68 Sustainability Report 2014 Year in review PRISA, a global group Competition risk The audiovisual, education, radio and newspaper businesses which PRISA operates are all in highly competitive sectors. Similarly, with regard to the Pay-TV business, any operations by competitors may affect the ability of the Group’s businesses in this segment to attract new subscribers and increase penetration rate, and may also lead to an increased cost associated with the acquisition of new subscribers or the acquisition of television rights, which could in turn lead to a significant negative impact on the financial position and results in this area. Falling circulation Revenues from the sale of print press and subscriptions continue to be affected adversely by the growth of alternative means of distribution, including free websites for news and other content. Sectoral regulations PRISA operates in regulated sectors and is therefore exposed to regulatory and administrative risks that could adversely affect its businesses. Specifically, audiovisual and radio businesses are subject to the obligation to have concessions and licenses for the development of their businesses, while the education business is subject to the applicable education legislation in each country at national or regional levels. Country risk PRISA’s operations and investments in Latin America may be affected by a range of risks typically associated with investing in emerging economies, such as currency devaluation, restrictions on capital movements, inflation, expropriation or nationalization, tax changes, changes in policies and regulations, and instabilities. Risk of litigation PRISA is a party to significant litigation, which is detailed in the consolidated financial statements for the year 2013. Additionally, PRISA is exposed to liability deriving from the content of its publications and programs. Digital activity and network security systems Digital activities depend on Internet service providers, online service providers and systems infrastructure. Significant system failures or security breaches could have an adverse effect on the operating and financial results of the Group. Technological risks To maintain and increase the competitiveness of its businesses, PRISA must adapt to technological advances, for which research and development are crucial. Technological changes could lead to the entry of new competitors and their possible increase in market share at the expense of the Group. Financial risks Financing risks The Group’s financial obligations are detailed in Note 12 “Financial debt” in PRISA’s annual consolidated report for 2013. As described in the note, in the month of December, 2013, the Group signed an agreement to refinance its debt which represents an extension of maturities, greater flexibility in the process of reducing said debt and an improved liquidity profile. The refinancing agreement includes a number of commitments to debt reduction, and for whose compliance the Group has a range of strategic alternatives including the sale of non-strategic assets, repurchase of debt in the market at a discount, the leverage of operating assets, debt transfers between tranches, and other corporate transactions. The contract contains automatic mechanisms that prevent early termination under certain circumstances should such commitments not be met. The contracts governing borrowing conditions stipulate that PRISA must meet certain commitments and financial leverage ratios (covenants). These contracts also include cross-default provisions. Additionally, the current refinancing incorporates formal legal decision making mechanisms by qualified majorities in negotiation processes that previously were subject to unanimous consent on the part of financial institutions. The refinancing agreement also contemplates accelerated maturity, usual in these type of contracts, including the acquisition of control of PRISA, understood as the acquisition by a person or group of persons acting together, to acquire more than 30 % of the capital with voting rights. As of December 31, 2013, the Group’s bank debt amounted to 3.401 million euros. The level of indebtedness of the Group: ƒƒ Increases its vulnerability to economic cycles and changing market trends. ƒƒ Requires the use of part of the cash flows from operations to meet payment obligations, payment of interest and repayment of principal of the debt, reducing the ability to allocate these flows to meet working capital requirements, investment and to finance future operations. ƒƒ Exposes the Group to fluctuations in interest rates of the loans financed with floating interest rates.
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