MODERN TIMES GROUP MTG AB ANNUAL REPORT & ACCOUNTS 2005 MODERN TIMES GROUP MTG AB ANNUAL SIZ MODERN TIMES GROUP MTG AB ANNUAL REPORT & ACCOUNTS 2005 CONTENTS 04 CHIEF EXECUTIVE’S INTRODUCTION 06 HIGHLIGHTS 08 BIGGER: EXPANDING THE FOOTPRINT 10 FASTER: CUTTING-EDGE TECHNOLOGY 12 STRONGER: THE HOME OF ENTERTAINMENT 14 BETTER: CHIEF EXECUTIVE’S REVIEW 16 GROUP OVERVIEW 17 FIVE YEARS WITH MTG 18 EXECUTIVE MANAGEMENT 20 VIASAT BROADCASTING – OVERVIEW 22 VIASAT BROADCASTING – SCANDINAVIA: FREE-TO-AIR TV 24 VIASAT BROADCASTING – NORDIC: PAY-TV 26 VIASAT BROADCASTING – CENTRAL AND EASTERN EUROPE 28 MTG RADIO 30 MODERN STUDIOS 31 HOME SHOPPING 32 BOARD OF DIRECTORS 34 CORPORATE SOCIAL RESPONSIBILITY 36 CORPORATE GOVERNANCE 39 INTERNAL CONTROL ANNUAL AND CONSOLIDATED REPORT 40 DIRECTORS’ REPORT 44 THE MTG SHARE 45 CONSOLIDATED INCOME STATEMENT 46 CONSOLIDATED BALANCE SHEET 48 CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY 49 CONSOLIDATED CASH FLOW STATEMENTS 50 PARENT COMPANY INCOME STATEMENT 50 PARENT COMPANY BALANCE SHEET Z51 PARENT COMPANY CHANGES IN E SHAREHOLDERS’ EQUITY 52 PARENT COMPANY CASH FLOW STATEMENTS 53 NOTES 74 AUDITORS’ REPORT 75 ANNUAL GENERAL MEETING 75 FINANCIAL CALENDAR 76 DEFINITIONS & KEY RATIOS 77 ADDRESSES Narva. Printed by Elanders. Photography: Pages 15 and 18 by Nikky English. MAT MTG Annual Report 2005 01 TTE 02 MTG Annual Report 2005 ERS MTG Annual Report 2005 03 “MTG IS ALL ABOUT MAXIMISING THE POWER OF ENTERTAINMENT. OUR CHANNELS REACH 86 MILLION TV VIEWERS IN 21 COUNTRIES EVERY DAY, AND WE HAVE THE SECOND LARGEST BROADCAST FOOTPRINT IN EUROPE.” 04 MTG Annual Report 2005 Hans-Holger Albrecht President and Chief Executive Officer MTG Annual Report 2005 05 MTG MTG GROUP > SEK 1,285 million record operating profit > Net sales up 18% to SEK 8,012 million > Pre-tax profit of SEK 1,567 million > Proposal to distribute Metro International shares to MTG shareholders 06 MTG Annual Report 2005 GROUP HIGHLIGHTS FREE-TO-AIR TV PAY-TV NORDIC CENTRAL & EASTERN EUROPE SCANDINAVIA 17% +128,000 11,541,000 OPERATING MARGIN NET NEW PREMIUM SUBSCRIBERS SUBSCRIBERS TO FIVE VIASAT PAY-TV CHANNELS ACROSS 17 COUNTRIES > Net sales up 11% to SEK 2,912 > Net sales up 13% to SEK 2,633 > Net sales up 72% to SEK 813 million million million > Operating profit of SEK 335 million, > TV3 – No. 2 commercial channel in > 603,000 premium subscribers including associated company income Sweden & Denmark and > Operating margin of 19% from CTC Media in Russia No. 3 in Norway > More than 50 own-produced & third > TV3 – No. 1 commercial channel in > Secondary niche channels – ZTV party channels distributed on Viasat Estonia, Latvia & Lithuania (Sweden and Norway) & TV3+ satellite platform in Sweden, Norway, > Secondary niche channels – 3+ (Denmark) Denmark & Finland (Estonia, Latvia), Tango TV (Lithuania) > Distributed on Viasat satellite > TV Prima – No. 2 commercial network platform and via third party cable, in Czech Republic digital terrestrial and IPTV networks > Viasat3 – No. 3 commercial network in Hungary > DTV – National TV network in the fast growing Russian market > CTC Media – MTG is biggest shareholder in largest independent TV broadcaster in Russia MTG Annual Report 2005 07 MTG’S TV CHANNELS REACH 86 MILLION PEOPLE IN 21 COUNTRIES ACROSS EUROPE MTG launched its first commercial TV channel, TV3, in Scandinavia in 1987. Back then, only 1.2 million viewers were able to watch Sweden’s first commercial TV channel. 18 years later, as MTG came of age, more than 86 million viewers in 21 countries are able to enjoy over 35 MTG entertainment channels, which are distributed in markets with a combined population of over 360 million people – the second largest geographical broadcasting footprint in Europe. MTG continued to expand this footprint in 2005 with the acquisition of 50% of Czech TV broadcaster ‘TV Prima’. Dominated by a few key players, the Czech market presents unique characteristics and a dynamically changing environment. MTG’s entrance into one of the most prosperous economies in Central and Eastern Europe demonstrates the Group’s commitment to take advantage of new growth opportunities where attractive new opportunities arise. MTG also further expanded its wholesale or mini-pay business during the year with the addition of 5 million new subscribers. In total, five Viasat pay-TV channels (TV1000, Viasat Explorer, Viasat Sport, Viasat History, TV1000 Russian Kino) are now distributed by third party operators and attract over 11.5 million subscribers in 17 countries across Central and Eastern Europe. MTG’s journey began back in 1987 in Scandinavia, expanded East into the Baltics in the early 90s, into Hungary and Russia with the dawning of the new Millennium, and now across the Central & East European region. New territories are there to conquer and the journey continues ... BIGGWE’RE GETTING EXPANDING THE FOOTPRINT 08 MTG Annual Report 2005 ER MTG Annual Report 2005 09 FAWE’RE EVEN 10 MTG Annual Report 2005 WATCHING TV JUST COULDN’T BE EASIER Innovation and technology. Challenging old truths and established conventions. Exploring new market opportunities. Working harder & faster than the competition. MTG introduced its latest innovation, the Viasat+ Personal Video Recorder, during the last few months of 2005. Viasat+ enables ‘Gold’ package premium subscribers to take control of their TV viewing experience and set their own programming schedules. Viasat+ is a satellite receiver and a digital video recorder in one box and is integrated with Viasat’s Electronic Programme Guide (EPG) to enable subscribers to record, plan and view their favourite entertainment programming with a new remote control. Viewers can record up to 60 hours of programming on the box’s hard drive, while the decoder’s double tuner permits viewers to watch a recorded programme and, at the same time, record two other programmes. Viewers can also record an entire TV series or genre of programming with one setting. What’s more, live broadcasts can be paused and even rewound. It just doesn’t get any easier to watch what you want when you want. STER CUTTING-EDGE TECHNOLOGY MTG Annual Report 2005 11 THE HOME OF ENTERTAINMENT MTG provides its viewers with the latest Hollywood and local > YOUR NO.1 IN SPORTS language blockbuster movies, coverage of major national and MTG offers its viewers a peerless portfolio of sports international sports, in-depth documentaries, kids programming, broadcasting rights across its territories. MTG has continued and the most popular own-produced and third party produced to secure the very best in sports entertainment and now drama and reality series. has the broadcasting rights to live coverage of every UEFA Champions League match; the Formula 1 Motor Racing World A compelling mix of content from major Hollywood studios; Championship; the Danish football Premier League; the FA strategic one-off acquisitions; and powerful local productions Cup; first division football in England; the French football position MTG as a leading entertainment broadcaster in the Premier League; the Dutch football League; Swedish, Danish regions where it operates. and Norwegian national football team games; Golf’s British Open, European Tour, US PGA Tour, Ryder Cup…and many many more leading sports events. > YOUR NO.1 IN MOVIES MTG’s commitment to deliver the absolute best in big screen entertainment is proven by the no less than six niche, thematic, dedicated, high quality Viasat TV1000 movie channels. The channels are exclusively devoted to providing movie lovers with a choice of the latest box-office hits around the clock, which included blockbusters such as The Passion of The Christ, Kill Bill Vol. 1 & 2 and Spiderman 2 in 2005. STROWE’RE EVEN THE HOME OF ENTERTAINMENT 12 MTG Annual Report 2005 NGER MTG Annual Report 2005 13 Chief Executive’s Review Size matters Last year’s annual report existing customers and also to offer 2005 was another year of healthy focused on ‘choices’ – for existing services to new customers. growth for MTG and saw us report the viewer, consumer Our footprint increased during the record operating profits – up 90% and advertiser – and our year to a record new level of over year on year on an underlying basis. commitment to making 360 million people in 21 countries, The Group also reported strong our content and products which is the second largest operating cash flow and we used the geographical broadcast footprint proceeds of the sale of our shares in as broadly available as in Europe. Our size enables us to Sweden’s TV4 at the beginning of possible on multiple and benefit from structural changes in the year to finance the acquisition of rapidly evolving distribution our core Scandinavian markets, as our interest in TV Prima. The balance platforms. well as to increase our exposure sheet was therefore strengthened to the faster growing markets in even further and we ended the year We delivered on this commitment Eastern Europe. in a net cash position. We have during 2005 by launching new continued to review a wide range channels and networks, by Size has also always been important of investment opportunities, but we increasing our shareholdings in key to us because it enables us to did not generate an increased return assets, by launching new services, extract synergies and benefit from on capital employed of 22.1% in by increasing our penetration and, economies of scale. It is not just 2005 by chasing the wrong deals. at the end of the year, by acquiring geographical coverage that matters, Our financial position continues to 50% of Czech network ‘TV Prima’. but also the range and depth of provide us with significant flexibility The latter deal demonstrates how offering. The fact that we operate and the opportunity to seize we think about acquisitions, value free-to-air TV channels, a pay-TV appropriate opportunities as they drivers and market opportunities.