Viaplay Group AB (publ)

Good morning and welcome to Viya Play Group's Q2 results conference call. Today also covering the news that we are teaming up with Alente. My name is Anna Hedenberg and joining me here on the call today are our CEO Jörgen Madsen Lindemann, our CFO Johan Johansson, and today we also have Fredrik Gyruf and Carl Larsson from BMW Carnegie with us. Before we start, please note that today's call is being recorded. After the presentation, we will open up for Q&A. If you're listening via 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 question live, you can do so by using your phone's keypad. You can find all our results material, including the presentation deck, on the investor relations section of our website. We won't be following the slides directly, but they contain all the key information for reference. With that, I'll hand over to you, Jørgen, to walk us through today's highlights.

Thank you, Anna, and good morning, everyone. So, as announced today, we have signed an agreement to acquire Telenor's 50% stake in Alente Group. The transaction represents a natural evolution of the successful long-term partnership between the companies. We are thankful and impressed by what has been accomplished together with Alente and Telenor over the past five years. I will shortly come back to this, but first let me share some highlights from the second quarter. We are executing on our plan with clear priorities, financial discipline, and a strong focus on value over volume fueled by commercial relevant storytelling. Formula One once again drove the strongest sports engagement across our core markets, supported by major events like the Ice Hockey World Championship, Premier League Finals, and golf majors. On the non-sport side, local storytelling continues to deliver with strong performance from both long-term improved scripted favorite visiting and the reality phenomenon Paradise Hotel, which continues to top the charts across multiple countries. Our free TV channels all increased their commercial share of viewing in the quarter, and our radio channels in Sweden and Norway increased their commercial share of listening. Direct-to-consumer subscribers grew year-on-year while B2B volume declined in line with what we have seen in previous quarters. Average revenue per subscriber improved both year-on-year and sequentially. Viaplay was down 1% year-on-year despite the lower B2B subscriber numbers which reflects our focus on value over volume. Linear subscriptions were down 3% and the launch of Viaplay Sports in Sweden together with strong partners two weeks ago is a great example of how we can introduce more products to the market, just like the linear sports channel, which was launched in Denmark. During the Sweden-Poland match in the UEFA Women's Euro, our new Viaplay sports channels became the most watched channel in Sweden. Digital advertising and age watch continued to grow, offsetting linear headwinds, which resulted in a 1% organic growth. Sublicensing revenues increased by 23%, driven by sports sublicensing. Our exit from non-core markets is now complete with the wind down of Poland finalized. So in short, we still have a lot of things to do and to improve, but we are making progress. Our strategy is progressing and our teams remain focused on strong, relevant commercial content, monetization and execution. Now, let me say a few words about today's announcement regarding Alente. As we announced earlier this morning, Viapair Group has signed an agreement to acquire Telenor's 50% ownership stake in Alente Group, subject to customer regulatory approvals. As I said in the beginning, this is a natural evolution of a strong and successful partnership between Telenor, Alente, and Viapair. Since the creation of Alente in 2020, we have worked closely together and built a very well-managed customer-focused business with deep local roots and a solid commercial position across the Nordics. We are both proud and grateful for what we have achieved together, and this step is about building on those strengths. Alenda is the leading provider of television services delivered by satellite, IPTV and OTT with approximately 844,000 subscribers across Norway, Sweden, Finland and Denmark. In Sweden, Alenda also offers standalone broadband solutions. In 2024, Alenda reported revenues of 6.5 billion SEK, EBITDA of 996 million SEK, and free cash flow of $1 billion. 95% of a lender's revenue comes from other regular streams than OTT, which clearly is our strength, so a very complementary partnership on the financial front as well. By joining forces, we can expand our direct-to-consumer footprint, make even better use of our combined content technology, and deliver a broader range of compelling products across DTH, IPTV, broadband, and advertising. We will also be in a better position to promote these offerings across platforms, including through our deals and channels, opening new opportunities to grow our customer base and drive customer satisfaction. This partnership is about the customers we serve. It's about innovation and value creation for both companies. It gives us more tools, more optionality, and a smarter platform for delivering what viewers expect, high quality, relevant, and engaging content experiences in format that fit their needs. From a financial perspective, which Johan will come back to in a moment, the transaction is structured in a responsible way and is strongly supported by our major stakeholders, including our lending banks, bondholders, Canal+, PPF, SEK, and EKM. Combined with our renegotiated credit arrangement, this supports our efforts to improve cash flow, reduce leverage over time, and in the longer term, prepare the group for full refinancing. The transaction has has not yet closed, meaning we are now entering a regulatory approval process. And until completion, Alenda will continue to operate independently as it does today. Once the transaction is finalized, we look forward to sitting down together with the Alenda team to explore what the future should look like and how we together can build that future in the smartest and most value-creating way. To summarize on Alenda, since there is not much more we can say until the deal has closed, we are very excited about what lies ahead. And this is a natural next step. It reflects our sharpened strategy, the trust we have in Alenta and its people, and the belief that we are more relevant for more customers together. The transaction we have announced today would not have been possible without the support for key stakeholders. I want to thank Tilenor for their longstanding partnership and the entire Alenta team for their dedication and impressive work over the years. Together, they have built Alenta into a strong company as it is today. Also, a warm thank you to our lending banks, Nordea, SEB, Danske Bank, Swedbank, and DNB, and to SEK and EKN, our bondholders, our two largest shareholders, BBF, and Canal+, for all their support. I'm also grateful to our advisors, DNB Carnegie and Gerhard Danielsen, for their commitment and professionalism. And finally, a big thank you to our real and strong supporting commercial content partners. And you know who you are. Thank you so much. Thank you to all the Viaplay staff for very good progress and super hard work also in the first half of 2025. With these words I hand over to you Johan.

Thank you Jørgen and good morning everyone. As you heard from Jørgen just now we've entered into an agreement to acquire Alente, a transaction that will accelerate our transformation. I will go deeper into the financial effects of this transaction in a little bit. But let me start with going through this past second quarter first. As we enter into the second half of the year, our priorities remain unchanged. Financial discipline, cost efficiency and strengthening our cash flow. Our core operating income before associate company income and ISCs improved to 89 million compared to negative 72 million last year. Group free cash flow was 823 million with core free cash flow of 1.042 billion. Reported group sales amounted to 4.313 billion with organic sales growth for corporations down 0.1%. Currency remains a key factor this year. In Q2, FX movements affected earnings positively due to stronger Swedish krona compared to Q2 last year. The stronger Swedish krona had a negative effect on revenues in the quarter as revenues are denominated in Norwegian krona, Euros and DKK. were translated at less favorable rates, while on the cost had a positive effect mainly from content-related payments denominated in euro and dollar. We actively work with managing our risk with tools available to us, but FX volatility will continue to impact our reported results. The net FX impact on core EBIT in the quarter was positive 37 million. We remain in the line with our previous full year expectations of 100 to 150 million headwind excluding unrealized revaluation effects books as ISEs. For the quarter, items affecting comparability amounted to negative 42 million and were primarily related to redundancy costs and the revaluation of USD-denominated liabilities and legacy content provisions. These revelation effects are non-cash and will continue to be reported as ISCs until sustainable hedging is in place. Our share of income from Alente amounted to 46 million in the quarter, up from 28 million last year. No dividend was received during the period. Group free cash flow improved to 808 million at 23 million up from 627 million in q2 24. the improvement in working capital was driven by seasonality effects and focused on working capital uh working capital management with a net contribution of 859 million this reflects his seasonally low sports payments during the quarter lower script content payments as most of the remaining commissions were paid by the end of last year and continued optimization of supplier terms. On the trailing basis, core operations have now generated 1.7 billion in free cash flow for the first half of 2025. Non-core operations had a cash flow of negative 219 million in Q2, which is in line with expectations and consistent with the full year previous to communicate the effect of negative 1.5 billion for the non-core business. Capital expenditure remained low at 12 million in the quarter with continued tight control of both tangible and intangible investments. At the end of the quarter, financial net debt was 787 million. We had 927 million in cash and 1.88 billion in borrowings. We have maintained a conservative liquidity buffer, which gives us flexibility heading into the second half. The wind down of our DTC operations in Poland was completed on June 30th. This marks the final step in our exit from the non-core markets and allows us to fully focus capital and resources on our core operations going forward. We make no changes to the expected cash drag for the coming years and previous phasing remains unchanged. The acquisition of Alente Group announced today is expected to strengthen Viaplex financial profile. Once completed, Alente will be consolidated into our financial reporting. For reference, Alente generated $6.5 billion in revenue and $1 billion in EBITDA in 2024. This is a cash-generating business with stable performance, and we expect it to contribute positively to our earnings and cash flow going forward. Furthermore, Alente's existing revenue mix with a large share of DTH, IPTV, and broadband is highly complementary to Viaplay's existing products. And the longevity and loyalty of the customer base has been proven over time. We have taken this opportunity to reshape our balance sheet and will, as our cash flow profile improves, be canceling our existing 646 million euro guarantee facility. This cancellation enables us to finance the acquisition of Alente through a new debt package, including a 1.7 billion term loan. and at the same time reduce the total commitments materially. Concurrently, we're also establishing a 2.5 billion working capital facility to reflect a reprofiling of payment terms under our commercial agreements. As part of our ongoing working capital management and to limit intra-year cash flow seasonality, we are making changes to payment terms under certain commercial agreements. This results in a one-off working capital effect of approximately 2.5 billion in 2025, funded by the aforementioned facility, which will naturally unwind as a consequence of this revised profile. As a result of these changes, working capital movements will be more stable and less volatile for the coming periods, benefiting the financial position and liquidity of the group. The sizing of all facilities is based on the current and future needs of the group. And as we are exiting the current guarantee regime and we'll have both improved cash flow generation and smaller working capital movements, the needs of our business has changed and we have that our financing package and available facilities to reflect this. As a result, we will reduce our RCS by 575 million. Simplifying our financial arrangements also means that we're taking a very meaningful step towards refinancing our recapitalization facilities. In conjunction with the acquisition and the procurement of the new facilities we've also taken the opportunity to renegotiate our financial covenants as our previous regime was entered into during the recapitalization and we are now on a performer basis, materially if it's a positive and cash flow generating company. We wanted to make sure that our financial covenants reflect this and that they give us required flexibility to execute and accelerate on the strategy with the required headroom. Based on the acquisition, we're replacing our previous full year 2025 guidance for YF Playgroup Standalone. We now provide an updated guidance which includes proforma core net sales of 21 to 22 billion proforma core EBITDA before associated company income and IECs between 0.8 and 1.1 billion and proforma adjusted group operating free cash flow of 0.5 to 0.75 billion SEK adjusted for costs related to acquisitions, interest, dividend and extraordinary one of working capital effects, the latter which I mentioned earlier. This guidance reflects the expected financial impact of consolidating Alente and support our long-term transformation. We are very excited about the potential for the combined company and the ability to enhance our product and services offering to bring even more engaging products to consumers across the Nordics. More detail will be provided post-closing as subject to regulatory approval when we have the opportunity to sit down with Alente team to explore future possibilities. We are updating also the long-term ambitions to reflect the potential of the new combined group. We expect core organic net sales growth to on average be flat over the period of 25 to 28. and target double-digit core EBITDA margins before ISCs and associated company income by 2028. With the change from our past long-term guidance on EBIT, materially attributed to exclusion now of non-cash PPA effects. As CapEx remains low and we are stabilizing our working capital movements, EBITDA is the preferred proxy for our underlying cash flow generation. Alanta has, over recent years, operated with the EBITDA margin in the range between 10% and 15%. Hence, the acquisition will be aligned with the long-term margin guidance. Furthermore, we target to gradually increasing the year-on-year adjusted group operating free cash flow on a performer basis with the baseline in 2025. Following the acquisition, we will have a long-term financial in-depthness, including the working capital facility, as I already had explained. It will unwind on its own accord towards the end of the life of the facility of approximately 6.1 billion, corresponding to a gross leverage ratio of about 5.5x, based on the top end of our guidance range. Excluding this working capital element deriving from new payment terms, and looking at our core in-depthness, it's approximately 3.6 billion or 3.3x based on the top end of the pro forma EBITDA range. As we are targeting EBITDA margin expansion as well as increasing operating free cash flow with the coming years, the implication is naturally that we will deliver over the medium term. We will prioritize reducing that in order to strengthen our long-term competitiveness In line with this ambition, we have agreed the structure where part of the new facilities is being amortized over the coming years. Execution remains our priority. We are seeing the impact of the changes we have made in content strategy, cost base, working capital and financial position. But there is more to do. We will continue to manage the business with discipline, focus on profitability, liquidity and capital efficiency. while supporting the investments that will drive the long-term value creation. That concludes my remarks. Thank you.

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

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please type it into the box and click submit. Once again, if you would like to ask a question via the telephone, please press star one and one on your telephone keypad.

So let's start with a question here on the message board. And this one is for you, Jörgen. So today you announced the sub-licensing agreement in Norway together with Tele2. What effect do you expect from that agreement?

So the newly, I reckon it's TV2 Norway. So no, it is very interesting, a very interesting partnership in all fairness as well, which we are building on since we also are partners when it comes to other products. And it is of course with the ambition to give even stronger offering to our to our customers. So we are excited about this opportunity to be fair and hopefully more to come.

Thank you. And one more for you, Jørgen. How do you plan to grow your streaming revenues in the second half? Do you plan for more price adjustments or higher subscriber volumes?

We are constantly looking at whether we are priced competitively. That is very important. But as we see right now, it is a combination of where we are getting more customers in. At the same time, we are getting customers in on products, which has a good output as well. So that is, of course, a journey that we will continue to embark to make sure that our products are relevant and they are priced fairly.

Thank you. And here's one for you, Joram. It seems like the previous financial targets for core operations, excluding a lens that have been reduced, Are the previous 2025 financial targets for core operations excluding Atlantis still realistic and achievable? If not, when do you expect core operations excluding Atlantis to reach positive growth and positive free cash flow?

We are not indicating that we are deviating from the previous forecast. But what we have done is we've taken the opportunity to look at the combined performer group and set up new targets for that. So the targets that we have had, we have not guided specifically updated guidance for the standalone business, but rather included new guidance for the combined entity.

Thank you. And now one more for you, Jörgen. Are you looking to make more sub-licensing agreements in your core markets in the coming months? Do you have a limit for sub-licensing of sports rights or are all your rights up for negotiation?

No, it is clear that the ambition is, of course, that we continue to have a very competitive product. And it's also not a secret that we have a lot of content and a lot of events, to be fair. So that can easily happen, that we will find strong partnership with others And of course, the ambition is, of course, with the revenue that you get for those sub licenses is to invest them in other areas of the business as well to the benefit of the customers. So it is also about capital allocation. But we are definitely interested in making sure that we have the right set and right volume of rights. And still, so far, we have too much.

Thank you. There are no more questions on the message board. And I can also see that we have no one waiting in line. I know it's a very busy day today. So thank you for your time and your questions. We really appreciate your interest. If you'd like to schedule a follow-up or have any further questions, please do not hesitate to reach out to us at investors at biopaygroup.com. That's it for today. Thanks again. Goodbye and see you soon.