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Information on financial risk management

The Audit Committee at TX Group AG monitors risk management of the company and approves the consolidated risk report. Risk management is broken down into risk spheres, which are dealt with centrally within the TX Group or locally within the sub-groups. The risk officers designated by the Group management board identify, assess and manage risks with targeted measures throughout a periodic, systematic process.

Key drivers of risks are the acceleration of structural change within the media industry as a result of the COVID-19 pandemic, changes in the behaviour of media consumers and advertising customers, tougher competition through new media offerings from global providers such as Facebook, Amazon, YouTube, Instagram or TikTok and changes in the broader economic and legal situation.

Market risks are considered for the individual sub-groups and addressed with targeted measures.

Market risks for TX Markets include the significant increase in pressure from the competition. This pressure in the core markets served by TX Markets is mainly increasing on account of massive investments in general classifieds by major international players (Google, Facebook, etc.). The efforts to contend with the pressure are focused on market and portfolio consolidation in Switzerland, investments in market-leading positions and expansion both along the value chain and, selectively, at an international level. There is also a risk to the wider economy, particularly in the job market, due to developments relating to COVID-19. This is being met with specific customer support measures and cost management.

Following a slump in revenue in 2020, Goldbach is expecting the advertising market to recover over the following year. Gloomier economic forecasts represent a market risk. Another risk would be a failure to anticipate an acceleration in the decline in the print advertising market as a result of the pandemic. Measures are evaluated with publishers, and the aim is to tap into new income sources by way of compensation.

In terms of the TV market, the decline in coverage associated with time-shifted television and the related avoidance of advertisements as well as the increasing competition from streaming providers represents a major risk. As regards the online business, there is a risk that ad impressions will decline as a result of greater focus on net coverage and the death of the cookie. Measures include the development of a measurement methodology, the creation of new advertising formats and the introduction of a convergence approach.

The COVID-19 pandemic and its consequences for public life have accelerated the migration of advertising expenditure from print to digital at 20 Minuten. Given the significant coverage in Switzerland, a loss of market share due to domestic and foreign competition represents a further significant risk. To best facilitate the transition from print to digital, ongoing improvements are being made to the print product and strict cost management is being applied. Further investments are also being made in the digital presence, with more prominence being given to audio (particularly podcasts) as part of a targeted approach. The video and story lines have seen the successful launch of new formats (NOW!, One Love, etc.). There is a policy of actively dedicating resources to new platforms (TikTok etc.) that are finding favour with the young target group in particular. From an organisational perspective, resources are being pooled in French-speaking Switzerland to create a specialist new social media team from 1 January 2021. Additional measures were put before the Board of Directors of the sub-group in December 2020.

For Tamedia, the main risks are the disruptive slump in the print advertising market, the decline in the print readers market and short-terms dips in third-party customer business at the printing centres. In close collaboration with Goldbach Publishing, there is a drive towards variable marketing costs and improvements are being made to advertising offerings. The consistent focus on mobile content, improving product usability and automated guidance of customers down the sales funnel has led to gains in the digital user market that are helping to cushion losses in the print readers market. In terms of third-party customer business at printing centres, the focus is on maintaining close relationships with customers and on constantly optimising the cost structure.

As regards the portfolio companies of TX Ventures, there is a risk that valuation multiples (e.g. EV/sales or EV/EBITDA) for comparable companies might tail off on the capital market, which would have a negative effect on the value of the respective company. This risk is addressed by means of conservative valuation mechanisms and continuous valuation. Investments that have still show a positive EBITDA are exposed to certain funding risks (access to capital). Continuous liquidity planning is intended to facilitate early detection of any funding risks. We also monitor regulatory risks that could have an impact on the bottom line (price/service offering). These risks are generally addressed by adjusting pricing and packages.

New projects at home and abroad, technical faults affecting IT systems and the rise of cyber crime are also considered to present risks. Patch management and new cyber defence systems are being introduced to counter these. In contrast, risks associated with operational errors and weaknesses or natural hazards are assessed as being less critical.

Interest rate risk

Interest rate risk is managed centrally. Short-term interest rate risks are generally not hedged. As of the balance sheet date, there were no hedges of long-term interest rate risks.

The risk resulting from changes in market interest rates mainly relates to current and non-current financial liabilities.

The following table provides details of the items that are subject to interest rate risks and shows the impact of a possible change in interest rates on the Group’s net income before taxes.

  2020   2019
in CHF 000   Variable
interest rate
  Fixed
interest rate
  Variable
interest rate
  Fixed
interest rate
Assets                
Cash and cash equivalents   276 153     291 194  
Loans receivable     761     457
                 
Liabilities                
Liabilities to banks and bank loans     2 000     22 072
Loans payable   2 885   14 970   4 318   10 803
                 
Impact on earnings before taxes at a change of +/– 0.1%   +/– 273       +/– 287    
Currency risk

Risks relating to exchange rate fluctuations may result in particular from the purchase of paper or investments. Currency risks are hedged centrally, by means of cash flow hedges, and thus minimised to the extent that such action is considered expedient.

At present, currency risks result mainly from purchases made in foreign currency and whose revenues are generated predominantly in Swiss francs, as well as investments in other companies that are managed in a foreign currency. The equivalent value of purchases in foreign currency amounted to CHF 74.7 million in 2020 (previous year: CHF 99.2 million). The risks applied for the most part to transactions in euro and were hedged for paper purchases in 2021 in the amount of CHF 29.8 million (hedging in 2019 for paper purchases in 2020 amounted to CHF 41.7 million). The above purchases in foreign currency do not include those made by foreign Goldbach Group companies since the latter’s purchases are not exposed to any material currency risk on account of revenues also being accrued in euro. Nothing is done to hedge the foreign currency risk associated with investments. Details of the hedges for 2019 using forward exchange transactions can be found in Note 35. Details of the system for recognising these cash flow hedges can be found in the measurement principles.

The effects on net income before taxes of a possible change in the exchange rates of 5 per cent on the items in the balance sheet in in euro, US dollars, Danish krone, Serbian dinar and Israeli shekel amounted to CHF -0.1 million as at the end of 2020 (previous year: CHF -0.8 million).

Credit default risk

Trade accounts receivable are constantly monitored using standardised processes that are also supported by external debt collection partners. Standard guidelines are used to make the necessary value adjustments (see also: Measurement guideline for accounts receivable). The threat of cluster risks is minimised by the large number and broad distribution of receivables from customers across all market segments. Quantitative information on credit risk resulting from operations can be found in Note 16 “Trade accounts receivable”.

The credit risk to which cash and cash equivalents and other financial assets are exposed relates to counterparty defaults, in which case the maximum risk is the carrying amount. Cash and cash equivalents are mostly held at three big Swiss banks, of which the credit default risk is rated as low based on the current Standard & Poor’s credit ratings.

Liquidity risk

The risk of not having access to sufficient liquidity to settle liabilities is covered by a liquidity plan, which is continuously updated. The liquidity plan takes both day-to-day operations and accounts receivable and liabilities into account.

In order to optimise the available financial resources, liquidity management and long-term financing are undertaken centrally. This means that capital can be procured cost-effectively and ensures that the liquidity available matches the payment obligations.

The due dates of financial liabilities are shown in the table below.

in CHF 000   Not yet due/
at call
  Up to
3 months
  4 to
12 months
  Due between
1 and 5 years
  Due beyond
5 years
  Total
2020                        
Financial liabilities   5 072   4 484   10 860   57 908   18 596   96 920
of which derivative financial instruments            
of which lease liabilities     4 450   10 410   38 039   18 596   71 495
Trade accounts payable   69 073           69 073
Other liabilities   15 234           15 234
Total   89 379   4 484   10 860   57 908   18 596   181 226
 
                         
2019                        
Financial liabilities   21 827   3 362   9 975   47 181   5 497   87 843
of which derivative financial instruments     143   429       572
of which lease liabilities     3 186   9 103   29 790   5 497   47 577
Trade accounts payable   81 137           81 137
Other liabilities   10 339           10 339
Total   113 303   3 362   9 975   47 181   5 497   179 319
Capital management

The capital defined in conjunction with capital management corresponds to reported equity.

Capital management ensures that the necessary capital for operational activities can be made available from funds earned by the Group itself and that financial liabilities can usually be settled from the Group’s own funds within a period of three to five years. The dividends paid to shareholders are adjusted as a means of managing capital. The aim is to pay dividends to shareholders in the range of 35 to 45 per cent of net income and to report an equity ratio that is significantly higher than 50 per cent over the long term.