Viaplay Group AB (publ)

So good morning everyone and welcome to today's Q3 2024 results conference call. My name is Matthew Hooper and I'll be your host today. Joining me today on the call is our CEO Jürgen Madsen Lindemann and making his debut today is CFO Johan Johansson who joined us at the beginning of August. Welcome gentlemen. As usual our presentation will be followed by a Q&A session and you can find our results materials including a presentation deck on the investor relations section of our website. We will not follow the slides, but they do provide the usual and relevant information for you. Please be advised that today's conference is being recorded. If you want to ask questions and you are following the webcast, please post your questions on the message board at any time and I will read them out. If you prefer to ask your questions directly, you are of course welcome to do so 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 Juergen to walk you through the Q3 highlights. So over to you, Juergen.

Thank you, Matthew, and good morning, everyone. And of course, a special welcome to you, Johan. It's great to have you back on board. Our Q3 results are in line with our plan and expectations, and our outlook for the rest of the year remains the same. So we have made no changes to our forward-looking guidance. We are fully focused on making all the performance improvements that are necessary to achieve our plans and return to profitable growth and free cash flow generation. We have made progress, but still much to do, in making our products more relevant and competitive, our partnerships more commercial and sustainable, and ensuring cost control in all areas, deal with value leaking partnerships, so that we honor those partners and sponsors who have invested in the future of Viaplay and not invested in historical deals which were completely out of sync with the reality in our markets. Our corporations generated 6% organic sales growth this quarter, driven by growth in our linear subscription revenues and the sub-licensing of sports and non-sports content to third parties. Our combined linear and Viaplay subscription revenue grew by 1% on an organic basis, and this was driven by price increases and new agreements with key partners. We look at these two businesses on a combined basis and then focus on D2C and B2B lines as well as the development of the different subscription tiers on Viaplay. Turning to Viaplay which accounts for nearly half of our core revenue sales were down 1% year-on-year on an organic basis. Our D2C ARPU was up year-on-year in all our core markets after the price adjustments that we have made since last year, most recently in Finland last month, while our D2C subscriber base was down in almost all markets. Our D2C subscriber base did grow sequentially in almost all markets when it compared to Q2, which reflect the successful introduction of our H1T in Denmark, Sweden, and Norway, and the initial impact of our efforts to limit account sharing. It is still early days, but this competitively priced tier, which includes advertising and complements our existing offering, has so far attracted new customer segments and encouraged reactivation by former subscribers. The sequential ARPO development also reflected the usual churn and return patterns during the summer months when we also have the break between sport seasons. We continue to prioritize value over volume and our pricing reflects the investments that we have made in our highly competitive content offering as well as our determination to provide fantastic value for money. Tackling account sharing and piracy remain a critical focus point for us as they represent a significant value leakage for us in our industry. Usage of our service without paying for them ultimately affect everyone, including the sport franchises and content producers. We have now rolled out measures in all coal markets. While it is still early days, the results are encouraging, with most former account shares choosing to remain subscribers. We are also collaborating with industry peers to lobby policymakers to police piracy much more effectively. Moving on to our linear channel subscription sales, which accounted for approximately 28% of our coal revenues in Q3, Sales were up 3% on an organic basis, driven by price increases and new agreements with key partners to better monetize our content. We also launched our new premium sports news channel in Denmark in August, which is available to premium subscribers on Viaplay and through those key distribution partners who have signed new agreements with us. The channel also carries advertising. Advertising revenue accounted for 18% of our core revenues and were down 1% on an organic basis. The growth in our radio and digital advertising revenues did not fully offset the decline in our linear TV advertising revenues. Our digital ad inventory, our page impressions grew by 36% and was boosted by the rollout of our HWAT services. We are focused on accelerating the growth in our digital ad sales moving forward. The coverage of High-profile sport events like the Olympics and other summer sport events on rival channels did impact our audience shares during the quarter and led to lower linear TV advertising market share for our channels. The concentration of media spending around such events, both falling in one quarter, will of course put some pressure on budgets in Q4. The Norwegian TV and radio advertising market is estimated to have grown in Q3 together with the Swedish radio ad market, while the Danish and Swedish TV ad market are estimated to have declined. Looking forward into Q4, IIM expects both radio ad markets to continue to grow and our three Nordic TV ad markets to be down. Sublicensing and other sales accounted for 9% of core revenues in Q3 and grew by 165% year-to-year on an organic basis. This was driven by ongoing sales of our scripted content as well as the strategic sub-licensing of part of our sports portfolio in selected markets. We continue to work with our current and new distribution partners to build long-term mutual beneficial relationship centered around our premium content and launching of new products. We have extended and expanded some agreements, brought on new partners and ended others that are not long-term and commercially viable. This applies to both our content suppliers and distribution partners, and we have much more to do in this area. Cost control remains a top priority for us. As I said before, our Nordic content costs have been growing at nearly twice the rate of our subscription sales, which clearly isn't sustainable. We continue to take a more disciplined approach, ensuring that our spending is aligned with revenue growth and return on investment, This is essential to ensure the long-term stability and profitability of our business. Core sales growth, along with our cost reduction initiatives, enable us to reduce our EBIT losses year-on-year and sequentially. This improvement would have been bigger if it were not for our ongoing and substantial currency challenges due to the weak SEC. Our result for last year also includes positive contribution from the content production business that we have now closed or sold. The losses for our non-corporations were low, and we are working towards exiting the rest as effectively as possible while minimizing the negative cash impact. Looking ahead, we have a good content slate for Q4. The Champions League has returned in Sweden as the Danish Superliga and the Premier League with our new exciting studio setup. The Viaplay Sport News Channel is up running as is the new NHL season. And we can look forward to exciting remaining races in the Formula One Championship while gearing up for a busy winter sports season. Also coverage of the Junior Ice Hockey World Championship and the Women's European Handball will feature on our products. On the non-sport side, our new strategy is paying off with more focus on non-scripted formats that generate healthy viewing and ROI levels. Reality formats Paradise Hotel, Robinson, Charter Fever, all performed well in Q3. And we have now new seasons of popular format like Eftalus, Luxfellern, Come Dine With Me, along with new releases such as Summer in Magaluf and Swedish Rana, The Street Where I Live. These shows reflect our commitment to delivering commercial, relevant and engaging content that resonate with both audiences across our markets. Our objectives remain clear. deliver profitable growth, generate positive cash flow, and creating shareholder value. There's much to be done in all areas, but we are making progress and are totally focused on improving our content offering, ensuring it is relevant, competitively priced, and fairly monetized. That concludes my initial remarks, so now over to you, Johan, to comment on our financial performance and position.

Thank you, Jörgen, and good morning, everyone. It's great to join my first earnings call, and I'm looking forward to meeting and getting to know all of you who I haven't already met in the coming days and weeks. I worked at MTG for 10 years previously, so I'm familiar with the business, the products, the people, and the very potential of the company. And that is the main reason that I want to come back and take this opportunity. There is a lot of work to be done. to get us back to the healthy position the company used to be in with positive earnings and cash flows. So the pace has been high since I joined and we are doing the outmost to accelerate that as a team. We are making a lot of changes to enable our re-transformation just as Jörgen mentioned. This touched all parts of the organization as well as the partnerships with our suppliers, distributors and customers. At the core of what we are doing is a committed, strong local management teams that are focused and accountable to drive the changes needed. Alongside my role as CFO, I've also joined the opposition for the Swedish business together with Christian Albeck. And we are very committed to work closely together to drive the required improvements for our Swedish operations. I'm looking forward to taking your questions, but a few key points first. Let's start with our year-on-year organic sales growth, which was higher than our reported growth due to the divestment of the remaining studios operations earlier this year, as well as the continued interplay of our current mixed-disk worker. FX had a negative impact on our sales for our core operations and deflated our core costs so that core EBIT excluding IEC and associate company income was therefore negatively impacted in the quarter. The 63 million or 56% year-on-year reduction in our core operating losses would therefore have been better if you consider FX headwinds and the studio's disposals. Based on our current FX rates, and our more limited ability to hedge currencies. We expect a negative FX impact on a full year EBIT at the lower end of the 300 to 400 million range. The Q3 to date impact was approximately 230 million. OPEX for our core operations was up year on year on an organic basis, as we now allocate all central overhead costs to the core segment. and we also have increased costs related to the sub-license of content. Core OPEX was down on a reported basis as we still had the cost for the studio's business last year. Content cost make up 80% over Core OPEX and approximately 80% of this content cost related sports content. Content costs were largely stable year-on-year in Q3, and we expect them to be down in Q4 with lower costs related to content sublicensing. Our core SG&A costs were up again in Q3. As I mentioned, this is due to the allocation of all central overhead costs to the core segment, which will continue to impact the year-on-year comparisons in Q4. This is in line with our previous comment That increase in SG&A will be higher in the second half, as the comps for last year already include the majority of the headcount savings that we laid last year. For the non-core markets, we have made small loss this quarter. This line is now basically the Polish SG&A, given that we have exited other markets since last year. We had a 5 million positive IEC this quarter, which primarily comprised unrealized and non-cash foreign exchange translation effects related to the previous content provisions that we have made. Our associated company income of 52 million mainly comprised our share of Valente's earnings and was above the previous run rate. We now expect our full year associated company income to be closer to the upper end of the 100 to 150 million range. As expected, there were no further dividends from Elente in Q3, and the decision is yet to be taken regarding payments in Q4. There's no change to our expectations for annual dividends of approximately 200 million moving forward. We received a dividend of 100 million in Q1 this year. Moving on to cash flow. Our total free cash flow of negative 1.5 to 3 billion comprised our core EBIT loss of 49 million, negative 103 million from the combination of capex, interest, taxes, investments, and adding back to depreciation and amortization. A negative working capital exchange of 1.409 billion for the core segment, and a 38 million positive free cash flow for the non-core operations. The working capital change is as expected and marked a return to the usual seasonal patterns when it comes to timing of content payments, as sports rights payments in particular. We drew down 1.5 billion of the 3.4 billion RCS at the end of Q2 to fund the sports rights payments that fell due in July. We subsequently paid back the majority of the RCF with the 0.6 billion gone at the end of the quarter. We have not made any further drawdown since the end of the quarter. Our financial net debt when excluding the 263 million of net lease liabilities amounted to 1.202 billion at the end of the quarter with the cash and cash equivalents of 1.046 billion. Total borrowings of 2.4 7-8 billion and 230 million of pre-paid borrowing expenses. We have a very clear focus on cash flow in order to ensure that we manage our liquidity and optimize ROI as much as possible. This business has many moving parts and there are both risks and opportunities that we are balancing. will take time for the actions that we are taking to have the full effect and for the impact to be seen in our results there are of course things we can fix short term but we also have large and long-term content purchasing and partnering commitments in our core and non-core markets that must be adjusted and leveled up soon to make the right return on those commitments so that's the It's from me on the financial performance and positions, so back to you, Matthew.