Central European Media Enterprises Ltd. Q1 2008 Earnings Call Transcript

Apr.30.08 | About: Central European (CETV)

Central European Media Enterprises Ltd. (NASDAQ:CETV)

Q1 FY08 Earnings Call

April 30, 2008, 10:00 AM ET

Executives

Romana Tomasova - Director of Corporate Communications

Michael Garin - CEO

Adrian Sarbu - COO

Wallace Macmillan - CFO

Analysts

David Kestenbaum - Morgan Joseph & Co.

Gregory Kolb - Janco Partners

Ben Mogil - Thomas Weisel Partners

Matthew Walker - Lehman Brothers

Operator

Good morning. My name is Sandra, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Central European Media Enterprises First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent 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 Romana Tomasova, Director of Corporate Communications. Ma'am, you may begin your conference.

Romana Tomasova - Director of Corporate Communications

Good morning or good afternoon to each of you and welcome to CME's first quarter investor conference call. During this call, we will refer to presentation slides which you can download from our website at 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 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 the protection of the Safe Harbor contained in the US Private Securities Litigation Reform Act of 1995 and refer you to the forward-looking statements section in our Form 10-Q filed with the Securities and Exchange Commission earlier today for a list of such statements and the factors, which could cause future results to differ from those presented in this call.

During this call, we will refer to our segment financial information. These are non-US GAAP numbers. However, a reconciliation to our US GAAP numbers is provided in the note 16 to our accounts on pages 28 through 31 of our 10-Q. In the course of this call, we will also be referring to anticipated sales and EBITDA for the year to December 31st, 2008 for certain of our segments.

Segment net revenues are equal to US GAAP net revenues. We do not present a reconciliation of anticipated segment EBITDA for the year to December 31st, 2008 to an equivalent US GAAP measures because we have a significant amount of debt that is denominated in euros and consequently our net earnings are subject to currency unpredictable and potentially material foreign currency gains or losses. It would therefore be unreasonable for us to attempt to determine unexpected figure of consolidated net income forecasted for the company on a projected basis for 2008 for purposes of reconciling to the EBITDA figures that we will be referring to in this call.

And now over to Michael.

Michael Garin - Chief Executive Officer

Hello, everyone, and welcome CME's first quarter earnings call. I am delighted to report you that following a spectacular 2007 performance, 2008 is off to a strong start. We are moved to achieve another record setting year with expected revenues of $1.1 billion and broadcast Segment EBITDA of $440 million. At a time when most media companies are struggling to deliver growth, CME is again distinguishing itself from its peers by forecasting broadcast revenue growth of 30% and EBITDA growth of 36%. At the same time, we are aggressively developing our New Media businesses. And in a period of chaotic financial markets, the successful issuance of $475 million in senior convertible notes has provided us with the financial resources necessary to execute on our financial growth initiatives and continue to drive value for shareholders.

This quarter's outstanding results with revenues up 51% and segment EBITDA up 86% are particularly satisfying because they reflect the outcome of our station's efforts to shift more advertising into quarters with lower demand. This strategy enables us to maintain available inventory later in the year to satisfy the higher demand of both new and existing advertisers in the market.

We remain on track to complete the acquisition of Ukrainian minority interests sometime during the current quarter. When this is done, we will be in a position to begin the implementation of our strategy to achieve market leadership in our largest territory by the end of 2010. Adrian Sarbu will talk to you about Ukraine in a few minutes. As you will hear from Adrian, once the transition is closed, we will be providing the same sort of longer-term guidance on Ukraine as we did for both Czech Republic and Croatia. We continue to believe that our best-informed investors are best investors. And the entire team here at CME is committed to provide you with all the information we can to enable you to understand the value of company as accurately as possible.

The remarkable performance of our Croatian station NOVA TV is another hallmark of the quarter, [inaudible] station in the market with 10% audience share justly three years ago, NOVA TV has become the prime time market leader delivering more than 30% share in prime time. As a provider of Croatia's best newscast and its leading Internet destination, we plan to build on these successes to both maintain our leadership position and to deliver the profitability investors expect.

Our recent convertible bond offering completed at a time when the financial markets were in complete chaos as they still are, it's another major highlight of the first quarter. At a time when the bond markets are shut tight, CME was able to issue a bond at an interest cost of 7.2%, lowering the company's cost of capital. When the respective of our shareholders purchase of the cost spread overlay means that the bond is convertible at an 80% premium to the issue price with no dilution to them until the share prices reaches $151.20, hopefully sometime next month. So it’s a little evident on an earnings call, sorry.

And in my 13 years of the company activities, I can't recall a more successful financial transaction. It's a credit to the talent of our corporate team and our close working relationship with our investment bankers. It also ensures that CME has access to the capital necessary to fuel our ambitious growth plans in a period where not every company will have the same luxury.

I will just briefly touch on the highlights for individual countries since Adrian and Wallace will be speaking about that. Basically we have the same message for each of our markets. In Ukraine, revenues were up only 31% and EBITDA is up… only up 35%, a performance that any other broadcaster would love for. However in each of our other five countries, revenue, EBITDA or both were up over 50%.

In the Czech Republic, the continuing power of NOVA is demonstrated by the almost unbelievable revenue and EBITDA increases of 66% and 71%. The fact that in everyone of our markets, EBITDA growth exceeded revenue growth is a testament of the strength of our management teams. Our strategic expansion into radio is another important step in our efforts to continue our growth within our existing footprint while we examine opportunities in new countries within Central and Eastern Europe.

As you can see on slide seven, our online achievements are as impressive as our on air results. Our efforts on New Media continue to go well and we are now the market leader in three of our countries. As you know our goal is to become one of the top three Internet destinations in every one of our countries and our record today demonstrates that this is a realistic ambition.

Next week TV NOVA in the Czech Republic will launch a new news portal, www.tn.cz, which would significantly enhance our position in the Czech Internet market. We anticipate achieving the same leadership position in Czech as we already have in Romania, Croatia, and Slovenia. And as you can see from our guidance slide, our net investment is a negative... a negative EBITDA for this important initiative it’s only $15 million. That averages about $2.5 million per market. To reiterate that guidance for 2008, for broadcast operations, we expect revenues to grow 30%. This is in the broadcast segment of $1.88 billion and a 39% increase in EBITDA to $440 million. That means the broadcasting operating margin will slightly exceed 40%, a real tribute to our operating management team led by Adrian. For the New Media segment, we will achieve revenues of $12 million and a negative EBITDA of $15 million.

So for CME as a whole, we expect total revenue of $1.1 billion and total EBITDA of $425 million. We forecast corporate overhead to be $38 million for the year and as you will hear a bit more detail from Wallace on CapEx, which is forecasted to be $140 million.

Now over to Adrian, congratulations to you and the entire team for an incredible performance.

Adrian Sarbu - Chief Operating Officer

Good afternoon and good morning. I would like to update you on a topic that I'm personally focused on and I… now it's of key importance for all you, Ukraine. As you know, we have an agreement to buy out our minority partners and expect to close this quarter. Until we close, I am unable to discuss Ukraine guidance and future restructuring plans in much detail. We will arrange a separate conference call after closing to update you then. What I can tell you is we have a strategy for the next three years for Ukraine. The right execution will lead us to number one position in the market targeting 35% to 30% audience share and plus 35% share of the TV ad market. The operation will be a complex, multi-channel one based on our existing assets. I would like to emphasize that the two-month of this build will be accomplished in a disciplined and the efficient way following the successful models of Romania, Czech Republic, and Slovakia. We will self produce the majority of our local fiction and non-fiction entertainment, going forward, as a key element in our drive for a larger audience.

This strategy has worked for us in Romania, Czech, Slovakia, and now in Croatia where TV NOVA became number one in prime time. We will grow our New Media assets in order to achieve leadership in the sector as well.

In the meantime, we have already taken some significant steps. In agreement with our partners, we have appointed a new General Director and a News Director for Studio 1+1. The downturn of our audience is a matter of concern. Therefore, we set our programming strategy for the remainder of this year and established a new production unit to provide local entertainment programs for the fall. In the fall, we will also re-launch the news. We are working also with our sales house to establish procedures in order to achieve higher revenues. We formed a large and made up from existing members of management from our Romanian, Czech, and Slovenian operations who have been assisting their Ukrainian counterpart in department based groups since the beginning of the year. Ukraine is a priority for me and I'm working here two days per week. This experience has already given me a clear picture of the current operation and the Ukrainian market in general as well as a positive way forward.

Upon closing, we will execute our already finalized strategy which will involve a huge number of positive steps and decisions to drive the business toward the achievement of our target, to be number one in 2010. I am confident on success and I believe that we have a strong pool of resources to execute our strategy based on all we have learned from other markets in recent years and they very much look forward to updating you further in a few weeks once we close the minority acquisition.

And now it's Wallace's turn.

Wallace Macmillan - Chief Financial Officer

Thank you, Adrian. We have had an exceptional first quarter with strong revenue increases in every station. As Michael highlighted, this has been supported by a successful pricing initiative in some of our markets to encourage advertising in those seasons. This distributes advertising spending more evenly through the year, improving sell-out on those season and to freeing up peak season capacity. As a result, the excellent quarter one performance in some markets has come from advertising spending that may otherwise have occurred in Q2. So when constructing your models we would advise you as always to take the full year guidance that Michael has given.

Now I'm going to walk you through the broadcast quarter one results in all of our markets. These exclude the results of our New Media or non-broadcast operations. Starting with the Czech Republic on slide ten, TV NOVA continued to be one of our star performers with the best first quarter results in its history. Broadcast revenues in the first quarter were up 66% on the same period in 2007. Broadcast EBITDA increased 71% and broadcast EBITDA margins grew to 52%. These results underscore delivery of the results we promised you two years ago.

This is the result of the successful strategy to accelerate advertising spending. On pricing, TV NOVA is on track to deliver a 20% year-on-year CPP appreciation in 2008. Michael mentioned that TV NOVA launches its new Internet video news portal in May the 5th using Slovenian video technology and supported by NOVA's leading television news service. The site will be serviced by 120 Internet and TV journalists who are equipped to report instantly using mobile cameras.

Romania on slide 11. The Romanian advertising market continued to surge during the first quarter and our broadcast revenues were ahead of the market, up 47% compared to Q1 2007. Broadcast segment EBITDA was up 64% on the previous year generating a 41% broadcast segment EBITDA margin. Two weeks ago, we announced the acquisition of the radio PRO channels in Romania for approximately $20.6 million.

Pro FM radio is the first step of a strategic move by CME to add high-margin radio broadcast operations that offer cross-promotional synergies with our television broadcast operations and connect in collaboration with our news channels. Also our functional currency for Romania has changed from the dollar to new Romanian lei or RON.

Slovakia on slide 12, TV Markiza continued to grow audience share in the first quarter and achieved an average prime time share in the 12 plus target group of 40%. Broadcast revenues were up a huge 40% driving an EBITDA increase of 60%. The resulting broadcast EBITDA margin of 36% is up from 31% in the first quarter last year and is an outstanding performance for the first quarter. The development of local programming secures our content future and this especially fiction has been a significant driver of both the audience share growth and the exceptional financial success of TV Markiza since we obtained control of the station two years ago.

Slide 13 describes Ukraine. Our Studio 1+1 broadcast revenues grew 28% and the Q1 EBITDA loss about 20% despite the loss of audience share in the quarter. As Adrian said earlier, we will present a detailed medium term plan for our operations in Ukraine after we close the minority buyout. And this is expected to take place by the end of this second quarter.

Slide 14, Slovenia. In Slovenia, POP TV, Kanal A delivered segment revenue growth of 35% in the quarter powering a 54% broadcast segment EBITDA increase and successfully monetizing their combined 45% prime target audience share. Broadcast EBITDA margins jumped to 28%. Our Slovenian team also continued to lead the way in our New Media initiatives and contributed 74% of all non-broadcast revenues for the group.

Croatia is described on slide 15. NOVA TV broke through the audience share ceiling in the first quarter taking leadership in March in its prime time in its 18 to 49 target group. In fact as of today, NOVA TV is number one in prime time on a year-to-date basis. This phenomenal achievement is due to broad-based programming success. Leading this is the reality show The Farm produced with technical experience from Slovenia, but modified for Croatian audience. Launched on the 9th of March, and running five nights a week, this reality show regularly achieves a 40% prime time share and cause RTL to cancel Big Brother. Don't Forget the Lyrics, a music quiz show launched later in March, now routinely reach the 35% share in its weekly Monday airing. These augment other highly successful shows such as the Sitcom Crazy Confused Normal, which is a co production with Bosnian TV.

Crime and investigative magazine shows, investigation as confirmed and of course news. Our four daily news programs all perform well with our main yielding [ph] news at 7:15 taking around a 30% share, up from the mid teens a year ago. The success of our audience growth last year and in Q1 has had an impact on results. Q1 broadcast revenues were up 58% on the same period in 2007, and the broadcast EBITDA loss fell 44%. We will continue to invest in Nova TV to capitalize on this success and to maintain leadership. The station is still on target to break even in the fourth quarter, in line with projections we have been given you for the last two years.

Slide 16 summarizes our segment results for the quarter combining broadcast and non-broadcast segment results. Total segment revenues grew unprecedented 51% and total segment EBITDA let 86%. The resulting 33% segment EBITDA margin is the highest ever achieved by CME in any first quarter. Slide 17 shows our summary U.S. GAAP consolidation income statement. Operating income grew 236% against the same quarter last year to $45 million. Our net interest expense increased by 21% to $12.1 million and includes approximately $1 million of interest on our convertible notes.

Foreign exchange losses and changes in the fair value of derivatives together amounts to a charge of $27.7 million, an adverse swing of $29 million year-on-year. A foreign exchange loss of the $17.4 million are mainly due to the continued strengthening of the euro against the dollar which impacts the translation of our euro denominated senior notes. Similarly, the appreciation of the Czech crown against the dollar is the reason for the change in the fair value of derivatives, an adverse swing of $10.3 million in the quarter.

We recognized a tax credit of $10.3 million this quarter compared with charge, a $5.1 million for the same period last year. This is a result of our recording of credit of $19.3 million relating to movements in foreign exchange rates on inter-company loans, and as a corresponding charge recognized in other comprehensive income. Without that credit, our tax charge would have been $9 million, which represents an effective tax rate of approximately 21% on our station operations.

Slide 18 shows our consolidated balance sheet. Net debt at 31st of March stood at $554 million compared to $476 million at the end of December 2007. Our debt includes $475 million of the 3.5% convertible notes issued on March the 10th. These will be accounted for as traditional debt of an interest charge of the 3.5% coupon, as well as a charge for the amortization of the insurance costs. The capped call options we purchased on the same date have been recognized within shareholders equity as the fair value issuance and no changes in that value are expected to be recognized in our P&L in the future.

Our cash flow is shown on slide 19. The summary cash flow shows that our cash generated from operating activities jumped from $32 million to $84 million in the quarter. Financing close reflect the net cash received from our convertible offering and the capped call purchased last month.

It is something of a credit to the reputation of CME that we were able to succeed with this offering in current market. In an environment where high yield is simply not available we managed to build something almost equivalent. As Michael highlighted, due to the cost spread overlay, we're in a position to protect our investors from dilution until the share price exceeds $151.2. And if we add the cost of the call spread to convertible coupon, we have raised a net $400 million at an effective interest cost of 7.2%. This compares to the 7.5% weighted average cost of our debt prior to the issue. As a result of this, we have a very robust balance sheet. Our low leverage means that even after non commitments, Ukraine buyout, our leverage will not exceed three times. We have sufficient resources to meet our future development needs while being able to keep the cost of business to a minimum by using the structure of our revolving facilities. This strength is reflected in the credit rating upgrades that were given by Moody's last month from Ba3 to Ba2 and the upgrade that S&P gave to our senior notes last week from double-'B'-minus to double-'B', a rating that also applied to our convertible notes.

As Michael mentioned, we expect to spend about $140 million on CapEx this year. Most of the increase in this guidance is due to foreign exchange movements over the last three months. Over half of our projected investments this year is in CapEx related to lifecycle replacement and technology upgrades in the areas of production, including news production and in play-out in processing equipment. This comprises technical equipment such as outside broadcasting van, master control room equipment with series multi-channel capacity, cameras and HD technology. This leverages our leadership position as state-of-the-art equipment gives us competitive advantage in on-air quality and processing efficiency today, and increases operating efficiency and supports future development.

About a third of the total investment will be in buildings, many production-related as we move from rent ownership to studio premises. It is strategically important for us to control these assets and also this is cheaper in the long run. These large infrastructure projects, which started last year, will run through 2009. After that we expect a reversion to maintenance level CapEx.

And now back to Michael.

Michael Garin - Chief Executive Officer

Thank you, Wallace. As that you've heard from everyone, there is little I can add to such a wonderful report. Before we open up the call for questions, I would like to end with a personal observation. As CME is growing, so is this market capitalization and liquidity. With increased liquidity comes the opportunity for short sellers to attack our stock. There is nothing wrong with this. Since professional investors are paid to make money when stocks go up as well as when they go down. My only problem is when short sellers try to drive the stock down by disseminating false rumors. Increasingly, we're hearing these rumors. [inaudible] reports of bogus deals, ones we've never even considered that will require highly dilutive financing, unrealistic CapEx forecast for Ukraine, Croatia in the timeframe, we are showing results there. And the fact that our advertising revenues have already been dragged down as a result of the forecast of weak economies in our region which obviously is untrue and we are guiding to revenue growth of 30%.

This is the best first quarter earnings call in which I participated since I became CEO back in 2004. On each, we provided investors with reliable guidance for the coming year and we've done so again today. In 2008, CME will once again be one of the fastest growing media companies in the world. Following the close of the Ukraine minority buyout, we will also provide you with the same type of longer-term outlook for Ukraine that we gave you for Czech and Croatia. I would suggest that when you hear something about CME that doesn't seem to make sense, you should assume that it doesn't until you check with us.

Our financial disciplines are well known and well appreciated. There is no reason to think they might change. Our policy of keeping investors well informed also remains in place. If we are allowed to comment on something we're happy to do so. You should also always feel free to contact Romana, Wallace or me as many of you have done in the past. We want our investors to make money the old-fashioned way by holding a growing company, rising in value with superior performance. Now, we're ready to answer your questions. Well, I turn it back to you operator.

Question and Answer

Thank you. [Operator Instructions]. Your first question comes from David Kestenbaum of Morgan Joseph.

David Kestenbaum - Morgan Joseph & Co.

Okay, thanks. Great quarter and tough day for the shots, I guess. On this, on the New Media side, you guys did towards $12 million for the year. During the first quarter, about... over 70% of your revenue was in Slovenia, how do you see that kind of breaking up as we go through the year, I know you don't want to give exact numbers, but I mean will we get more diversified revenue mix from the New Media side and when will we start the Internet process going in Ukraine too?

Michael Garin - Chief Executive Officer

David, let me take that one. Good afternoon, good morning, you’re in fact in the U.S. The Internet project that we have described to you in rough terms in the past, well we're moving into monetization stages successively in each of the different markets, but it will take some period of time before serious monetization occurs. And as we said, I think on an earlier call, we are looking for effectively moving to an EBITDA breakeven in two or three years time than an out period. What we're doing just now is we are investing in building a strong assets, which we now is going to be growing with great value in the future. In terms of the developments of this year, and I would imagine that the bulk of the revenues are still going to be coming from Slovenia in terms of the single largest revenue provider, but as we move forward, we're experimenting increasingly with developing revenue streams in each of our markets. But, this is an early step in a very strong and very important process for us.

David Kestenbaum - Morgan Joseph & Co.

Okay. So, I mean, do you expect the similar type of mix for the year as you achieved in the first quarter or you expect that mix to change?

Michael Garin - Chief Executive Officer

We're not going to start giving guidance by station Internet revenues, I’m afraid, Dave, but just have a look to the total number and talk more about as the year develops.

David Kestenbaum - Morgan Joseph & Co.

Okay. And how about the Internet strategy in Ukraine?

Michael Garin - Chief Executive Officer

The Internet strategy in Ukraine is in existence. We have a team there, which is fully reluctant to the rest of our teams across our markets and is involving, incorporating a lot of the same technologies that we're using elsewhere. It’s an earlier stage in terms of broadband penetration, but the team is certainly in place and the developments are in progress.

Adrian Sarbu - Chief Operating Officer

David, this Adrian. As you know, as you could notice, on a short period of time, we achieved leadership in three markets. We plan to achieve leadership in other two markets in the next year, and Ukraine is coming very strong but again allow us to give you more detail when... after we close.

David Kestenbaum - Morgan Joseph & Co.

Okay. And you obviously… you talked about the financing you did there in this quarter. It’s still even after the deal in Ukraine seeing a lot of cash. Can you talk about what is the uses could be for that cash?

Adrian Sarbu - Chief Operating Officer

Well, I would say that the purpose of the financing was not tied specifically to an individual transaction. I got a... well, we received a turn sheet from one of the big money centers banks when we were looking at term loans which was the most appropriate form of financing for us. And we got a term sheet that was designed for the bank to be on a conference call like this with its investors and say, of course we are open for business, we give out term sheets everyday. We gave out 120 term sheets, but it was a term sheet that was absolutely calculated to be rejected. I think interest rate was over 11%, there were covenants that were unbelievable, and they wanted a contractual right to lead the take out when they are principally a commercial bank. And at that point, I think all of us realized how serious the financial crisis was because these guys now have a clue what’s that on the balance sheet and they basically didn't want to engage in any new loans. And so I thought it was my responsibility. I have been around long enough, have seen the market shift for at least four times for 18 months since [inaudible] went public in 1980. And so really, David, this money is intended to ensure that almost regardless of how long the financial markets remain close than. I had dinner last night with the Vice Chairman of one of the largest investment banks in the world, and I think I can stay close for a while. We are going to be in great shape because we have the liquidity and resources to fuel our growth. So it's not really tied to a specific transaction as it is to have the availability to take advantage of our plans both in Ukraine and elsewhere as they evolve.

David Kestenbaum - Morgan Joseph & Co.

Okay, thanks.

Operator

Thank you. Your next question comes from Gregory Kolb of Janco Partners.

Gregory Kolb - Janco Partners

Hi, good numbers. Thanks for taking the question. I have two questions; I think the first one is for Wallace. Just to make sure I understand this right, for the first quarter you guys have revenue growth of 51% and guidance is for $1.1 billion which is about 30%, is that roughly a reflection of the fact that you're working on smoothing out the revenue mix and then you get a higher jump in the first quarter?

Wallace Macmillan - Chief Financial Officer

That’s exactly right. It simply remains that the normal phasing of revenues has started in total of this year.

Gregory Kolb - Janco Partners

Okay, great. Thank you. And then secondly, just in Romania, it looks like based on my numbers in pricing strength, it looked like it had pretty unbelievable pricing strength even with radiance, flat to down a little bit, if one of you could give a little more color on Romania?

Michael Garin - Chief Executive Officer

Here is the result of a long-term planned and executing strategy to appreciate the prices in the market and this was down initially just by us about with years-by-years followed by our partners, so we succeeded this year to appreciate our CPP with more than 50%.

Gregory Kolb - Janco Partners

Great. Thank you.

Michael Garin - Chief Executive Officer

The result is not a fiction, it's a reality and it's based on long-term strategy well executed. And for sure, there is a momentum and the market as moving ahead.

Gregory Kolb - Janco Partners

Sure.

Michael Garin - Chief Executive Officer

Because the same always in Czech Republic, you remember, you had questions about our ability to push prices up in Czech Republic when 2004 and 2005 the prices were almost flat. So, we did it and this year we will achieve the more than 20% CPP increase in Czech Republic.

Gregory Kolb - Janco Partners

Thank you.

Operator

Thank you. Your next question comes from Ben Mogil of Thomas Weisel Partners.

Ben Mogil - Thomas Weisel Partners

Hi, guys. Good morning. So, a question for you, first question is on the currency impacts, can you give us a sense of how large the currency impact was in terms of revenues? So, if currencies were sort of stable, what the U.S. dollar impact was just because of the dollar depreciating? And then, I think the second question is probably more for Adrian, the new measurement system that’s being rolled out by the rating agencies in the Ukraine, can you give us a sense of how you're seeing advertisers being sort of accepting of the new measurement system?

Wallace Macmillan - Chief Financial Officer

Let me take your first question, Ben, and first of all, let me direct you to slide 16 in our slight deck which is on the... on our website, I don't know if you've in front of you, but that shows what each of our markets, for both revenues and EBITDA, what our dollar growth was and also what our local currency growth was. And it's sometimes difficult to get an exact like-for-like across all of our markets. But, by my rapt in radio reckoning, I think that the underlying revenue growth on a currency like-for-like basis is around 31%.

Ben Mogil - Thomas Weisel Partners

Okay. So same currency was about 31% or so?

Wallace Macmillan - Chief Financial Officer

The underlying growth is around 31%, currency adding the remaining 20%.

Ben Mogil - Thomas Weisel Partners

Yes, okay. That's sounds great, and that's kind of what I was looking for. Thank you. And in terms of the measurement system, I guess that is more of an Adrian question.

Adrian Sarbu - Chief Operating Officer

Yes, Ben, thank you for the question. The measurement system is in a testing gear. In fact, they were communicated to so called panels, over 50,000 inhabitant cities, which is the so-called old panels, and all Ukraine, which is the so-called new panel. We expect to, as normal, the old panel to prevail and to be accepted by all our partners. In the new panel, our performance is 30% higher in ratings. This is a process, which we are running together with the partners, competitors in the market, then we expect the new panels to be accepted until the end of this year.

Ben Mogil - Thomas Weisel Partners

Great, thank you. And while I have got the floor, just one last question, I think it’s [inaudible] right to take a $140 million of the purchase price for his stake in stock. Can you give us a sense of what the valuation for that stock is based on, is it sort of a trailing 30-month volume weighted average, is it sort of a spot? Can you give us a sense of... if you sort of close this deal, say, at the end of June, what the timeframe we should be looking at in terms of coming up with that stock valuation?

Wallace Macmillan - Chief Financial Officer

It's a 15-day weighted average trading price before trigger the closing when we are set to close; we just look back 15 days.

Ben Mogil - Thomas Weisel Partners

Great. And I am assuming that we’ve, you’re not going to at least give us a sense of any indications of whether he’s going to be taking cash or stock yet?

Wallace Macmillan - Chief Financial Officer

We don't know. I mean, the way we does business, it’s the less of 4% or 5% or $140 million, and $140 million as the lower number. He still has the option of electing to take shares. So there is uncertainty [inaudible].

Ben Mogil - Thomas Weisel Partners

Okay, great. Thanks a lot and congratulations on a great quarter.

Operator

Thank you. [Operator Instructions]. Your next question comes from Matthew Walker of Lehman Brothers.

Matthew Walker - Lehman Brothers

Hi, good afternoon. I just have a few questions actually. First of all, can you just guarantee a bit more why the revenues have been phased or pull forward into Q1 and how exactly that worked? Second question is on why actually is the Romanian functional currency change to the local currency and what impact do you think that's going to have going forward? And then a few sort of technical questions on '09, what is the '09 CapEx? I mean you talked about maintenance CapEx in 2010, if you can give us a level for CapEx in '09 and also what you consider to be maintenance CapEx, that will be helpful, because I think a kind of less attractive on that to be on a... and then also on the interest charge, what do you expect your full year interest charge to be and how are you going to treat the fees from the converts and also are you going to amortize on how you're going to treat the money that you paid for the auction that will be very helpful. Thanks.

Michael Garin - Chief Executive Officer

Matthew, can you repeat the question number one, please?

Matthew Walker - Lehman Brothers

Yes, it is on the pull forward of, Wallace mentioned the revenues were weighted very much towards the first quarter this year and you mentioned that there have been some sort of pull forward effect from Q2 so, they modeled Q2 being a high revenue growth as Q1. Prices remain what has caused this pull forward, that's all.

Wallace Macmillan - Chief Financial Officer

Matthew, that's very straightforward and as you will appreciate, with the cyclical nature of our business, we end up with much higher sell out rates traditionally in the second and the fourth quarter when every inventory tends to be at a premium, and much lower sell out rates in the first and the third quarters. In order to use our inventory more efficiently and ultimately to capitalize best on it, we have been trying to put incentives in place in some of our markets to try and encourage advertisers to spread some of their spending more evenly through the year. This will in time free up some of the inventory pressure points in our peak quarters and enable us to use inventory that we otherwise will not able to sell or buy encouraging higher sell-out rates in the lower quarters. On the implementation of that, of course it does distort slightly the… has a potential to distort the normal seasonal peaks and troughs. The peaks and troughs will remain there, but they may be less pronounced going forward, and that's why I'm talking about the potential that some future revenues may in some markets have been put forward to Q1. But, this is the first year that we have been really attempting to do this, and therefore we have to wait and see what the impact if any of that is. And your next question...

Matthew Walker - Lehman Brothers

Sorry, this was sort of, how impact that... what sort of incentives that you've given or how does it work?

Adrian Sarbu - Chief Operating Officer

It's fair to say Matthew that the advertising agencies, the media buying agencies acting on behalf of the advertisers are looking to optimize their cost per point. So, once they understood that the recent value to be delivered is in so-called low seasons like first quarter and the third quarter, they decided to move some spending there. So, in fact the incentive has allowed us. I want also to emphasize the benefit which we get in the so-called high peak seasons, we have stations which are heavily, heavily under the burden of high sell-out ratio and this is not negative for the whole perception of the station of the branding in front of that audience, but also it’s directly impacting the rating of the breaks. The agencies are measuring the rating of the breaks and we are selling the advertising according to the rating of the breaks. In the case of high sell-out ratio, the rating of the break is some times 30 plus percent lower than the rating of the program. What they’re looking to and that's what we are doing in the markets where we can control these process is to make these drop lower. So the value, which we’ll get for each spot, will increase in high season. So at the end of the day, it's also an advantage for us, and this was done deliberately by us. Don't forget we cannot afford not to stop, not to spend on programming in the quarter first and then third, and also with all the ability of ours to control the cost. There is a cost in this quarter. So for us, the fact that the advertising spending is migrating from higher season to lower season, it's a double benefit.

Wallace Macmillan - Chief Financial Officer

Matthew, let me take up the remaining questions that you put. I think the second question was about Romanian functional currency moving to the RON and that simply is an accounting process where we carry out evaluation of in each of our market, not just Romania of the... what is the real trading currency which is most appropriate to use for that market. It depends in part on what currency sold and what is bought in, what are wages and so paid in, how does management start to think about that business. And over a period of time, the Romania has moved from a market, which was very much dollar denominated because in the old days when the currency was unstable that was the basis for most transactions and increasingly that has moved step-by-step towards being more RON denominated. And so it's simply a matter of costing that watershed and the normal accounting evaluation to determine that it should move into a RON accounting basis. In terms of impact, I wouldn't anticipate any dramatic impact because ultimately local numbers whether for transactions originated in dollars or in RON, but as I say increasingly in RON over previous periods have in any case to be translated into U.S. dollars, and it is now you will simply see it coming through specific numbers in a slightly different way. So I don't think there is an underlying impact that should be either positive or negative to our results. The 2009 CapEx I think was your next question. We haven't given guidance for 2009 CapEx, but I think that you should work on the basis that it should be around possibly even marginally higher than current year's CapEx, and we'll give you closer guidance on that towards the end of the year. You’ve asked those about maintenance level CapEx going from 2010 onwards. And it's always ready because our CapEx as you know is very much impacted simply by foreign exchange rates. The main reason for the increase in our guidance this year from the guidance that I gave you a couple of months ago is the cause of the FX movements that we have been happening. But, I think that based on currency exchange rates, it’s a rule of thumb from modeling, you could work around $70 million figure. I have forgotten what your next question was. Please remind me, I do apologize.

Matthew Walker - Lehman Brothers

They were write-down, it was about the interest chare and also what's the level of interest charge, where you’re going to account the fees of the convert transaction and are you going to amortize the cost of the option or how you're going to treat in the P&L or in account, the cost of $60 million that you paid for the option?

Wallace Macmillan - Chief Financial Officer

Sure, going back to front, a very Scottish way of doing things the $60 million option has landed with an equity, and we're not changing the P&L impact because we expect the P&L impact as we go forward. The interest charge for modeling I would simply take as really from last year's interest charge, deduct the one-time $7 million cost that we had for the retirements of our earlier operating rate notes and add to it the annual convergent risks which on an annual basis should be about $16.6 million annually. And yes, the convert costs will be amortized through the P&L… through the interest line in the P&L.

Matthew Walker - Lehman Brothers

Is that $10 million, and roughly $10 million?

Wallace Macmillan - Chief Financial Officer

It's about $10.5 million. It's not amortized on a straight-line basis, but it will over the five-year line go through on a receiving balance basis through the P&L.

Matthew Walker - Lehman Brothers

Okay. It’s done on a $10.5 million over a five-year?

Wallace Macmillan - Chief Financial Officer

Yes. But, the balance is not a straight number each year. It's a variable number each year because of the interest equivalent cost. But, it will flow through in terms of through the five-year period through the P&L. So start to offer it by dividing it by five, it's going to be a easiest way of modeling.

Matthew Walker - Lehman Brothers

Thank you very much.

Wallace Macmillan - Chief Financial Officer

Pleasure.

Operator

Thank you. [Operator Instructions]. Your next question comes from Andrew Gunlock [ph] of ABS.

Unidentified Analyst

Andrew Gunlock from One Advisor [ph]. Congratulations on your impressive numbers, I've have a big picture question, mostly for Adrian. Do you see continued pricing wars in the subscription television businesses which are stimulating demand, stimulating viewer ship, stimulating boxes, if you will, that will continue to add to your growth not only this year, but in future years.

Adrian Sarbu - Chief Operating Officer

We see and we encourage it.

Unidentified Analyst

Sorry.

Adrian Sarbu - Chief Operating Officer

We see and we encourage it.

Unidentified Analyst

Right and can you specifically, so you continue to see no change, can you address the countries and how it's affecting you and how it's helping you?

Adrian Sarbu - Chief Operating Officer

It's just the benefits for us. We get more exposure. Our carrier, the DTH operators, the cable operators, the digital cable operators, the IPTV and the others are spending in marketing to promote our content and for us it's perfect. It’s higher penetration, and it's a secured audience, which we secured the penetration, which we can within our business plan. And for sure, the fact that price per subscription decreases, it's at the end of the day, a good, a good signal for the advertisers.

Unidentified Analyst

Great, thank you.

Operator

Thank you. Your next question comes from John Healy [ph] of Forest Investment Management [ph].

Unidentified Analyst

Hi, terrific quarter. Are you still seeing the same ad revenue mix with a higher percentage coming from the likes of consumer staples as opposed to the U.S. where a fairly high percentage is political?

Michael Garin - Chief Executive Officer

The answer is yes. The possible exception from time to time in Ukraine, which is the only market where we get significant political advertising. In most of our markets, the advertising, the slide of this on investor presentation which you may have seen it on our website. Most of our advertising comes from staple goods from soaps and household products and so on. We do see a steadily increasing move over time to work higher end goods especially banking products and entertainment products. But, the only market where we have little advertising of any consequence at all is Ukraine and the... we had obviously a significant amount last year due to the major elections that we had in at the end of September last year.

Unidentified Analyst

Okay, thank you. Just one more question. I read about this in your bond-offering document, but is there anything to report in new developments on license renewals?

Michael Garin - Chief Executive Officer

The answer is no. Our licenses are always renewed on time or always have been renewed on time, and we have with the exception of some of our local licenses in Romania, which gets renewed, regularly on a regular basis. The licenses have got some period to run.

Unidentified Analyst

Okay, thank you. Again great quarter.

Michael Garin - Chief Executive Officer

Thank you.

Wallace Macmillan - Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Avalon Tuley [ph] of Alliance Bernstein.

Unidentified Analyst

Hello, can you give us an idea of what percentage of the revenue growth can be attributable to the fact that you gave advertisers incentives to advertise or to spread the advertisements over the year?

Michael Garin - Chief Executive Officer

I am afraid that we can't. We don't actually know the specific figure for ourselves yet and what's going to be interesting for us is to see to what extent this has taken that… to what extent if any the growth in Q1 has come at the expense of what we are expecting for Q2. So, we still have to see part of that coming through. So, I am afraid there isn't the straightforward figure, I can give you for that.

Unidentified Analyst

I mean, is it a concern that it will all affect your Q2 budget in terms of what you budgeted or targeted for Q2?

Wallace Macmillan - Chief Financial Officer

No, because we managed for an annual figure and that's why we always direct you to trying to observe full year guidance. It would really been mistaken to try and manage on a quarterly revenue versus cost basis. You would find modeling of that very difficult. I find modeling of that quite hard and, I'll get this information sources. So, please just concentrate on the full year guidance that Michael gave you.

Unidentified Analyst

Okay. And can you confirm that you said that the currency impact on your revenue was about 20%.

Wallace Macmillan - Chief Financial Officer

Yes. My rule of thumb measurement is that of the 51% revenue increase that we had in the first quarter, about 31% of that came from the underlying business and about 21% came from the year-on-year mix of currency movements across our markets.

Unidentified Analyst

And that, does this exclude, so obviously the benefits you got from lower costs of sales, I mean, that this is aside from the benefits of lower cost of sales, I presume a lot of your content is priced on dollars and you benefit to there too?

Wallace Macmillan - Chief Financial Officer

Some of our content is priced in dollars. Certainly the stuff that we buy from US studios or from Russian program we buy in Ukraine, but increasingly a lot of our cost of content is locally produced and is priced in European currencies.

Unidentified Analyst

Can you give us some kind of worth of what's kind of dollar denominated and what's local or European?

Wallace Macmillan - Chief Financial Officer

I don't illustrate it off the cost that, if you wish I can look something up later on if you can gave me call after this earnings call and I’m happy to talk to the mix of our currency exposures with you.

Unidentified Analyst

Okay, okay, thank you.

Wallace Macmillan - Chief Financial Officer

Welcome.

Operator

Thank you. Your next question is a follow-up coming from Ben Mogil of Thomas Weisel Partner.

Ben Mogil - Thomas Weisel Partners

Hi, guys. So, one quick follow-up, obviously a lot of discussion on the impact of sort of potentially pulling forwards some to Q2. I mean we are now at the end of April and obviously you have got some visibility into May. So we're obviously part way almost half way through the quarter, if you will, can you give us a sense to just generally, how you're actually seeing the quarter shape up in terms of that pull forward? I mean are you sort of seeing similar growth rates in Q2 so far as you did in Q1?

Michael Garin - Chief Executive Officer

Ben, this is Michael. I'm going to address this. As you heard earlier on, we provide annual guidance and we don't comment on our quarters. We've given you our numbers for the year and that's what you should use for building your model. And this has been a policy that we've had since before I came in, it's going to continue after I leave. So, I appreciate why you're asking the question, but we really just focus on explaining the quarter that we are having the call for and reiterating or changing the guidance for the full-year if it's appropriate.

Ben Mogil - Thomas Weisel Partners

Okay. That sounds very helpful. Thank you, Michael.

Michael Garin - Chief Executive Officer

Okay, Ben.

Operator

Thank you. At this time, I would like to turn the floor back to Michael Garin for any closing comments.

Michael Garin - Chief Executive Officer

Thank you all. It was a great quarter and we're all as you can tell delighted about it. The only last comment that made which is one I've made several times in other forum is to remind you that this year our Investor Day will be back in the United States. It will be held on October 23rd in New York City. There is information already on our website, you can register to attend, and we will look forward to seeing as many of you there as possible. Thank you very much for your patience for joining the call. We had the largest number of attendees, 116 that we've had. And we thank you for your interest and your attention, and have a good day. Bye, bye.

Operator

Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day.

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