Q3 2019 Earnings Call
Hello, My name is complete I will be your conference operator today.
At this time I would like to welcome everyone to be Central European Media Enterprises third quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period at that time. If you had a question you want me to press the star followed by the one.
On your phone as a reminder, this conference call is being recorded today October 17 29 team.
It is now my pleasure to turn the floor over to Mark Cobalt head of Investor Relations at C. M E who will be our moderator today Mr. COBOL you may begin your conference.
Thank you can see good afternoon, and good morning, everyone and welcome to see Emmys third quarter 20, Nike Inc. earnings Conference call.
The earnings press release, we issued today is available on our website Simi does not along with the presentation that we refer to during the prepared remarks.
On the call today, our might've done then increased the minus co Chief Executive Officer, Subsea Me, David Sturgeon, Chief Financial Officer, Daniel Pen General Counsel.
A presentation today will contain forward looking statements.
Well results may vary materially from those expressed or implied due to various factors.
Important factors that contribute to such risks include but are not limited to the risk factors and other cautionary statements interest and she filings, including the Form 10-Q filed earlier today.
Forward looking statements speak only as of the date and we undertake no obligation to publicly update review any forward looking statements, whether as a result of new information future developments or otherwise.
During this call. We will also refer to certain financial information that is not in U.S. GAAP.
A description of these non-GAAP financial measures as well as reconciliations to the most comparable GAAP measures.
It is available on our website in the appendix to the earnings call presentation.
And this additional information May also be found in 19 to our financial statements in the Form 10-Q .
Now I will hand, the call overcome by calling for school.
Thanks, Mark and thanks to everyone for joining us on the cool and webcast.
As we head into the final months of 29 team, we have an outstanding set of results to report today.
Marking our 24th consecutive quarter of improved profitability.
Q3, sort out businesses continue to generate topline growth and increasing amounts of cash.
I guess to repay additional debt and driving further de leveraging.
In fact, it was a quarter marked by several important highlights.
Although typically a low season for advertising spending the AD markets remains generally robust across the countries in which we operate.
Check in flowback operations saw another quarter of significant growth continuing their impressive run.
Well, Romania continued its recovery with another quarter of improving topline performance driven by stronger market conditions there.
But not all growth was related to advertising.
We also saw another quarter of double digit increases in carriage fees and subscription revenues led by a 24% improvement in Slovenia, which contributed to a remarkable 10 percentage point expansion in that countries, we've done anja.
Altogether net revenue increased 7% at constant rates.
Even after considering the negative impact of FX headwinds caused by a stronger dollar.
Topline still grew in the quarter at actual rates to $139 million.
Well lower year to date costs increased slightly in third quarter.
Nonetheless, we saw a significant improvement in it would which increased 16% at actual rates and 23 person at constant rates to $41 million.
Well that businesses has seen strong margin expansion on a year to date basis.
Four or five improving significantly in the third quarter.
In fact, the consolidated OIBDA margin was 30% in Q3, nearly 400 basis points higher than the same period last year.
Well this operating leverage and level of cash conversion.
Our unlevered free cash flow in the first nine months of 2019 was $171 million an increase of 25% over the same period last year.
The combination of these factors drove the company's net leverage ratio down to two and a half times at the end of September .
One food can lower and at the start of 29 team.
In fact, we were able to repay another 50 million euros debt in the quarter, taking total debt reductions since the start of the year to 150 million euros.
And leaving just 60 million Euro outstanding on our nearest debt maturity due in 2021.
This continues at remarkable run of de leveraging and highlights the cash generative power about businesses, which have helped us repaid over half a billion dollars a dead in just the last two years.
I'd now like to hand, the cool over the course.
Thank you Mike a good afternoon, and good morning to everyone.
We saw very successful stuff before the season during the third quarter. This resulted in improved primetime audience and he took over coffee operations in the period.
Increased the gap between us and competition in Sweet segment.
Well I hope we produce crime series.
The Czech Republic food is moving up I was a big driver, but the prime time, forming.
And of our main Tim.
Perfect seasonal or locally ADESA drama see it was in Romania increased seven at the times book This year and we're also seeing great results from top independent from Subika Galleria in Slovenia.
Just have to two outperformed the TV at markets in four countries. In Q3, then I'll TV AD revenues increased by 6%.
In Romania, we saw growth of 3% in the quarter in spending has continued to normalized after the impact from the sector, Texas earlier this year.
We anticipate additional spending from these exercises in the fourth quarter will result in full year growth in our TV AD revenues from this segment.
The first nine months.
Hi, Dan CBF markets increased by 3% overall, it's concentrated well I want TV AD revenues increased the purposes.
Incredible talked to the a continued in the Czech Republic, but the market is growing 6% or revenues increased 8% from from a pricing.
In fact, we have seen strong increases in average surprise you to go a country operations this year.
This includes big area. So we grew share what average market price line.
The growth and civic <unk> included the dismissed spending from governments information company.
The topline that's improved from hot beverage season subscription revenues, which increased 11% is concentrated in this quarter. It gets it few it yes.
That's supposed to be area, we have seen double digit growth rates in three countries, mainly from from a pricing as well as overall growth in subscribers and not something so what did they wouldn't say countries.
Thanks, Chris stuff.
What results begin on slide 12 of our presentation.
In the Czech Republic, the little bit of margin expanded by 390 basis points at constant rates in the third quarter due to the growth in net revenues already discussed.
Costs increased by 3% constant rights as high licensing costs and stuff go including additional personnel to support our digital initiatives.
Were only partially offset by broadcasting will cost effective foreign programming compared to the schedule in 20 or anything.
The mountain in Romania improved by 470 basis points.
In addition to high net revenues.
Decline bundled and 4% at constant rates due primarily to decrease in content costs as we utilized fewer hours and more cost effective foreign content.
In Slovakia, the margin expanded by 790 basis points from significant top line growth.
Cost with classic constant right, that's slightly higher investment both foreign fiction and local production.
It was offset by savings in professional fees lower transmission costs.
In Bulgaria, the increase in net revenues was more than offset by higher comes and goes.
The start of the full season included more entertainment boom, that's compared to the schedule in 2018.
On such costs together with high charges related to foreign fiction.
Exceeded the savings from not continuing to broadcast now she is very successful locally produced telling about.
And our business in Slovenia, So remarkable improvement in profitability.
In addition to the growth in carriage fees cost declined by 3% primarily from lower content costs.
Due to more cost effective foreign programming being broadcast in the summer compared to the shovels last year.
With that I'll hand, the call back to Mike.
Thanks, Dave.
These outstanding results improved outlook as we head into the final months of 29 team.
Even with difficult year on year comps in this period.
The growth of 23% in Q4 2018.
We now expect to deliver we've dug growth at constant rates in the 15% to 17% range for full year 2019.
Together with a significant improvement in cash generation already realized so far we continue to believe unlevered free cash flow will increase 14% to 16% at actual rates.
This means that assuming today's rates into or through the end of 2019, those guidance levels would equate to around $245 million or the with the.
And around $180 million of Unlevered free cash flow.
And after considering cash interest payments free cash flow through the year should be around $155 million.
See me has an unrivaled competitive position in our markets and our conviction in the value of these businesses is as strong as ever.
As we continue to successfully execute on our business plan, we remain optimistic in the ability of television as a median to invest in the best content and reach audiences in this part of the world.
I previously announced strategic review is still underway, we remain focused on the best opportunity to deliver value to all shareholders.
And we do not have any further comments to make on that today.
I'll now turn things back over to Mark So that we can take your questions.
Thank you Michael we will now move the Q and a portion of the cost Kenzie. Please go ahead and open the lines for questions.
The floor is now open for questions. If you have a question at this time. Please press star one on your phone if at any point. Your question has been answered you may remove yourself from the Q by pressing the pound key we ask that while you pose your question you pick up your handset to provide optimal sound quality. Thank you and I now hand, you back to Mr.
<unk>.
Okay. Thank you. Our first question today is coming from Pablo risk, a J and Keybanc. Please.
Please go ahead Paul.
Hi, good afternoon, everybody I have three questions for you today. The first one I get it touches a bulgaria I pretty much I understand why there was this a sharp <unk> EBITDA in the third quarter. So these investments in programming are they going to continue in this volume in default.
Well, there or was it rather at one also preparation for the season and.
Profitability in Bulgaria, I should recover in the into fourth quarter.
My second question, Tuchus, Oh, Romania could you comment a little bit more on the situation day weather in your view the markets and your clients have completely recovered from the sector, Texas imposed at the beginning of the year or whether you still.
Well see some subdued so expenditures on their side, which which could continue for the rest of the year.
And the final question is concerned with the dip it doesn't so the dropped in and net leverage is pretty fast since the beginning go the year Oh point, the down and I know you said before that's if gross debt.
To EBITDA is below 2.7 defied then the company theoretically may payouts dividends. So do you think that the company will be in such a position at the end of the your so did the first dividend could be paid out of the profit off this year. So that's it thank you.
Okay. Thank you, we will start with Chris stuff on the Bulgarian or many questions I problem.
Thanks for the question who Galleria.
I said revenue growth Galleria was more than offset by higher content costs in Q3.
And your assumption is actually right before the season included more entertainment form as compared to this capital in 2018. So we do know he has got tenant, which we haven't done in the last year, which together with somehow charges related to foreign fiction exceeded the savings through 'em up continuing to broadcast losses.
The successfully locally produced cinema will also keep in mind that Q3 as it's traditionally small up theory. It's of course, so it's kind of very sensitive isn't the small numbers deviation.
So these higher costs to be consider when you look into nine mom actually told because below.
Last year.
So when you look then forward into Q4, we expect you to the ER Entertainment programs, we just have a slide higher likelihood that cost but overall.
Total cost that would be more or less in line for who carry on the floor. So that is more phasing issuances filmed entertainment. So then the specific issue.
That's something we'll have changed.
Oh on Romania first of all the up is that our TV AD revenues grew by 3% in Q3.
And to you saw that already in Q2 that we have rebound or advertising and that spending starts to normalize in Q3 as value and yeah.
Clients in the sector. So on a year to date basis, we are still below the level of 2018, but we expect that distant spending on advertising in the fourth quarter from those advertisers who were affected by sector, Texas.
Okay, all resolved and full year growth.
Television advertising revenues.
And the third question Michael.
Hello, <unk> that we've made significant progress as you as you point out on reducing our net leverage ratio.
Stands at a 2.5 times at the end of Q3.
It's less than half of what it was two years ago and down a full time since the beginning of the year.
That's net leverage if you look at gross leverage a it's about I think finished the quarter at about 2.6 times as we made another debt payment in September and had minimal cash on hand to finished the quarter.
As you're aware the trigger for the ability to two to issue dividends is 2.75 times gross leverage.
But also keep in mind that the threshold included in the Covenant must also be satisfied subsequent 20 distribution. So it has to be you know a pro forma for any distribution under 2.75 times.
<unk> look it clearly you know a few things the businesses is converting cash at a very high rate and and and as a result were de leveraging very quickly. The cognizant of the fact that that we need to articulate a plan for the utilization of that cash going forward, one where the.
Whether it is.
Rolled up in and the strategic review that remains under way and so until we have a formalize formalization of that capital allocation strategy. It's a just a little premature to discuss at this stage, whether you know that hits this year or not.
Okay. Thank you.
Thank you.
Before we take the next question Kenzie could you just remind people how to put themselves in the queue. Please.
Once again, if you do have a question you May press star one on your phone at this time.
Great. Thank you. The next question is coming from Matthew Harrigan from benchmark. Please go ahead.
Oh two questions one.
<unk> opportunities or issues.
I did rise from.
Vodafone acquiring the cable operations and.
Liberty Global and three of your market somebody might be.
More to do.
On the mobile side.
When you're negotiating contracts you're doing different a different partner there.
And then secondly, a win.
I actually secondly, or thirdly any update on your routine.
Strategy I mean, I realize the market configuration is very different than the UK.
Was there, but it's probably might be more of an opportunity than it's been a threat for you and then lastly.
Any thoughts on.
Possible value.
Actually <unk> value of the spectrum.
Active alternative in additional uses for thank you.
Okay, I will start with Michael.
Hey, Matt good to hear from you on.
On the on the first question on the on the M&A a in the region and the impact on that I mean, I I don't think that we and should anticipate any material changes in the situation in the foreseeable future. Obviously, you're right. The you know discussions going forward with a with a different set of folks.
Some of the markets, but as you know these you know the carriage agreements, we have newsprint market side typically.
Locked in for a number of years and so you know from our perspective. We are we think that you know, it's it's business as usual.
With no particular ramifications Anita.
On the alternative strategy you have enough deal.
As you know we are running.
For the last.
The Kate we will as most of it has their own approximately one so.
Oh I am I can.
We have incident was that in for Q.
He brought.
In four or five countries.
Very successfully so that is it to the except the study or even when it comes to international It says that next Netflix Amazon so others to come the businesses.
Of course, our markets a significantly different it's not too much to become like a <unk> in the U.S. So first of all.
Lets you see in the U.S. you haven't.
Hi level of cost cutting or 52 to the fact that for these kinds of services, our local and providing very likely to local program to a much cut the price.
Then what's the average cable subscription cost in that market. So that is significantly different in how am I could because the these services I don't know COO.
The I look when these days than a a without type thing and that's not to be a couple of movies you saw that isn't on the Czech Republic that Netflix localized.
And the two hikes and the these kind of as much in essence of a more or less than these products that we are very much prepared for that and we have worked a lot and further development of the C of the ultimate or platforms and there's more to come in both able at an S book.
In our markets. So I believe we are very much <unk> had.
Compete well also to cooperate in huge so as we have actually the top quality local content, which you need to have to make those.
Lets homes and offices.
Success.
And just lot Lafayette, and and quickly not the best regards to spectrum, which I think was your question, but you know unlike the you know incidences in U.S. and in some of the markets where it would cost is actually on the spectrum. That's not the case for us now markets.
Into the spectrum that we utilize is leased so to the extent that there are any you know additional uses that spectrum that would be yeah exploited by you know the on is that spectrum, but not by us.
And then actually Duesler I know is no I always ask but it's still.
On the battled through your your story more longer term or anything any.
Variances in that category activity in advertising because I'm clearly as you spoken before you got a lot of.
I answered services technology et cetera, very underdeveloped relative to.
The more mature European markets are only about the U.S. and hopefully that gives you a very long runway.
Just to give you brought up on that on descending yeah. Just to give you in the short up did on the on the trends in spending by sector. It's small it's similar to that with its unique to the retail continues to do but in the most of our countries and.
Coverage by spending a premium products in certain countries such as finance.
When you look at two country by country.
Just to give you some highlights some of that in Bulgaria, OVC retail growing it's a slow up Hayes.
As outperform moccasin FMCG and finance.
And we see some decreases in food and telcos in check clothing, plus Matthew going up from a city school, it's a it's not going down in Romania disorder, and huge increase in automotive and retailers.
And to some degree some food and beverage and and and in infill Becca and and convenience. So its public sector automotive going up in Slovenia retailers in food and beverage and and and it's who we know significant please.
You mentioned you.
Thank you Michael Thank you Crystal.
But some expense.
Okay. Thank you everyone for joining us today as a reminder, you can get updates and follow our progress and earnings call on our website Simi Dot net since we routinely post important information there about the company and its operations for also available for your feedback and additional questions anytime.
Thank you. This concludes the central European Media Enterprises third quarter 2019 earnings Conference call. Please disconnect your lines at this time and how they wonderful day.