2007 Annual Report

2007 Annual Report – Explanatory Notes
Sensitivity analysis
The financial instruments exposed to EUR/USD exchange rate risk, mainly including payables for the purchase of
rights and currency denominated derivative contracts, were subject to sensitivity analysis as of the date of preparation
of these financial statements. The value entered in the financial statements regarding such financial instruments
was adjusted by applying a symmetrical percentage variation to the period-end exchange rate equal to the implicit
volatility at one year of the currency of reference published by Reuter and corresponding to 8.4%. (6.97% for
2006).
This sensitivity analysis for the derivatives under cash flow hedge accounting brought the impact of the spot value
changes in a reserve of the Shareholders’ equity, while the variation due to the ineffective component is entered in
the income statement, consistently with the method defined in the hedging relationship.
The table below shows, in brief, the variations in the Group’s result and Shareholders’ equity according to the sensitivity
analysis carried out net of the relevant tax effects calculated on the basis of the theoretical rate applicable as of
the date of closing:
EUR/USD exchange
as at 31 december
2007 1.4721
2006 1.3170
rectified
EUR/USD exchange rate
% change
+8,4%
-8,4%
+6,97%
-6,97%
through
Economic Result
through
Equity Reserve
Total
Shareholders'
Equity
1.5958 -0.3 -14.8 -15.1
1.3484 0.1 17.5 17.5
1.4088 0.5 -2.1 -1.6
1.2252 -1.0 2.4 1.3
Changes of the equity reserve in 2007 reflect the greater exposure for tv and move rights purchase commitments
subjected to hedging, as illustrated on note 11.5.
Interest rate risk
The management of the financial operations of the Mediaset Group provides for the centralisation of cash-pooling
activities with the parent company Mediaset S.p.A and Gestevision Telecinco S.A. (for its subsidiaries). Those companies
are responsible for the entire activity of fund rising on the market, using medium/long-term loans and commited
and uncommitted credit lines.
The interest rate risk is mainly originated from financial payables at variable rate and index-linking of financial lease
contracts which expose the Group to a cash flow risk; the objective for the management of the interest rate risk is to
limit the impact of the fluctuation of financial charges on the financial result, reducing the risk of a potential rise in
interest rates to a minimum.
In this context, the Group pursues its objectives by relying on derivative contracts stipulated with third parties aimed
at pre-determining or reducing the fluctuation of cash flows due to changes in the interest rates of medium-to-long
loans. The period considered relevant for the management of the interest rate risk is established as the minimum
term of 18 months of residual duration of the operation.
From an accounting standpoint, starting from the derivative contract’s effective date until the date of its redemption
or maturity, the Mediaset Group applies the hedge accounting method, including thorough documentation (hedging
relationship) of the risk hedged against, the purposes and periodic verifications of its effectiveness.
In particular, the cash flow hedge method is applied pursuant to IAS 39. Based on this method, as described in
greater detail in the ”Summary of the accounting principles and valuation criteria” Section, the effective component
of the change in the value of the derivative is accounted for in a reserve in Shareholders’ equity, which is used to adjust
the recognition value of the interest to income statement upon occurrence.
The valuation of the effectiveness is intended to show the high correlation between the technical-financial characteristics
of the hedged against risk (maturity, amount, etc.) and those of the hedging instrument through the application
of specific retrospective and prospective tests by using Dollar off-set and volatility reduction measure methods, respectively
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