At CME Garin Stays, Burke Goes, Numbers Are Up, Stock is Not

Michael Hedges August 7, 2006

Announcements from Central European Media Enterprises (CME) point to the ever-present challenges for television operators and their investors.

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Mike's The Man

CEO Michael Garin’s employment agreement, due to expire in January 2008, has been extended for two additional years. In a minimalist press statement CME Chairman Ronald Lauder referred to the company’s “record results over the last two and a half years” and “CME’s growth strategy over the coming years.

Clearly Garin joined CME as CEO in February 2004 with the mandate to move the company from being a Ron Lauder investment vehicle, on its own reasonably successful, into a full-fledged television operating company with money and, now, experience on its side.  Garin has presided over the company’s management restructuring and several acquisitions, none more important to Lauder than winning back TV Nova in the Czech Republic. By extending Garin’s contract well before its expiration the message to one and all – investors, competitors and employees – is “Mike’s The Man.”

That new structure – months in the making – became final with the announcement (August 3) of COO Roby Burke’s imminent departure.  Burke’s position – between Garin and the recently created regional managers – became unnecessary. And, not to forget, Burke’s employment pre-dated Garin’s. No CEO likes to have a COO with a “history” with the Chairman.

Burke’s job will be divided among CFO Wallace Macmillan, executive vice-president Marina Williams, Adriatic region director Majijan Jurenec and director for Romania, Czech Republic and Slovakia Adrian Sarbu. Williams continues overseeing CME’s Ukrainian television channels. 

In the midst of all this strategizing, financial results were released for the first half of 2006. Net loss was US$9.7 million on revenues of US$276.3 million compared with net income of US$17.5 million on revenues of US$161.4 million in the first half of 2005. Net revenues from operations in the Czech Republic and Romania were US$164.5 million (59% of total company revenue), up from US$93.4 million (48% of company revenue) in the same period on year on. No surprise that Adrian Sarbu got the big bonus.

Revenue and earnings from Ukraine operations continue to grow. The Slovenian channels also grew, but far slower. Revenues and earnings were down in Slovakia and losses continue to mount in Croatia. On top of it all the company took a US$31 million foreign exchange loss , less than expected, which pushed up net earnings.

Financial traders care not about strategies – except to know there is one. They want the money. So CME shares traded only slightly up on the NASDAQ exchange (US$57.80, up 0.43% at close of trading Friday 4 August) and lower on the Prague exchange (CZK1288, US$58.63, down 2.57% at close of trading Friday August 4). US market analysts tend to see the up side of strategy and management while Prague analysts vote pessimistically, noting the coming of digital TV in the Czech Republic and CME missing out, so far, on new digital licenses.

Nothing will happen until Chairman Ron Lauder, controlling shares and votes, makes it happen. And there’s no indication in or outside the company of that possibility. Still, by the time Mike Garin’s contract expires in 2010 something will happen.

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