Viaplay Group AB (publ)

Good morning everyone and welcome to Viya Playgroup's Q1 results conference call. My name is Anna Hedenberg and joining me here on the call are our CEO Jörgen Madsen Lindeman and our CFO Johan Johansson. Before we start please note that today's call is being recorded. After the presentation we will open up for a Q&A. If you're listening on the web link Feel free to post your questions on the message board at any time, and I'll read them out during the Q&A. If you prefer to ask your questions live, you can do so by using your phone keypad, but more about that later. You can find all our results materials, 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 will hand over to you, Jørgen, to walk us through the Q1 highlights.

Thank you, Anna, and good morning, everyone. So, it has now been one year since we finalized the recapitalization of Viaplay Group. Since then, we have refocused our content strategy on commercial, locally relevant storytelling, prolonged key sports rights at market value, and sublicensed or sold selected titles to right size or cost base to stay competitive and relevant. We have worked closely with partners and suppliers to ensure that future agreements are sustainable and mutually beneficial. We have entered new and exited partnerships and focused on return investment across all areas. We have launched new fairly priced products and implemented account sharing measures across all core markets to protect the value of our content. We exited the UK and the Baltics, divested our studio operations and streamlined our organization to gain greater fit for purpose and cost control alongside with proper capital allocation. The exit of Poland, our last non-core market, is progressing according to plan and will be finalized in the summer of this year. Our Q1 results reflect the direction we are taking, but we are not yet where we want to be. The transformation is focused on performance improvements, monetization, value over volume, and cost control and building long-term sustainable business. We reiterate our 2025 targets of low to mid single-digit revenue growth and positive free cash flow for core operations. Our corporations revenue decreased by 5% organically, driven by lower year-on-year sales within sub-licensing and others. All other revenue streams grew year-on-year. Viaplay, which represents nearly half of our core revenue, saw organic sales growth of 1%, driven by price increases and improved product mix. D2C subscriber numbers and ARPU continue to grow year-on-year, supported by both Freeman Sport and Filman Series subscribers. Account sharing restrictions now fully implemented across core markets continue to support monetization and reduce the value leakage. We make clear choices about how we package and price our offering, focused on relevant, the right positioning, and improved monetization. These choices are deliberate and needed, and while the full impact will take time and may result in lower subscriber numbers and revenue in the short term, we are seeing positive signs in subscriber value and ARPU development. Linear challenge subscriptions grew 2% organically in the quarter that reflect the price adjustments and new distribution agreements, we increased our share viewing audience across all our core markets, underlying the continued relevance of our content. In advertising, the structural shift from linear to digital continues. Growth in digital and radio offset the linear decline, and the combined advertising business grew 1% organically. Digital ad inventory grew by 50%, largely due to the expansion of our HWORD products. Our HWORD offering is now also available in the Netherlands, which strengthen both our reach and our commercial flexibility in one of our core markets. We also continue to invest in anti-piracy measures and enforcement, working closely with partners to protect the value of our content and limit unauthorized access. Some licensing and others declined by 53% organically compared to the same period last year, which was expected. Q1 2024 included revenues from exceptionally scripted content deals which were not repeated this year. Instead, the focus now is on sports sub-licensing and creative partnership that maximizes reach and return on investment. The sport product continues to be a key audience driver. During the quarter, our RISE portfolio delivered strong engagement across all markets, with highlights including the Premier League, the FIS World Cup events, and the start of the new Formula One season. As we look ahead now into Q2, we expect continued momentum from the UEFA Finals, the ongoing Formula 1 season and the Ice Hockey World Championship. Our revised content strategy continues to resonate with the audience and the focus on commercial non-scripted formats is improving investment efficiency. Returning hits like Paradise Hotel in Denmark and Norway and new titles such as Better Sex and St. Jørgen's Street Cruise in Sweden now that relevant storytelling drives both engagement and return of investment. We remain disciplined in how we invest and equally disciplined in how we operate. Value over volume, cost control, ROI-based decisions, and simplification remain at the center of everything we do. Losses from no corporations were in line with expectations, and we remain focused on minimizing negative cash impact as we finalize the exit from Poland. We still have a lot to do and the transformation continues, but our strategy is clear. We are all focused building a wire play group that is more relevant and competitive in sync with consumer and partner demands, aligned with market trends, leaner, sharper, and with content that is more relevant to our audiences. Everything we do is focused on what our business needs to compete and create value over time. We'll continue making the necessary trade-offs to protect long-term value and ensure that our content, products, and partnerships reflect that ambition. That concludes my remarks, so Johan will take you through the financials. Over to you, Johan.

Thank you, Jorgen, and good morning, everyone. As we start the year, our focus remains on financial discipline, cost efficiency, balancing risks, and improving our cash flow. We continue to execute on the operational and structural changes initiated last year, and while we're making progress, these efforts take time. Our full year target remains unchanged, and delivery will require continued focus across all areas of the business, especially as comparables become more challenging in the second half of the year. Our Q1 reported sales were once again impacted by currency fluctuations. Organic growth was slightly better than reported with an FX headwind of approximately 50 million on core revenue and 60 million on cost. To note also that the organic growth for the first quarter was affected by lower contribution sales and excluding that effect, the organic growth was approximately 1%. Core EBIT, excluding IECs and associated company income, was negatively impacted by approximately 110 million FX in the quarter. This FX impact derives from that a portion of the content rights were paid in advance prior to the recent strengthening of the Swedish krona. At the same time, reported revenues in Norwegian krona, Euro and Danish krona were negatively affected by the transaction effects during the period. During the first quarter, we have locked in an FX rate for a part of the constant cost for Q2 to Q4 through payments in advance, as well as building up cash positions in euro and dollar however we are exposed to the fx effect on the revenues for q2 to q4 this means that our net exposure in dollar in dollar and euro has come down for the rest of the year and for our transactional ethics effects and hence based on where the fx effects are at the moment we expect a full year fx headwind on core ebit of approximately 100 to 150 million and that is excluding the potential FX effects reported as IECs. Operating expenses declined year-on-year in Q1, reflecting lower accelerated amortization from content sales and savings in non-sport content, as the previous scripted strategy has now been phased out. Content costs continue to represent approximately 80%, of our core operating expenses with the majority related sports. All new contracts are carefully evaluated based on return on investment. However, a number of legacy agreements have that were signed in a much more competitive environment. These come with the contract to step up that will increase our cost base. over the course of the year and are one of the reasons why comparables in the second half of the 25 will show tougher comps. SG&A was broadly flat compared to last year, which reflects our continued implementation of cost savings initiatives, which offsets the underlying cost effects, for example inflation. Core EBIT was negative 222 million in the quarter, an improvement of 48 million compared to the same period last year. And then remind again that we had 110 million negative FX effect compared to last year included in that. We expect the year on year improvement in core EBIT to be stronger in the first half than in the second half of the year. For the non-core operations, we made a loss of 5 million in the first quarter, and the wind-down of the Polish business is set to conclude by the summer. The items affecting comparability for the quarter amounted to positive 231 million, and primarily related to currency translation effects. Following the recrystallization, we have not been able to enter into new hedging arrangements covering these exposures, which has resulted in unhedged currency exposure. This has led to revelation effects on the acquired content and liabilities during the quarter due to FX rates movements, as well as currency revelation differences related to provisions made in 2023 for the honours contracts. This effect will continue to be reported as ISS until we have re-established a sustainable hedging. Our associated company income for the first quarter were 34 million, and we did not receive any dividend from Alente in the quarter. Turning now to cash flow, group free cash flow for the quarter was negative 671 million. with core operations negative contribution of 756 and non-core positive of 85 million. The positive free cash flow from our non-core operations was driven by working capital timing effects. We still expect the full year non-core cash drag to be approximately half a billion. um the quarter included um working capital build up of 320 328 million driven by seasonality in rights payment in combination with improvements and changes in payment terms and reduction in scripted content payments which we as i said before has now materially or unwound In addition to revenue and cost discipline, we will continue to focus on improving working capital efficiency, which remains an important priority to support free cash flow improvements. Our financial net debt excluding 302 million in net lease liabilities amounted to 1.583 at the end of the Q1 with cash and cash equivalents of 909 million. Total borrowings of 2.667 billion and 175 million in prepaid borrowing expenses. We had utilized 800 million of the 3.392 revolving credit facility at the end of the quarter. We are reiterating our full year guidance of low to mid single digit revenue growth and positive free cash flow for the corporations in 2025. And to summarize, this is supported by gradually improving the core EBIT over time, although quarterly fluctuations should be expected. And in the second half, as we absorb the contracted step of the rights cost. We also expect working capital to be positive for the year with other cash flow items such as finance, net, capex and tax and dividends remaining broadly stable. Execution will continue to be critical as we work through this transition. We remain focused on improving capital efficiency across all areas from content investments and partner agreements to working capital and cash flow management. While some effects will show up quarter on quarter, other may take longer time to materialize fully. There are both risks and opportunities ahead, and we are focusing on the right balance, making sure we protect value, unlock efficiencies, and remain disciplined in how we allocate resources. Thank you.