Viaplay Group AB (publ)

Good morning, everyone, and welcome to today's Q22026 results conference call. At this time, all participants are in a listen-only mode. My name is Matthew Hooper, and I will be your host today. Joining me here on the call are our CEO, Jürgen Lindemann, and our CFO, Johan Johansson. Welcome, gentlemen. Our presentation will be followed by a Q&A session on the telephone dial-in line, and you can find our results materials, including the presentation deck, and detailed fact sheet on the Investor Relations section of our website. As usual, the deck is for your information and our remarks and commentary will not follow it slide by slide. Please be advised that today's conference call is being recorded. I will now hand the call over to Jürgen to walk through the results. So over to you, Jürgen.

Thank you, Matthew, and good morning, everyone. So we made further progress along our transformation path in Q2, and the Alente integration is proceeding according to plan. The combination of the Viaplay and Alente groups has created a larger group with more customers, more content monetization potential, and more cash flow generating capacity to deliver our strategic transformation and goals. The combined sales of 10.8 billion for our core operations for the first half of this year is almost 25% higher than what we reported on a standalone basis for first half last year. Our combined first half EBDA before ACIs and IACs of 560 million compares with a loss of 50 million in first half last year. Integration of the Alenta Group is running according to plan, and we have now taken the majority of the costs relating to the restructuring. The resulting cash-cost synergies are as expected. They are starting to come through and will be at their full year one rate level from the start of next year's plant. There will also be sales synergies which our teams are exploring fully and carefully in areas such as consumer acquisition and retention, marketing and promotion, product packaging and development, content utilization and monetization, and how we make the most of our tech stacks and CRM activities. More broadly, we are making progress with our strategic transformation. On the sales side, our streaming subscription sales were up 7% year-on-year on an organic basis, with both our D2C and B2B sales growing. The total wire-based prescriber pay was stable year-on-year and down quarter-on-quarter as usual due to the seasonally quieter summer sales period. Both D2C and B2B upper levels were up year-on-year and quarter-on-quarter, due to the growth in the number of premium sports subscribers, as well as the continued focus on value over volume in the extension of our agreement with key distribution partners. More G2C and B2B customers are choosing our sports offering because we have much high-quality, wide-ranging, and year-round offering of the very best sports content. And we have more coverage of major sports this year than ever before. This course will feature citing combination of the English Premier League football season and the Danish Superliga, the Ice Hockey World Championship, the final rounds of the UEFA Club Championships, Formula One Motor Racing, and called from the three or four majors, the Masters, the PGA Championship, and the US Open. Our non-streaming revenues comprise the Alente DTH business as well as our own linear pay-to-read channels faced to third-party networks. The number of linear platforms and channel subscribers is in long-term structural decline due to the shifting consumer preference to streaming services, but scheduled appointment viewing still has a large and loyal following. The vast majority of the Alenza subscribers already have Wireplay bundled with their subscription, so they have the best of the scheduled, live and on-demand viewing worlds in their existing subscriptions. The Alenza DTH subscriber base continues to decline in Q2, but Alenza also has also added new content to make the product even stronger and raise prices, which partially offset volume declines. In total, then, our non-streaming subscription sales were down 3% on an organic basis. Our total advertising sales were up slightly on an organic basis, which again reflected the combination of strong digital sales through our AWOD and HWOD offerings and growing radio advertising sales, which were offset by the ongoing structural decline in linear TV advertising. Our content offerings remain very attractive, and we will invest further in our offerings. We successfully launched several new local productions, of course, on markets during Q2. In Norway, Helvets Uke premiered and has become one of the strongest-performing local titles ever on the platform. We also launched Scarecrow's Fever, a spin-off from one of the most successful franchises in Norway, Shadow Fever. In Denmark, we introduced the Danish version of Shadow Fever, while Mida på Michelin restaurants also stood out as a strong local launch. Our international slate was further strengthened by the premiere of the international hit Sandokan, which has been particularly well received by subscribers who engaged with Outlander earlier this year. Our movie offerings also continued to differentiate the service during the quarter. Standout titles included in the material list starring Dakota Johnson, Chris Evans, and Pedro Pascal, as well as our Swedish original movie, The Anarchism in December, based on the best-selling novel by Martina Haag. Finally, the other sales line comprises our sports sublicensing business, where we sublicense our sports rights to third-party broadcasters and streamers in our core markets, and our scripted content sales business, where we set our portfolio for written scripted content to broadcasters and streamers around the world. Sales were down 15% year-on-year on an organic basis, as reflected the lower volume of scripted content sales in particular. Overall, our corporation sales were up 0.7% year-on-year on an organic basis. When excluding the positive currency effects, our corporation costs were up 2% on a performer basis. The primary operating cost driver is content, which accounts for three-quarters of our total cost base. The largest part of this is sports content, where our costs have continued to rise due to the inflation built into our multi-year legacy agreements. As we prolong these agreements on competitive market terms or find alternatives, the inflation will be less in the second half of the year and also increase less next year. We offset some of this increase by reallocating capital to more profitable areas and with SG&A savings, including some synergies from the Atlantic Group integration. The ongoing transformation, discipline, capital allocation, sales and cost management, and the negotiation and extension of key content and distribution partnership agreements on commercial and competitive terms, all this securing of alternative options are the major drivers of our longer-term ambition to deliver a double-digit EBITDA margin in 2028, compared to the 5.3% that we delivered last year on a performer basis. Our Q2 EBA was up year-on-year when compared to the performer number, including Atlantic Group's result last year, and then this included an approximate 110 million currency tailwind due to the strengthening of the Swedish Krona reporting currency. The recently announced sale of the Dutch operations will focus us operationally on the Nordic markets, where we have the greatest scale advantages and synergy potential, and we will also provide cash to reduce our net debt and strengthen our financial profile. We remain totally focused on rebuilding as relevant and resilient a Nordic business as possible, one that both entertains and creates sustainable value for our customers, our people, our partners and our owners. We are doing this by crafting competitive products and commercial partnerships to stand the test of time and enable us to achieve our transformation objectives. We still have a lot to do to deliver our short and long-term goals, where we are making progress and remain fully focused on making this transformation happen. This is it for my comments for now, and I will now hand the call over to you, Johan, for your comments on our financial performance and position before we take questions.

Thank you, Jørgen, and good morning, everyone. As a reminder, the quarterly fact sheet on our website provides the usual relevant historical and backup information. In the report published today, we have provided the performer information for prior period in 2025 to include a land group as if it had been consolidated from the beginning of last year. So this is so that you can see the organic development. The effects are shown as usual in the ATMs at the back of the report. We have focused the commentary in the report on key sales and DBTA numbers for our corporations as we discontinued the loss of our non-corporations last summer. When it comes to cash flow and balance sheet commentary, we have provided group numbers as we still have a cash drag from legacy content agreements that are yet to expire in markets that we have already exited. The year-on-year FX movements had a big impact again this quarter, with approximately 80 million SEK positive impact on the reported core operation sales, as the Norwegian krona in particular strengthened against our Swedish krona reported currency. Reported core operation costs benefited from the net positive FX sale win of approximately 30 million due to the strength of the Swedish krona, against the euro and the dollar, in which we have the vast majority of our costs. The net result of this was an approximate 110 million positive year-on-year FX effect on our core operations EBITDA in Q2. We do still have significant current exposure in the second half of the year, primarily in NOC, so these numbers can still move materially in either direction during the rest of the year. Depreciation and amortization amounted to 152 million for the quarter, and included approximately 100 million of GPA amortization charges, which were flagged previously, and are the result of the consolidation of Alente Group. The 52 million of items affecting comparability in Q2 primarily compromised to 42 million of redundancy and restructuring costs relating to the integration of Alente Group. as well as 10 million of currency cancellation effects. We have previously guided for total integration cost of 270 to 330 million SEK, with the majority being taken as ISE in the first half of this year. So the 203 million of ISE in the first half of the year was well in line with this. We have almost no associated company income or dividends now that we have fully consolidated Alente Group. When looking at our interest costs, please remember that the cost for the 646 million euro of balance sheet bank and TIT facilities that we canceled in November last year were included in other financial items, not the net interest, whereas now almost all of our borrowing costs are included in the net interest. So although the net interest costs were up year-on-year, Other financial items were also significantly down. Moving on to the Group Cash Flow. We reported the minus 52 million working capital development, which primarily reflected the payments that were made for legacy content agreements in markets that we have exited. This non-corporation cash drive, which we talked about previously, is included in the working capital and is expected to amount to approximately 500 million this year. The year-on-year swing in working capital reflects the smoother and more stable setup that we have now. The payment terms in our new commercial arrangement reduce the cash flow volatility between quarters. Previously, there were substantial swings to payment timing differences. Our cash flow from operating activities totaled 145 million in QQ2 and included 115 million of cash interest costs and 78 million of cash tax costs. We invested 32 million of capex in QQ2 and reported a positive free cash flow result of 113 million of which the 76 million from the corporations and minus 63 million from the non-corporations. The 187 million cash flow to financing activities included the quarterly amortization of Alente Group related borrowing, which will total 420 million this year and next year, as well as changes in the usage of the 2.8 billion which we have had to draw on 700 million at the end of the quarter compared to 750 million at the end of Q1. The net change in cash equivalents therefore amounted to minus 74 million in Q2. When looking at the second half of the year, we do expect working capital to be negative in Q3 and positive at the positive effects in first half of the year will reverse and we expect to be positive in Q4. For the year as a whole, when excluding the non-core operations cash drag, we expect the working capital to be broadly neutral and we are constantly working on to improve the working capital profile. We continue to expect capex to be at or about the same 150 million level for the combined group as last year. Cash tax payments will benefit from the carried forward tax losses that we have, and our annual cash interest costs are now running at approximately 450 million. After the scheduled debt repayment of 105 million of total borrowings excluding the RCS, we are now under 5.8 billion, compared to 5.9 billion at the end of Q1. You can see the usual debt maturity profile chart in the slide pack on the website. Aside from the scheduled repayments this year and next, all of the rest of our debt facility mature in 2020. Our financial net debt, when excluding leases, were largely unchanged at the 5.12 billion at the end of the period. compared to just under 5.2 billion at the end of Q1 and compromised 6.5 billion of borrowings and 1.3 billion of cash. Our net debt to trailing 12 months pro forma EBITDA excluding associated company income and IEC was 4.5 times at the end of Q2 compared to 4.7 times at the end of Q1. The recently announced divestment of a Dutch ration on the cash and debt-free basis will enable us to reduce our net debt once the transaction closes after the various regulatory and other approvals. The further deleveraging of our balance sheet depends on the strengthening of our cash flows through the effective doubling of our EBITDA margin between 2025 and 2028. and the ending of our non-core operations cash drag in 2028. We are making progress and the margin improvement still requires a lot of work, including the work with our suppliers, partners, to move all the agreements onto commercially competitive market terms or find alternatives. We are focused on executing all of the various initiatives we have in place to deliver the transformation plan and make the required efficiency gains, including driving sales growth, and managing our working capital to be as positive as possible, and allocate our investment capital to generate as positive returns as possible. And that concludes my remarks, so now back to you, Matthew.

Thank you very much, Johan, and we are now ready to take your questions. If you would like to ask a question, you will need to be on the telephone dialing line. The webcast is listen-only as per the invitation. Please press star 1 and then 1 again on your telephone keypad and you will enter the queue. If you wish to cancel the question, simply press star 1 and 1 again. Okay, so the first question comes from Christopher at Kepler Chevrolet. So please go ahead, Christopher.

Good morning, guys. Thank you for taking my questions. I'd like to start with the Dutch divestment there. Can you please talk to us about why you struck this deal now and why it did not happen perhaps two to three years ago when you were shrinking your footprint? And maybe also talk to us about the timeline you mentioned a bit, but also how positive you are on receiving a green light from the regulator where we have seen some non-pro business positions before from the Dutch regulator.

Yeah, so you can say in general it is part of the transformation that we are making. The same goes also with the acquisition of the land. So the idea is of course to build a very strong and focused Nordic business and as I said in as well that that is also where we have the biggest scale and we can realize the biggest synergies. So we did receive a number of unsolicited offers, you know, and in the end decided to take the best price and also where we saw the biggest certainty and also where we had speed. because clearly the rights is also beginning now in August, September, so we wanted to make a speedy process so that the new owner, potential new owner can, you know, capitalize on those rights as well. And when it comes to the process on the competition authorities, that takes, there is a, as you know, a structure in that and a path which they're laying out, you know, how to go about this. So that is what we are following. So that is ongoing and I will not comment on any historical decisions in Netherlands.

Fair enough. And you mentioned this Nordic story, Back to the Roots, where you have a clear right to win, which I think we all applaud, right? Can you give us a bit more on that strategy? Is this back to the old star bioplay in the Nordics, where you have a strong sports portfolio, more seasoned with your own local content, like going back to the bioplay originals, or will you more continue with this sort of a non-script,

I think import buses, of course, that are offering is commercial attractive, yeah, and that is not only the non-scripted or the scripted or sport, whatever. So it is a big variety, whatever it's called, of content that we have. It needs to be relevant, clearly, and it needs to be commercial attractive, yeah. So that is the key criteria. And we have linear TV, as you know. We have radio. We have AVOD. is for offering, the Viplay offering, we have DTH, we have our broadband offering as well through Alente and so forth. So there's a lot of revenue opportunities that we're having for our content. So that is clearly something which we are exploring, as we say, as well. We have not even explored the sales synergies as well with Alente. So what is it that we can do more together? And how is it that we can capitalize even more on the on the relevant content that we are producing. So it is, like in all other media companies, about relevance. And we have a very strong sports position, we have a very strong local content position, and we have a very strong acquired position as well. And luckily we have a lot of distribution platforms where we can capitalize on that content, as you see with the Nordic business and the revenue coming out of the Nordics.

Thank you. And you mentioned Spoolster and your strong portfolio, but we recently learned that you lost out on extending the Champions League rights in Sweden from H2 next year, which I think is a worry for the market, right? So can you please talk to us about how you can mitigate possible impact or possible negative impact in terms of churn and you not being able to raise prices, etc.? I think that is normal.

I don't think that we will be winning All the competition, all the auctions that we're going into, as we also have had in the past, you know, it's about discipline approach where you actually understand your business case and when the business case is not supporting increased offers, then you leave it. And that I've done also in the past last time where we, you know, CEO. So that is a discipline you would see us continue to do. And then it is up to us to find alternatives. We have a very strong football offering as well. Don't forget, Sweden alone, we have the FA Cup, we have the Premier League, we have the national team matches and so forth. So there is a lot we have to offer still. And then we will then find alternatives if that is needed. But we will not enter into crazy bidding in these processes and competition we're used to. There might have been others than just Disney in that process as well. So that has always been the case.

If I come to the cash flow side, fantastic development in H1, positive 150 million in my model here. And you're going for a neutral free cash flow for the year, excluding the non-core cash drag. What I'm struggling to understand is this non-core cash drag and the timing, because if my maths are correct, that implies a negative 400 million cash drag in H2, which is very different. We have different payment schedules for that sort of cash drag, but it is correct that it is the 400 in the second half of the year for that, yes.

Okay.

On streaming subscribers, it was a bit negative in Q2 here with roughly 200K outflow. I know there is a seasonality, but it was a bit more pronounced than I had expected. Can you talk about the mix there in B2B and B2C in terms of the subscriber decline?

Yeah, I think, as you say yourself, there's seasonality in there as well, yeah, like all other years has been the same. And we continue to see the sport actually continue to grow fairly well when it comes to the D2C and also the B2B part to be fair. So the campaigns we have with our B2B partners seems to be working very well. So we are happy about that. But it is linked, of course, to many times that when the leagues are expiring, which they did a little bit earlier this year as well due to the World Cup football as well. So that, of course, had an impact.

Got it. And maybe a last one. You mentioned, Jørgen, some of the building blocks for the EBITDA margin to expand to the double digits in 2028. But I missed part of that. Can you remind us of the big building blocks?

Yeah, but that is several building blocks, to be fair. And as we said, it is, first of all, is the relevance of the content and the sales related to that content. Then it is also quite important that The content that we are buying is also on market terms. And clearly, as you can see, as I also said, a lot of the legacy contracts we're having, we are prolonging those on market terms or we find alternatives for those as well. So it is a mix of many things which we would like to see happen in order for us to get into double digits in 2028.

Understood. Thank you, guys, and congrats on a good first half. Thank you. Thank you.

Okay, thank you, Christopher. The next question we will take is from Alex at SB1 Markets. So, Alex, over to you to ask your questions. Can you guys hear me? You can.

Oh, perfect. Great. Most of my questions were actually already answered, which is good. So I just have maybe one follow-up on the test. on the Dutch sale. I was wondering if there's any detail you guys can give on the net leverage impact post the sale. I'm not sure yet how much you can disclose there, but any call to the Dutch business EBITDA just to know kind of how we should model the business post the sale.

It's not something that we have disclosed at this time, but what we have provided is the historical sort of sales. You can see the sales multiple. And then on the leverage, I mean, we have not disclosed the cash flow nor the profits.

Okay. Is that something you suspect wants to be disclosed about, I'm guessing?

I think we'll have to see, Alex, what we're able to give you there, but you can see quite clearly on the front page of our earnings release, if you look at the financial net debt and you look at the proceeds of the sale, it represents quite a significant amount of our financial net debt, so I guess you could reduce something from that. Yeah.

Okay, well that's good. And then just kind of the core sales bridge after the Dutch sale, I'm not sure if you guys mentioned this, but once Netflix is sold now, how should we think about kind of the The core sales base and growth profile, I know you mentioned you haven't changed anything with regards to your guidance for this year, but maybe looking forward, is the Nordic-only perimeter expected to be more stable, or does the loss of that streaming revenue change the organic sales bridge at all for you?

I'm going to think only organic. I mean, obviously, organics will imply then that we take Netherlands out of the mix, right? So the comparison then will be excluding Netherlands. And we said we're not changing the assumptions around the stable year-on-year growth rate. So that doesn't really change. And it just focuses everything back onto the Nordic business. Whereas, you know, we have a similar profile and it's a mixture of this. you know, growth on the streaming side. You saw a slight improvement on the advertising side, but this is offset by the linear subscription market. And then obviously our sub-licensing has been a bit volatile, but has been operating in this quarter around the level it was in the latter half of last year. So it seems more in the sort of zone there. So it's a bit of a mix, I'm afraid, but overall the prognosis for stability in sales remains the same. You may see a bit one way or the other, but it's around organic.

Okay. No, that's perfect. That's all for me. Thank you, guys. Thank you.

Thanks, Alex. And I think that's it, actually, for the Q&As today. We're conscious it's a very busy earning day today for lots of people. So I'd just like to say thank you very much for your time and for your questions. We do really appreciate your interest and always welcome the feedback. We are available for follow-up questions and meetings, so please don't hesitate to reach out. if you would like to schedule a meeting now or after the summer and if you have any further questions. So I think that's it for today. Thank you again. We wish you a great summer and goodbye for now.