Ailing broadcaster CME looks to Time Warner for capital boost

Reuters

* Sees negative free cash flow in 2013

* U.S. media group has been strengthening hold on CME

* CME shares fall 50 percent in Prague

By Jason Hovet

PRAGUE, Oct 30 (Reuters) - Loss-making broadcaster CentralEuropean Media Enterprises (CME) said onWednesday it needed more money to stay afloat and was trying tosecure 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 thetoughest period in its two-decade existence after many customersrejected a higher pricing strategy meant to regain income lostin 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, itstop market which made up a third of group revenue last year.

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

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

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

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

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

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

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

"Due to the level of negative free cash flow anticipated for2013, we will need additional capital and we are currentlyevaluating all options available to us, including debt andequity financing, asset sales and the renegotiation of paymentobligations 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 millionat the end of September, down from over $1 billion in March.

Patria Finance analyst Tomas Tomcany said Time Warner hadinvested too much in CME to walk away easily. "Certainly it isin their interests that the company continues operations, so thehope 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 beforedepreciation and amortisation (OIBDA).

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

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

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