyllie

Did we answer all your questions?

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

Yes.

Romana Wyllie

So our next question comes from Andrzej Knigawka from ING.

Andrzej Knigawka - ING Groep N.V.

I have 2 questions, both related to Czech Republic. I think, in Czech Republic, you have some formats, in-house-produced formats that are currently in your library waiting for stronger advertising markets. Now do you think you will be putting these formats on air in the fourth quarter already or would you say the market will not be strong enough for these formats to be properly monetized in the fourth quarter?

Adrian Sarbu

Andrzej, give us the -- make as a favor not to disclose our programming strategy for the fall. I'm sorry for giving you this answer, but we have competition in this market. Definitely we have strong formats, not only in the library but in production. As we have strong products, formats which were on air and will continue to be in the fall. So the way you should take my answer is mostly related to our statement that, if necessary, we can boost the audience if the market will demand. So far, in the first 6 months, we delivered 30% on GRPs than were sold. So if, with our content possibilities, the market will request more, we'll put more of the formats, products from the library on air. If not, we'll put as much as the audience will request and as much as the clients will need.

Romana Wyllie

Andrzej, you had a second question?

Andrzej Knigawka - ING Groep N.V.

Yes. It's on the Czech media law. Can you just update us where -- what is the current stage of those proceedings in the parliament of Czech Republic? When do you expect the approval for the new media law? And do you have any kind of feeling of the implications going into 2012 for your advertising, TV advertising revenue in Czech Republic from that change in the media law?

Adrian Sarbu

As you probably know, the first chamber passed the law. The law is in the senate. We hope, we expect it to be passed during the month of August. And the impact will be that, effectively, November, when the digitalization ends, the advertising, most of the advertising which was spent on public television, will move to private sector, commercial television.

Anthony Chhoy

And the impact there is almost $30 million per annum if you want a rough number.

Andrzej Knigawka - ING Groep N.V.

That's for everyone, right? Not just for [indiscernible]?

Anthony Chhoy

Correct. And just so that we -- obviously, our market share, which we said in the first, second quarter, 66%.

Romana Wyllie

We have another question from Ajay from Nomura.

Ajay Agrawal - Nomura Securities Co. Ltd.

Just one follow-up. How do you see the consumer slowdown which is hitting the Western European TV markets? How do you see the impact of that for CME's markets? And second one, if you can just give us some guidance on the corporate cost, what would be that for the full year?

Romana Wyllie

Okay, so the first question on consumer slowdown, David.

David Sach

Private consumption is, as we showed on the previous slide, picking up in our market. So obviously, we worked, as I mentioned before, we're export shipping economies and, obviously, we were lagging behind Western Europe. But obviously, with Western Europe slowing down a little, I think that that could actually benefit us. Because, obviously, we've got low wages in our countries, which makes us very competitive in the single European market. So a slight slowdown in Western Europe could actually turn out to be beneficial for us. So we are seeing private consumption increase, as I said before, so I'm not overly concerned with a slight slowdown in Western Europe. If it's more severe then all bets are off. In terms of corporate cost, we see corporate cost relatively flat. I think you can see that in our results and I would expect that situation to continue to the full year.

Romana Wyllie

Ajay, any other questions?

Ajay Agrawal - Nomura Securities Co. Ltd.

Yes, just a bit of follow-up on that. In terms of private consumption, your private consumption has improved in second quarter and yet in most of the markets we still see a slowdown. So what would be the lag period that we should assume like in this case?

David Sach

Give me some specifics, Ajay. Slow down in what markets?

Ajay Agrawal - Nomura Securities Co. Ltd.

I mean, your private consumption has been increasing in most of your markets, but still in terms of, like, overall TV ad market -- I mean all of your markets except Czech Republic is still down in this quarter. So what should be the lag period between private consumption and the TV ad markets?

David Sach

As we mentioned before, historically we would actually see advertisers try to get ahead of an improvement in private consumption. So in anticipation of that, they will put their advertising into the marketplace because it takes a little time for those advertisements to take hold with the consumer so they would try to get ahead of private consumption. This time, okay, we haven't seen that. But that's unusual. We believe it's because of the negative sentiment of Greece and the U.S. debt ceiling that's made advertisers more cautious than they have been historically. And obviously, as I mentioned before, we're see a -- this situation in Western Europe is going on for quite a while. It seems to be stabilizing. We'll see what happens in the U.S. But certainly, in this part of the world, it seems to be slightly improving. So that's why we would now expect TV advertising to follow its traditional pattern of becoming quite correlated with the private consumption.

Romana Wyllie

Thank you, David. Thank you, Ajay. And so we do not have any other questions in the queue, so let me wrap up by reminding you that you can find details of our Investor Day and register to attend the event on our website, www.cetv-net.com. We hope to see you in London on September 21. Thank you for joining us today. Good bye.

Operator

Thank you. This does conclude today's Central European Media's Enterprises Second Quarter 2011 Earnings Conference Call. Please disconnect your lines at this time and have a wonderful day.

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