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, at which time instructions for the question and answer session will be given. If any participants have difficulty hearing the presentation, please press star followed by zero for operator assistance. 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, Jørgen Lindemann, who is joined on today's call by MTG CFO, Maria Redin, and Anders Jensen, CEO of Nordic Entertainment Group. Please go ahead.
Thank you, operator. Good morning, everyone. As you can hear, I am unfortunately hit by a heavy flu, with all the joy that that brings. I will still try to make sure that I will read out or discuss with you the results as clearly as possible. Bear with me, my voice is not 100% today. Before we go into the numbers, let's just take a few minutes to update you on our preparation to split MTG into two 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 day after tomorrow, the 7th of February, in Stockholm.
Assuming 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 of March, with the listing on Nasdaq Stockholm 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 NENT Group. It is in this context, and subject to the EGM's approval of the split, that the NENT Group board will propose the payment of dividend of SEK 6.5 per share of the NENT Group AGM to be held in May. MTG board is proposing that no dividend be paid to MTG shareholders in 2019. This is in line with both companies' stated dividend policies. We have, following consultation with our largest shareholders, decided to withdraw the capital raise authorization proposal.
The consultation clearly suggests that 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. MTG will be, at the time of split, well capitalized to execute its standalone plan, and we have now also secured a SEK 1 billion credit facility, which will provide additional funding for MTG after the spin-off. If you turn to slide number two, you can see that the 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%. Nordic Entertainment delivered another outstanding performance with record sales and profit. MTGx 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. We are doing this split from a position of strength, as we want to further accelerate the development of these two great businesses. If you turn to slide number four, you can see that the sales were up 1% on an organic basis, and operating profits before IAC were up 19% in Q4. Our Nordic Entertainment, International Entertainment, and Studio segments all deliver organic sales growth and higher profit. MTGx 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 esports business in favor of high quality and more sustainable revenue lines.
The underlying growth in our esports and gaming business remains healthy, and the operating income improved, driven primarily by lower esports losses as planned. I will now hand the call over to Anders for his comments on the Nordic Entertainment and Studio business.
Thank you, Jørgen, and a very good morning, everyone. If I can ask you to please turn to slide number five. Nordic Entertainment broadcasting and streaming businesses sales were up 3% on an organic basis in Q4. Profits were up 5% to a new all-time high in the fourth 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 audience shares more than compensated for falling linear viewing levels.
Viaplay sales were slightly down in Q4. This was expected given the tough comparison from last year, also more importantly, the strategic decision to shift some certain key content to Viaplay. 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. Viaplay sales were up at double-digit percentage points for the full year, and we expect this growth to continue in 2019. Nordic pay-TV sales were up 7% as Viaplay 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 this clearly demonstrates the value of the investment that we have made in premium sports rights and local original dramas. We announced four new originals in Q4, including the Swedish drama, "Heder", which has already been picked up by VRT in Belgium while still shooting the format. Moving to slide number six, please. The studio sales 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 productions is expected to enable further growth in 2019. Total segment sales and operating income for NENT 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, Jørgen.
Thank you, Anders. Now if I can ask you to go to slide number seven. Sales for Nova in Bulgaria, which is our only remaining operation in the international entertainment segment, were up 7% on an organic basis, and profit were also up despite a SEK 10 million write-down related to the sale of two 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 previously agreed deal was turned down by the local competition authorities. If we go to slide number eight, we can see that the MTG sales were down 11% on an organic basis. This reflected the impact of our strategic shift in esports.
We're reducing our work-for-hire activities and focusing more on the own and operated business, and we also saw a quarter of real growth in gaming. EBITDA came in at SEK 94 million, which is the sixth consecutive quarter of EBITDA profit. The operating profit, or EBIT, also increased to SEK 31 million and resulted in a first 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 own operator 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 esports business in favor of higher quality owned and operated events, where we see more sustainable and profitable revenue growth opportunities.
ESL revenue from owned and operated business were almost up 50% for the full year on the same number of events and accounted for more than 60% of ESL'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 Fortnite competition to take place over two weekends at the IEM event in Katowice. 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 owned and operated events.
The operating loss in esports was significantly reduced compared to 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 Kongregate were up slightly on a pro forma basis. InnoGames reported double-digit sales growth, although significantly lower than the exceptional growth we saw in Q3. This mainly reflected the content 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 starting 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.
Kongregate pro forma revenues were significantly down in the quarter, which we flagged forward at the Q3 conference call 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 matrix 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 be increasing the marketing spend again as the new content is developed. Zoomin revenue were down 21%, and the company continues to be loss-making. It is going through a major transformation under new management, and it will take time.
To sum up on MTGx, organic sales were, as 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, Jørgen, and good morning, everyone. The positive trend seen over the many quarters continues into Q4 with higher sales and profits. Nordic Entertainment delivers nine consecutive quarter profitable growth, and MTGx reported its first full year positive EBIT results for the segment. Group central costs were lower than what we originally expected as the transaction cost in Q4 only amounts to SEK 6 million. We indicated in the information brochure that the total cost related to the split and listing of NENT would amount approximately SEK 195 million, of which SEK 90 million has been taken up by the end of September. This split cost includes both the direct and the indirect costs relating to the split, 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 SEK 100 million, and that will be taken in Q1 as an items affecting comparability with MTG accounting for roughly 40% and NENT 60% of the cost. Our net interest in the quarter amounted to nil. This as the vast majority of our borrowings in the quarter was short, subsequently reducing the interest cost. Going forward post-split, for NENT, we will aim to have a more balanced structure between short-term and long-term borrowings, and therefore you should expect interest costs 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 SEK 2.6 billion, which corresponds to 1.3 x trailing 12-month EBITDA before items affecting comparability.
As Jørgen mentioned earlier, we have secured a SEK 1 billion facility, which will provide additional funding for MTG so this is enough. So that is it for my comments, and back to you, Jørgen.
Thank you, Maria. Now to slide 11, where you can see that our Nordic Entertainment business deliver its nine consecutive quarter of profitable growth. Our Studio Business also delivered higher sales and profits. MTGx 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 NENT Group, and we hold the EGM the day after tomorrow, the 7th of February. We expect to come back to you with more information in the form of a NENT prospectus and separate Capital Market Days in early March. The dates are set now for 11th of March for NENT and 12th of March for MTG. That concludes our commentary on the results. Over to you now then operator to start the Q&A session, please.
Thank you. Ladies and gentlemen, we are now ready to register questions. If you would like to ask a question, please press star one on your telephone keypad and you will enter a queue. Should you wish to cancel, please press the hash key. Your first question comes from the line of Martin Arnell of DNB Markets. Please go ahead.
Good morning, everyone. Can you hear me?
Good morning. We can hear you loud and clear, yes.
Great, thanks. My first question is to Anders, just to get some more color on NENT 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?
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 around 5%, mid-single-digit growth on the revenue line. Having said that, it's important to state that profitability will be burned, obviously, with the one-off costs and the new operational costs that it will have to be a separately listed company. The comparison will suffer a little bit from that. Underlying, we are well set to deliver profitable growth also in 2019. On the margin, it's not a number that we disclose. You can expect us to continue to invest as we have done this past year and these past years. No significant shifts, but above and beyond that, no comments on the margin.
Thank you. 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. The month of December is actually the all-time high ever for Viaplay. Very positive. Obviously, we have activated all systems go on our sales, but it's very encouraging to see the pull effect from the customers, very much driven by very strong originals in the fourth quarter. Strong quarter, yes, and a trend shift upwards from previous quarters.
Thank you. Finally on NENT, your third-party intake sub was very strong. What was the driver of that, and is it fair for you to expect the intake in third party for the full year in 2019?
I think the results of the third-party sales in the fourth quarter and going forward is a result of good cooperation and sort of daily ongoing talks between our team and the teams from the distributors. We find new ways of doing campaigns, new ways of providing value for both parties. I think it's in that context, you should view the distribution business going forward, because 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. We see good results from that in the fourth quarter. The structural decline in DTH and satellite TV is well compensated in the fourth quarter with an overall 22,000 more customers, which obviously is very encouraging, considering the pressure on traditional TV.
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.
Do you expect a growing subscriber base excluding Viaplay this year?
I would think it's too early to give you a solid answer to that. We will grow our pay TV business, obviously, and that including Viaplay. I'll come back with some more granularity and some more news on how we want to work going forward on March 11th at the Capital Market Day.
Excellent. Thank you, Anders. Just some questions to you, Jørgen. On your growth outlook in MTGx for 2019, this effect from phasing out the white label, is that coming to an end already in Q1? 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?
Yeah. It is a gradual bounce back over the year, where we will see that particularly then the owned and operated, as we also saw in 2018, will do good for us. We are getting more sponsors on board, and we are getting better paid, and you get new media deals and so forth. The companies have now understood, of course, the value of the eyeballs that esport 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, of course, you can measure return now as well, which is very important. We are, of course, very happy with that development. As I also mentioned, we had 50% higher revenue on the same amount of event in 2018 that we had in 2017.
Of course, it goes in the right direction when it comes to the esport business. Very happy about that development. Same goes for games as well. We also expect the gaming companies to grow. We do expect that InnoGames as well will have a fine year in 2019. All, of course, we do expect for MTG as such that we will see profitable growth for 2019 as a whole.
Okay. Thanks, guys. That's all for me. Hope you get better soon, Jørgen.
Thank you very much.
Thank you. Our next question comes from Victor Höglund of SEB. Please go ahead.
Hello. This is Victor from SEB. Just have one question here first on the leases you mentioned in the report. You mentioned the net debt impact, but not anything around the 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 will or will not affect the net cash that MTGx can get. Secondly, on NENT here, I was just wondering, 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?
On MTGx, I just wanted to get your view, not on esport, but more on InnoGames side of it, because last year you had some one-offs in Q4 2017, which you did not have now on the EBIT lines here. 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 MTG so we can have a guess around what cost or revenue hike and be acquainted with that? If you can just say how much of revenues in esport was owned and operated end of 2018, that would be very helpful. Thank you.
Hi, Victor. I can start and talk on the leasing. As you saw, we communicate we have approximately SEK 1.1 billion in leasing that will be added into the adjusted net debt calculation. I think one important part to note on this, even though it's not going to change the calculation, is that roughly 20% of that is actually sublet. It's not a full payment obligation on MTG. The EBITDA effect of that is approximately SEK 200 million. You can do the backward calculation on what the adjusted EBITDA and net debt would be in Q4, and that would be, if you do the backward, SEK 0.4 it would increase. The SEK 1.3 goes to SEK 1.7 for the full year Q4 ending.
Before I let Jørgen comment on the InnoGames plan for next year, I can just comment as well, last year what you saw on InnoGames is that we wrote down two games, one a little bit more advanced in the development and one quite early development phase. It's approximately SEK 35 million for InnoGames that we took as a one-off charge. This year you only had a very small part that we wrote down, the partial part of the game this year. Of course, that distorts the year-on-year comparison that you see on the EBITDA line, where you actually see a small decline, but you're growing EBIT for the X segment.
When it comes to the InnoGames and new games launches and so forth, that is what we do expect from our gaming companies, as we have discussed. InnoGames will launch new games as well in 2019. We already now have a new game soft launch, which we'll probably announce in a week or 14 days from now. 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 owned and operated revenues in Q4 for esports was quite good, actually. We saw double-digit growth in that area, as I mentioned as well.
Where we saw a sharp decline was, as we also discussed earlier, in this work for hire business and this white label business.
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. 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 especially in Norway and Sweden. It's a combination.
Okay. Thank you very much for that. May I just add here, what I meant was that in 2014, 40% of sales was owned and operated. In 2017, the same number was 63%. I'm looking for that number in 2018, or in 2018 as a whole, or Q4. If you can give any color on that would be great. We understand how much of total sales in esports now is owned and operated.
Yeah. What we discussed was that, I think we talked about the 60% of the revenues come from our owned and operated, yeah? That is what caused a big shift where when we acquired the companies back with 30%, if that's what you mean. Now when we look at the actual events in 2018, we saw 50% increase on the actual event on owned and operated revenue than we did versus 2017 same time. On the events that we had then in Q4, we also saw good growth on the owned and operated. Yeah. I hope that was what you meant.
Okay. Thank you very much.
Thank you. Your next question comes from Rasmus Engberg of SHB. Please go ahead.
Yes. Hi. I had some nitty-gritty to follow up with first. You say there's SEK 100 million left of one-off cost. I didn't quite get that. Is that SEK 100 million left for the next quarter, and if that's split 60-40, is that what you said?
Yes, that's correct. You should see an items affecting comparability for both MTG and NENT in Q1, of which that 40% of the SEK 100 million will be roughly MTG, and then 60% NENT.
Yep. Good. 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 NENT Group around SEK 250 million. You see MTG around SEK 200 million. There's no change in outlook on that.
That is including or excluding?
That's excluding these IAC.
Okay.
These will all be below. Those are incremental, driven from the project.
Yes. Very good. Secondly, what did you mean with interest cost? 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. The base should be with bonds and of commercial papers, which we have now because we are preparing for the split. That's why we didn't long existing bonds that we are rolling very short, which of course in this today's market gives you very low net interest cost.
All right. Okay, cool. Finally, coming back to InnoGames, where 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, as was Warlords, what you are doing is that you're looking at, as we said, at the retention components of total content. We saw people, they were very happy the first month and the second month, we saw a higher churn of people spending less after 90 days. That is 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, we want to keep the momentum for the gamers in already. I don't think there's anything. Forge of Empires is doing good. The other games that also, luckily they're small games, they should also perform fine. We expect InnoGames to grow.
Because I seem to recall that in the last quarter you said that-
You're going to step up marketing quite a lot. What I'm trying to get at, is that still true for Q1 and Q2 this year or so?
As soon as Warlords is back, of course, and also with the new launch, which we'll announce in 14 days, you will start to spend more marketing again.
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, you might have them more throughout the year, more regular basis. That is something that they're looking at as well. 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. Once the games are fixed, we believe, and the content is updated and more interesting, 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.
Coming back to NENT , Anders, and firstly on subscriber growth. I noticed that Satellite registered now the fourth 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? Is it too early to say that it's a trend? H ello?
Sorry, we were on mute. I'll start again. On the DTH question, yes, we will continue to see a structural decline. I would be careful not to give too much forward-looking level expectations, because we have been seeing that it's flattening out. We do have hopes that the churn will reduce, we're working quite intensively on it, 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. Expect continued structural decline. I think that's the way to look at it.
Thank you. If we move on to Viaplay, I know we try to back that up with the data we're given here. 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. I can confirm that it's accelerated quarter-on-quarter as well. We see a very healthy step up towards the growth rates that we have seen previously, both last year and previous quarters. The fourth quarter was a good quarter for the intake of paying customers, and the conversion of campaigns was very strong. I have good hopes for Q1 as well. 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. We're stepping up our ambitions.
Okay. Thank you. Jørgen, one question for you. I know you've mentioned in previous quarters here that there's been a material seasonality in the launch of big updates in InnoGames. 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 if that flattens out, then we should expect a weak Q1 as well. How should we look at that?
I think what we would like to do is to have more regular updates eventually. I think that is eventually a learning that we would like to take on. That is what we're looking at, instead of having these big updates in one quarter, then try to have regular relevant updates. That is what we're looking at. InnoGames, as I said earlier, the company and also you saw the fourth quarter result where we had double-digit growth continue to do good. We expect to continue to do good and also in Q1. The aim is of course now to get the new games to work, and there we are launching more, and we are working with 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. There will always be adjustments, and we just thought it was fairly prudent to stop marketing and so forth when we don't see the retention as we would like or this in-game purchase and so forth as we would like. Therefore, there's nothing on InnoGames as such, and the content update will be coming on hopefully on a more regular basis and not in big updates in 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 to the need maybe to fine-tune in-game monetization and things like that. How long can the 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?
I do understand. 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. You start to work on the game, you continue to develop the content. We did stop the marketing in December when we saw that, as I said earlier, that the retention was not as we wanted it to be. That is what they're working on right now, and we do expect it to come out in Q1, Q2 again, sometime, probably Q2. I don't know. We'll see when they're ready, the guys. We will start to market it again. We will also, as I said earlier, announce a new game coming in, coming out here in some 14 days.
Okay. Thank you very much.
Thank you. As a reminder, if you do wish to ask a question, please press star and one on your telephone keypad, and you will enter the queue. Should you wish to cancel your request, please press the hash key. Our last question comes from the line of Mikael Laséen of Carnegie. Please go ahead.
Yes. Hello, good morning. I have a few questions. First one regarding central operations costs. You have mentioned in total how you look at them, how will they develop on a quarterly basis? Will you reach SEK 200 million and SEK 250 million over time gradually in 2020 or from day one when you are separate entities?
I think that it's going to be a little bit different between NENT and MTG. I would say that on the MTG side, you're basically starting on the run rate from Q1. On NENT, you will see a gradual ramp-up throughout the quarter.
All right, thank you. Can you also help us with cash conversion for NENT, approximately how that is developing going forward in terms of working capital requirements and CapEx in total to understand the cash distribution possibilities there?
I would say, if you look at for 2017 and 2018, we have been building up quite a lot of working capital on the back of prolonged sports rights, incremental new sports rights, and then also the originals that Anders talked about. That has been on a higher level than I want to say you should expect going forward. Also for CapEx this year, you had an extraordinary payment on the radio licenses, which is done for the next eight years. There has been some extraordinary high cash outflows that you should not see going forward. 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 granular. That is necessarily the framework. That's how you should think about it.
Okay. When it comes to net debt for two entities, NENT and MTG, can you say something more about that?
I think what we said in the information brochure is that MTG will be in a net cash position, NENT will be in a net debt position, and we also set out the target debt levels for NENT, which is then 2 x net debt EBITDA. If you have your starting point now that you have SEK 2.6 billion of debt as MTG net debt, then you need to split that accordingly. MTG should end up in a net cash position, post-split, and NENT will be at the net debt position, and that is 2 x or 2.5 x adjusted net debt EBITDA target.
Okay. Related to that.
You will get more granular information at the CMD as well here.
Okay. Yeah. Regarding the capital structure, can you explain this right, if you propose below 20%, that you could have directed it to a specific shareholder in some way? Can you explain that setup more in detail maybe for us?
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 here, is that there were great support for us to raise capital, and the shareholders suggested that any time 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 EGM, and they would hopefully support. That is what we will do. 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 a mandate to make sure that we could react super fast if there was something extraordinary came up, and also looked at the opportunity to get international strategic partners on board. It was very clear that the full support from our shareholders, meaning that when we want to raise capital, we should just call them and hopefully have then good ideas, which we then to bring to an EGM, and they will support that.
Okay. Understand. 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.
That can then come in different shapes and forms. People are companies who can help us accelerate our business areas. That is, of course, something we are very interested in. Of course, as we discussed earlier, particularly around esports, 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 and U.S. Then what we are talking about is several that could be interesting as well, who could bring different things to the company. 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. Therefore, when opportunities are rising, we will then bring it to the EGM.
Okay, great. Interesting. Thank you. My final one, if I may, is about the esports side, actually, and the growth drivers for 2019. You can maybe talk about the number of events that you're expecting to have, maybe the impact from the Chinese streaming agreements, Intel agreement, prize money development, well, things like that. Can you grow esports in line with the market again?
I think the growth drivers, which is also set out by Newzoo, is going to come from sponsorship and from media rights. That is the two areas where it's going to take the biggest share of the pie, which then the pie will grow, also in 2019. That is, of course, the focus that we are having. If you take Q1, where we will have one less event than we had last year in esports, in ESL, we had three events last year in ESL, and this year we will have two. Still, we do believe that we can grow the esports revenue in that quarter. That is, of course, on the back of more sponsors and more media rights and so forth coming in. That should work fine.
As I said to you earlier as well, we see a lot of our sponsors now understand. We have documentation as well, and they can see the return of the dollar invested into esports is actually making a lot of sense. That is something which is helping now, the prolongation of the distribution deals 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. A lot of things are happening there. Luckily, we are born with a product or with a sport where the audience is already there. Now it is actually only for us to make sure that we capitalize on them.
Therefore, the focus also, as you also saw in Q4, on this high-quality revenue, which is important, instead of just being a production company. That, of course, over time, will deliver us a stronger company.
Okay. Maybe I missed that, you commented on the profitability. Was that for esports that you expect? Can you please repeat what you said?
Yeah, I can. I'm sorry, Next time I'll be more clear. Yes, we do expect over the year now, 2019, that we will grow our revenue in esports, and we also will do better profitability-wise. The same goes for the gaming vertical as well. We do expect that the gaming companies will deliver high revenue and also do better profitability-wise in 2019.
Okay. Excellent. Thank you.
Thank you. We have one more question. It is from Victor Höglund of SEB. Please go ahead.
Yes. I just have one follow-up on the group costs. You say SEK 200 million and SEK 250 million. I was just wondering, in MTGX, you already have group costs. Is that included in the SEK 200 million or is it SEK 200 million more than what you already have in X?
It is not SEK 200 million more. It is SEK 400. No, that includes everything. You basically will not have any MTGX headquarters. You are basically having one overhead that sits during MTG AB. That is SEK 200 million that we expect for the full year 2019.
Okay. The SEK 200 million includes what is already in MTGx.
Yes.
Depending on what you assume that's already in MTGx, it will be less than SEK 200 million new, so to say.
Yes. I mean, you would say that the starting base, excluding X, is below SEK 200 million, and you add whatever is today in the MTGx central cost, and then the combined two is SEK 200 million for the new MTG.
Wonderful. Thank you very much.
Thank you.
Thank you. Once again, just to remind you, if you do wish to ask a question, it's star one on your telephone keypad and you will enter a queue. Should you wish to cancel, please press the hash key. We have another question from Henrik Mawby of Nordea. Please go ahead.
Hi. Yeah, thank you. One follow-up on the last question there. Can you give us any information on what the central cost within MTGx actually was during 2018?
No, I don't think we said something, I mean, the biggest part, of course, comes from MTG AB in the two combined different entities. That combined is going to be SEK 200 million. It's the smaller part that sits today in MTGx and the bigger part sits in MTG, that together becomes SEK 200 million.
Okay. Thank you.
Thank you. That concludes the question and answer session. I will now hand the call back to Jørgen Lindemann 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 of February, to the NENT Capital Market Day, the 11th of March, MTG Capital Market Day, the 12th of March. Hopefully as well, the listing of NENT end of March. Thank you very much, and sorry for my bad voice. Hope you got the message anyway about the fourth quarter 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.