The text below describes the major risk factors affecting the Group’s business operations. These risks could materially affect any or all of the Group’s businesses, financial position, liquidity or operating results. Additional risks and uncertainties of which the Group is not currently aware of could also adversely affect the Group’s performance and position.
MTG’s business is affected by the economic environment The general economic downturn could affect the demand for the Group’s products and services. These factors could in turn impact the value of the Group’s assets, the ability to repay its existing debt, the interest thereon, and to fulfil its debt covenants.
Substantial foreign exchange rate movements also increase the risk of adverse impacts on the Group’s income statement, balance sheet and cash flows. The Group is primarily exposed to the US dollar, in which the majority of programming content is acquired and the equity participation in CTC is accounted for, and to the euro in euro or euro-pegged currency markets. MTG hedges the main part of its US dollar, sterling and Swiss franc denominated contracted outflow on a forward rolling twelve-month basis, in order to reduce the impact of short-term currency translation effects on the Group’s cost base. The outflow primarily relates to programming content acquired in foreign currencies. The Group’s equity is not hedged, with the exception of part of the financing for the Nova Televizia acquisition, which was drawn down in euro.
MTG is reliant on debt capital markets to finance its operations General refinancing risks have increased due to the turbulence in the financial markets. The existing credit facilities are currently considered sufficient.
MTG’s business is affected by governmental rules and regulations. Changes to these rules and regulations, interpretations or failure to obtain approvals or licenses, could adversely affect the Group’s ability to operate and the results of its operations MTG is subject to extensive laws and regulations in the countries where MTG broadcasts its services. The laws to which MTG is subject include relevant European Union legislation such as the Audiovisual Media Services Directive and the Directives dealing with the regulatory framework for Telecoms. The Audiovisual Media Services Directive updates the previous Television without Frontiers Directive and is expected to be implemented by all Member States before the end of 2009. MTG’s businesses are also subject to numerous other laws and regulations and authorities may introduce additional or new regulations affecting the business operations. Changes in regulations to licensing, access requirements, programming transmission, consumer protection, commercial advertising or taxation in particular may affect aspects of the business operations, or those of MTG’s competitors, and could have a materially adverse impact on the business and the results of the Group’s operations.
MTG operates in highly competitive environment that is subject to rapid change Competition arises from a broad range of companies offering communication and entertainment services, including operators of cable TV, digital and analogue terrestrial networks, providers of internet and interactive services, and betting and gaming companies. The means of delivering various services may be subject to rapid technological change and MTG’s competitors’ positions may be strengthened by an increase in their capacity or further development.
MTG’s ability to compete successfully depends on the ability to continue to acquire and produce programming content and package content that is attractive to subscribers. MTG cannot ensure that such programming content or programming services will be attractive to customers, even if available.
The future demand and speed of take-up of MTG’s DTH services, IPTV broadband services and value-added services like the ViasatPlus, a service with a recordable digital box, will depend on MTG’s ability to offer them to customers at competitive prices, competing services, and the ability to create demand for products, as well as to attract and retain customers through a wide range of marketing activities. Viewers with ViasatPlus digital boxes or viewers of on-demand programming may choose not to view advertising including that on Viasat Broadcasting channels.
MTG cannot ensure that the current or future marketing and other activities will succeed in generating sufficient demand to achieve operating targets.
MTG is expanding into new territories The Group has expanded into new territories in Eastern Europe and Africa during the past few years and its goal is to continue to do so. The expansion has involved both the acquisition of broadcasting licences and companies, as well as investments in programming and the addition of new channels.
MTG is exposed to regional economies and advertising markets in Europe and, to a lesser extent in Africa, which could favourably or adversely affect the results of MTG’s business operations.
MTG has only limited control of its associated companies and the success of investments depends on the actions of MTG’s co-owners MTG conducts some of its business through associated companies, in which MTG does not have a decisive control, such as CTC Media in Russia. As a result, the Group has limited influence over the conduct of these businesses. The risk of actions outside the Group’s or the associated companies’ control, or adverse to MTG’s interests, is inherent in such associated entities.
MTG’s business is reliant on technology, which is subject to the risk of failure, change and development MTG is reliant on encrypted broadcasting and other technologies to restrict unauthorised access to MTG’s services. Unauthorised viewing and use of content may be accomplished by counterfeiting smart cards or otherwise overcoming security features.
MTG is dependent upon satellites that are subject to significant risks and may prevent or impair proper commercial operation, including defects, destruction or damage, or lack of capacity.
MTG is reliant on third party cable network operators to distribute a large part of its programming.
Any failure of MTG’s technologies, network or other operational systems or hardware or software, which results in significant interruptions to its operations, could have a materially adverse effect on its business.
MTG depends on recruiting and retaining skilled personnel To remain competitive and be able to implement its strategies, MTG depends on being able to recruit and retain skilled personnel. The extent to which this will be possible is among other things due to the ability to offer competitive remuneration packages. Failure to do so may adversely affect MTG’s competitiveness and the development of its operations.
MTG is reliant on key suppliers for the provision of important equipment and services MTG is reliant on consistent and efficient suppliers. Any failure to meet requirements, delays in delivery or lack of quality may impact MTG’s ability to deliver its products and services.
Financial policies and risk management
Financial policy The Group’s financial risk management is centralised to the parent company, in order to capitalise on economies of scale and synergy effects in the financial sector and to minimise operational risks. The Group’s financial policy is subject to review and approval by the Board of Directors and constitutes a framework of guidelines and rules for financial risk management and financial activities in general. The Group’s financial risks are continuously evaluated and followed up to ensure compliance with the Group’s financial policy.
Foreign exchange risk is divided into transaction exposure and translation exposure. The main transaction exposure of unmatched contracted programme acquisition outflows are hedged through forward exchange agreements on a rolling twelve months basis. Other transaction exposure is not hedged. The exposure is described in Note 22 to the Accounts in this report.
Translation exposure arises from the conversion of the Group’s subsidiaries earnings and balance sheets into the Swedish krona reporting currency from other currencies. Since many of the subsidiaries report in currencies other than Swedish krona, the Group is exposed to exchange rate fluctuations. Part of the financing of the net investment in Nova was raised in euro, which is recognised as a hedging instrument. Other translation exposure is not hedged.
Interest rate risk MTG’s sources of funding are primarily shareholders’ equity, cash flows from operations and borrowing. Interest-bearing debt exposes the Group to interest rate risk. The Group does not currently use derivative financial instruments to hedge its interest rate risks.
Financing risk All external borrowing is managed centrally in accordance with the Group’s financial policies. Loans are primarily taken up by the parent company, and transferred to subsidiaries as internal loans or capital injections. There are also companies, including the 50% owned, who have external loans and/or overdraft facilities connected directly to these companies.
Credit risk The credit risk with respect to MTG’s trade receivables is diversified among a large number of customers, both private individuals and companies. High credit ratings are required for all material credit sales and solvency information is obtained to reduce the risk of bad debt expense.
Insurable risks Insurance cover is governed by corporate guidelines. The business units and other units, which are responsible for assessing such risks, decide the extent of actual coverIn line with MTGs values and corporate social responsibility in conducting its business,
MTG has the following principles and guidelines:
• Acting with honesty and integrity
• Commitment to free and open competition
• Compliance with laws and regulations and corporate policies
• Compliance with all competition and anti-trust laws
• Non-participation in party politics and never making political contributions
• Prohibition on bribes or other unlawful payments