Page 24 - Sector Alarm Annual Report 2020

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As a general principle, Sector Alarm should aim to reduce
a portion of the floating rate exposure through interest rate swaps. However, Sector Alarm has decided not to hedge the exposure for the time being due to the negative EURIBOR rates. The Term Loan B loan has a 0% interest rate floor which means that if we enter into a EURIBOR Interest Rate Swap Sector Alarm would need to eliminate the negative 3M EURIBOR fixing
by buying a floor with a cost of about 50 bps. As a consequence, the hedging becomes costly and less attractive.
Market and commercial risk
Sector Alarm is faced with market and commercial risk related to economic down-
turns, pandemics, changes in
the competitive environment, new technology and consumer trends. Furthermore, the ongoing European expansion requires significant investment and management time.
An economic downturn in Europe may impact our business negatively as consumer spend- ing are likely to decrease which in turn may impact our attrition
rates and ability to attract new customers. On the other hand, during economic downturns there may also be increased unrest and as a consequence in- creased interest in our products.
The residential home and small business segment in Europe is fragmented and subject to sig- nificant competition and pricing pressures. The competitive envi- ronment has for most of our mar- kets been relatively stable during the last few years. Intensified competition either from existing competition or new entrants could impact our attrition rate, ability to grow and pricing which could have a material adverse effect on our business and finan- cial performance. With respect to competition from potential new entrants, we believe that players operating in the connected home market and telecommunications market are best situated to move into the alarm industry. Compe- tition from do-it-yourself (‘‘DIY’’) providers enabled by improved technology and changes in con- sumer preferences solutions may also increase in the future, but
it may also expand the market and serve as an entry point for new customers. Currently, Sector
Alarm experience very limited attrition to DIY providers or solutions.
Sector Alarm has in the past had a clear follower strategy when it comes to technology and prod- ucts and has relied on third party manufacturers. Going forward, Sector Alarm will continue to rely on third party manufacturers, but will to a larger extent aim to stay in front when it comes to leveraging new technology and launching new products and fea- tures. Although the service itself will remain at the heart of the of- fering, Sector Alarm see that the actual products over time will be more important in a digital world where consumers are looking for smart home solutions.
Sector Alarms growth plan includes expansion into new or recently entered regions in Europe. Expanding into these geographies involves signifi- cant ramp-up investments to build a new organization and to introduce the brand to the new geography. Sector Alarm may not accurately predict such costs or accurately anticipate opera- tional difficulties caused by local conditions, and therefore may