The financial and operating environment stabilised in almost all of MTG’s operating territories towards the end of 2009 and in to 2010. As a result, the advertising markets have also stabilised in all markets expect the Baltics, where the Latvian and Lithuanian advertising markets have continued to decline year on year but at lower levels. MTG remains well-positioned to continue to take audience and market shares due to the beneficial effects of the digitalisation of television broadcasting, MTG’s position as the challenger to the incumbent in almost all of its markets, and the investments that the Group has made in its existing and new channels and platforms.
Five strategic objectives were set in June 2007 that reflected the Group’s performance targets over the five year period to the end of 2011. One of the targets was set aside after the sale of DTV Group Russia in early 2008, and the Group had otherwise been making good progress towards the other targets prior to the financial crisis and economic recession. The economic downturn has clearly adversely affected the Group’s short term delivery against the strategic objectives and, therefore, caused a delay to the delivery of some of the targets. However, the focus underlying the objectives remains the same – MTG is a growth company that should generate double digit organic sales growth in normalised market conditions, with healthy double digit operating margins and high levels of cash conversion. Furthermore, the Emerging Markets TV broadcasting businesses will contribute an increasing proportion of the Group’s revenues and profits over time. Finally, the Group has clear return on investment and equity criteria, and these metrics should increase over time.
Moving into 2010, the level of market outperformance that MTG’s free-TV Scandinavian operations achieved in 2009 is unlikely to be repeated, but the operations will continue to benefit from rising channel penetration levels, rising combined target audience shares, and the closing of the pricing gap to the incumbent channel in each country. The business will selectively invest in its programming schedules and seek to monetise its share of viewing more effectively.
The Nordic pay-TV business has proved resilient to the downturn and grown its premium subscriber base and ARPU. Ongoing subscriber growth will be driven by the Group’s virtual operator status on the leading IPTV networks in the region, whilst premium DTH ARPU is also expected to grow as a result of price increases and the up-selling of customers to higher ARPU value-added services such as HDTV and multi-room subscriptions. Premium content costs are expected to rise in line with the market, and subscriber acquisition costs will depend primarily on the amount of satellite subscriber acquisition on the Viasat DTH platform.
The Emerging Markets free-TV business is heavily geared to the performance of the Baltic, Bulgarian and Czech advertising markets in particular. MTG expects to continue to take audience and advertising market shares as a result of the investments that it is making in its programming schedules and channels. The Group is investing in the development of the early stage Slovenian and Ghanaian channels, and evaluating opportunities to expand its footprint in sub-Saharan Africa.
The Emerging Markets pay-TV business is expected to report continued healthy growth, but at lower levels than in 2009 due to consumer price sensitivity and the already high household penetration of Viasat’s channels in most markets. The Ukrainian and Russian DTH platforms will provide the subscriber growth engine, but with relatively low ARPU levels. The platforms are also in their investment phase and will therefore to some extent offset the profitable Baltic platform and wholesale channel business.
The Group’s Radio businesses are expected to benefit from any improvement in the advertising markets in Sweden and Norway in particular, whilst the Online business should continue to benefit from the shift in retail sales from the high street to the internet, and its market leading position across a number of product categories. The Modern Studios content production businesses have been refocused to a broader genre, are profitable, and are well positioned to benefit from rising content prices over time.
As a whole, the Group therefore expects to report continued growth and healthy margins moving forward. The Group’s Swedish krona reporting currency has however strengthened from low levels against the Group’s local market operating currencies. The Group’s underlying sales growth at constant exchange rates is therefore expected to be higher than the reported growth, and the cost base will also be affected by these year on year currency exchange rate effects.
Finally, the Group’s strong and flexible financial position is expected to enable it to continue to invest organically in the growth of its broadcasting businesses, to seize appropriate acquisition opportunities as and when they arise, and to continue to return cash to shareholders.