Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q4 Earnings Call. At this time, all participants are in a listen only mode. After the presentation, participants will have the opportunity to ask questions. Presentation slides to accompany the call are available via the link on the homepage of mtg.com.
I will now hand the call over to your host, MTG President and CEO, Jurgen Lindeman, who is joined on today's call by MTG's CFO, Maria Reddy and Anders Jensen, CEO of Nordic Entertainment Group. Please go ahead.
Thank you, operator, and good morning, everyone. As you can hear, I am unfortunately hit by heavy flu with all the joy that, that brings. But I will still try to make sure that I will read out or discuss with you the results as clear as possible. But bear with me, my voice is not 100% today. But before we go into the numbers, let's just take a few minutes to update you on our preparation to split NTG into 2 separate listed companies.
We have now published the information brochure to provide the decision making material for the shareholder meeting, which will take place the date after tomorrow, February 7 in Stockholm. Assuring that the EGM approves the split, the prospectus will be published at the beginning of March and separate Capital Market Days for both companies will be held on the 11th and 12th March with the listing of NAND on NASDAQ's stockholder exchange to take place at the end of March. The information brochure included the new financial targets for both companies, including the leverage ambition and dividend policies for NEM Group. It is in this context and subject to the AGM's approval of the split that the NEM Group Board will propose the payment of dividend of SEK 6.5 per share of the NEM Group AGM to be held in May. The LG Board is proposing that no dividend be paid to MTG shareholders in 2019.
This is in line with both companies' stated dividend policies. We are following decided to withdraw the capital raise authorization proposal. The consultation period suggested our major shareholders fully support the strategy and view the opportunity of participating in any future fundraising as an important way of ensuring that they also participate in the benefits of that strategy. MTD would be, at the time of split, well capitalized to execute its stand alone plan, and we have now also secured SEK 1,000,000,000 credit facility, which will provide additional funding for MTG after the spin off. If you turn to Slide number 3, you can see that strong momentum continued from 2017 into 2018 as sales, profit and margins were all up again.
Full year sales grew by 4% on an organic basis and operating income was up 24%. Nord entertainment delivered another outstanding performance with record sales and profit and NGGX were profitable on a full year basis for the first time. We delivered our profitable growth objective, which shows that our products are more relevant, more available, more popular and more valued than ever before. Our strategy is clearly working, so we are doing this bit from a persistent strength as we want to further accelerate the development of these 2 great businesses. If you turn to Slide number 4, you can see that the sales were up 1% on an organic basis and operating profits before IAC were up 19% in Q4.
Our Nord Entertainment and Studio segments all delivered organic sales growth and higher profit. MPGX sales were as expected down as we had less new games and content launches, and we have been scaling down the non strategic elements of our e sports business in favor of high quality and more sustainable revenue lines. The underlying growth in our e sports and gaming business remains healthy and the operating income improved driven by lower Esports losses as planned. I will now hand the call over to Anders for his comments on the Nord Entertainment and Studio business.
Thank you, Jurgen, and a very good morning, everyone. I can ask you to please turn to Slide number 5. Nordic Entertainment, Broadcasting and Streaming Businesses sales were up 3% on an organic basis in Q4 and profits were up 5% to a new all time high in the 4th quarter. This was our 9th consecutive quarter of profitable growth and clearly demonstrates the positive effect of our early and aggressive investments into taking a leadership position in the Nordic streaming market. Free TV and radio sales were up 3% on a reported basis, fueled by continued double digit growth in our Swedish radio business on the back of the new radio licenses that we received in August last year and a very good operational performance.
Our TV advertising sales were also up at higher prices and audio shares more than compensated for falling linear viewing levels. Via Free sales were slightly down in Q4. This was expected given the tough comparison from last year, but also more importantly, the strategic decision to shift some certain key content to Via Play. And I think this is a perfect example of the benefits of our integrated structure, which enables us to maximize the value of both acquired and original content. Via free sales were up double digit percentage points for the full year, and we expect this growth to continue in 2019.
Nordic paid TV sales were up 7% as Via Play generated further high subscriber intake and a record low churn rate. Our ViaSat subscriber base was also up both quarter on quarter and year on year as growth in our broadband TV and third party packages more than offset the decline in the satellite base. All of these clearly demonstrate the value of the investments that we have made in premium sports rights and local original dramas. We announced 4 new originals in Q4, including the Swedish drama, Hedo, which has already been picked up by VRT in Belgium, while still shooting the format. Moving to Slide number 6 please.
The studio sales and profits were both up on the back of rising scripted drama production volumes. Q4 represents a positive trend shift compared to the performance earlier in the last year and the forward pipeline of signed development deals and contracted production is expected to enable further growth in 2019. Total segment sales and operating income for NAND Group as a whole were therefore up 7% and 5%, respectively. We are, in my view, perfectly positioned to benefit from the shift to on demand viewing. We do expect to continue to deliver profitable organic sales growth and higher segmental profits.
Our total operating profit for 2019 will of course be burdened by the higher central operation cost that we now take on as we are becoming a separate and listed company. That's it for my comments for now. So back to you, Jorgen.
Thank you, Anders. And now if I can ask you to go to Slide 7. Sales for Nova and Bulgaria, which is our only remaining operation in the International and Entertainment segment, were up 7% on an organic basis and profit were also up despite a $10,000,000 write down related to the sale of 2 local e commerce businesses. As announced, we are in the process of selling our Bulgarian assets, which are the last of our Central and Eastern European operations. We are now talking to new interested parties after the previous agreed deal was turned down by the local competition authorities.
If we go to Slide number 8, we can see that MPG sales were down 11% on an organic basis. This reflected the impact of our strategic shift in esports, where we're reducing our work for hire activities and focusing more on the owned and operated quarter of retail growth in gaming. EBITDA came in at $94,000,000 which is the 6th consecutive quarter of EBITDA profit. The operating profit or EBIT also increased $31,000,000 and resulted in a 1st full year positive EBIT result for the segment. Our Esports sales were down 13% on a reported basis as double digit growth in Dreamhack and ESL's owned and operated businesses was more than offset by lower work for hire revenues.
Please also remember that sales were up 80% in Q4 2017, so we were facing a very tough comp. As discussed previously, we are scaling down the non strategic work for hire elements of our e sports business in favor of higher quality owned and operated events where we see more sustainable and profitable revenue growth opportunities. ESL revenue from an operated business were almost up 50% for the full year on the same number of events and accounted for more than 60% of VSL's revenue in the year compared to around 44% in the previous years. We expect that proportion to increase further and the outlook for 2019 is promising. We have signed several important agreements since the beginning of Q4, including the extension of our global partnership with Intel until 2021 and announcing our first international fortnight competition to take place over 2 regions at the IEM event in Cartovigy.
We therefore expect esports sales growth to bounce back in Q1 and to build through the rest of the year as the momentum continues in our own and operated events. The operating loss in Esports was significantly reduced compared Q3 and Q4 2017, again reflecting the transformation in our revenue mix as well as the optimization program that we announced in April last year. Moving on to online gaming, the combined revenues for InnoGames and CombiGate were up slightly on a pro form a basis. InnoGames reported double digit sales growth, although significantly lower than the exceptional growth we saw in Q3. This mainly reflected the constant update scheduling during 2018, which was skewed to Q1 and Q3 compared to Q2 and Q4 in 2017.
We also saw a dip in the performance of our new game Warlords towards the end of the quarter when new content was not sufficient to maintain the strong start in sales that we have seen. We are now addressing this issue, adding more and better content to drive player retention and improve in game monetization. Congregate pro form a revenues were significantly down in the quarter, which we flagged for the Q3 conference calls and reflected the lower number of new game launches and the intensifying competition. Going forward, Kongregate will be focusing more resources on existing games with the best metrics and higher potential new games to drive sales growth. Combined EBITDA for our online gaming business was down as expected, mainly due to the significant step up in marketing of Warlords.
However, we scaled down the marketing spend in mid December when sales dipped. We'll increase in the marketing spend again as the new content is developed. Zuline revenue were down 21% and the company continues to be loss making. This going through a major transformation of the new management and it will take time. So to sum up on NGX, organic sales was expected down due to exceptional comps, the effect of strategic refocusing and timing difference in content updates.
However, we expect organic growth to return to healthy levels in Q1 and to build through the course of 2019. The segment was profitable for Q4 and for the full year and we expect profitability to improve further this year. That concludes my comments. So I will now hand the call over to Maria for her comments.
Thank you, Jorgen, and good morning, everyone. The positive trend seen over the many quarters continued into Q4 with higher sales and profit. Nordic Entertainment delivered 9 consecutive quarter profit per growth and FTJX reported full year positive EBIT results for the segment. Group center costs were lower than what we originally expected as the transaction cost in Q4 only amounted to $6,000,000 We indicated in the information brochure that the total cost related to the split and listing of NAND would amount approximately $195,000,000 of which $90,000,000 has been taken as per the end of September. This split cost includes both the direct and indirect costs related to the space such as financial, tax and legal advisory fees, listing fees, reorganization and rebranding costs and personnel costs relating to the project.
The remaining cost to be taken is approximately $100,000,000 and that will be taken in Q1 as items affecting comparability with MCG accounted for roughly 40% and NIM 6% of the cost. Our net interest in the quarter amounted to nil. This at the vast majority of our borrowings in the quarter were short, subsequently reduced in the interest cost. Going forward, post split, for NAND, we will aim to have a more balanced structure between short term and long term borrowings, and therefore, you should expect interest cost to increase accordingly. If I can then ask you to turn to Slide 10.
Operating cash flow was up in the quarter, but the net cash flow from operations was down slightly and this is following a timing difference in payments of receivables. Our net debt increased to DKK2.6 billion, which corresponds to 1.3 times trailing 12 months EBITDA before items affecting comparability. As mentioned earlier, we have secured a DKK 1,000,000,000 facility, which will provide additional funding for MTG versus SINA. So that is it for my comments and back to you, Jorgen.
Thank you, Fabienne. And now to Slide 11, where you can see that our Nordic Entertainment business delivered its 9 consecutive quarter of profitable growth. Our studio business also delivered higher sales and profits. MGGX reported lower sales but higher profits and is well set to grow faster with higher profits in 2019. We have released the information brochure regarding the split and the distribution of NAND Group and we hold the AGM the day after tomorrow, 7 February.
We expect to come back to you with more information in the form of a NAND prospectus and separate Capital Market Days in early March. The dates are set now for 11th March for NAND and 12th March for MTG. That concludes our commentary on the results. Over to you now then, operator, to start the Q and A session,
please. Thank you. Ladies and gentlemen, we are now ready to register Your first question comes from the line of Martin Arnell of DNB Markets. Please go ahead.
Great. Thanks. So my first question is to Anders and just to get some more color on NEMT outlook for this year. Can you just elaborate a little bit more on the growth outlook for this year and also the incremental margin, how we should view your balancing revenue and OpEx growth, please?
Yes. Good morning, Martin. First, the outlook for this year, we have said and we will continue to say that profitable growth is our target and ambition and that holds true also for 2019. On an organic basis, you can expect sort of around 5% mid single digit growth on the revenue line. Having said that, it's important to say that profitability will be burned, obviously, with the one off costs and the new operational costs that we have to be a separate listed company.
The comparison will suffer a little bit from that. But underlying, we are well set to deliver profitable growth also in 2019. On the margin, it's not a number that we disclosed. You can expect us to continue to invest as we have done this past year and these past years. So no significant shifts, but above and beyond that, no comments on the margin.
Okay. Thank you. And your you mentioned that the ViaPlay sub intake was very healthy in this quarter. Was it an acceleration compared with the trends we saw in other quarters last year?
Yes, it was significantly. And then the month of December is actually the all time high ever for ViaPlay, very, very positive. Obviously, we have activated all systems go on our sales, but it's very sort of encouraging to see the sort of the pull effect from the customers, very much driven by very strong originals in the Q4. So strong quarter, yes, and a trend shift upwards from previous quarters.
Okay. Thank you. And finally on NAND, your 3rd party intake sub was very strong. What was the driver of that? And would is it fair for you to expect the intake in 3rd party for the full year in 2019?
I
think the results of the 3rd party sales in the Q4 and going forward is a result of good cooperation and sort of daily ongoing talks between our team and the teams of the distributors. So we find new ways of doing campaigns, new ways of providing value for both parties. And I think it's in that context you should view the distribution And in this changing landscape that we have, we and our partners alike will have to find new ways of cooperating and we're putting a lot of effort into that. And we see good results from that in the Q4. So the structural decline in DTH and satellite TV is well compensated in the Q4 with an overall 22,000 more customers, which obviously is very encouraging considering the pressure on traditional TV.
But it is sort of groundwork every day from our team to make sure that we are the best partner we can be for the distributors.
So do you expect growing subscriber base excluding ViaPlay this year?
I would think it's too early to give you a sort of a solid answer to that. We will grow our pay TV business, obviously, and that including Viaplane. I'll come back to some more with some more granularity and some more news on how we want to work going forward on March 11 at the Capital Markets Day.
Excellent. Thank you, Anders. And just some questions to you here again. On your growth outlook in NTGX for 2019, this effect from phasing out the white label, is that coming to an end already in Q1? Or you mentioned that organic growth were going to bounce back already in Q1.
Is it a gradual bounce back Q1, Q2? Or is it on a new level in Q1?
Yes. It is a gradual bounce back over the year, where we will see that particularly than the OLED operated as we also saw in 2018 will do good for us. So we are getting more sponsors on board and we are getting better paid and you get new meter deals and so forth. So people or the companies have now understood, of course, the value of the eyeballs that the eSpark can deliver. That's very clear to see, Also due to the fact that you have made a range of prolongation of existing sponsorship deals, so of course you can measure return now as well, which is very important.
So we are, of course, very happy with that development. And as I also mentioned, we had 50% higher revenue and the same amount of event in 2018 that we had in 2017. So of course it goes in the right direction when it comes to the Esports business. So very happy about that development. And then same goes for games as well.
We also expect the gaming companies to grow. And we do expect that the games as well will have a fine year in 2019. And overall, of course, we do expect for MTG as such that we will see profitable growth for 2019 as a whole. Okay. 19 as a whole.
Okay. Thanks guys. That's all for me. Hope you get better Sundar again.
Yes. Thanks very much.
Thank you. And our next question comes from Victor Hoegland of SEAB. Please go ahead.
Hello. This is Victor from SEAB. Just had one question here. First on the leases you mentioned in the report, you mentioned net debt impact, but not anything around EBITDA. Could you just comment as much as you can around that to help us figure that out?
That would be great. And also how that real award will not affect the net cash that MTG X can get? Secondly, on Mentor, just wondering, so you are saying that the revenues from traditional TV advertising are increasing. Was that correct? Or is it radio that is increasing and the rest is more or less flat?
And then on MTG X, I just wanted to get your view not on e sports but more on the InnoGames side of it because last year you had some one offs in Q4 'seventeen which you did not have now on the EBIT lines here. But on the revenue outlook and game launches and updates and new packages and so on, what's kind of the schedule here for the gaming part of MPG so we can have a guess around what costs or revenue hikes are being acquainted with that. And then if you can just say how much of revenues in Eastport was owned and operated end of 2018? That's absolutely very helpful. Thank you.
Hi, Victor. I can start and talk on the leasing. So I mean, as you saw with communicate, we have approximately SEK 1,100,000,000 in leasing that will be added then into the adjusted net debt calculation. And I think one important part to note on this, even though it's not going to change the calculation, it's roughly 20% of that is actually sublet. So it's not a full payment obligation on MTG.
And then the EBITDA effect of that is approximately $200,000,000 so that you can do the backward calculation on what the adjusted EBITDA to net debt would be in Q4 and that would be if you do the backward then $400,000,000 it would increase. So the 1.3 goes to 1.7 for the full year Q4 ending. And then before I let Jorg comment on the InuGame side, but next year I can comment as well last year what you saw in InnoGames is that we wrote down 2 games, one a little bit more advanced in the development and one quite early development phase. So it's about €35,000,000 for inner games that we took as a one off charge. And this year, you only had a very small part that we wrote down the partial part of the game this year.
So of course, that distorts the year on year comparison that you see on the EBITDA line where you actually see small declines, but you're growing EBIT for the X segment.
Yes. When it comes to the InnoGames and new games launches and so forth, and obviously, that is what we do expect from our gaming companies, as we have discussed. And InnoGames will launch new games as well in 2019. We already now have a new game soft launch, which we'll probably announce in the week or 14 days from now. And then on the Capital Market as well, the CEO, he will present more about the plans about new game launches and genres and so forth.
For the gaming companies, the studios that we're having, they have to deliver new games on a constant basis. The order operated revenue in Q4 for e sport was quite good actually. So we saw double digit growth in that area, as I mentioned as well. So that where we are where we saw a sharp decline was, as we also discussed earlier, was in this oil for hire business and this white label.
So Victor, to your question on the revenues for TV and radio, they're up 3%. It is driven by radio, but the linear TV is also up. So we have a strong advertising quarter as a whole. Swedish radio is doing very well. It's driven both by the product and the increased coverage.
In TV, we see very healthy price development and good share development in especially Norway and Sweden. So it's a combination.
Okay. Thank you very much for that. May I just add here, what I meant was that in 2014, 40% sales was owned and operated. In 2017, the same number was 63%. I'm looking for that number in 'eighteen or in '18 as a whole or Q4, if you can give any color on that would be great.
Just so we understand how much of total sales in Isport now is owned and operated?
Yes. I think what we discussed was that I think we talked about the 60% of the revenues come from our own and operated, yes. So that is what caused a big shift where when we acquired the company's back with 30%, if that's what you mean. And now when we look at the actual events in 2018, we saw 50% increase on the actual event on our operating revenue than we did versus 2017 same time. And on the event that we have then in Q4, we also saw good growth on the deal and operating.
So I hope that was what you meant.
Okay. Thank you very much.
Thank you. Your next question comes from Rasmus Enberg of SHB. Please go ahead.
Yes, hi. I have some nitty gritty to follow-up with first. You say there's €100,000,000 left of one off cost. I didn't quite get that. Is that $100,000,000 left for the next quarter?
And if that's split sixty-forty, is that what you said?
Yes, that's correct. So you should see an item effective comparability for both MTG and NAND in Q1, of which that 40% of the $100,000,000 will be roughly MTG and then 60% NAND.
Yes. Good. And for the combined entities, would you sort of be able to guess some sort of level for overhead costs, including or excluding, whichever you prefer, these one off costs? Roughly, where should they be?
I think what we have previously stated is that you'll see NAND around $250,000,000 and you see MTG around $200,000,000 and there's no change in outlook on that.
And that is including or excluding?
That's excluding this IoT. So these will be below those incremental driven from the project.
Very good. And secondly, what did you mean with interest costs? Can you give us a rough indication of how much of an impact we would see on that as you change your loan structure?
I think if you look at the first half of the year, you see more normalized levels because there you have I mean, the base should be with bonds and not commercial papers, which we have now because we are preparing for the split. So that's why we didn't lock existing bonds. So we are rolling very short, which, of course, in this today's market, gives you very low net interest
cost. All right. Okay. Cool. And then finally, coming back to InnoGames, what do we stand now in terms of Q1?
You said you went all in on marketing, but you saw some disappointment at the end of the quarter. Where do we stand now in Q1
in InnoGames?
When it comes to the specific game, what you are doing is that you are looking at, as we said, at the retention components of total content. We saw people, they were very happy the 1st month and the 2nd month, but then we saw a higher churn of people spending less in the after 90 days. So that's something they're working on right now. I don't know if that's going to be ready in Q1. We will continue softly to market, of course, Warlords that we want to keep the momentum for the gamers in already.
So I don't think there's anything Force of Empires doing good and the other games that also luckily, there's more games. So they also should also perform fine and we expect the games to grow.
But do you continue because I think you recall that in the last quarter, you said that you're going to step up marketing quite a lot. So what I'm trying to get at is that still true for Q1 and Q2 this year or so?
Yes. As soon as more loss is back, course, and also with the new launch, which we announced in 14 days, then you will start to spend more marketing again. So of course, there's learnings as well about these content updates where you instead of eventually having X amount of big ones during the year, as I just described during the quarters, we might have to more throughout the year, more regular basis. So that's something that they're looking at as well. But there's more games than just the ones here, And that is quite normal that you launch a game and you want to adjust it and so forth.
So once the games are fixed, we believe, and content is updated and more interesting, then we will start marketing.
Okay.
Thank you.
Thank you. Your next question comes from Henrik Mawby of Nordea. Please go ahead.
Thank you. Can you hear me?
Loud and clear.
Okay. So coming back to Nantand, firstly, on subscriber growth. I noticed that satellite registered now the 4th consecutive decline in subscriber losses. Do you think that this is a trend we should extrapolate and expect to continue to see that decline of losses continue? Or is it too early to say that it's a trend?
Sorry, I was on mute. I'll start again. So on the DTH question, yes, we will continue to see a structural decline. I would be careful not to sort of give too much sort of forward looking level expectations, because we have been seeing that it's flattening out and we do have hopes that the churn will reduce and we're working quite intensively on it and we see good results. A little bit too early to tell actually.
I think the long tail of satellite is quite long and there is good opportunities to work with it. But expect continued structural decline. I think that's the way to look at it.
Thank you. And if we move on to Viaplay, I know we tried to back that out with the data we're given here. But on the growth, you mentioned a record December. Can you confirm if absolute year on year growth accelerated in Q4 for ViaPlay in revenue?
Yes, I can confirm that. And I can confirm that it's accelerated quarter on quarter as well. So we see a very healthy sort of step up towards the growth rates that we have seen previously, both last year and previous quarters. So the Q4 was a good quarter for the intake of paying customers and the conversion of campaigns was very strong. So I have good hopes for Q1 as well.
And it's very much driven by the fact that our content is attracting more and more viewers and more and more interest in general and the original is doing a great job in particular. So we're stepping up our ambitions.
Okay. Thank you. And Jorgen, one question for you. I know you've mentioned in previous quarters that there has been material seasonality in the launch of big updates and in the games. I think Q1 and Q3 was highlighted as quarters where you had big launches.
Do you expect the same type of seasonality now for 2019? Or should we I mean, if that flattens out, then we should expect a weak Q1 as well. How should we look at
that? Yes. I think what we would like to do is to have more regular updates eventually. But that is eventually a learning that we would like to take on. So that is what we're looking at instead of having these big updates in 1 quarter than try to have regular relevant updates.
So that is what we're looking at. InnoGames, as I said earlier, the company and also you saw the Q4 result where we had double digit growth continue to do good. And we expect to continue to do good and also in Q1. So what the aim is, of course, now to get the new games to work and then we are launching more and we are working in them and to make sure that they become as relevant. The team of course have proved historically if you look at the lifetime value of the different games that they have launched that they know what they do, But there will always be adjustments and we just thought it was fairly prudent to stop marketing and so forth that when we don't see the retention as we would like or this in game purchase and so forth that we would like.
So therefore, there's nothing on Inu games as such and the content update will be coming on hopefully on a more regular basis and not in big, big what's called big, big, what's called, big, up pacing quarters.
Okay. Just one follow-up on InnoGames and related to Warlords. To my understanding, you did dial back marketing a little bit towards the end of the quarter. And I suppose that it's related fine tuning process of a game go on before you start to realize that this is not going to be a success or that you make a more dramatic decision to not put your bet behind it, if you understand what I mean?
Yes. No, I do understand. But I think that is something we have done already as well in the pre testing of the games that you see the underlying KPIs are good to begin with. And then you start to work on the games and then you continue to develop content. We did stop the marketing in December when we sold it, as I said earlier, that retention was not as we wanted it to be.
So that is what they're working on right now and we do expect it to come out here in Q1, Q2 again sometime, probably Q2. I don't know, we'll see when they're ready, the guys. And then we will start to market it again. And then we will also, as I said earlier, announce new game coming in, coming out here in some 14 days.
Okay. Thank you very much.
Thank Our last question comes from the line of Mikael Lasil of Carnegie. Please go ahead.
Yes. Hello, good morning. I have a few questions. And first one regarding central operations costs. You have mentioned in total how will you look at them, but how will they develop on a quarterly basis?
Will you reach SEK 200,000,000 to SEK 250,000,000 over time, gradually in 2020 or from day 1 when you are separate entities?
Yes. I think that it's going to be a little bit different between NANDs and MPG. I would say that on the MPG side, I mean, you're basically starting on the run rate from Q1. On NAND, you will see a gradual ramp up throughout the quarter.
All right. Thank you. And can you also help us with cash conversion for NAND approximately how that is developing going forward in terms of working capital requirements and CapEx in total to understand the cash distribution possibilities ahead?
Yes. I mean, I would say, I mean, if you look at for 2017 2018, we have been building up quite a lot of capital on back of prolonged sports rights, incremental new sports rights and then also the originals that Anders talked about. So I mean, that has been on a high level than I would say you should expect going forward. And also for CapEx this year, you had an extraordinary payment on the radio licenses, which is done for the next 8 years. So there has been some extraordinary high cash outflows that you should not see going forward.
But I think then on the detailed cash conversion, I think that Gabriel will come back to you at the Capital Markets Day to help you understand it even more Day to help you understand it even more gradual. But that is on the sort of framework, that's how you should think about it.
Okay. And when you cut to net debt to entities, and then to NTT, can you say something more about that? No.
I think what we said in the information for sure is that NTT will be in a net cash position and then NAND will be in net debt position. And we also set out the target debt levels for NAND, which is a net two times net debt EBITDA. So if you have your starting point now that you have $2,600,000,000 of debt at MTG net debt and then you need to split that accordingly. So MTG should end up in a net cat position post split and NAND will be at the best debt position and that is 2x or 2.5x adjusted net net EBITDA target.
Okay. And related to that
You would get more granular information at the CMD as well
here. Okay. And regarding the capital structure, can you explain this right if you proposed a low 20% that you could have directed it to a strategic shareholder in some way. Can you sort of explain that setup more in detail maybe for us?
Yes. I think when it comes to the item we put on the agenda for the EGM around capital structure, I think after consulting the big shareholders, as I also mentioned in my speaking points is that they were great support for us to raise capital and the shareholders suggested that anytime we had ideas on more cash, to use more cash, we came to them and came with the ideas and then we would convene an AGM and they would hopefully support. So that is what we will do. So we will not bring that forward to the EGM, but rather also as Maria said earlier that the company right now is fine capitalized short term to the ideas that we have, the standalone plan we have right now. This was asking for mandates to make sure that we could react super fast as there was something extraordinary came up and also looked up the opportunity to get international strategic partners on board.
But it was very clear that full support from our shareholders, meaning that when we want to raise cash, we should just call them and hopefully have them good ideas, which we then should bring to an AGM and they will support that.
Okay. Understand. But this strategic investor or industrial player maybe, what can you say about that? A couple of years ago, I guess you talked about this possibility.
Yes. No, but that and that comes in different shapes and forms. People are companies who can help us accelerate our business areas and that is of course something we are very interested in. And of course, as we discussed earlier, particularly around e sports that there might be companies there who could help us accelerate in Asia or other places where we might not have the same foothold we have in Western Europe or in U. S.
And then what we're talking about is several that could be interesting as well who could bring different things to the company. So that could be an opportunity. I think it was very clear that whatever we wanted to do and wanted to raise capital, I think our existing investors, they were very supportive and want to be on board with that raise. And therefore, we will when things are opportunities are arising, we will then bring it to the ETF.
Okay, great. Interesting. Thank you. And my final one, if I may, is about the Esports side actually and the growth drivers for 2019. If you can maybe talk about the number of events that you're expecting to have, maybe the impact from the Chinese streaming agreements, intent agreement, price money development and things like that.
Can you grow esports in line with the market again?
I think the growth drivers, which is also set out by NiuSue, is going to come from sponsorship and from media rights. That is the 2 areas where it's going to take the biggest share of the pie, which the pie will grow also in 2019. So that is, of course, the focus that we are having. And if you take Q1 where we will have one less event than we had last year in e sport, in ESL, We had 3 events last year and this year we will have 2. Still, we do believe that we can grow the e sport revenue in that quarter.
And that is, of course, on the back of more sponsors and more media rights and so forth coming in. So that should work fine. As I said to you earlier as well, we see a lot of our sponsors now understand and we have documentation as well and they can see the return of the dollar invested into e sports is actually making a lot of sense. So that is something which is helping now. The prolongation of the distribution piece that we have seen right now, as you also mentioned, new partners coming in constantly.
The Chinese partners was new. We will announce a big new partner in the Middle East now as well coming and so forth. So a lot of things are happening there. Luckily, we are born with a product or with a sport where the audience is already there. So now it is actually only for us to make sure we capitalize on them.
But and therefore the focus also as you also saw in Q4 of this high quality revenue, which is important instead of just being a production company. And then of course over time, we'll deliver as a stronger company.
Okay. And maybe I missed that. You commented on the profitability. Was that for esports that you expect? Can you please repeat what you said?
Yes, I can hear. I'm sorry, my voice is not I have to make time to be more clear. But yes, we do expect over the year now 2019 that we will grow our revenue in this quarter and we also do better profitability wise. And the same goes with the gaming vertical as well. We do expect that the gaming companies will deliver high revenue and also do better profitability for 2019.
Okay, excellent. Thank you.
Thank you. We have one more question and it's from Victor Hoglund of SEAB. Please go ahead.
Yes. I just have one follow-up on the group costs. So you say €200,000,000 €250,000,000 I was just wondering in MTGX, you already have group costs. Is that included in the $200,000,000 or is it $200,000,000 more than what you already have in
SIX? It's not 200 more. It's 400. No, it is that includes everything. So you're basically you will not have any MTG headquarters.
So you're basically having one overhead that is it's purely an MTG audit and that is then CHF200 1,000,000 that we expect for the full year 2019.
Okay. So the $200,000,000 includes what's already in MTGX. So we depending on what you assume that's already in MTGX, it will be less than 200,000,000 new, so to say.
Yes. I mean, you would say that the starting base excluding X is below 200,000,000 and you add whatever is today in the MTB X central cost and then the combined 2 is €200,000,000 for the new MTG.
Wonderful. Thank you very much.
Thank you.
Thank We have another question from Henrik Morby of Nordea.
One follow-up on the last question there. Can you give us any information on what the central cost within MTG X actually was during 2018?
No, I don't think we said something, but I mean the biggest part of course comes from MPG Offers in the 2 combined different entities. So that combined is going to be 200. So it's a smaller part that sits today in MTG X and the bigger part sits in MTG that together becomes 200.
Okay. Thank you.
Thank you. That concludes the question and answer session. I will now hand the call back to Jurgen Linderman for his concluding.
Thank you all for your time today and for your continued interest in MTG. We hope to see as many of you as possible to our EGM, the 7th February to the NAND capital market date, 11th March, MTG capital market date, 12th March, then hopefully as well the listing of net end of March. So thank you very much and sorry for my bad voice. Hope you got it, the message anyway about the Q4 and full year. Have a great day.
Thank you very much. Thank you.
Thank you. That does conclude our conference for today. Thank you for your participation. You may all disconnect.