Modern Times Group entered 2009 having delivered its strongest ever performance in 2008. It is reassuring to see this proof of our fundamentally robust multi-channel and multi-territory strategy, when advertising and consumer spending is declining around the world. It is also in times like these that the principles that guide businesses come into focus and mark out those who have the required staying power. MTG is guided by strict principles and prudent decision-making policies when it comes to cash management, cost control, investments, and the Group’s overall capital structure. The application of these principles is the basis for the continued long term success of the Group.
Group revenues increased by almost two billion Swedish krona or 16 per cent to 13,166 million krona in 2008. This sales performance reflected the strength of our media house strategy and increased market shares for our Nordic and Emerging Markets broadcasting businesses. The underlying growth rate, when excluding acquisitions and divestments, was 15 per cent. Exchange rate movements during the year had a positive impact on Group sales growth of 2 per cent.
Viasat Broadcasting generated 18 per cent growth in 2008, with each of the four segments delivering double digit sales growth. The accelerating growth at the beginning of the year generally slowed down in the second half of the year due to the initial effects of the more challenging operating environment and comparison with our strong revenues in the second half of 2007.
Operating costs increased by 14 per cent, when excluding the impact of the divestment of DTV Group and the goodwill impairment charge in the Online business area in the second quarter of 2008. The primary contributors to this growth were the development of new free-TV channels in Norway, the Baltics and Hungary; the addition of new channels to the Group’s pay-TV platforms; the consolidation of Nova Televizia in Bulgaria; the launches of the Ukrainian and Ghanaian businesses; ongoing programming investments and investments in MTG’s Online business area.
MTG hedges the main part of its US dollar, sterling and Swiss franc programming costs on a rolling twelve month basis, in order to reduce the impact of currency exchange rate volatility on programming content acquisition.
Despite this increase in costs, MTG reported its highest ever group profits in 2008. Operating profits, when excluding extraordinary items, were up 28 per cent to 2,598 million krona and the underlying group operating margin therefore increased from 18 per cent to 20 per cent. The extraordinary items comprised a 1,150 million krona net gain arising from the sale of DTV Group in Russia in April and a 76 million krona non-cash impairment charge in the Online business area in the second quarter.
Lower corporate tax rates in Sweden and the UK, as well as tax effects related to the acquisition of Nova, reduced the Group’s overall underlying tax rate from 29 per cent in 2007 to 27 per cent in 2008. The gain from the sale of DTV Group was not subject to taxation. Net income more than doubled to 2,927 million krona in 2008 for the year, as did the Group’s earnings per share to over 43 krona.
The strong operating performance in 2008 resulted in a more than doubling of net cash flow from operations to over 1.9 billion krona, with the pay-TV business in particular delivering increasing and predictable cash flows.
Working capital as a percentage of sales was reduced from 4.5 per cent to 3.4 per cent in 2008. The operations will tie up more working capital moving forward as our operations grow and we expect continued swings between the quarters. We continue to focus on our cash flows and on reducing non-essential expenditure and investments. We also continue to run our business in a capital efficient way – capital expenditure represents approximately 1.5 per cent of Group sales.
The sale of DTV Group Russia raised 395 million US dollars of cash, which was reinvested into EU member Bulgaria through the 620 million euro acquisition of Nova. The balance of the financing was drawn down from a new 3.0 billion krona credit facility that we arranged in the summer and our existing 3.5 billion krona credit facility. Nova was consolidated from mid October. At the same time, 1.3 billion krona was returned to shareholders in 2008 by means of dividend payments and share buy-backs during the first half of the year.
2008 was ended with 2.9 billion krona of available liquid funds. This comprised both cash and cash equivalents of 975 million krona, as well as the undrawn part of our credit facilities. The Group’s return on equity was 26 per cent in 2008 and the return on capital employed was 31 per cent.
The Group had a net debt position of 3.6 billion krona at year end. This was equivalent to 1.3 times underlying Group EBITDA for the year. The terms and conditions of the Group’s borrowing agreements are favourable, with comfortable covenants and competitive interest rates. The Group’s 3.0 billion krona term loan matures in April 2010 and the 3.5 billion krona facility expires in February 2011.
With our solid financial position, we have the flexibility to make selective investments in the long-term growth and profitability of our business at a time when many of our competitors are not able to do so. We are at the same time committed to continuing to deliver shareholder value, both in good times and in challenging times. The Board is therefore proposing to this year’s AGM that the ordinary dividend be maintained at 5 krona per share. This would then amount to a total cash dividend payment of approximately 330 million krona.
The overall environment is increasingly challenging, as it is for companies all over the world, Therefore we continue to reduce all non-essential costs in the Group but also continue to invest where we see particularly strong opportunities to advance our positions, such as investments in channel launches in Denmark and the Czech Republic and pay-TV subscriber acquisition investments in Denmark and Norway. MTG has structural tailwind from ongoing or planned analogue shut-downs in several of our markets, which we expect to continue to benefit from.
We remain confident that our way of doing business, of running our operations and of managing our cash will enable us to further strengthen our positions in the current environment.
Mathias Hermansson
Chief Financial Officer