Central European Media Ltd., the east European broadcaster partially owned by Time Warner Inc., said it needed new financing or it would be unable to service debt and pay for operations sometime in the next year.
The broadcaster will need additional capital due to the level of negative free cash flow expected for 2013, it said in a regulatory filing today. It is in talks with Time Warner about a possible capital increase and is looking at other options including debt and equity financing, asset sales and renegotiations of payments to suppliers, the company said.
“If we’re unable to secure additional financing, we will be unable to meet our debt service obligations and generally fund operations sometime within the next 12 months,” the Hamilton, Bermuda-based company said in the filing. Talks with Time Warner on a possible capital transaction are “preliminary” and there are no assurances regarding the outcome, it said.
CME, which operates in the Czech Republic and five other eastern European states, raised ad prices and fees in most of its markets this year to reverse declining TV revenue and ad spending under the helm of former Chief Executive Officer Adrian Sarbu. It also began selling shares and cutting costs to reduce debt and improve its liquidity.
Central European Media fell 27.0 koruna, or 23 percent, to 95.85 koruna as of 12:49 pm in Prague trading, the biggest drop since August 2011, based on intra-day prices.
Sarbu’s replacements, co-CEOs Christoph Mainusch and Michael Del Nin, said the company’s level of performance was “unacceptable” and the improvement of its Czech TV Nova operation was the “top” priority.
CME’s results were “considerably” disappointing on the operational level and the market was negatively surprised by the cut in the outlook, J&T Banka AS analyst Pavel Ryska said by phone.
The warnings suggest it’s highly probable CME will have to issue new shares for additional financing, which is very negative news for the market, said Ryska, who had a “hold” recommendation on the stock under review.
CME said the operating loss before depreciation and amortization for the three months ended Sept. 30 was $32.4 million, after income of $3.5 million a year earlier. Net revenue fell 3 percent to $135.8 million, it said.
“Christoph and I find this level of performance unacceptable and have directed all of our energy since starting with CME a few weeks ago to addressing the major reasons for these financial results and making changes to improve them going forward,” Del Nin said in the statement.
“Improving the performance of our Czech operations is the top priority,” Mainusch added.
CME cut its full-year Oibda outlook to a loss of between $40 million and $30 million, reflecting lower expectations for operations in the Czech Republic and Slovakia and higher restructuring and severance costs, it said. It foresees 2013 revenue of between $640 and $650 million.
Sarbu stepped down on Aug. 21. Mainusch and Del Nin changed most of the top managers within the company, including Jan Andrusko, the head of Czech channel TV Nova.
CME expects negative free cash flow of approximately $140 million for 2013 and forecasts a cash balance of approximately $60 million.
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