Ailing broadcaster CME looks to Time Warner for capital boost

PRAGUE Wed Oct 30, 2013 12:17pm EDT

PRAGUE (Reuters) - Loss-making broadcaster Central European Media Enterprises (CME) said on Wednesday it needed more money to stay afloat and was trying to secure extra financing from its main shareholder, Time Warner.

Shares of CME, 49.9 percent owned by the U.S. media group, fell 50 percent in Prague to a near record low.

The central European broadcaster is struggling through the toughest period in its two-decade existence after many customers rejected a higher pricing strategy meant to regain income lost in a slumping TV advertising market.

CME said it did not expect to make a core profit in 2013, blaming a weaker outlook in Slovakia and the Czech Republic, its top market which made up a third of group revenue last year.

Time Warner has been strengthening its hold on CME, which was founded by billionaire Ronald Lauder in 1994. The U.S. group bought into CME in 2009 and gave it a cash injection in 2012. It also bought up nearly half of a share issue in 2013 and purchased $200 million in preferred CME stock.

The company has lost ground to its main Czech competitor, TV channel Prima, owned by Sweden's Modern Times Group, which has seen sales rise this year, benefit ting from CME's push to raise prices.

CME said its Czech revenue in 2013 would be significantly below last year and that 2014 would not match 2012's levels.

Co-Chief Executive Christoph Mainusch, who along with Time Warner executive Michael Del Nin led CME after its veteran chief executive quit in August, said the Czech business was a priority and a task was to simplify its pricing policy.

"One of our major tasks is to rebuild the trust ... and revive the long-term relationships with agencies and advertisers to build on the price levels that we have achieved with moderate price increases in 2014," he said.

CME said that there was no certainty that preliminary discussions with Time Warner on a possible capital transaction, including debt, would come to anything. It forecast negative free cash flow of $140 million for the full-year 2013.

"If we are unable to secure additional financing, we will be unable to meet our debt service obligations and generally fund our operations sometime within the next 12 months," it said.

"Due to the level of negative free cash flow anticipated for 2013, we will need additional capital and we are currently evaluating all options available to us, including debt and equity financing, asset sales and the renegotiation of payment obligations with a number of major suppliers," CME added.

CUTS OUTLOOK

CME, which also operates television stations in Romania, Bulgaria, Croatia and Slovenia, had net debt of $839.5 million at the end of September, down from over $1 billion in March.

Patria Finance analyst Tomas Tomcany said Time Warner had invested too much in CME to walk away easily. "Certainly it is in their interests that the company continues operations, so the hope for some kind of a deal is realistic," he said.

CME cut its forecast for full-year 2013 revenue to between $640-$650 million. It also said it expected a loss of between $30-40 million on the level of operating income before depreciation and amortization (OIBDA).

It previously expected 2013 revenue of $700-$720 million and positive OIBDA of $50-$70 million.

Third-quarter revenue fell 3 percent to $135.8 million, and CME's OIBDA loss was $32.4 million.

(Additional reporting by Jan Korselt; editing by Tom Pfeiffer and David Evans)