Viaplay Group AB (publ)

Good morning, everyone, and welcome to today's Q2 2024 results conference call. My name is Matthew Hooper, and I will be your host today. Joining me here on the call is our CEO, Juergen Mats Melindermann. And as usual, our presentation will be followed by a Q&A session. We are adopting a new format for this call this morning with shorter presentations from us in order to provide more time for questions and discussion. You can find our results materials, including a presentation deck on the investor relations section of our website. We will not, however, follow the slides, but they do provide the usual information for you. Please be advised that today's conference call is being recorded. If you want to ask questions and you are following the webcast, please post your messages or questions on the message board at any time, and I will read them out for you. If you prefer to ask your questions directly, you are, of course, welcome to do so by using your phone keypad. But more about that later when we get to the Q&A session. I will now hand the call over to Jürgen to walk you through the Q2 highlights. So over to you, Jürgen.

Yeah, thank you, Matthew. And good morning, everyone. Our results are in line with expectations and our outlook remains the same. So we have made no changes to our forward-looking guidance. We are fully focused on making all of the operational improvements that are necessary to achieve our plans and return to profitable growth and free cash flow generation. We have made progress, but there's still much to do. Our corporations generated 3% organic sales growth in Q2, while the losses for the corporations preliminary reflected higher content costs due to the annual inflation built into our sports rights contract and the weakening of our SEC reporting currency against the currencies in which we buy our content. Turning first to our largest business, Viaplay, which accounts for almost half of the group core revenues, Viaplay's sales were down 1% year-on-year on an organic basis. This reflected the decline in the core subscriber base, which was partly offset by the 11% to 27% price increases that we have introduced across almost all of our markets. These price increases resulted in 1% quarter-on-quarter organic revenue growth for Viaplay, despite the quarter-on-quarter decline in the subscriber base. We continue to discuss with our key B2B distribution partners how we can enhance our commercial relationship so that we can get fairly remunerated for our content. The Q2 subscriber figures also reflect the usual pattern as we enter the summer period and the number of the international sport league seasons come to an end. We are prioritizing value over volume in our wire plate business and the price increases reflect the content investments that we have made and the value for money that our competitive and relevant product offer to our partners and to our consumers. Let's move on to our second biggest business line, the B2B partner, linear channel subscription sales, which accounted for almost 30% of core group revenues. Sales were up 7% on an organic basis after the price increases that we have introduced. There's still much to be done in this area and discussions are ongoing with our partners to ensure that we can together monetize much better on the investments that we have made. The discussions with our partners include what we can jointly do to launch relevant new products in our market. A good example is Viaplay Sport News, our new sport news channel, which includes content from both Sky Sports News and Sky Sports Premier League channels in the UK. It is being rolled out this summer, firstly in Denmark and August, and we are discussing both channel distribution deals and advertising sale deals at the moment. We will also together focus on tackling account sharing, which is a major value leakage issue for the industry and especially for high ARPU products. As I mentioned on the Q1 call, we estimate approximately a third of the Viaplay subscribers, including a third of the Viaplay premium subscribers, have sharing their account details for their subscriptions. We have now started this summer to implement broader initiatives, which are already up and running in the Netherlands and Denmark, with the other countries to follow. Initial signs are good, but it is yet early days. We are also working with our industry peers to combat piracy, but it is very clear that we need much more help from the politicians and regulators to prevent and police all forms of illegal content distribution. Our third largest sales business is advertising, which accounted for just over 20% of the group core revenues in Q2. We said last quarter that we would like to see our total ad sales return to growth, and we managed to achieve that in Q2. The 5% organic growth that we reported was well ahead of the ongoing decline in the linear TV advertising market, and this was driven by a number of factors, including Swedish linear ad sales being up year and year in Q2. Our radio advertising revenues were also up in growing markets in Norway and Sweden, and our digital ad sales are continuing to grow at a rapid double-digit rate with a 31% increase in our overall digital ad inventory. This is an important transformation as we plan to replace all lost linear advertising revenue with digital ad revenue. Two other examples of further innovation of the advertising side are the recent free TV partnership with Telfer Network in the Netherlands where Telfer's widely available SBS9 channel was rebranded as Fireplay TV and includes selection of our vast amount of sport content hours. And they launched this summer of a hybrid video and demand tier for our Viaplay subscribers in the Nordic. The new tier is competitively priced and includes advertising. The first rollout was in Denmark and the other markets will follow. Finally, let's look at our sub-licensing and other sales which account for less than 5% of the group core revenues and compromise the revenues that we get from Viaplay Select as well as the sport and non-sport sub-licensing deal we have done in our core markets as part of our self-help measures to bring down our committed cost base. Per-year number includes our studio operation that we have now closed or sold, and our solar energy sales were up 11% on an organic basis. Moving now to the cost side, I would like to remind you again of the comment I made last quarter that our Nordic content costs have been growing almost twice as fast as our Nordic subscription sales, and that is clearly not sustainable. The primary reason for this is the competitive pressure on sports-wise pricing in the last few years and our over-invested in original programming. We've also had significant currency headwinds. Looking ahead into Q3, we have the Champions League now also again in Sweden for the first time in three years, as well as a new season of the Danish Super League, the Premier League, kicking off. We will be launching our Wireplay Sport News Challenge in Denmark. We have fifth skiing is back. We will have more Formula One races, including World Champion Max Verstappen Home Grand Prix in the Netherlands next month. And we will premiere new seasons of proven local productions like the Paradise Hotel Sweden, Charter Fever Norway, and Expedition Robinson in Denmark. Finally, then, we have continued to streamline the organization by exiting the non-core markets. Poland is the only one left now. And more broadly, we continue to improve the setup and functioning of our team across the core business. and ensure that we locally mandate and accountable teams with strict governance processes, but there still remains more to do in that space as well. All of this is critical to enable us to achieve our goals of low to mid single-digit percentage revenue growth, double-digit operating profit margins in five years, free cash flow generation in 2025 for our corporations, and in 2027 for the group, so that we can build our balance sheet and enable shareholder returns. So that concludes my initial remark. So in the absence of a CFO, Matthew has volunteered to comment on our financial performance and position. So over to you, Matthew.

Thank you, Jürgen, and good morning again, everyone. So I'll keep this short and focus on the key points here. So we'll start as usual with our organic development. Our organic growth was again higher than our reported growth due to the divestment of the remaining studios operations, as well as the continued interplay of our currency mix this quarter. FX had a negative impact of 10 million on sales for our core operations, inflated our core costs by 79 million, and core EBIT was therefore negatively affected by 89 million in the quarter. This means that 60% of the 153 million year-on-year decline in core EBIT was due to FX. The remaining 64 million was a result of 109 million of higher sales, 143 million higher COGS, and 30 million higher STA and A. Based on current rates and our more limited ability to hedge currencies, we expect a negative transactional FX impact on full year EBIT in the range of 300 to 400 million. The H1 impact was 130 million. 80% of our OPEX relates to content costs, which were up 8% in Q2, and reflected the rise in sports content costs due to the annual inflation in those agreements, as well as adverse FX effects, as Juergen mentioned. Sports makes up 80% of our content costs, and our content costs are expected to be broadly flat in the second half of the year. Our core SG&A costs were up 7% in Q2, as we now allocate all central overhead costs to the core segment. This results in a higher SG&A cost for the core segment throughout the year, which is largely offset in H1 by the headcount reductions that were made in Q3 last year. The increase in SG&A will be higher in Q2, as the comps include the majority of the headcount savings from last year. For the non-core markets, we actually made a small profit this quarter due to the reversal of some accrued costs and lower marketing costs. For the rest of the year, the non-core EBIT line is basically the Polish SG&A, and there is no change to our guidance ranges for the non-core operations. We had a 48 million positive IAC this quarter, which comprises 71 million gain on the sale of Viaplay UK, 76 million of costs arising from further redundancies, and 53 million of positive unrealized and non-cash FX translation effects related to the previous content provisions that we have made. Associated company income was in line with expectations, and we continue to expect our share of Alente's full year 2024 earnings to be in the range of 100 to 150 million. As expected, there were no further dividend payments from Alente in Q2. Moving on to our cash flow, our operating cash flow of $614 million comprised the core EBIT losses of $72 million, just under negative $100 million from the combination of CapEx, interest, taxes, and adding back the depreciation and amortization charges. A positive working capital change of $794 million for the core segments and a one million cash flow from the non-core operations. The positive working capital change reflected the usual seasonal patterns when it comes to payments for sports and non-sports content. And we continue to expect a working capital build-up again in Q3, as usual, given the timing of sports rights payments in particular. We drew down 1.5 billion on the 3.4 billion RCF after the end of the quarter to fund the sports rights payments that fall due in July. Our financial net debt, when excluding net lease liabilities, was a net cash position of 372 million at the end of the quarter, with cash and cash equivalents of 2 billion, total borrowings of 1.9 billion, and 250 million of prepaid borrowing expenses. We have a very clear focus on cash flow and cash return on investment, and this is reflected in how we make and follow up on capital allocation decisions. It will take time for the impact of these actions to be seen in our results, and we do still sit with large and long-term content commitments in our core and non-core markets that we are looking to monetize in as many ways as possible. So that's it from me on the financial performance position. We are now ready to take your questions. If you would like to ask a question and you have joined the conference call via the web link, you can post questions on the message board by clicking on the Ask a Question tab at the top right-hand corner of the window. and I will read them out for you. Please don't forget to write your name and your company name. Or if you would rather ask the question yourself, press star one and then one again on your telephone keypad and you will enter the queue. To cancel your question, simply press star one and one again. So we'll now have a look at the questions. So the The first question we have is coming from Tom Singlehurst at Citi. So, Tom, over to you.