M ORGAN J OSEPH EQUITY RESEARCH. Central European Media Enterprises. Must CE TV; Initiating Coverage with a Buy (1) Rating

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1 . M ORGAN J OSEPH Central European Media Enterprises NASDAQ: CETV- $49.14 November 7, 2005 Must CE TV; Initiating Coverage with a Buy (1) Rating Key Data EPS 12/ A 2005E 2006E Price (as of 11/04/05) $ Q $0.18 ($0.29)A $ Week Range $58.17-$ Q $0.20 $0.79A $0.95 Shares Outstanding (mm) Q ($0.22) ($0.17)A $0.00 Market Cap (bn) $1.9 4Q $0.39 $0.66E $ Mo. Average Daily Volume 157,535 Year $0.55 $0.99E $2.75 Institutional Ownership 35.3% P/E 89.3x 49.6x 17.9x Fiscal Year-end December Revenues ($mm) Debt/Total Capital (9/05) 41.2% 1Q $35.8 $48.3A $121.8 ROE (9/05) NM 2Q $44.9 $113.1A $164.4 Book Value/Share (9/05) $ Q $36.5 $87.1A $111.4 Price/Book Value 2.9x 4Q $65.1 $156.5E $214.3 Year $182.3 $405.0E $611.9 EQUITY RESEARCH SATELLITE, CABLE & BROADCASTING David Kestenbaum DKESTENBAUM@MORGANJOSEPH.COM Central European Media Enterprises Stock Price Performance $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $ /4/04 1/4/05 3/4/05 5/4/05 7/4/05 9/4/05 11/4/05 Source: Yahoo! Company Description: Central European Media Enterprises ( and its partners broadcast television to 90mm viewers in six Eastern European countries from its ten stations. CETV operates NOVA TV in Croatia, TV Nova in the Czech Republic, PRO TV, Acasa and PRO CINEMA in Romania, Markiza TV in the Slovak Republic, Galaxie Sport in the Czech Republic and the Slovak Republic, POP TV and Kanal A in Slovenia and Studio 1+1 in Ukraine. The Disclosure section may be found on the last page of this report. The Valuation page may be found on page 5. Investment Highlights We are initiating coverage of Central European Media Enterprises (CETV) with a Buy (1) rating and $63 target price. In our opinion, this emerging-market broadcaster must execute on three strategies to prosper: 1) continue to rapidly grow existing stations revenues and margins; 2) increase its ownership stake in current properties; and 3) use its cash-rich, underleveraged balance sheet to make acquisitions in adjacent markets and add new channels in current markets. At present, the company operates in the Czech Republic, Croatia, Romania, Slovenia, Slovak Republic, and Ukraine. We expect strong growth to continue in current markets. Revenues increased more than 53.8% (GAAP basis) last year, while EBITDA margins expanded an impressive 280bps. We estimate segment revenues will grow 92.1% in 2005, and that CETV will benefit from further cost reductions that should increase segment EBITDA margins to 31.9% from 30.1% despite an estimated $13.5mm of losses incurred at the new Croatian station. There is opportunity to improve economics of current properties. CETV s may continue to increase its ownership interests in Slovakia, Ukraine, Romania and Slovenia in the next year. Acquisitions should complement internal growth. As of September 30, 2005, CETV had $100.4mm of cash and $451.1mm of debt. Therefore, with $175.2mm of segment EBITDA forecast for 2006, we believe the company is well positioned to acquire other broadcasting assets in either current or adjacent markets.

2 Investment Thesis Central European Media Enterprises has equity stakes in leading broadcasters in Romania, Croatia, the Slovak Republic, Ukraine, Slovenia, and the Czech Republic. The company has a three-pronged strategy that should facilitate rapid revenue and profitability growth over the next few years. Besides growing its core business, we expect CETV to increase its ownership interests in its current operations and acquire additional broadcasting companies in either existing or adjacent markets. We also expect CETV to add more channels in the markets, in which it already has operations. In our opinion, CETV is well positioned to make future acquisitions, given a large cash hoard and relatively low debt position. Also, the company should benefit from rising advertising rates in Eastern Europe from today s extremely low base. As shown below in Table 1, despite the growth in advertising spending in CETV s markets during 2004, the company continues to lag the performance of Western Europe. In addition, advertising spending per capita in Eastern Europe is approximately $18.00, well above CETV s average of $8.91 in 2004 yet well below Western European levels. We believe there is significant upside left in CETV s markets, and we expect the company to gain more traction in its existing markets. CETV s CEO has operational and deal-making experience gained from time served as the founder of a successful media company and as a media investment banker. Once several acquisitions are successfully integrated into the company, CETV could become an acquisition target for a larger broadcaster. Table 1: Television Advertising Per Capita in CETV Markets 2003 vs $70.00 $60.00 $50.00 $46.90 $57.30 $40.00 $30.00 $20.00 $10.00 $0.00 $4.13 $5.45 $27.50 $27.50 $11.11 $14.81 Romania Slovenia Slovakia Ukraine CETV Average Western Europe $2.21 $2.84 $4.01 $ Source: Morgan Joseph & Co. Inc. estimates We believe the stock s valuation is compelling, at only 11.4x our 2006 TEV/EBITDA forecast and 9.4x our 2007 TEV/EBITDA forecast. Our $63 price target is based on a 14.3x multiple of our estimated 2006 segment EBITDA and a 12.0x multiple of our estimated 2007 segment EBITDA, which compares favorably to other broadcasters in the US and Europe (see Table 25 on page 24). Investment Positives We believe this reasonably valued stock has excellent growth potential. On an organic basis, we expect CETV to grow by 22.3% in 2005 and 14.4% in After factoring the Czech Republic and Croatian acquisitions, we estimate revenue growth of 92.1% and 29.2% in 2005 and 2006, respectively. Moreover, segment EBITDA should grow 28.3% and 17.8% organically during those years and by 103.9% and 46.6% during the same years including the acquisitions. In contrast, the US and European operators in our comparable company analysis in Table 25 on page 24 have much lower two-year growth rates; yet they trade at a similar multiple to CETV. At the same time, CETV 2

3 should continue to benefit from strong GDP growth in the markets in which it operates. In 2004, GDP grew by a whopping 12% in Ukraine and by 8.1% in Romania. The more prosperous CETV markets are experiencing a slower overall growth, but television advertising is still rising much faster than GDP because it is a relatively new and unexploited medium in these countries. ZenithOptimedia forecasts television advertising in Eastern Europe will grow three times faster than Western Europe over the next three years. For 2006, GDP growth in CETV s markets should range from 3.9% to 5.4%, according to IMF estimates. Table 2: Growth in European TV Advertising (Indexed to 2002; 2002=100) Index to 2002 = Western Europe Eastern Europe Source: Zenith Optimedia We expect CETV to continue to drive industry consolidation trends in Eastern Europe. Central European Media Enterprises should layer on additional acquisitions in the next few years, which will accelerate already impressive growth rates. We believe opportunity exists in several markets, including Ukraine, Bulgaria, Serbia, Hungary, Poland, and Russia. The recent sale of SBS to private equity firms could expedite a sale of the leading Hungarian station, TV2. This station grew at more than 18.7% during 1H05 and should generate more than 100mm of revenue in Complicated financial structures and a general lack of working knowledge in the region limits the number of potential players in CETV s markets. Therefore, CETV has been able to purchase assets at reasonable prices. The TV Nova transaction was done at a very reasonable 7.9x 2006E TEV/EBITDA, which is well below where CETV currently trades. Management has indicated that it could pursue non-television deals, where its television properties are well established. However, we believe the company will likely continue to focus its attention on purchasing television assets for the time being. In addition, we would expect the company to continue to buy out the minority interests in several of its countries. In our opinion, with $100.4mm in cash on its balance sheet at the end of September, limited capital expenditure requirements, and an ability to generate material free cash flow from operations, CETV has the resources to continue acquiring assets. Positive free cash flow generation gives CETV operational and strategic flexibility. We believe one of CETV s primary strengths is its ability to generate solid amounts of free cash. During the first three quarters of the year, the company generated $27.0mm in free cash from continuing operations. The inclusion of TV Nova should provide significant upside to CETV s ability to generate cash flow. In 2006, we estimate the company will generate $76.7mm of FCF. Besides acquisitions, CETV could reduce its debt load or repurchase shares. The company currently has a 125mm Senior Note 3

4 callable in May 2007; another Senior Note issue with a face value of 245mm is callable two years later. We believe CETV is an attractive takeover candidate in the long term. In our view, the company s acquisitive stance will help position itself as an attractive takeover candidate. We expect CETV to pursue more acquisitions and focus on growing its current footprint organically, given the solid growth prospects inherent in the Central European market today. As CETV continues to strengthen itself organically and through a series of near-term acquisitions, we believe it will become a highly attractive long-term takeover candidate, especially for a company looking to gain entry into the high-growth Central European market. While Chairman Ron Lauder currently controls 71% of the voting rights, based on his 20% economic interest, these super-voting rights are nontransferable in the event of a sale of more than 50% of the capital. The company s solid and complementary management team has navigated well through difficult waters. We believe the three senior members of CETV s management team bring complementary skills, which help the company operate successfully in a very difficult environment. CEO Michael Garin is the consummate deal maker; and we believe he can be counted on to further consolidate the Central European Market. COO Robert Roby Burke has performed well by giving CETV s local management autonomy to run their station, albeit with accountability. Having visited several stations, we can attest to the respect managers have for Roby. Finally, CFO Wallace Macmillan is held in high regard by the investment community. Investment Concerns There exists an emerging-market volatility and currency risk. CETV operates in the emerging markets of Slovenia, Croatia, the Czech Republic, the Slovak Republic, Romania, and Ukraine. These newly independent countries could revert back towards their old economic and legal systems, complicating CETV s ability to operate effectively. On a credit basis, Slovenia, Croatia, the Czech Republic and the Slovak Republic are highly rated, while Romania and Ukraine are generally more risky. An investment in CETV is subject to currency volatility. A strengthening of the dollar could negatively affect results. However, while CETV is paid in local currency in its most risky markets, Ukraine and Romania, these payments are pegged to the US dollar, which mitigates some of the risk. There is always the potential for a bad acquisition. One of the company s key strategies is to pursue acquisitions of broadcasters in Eastern Europe. An ill-advised acquisition would burn capital and could waste management resources. The acquisition of NOVA TV in Croatia has been disappointing, since it is now expected that it will take longer that previously anticipated to reach EBITDA breakeven. CETV may face license renewal issues. The company s licenses expire at different times. There is no guarantee that they will be renewed. In Romania, certain licenses expire between 2006 and 2012, though the main license in Bucharest was renewed in October 2003 for a nine-year period. Next is CETV s license to provide programming and sell advertising to UT-2 in Ukraine, which expires in December The license of Markiza in the Slovak Republic expires in September Its license in Slovenia expires in One shareholder effectively controls the company. Chairman Ronald Lauder owns roughly 20% of the equity, but has 71% of the vote because of his ownership of supervoting Class B shares. Therefore, Mr. Lauder has effective control of the company. 4

5 Valuation We believe CETV shares offer attractive growth at a compelling valuation. CETV is one of the fastest growing broadcasters in the world; yet it trades at a multiple in-line with US broadcasters. On an organic basis, we expect CETV to grow by 22.3% in 2005 and 14.4% in Factoring in the Czech Republic and Croatian acquisitions, we estimate revenue growth of 92.1% and 29.2% in 2005 and 2006, respectively. Moreover, segment EBITDA should grow 28.3% and 17.8% organically during those years and by 103.9% and 46.6% factoring in the acquisitions. In contrast, the US and European operators in our comparable-company analysis in Table 25 on page 24 have single-digit growth rates; yet they trade at a similar multiple to CETV. For instance, we estimate CETV trades at a 11.4x 2006 multiple compared to Entravision (EVC - $ NYSE) and Univision (UVN - $ NYSE), which both trade at 13.7x TEV/2006E EBITDA, respectively. Consensus estimates for Entravision s 2005/2006 EBITDA growth of 12.7% is much lower than the 49.0% adjusted segment growth we project for CETV. Similarly, Univision s projected consensus 2005E/2006E EBITDA growth of 17.6% is also well below our estimates for CETV. Table 3: Current Valuation Country Ownership Attributable EBITDA Stake 2005E 2006E 2007E Romania 85.00% 33,627 35,986 44,135 Slovak Republic (Markiza TV) 80.00% 18,260 20,897 22,671 Slovenia (POP TV and Kanal A) % 18,371 21,764 23,724 Czech Republic % 64, , ,791 Croatia % (13,483) (10,886) 0 Ukraine (Studio 1+1 Group) 60.00% 11,583 16,565 19,701 Total 133, , ,021 Add: Croatia 13,483 10,886 0 Less: Corporate Overhead (21,682) (24,000) (26,000) Total Segment EBITDA 124, , ,021 Total Segment EBITDA Growth NE 49.0% 13.4% Fully Diluted Shares O/S 34,862 38,571 39,571 Stock Price $49.14 $49.14 $49.14 Market Cap $1,713,094 $1,895,354 $1,944,494 Add: Debt Euro Million 8.25% 296, , ,596 Euro Million Floating 151, , ,324 Add: Total Debt 447, , ,920 Less: Cash Cash 105, , ,433 Net Debt 342, ,171 70,487 Total Enterprise Value $2,055,575 $2,145,526 $2,014,981 Total Segment EBITDA ex. Croatia 124, , ,021 TEV/EBITDA Value of Croatian Investment 24,000 24,000 24,000 Total Enterprise Value Less Croatia $2,031,575 $2,121,526 $1,990,981 Total Segment EBITDA ex. Croatia 124, , ,021 TEV/EBITDA Source: Company Reports and Morgan Joseph & Co. Inc. estimates Television advertising rates are rising much faster than GDP in Central Eastern Europe because it is a relatively new and unexploited medium in these countries. CETV should continue to benefit from strong GDP growth in the markets in which it operates despite some slower growth in 2005 compared to ZenithOptimedia forecasts television advertising in Eastern Europe will grow three times faster than Western Europe over the 5

6 next three years. For 2005, the IMF s GDP growth estimates range from 3.4% to up to 5.5% in Ukraine. For 2006, GDP growth should range from 3.9% to 5.4%, according to IMF estimates. Four out of six countries in which CETV operates are benefiting from EU convergence, with Slovenia, Slovakia and the Czech Republic already EU members and Romania scheduled to enter the EU in 2007 and Croatia may enter in Our $63 price target is based on a 12.0x multiple of our 2007E attributable segment TEV/EBITDA. Our numbers exclude the value of the Croatian station and start-up losses in prior years. For 2007, we have assumed $211.0mm of attributable segment EBITDA after subtracting $26mm of corporate overhead. Our 2007 TEV of $2.5bn assumes FCF generation of $76.7mm in 2006 and $158.2mm in Our 2007 FCF estimate implies an 8.1% FCF yield. The stock also appears attractive on a P/E multiple basis. We are estimating $2.75 of EPS in 2006 and $3.03 in 2007, which we believe is a very reasonable 17.9x multiple on 2006E earnings and a 16.2x multiple on 2007E earnings. Our analysis does not account for the value that could be derived from additional acquisitions, new channel additions or increases in ownership percentages of current properties. Company Description Central European Media Enterprises, along with local partners, broadcasts television to 90 million viewers in six Eastern European countries from its nine stations. CETV operates TV Nova in the Czech Republic, PRO TV, PRO CINEMA and Acasa in Romania, Markiza TV in the Slovak Republic, POP TV and Kanal A in Slovenia, NOVA TV in Croatia, and Studio 1+1 in Ukraine. The company was incorporated in Bermuda, and its assets are held in several Dutch and Netherlands Antilles holding companies. The subsidiaries are managed locally, and the main corporate office is in the UK. CETV made a big splash earlier this year when it acquired 100% of the largest station in the Czech Republic for $910mm. The transaction transformed the company by doubling its size and significantly boosting annual cash flow generation. We expect CETV will pursue other broadcasting assets in Central Europe, once the TV Nova asset is fully integrated. CETV has had a long history with TV Nova. The broadcaster was launched in February CETV believed its local partner, Vladimir Zelezny, tried to drive TV Nova out of business, with the help of the Czech government. An arbitration panel in the Netherlands sided with CETV in its case against its partner and the government. As a result, the company was paid $360mm by the Czech Republic government in May 2003 and sold its stake in the Czech broadcaster for $53mm. After the fall-out with TV Nova, Central European Media Enterprises was financially distressed and was de-listed from NASDAQ. In 1998, the Czech station represented 44.6% of CETV s total segment revenues and over 100% of EBITDA. With the Czech settlement, CETV was able to pay down its debt load and was well-positioned with plenty of cash to reenter the Czech market when the political climate changed along with the country s entrance into the EU. The Businesses Czech Republic: New Kid on CETV Block CETV operates the dominant channel and its largest subsidiary in the Czech Republic. TV Nova is the number-one ranked broadcaster in the Czech Republic, with a 42% audience share. The channel reaches nearly all of the country s 10.2 million people and provides, on average, 21 hours of daily programming, with 32% produced locally. The company s nightly news program, Televizne Noviny, is regularly the highest rated Czech television show among all categories, and Cesko hleda SuperStar (Pop Idol) and 6

7 Pojistovna (original Czech series) are also among the Czech Republic s highest rated shows. Recently, ratings have dropped due to some poorly received Reality TV programming though ratings should return to historic levels as new programming is introduced. Table 4: Czech Republic Market Statistics Population (mm) 10.2 GDP per Capita (2004) $16,800 Market Size $320mm-$330mm CME Ownership 100% 2004 Net Revenues (mm) $ EBITDA (mm) $99.4 EU Membership May 2004 TV Nova Launch Date 1994 CME Ownership 100% License Expiry 2017 Broadcast Reach 98% Broadcast Hours (hrs) 21 All day Audience Share % Primetime Audience Share % Advertising Share 2004 ~70% Locally Produced Content Approximately 32% Advertising Market 2004 $320mm-$330mm Cable Penetration % Local Audience Ratings Agency Taylor Nelson Sofres - ATO ATO - Mediaresearch Advertising Restrictions Maximimum advertising 15% broadcast time OR 12 minutes per hour Source: Company reports and Morgan Joseph & Co. Inc. In the Czech Republic market, four broadcasters dominate the landscape. CETV s TV Nova is the most dominant broadcaster, with a 42% share. Among the other competitors, TV Prima (the Modern Times Group [MTGA.ST SEK Stockholm] recently purchased 50% of the station for $115.8mm) has a 23% share, CT1 has a 21% share, and CT2 has a 9% share. Table 5: Czech Republic Broadcasting Audience Share (2005 YTD) Other 5% TV NOVA 42% TV Prima 23% CT2 9% CT1 21% Source: Zenith Optimedia The Czech Republic is one of the most mature CETV markets. The country has over 10.2mm people, and in 1994, exhibited a moderate GDP growth rate for the region of 7

8 3.7%. GDP per capita is relatively high compared to other CETV markets at $16,800. Roughly 98% of households have a television set, although cable penetration is relatively low at 20%. We expect solid, but not spectacular, growth and strong free cash flow in the Czech market looking ahead. In 1994, revenues at TV Nova were $207.8mm and EBITDA was $99.4mm, representing a 47.8% EBITDA margin. Thus far in 2005, revenues have increased approximately 21% to $170.8mm. Excluding local currency effects, revenues have increased 11.4%. EBITDA in the same period has increased 29% to $80.3mm or 18.3%, excluding local currency effects. We believe revenues in 2006 will grow by roughly 15.9% including currency effects. Our 2005 estimates, which are from the close of the TV Nova acquisition (May 2) until year-end, are for $158.7mm and EBITDA of $64.7mm. This EBITDA figure accounts for just over 42% of CETV s segment EBITDA. Romania: Strong Performance Ahead CETV operates three channels in Romania. PRO TV is the number-one ranked broadcaster in Romania, with a 16% audience share. The channel reaches roughly 72% of the country and provides 24 hours of daily programming, with more than 40% produced locally. CETV s second channel, ACASA, is ranked fourth out of the seven broadcasters in Romania, with a 8% market share. Reasons for the lower ratings include its limited reach (only 58% of Romania) and its more targeted approach of appealing primarily to female viewers compared to PRO TV, which appeals to a wider audience. However, the station has risen from fifth place during the past year and gained 80bp of share. ACASA provides 24 hours of programming, with 40% locally produced. In April 2004, CETV added its third station in Romania, called PRO CINEMA. The network is broadcast only on cable and targets the upwardly mobile adult market. PRO CINEMA s reach is 40% of the market and the station broadcasts 21 hours per day. Table 6: Romania Market Statistics Population (mm) GDP per Capita (2004) Market Size CME Ownership 2004 Net Revenues (mm) 2004 EBITDA (mm) EU Membership 21.2 $7,700 $110mm-$120mm 85% $76.5 $25.2 Expected after 2007 Pro TV Acasa Pro Cinema Launch Date CME Ownership 85% 85% 85% License Expiry Broadcast Reach (mm) Broadcast Hours (hrs) All day Audience Share % 8.0% 1.0% Primetime Audience Share % 9.0% 1.0% Advertising Share 2004 Locally Produced Content Less than 40% ~57% Approximately 40% NA Advertising Market 2004 Cable Penetration Local Audience Ratings Agency $110mm-$120mm 58% Peoplemeters Taylor Nelson Sofres Advertising Restrictions Maximimum advertising 15% broadcast time PLUS Additional 5% for direct sales OR 12 minutes per hour Source: Company reports CETV owns 85% of MPI, a service company to the license companies, PRO TV and Media PRO. The remaining stake is owned by a local partner who manages the stations. CETV has a 70% stake in Media Vision, a production and subtitling company for the two stations and a 20% interest in a Radio group in Romania. In both cases, the same local partner in the TV group, Adrian Sarbu, owns the remaining interests. PRO TV, through its PRO TV International channel, rebroadcasts PRO TV to the US, Europe, and Israel. 8

9 In the Romanian market, six broadcasters dominate the landscape. TVR 1, a government station is the leading station with a market share of 19%. However, this share has eroded from 28.1% in The privately-owned Antena 1 is the third highest rated channel with a 13% share, while the second government-owned channel TVR 2 is ranked fifth with a 7% share. The former SBS channel, Prima TV has a more modest 2% share. This channel could come on the market due to the purchase of SBS by Private Equity firms. Table 7: Romania Broadcasting Audience Share (2005 YTD) PRO TV 16% ACASA 8% TVR 1 19% Other 35% Prima 2% Antena 1 13% TVR 2 7% Source: Zenith Optimedia Romania is the fastest growing market and second most populated market in which CETV operates. The country has over 22.3 million people; its GDP in 2004 grew by a remarkable 8.1%, though GDP per capita is relatively low at $7,700. Roughly 86% of households have a television set and cable penetration stands at 58%. The Romanian operations are experiencing the most rapid growth of all the company s markets, in both local and US currency. In 2004, on a dollar basis and local Romanian Lei basis, revenues grew 49.4%, to $76.5mm. The strong growth reflects the overall growth of the Romanian Television advertising market, estimated at 28%, as well as the introduction of a new channel and the greater sales of inventory. EBITDA margins were 33% in 2004, a strong improvement from the 23.9% delivered in The strong revenue and EBITDA growth continued during the first three quarters of During the first nine months of the year, revenues rose by 37.9% to $67.4mm, while EBITDA margin increased to 38.2% from 30.0%. Our 2005 estimates now stand at $105.9mm of revenue, representing 38.4% growth and $39.6mm of EBITDA, equating to a 37.4% EBITDA margin. Table 8: Romania Revenue and EBITDA Growth E ($ in thousands) E 2006E Revenue $33,547 $51,177 $76,464 $105,864 $129,002 Revenue Growth 3.1% 52.6% 49.4% 38.4% 21.9% EBITDA $6,347 $12,206 $25,197 $39,561 $42,337 EBITDA Margin 18.9% 23.9% 33.0% 37.4% 32.8% EBITDA Growth NA 92.3% 106.4% 57.0% 7.0% Source: Company reports and Morgan Joseph & Co. Inc. estimates 9

10 Ukraine: After a Tough Start in 2005, A Strong Bounce Back We anticipate significant growth with some margin compression. Studio 1+1 broadcasts programming and sells advertising on the government-controlled UT-2 channel. The channel broadcasts 24 hours per day and has an audience of 21%, which represents the number-two share in the country. Studio 1+1 s programming is targeted at the mass market, ages in particular. Long term, the company is probably likely to raise its current 18% stake in the license company to 60%, when it receives approval from the Ukrainian legislature. As a protection, CETV s partners have agreed that a 61% vote is required for significant decisions. Studio 1+1 has outsourced control of advertising sales to Video International, a Ukrainian subsidiary of a Russian advertising sales company. This agreement ends at the end of 2006 and CETV does not have an economic interest in the company. Also at year-end 2006, Studio 1+1 s 10-year deal to provide 15 hours of programming for UT-2 ends, though it is likely to extend for seven years. The license for the additional nine hours of programming expires in This license was awarded in July 2004 and broadcasting began that September. In addition, On November 2, CETV announced that it was acquiring 65.5% of Ukrpromtorg, the holding company that controls Kiev TV stations Gravis and Channel 7, a 24-hour local terrestrial broadcaster in Kirovograd, and other assets from Dertus Finance Group. The transaction is valued at $7.0mm. As part of the deal, CETV has the option to obtain an additional 21.5% interest for $3.2mm within four months of the close of the initial transaction. Table 9: Ukraine Market Statistics Population (mm) 47.6 GDP per Capita (2004) $6,300 Market Size $130mm-$140mm CME Ownership 60% 2004 Net Revenues (mm) $ EBITDA (mm) $14.7 EU Membership NA 1+1 Launch Date 1997 CME Ownership 60% (economic) 18% (license) License Expiry December 2007 (15 hrs prime) August 2014 (9 hrs off prime) Broadcast Reach (mm) 47.1 Broadcast Hours (hrs) NA All day Audience Share % Primetime Audience Share % Advertising Share 2004 ~38% Locally Produced Content Minimum 70% Advertising Market 2004 $130mm-$140mm Cable Penetration 23% Local Audience Ratings Agency Peoplemeters GFK USM Advertising Restrictions Maximimum advertising 15% broadcast time Source: Company reports Studio 1+1 has several competitors in the Ukrainian market. UT-1, a state-run broadcaster, has slightly greater reach at 98% compared to UT-2 s 95% reach, though its audience share is only 2.8%. UT-3 is programmed by Studio 1+1 s main competitor, Inter. Inter broadcasts 24 hours per day, but has a smaller reach than UT-2 at only 78%. Three other private broadcasters (ICTV, STB, and Novi Kanal) also compete in this market, but each has much smaller reach than UT-2. We believe there may be an opportunity for CETV to consolidate the Ukrainian market. Under Ukrainian law, an owner is limited to a 35% audience share and 30% ownership position in a Ukrainian license. 10

11 Table 10: Ukraine Broadcasting Audience Share (2005 YTD) Studio % UT-1 3% Inter 26% Others 42% Novyj 9% Source: Zenith Optimedia Ukraine is CETV s largest market, with 47.4 million people. However, despite strong GDP growth of 12% in 2004, GDP growth has been curtailed in 2005 to about 2.0%. The IMF expects 2006 GDP to increase to 5.4%. Ukraine is the poorest CETV market, at only $6,300 GDP per capita. Nearly all homes in Ukraine have television, but cable penetration remains low at only 11.0%. Ukrainian revenue growth was significant in 2004, up 45.6% to $53.4mm from $36.6mm. Because the Ukrainian hryvna is pegged to the US dollar, currency changes had no effect on reported results. Robust Ukrainian market growth of 24% and Studio 1+1 market audience share gains, rising to 27.2% from 25.8% helped fuel growth in EBITDA margins rose by 580bp to 27.6% from 21.8% during Revenue growth has remained strong during the first three quarters of 2005 at 26.8%; and we expect similar growth throughout the rest of the year. Unfortunately, EBITDA margins have declined sharply to 21.8% from 25.3%. However, EBITDA has risen slightly to $9.8mm from $8.9mm during the first three quarter of This was mainly due to higher costs related to the additional nine hours of programming as well as increases in rent, taxation, foreign programming cost, and transmission cost. We expect EBITDA margins will rise to 40.0% during 4Q05. Table 11: Ukraine Revenue and EBITDA Growth E ($ in thousands) E 2006E Revenue $31,732 $36,633 $53,350 $68,593 $78,882 Revenue Growth 37.4% 15.4% 45.6% 28.6% 15.0% EBITDA $6,892 $8,000 $14,729 $19,305 $27,608 EBITDA Margin 21.7% 21.8% 27.6% 28.1% 35.0% EBITDA Growth NA 16.1% 84.1% 31.1% 43.0% Source: Morgan Joseph & Co. Inc. estimates and company filings Slovakia: Solid Growth and Stability CETV operates Markiza, the top-rated television network in the Slovak Republic, reaching 86% of the country. Recent changes in the calculation of television viewing habits have reduced Markiza s all-day audience share to 32% from 46%. Nevertheless, Markiza still captures roughly 85% of the television advertising dollars in Slovakia. The station provides programming 21 hours per day, with about 38% produced locally. Advertising on the station is limited to 20% of a single hour and 15% on a daily basis. The operating company, STS, provides CETV with 70% of its profits and a 90% voting 11

12 interest. On October 31, CETV increased its stake in Markiza to 80% for $28.7mm, representing, an 11.0x multiple on our 2006 estimate. However, Central European Media Enterprises is protected by an agreement under which all significant financial and operational decisions need 80% approval. Markiza s license expires in September 2007, though it can be extended for another 12 years thereafter if the Slovak Republic Media Council approves. Table 12: Slovakia Market Statistics Population (mm) 5.4 GDP per Capita (2004) $14,500 Market Size $75mm-$85mm CME Ownership 70% (80% next year) 2004 Net Revenues (mm) $ EBITDA (mm) $19.0 EU Membership May 2004 Markiza Launch Date 1996 CME Ownership 80% (economic) 80% (license) License Expiry September 2007 Broadcast Reach (mm) 5.3 Broadcast Hours (hrs) 21 All day Audience Share % Primetime Audience Share % Advertising Share 2004 ~85% Locally Produced Content Approximately 45% Advertising Market 2004 $75mm-$85mm Cable Penetration 38% Local Audience Ratings Agency Visio / MVK Advertising Restrictions Maximimum advertising 15% broadcast time OR 12 minutes/hour Source: Company reports and Morgan Joseph & Co. Inc. estimates Markiza has several competitors in its market, including two public broadcasters, STV 1 with 19% audience share and STV 2 with 6%. TV JOJ, with 13% market reach, and TA3, 48% market reach, are two other privately-owned competitors with less audience share than Markiza. In addition, public stations in Austria, Czech Republic, and Hungary broadcast their signals into the Slovak Republic. Table 13: Slovakia Broadcasting Audience Share (2005 YTD) Others 30% Markiza 32% JOJ TV 13% STV2 6% STV1 19% Source: Zenith Optimedia 12

13 The Slovak Republic experienced strong GDP growth of 5.3% in The Slovak Republic, with a population over 5.4mm and 99% of households with TVs (approximately 38% have cable television service), is one of the more prosperous markets in which CETV operates. In 1994, the country s GDP was $14,500 per capita. Like Slovenia, the Slovak Republic joined the EU on May 1, Markiza TV revenues grew rapidly in 2004, but moderated in The company benefited from a strong advertising market in 2004, as well as a declining US dollar. On a local currency basis, the market grew by 11%, or by 20% on a US dollar basis. Overall, Markiza sales rose 21.2%, to $61.6mm from $50.8mm. More than half of this growth was due to the weak dollar. Thus far in 2005, revenue growth has moderated to 12.1% based almost entirely on the weakening of the US dollar compared to the Slovak koruna. On a local currency basis, sales grew by 4%. For the full year, we expect revenues to increase 10.6% to $68.1mm. In 2004, EBITDA margins in the Slovak Republic rose to 30.8% from 22.9% in The same year, CETV registered $19.0mm of EBITDA from its Slovak Republic operations. We expect further improvement in 2005, as reflected by our EBITDA estimate of $22.8mm, representing an EBITDA margin of 33.5%. Table 14: Slovakia Revenue and EBITDA Growth E ($ in thousands) E 2006E Revenue $38,397 $50,814 $61,576 $68,119 $73,569 Revenue Growth 10.7% 32.3% 21.2% 10.6% 8.0% EBITDA $7,132 $11,657 $18,975 $22,825 $26,121 EBITDA Margin 18.6% 22.9% 30.8% 33.5% 35.5% EBITDA Growth NA 63.4% 62.8% 20.3% 14.4% Source: Company reports and Morgan Joseph & Co. Inc. estimates Slovenia: The Wealthiest CETV Market POP TV and Kanal A are the two CETV broadcast channels in Slovenia. They are ranked first and fourth in the Slovenian market, with 27% and 9% all-day audience share, respectively. POP TV broadcasts 16 hours per day with a focus on the mass market. Its programming includes series, movies, news, variety shows, and features; roughly 25% of its content is produced locally. Kanal A has a slightly smaller reach and also broadcasts 16 hours per day. CETV owns 100% of the operating company, PRO Plus, which owns the licenses for POP TV and Kanal A. 13

14 Table 15: Slovenia Market Statistics Population (mm) GDP per Capita (2004) Market Size CME Ownership 2004 Net Revenues (mm) 2004 EBITDA (mm) EU Membership 2.0 $19,600 $50mm-$60mm 100% $45.4 $19.1 May 2004 POP TV Kanal A Launch Date CME Ownership 100% 100% License Expiry Broadcast Reach (mm) Broadcast Hours (hrs) All day Audience Share % 9.0% Primetime Audience Share % 10.0% Advertising Share 2004 Locally Produced Content Advertising Market 2004 Cable Penetration Local Audience Ratings Agency Advertising Restrictions Source: Company reports and Morgan Joseph & Co. Inc. estimates ~68% Minimum 20% $50mm-$60mm 56% Peoplemeters AGB Media Services Maximimum advertising 12 minutes/hour CETV s main competitors in Slovenia are the state broadcasters SLO1 and SLO2. SLO1 has a 25% audience share and SLO2 has 9%. Both state broadcasters have a slightly greater reach to the country s 2 million people than POP TV. TV3 is another private operator, with a minuscule 1% share. Table 16: Slovenia Broadcasting Audience Share (2005 YTD) Kanal A 9% SLO 1 25% POP TV 27% SLO 2 9% Others 30% Source: Zenith Optimedia Slovenia, by far, is the wealthiest of the six markets in which CETV operates. According to CIA statistics, average GDP was $19,600 in 2004 and growth was still solid at 3.9%. Roughly 99% of the country s households have TVs and 57% have either a cable or satellite service. Slovenia joined the EU on May 1, We believe this membership helps ensure CETV s property rights will be respected In 2004, CETV s Slovenia revenues rebounded from a disappointing On a US dollar basis, revenues increased 22.1%, to $45.4mm after rising by only 9.8% in In local currency, revenues still grew by 14%; so the weaker dollar played some role, but 14

15 the market clearly strengthened in The current year has been much more difficult for CETV, as revenues have risen by a more moderate 1.7% due to a more difficult advertising climate and increased competition from state television. We are forecasting a moderate recovery in the final quarter of 7% growth. We have assumed 6% growth in our model for Programming costs remain stable, but other items escalated in the first half of the year. Higher employee costs and a reversal of transmission fees have negatively impacted EBITDA margins thus far in We expect a recovery of EBITDA margins in Margins fell to 32.4% to-date in 2005 vs.38.3% in the year-ago period. In 2004, EBITDA margins were 42%. Table 17: Slovenia Revenue and EBITDA Growth E ($ in thousands) E 2006E Revenue $33,864 $37,168 $45,388 $46,920 $49,735 Revenue Growth 19.0% 9.8% 22.1% 4.2% 6.0% EBITDA $11,052 $13,173 $19,077 $18,371 $21,764 EBITDA Margin 32.6% 35.4% 42.0% 39.2% 43.8% EBITDA Growth NA 19.2% 44.8% -3.7% 18.5% Source: Company reports and Morgan Joseph & Co. Inc. estimates Croatia: Remains a Challenge Croatia has proven more challenging than originally expected. CETV purchased NOVA TV in July 2004 for $24.7mm. The station is relatively new, having commenced operations in 2001, and has struggled to compete against the two state television broadcasters, which accept advertising revenue. This would change if Croatia were to enter the EU. NOVA TV broadcasts 18 hours per day and has an audience of 14%, the number-four share. CETV owns 100% of the Croatian broadcaster and targets the mass market through the channel. We expect CETV to leverage its successful Slovenian operations and see synergies in Croatia going forward. The license for the station runs until 2010 and can be extended. 15

16 Table 18: Croatia Market Statistics Population (mm) 4.3 GDP per Capita (2004) $11,200 Market Size $90mm-$100mm CME Ownership 100% 2004 Net Revenues (mm) $ EBITDA (mm) ($3.8) EU Membership Expected after 2007 Nova TV Launch Date 2000 CME Ownership 100% License Expiry 2010 Broadcast Reach (mm) 3.4 Broadcast Hours (hrs) 18 All day Audience Share % Primetime Audience Share % Advertising Share 2004 ~14% Locally Produced Content: Minimum 20% Advertising Market 2004 $90mm-$100mm Cable Penetration % Local Audience Ratings Agency Peoplemeters AGB Media Services Advertising Restrictions Maximimum advertising 20% broadcast time PLUS Additional maximum of 3% for direct sales OR 12 minutes per hour Source: Company reports and Morgan Joseph & Co. Inc. estimates NOVA TV has two state broadcaster competitors and another private competitor controlled by RTL in the Croatian market. HRT 1, a state-run broadcaster, has a greater reach at 99%, compared to NOVA TV s 80%. The state-owned station has a 39% audience share. HRT 2 is the number-two state broadcaster with a 16% audience share and a 99% reach. The RTL station, RTL, has a greater reach than NOVA TV at 95% and a higher audience share at 24%. Table 19: Croatia Broadcasting Audience Share (2005 YTD) Other 7% NOVA TV 14% HRT 1 39% RTL 24% HRT 2 16% Source: Zenith Optimedia Croatia is a relatively small country of roughly 4.5 million people. GDP growth was 3.7% last year and per capita GDP totaled $11,200. Nearly all homes in Croatia have television, but cable penetration remains low, at only 17.0%. 16

17 For 2005, we estimate revenues of $25.5mm and an EBITDA loss of $13.5mm. The company has guided towards $24.0mm-$26.0mm of revenue and $12.5mm-$14.5mm of EBITDA loss. For 2006, we expect revenue growth of 41.6% to $36.2mm and an EBITDA loss of $10.9mm. In 2007, we expect the station to break even on an EBITDA basis. Competition CETV competes against both private and government-owned stations in its markets. With the exception of Croatia, each of the stations commands a significant share of the television revenue share and high power ratios (shown below in Table 20). We have discussed each of the local broadcasters that compete with CETV s properties in the business section. Of course, each unit competes against other media outlets such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising, and direct mail. On the acquisition front, News Corp (NWS - $ NYSE) and RTL Group may compete for choice properties. We believe several properties may be available in such countries as Poland, Bulgaria, Turkey, Ukraine, and Russia. Table 20: 2004 All Day Audience, Revenue Share, and Power Ratios 90% % % % 50% 40% 30% 20% Power Ratio 10% 1.6 0% Czech Republic Slovenia Slovakia Ukraine Romania 1.5 Audience Share Revenue Share Source: Company reports UPC, the subsidiary of Liberty Global (LBTYA - $24.97 NASDAQ, Buy (1) rated - see our initiation report dated September 26, 2005), has been very aggressively courting cable operators throughout Eastern Europe; this, in our view, creates both a threat and an opportunity for CETV. While we do not expect an aggressive upgrade cycle to digital cable, the long-term expansion of cable will require new channels. CETV s strong position is threatened through dilution of its extremely high revenue share, although the company could introduce new, well targeted channels that further increase its revenue share. Rates on more highly targeted channels often exceed those on more generalized channels. Regulation The most significant regulatory issue in CETV s markets is limitation on foreign programming. Each country limits the amount of foreign content. For instance, in Slovenia, at least 20% of the programming must be generated internally, while Slovakia requires that 51% of first-run films and series have 51% European programming. In addition, the programming language is sometimes regulated. Ukraine requires at least 80% of programming in the Ukrainian language, with the rest in Russian. Similarly, the Slovak Republic limits Czech language programming to 20%. This emphasis on local programming reduces volatility, since the amount of US programming is limited. 17

18 Therefore, with rapid changes in currency, a significant mismatch between programming costs and local revenues is unlikely to occur. In general, cigarette and tobacco advertising is banned from television in these markets. Financial Discussion The fourth quarter is the most important for the company, since it should account for 35%-40% of annual revenues. For 4Q05, we estimate total segment revenues of $180.6mm and total segment EBITDA of $63.9mm. Our total segment revenue growth projection is 104.3%. Excluding the Czech Republic, we estimate organic segment revenue growth of 25.1%. We believe the Romanian and Ukrainian markets will experience exceptional growth of 39.5% and 32.0%, respectively. Revenues at the Slovak Republic and Slovenia stations are still growing, although according to our projection, at more moderate rates of about 8.0% and 7%, respectively. Croatia should increase its revenues by 45.4%, since it is still a relatively new station. On a GAAP basis, we anticipate overall revenue growth should exceed segment growth at 140.5%, to $156.5mm. While we prioritize the value of our segment EBITDA estimate over our EPS forecast because currency losses/gains and stock-based compensation expenses could cause large fluctuations, we are estimating EPS of $0.66 for 4Q05. We are forecasting 92.1% segment revenue growth in On a segment basis, we estimate revenues will rise to $473.7mm. Excluding the recently purchased stations in Croatia and the Czech Republic, segment revenues should still rise by 22.3%. Strength should continue to come from the Ukrainian and Romanian markets. Under GAAP accounting, revenues should rise 122.1% to $405.0mm for the year. We project that segment EBITDA will end up at $151.3mm, representing a 31.9% EBITDA margin. In 2004, the segment EBITDA margin was 30.1%. On a GAAP basis, we believe the company could generate fully-diluted EPS of $0.99. We have assumed no foreign exchange losses in our calculation and stock compensation of $2.9mm. Segment revenue should continue to be robust into We estimate segment revenues will rise to $611.9mm, an increase of 29.2% from On a GAAP basis, we believe revenues will rise by 51.1% $405mm in Our GAAP basis revenue remains the same as the segment number since Slovakia will be fully consolidated beginning in We believe this revenue growth will lead to higher EBITDA margins, as management has been consistent in reigning-in costs in the past. Segment EBITDA margins should increase by 430bp to $221.8mm. Our 2006 EPS estimate is for fullydiluted EPS of $2.75. Balance Sheet and Cash Flow In our view, the company s balance sheet allows flexibility for future acquisitions. CETV has over $100.4mm of unrestricted cash on its balance sheet and $451mm of longterm debt. This represents a 2.0x TEV/2006E Attributable EBITDA. In 2006, we estimate CETV can generate $76.7mm of free cash flow from its businesses. We expect capital expenditures of roughly $31mm in 2005 and Of note, the cash flows from the subsidiaries not 100% owned by CETV are accounted for in the minority interest line of the company s cash flow statement. With several potential acquisitions ahead, we believe the balance sheet positions CETV to continue to consolidate the Central and Eastern European television market. Management Michael Garin, CEO. Mr. Garin was the co-founder of Telepictures, which merged with Lorimar and eventually was sold to Warner Communications (TWX - $ NYSE). After selling the entertainment company, Mr. Garin headed up media banking at Furman Selz/ING Barings (ING - $ NYSE). Wallace Macmillan, CFO. Mr. Macmillan has extensive experience in the music industry, having worked at various financial positions at Virgin and EMI (EMIPF.PK - 18

19 $ OTC) following EMI s purchase of Virgin and Bertelsmann Group. Prior to his experience in the music industry, he worked as an accountant at Price Waterhouse. Robert Roby E. Burke, COO. Mr. Burke began his career in television news with ABC. He moved to UK broadcaster WTN, where he rose to the CEO position until WTN s sale in After his tenure at a webcasting company, Roby joined CETV in 2001, and helped lead the revitalization of the company. 19

20 Table 21: Annual Balance Sheets E ($ in thousands) E 2006E 2007E Cash & Cash Equiv $49,644.0 $190,314.0 $152,568.0 $105,438.8 $197,748.8 $377,433.1 Restricted Cash 6, , , , , ,177.0 Restricted Investments Accounts Receivable 25, , , , , ,000.0 Due from Affiliates 4, , Prepaid Expense and Other 20, , , , , ,750.0 Total Cur Assets 106, , , , , ,660.1 Fixed Assets 65, , , , , ,430.0 Accumulated Depr. 50, , , , , ,126.0 Net Property Plant & Equipment 14, , , , , ,304.0 Other Assets Other Short-Term Assets 27, , , , , ,587.5 Other Receivable 25, , , Goodwill 753, , ,265.0 Intangible Assets 1, , , , , ,557.0 Deferred Financing Fees Investments In and loans to affiliates , , ,304.0 Other Receivable 4, , , , , ,000.0 Total Assets 179, , , ,423, ,552, ,755,677.6 Liabilities & Equity Accounts Payable 40, , , , , ,687.5 Duties and other taxes payable 18, , , , , ,000.0 Income Taxes Payable 5, , , , , ,000.0 Program rights and other 8, , , , ,000.0 Current Liabilities 71, , , , , ,687.5 Notes Payable and Accrued Interest 198, , , , , ,049.0 Euro Million 8.25% , , ,596.0 Euro Million Floating , , ,324.0 Other Liabilities 3, , , , , ,000.0 Minority Interest 2, , , , ,861.0 Common Stock 2, , , , , ,271.0 APIC 359, , , , , ,927.0 RE(Accum Def). (457,335.0) (101,267.0) (78,508.0) (28,607.2) 111, ,962.1 Liabilities + Equity 179, , , ,423, ,552, ,755,677.6 Source: Company reports and Morgan Joseph & Co. Inc. estimates 20

21 Table 22: Annual Cash Flow Statements E ($ in thousands) E 2006E 2007E Cash Flows from Operations: Net Income(Loss) ($22,111.0) ($14,184.0) $346,012.0 $18,531.0 $47,951.6 $105,995.0 $120,051.5 Depreciation and Amortization 26, , , , , , ,269.5 Loss from Discontinued Operations (3,129.0) (10,922.0) (370,213.0) 0.0 3, Equity in Loss of Affiliate (6,387.0) (2,861.0) (3,001.0) (4,340.0) Misc (4,179.0) 16, , ,936.0 (27,982.0) (1,750.0) (1,837.5) Changes in Working Capital (15,618.0) (24,377.0) (45,321.0) (83,214.0) (80,244.8) (147,985.0) (118,299.2) Net Cash Used in Operations (24,750.0) (7,865.0) (11,594.0) (7,730.0) 61, , ,184.3 Cash Flows From Investing: Purchases of P&E (2,333.0) (4,288.0) (7,426.0) (10,736.0) (31,000.0) (31,000.0) (25,000.0) Acquisitions (284,265.0) (7,000.0) 0.0 Investments (8.0) (35,758.0) Other Investments & Insurance Claims (191.0) (2,646.0) (370.0) (20,000.0) Net Cash Used in Investing (1,653.0) (4,479.0) (10,080.0) (46,864.0) (335,265.0) (38,000.0) (25,000.0) Financing Activities Equity 17, , , , ,500.0 Preferred Stock Debt (5,899.0) 22,155.0 (199,333.0) (2,275.0) (7,253.0) Minority Interest and Other 2, , ,050.0 Cash Provided by Fin Activities 13, ,483.0 (197,160.0) 1, , , ,500.0 Effect of Exchange Rate and Disc. Op. (2,511.0) 16, , ,030.0 Net Increase (Decrease in Cash) (15,457.0) 27, ,670.0 (39,678.0) (47,129.2) 92, ,684.3 Source: Company reports and Morgan Joseph & Co. Inc. estimates 21

22 Table 23: Quarterly and Annual Support behind Revenues E ($ in thousands) Q04 2Q04 3Q04 4Q Q05 2Q05 3Q05 4Q05E 2005E 1Q06E 2Q06E 3Q06E 4Q06E 2006E 2007E Television Operations Net Revenue: Romania $33,547 $51,177 $14,085 $18,702 $16,089 $27,588 $76,464 $19,649 $26,592 $21,138 $38,485 $105,864 $25,544 $31,910 $25,366 $46,182 $129,002 $148,352 Slovak Republic (Markiza TV) 38,397 50,814 11,895 17,448 9,892 22,341 61,576 12,644 19,627 11,720 24,128 68,119 13,656 21,197 12,658 26,059 73,569 78,719 Slovenia (POP TV and Kanal A) 33,864 37,168 9,657 13,751 7,576 14,404 45,388 9,933 13,920 7,655 15,412 46,920 10,529 14,755 8,114 16,337 49,735 52,720 Czech Republic 47,767 40,883 70, ,650 48,916 66,037 44,025 85, , ,147 Croatia NA NA NA NA 3,740 6,018 9,758 4,955 7,652 4,183 8,750 25,540 6,689 10,713 6,065 12,688 36,155 45,194 Ukraine (Studio 1+1 Group) 31,732 36,633 12,106 13,248 9,930 18,066 53,350 14,360 17,178 13,208 23,847 68,593 16,514 19,755 15,189 27,424 78,882 88,742 Total Net Revenue $137,540 $175,792 $47,743 $63,149 $47,227 $88,417 $246,536 $61,541 $132,736 $98,787 $180,623 $473,687 $121,848 $164,367 $111,417 $214,293 $611,924 $677,874 Other Consolidated Entities: Ukraine (Studio 1+1 Group) (6,849) (6,452) Slovak Republic (Markiza TV) (38,397) (50,814) (11,895) (17,448) (9,892) (22,341) (61,576) (12,644) (19,627) (11,720) (24,128) (68,119) Media Pro - Romania (815) (792) (1,014) (2,621) (593) (593) Station Depreciation Reportable Revenue $92,294 $118,526 $35,848 $44,886 $36,543 $65,062 $184,960 $48,304 $113,109 $87,067 $156,495 $404,975 $121,848 $164,367 $111,417 $214,293 $611,924 $677,874 Net Revenue Growth Romania 3.1% 52.6% 52.3% 35.9% 52.7% 56.5% 49.4% 39.5% 42.2% 31.4% 39.5% 38.4% 30.0% 20.0% 20.0% 20.0% 21.9% 15.0% Slovak Republic (Markiza TV) 10.7% 32.3% 25.4% 18.7% 6.7% 28.7% 21.2% 6.3% 12.5% 18.5% 8.0% 10.6% 8.0% 8.0% 8.0% 8.0% 8.0% 7.0% Slovenia (POP TV and Kanal A) 19.0% 9.8% 23.7% 23.9% 34.4% 14.1% 22.1% 2.9% 1.2% 1.0% 7.0% 3.4% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% Czech Republic 100.0% 100.0% 100.0% 100.0% 7.7% 22.3% 54.2% 8.0% Croatia NA NA NA NA NA NA NA 100.0% 100.0% 100.0% 45.4% 161.7% 35.0% 40.0% 45.0% 45.0% 41.6% 25.0% Ukraine (Studio 1+1 Group) 37.4% 15.4% 60.5% 56.8% 62.9% 24.2% 45.6% 18.6% 29.7% 33.0% 32.0% 28.6% 15.0% 15.0% 15.0% 15.0% 15.0% 12.5% Total Net Revenue 15.8% 27.8% 40.1% 31.5% 49.7% 42.2% 40.2% 28.9% 110.2% 109.2% 104.3% 92.1% 98.0% 23.8% 12.8% 18.6% 29.2% 10.8% Segment EBITDA: Romania $6,347 $12,206 $4,318 $5,920 $4,432 $10,527 $25,197 $5,901 $11,974 $7,831 $13,855 $39,561 $8,429 $10,850 $7,356 $15,702 $42,337 $51,923 Slovak Republic (Markiza TV) 7,132 11,657 1,331 8, ,129 $18,975 2,170 7, ,823 22,825 1,775 10, ,029 26,121 28,339 Slovenia (POP TV and Kanal A) 11,052 13,173 3,927 6,860 1,073 7,217 19,077 2,680 6,490 1,032 8,169 18,371 4,527 7,525 1,379 8,332 21,764 23,724 Czech Republic 28,287 11,940 24,500 64,727 20,545 33,679 9,245 51, , ,791 Croatia NA NA NA NA (1,648) (2,107) (3,755) (3,422) (1,337) (4,786) (3,938) (13,483) (1,672) (2,678) (2,729) (3,806) (10,886) 0 Ukraine (Studio 1+1 Group) 6,892 8,000 4,357 4,895 (342) 5,819 14,729 2,348 4,935 2,483 9,539 19,305 6,606 7, ,341 27,608 32,835 Total EBITDA $31,423 $45,036 $13,933 $26,068 $3,637 $30,585 $74,223 $9,677 $58,305 $19,376 $63,947 $151,305 $40,210 $68,088 $16,517 $96,960 $221,774 $263,611 EBITDA Margins Romania 18.9% 23.9% 30.7% 31.7% 27.5% 32.0% 33.0% 30.0% 45.0% 37.0% 36.0% 37.4% 33.0% 34.0% 29.0% 34.0% 32.8% 35.0% Slovak Republic (Markiza TV) 18.6% 22.9% 11.2% 48.1% 1.2% 48.0% 30.8% 17.2% 40.5% 7.5% 49.0% 33.5% 13.0% 51.0% 4.0% 50.0% 35.5% 36.0% Slovenia (POP TV and Kanal A) 32.6% 35.4% 40.7% 49.9% 14.2% 50.0% 42.0% 27.0% 46.6% 13.5% 53.0% 39.2% 43.0% 51.0% 17.0% 51.0% 43.8% 45.0% Czech Republic 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 59.2% 29.2% 35.0% 40.8% 42.0% 51.0% 21.0% 60.0% 47.0% 48.0% Croatia NA NA NA NA NA -35.0% -38.5% NA NA NA -45.0% -52.8% -25.0% -25.0% -45.0% -30.0% -30.1% 0.0% Ukraine (Studio 1+1 Group) 21.7% 21.8% 36.0% 36.9% -3.4% 37.0% 27.6% 16.4% 28.7% 18.8% 40.0% 28.1% 40.0% 40.0% 5.0% 45.0% 35.0% 37.0% Total EBITDA Margins 22.8% 25.6% 29.2% 41.3% 7.7% 34.6% 30.1% 15.7% 43.9% 19.6% 35.4% 31.9% 33.0% 41.4% 14.8% 45.2% 36.2% 38.9% Source: Company reports and Morgan Joseph & Co. Inc. estimates 22

23 Table 24 Quarterly and Annual Income Statements E ($mms) 1Q04 2Q04 3Q04 4Q Q05 2Q05 3Q05 4Q05E 2005E 1Q06E 2Q06E 3Q06E 4Q06E 2006E 2007E Total Revenues $35,848 $44,886 $36,543 $65,062 $182,339 $48,304 $113,109 $87,067 $156,495 $404,975 $121,848 $164,367 $111,417 $214,293 $611,924 $677,874 Yr/Yr Change in $ Revenue 52.4% 40.6% 67.0% 57.9% 53.8% 34.7% 152.0% 138.3% 140.5% 122.1% 152.3% 45.3% 28.0% 36.9% 51.1% 10.8% Qtr/Qtr Change in $ Revenue -13.0% 25.2% -18.6% 78.0% NA -25.8% 134.2% -23.0% 79.7% NA -22.1% 34.9% -32.2% 92.3% NA NA Station Expenses Other Operating costs and Expenses $6,071 $7,338 $9,055 $11,151 $33,615 $11,285 $18,117 $15,331 $45,591 $90,324 $27,590 $35,926 $30,591 $42,337 $136,444 $152,448 Amortization of Programming Rights 13,613 15,950 17,266 24,964 71,793 22,322 32,081 40,470 40, ,873 39,426 40,629 43,139 49, , ,270 Depr. of station fixed assets and other intang 1,462 1,336 2,018 1,847 6,663 2,213 4,623 8,908 3,500 19,244 3,500 3,500 3,500 3,500 14,000 18,000 Total Station Op. Costs and Exp. $21,146 $24,624 $28,339 $37,962 $112,071 $35,820 $54,821 $64,709 $89,091 $244,441 $70,516 $80,055 $77,230 $95,118 $322,919 $370,718 % of Total Revenue 59.0% 54.9% 77.5% 58.3% 61.5% 74.2% 48.5% 74.3% 56.9% 60.4% 57.9% 48.7% 69.3% 44.4% 52.8% 54.7% SG&A Exp. 3,562 4,322 6,676 7,552 22,112 6,928 12,562 12,766 18,779 51,035 14,622 19,724 21,169 25,715 81,230 81,345 % of Total Revenue 9.9% 9.6% 18.3% 11.6% 12.1% 14.3% 11.1% 14.7% 12.0% 12.6% 12.0% 12.0% 19.0% 12.0% 13.3% 12.0% Corporate Expenses: Corporate Operating costs and expenses 3,233 4,738 5,492 5,622 19,085 4,631 4,851 4,200 8,000 21,682 4,000 5,000 5,000 10,000 24,000 26,000 Net Arbitration related proceeds/(costs) Stock based compensation 1,885 2,369 2,710 3,136 10,100 3,100 (1,400) , ,400 2,400 Amortization of license costs/goodwill Operating Income $6,022 $8,771 ($6,736) $10,683 $18,740 ($2,252) $42,193 $4,792 $40,024 $84,757 $32,110 $58,988 $7,417 $82,860 $181,375 $197,411 % of Revenues 16.8% 19.5% NM 16.4% 10.3% NM 37.3% 5.5% 25.6% 20.9% 26.4% 35.9% 6.7% 38.7% 29.6% 29.1% Interest (Expense) Income 1, ,399 3, (5,865) (9,858) (10,018) (24,969) (9,518) (9,318) (9,118) (9,018) (36,973) (28,000) Equity in income/loss of affiliate 895 4, ,336 10, ,049 (63) 6,270 11, Other Income (expense) (1,404) (1,014) (1,272) (4,730) (4,860) Pretax Income $6,749 $12,180 ($5,317) $17,590 $31,202 ($5,376) $35,517 ($5,113) $36,276 $70,878 $22,592 $49,670 ($1,701) $73,842 $144,402 $169,411 Pretax Income Margin 18.8% 27.1% NM 27.0% 17.1% -11.1% 31.4% NM 23.2% 17.5% 18.5% 30.2% NM 34.5% 23.6% 25.0% Income Tax (1,170) (5,769) (1,120) (3,030) (11,089) (2,341) (3,565) (2,206) (6,564) (14,676) (3,268) (10,088) 2,705 (16,206) (26,857) (35,353) Net Income Before Minority Interest $5,579 $6,411 ($6,437) $14,560 $20,113 ($7,717) $31,952 ($7,319) $29,711 $56,201 $19,323 $39,582 $1,004 $57,636 $117,545 $134,058 Minority Interest in (Loss)/Gain (78.0) (379.0) (153.0) (3,496.0) (4,106.0) (577.0) (4,104.0) 1,037.0 (4,605.9) (8,249.9) (2,554.8) (3,169.3) (964.5) (4,861.3) (11,549.9) (14,007.0) Net income(loss) $5,501 $6,032 ($6,590) $11,064 $16,007 ($8,294) $27,848 ($6,282) $25,106 $47,952 $16,769 $36,413 $40 $52,774 $105,995 $120,051 EPS (weighted average) ($) $0.20 $0.22 ($0.23) $0.39 $0.57 ($0.29) $0.81 ($0.17) $0.66 $1.01 $0.44 $0.95 $0.00 $1.35 $2.75 $3.07 EPS (fully diluted) ($) $0.18 $0.20 ($0.22) $0.39 $0.55 ($0.29) $0.79 ($0.17) $0.66 $0.99 $0.44 $0.95 $0.00 $1.35 $2.75 $3.03 EPS Growth NA NA NA 36.6% NA % 295.0% NA 69.2% 80.0% % 20.3% NA 104.5% 177.6% 10.4% Shares (weighted average) 27,686 28,034 28,359 28,359 27,871 28,385 34,274 37,883 38,033 34,644 38,183 38,433 38,583 39,083 38,571 39,071 Shares (fully diluted) 30,008 29,977 30,110 28,500 29,100 28,385 35,145 37,883 38,033 34,862 38,183 38,433 38,583 39,083 38,571 39,571 Source: Company reports and Morgan Joseph & Co. Inc. estimates 23

24 Table 25 Comparable Valuation Central European Hearst- Name Media Enterprises Entravision Argyle LIN Sinclair Univision Young Ticker CETV EVC HTV TVL SBGI UVN YBTVA Rating Buy NR NR NR NR NR NR Shares Outstanding Price (11/7/2005) $49.14 $7.94 $24.16 $13.16 $8.98 $28.42 $2.52 Market Cap $1,895 $987 $2,253 $669 $767 $9,740 $50 Net Debt and Other Assets , Total Enterprise Value $2,126 $1,410 $3,060 $1,395 $2,231 $10,561 $693 Revenue , E , E , EBITDA E E EBITDA Growth 2004/ % 16.5% -0.6% 0.5% 31.3% 37.1% 24.4% 2005E/ % 17.9% -24.7% -17.8% -31.9% 9.9% -58.2% 2006E/2005E 49.0% 12.7% 22.1% 36.7% 10.7% 17.6% 62.5% TEV/EBITDA E E EPS 2004 $0.55 ($0.10) $1.29 $1.75 $0.12 $0.73 NA 2005E $0.99 $0.04 $0.84 $0.24 $0.48 $0.83 NA 2006E $2.75 $0.13 $1.25 $0.68 $0.52 $1.03 NA EPS Growth 2004/2003 NA NA 34.4% 548.1% -7.7% -14.1% NA 2005E/ % NA -34.9% -86.3% 300.0% 13.7% NA 2006E/2005E 177.6% 225.0% 48.8% 183.3% 8.3% 24.1% NA PE Multiple NA NA 2005E 49.6 NA NA 2006E NA Source: Company reports, First Call, and Morgan Joseph & Co. Inc. estimates NOTE: Estimates for NR companies are based on First Call consensus estimates 24

25 Table 26 Target Valuation Country Ownership Attributable EBITDA Stake 2005E 2006E 2007E Romania 85.00% 33,627 35,986 44,135 Slovak Republic (Markiza TV) 80.00% 18,260 20,897 22,671 Slovenia (POP TV and Kanal A) % 18,371 21,764 23,724 Czech Republic % 64, , ,791 Croatia % (13,483) (10,886) 0 Ukraine (Studio 1+1 Group) 60.00% 11,583 16,565 19,701 Total 133, , ,021 Add: Croatia 13,483 10,886 0 Less: Corporate Overhead (21,682) (24,000) (26,000) Total Segment EBITDA 124, , ,021 Total Segment EBITDA Growth NE 49.0% 13.4% Fully Diluted Shares O/S 34,862 38,571 39,571 Stock Price $63.00 $63.00 $63.00 Market Cap $2,196,275 $2,429,942 $2,492,942 Add: Debt Euro Million 8.25% 296, , ,596 Euro Million Floating 151, , ,324 Add: Total Debt 447, , ,920 Less: Cash Cash 105, , ,433 Net Debt 342, ,171 70,487 Total Enterprise Value $2,538,756 $2,680,113 $2,563,428 Total Segment EBITDA ex. Croatia 124, , ,021 TEV/EBITDA Value of Croatian Investment 24,000 24,000 24,000 Total Enterprise Value Less Croatia $2,514,756 $2,656,113 $2,539,428 Total Segment EBITDA ex. Croatia 124, , ,021 TEV/EBITDA Source: Company reports and Morgan Joseph & Co. Inc. estimates 25

26 Equity Division Research Carole Cranmer Managing Director Director of Research Ethel V. Hill Senior Vice President David Kestenbaum Senior Vice President Richard S. Paget Vice President Richard F. Rossi Managing Director Caroline Stewart Senior Vice President Erik Zamkoff Senior Vice President Christopher Bamman Research Associate James Leahy Research Associate Patricia Oey Research Associate Sales and Trading Michael Weitzner Managing Director Director of Sales & Sales Trading Matthew DiBiase Managing Director Director of Trading Ian Burgess Senior Vice President Frank Gauvain Senior Vice President John Lombardo Vice President Michael K. McCarty Senior Vice President Michael Racaniello Senior Vice President LOCATIONS New York Pittsford Nashville 600 Fifth Avenue, 19 th Fl 1173 Pittsford-Victor Road, Ste Fourth Avenue North, Ste 1050 New York, NY Tel Fax Pittsford, NY Tel Fax Nashville, TN Tel Fax Required Disclosures I, David B. Kestenbaum, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. expects to receive or intends to seek compensation for investment banking services from the subject company within the next 3 months. Meaning of Ratings: A) Buy (1) means Reasonable out-performance relative to the market over months. B) Hold (2) means Market-type risk adjusted performance; potential source of funds. C) Sell (3) means Expected to under-perform the market. Of the securities currently subject to research coverage by Morgan Joseph & Co. Inc., the percentage rated as a Buy is 61%; the percentage rated as a Hold is 39%; and the percentage rated as a Sell is 0%. In the previous 12 months, Morgan Joseph & Co. Inc. has provided investment banking services to 18% of the companies we currently rate as Buy ; to 5% of the companies we currently rate as Hold ; and to 0% of the companies we currently rate as Sell. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2005 by Morgan Joseph & Co. Inc.