Central European Media Enterprises Ltd. Q4 2007 Earnings Call Transcript

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 |  About: Central European Media Enterprises Ltd. (CETV)
by: SA Transcripts

Central European Media Enterprises Ltd. (NASDAQ:CETV)

Q4 FY07 Earnings Call

February 28, 2008 11:00 AM ET

Executives

Romana Tomasova - Director of Corporate Communications

Michael Garin - CEO

Adrian Sarbu - COO

Wallace Macmillan - CFO

Analysts

David Kestenbaum - Morgan Joseph

Greg Kolb - Janco Partners Incorporated

Matthew Walker - Lehman Brothers

David Kadarauch - Wood & Co.

Ben Mogil - Thomas Weisel Partners

David Ferguson - Renaissance Capital

Operator

Good morning ladies and gentlemen. My name is Benasa and I will be your conference operator today. At this time, I'd like to welcome everyone to the Central European Media Enterprises Fourth Quarter and Full Year 2007 Earnings Conference Call. All lines have been placed on mute to prevail any background noise. After the speakers’ remarks there will be a question-and-answer period [Operator Instructions]. Thank you. It is now my pleasure to turn the floor over to your host Mrs. Romana Tomasova, Director of Corporate Communications. Ma’am, you may begin your conference.

Romana Tomasova - Director of Corporate Communications

Good morning and good afternoon to each of you and welcome to CME's second quarter 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. We hope that you will find it quite useful. The participants of today's call will be Michael Garin, Adrian Sarbu and Wallace Macmillan who will give you the formal presentation. We are also joined today by our General Counsel, Daniel Penn, as well as Marina Williams who will be available for questions. Before, I turn to Michael let me read the usual Safe Harbor statement.

Our presentation today will contain forward-looking statements. For these statements, we claim 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 in our From 10-K filed with the Securities and Exchange Commission earlier today for a list of such statements and the factors, which would cause future results to differ from those presented in this call. During this call, we will refer to our segment financial information. These are non-US GAAP number and they include our operations in the Slovak Republic on a 100% basis for all periods including periods prior to our acquiring control from January 23, 2006 when their results were accounted in our US GAAP consolidated statements. The reconciliation to our US GAAP numbers is in note 18 to our accounts on page 145 through 148 of our 10-K, and now over to Michael.

Michael Garin - Chief Executive Officer

Thank you Romana. Hello and welcome to CME's year-end and fourth quarter earnings call. By any measure this has been an extraordinary year. Full segment revenues rose by 39% to $840 million, segment EBITA increased by 46% to $320 million and operating cash flow increased 40%. At a time when western broadcasters are struggling to define their business models, CME continues its performance as one of the world's fastest growing and most successful multi-national broadcasters. And we expect this record of superior growth to continue well into the future. We are planning for organic growth over the next five years to double the company's revenue and EBITDA. A decline when most traditional media companies were worried about their continued existence, we at CME are viewing the future with enthusiasm and higher expectation. One of the reasons I'm personally have such confidence in that future is that this past year we appointed Adrian Sarbu as our Chief Operating Officer. Adrian as you all know was the founder of our Romanian network and has been our partner since their inception. We know Adrian well both as a person and as a professional. In addition to his incredible record of performance in Romania, Adrian is also demonstrated his strong management skills during the restructuring of our objectives of Czech and Slovak businesses. That same operating expertise and oversight will now be focused on all our operations which is especially critical at a time when we look forward to assuming full control of our network in Ukraine. You'll be hearing about... more about this in a few minutes.

Another reason I have such optimism for our future is the progress we have made in our new media strategy. Internet operations are now attracting 263 million pages per month and you will be hearing further our details about this progress as well. In the Czech Republic in 2007, TV NOVA over achieved on all our targets and reconfirmed its strong leadership. Fantastic increase in segment broadcast EBITDA 50% and broadcast EBITDA margin of 56% is an incredible performance. With that performance it’s been equally matched by that in Romania, which has a consistent record of delivering such results. Its 46% growth in broadcast revenues and 42% in broadcast EBITDA is an impressive record. TV Markiza, which delivered 50% broadcast revenue growth at a phenomenal 101% EBITDA growth in 2007, is the real overachiever of this year’s station family. In Ukraine segment revenue of Studio 1 +1 increased by 30% despite political uncertainty acquiring full controllable stakes in our performance, and our market position there and Adrian will be talking about that momentarily. And Slovania broadcast revenues grew by 29% in an increasingly competitive climate. And in Croatia we're well underway to breakeven in Q4 of 2008 as we have been promising you for the last two years. TV NOVA has delivered an outstanding 66% assuming NOVA TV has delivered an outstanding 66% of broadcast revenues, improvement in 2007 and primetime audience shares increased to 19.7% with the year listing TV NOVA to a third place position in the market. Now I am going to turn over to Adrian who'll talk both about new media and our Ukraine strategy.

Adrian Sarbu - Chief Operating Officer

Thank you Michael. And so let's look at the progress that we made in new media during the last year. Please turn to slide 7. As it's stressed several times, our goal is to be the leading Internet operations in each of our markets. Here are few key achievements of last year. In 2007, we built foundations. We established Internet business units with proper leadership, hired Internet teams, and set-top processes. Our experienced Slovenian Internet team develops software solutions that we can implement across the territory. Slovenians work closely with the Ukrainian colleagues on the launch of our Ukrainian news portal. In 2007 we re focused on grabbing users and on combined, monthly page views and unique visitors across all our countries grew by more than 200%. In the second quarter, we acquired the largest blogging site in Croatia and that's combined with our new site generates over 32 million page views per month and positions us as a number one Internet player in Croatia. Our Slovenian Internet operations continue growing and generated over $2 million revenue, 57% of all non-broadcast revenues were CME. In Romania, unique visitors growing by 400%, and I'm pleased to announce that in February 2008 on a combined basis our website took number one position in Romania.

On slide 8, I want to make four points about new media in 2008. We will transfer expertise from Slovenia and Romania to all our territories to accelerate growth. We will use our strength in production of news and fiction to drive our viewers online. Now when we established a platform of users and page views, we can start monetizing our assets. We have strong sales team and we will further educate our clients about the value of online advertising. We will further boost our Internet traffic both organically and through small acquisitions when appropriate opportunities arise.

Let me now talk about another important topic. Ukraine. Slide 9. In 2007, our revenues grew by 30% but frankly the most important was the agreement with our partners on buying out their minority interest and giving us full control. In 2008, we will work together with our partners and all our colleagues to reflect our operations in Ukraine. Our target is to be number one broadcaster in Ukraine over the next three years and to dramatically expand our operations. To achieve that we have lots of work to do and significant investments to make. 2008 may be a good year but the implementation of our plan will require increased cost in the short term. Now back to Michael.

Michael Garin - Chief Executive Officer

Thank you. Before I turn this over to Wallace, who will give you the review of the operations I just want to discuss with you a moment, comments that we read and are asked about by leading economists that deal with the situation that we all recognized in the West and some people feel here will spill into the East. I'm not an economist, so I don't expect any forecasts for me. But then I can report to you that our stations who we monitor weekly for our sales forecast have not indicated any economic concerns, any loss of business confidence, rate slowdown in the advertising market. We've had no indications from our contract negotiations with advertisers of a pull-back in spending or what will be or that we might be unable to achieve our price targets. Our markets… the individuals have the same high... in our markets individuals do not have the same high level of personal debt as in the U.S. and the UK because the mortgage market basically wasn't really available for them. It's still a developing market there and so the equity that they have in their houses remain as real equity. And in Romania it's how unclear how the economic analysts reflect a black economy and in particular the estimated $67 billion of euros that are repatriated every year from Romanians living abroad. And in Romania we also see significant foreign direct investments where Nokia has just relocated it's manufacturing plant, I am sure many of you especially living here in Europe read in the papers causing a great political swing in Germany, but Nokia has relocated its manufacturing plant and Germany is expected to bring 2,500 new jobs. So, incredible performance that we've turned in 2007.

We don't see as an anomaly but really quite on the continuity that not only started six years ago where we delivered incredible growth from then to now, but we maintained our confidence in our ability to continue growing because not only do we have stations with leading positions in each of our market, we have a market structure that defends us against the kind of competition and fragmentation of the audiences that's doubling [ph] our colleagues in Western Europe and the United States. And our growth confidence of doubling our earnings and revenues over the next five years is based on organic growth, which gives us the confidence and discipline to look at merges and acquisition opportunities only as supplements and compliments to our current activities not as a substitute for internal growth. And finally even though we have done a fantastic job under Adrian and entire management team’s hard work of raising our margins from 36% to 38%, which is really I think a world-class achievement especially across six nations, we believe there is some slight expansions to as high as 40%. At which point I think that is about as far as we can go as a company but it's sustainable over quite a few years. So we believe that not only can we continue to grow in revenues and bottom line but to also improve our operating margins. So why are we so confident about our future and with that I will turn you over to Wallace Macmillan, Chief Financial Officer.

Wallace Macmillan - Chief Financial Officer

Thank you, Michael. As Michael had headlined for you our results in 2007 surpassed even our own high expectations with segment EBITDA breaking through the top end of our most recent guidance range by nearly 5%. Putting this in the context of the fourth quarter only, our operations stood up at nearly 13% more EBITDA than our top of range predictions with unexpectedly high advertising demands reflecting stone business and consumer confidence.

Now I am going to describe the results of our broadcast operations in each of our markets highlighting the key figures and outlining how the competitor performed in 2006. These highlights exclude the results of our new media or non-broadcast operations. During this section of the call I will be referring to the slides in our website. Please note that the audience share chart shown in the slides refer to the target audience demographics that we sell which is different to the total audience data shown on our website.

Tuning first to slide to 11 in the Czech Republic, TV NOVA one of the best performing broadcasters in the world maintained its strong number one audience share position in the Czech Republic. Our target 15 to 54 prime audience share of 46.8% in 2007 was more than doubled that of our main competitor TV Prima and we increased our lead in absolute terms. You'll see from the audience chart, that we decided the extra investments in audience share we had made in the fourth quarter last year to embed our new sales strategy was no longer needed. And the reversion to optimal share levels in the fourth quarter this year was a contributor to our improved margins. The sales strategy, we implemented in early 2006 has been very successful. Sales grew 34% and our broadcast EBITDA increased 56% to $157 million. Our full year broadcast EBITDA margin jumped 8% from 48.5% in 2006 to 56.4% and in the fourth quarter of this year it reached 60%. A new multi-channel digital broadcast and news facility went live on October 14 and it is the first high definition broadcast facility in the Czech Republic. The new facility enabled us to launch Nova Cinema on December 1 as part of our multi-channel strategy. You will now be able to broadcast up to 12 digital channels as soon as the digital terrestrial platform is rolled out.

Turning to Romania, on slide 12; you'll see that PRO TV group continued its dynamic growth in 2007, the broadcast revenues growing 45% and broadcast EBITDA growing 42%. Our multi-channel strategy was reinforced by the acquisition of SPORT.RO which been re-branded and re-launched in April 2007. By the end of the year, it was the highest rated sports channel in Romania and our websites SPORT.RO attracts 1.8 million unique visitors in December. Taken together, our Romanian websites have 4.6 million unique visitors ranking them collectively in the top three Romanian Internet destinations. And in December of course, we acquired the license for MTV Romania, and this gave us access to a young demographic that compliments our existing portfolio.

Turning to the Slovak Republic on slide 13, TV Markiza has gone from strength-to-strength in 2007. Our broadcast revenues grew by 50% and broadcast EBITDA grew by a huge 101% driving a 10% increase in EBITDA margins to 38% from 28% last year. Markiza affirmed its position as the number one channel in Slovak Republic, stretching its prime time 12 plus target audience share leadership to 39.5% during 2007, well up from the 35.9% achieved in 2006, and achieving it's highest recorded shares since the introduction of people meters. This outstanding performance is result of organic control of the station in 2006 and in July 2007 of course we acquired the remaining 20% minority interest in our Slovak operations giving us 100% ownership.

On slide 14, POP TV and KANAL A in Slovenia are market leaders both on air and online with a combined 47.8% prime time audience shares in 18 to 49 target markets and website that achieved 16 million page views a week. Broadcast revenues grew 29% in 2007 and broadcast EBITDA grew 24% in absolute terms. Online, our unique visitors grew by 81% during the year and our share of the Internet advertising market has now reached 26%.

Slide 15 shows Nova TV in Croatia, which also gave an outstanding performance in 2007 delivering a 66% increase in broadcast revenues for the year. In line with our investment plan, the increased revenues were reinvested in programming to continue our audience share growth. And so, our EBITDA loss of $14 million is largely unchanged. Upfront, our 18 to 49 target audience share grew from 17.3% to 19.7% in 2007 and this improvement means that Novo TV is now the third-most watched channel in Croatia. We're still on track to reach break-even in the fourth quarter of 2008.

Slide 16 looks at Ukraine. And in 2007, Studio 1 + 1 achieved a prime time share of 18.5% in this 18 plus target. And it's the second most watched channel in Ukraine. By the end of a turbulent and challenging year, our segment revenues have grown 30%. EBITDA fell by $3 million but this was after taking $10 million programming lively write-downs as we reassessed this type of market suited to the current demand for the market. Over 4.5 million of these write-downs were taken in the fourth quarter. Our agreement with local partners to purchase their minority interest and deploy [ph] full control is a great step forward fulfilling a strategic goal that we have long highlighted. Adrian has already spoken to our ambition in this, our large population markets as the market with the greatest growth potential. We're developing KINO and CITI channels in accordance with our multi-channel strategy. Controlling the Studio 1 + 1 will enable us to improve coordination and integration of all of our Ukraine operations.

Slide 17 summarizes our segment results for the quarter. And this slide and the next slide show the combined broadcast and non-broadcast results for each segment. Total segment revenues in the quarter grew 40% and the total segment EBITDA grew 33%. Slide 18 shows the segment results for the year. Our segment net revenues grew 39% against 2006, and total segment EBITDA grew even faster at 46% taking out overall segment EBITDA margins up to 38% from the 36% recorded last year.

Slide 19 shows our summary GAAP consolidated income statement. Our corporate costs were $35 million compared with $34 million in 2006. Excluding loans, cash, stock-based compensation underlying corporate costs were $50 million compared with $31 million. The main reason for the difference to the $36 million to which we had guided was the reclassification of $12.5 million charge to settle outstanding litigation in Croatia from other income expense, which had been reflected in our first quarter financials. The small remaining difference is mainly due to increased visits combined with expenditure. Despite this realignment, our operating income was up 46% from that of 2006 to $206 million. The low operating income, the key movements, our increased net interest expense, which increased by $11 million and includes $7 million in charges incurred in redeeming our 2012 closing rate notes in the second quarter. Also we had a foreign currency loss and change in the fair value derivatives charge of $38 million together, which is $90 million lower than last year charge and these are primarily a result of the strengthening of the euro against the dollar during 2007. Our income tax charges included a $9.1 million one-time deferred tax benefit caused by changes to future tax rates in the Czech Republic. After all of this net income from continued operations for the year grew to $89 million from $25 million in 2006. And at the bottom of the slide, you can see in the currency translation adjustment that the weaker dollar has increased the value of a non-dollar denominated European assets than equity by $159 million similar gain to last year.

Slide 20 shows our summary GAAP consolidated balance sheet and the key figure to see from this side is our net debt at December 31 stood at $476 million. Slide 21, shows our cash flows and operating cash flow for the year of $103 million is an increase of 40% over last year. During the year, we took a number of steps to improve our financing structure. We issued $150 million of floating rate notes with an interest spread of 1.625% and we redeemed €125 million of floating rate notes, which had a spread of 5.5% a good trade. We increased our facility with BRD [ph] by €50 million and reduced interest spread payable on our existing €100 million facility from 2.75 to same spread of 1.625. And in September, Standard & Poor's upgraded our cooperate credit ratings from BB- to BB. These steps increased our financial flexibility and reduced our average cost of financing. We have sufficient funding available to complete the Ukraine deal in cash if necessary. This would take our gearing to around 3 times net-debt-to EBITDA. Our stated policy is not to exceed the gearing of 4 times net-debt-to-EBITDA but we now intent to maintain gearing at around 3 times net-debt-to-EBITDA over the medium term. Our appetite to increase gearing beyond that for any lengthy period is extremely limited.

I will now pass you back to Michael.

Michael Garin - Chief Executive Officer

Thank you very much Wallace. On page… slide 22, we’ve showed what we presented last year as the strategic objectives of CME and this is part of our general belief in the accountability to you our shareholders who own this company. We laid out what we wanted to achieve in our strategic goals end of the end of the first quarter we laid out to you our ambitions for our financial targets. And to right of this, I'm going to read this slide but to the right of the strategic accomplishments, strategic goals or our strategic accomplishments and suffice to say that we were very satisfied with what we achieved last year. So, this year we are, on page slide 23 are telling you what we hope to accomplish from a strategic perspective and once again at the end of the first quarter we will provide you with financial guidance for our financial expectations for the full year.

And as you’ve heard most of these spoken about already, we expect to restructure our operations in the Ukraine to drive future growth. We plan to launch or acquire additional channels. As you’ve heard, we were able to launch three new channels this past year in order to reinforce our leadership position and maintain our multi-channel strategy. As I said in my own comments, we expect to improve margins by leveraging our expertise from our best operations and I just want to dwell on this for a second because this particular one is near and dear to my heart because it represents everything that CME is about and what I think we've achieved over the last four years.

When I came here CME was a collection of assets that lived in their individual stylos [ph]. Today, people at CME are all CME employees; they may work for ProMedia, Pro TV in Romania or Studio 1 + 1 in Ukraine or any one of our other stations. But they all see themselves as CME employees. And part of that is because of the culture that we've grown and developed. And part of that is that a portion of their rewards are now paid in stock options, which means that how other stations in other countries do mean something to them more than just philosophically and intellectually but also financially. And now we've got all these functional working groups, news directors, program directors, new media executives, IT executives, engineering executives, taking the best of each of their experiences and sharing their mistakes as well to prevent them from occurring elsewhere. And Adrian has taken this step further by appointing the individual consultants per team that will take the best practices at each of our stations and distribute them throughout the whole organization.

And other one of our strategic goals, which we've been very successful in achieving in Romania, is the development of our production capabilities. Today, as much as 70% of our prime time programming are produced by CME, this is very important because as the transition from purchased programming to produced programming continues, the ability to be in control of our programming destiny is critical. And our goal at this stage is not so much to increase the number of hours that we produced but the quality as number of hours we produced, because we produced such a vast majority of the hours that we air in prime time.

We continue to focus very much on our Internet strategy, we're trying to make the transition from strong Internet pages to Internet sites and then the portals and everything we do in this field is integrated according to national boundaries and the success that we've enjoyed hopefully will lead to further success because the high traffic that comes though our front page then we can lead elsewhere as we have additional offerings, and of course we think that we are now at a stage not because CME is at this stage but because of our country is at a stage where we can begin to market the traffic that we're generating.

And finally, we've been telling you for a number of years now, we expect to breakeven by the fourth quarter of this year in Croatia and be profitable for the entire year. I appreciate one behalf of all my colleagues, the faith that you've had, and the patience you've had, but that day is here and we're producing the results that we promised and it's something that we always had confidence in, but seeing is believing and now you... I believe what now you're going to see so we are very pleased with what's going on in Croatia.

And with that we're ready to turn over to questions. So, operator back to you.

Question and Answer

Operator

Certainly. [Operator Instructions]. Your first question is coming from David Kestenbaum of Morgan Joseph. Please go ahead sir.

David Kestenbaum - Morgan Joseph

Thanks. Can you just give us a little color on the competitive environment in the Czech Republic and how you see that changing going forward with the advent of digital in the market? That's the one. Two, can you talk about CapEx in 2008, you spent $81.5 million last year? Maybe if you don’t want to give a number at least talk may be about some of the big projects that you have in mind for 2008. And then finally acquisition environment I know it seems like you passed on Turkey, is there a chance that you may come back to that or is there anything else out there? Thanks.

Adrian Sarbu - Chief Operating Officer

Dave I'll answer to you about the Czech Republic. It's a long story about competition to be brought by the new digital terrestrial channels in Czech Republic. So I'm tired of waiting for the competitors and to really be able to compete and fight with them. It's true this year that Parliament passed a Digital Law, which is from our point of view a good law because it respects our position in the market and it guarantees our coverage even under the new digital technical environment. In respect to the competition, competition is welcome, we had a number of channel competing us. There are more and more smaller channels, cable channels which get a little bit of share but don't forget that part of our strategy is to be the leaders of the new digital environment in Czech Republic which means we’ll launch more channel, all of them will be digital once the technology will be available and the coverage will be acceptable from the business point of view. So I repeat what I told you two years ago and one year ago, for us competition is not a threat, for us competition is an opportunity to give more to our viewers and you have the example in Romania, where PRO TV stations which are now number six are competing with 40 players in the free-to-air and cable and we have still delivering the results which you saw.

Wallace Macmillan - Chief Financial Officer

Dave let me pick up on your CapEx question. CapEx in 2007 was pretty much on guidance at about $81 million and as we've said before we expect CapEx over the next two years to rise from that figure as we complete investment program and I'll give you specific guidance say in the next earnings call. But in principle the main projects that we are looking at for 2008 relates to premises and production and including in the production context news and we've had great success with our new news facilities in Romania and the Czech Republic and in Markiza and we are developing as Michael pointed out as one of our ambition more production facilities in pretty much all of our markets. And in most cases this involves building work because we are moving gradually from rented premises in many markets to owning our own premises and we made that decision for two or three reasons. The first is the cost of a limited supply of proper premises for this kind of activity and we don't want to have such an important activity held hostage to fortune in any of the markets. Secondly it enables us to consolidate our operations and from a geographic perspective and thirdly because if you look at the rent versus [inaudible] by decision it actually makes a lot of sense and straight cash purposes. So, those are the primary areas where we're going to be investing in CapEx going forward.

Now I'm going to turn over to Michael to talk about Turkey.

Michael Garin - Chief Executive Officer

Well, David as you know, I'm a great believer in talking about what you've done, it’s what you're hoping to do especially when it involves sensitive discussions like M&A. So, let me just say that Turkey remains one of the most interesting countries for us to be looking at. 70 million people, you are all familiar with the capital advertising chart that we show and where our average, I think now is around $12 or $14 across all of our countries. Turkey is right in that level. So, by all measures, it remains very interesting, but beyond that I'm not prepared to comment.

David Kestenbaum - Morgan Joseph & Company

Are these indications yet to be around [inaudible].

Michael Garin - Chief Executive Officer

I am sorry. We can't hear clearly. You’re asking a follow up question David, we're not hearing it. Anyway I can't... we're not hearing anything, operator.

Operator

Your next question is coming from Greg Kolb of Janco Partners Incorporated. Please go ahead sir.

Greg Kolb - Janco Partners Incorporated

Hi. Thanks for taking my questions, way to finish off a very good year. Couple of questions. In Ukraine, it looks like there is a little margin pressure. Obviously you had a valuation adjustment of about $10 million and in the K you mentioned that you had some price inflation on the Russian programming. Just wondering if you could comment about that and your thoughts about price inflation going forward? And then also in Romania, kind of on a more macro level, you guys... the advertising market showed really, really strong growth probably 50% or 60%, which was about double your expectations. So, I was wondering if you could may be comment a little bit on that on the macro side and then despite a slight rating decline you guys had pretty significant performance in Romania, and maybe some more color there would be great. Thanks.

Adrian Sarbu - Chief Operating Officer

Let me pick up the...

Michael Garin - Chief Executive Officer

You are going to start.

Romana Tomasova - Director of Corporate Communications

I will your question on Ukraine first. You are absolutely right. We have to manage the programming issue in '07 in relation to the change of our amortization strategy predominantly. This market is based including our major competitors on horizontal play of scheduling. So, we are basically delivering long-run series and our decision was made to change our amortization from 65% to 35% to 85% to 15% going forward. So, that's why we took quite a major shift in '07 in all our programming costs. Going forward, however this is going to be easier to manage because number one, we will be able to make second run programming more profitable in the daytime slots and we will also be able to sell the second runs to other broadcasters for a better margins. In relation to the inflation of Russian programming, yes the Russian cost of production had been growing but we are tackling this in several ways. We have started a number of projects and co- productions with both Ukrainian and Russian broadcasters. Basically where we share the copyright and we manage to receive revenues from both markets. This way decreasing the cost of the product and we are also looking and restarting all the business model for the local production in Ukraine predominantly for… except time programming to decrease output.

Adrian Sarbu - Chief Operating Officer

Greg about Romania and the question is... if in the actual expected by some analyst economic environment of '08 Romania will continue to grow spectacular, my answer is yes. We're looking... we're focused on the bottom line, we're focused on increasing our CPP and these two tasks are in process of being achieved. Because we... as you know, until the end of the first quarter we'll probably sign 80% of our yearly contracts.

Greg Kolb - Janco Partners Incorporated

Great. Thanks.

Operator

Thank you. Your next question is coming from Maria Rubanskia [ph] of Merrill Lynch. Please go ahead.

Unidentified Analyst

Bebanoski [ph] congratulations on good set of results. I have three minor questions actually. First one, can you give us an idea how much you planned to invest in new media and whether you're planning to doing any acquisitions in new media in the following year? Second question. I would like to get a feel for how much of your revenues in Ukraine were attributable to political advertising? And finally, can you give us an idea how much revenue came from MTV in the fourth quarter this year and what sort of audience share this channel has in Romania? Thank you.

Michael Garin - Chief Executive Officer

Let me take pick these ones up. First of all, with regard to new media investments during 2008 I'm afraid that we give a little of our guidance and number such as that when we get to the end of the first quarter and so I'm going to ask for your patience until our earnings call end. Suffice to say that we are continuing our investments in that area. In Ukraine, our political advertising revenues amounted to about $19 million last year and we know that some of that was substitutional with normal advertising revenues. It's very difficult to gauge exactly how much but probably about $4 million, $5 million of that at least possibly more of a substitutional for normal advertising. And we did not take any MTV revenues in last year. But we will be taking in this year. The [inaudible] license was only… those two reasons.

Unidentified Analyst

Thank You.

Michael Garin - Chief Executive Officer

Excuse me. Matt Walker, I saw you had a question but now your name is not in the queue so if so you still. I see you're back in the queue now. Thank you.

Operator

Thank you. Your next question is coming from Matthew Walker of Lehman Brothers. Sir, please go ahead.

Matthew Walker - Lehman Brothers

Thank you. Hi, Good afternoon. Sorry was a bit slow over here. But... I've got two questions, really actually. One is about Ukraine, I guess the thing I'm interested in is... while there is two things actually from Adrian, one is could you outline a bit more about your restructuring plans? Some of the measures that you are taking over the next say year just to flush it out a bit and if you could also give us a bit more color on how much you plan to invest in Ukraine, because on your slide it did mention the ’08 would be probably be a year of investment in the Ukraine, which is very sensible but just liked to know how much that will be? And then on your Internet thing, which I think is a very, I think it's a very good idea to get ahead of the curve unlike most of the other broadcasters that we follow. But I was thinking, when you're talking about ranking in a given country, are you using ranking vis-a-vis the comScore ranking of unique visitors, normally Google is top of most of the Western European countries, or are you ranking… are you excluding some of those and just looking at what companies are actually portals and then comparing yourself with the other portals and giving your ranking within the portal?

Michael Garin - Chief Executive Officer

No, this is an absolute ranking, so when we are number two, number one was a car manufacturer which of course is not, we would be number two, we're not number 1 in that substance.

Matthew Walker - Lehman Brothers

Right. If Google search was say number one, and you say, "well, we're number two and number three, Google would be included.

Michael Garin - Chief Executive Officer

Yes. That’s correct.

Matthew Walker - Lehman Brothers

Yes, okay, great. Thank you.

Michael Garin - Chief Executive Officer

I just want to make sure that we are precise because there would be, I think the only thing we could measure would be like google.hr.

Matthew Walker - Lehman Brothers

Yes. That's right. --

Michael Garin - Chief Executive Officer

Right and so we're looking at the website with the domain, with the national domain addresses as our universe but a 100% of that.

Matthew Walker - Lehman Brothers

Right. If there was somebody that is actually accepting because some of the countries that we follow sometimes it's the domain is outside the country.

Michael Garin - Chief Executive Officer

I don't believe… I don’t think we're capable of measuring that.

Matthew Walker - Lehman Brothers

Okay. All right.

Operator

Thank you. Your next question --

Michael Garin - Chief Executive Officer

Sorry.

Matthew Walker - Lehman Brothers

Just had a question on Ukraine.

Adrian Sarbu - Chief Operating Officer

We don't invent the wheel [ph] Matthew we'll take our experience in restructuring operations in other markets and we'll implement it in Ukraine. This means the cool and deep assessments of the actual operation. Resetting of every departments and business units following our operational model. This is a work for months done by our internal consultants, which are managers from other stations and the management of the station. Then it will be followed by a three-years plan, ready to be implemented as soon as possible, probably starting with the fall. You will see changes in the programming schedule but to see changes in the programming schedule to see changes in the marketing, you need practically to reset the whole operation. We inherit in Ukraine and I'm talking about 1 + 1. A lot of handicaps, which we tried to, I’d say make disappear. We also contemplate expanding our number of channels by developing hours, increasing their reach and acquiring.

At the end of these three-year period where we set our goal to become number one broadcaster and number one broadcaster to be in Ukraine means minimum 30% audience share. We will have a strong operation multi-channel operation with the one or two main channels and a number of satellites distributed by DTH, by cable or by in the future DPP. This is our plan, in fact, that's why we used the word reset or restart. Ukraine has a history, which delivered... once it has delivered now we have to put Ukraine in our format and I think the key achievement will be consistency. How much do you plan to invest this year in Ukraine, depending on... not on what we know we have to spend, but what we will find to buy this.

Michael Garin - Chief Executive Officer

Adrian has perfectly answered the question because there are a number of opportunities that we are pursuing and when we look to try and expand the reach of our channels and to acquire additional place to reaching markets it depends which of these various opportunities comes best and first. So I haven’t got a figure to give you a match but that is the direction that we're looking at to fund different ways of obtaining audience within the market.

Adrian Sarbu - Chief Operating Officer

And in the next conference call in May, I'll give you more details about our presence in Ukraine.

Matthew Walker - Lehman Brothers

So just... if I were to paraphrase you, I should carry on assuming whatever cost I'm assuming in the Ukraine organically and then there maybe some extra cost if you require additional properties?

Adrian Sarbu - Chief Operating Officer

Yes.

Matthew Walker - Lehman Brothers

Okay. Thank you. Thanks so much.

Operator

Thank you. Your next question is coming from David Kadarauch of Wood. Please go ahead Sir.

David Kadarauch - Wood & Co.

Hello David Kadarauch here from Wood, very good results congratulations. I just had two questions, firstly on margins there does seem to be a decline in Romania in the fourth quarter and I'm wondering whether you can shed some light on that maybe there's something with comparability to do with Sport.Ro or I don't know what and how does that sort of effect or how would you sort of advise us to think of margins in Romania going forward? Is it perhaps going to fall going forwards compared to a full-year '07 in '08? And then second question is just one on the corporate costs a little bit higher than you guided us in October at the industrial conference. Okay, there is the Croatia litigation thing, what's the rest of the difference please? Thank you.

Wallace Macmillan - Chief Financial Officer

I'm just going to start out and then turn it over to Adrian on Romania. I think both on margins and well, margin in particular we're a company that you really need to look at on an annual basis because that we have a program that's expensed in the quarter or write-offs, which in the case of Romania took place in the quarter. It just is as not projectable to the whole year and that's not unique to Romania, that's everywhere. I remember a couple of years ago after we guided to full-year in Ukraine, I believe we were guiding to a $21 million of EBITDA and 30% operating margins, but [inaudible] only to exact numbers but they are close enough. And then after our operating we announced our second quarter results and we had $2 million of EBITDA and 14% margins and people were calling us all kinds of names and of course at the end of the year we had $21 million of EBITDA and $30 million of... 31% of operating margins. So, I think that if you look at CME as a company or any of our individual units, you really... of course a quarter could reflect a trend but, in most cases, you have to look over larger period of time in order to discern the trend.

David Kadarauch - Wood & Co.

Okay, thanks.

Adrian Sarbu - Chief Operating Officer

David, let me talk to you about the corporate costs.

Wallace Macmillan - Chief Financial Officer

I want to add...

Adrian Sarbu - Chief Operating Officer

David, as Wallace said, we have learned that our operation is strong, it runs 40%, minimum 40% EBITDA margin. You'll see even on a year-by-year fluctuations of EBITDA margin because once we achieve 40%, we are looking to optimize the use of resources and to maximize the sales increase year-by-year as the EBITDA increase. So, for us a margin which is this year 44% and tomorrow or next year will be 43%, it's not the relevant one, the growth is 30% or 25% or 40% or so. So, these margins don't show a trend. Don't forget that we are operating our stations in an environment which is sometimes volatile because of an increases in various types of... the cost of various types of resources on one side, on the other side, don't forget we operate with a much, much lower cost per unit than our competitors even in the region, not talking about those ones in Western Europe.

Wallace Macmillan - Chief Financial Officer

So, coming back to your question on corporate costs, after adjusting for the reallocation of the Croatia settlement, our corporate costs after stock-based compensation were a little over $1 million higher than we've guided to. That $1 million has really made of two or three elements. The... there's a smaller element, which is just the natural impact of FX in that quarter of the movement of the dollar against sterling, which is not part of our corporate cost that it carries. But, the largest impact actually comes from development costs and one of the most variable lines in our corporate cost arena is the cost of a... that we incur in looking at potential targets for acquisition. And this can be a combination of accounting or legal or a variety of other costs, specialist cost that we involved in that. And these tend to come out haphazardly under a little bit more of that arena also at the very back end of the year, and not at the space of my large... last guidance. Those are the two main elements of the movements of that $5 million or so will be on guidance.

David Kadarauch - Wood & Co.

Well, okay. I see, so the 36 excluding the IFRS stock option?

Wallace Macmillan - Chief Financial Officer

Absolutely, right.

David Kadarauch - Wood & Co.

Yes. Okay, thank you.

Wallace Macmillan - Chief Financial Officer

It’s very similar numbers.

David Kadarauch - Wood & Co.

Yes, very similar number. Thank you.

Operator

[Operator Instructions]. Your next question is coming from Ben Mogil of Thomas Weisel Partners. Please go ahead.

Ben Mogil - Thomas Weisel Partners

Actually, all my questions have been answered. So, I'm going to get off of the queue.

Operator

Thank you. Your next question is coming from David Ferguson of Renaissance Capital. Please go ahead.

David Ferguson - Renaissance Capital

Yes. Hi, good afternoon everyone. I also just wanted to ask about the Ukrainian market, and just generally across the television-advertising platform. What kind of price inflation did you see last year and is the market seeing this year and then with regards your own out sales in Ukraine what kind of visibility do you have? And then also just on KINO and CITI could you give a bit of color about what you think those stations or those networks will be able to deliver in terms of the EBITDA over the next couple of years?

Romana Tomasova - Director of Corporate Communications

In relation to advertising markets, we have seen a growth of about 30% last year. This is '06, '07 and in way it was slightly lower in our regional expectations, which usually Ukraine market experiences in the times of political election. We are hoping that this year will be quite stable in Ukraine where various projections, including projections of our sales callers and also independent sources give us 25% to 30% growth in '08 versus '07. The market seems to start quite strong this year. This was quite different to where we were in the first quarter of last year in particular. In relation to the smaller channels I will pass this to Adrian because, we are going through the period of assessments of all our multi-channel strategy.

Adrian Sarbu - Chief Operating Officer

As I said, answering the previous question we will restructure the whole operation in Ukraine. And our goal is to have channels with full national coverage and format, which are delivering constant ratings and keeping us in the share, which is comfortable in order to drive the market. At the end of the first quarter in the call of May we'll give you the guidance for all Ukrainian channels and for CME stations.

David Ferguson - Renaissance Capital

Okay. That's, great. Thanks, very much.

Operator

Thank you. Your next question is comes from the line of [inaudible]. Please go ahead. Tatiana your line is live. Your next question is coming from Matthew Walker of Lehman Brothers. Please go ahead.

Matthew Walker - Lehman Brothers

Thanks. I just had one quick follow-up, which is on the licensed renewal in the Ukraine, could you just give us a bit of color on what is going to get the Ukrainian media accountable to approve the nine-hour broadcast license? You mentioned the resolution passed before the end of second-quarter of '08. Because it seems logical that given as in the same station it would, I don't see what the problem is but if you could just shed some light on that that will be helpful?

Romana Tomasova - Director of Corporate Communications

We're actually talking not about extension of license; the terminology used is registration, which is significantly different because all our license is not under question. We have... we are trying to bring and to conformity the fact that we have two different licenses for different parts of the day. And we are in negotiations with the council what is the best way to do this whether to continue holding two separate licenses, the way they've been originally transferred or in fact combine two licenses into one license. So it is more of a protocol method, which we are discussing there. The bureaucratic system in Ukraine is a little bit slow that's why it's taking a little while. So we will be reporting to you within the next month from the progress of this issue

Matthew Walker - Lehman Brothers

All right. Many thanks.

Michael Garin - Chief Executive Officer

Okay, well, it seems like Matt was the last questioner. So let me on behalf of all my colleagues, thank you very much for your attention. We've been… this is the largest call that we've had and a number of people. So we thank you both for your time and as we've said next quarter we will be giving you guidance for the full year and we have also our Investor Day in New York, which is October 22nd. I hope all of you can plan in advance as many as possible to be in attendance. And thank you so much for listening, and we'll speak to you soon. Bye, bye.

Operator

Thank you. This concludes today's Central European Media Enterprise conference call. You may now disconnect and have a great day.

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