Viaplay Group AB (publ)

Good morning and welcome to Viya Play Group's Q4 and full year results. My name is Anna Hedenberg and joining me here today are our Group President and CEO Jörgen Madsen Lindeman and our CFO Johan Johansson. Welcome. Please note that today's call is being recorded. As always, you will be able to ask questions either by using your phone keypad or the message board, but more about that later. You can find all our results material, including the presentation deck on the investor relations section on our website. We won't be following the slides directly, but they contain all the key information for reference. With that, I hand over to Jørgen to walk us through the highlights of the Q4 results.

Thank you, Anna, and good morning, everyone. Our Q4 results are in line with our plan and expectations and we reiterate our ambition for 2025, low to mid single-digit percentage revenue growth and positive free cash flow for our core operations. Focus for 2024 will continue now into 2025 are difficult but necessary steps to adjust our cost structure, optimize our content strategy and strengthen monetization. Execution remains our absolute priority. We know what to do, and while we have made progress, there is still a lot to be done. As mentioned before, this is a long-term turnaround, and critical work remains in order to make us even more competitive and strengthen our business. We will continue driving operational performance improvements to ensure profitable growth and positive free cash flow. This means sharpening our product offering, securing fair and sustainable partnerships, and maintaining strict cost controls. At the same time, we are evaluating value-lead disagreement to protect partners and sponsors invested in Viaplay's future rather than legacy deals that no longer reflect market realities. Our corporations generated 5% organic sales growth driven by growth in all areas except linear TV advertising. Viaplay represents nearly half of our core revenues, so organic sales are 5% year-on-year. Our core D2C ARPU increased year-on-year reflecting ongoing price adjustments, most recently in Norway. We grew our core D2C subscriber base sequentially and year on year, driven by sports packages and the successful introduction of our HWAT tier, now rolled out in all core markets, including the Netherlands, this month. Account sharing restrictions now fully implemented in all core markets and delivering early positive trends. Piracy remains a major industry challenge, and in 2024 we significantly expanded our detection capabilities and enforcement measures. Working closely with partners, we strengthened legal actions against illegal IPTV providers, and in 2025 we will increase investments in anti-piracy technology and enforcement, ensuring that our content retains its full value. Our linear challenge subscription business accounted for 25% of core revenue in Q4. and grew 9% organically, driven by price adjustments and new distribution agreements. Advertising revenues accounted for 22% of core revenues, declining 3% organically. While radio and digital advertising grew, this was not enough to offset the structural decline in linear TV advertising. Our digital ad inventory increased by 36%, driven by the HWAT expansion, and we remain focused on accelerating digital ad sales further to make this a larger share of our advertising mix. Our HVAD launch this month in the Netherlands will further contribute to increase inventory and add value to our business subscribers and partners. Looking at the market trends, then the advertising market in Norway is estimated to have grown. However, as various broadcasters do not report linear sales separately, we estimate that the linear market has declined slightly, while total TV advertising sales, including digital, have increased. Sweden and Denmark saw linear TV advertising decline, with forecasts suggesting radio ad markets will continue to grow in Q1, while TV markets will remain under pressure. Sublicensing and other revenues accounted for 9% of core revenues, growing 13% organically. This growth was driven by sublicensing of sports and non-sports content, as well as scripted content sales. We continue to optimize our portfolio, ensuring that content investments deliver the right returns. We are actively engaging and discussing with both existing and new suppliers and distribution partners to build long-term commercially viable agreements. We will support our strategic direction, focused on capturing market shares and capitalizing on this customer-relevant position. We prioritize agreements that enhance both our partners' and Viaplay's long-term joint value creation and parting ways with those that do not. Cost control remains the top priority, and we are taking a disciplined ROI-driven and commercial consumer interest approach to content spending, ensuring that every investment generates the right audience and return. Core sales flows combined with proper cost flows, and in specific areas, reduction initiatives enable us to reduce EBIT losses year-on-year and sequentially. However, currency challenges due to a weak SEC remain a significant headwind, impacting reported results. Additionally, last year, Q4 included positive contribution from content production business, which we have since closed or sold. And Johan will talk more about that in a minute. Losses from non-corporations were under control and according to plan, and we continue working towards exiting Poland, the final remaining non-core markets efficiently while minimizing negative cash impact. Our objectives for 2025 remain drive profitable growth while minimizing value leaches across all areas, achieve positive cash flow, and continuing the focus of creating long-term value for partners and shareholders. We have made progress, but there is still much to do, and our focus remains on execution, ensuring that our content is relevant, competitively priced, and fairly monetized. That concludes my remarks, so over to you, Johan, for the financial update.

Thank you, Jørgen, and good morning, everyone. As we close 2024, we remain focused on the financial discipline, cost efficiency, and strengthening our cash flow. Our Q4 results are in line with our guidance, and while we're taking important steps to improve cost efficiency and optimize working capital, much work remains. These efforts take time, and execution will continue to be critical as we work towards the targets of low to mid single-digit revenue growth and positive free cash flow for corporations in 2025, leading up to our long-term ambitions of double-digit margins and healthy free cash flow generation. I will come back to 2025, but first some key points on the Q4 results. Once again, Our organic sales growth was higher than reported growth, reflecting the divestment of the remaining studios operations and the ongoing impact of currency fluctuations. FX had a negative effect on core operations, lowering the reported sales while also inflating our costs compared to last year. As a result, core EBIT, excluding ISE and associated company income, was negatively impacted by approximately 300 million for the full year, which is in line with what we highlighted in last result calls. Operating expenses declined year on year in Q4, reflecting lower accelerated democratization from content sales and savings in non-sport content. These cost reductions were partly offset by higher SG&A expenses, as core markets now absorb the full cost for central functions, which were previously partly allocated to non-core operations. The comps in Q4 includes the full impact of headcount savings made last year, as I highlighted previously. For the non-core markets, we've made a loss of 36 million in Q4, and $88 million for the full year, which is in line with our guidance, approximately $0.1 billion loss. The reported negative IAC of $304 million comprises negative $144 million in currency revaluation effects, as we have been unable to hedge our US dollar and euro exposure. Currency fluctuations on acquired content and other U.S.-denominated liabilities have resulted in this on-balance revaluation effect. Given the magnitude, volatility, and nature of these effects, we report them as ISE and will continue to do so until we are able to implement sustainable hedging strategy. Additionally, as in previous quarters, currency revaluation effects related to provisions for content made in 2023 are included in the IEC, as these were initially recognized at different exchange rates and continue to be revalued. The IEC also comprises 20 million in redundancy costs related to restructuring program, 143 million of asset write-downs mainly related to the investment in US-based Pitcher Start, which have not performed according to plan. and a positive contribution of 3 million from the divestment of holding in NSR Scandinavia. Our associated company income for Q4 was 38 million, bringing the full year total to 151 million. This primarily reflects our share of Alente's earnings and was in line with expectations. We did not receive any further dividend payment from Alente in Q4, which means that the total dividend for the year amounted to 100 million. On cash flow, group cash flow for Q4 amounted to 384 million, which comprised core EBITDA of 210 million. Net impact of 636 million for core segment mainly from positive working capital change. Negative free cash flow of 462 million for the non-core operations. Core free cash flow of 845.5 million was supported by seasonal revenue strength improvements and changes in payment terms with partners and reductions in scripted content payments following the change in content strategy last year. For the full year group, free cash flow was negative 2 billion, which is in line with our guidance of negative 1.7 to 2.2 billion. Our financial net debt excluding 284 million in net lease liabilities amounted to 829 million at the end of Q4, with cash and cash equivalents of 1 billion, total borrowings of 2 billion, and 189 million in prepaid borrowing expenses. We had utilized 200 million of the 3.392 revolving credit facility at the end of Q4. Looking ahead into 2025, our focus remains on delivering low to mid thing in the revenue growth and generating free, positive cash flow for core operations. Achieving this will require strict cost control, efficient resource allocation, and optimizing cash flows across our business. With 80% of our core OPEX tied to content, mostly to sports, optimizing this cost remains a priority. Cost efficiency in this area, together with continued improvements in core EBIT, driven by disciplined cost management and revenue growth, is a priority. With the implementation of initiatives during 2024, for example, the sub-licensing new product launches, together with contracted step-ups in sports content cost, we would see tougher comps in the second half of the year and some lighter structured comps in the first half of the year. In addition to cost management, FX movements will remain a factor in 2025, as we continue to have significant exposures to US dollar, euro, and the NOC, and are currently unhedged. As a result, the impact of FX on EBIT in 2025 will be determined by the prevailing exchange rates. Managing foreign exchange rate volatility remains an important consideration and we will continue to evaluate potential solutions to mitigate future impacts where possible. Beyond revenue and cost control, improving working capital efficiency is key to delivering positive free cash flow. With the capital in transcript strategy now materially phased out, we are carefully working to improve payment cycles for sports and content drives. Working capital will stabilize and we have now set the majority of the scripted content commitments from previous years and continue to refine capital efficiency in commercial agreements. At the same time, liquidity management remains a priority, ensuring disciplined use of financing facilities and tight cost control to strengthen our financial position. While some measures will yield immediate results, long-term content investment and partnership will take time to fully reflect in our financials, remain focused on financial execution improving profitability and strengthening our capital position as we work towards our 2025 targets. Thank you.

Thank you, Johan. We are now ready to take your questions. Operator, please go ahead.

Thank you. If you wish to ask a question, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. If you wish to ask a question via the webcast, please use the Q&A box available and click Submit. Please stand by while we compile the Q&A roster. We will now take our first question. Please stand by. And the first question comes from Michael Lussin from Carnegie Investment Bank. Please go ahead, your hand's now open.

Okay, good morning. Yeah, I have a couple of questions. The first one is regarding the subscriber and ARPA development for Viaplay streaming in Q4. If you can talk to us about how HVAD contributed any seasonality effects in the subscriber base, for example, in the Netherlands, and the ARPA dynamics here between mixed effects, price increase, and B2B partnership agreements.

Yeah, I think generally, as you can see, and also as we said in the report here, is that we had good traction when it comes to the D2C product. So we were growing quarter on quarter and then also year on year. And clearly, the sport was quite a big contributor to that, to be fair, and so was HVAC. So HVAC has turned out to be very interesting product for many not only to discover the wire play proposition at a at a good rate but also as a as acquisition tool actually also to get more customers into our tm product so that development we are we are happy with and clearly we keep on strengthening the products as you know and keep on measuring as well to make sure that we are relevant in the space and therefore also adjusting our prices to reflect that that we are having a more interesting offer for for our customers um we had as you can see as well fairly strong growth on the b2b side as well nine percent on on the linear challenge and that of course reflects a lot of our partners doing very well um and you know probably taking market shares from others out there but definitely utilize the content in in different ways and And we have interesting discussion with many right now about new products, new structures, whatever, in order to make our products even more relevant relative to our competitors in the market as well. So we are happy with the development on the D2C part, for sure. Happy with the development, as you can imagine, on the partner side as well. And the content then clearly makes a difference as well for us. We have increased prices now in Norway as well. We have increased prices in the Netherlands. And we historically have increased prices in all the other markets as well. And we keep on monitoring, as I said, the relevant price that we are competitive and also fairly priced. Account sharing has helped as well in the growth of the D2C subscriber base. And the next discussion, of course, we are having is also with our partners. B2B partners around making sure and I saw that you see now in Denmark is definitely a front runner in that space as well now making sure that we are not sharing account what people actually start to pay for those who have used to share account pay for the content that they're watching which is only fair. So yeah a lot of moving things but in all fairness mostly at least in this quarter in the right direction.

Okay that's helpful and I was wondering if you can also talk about the US dollar impact and what we can expect for 2025.

We don't take any view on future rate development, but we can note that the dollar has in average so far in Q1 been higher than the same period last year. I think the current trailing rate from the dollar is now some 1.5% compared to last year's average, while the NOC and Euro is slightly lower. I think it's an indication that you have the, in the 2023 annual report, we have some Disclosed transaction flows were approximately $3 billion and $4 billion in Euro, and then some $2.7 billion in NOC. And of course, the US dollar and euro exposures have decreased in 2024 due to the changes that were made to the business. It still remains material.

Okay. But the 144 million in negative effect in Q4, how would you arrive at that mathematically?

Yeah, talking about the 144 on the IEC, I think the revaluation effect derives from the on-balance foreign currency liabilities being revalued at the FX rate last day of the month, basically. And last year, a large part of those volumes were unhedged. And due to the lack of hedging capabilities in Q4-24, the effect of these revolutions created distorting and non-comparable effects compared to 23. And these effects are, to a very large extent, unrealized effects.

Yeah, I see. Okay. And the final one. On the guidance for 2025, you expect low to mid-singular growth. Can you maybe help us how this can develop by revenue stream and also the cash flow dynamics in 2025, how we should think about working capital and the non-core effects and also the core side?

Yeah. Coming to the revenue part, I think pointing to what Jørgen said also in his part where we have done a lot of transformative moves relating to launching new products, prioritizing value over volume. The initiatives were done on the account sharing and so on. I think those things all in all supports us in coming into 25, which makes us to the trajectory of the low to mid single digit revenue growth. Can you repeat the second part of the question, please?

Yeah, I mean, to understand the cash flow guidance, positive cash flow for the core, but you have a drag still in the non-core part and and how we should think about working capital in this equation?

No, I think from what we generate on the top line, I think we expect to see sort of positive generating effects from that. But in addition to that, we are, as I said, also working on on improving working capital, working with partners, with our content providers to improve sort of the working capital with payment terms and so on and so forth. And on the cash drag, I think you have that in the presentation as well, the expectations for what that would be for 25.5 billion.

I think, just to follow up, I think you had a minus 900 million before or did you miss anything here for non-core? No. Or was that non-recurring cost in total maybe? Non-recurring cost, I mean.

Yeah, I think, not sure what that number refers to.

I think you had a statement previously that you expected minus 400 million in non-recurring cash flow in the core operations and minus 500 for the non-core. So minus 900 in non-recurring negative cash flow. Is that still relevant here or has anything changed?

Yeah, I think we need to remember the number. So let's give us a chance to compare you on that one, okay? Sure, okay, thank you.

Thank you. I would now like to hand back to Hanna Annenberg for questions on the webcast.

Thank you very much. So we have a couple of questions that is related to our B2B development for Viaplay. So Jørgen, could you please share a little bit about the drivers behind the decline on the B2B base that we see?

Yeah, I think what we're looking at right now, and that is what we talked about as well, is value over volume. So important for us is that we get customers who we can account as paying customers, and that is a quite important part for us. Then in general, of course, with the with the partners. We are doing a lot of development right now, so there's a big research undergoing right now to understand how we best create packages and structures for the different partners we're having to accommodate their needs. That also, as you can see with some of them that we have launched, is delivering, at least in Q4 now, fairly good results for many of them. We will be launching further new products also to accommodate specific partner wishes as well. There's a lot of things happening in that area. And lucky for us, of course, the research suggests the content that we are having relative to our competitors is very strong. So the sports products that we're having is, of course, something that many are capitalizing on. And the fact that we keep on enhancing those products and offer new offerings, that, of course, helps the partnerships as well. So it's a big... is a big undertaking actually for both parties and as I said as well that is the whole idea is to make sure that we have mutual agreement of agreements which is mutual beneficial and not not one side which and value leakage to bridge some of the agreements in the past have been so I'm very happy with the development I'm very happy with the partner's engagement in creating new products for us and of course I'm happy with the with the outcome now here in Q4 as well.

And how should you think about the economics behind the HVAD subscribers? Are they generally more profitable than regular subscribers or how should you think about that?

Yeah, we're monitoring that closely to be fair and clearly in order to make that HVAD customer as profitable as a TM customer, you do need to make sure that you make your gaps between the subscriptions. price for normal TM Custom versus an H4 Custom is covered by the advertising. And that seems to be the case in all fairness, but it also seems to be the case that we are getting new customers on board, which are attracted by the offering. And those customers, as I said earlier, as well, are actually also upgrading. So it is actually a quite interesting tool for us. And a lot of that we didn't know in the beginning, clearly. So some of it has come as a surprise. That's why we have rolled it out in more countries now. So we are actually also rolling it out in Netherlands. And you can imagine the attractiveness of the reach that we are delivering in Netherlands when it comes to the Formula One and the Premier League and so forth. So it is a very strong advertising product, which our customers clearly like. And hopefully we will be competitive even more in that space as well.

Thank you, Jørgen. And one more for you here. Can you talk about... ...based around single sports rights? What's the potential and why not focus on premium subscription?

Yeah, that is exactly as I said, that we are catering and accommodating some of the discussions we're having with partners and also to innovate a bit and create new packages in the market. And that is what we will do. And some of them will probably be super strong and some will not work that well. And then, of course, they will discontinue them. But we want to innovate. It is important for us that we keep on moving forward and also keep on moving our customer offering forward. There's the famous saying that what you don't know exists, you don't look for. That, of course, means that we do need to introduce new products to the market, use new ways of producing in the market as well to make it even more interesting offering. So that is a big focus area for us that we are and you will see going forward products which will be linked to single or a few sports rights as well, connected to our TV movie product as well. So that is something you will see going forward.

Thank you. And now one for you, Johan, from Kristoffer at Kepler. And that is regarding to the 3.4 billion RCS. Should we assume that you can use the full amount at any given point in time or are the covenants preventing you from using the full amount? If so, could you give some color around those covenants?

So we are permitted to utilize our set provided that we are compliant with the loan covenants. We have a set of covenants under our financing arrangement, which is aligned with the business plan set out at the time of the recapitalization. But as the covenants are tied to the business plan, we're not disclosing those as they're also subject to change along when the business is developing.

Thank you. And one more for you, then, Johan from Johan Janberg. The net debt in Alente has come down quickly. What are your thoughts on future dividends from them?

Yeah, I think it is the Alente's board discretion who decides on the dividends.

Great. Thank you. And then one more. How should we think about your future payment commitments within the coming one to three years?

So I think on the... I can also come back to sort of the question that Mikael asked before. Sorry for the confusion around that. So the 0.5 billion is the sort of non-core and what we had at the last three quarters also done in the point nine included the core. So the core part is baked in into the cash flow where we are set out to deliver positive cash flow for the core for 2025.

Thank you for that clarification. So we have a couple of questions regarding customer satisfaction coming from various different directions, I would do my best to group them into one to be less repetitive. But Jørgen, could you share some rationale around how customer satisfaction has been affected by the price increases, the account sharing limitations and also the content sale? And as an example here is giving that if you look at external sources, such as Trustpilot, for example,

you don't come out that strong you only have a one star rating which could raise concerns about if you have lost your customer focus yeah I can clearly state the latter that is not the case that we have lost our customer focus and you can also see that in exactly the content investments that we are making so when we are investing in football we are not investing in just random leagues we are investing in the Premier League or we're investing in the Champions League when we invest in motorsport, we're investing in the Formula One and so forth and so forth. So it is definitely products which we know from research which has a big and great appeal amongst our customers and therefore we are then relevant with our offering. That's the whole purpose of being a media company. Clearly, we want to be liked and we want to make sure that we are entertaining our customers. And I will, of course, therefore happy as well when I see that we are growing not only the subscriber base, but also the revenue part. We are able to have a competitive pricing on that. And also when we launch new products that customers are taking them, that will also give us, of course, more appetite for launching even more products, as I said, also with partners to make sure that we cater for different needs in different customer groups. So that is quite important. So a lot of research is done today as well. So we are researching customer satisfaction with all our partners right now. We have a big project undergoing. So how do we stand relative to our competitors in the market? What kind of value creation do we generate with our content and our customers for us and for our partners? So stuff like that is super important. um so so that is something you will never be tired of of looking at and improving the customer satisfactory clearly now i don't think you get any medals for increasing prices in all fairness and of course we need to make sure that we that we can justify and we can defend the price increases that we are making and just as an example now when we prolong the the skiing then you will have 30 percent more skiing in sweden as an example coming up when you look at the champions league you have even more matches than you used to have when you look at Formula One and so forth. So we keep on trying to enhance the offering in order to create and build customer loyalty and also customer satisfaction. And if I'm looking at also the churn figures and something we haven't reported here, but we can say that if you look at the churn on sport as an example, that is a very low figure compared to previous years in Q4 on the D2C part. So that also shows a little bit about how customers are happy with our

Thank you for that Jörgen. So we have no one waiting in the queue and no more questions on the message board today. So that concludes the Q&A and thank you for your time and your questions. We really appreciate it. We're always happy to hear your feedback on the format and content of this session. And if you'd like to schedule a follow-up or have any further questions, please don't hesitate to reach out to us at investors at YFAgroup.com. That's it for today. Thank you again. Goodbye for now and see you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.