69 Sustainability Report 2014 Commitments and future challenges Sustainability at PRISA ƒƒ Limits the ability to adapt to changes in markets and places the group at a disadvantage relative to less indebted competitors. Credit risk and liquidity The adverse macroeconomic situation, with significant declines in advertising and circulation and Pay TV subscribers, has been having a negative impact on the Group’s ability to generate cash flow in recent years, primarily in Spain. The advertising-dependent businesses have a high percentage of fixed costs, and falling advertising revenues thus significantly impact on margins and cash position, hindering the implementation of additional measures to improve the operational efficiency of the Group. Likewise, in the Pay TV business -- in a context of increased costs associated with the new football exploitation model, growing competition in the acquisition of content and aggressive marketing by certain operators offering content for free in combination with other services -- the resulting fall in subscriber revenues necessarily increases the time required to recoup those costs. This would directly affect the liquidity of the business, which might therefore require additional funding. As part of the agreement to refinance debt signed last December, the Group obtained additional credit facilities amounting to EUR 353 million to meet its liquidity requirements in the medium term. Minority interests in cash-generating units The Group has significant minority interests in its cash generating units, including education and Pay TV. Santillana is required to pay to its minority interest (25 % of its share capital) a predetermined fixed preferred dividend. The Group has access to Pay TV cash, in which there are 44% minority interests, through dividends. Exposure to interest rate risk Approximately 35% of its bank debt is at variable interest rates, and therefore the Group is exposed to fluctuations in interest rates. Consequently, in order to reduce its exposure, the Group arranges interest rate hedges. Exposure to exchange rate risk The Group is exposed to fluctuations in exchange rates basically due to financial investments in shares in Latin American companies, as well as revenues and results from these investments. In this context, in order to mitigate this risk, and where are credit facilities are available, the Group arranges hedges to cover the risk of changes in exchange rates (mainly foreign currency hedges and forwards) on the basis of projections and budgets, in order to reduce volatility in cash flows transferred to the Parent. Tax risks The Group’s tax risks are derived from potentially different interpretations of the rules that the relevant tax authorities might exercise, as well as the generation of taxable income to allow the recoverability of the tax credits. Additionally, a range of tax reforms in Spain has limited the deductibility of interest and depreciation expenses, leading to additional tax credits. Risk tolerance level PRISA has defined the tolerable error of risk with regards to financial information. According to this tolerance level, significant processes and accounts are duly identified by the control system for financial reporting. For other risks, impact the and the probability these occurring is assessed in order to determine their relative position in the Group’s and the business units’ risk maps. This review is conducted by senior management of the Group. Risks that have arisen during the year A number of financial risks arose in 2013, including the deterioration of investment in Pay TV and credits generated by deductions in export activities, as well as the impact on revenues due to the falling advertising market in Spain. In 2013 the adverse economic and consumer spending environment in Spain, exacerbated in the Pay TV market by increasing competition in the acquisition and offering of content from certain operators and the increase in VAT from 8% to 21%, has had a negative impact on the performance indicators for this business. A longer period of time will therefore be required to absorb the increased costs associated with the exploitation of football. With regard to deductions for export activity, in 2013 there were adverse judgments relating to some deductions. The Group, as detailed in Note 19 of the notes for the year 2013, has decided to provision deductions for this item ahead of a probable resolution against outstanding resources. Moreover, 2013 saw a continued slump in the advertising market in Spain, which has had a negative impact primarily on advertising revenue for the Group’s radio and print media businesses. Monitoring and response plans for major risks affecting the organization The Group continually monitors investments and conducts impairment tests for these at least annually or, where appropriate, when impairment indicators are noted. In this regard, the Group has assessed, in June and in December, its
Informe Anual EN
To see the actual publication please follow the link above