Net income came at USD42.5m, up 129% y/y and 8% above market’s forecast of USD 39.3m and our USD 28.4m. Sales came at USD401m, which was above Reuters consensus. Sales were driven by a strong growth of sales at CME’s Romania and Ukraine and obviously consolidation of TV Nova for the full 4Q05. The operating income stood at USD52m, ahead of market’s consensus of USD48.2m and certainly above our expectation of USD41.7m. The difference was driven by lower depreciation of station’s assets and higher than expected EBITDA achieved at all stations. Net income was also boosted by higher than expected currency gains.
The operating results came ahead of the company’s own guidance. At the 3Q05 conference call, CME guided for TV Nova’s EBITDA at USD60m and it came at USD71.5m while other stations’ (expect for loss making Croatia) EBITDA guidance was USD95m and it came at USD102m. The difference was mainly caused by lower than expected costs at these stations and clearly suggests further upside potential.
At the conference call, the company sounded pretty confident about further 35-40% market growth in Ukraine and Romania, significantly above our forecast, better cost control at TV Markiza in Slovakia, which would also be able to realize synergies with the TV Nova after CME gained control over the station. Most importantly, CME announced a new strategy in the Czech Republic in terms of its TV ad pricing model, which assumes price increases after 7 years of price stagnation. The company expects initial weakness after the ‘shock effect’ to be recovered later in the year copying the trends CME experienced in its other countries where it went through the same exercise. As a result, CME expects a double digit growth in Czech Republic on the top line while further cost cutting at the operating level. Note that TV Nova forms c50% of CME’s valuation. Based on the results and more importantly the conference call, we are likely to revalue the company upwards.
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CME
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US GAAP consolidated
(000s USD)
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4Q/04
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4Q/05
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4Q04/4Q05
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2004A
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2005A
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2004/2005
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2005 Patria
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Cons. rts
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Sales
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65,062
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152,498
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134.4%
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182,339
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400,978
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117.0%
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395,691
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396,250
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Operating
cots
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11,151
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20,405
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83.0%
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33,615
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65,138
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98.8%
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66,815
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-
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Costs
of programming
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24,964
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53,964
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116.2%
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71,793
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148,837
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93.6%
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138,983
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-
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Corporate
costs
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8,759
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9,392
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7.2%
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29,185
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25,374
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-13.0%
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22,582
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-
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EBIT
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10,683
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42,967
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302.2%
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18,740
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52,369
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122.7%
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41,740
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48,160
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Pre-tax
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12,539
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40,161
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220.3%
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20,583
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60,369
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98.3%
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40,825
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-
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Net
income from cont.
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11,349
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29,736
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162.0%
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16,007
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43,008
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123.7%
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35,811
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-
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Net
income
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12,975
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34,599
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166.7%
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18,531
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42,495
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129.3%
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28,435
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34,150
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