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 could also adversely affect the Group’s performance and position.
MTG’s business is affected by the economic environment The general economic cycle can affect the demand for the Group’s products and services. These factors can 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 impact on the Group’s income statement, financial position 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, pound 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 relates to programming content acquired in foreign currencies. The Group’s equity is not hedged.
MTG is reliant on debt capital markets to finance its operations General refinancing risks have stabilised during the year, following the turbulence in the financial markets as a result of the 2008 and 2009 global financial crisis. The Groups’ existing credit facilities are currently considered sufficient.
MTG’s business is affected by laws, rules and regulations. Changes to these laws, rules and regulations, and the outcome of court cases could positively or adversely affect the Group’s ability to operate and the results of its operations The business is currently facing the possibility of two potentially significant changes. The UK regulator is in the processes of reviewing its rules regarding the amount of advertising which commercial broadcasters may show. Changes may have an adverse effect on the Group’s UK established free-TV channels.
A case is currently pending with the European Court of Justice relating to the sale of conditional access cards and decoders and the broadcast of Premier League matches, the outcome of which may have an impact on the way that programming rights are sold within Europe. Any such change may have an adverse effect on the Group’s business.
It should be noted that additional changes affecting licensing, programme transmission, consumer protection, commercial advertising or taxation in particular may affect aspects of the business operations, or those of MTG’s competitors, which could have an impact on the business and the results of the Group’s operations, but MTG is not aware of any imminent changes which would have a materially adverse impact.
MTG operates in a 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 be certain 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 services and value-added services like ViasatPlus, a service with a recordable digital box, or the internet streaming ‘over the top’ Viaplay service, will depend on MTG’s ability to offer them to customers at competitive prices, with competing service offerings, and the ability to create demand for products, and 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 be certain 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 acquisitions of broadcasting licences and companies as well as investments in programming and the addition of new channels to the Group’s portfolio.
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. The political and economical risks on some of these markets may be regarded as higher than those prevailing on MTG’s Scandinavian markets. Further, the expansion results in an increased exposure to foreign currencies.
MTG has only limited control over its associated companies MTG conducts some of its business through associated companies in which the Group does not have a decisive controlling stake, 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 MTG is reliant on encrypted broadcasting and other technologies to restrict unauthorised access to the Group’s services. Unauthorised viewing and use of content may be accomplished by counterfeiting smart cards or otherwise overcoming security features.
MTG depends 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 has a significant amount of intangible assets with indefinite lives that is not amortised. If events or changes in the economic environment cause a reduction of the fair value of the assets, MTG may have to recognise impairment losses that can adversely impact net income. Further, other intangible assets which are amortised may face a reduction in the fair value, causing impairment losses.
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, related to the Group’s 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. 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, as well as 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. The exposures are described in Note 22 to the Accounts in this report.
Foreign exchange risk Foreign exchange risk is divided into transaction exposure and translation exposure.
Transaction 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.
Translation exposure 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, recognised as a hedging instrument. The loan was repaid in 2009. 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 those where the Group owns a 50% interest, 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 cover.