Morning, ladies and gentlemen, and thank you for holding. Welcome to NTG's Q1 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 the presentation slides for this call atmtg.com. I will now hand the call over to your host, MTG President and CEO, Mr.
Jurgen Matzen Lindemann, who is joined on today's call by CFO, Maria Reddin.
Thank you, operator, and good morning, everyone. Q1 was another quarter of record sales, driven by continued high subscriber intake for ViaPlay, the addition of the new esports and multi channel network businesses and a really strong performance by our international entertainment operations. We gained wholesale shares in 6 out of 8 3 gigabytes markets, and our group wide digital revenues were up 45% on an organic basis. Wireplay had a record safe quarter, and the Champions League game between Kurdistan Semaan and Chelsea in February set a new record for viewing of a sports event. The Wi Fi satellite base was down, but ARPU was up as were third party operator volumes.
The Eastport MCN businesses that we have acquired last year continue to perform in line with or above expectations. Sales were up approximately 60% on a pro form a basis. I had the pleasure of going down to Bautrowicz in Poland in March with 113,000 other people to experience the Intel Extreme Masters, which is the world's largest e sport event. The best players in the world came together for a 3 day event to play Counter Strike, Peter Bledgers, Hearthstone, StarCraft and Raytheon 6 and was watched by more than 34,000,000 unique online euros, representing an increase of 32% compared to last year. 2015 was a breakthrough year for E Sport, but this is still just the beginning.
Not only did we generate rate sales this quarter, but we also grew our profits. At worst currency effects, continued investment in the GX and mature step up in sports cars were offset by our cost transformation initiatives and the leverage in the international entertainment operations. Were it not for the currency headwinds in Q1, profits would have been up over 60%. The portfolio of the alignment has also continued with the sale of our Ukrainian pay TV business, which is now only awaiting regulatory approval. We also expect to exit CTC Media soon when they return cash to shareholders during Q2.
In addition, we have a new financial reporting structure, which much better reflects the way in which the group is now organized and managed as well as the way in which we expect the business to develop moving forward. Our objective here is to provide a simple and more relevant structure and story for the market. We've also continued to strengthen our content and products by adding a number of key sports rights, including the Spanish League and the Italian League Football League the European Handball Championships and UFC Fighting. Marketplace are also commissioning a number of exciting new original TV series from our own production companies and often with our own channel as partners. These include 3 Detectives, featuring local legend Pierre Stormwater and Hollywood Superstar, Geno Reefs, Black Widows and Swadshorn with our own G3 as partners, Octopirion with TB2 in Norway and our historic cooperation with SVT on their biggest ever drama production, our time is now.
Looking forward, our outlook is unchanged. We aim to accelerate our sales growth and increase our operating profits in 2016. And that despite the additional promising headwinds, at this point, we have made a significant step up in our sports investments and the expansion of NTT X. And this is made possible because of our products are stronger and more relevant than ever before because we are seeing the benefits of the transformation process and because of the operational gearing in our international entertainment businesses. As usual, I will now briefly review the performance of each of our business areas before we take your questions.
So sales for the Nord Entertainment operations were up 3% on an organic basis and driven by our digital businesses, both via Play and the advertising, video and demand services. Operating costs were up due to the U. S. Dollar currency effect, the addition of the new sports rights and the ongoing investments in the development of our streaming services. Operating income was therefore down compared to last year, with both this and last year's results including positive one off effects.
Our Nordic free TV and sales our retro sales were up at constant exchange rates with higher sales in Norway and Denmark, but robots based in Sweden. Our Hayward sales were up 33% and showed the strong momentum we have here. The Danish tea advertising market is estimated to have grown. In the quarter, the Norwegian market is estimated to be stable and the Swedish market is estimated to have declined. We increased our MediaHouse audience shares in Sweden and Norway, and I'm pleased with the performance of Q3, which gained shares in all three markets, and I'm also very happy with the performance in Norway, which reported higher sales and audience share for the 6th consecutive quarter.
Our radio businesses in Norway and Sweden also performing well with higher sales and lithium shares. Commercial TV product on Lineaturin in our tire group was down again in Q1 in each market. We do expect commercial pot levels in our tire group to continue to decline in 2016. We have reprised this year in all three countries, precisely because of the constant investments that we have made and the fact that our products are stronger than ever before. We also expect our advertising vehicle demand sales to continue to grow and represent an even higher proportion of total revenues.
Nordic Pay TV sales were up on constant exchange rates as VIA Play delivered another quarter of high customer intake and record revenues. Our 3rd party VIA set subscriber base has continued to grow and in IPTV networks in particular. The number of satellite subscribers was down in the quarter, but satellite ARPU was on again, and we have further improved the product by adding more content and significantly strengthened our TV to grow product. BioPlay grew even faster than in Q4. Overall, we have seen a notable improvement in our company loyalty over the past year, and we have the best programming content lineup than we have ever had.
Biopay usage is all time is on all time high levels. The number of started streams increased by 17% compared to Q4 and was up 58% compared to Q1 last year. The launch of ESG or electronics flip through a few weeks ago now makes it possible for us to buy or rent movies only months after they come out in the cinema. This was previously an exclusive DVD window. Via placement is the only service in the Nordics to offer EST, TVOD, SVOD and sports.
The latest addition we have here was the Star Wars coming in on EST here in April. Moving forward, we do expect our Nord Entertainment sales to continue to grow on the back of the investments that we have made in constant technology and the local customer experience. We do have current headwinds for the rest of this year, which we have quantified, and we do also have higher sports content costs. We have now seen the full quarter effects of adding the league as Jeri Arn, UFC and the handball, and there would be further step up in Q3 with the new penalty contract, the Olympics and the World Cup in Eiswoldy coming in. Our sports content is clearly stronger than ever, and we have added new products like Q3 Sport HD in Sweden and a new fighting package on bioplane.
These investments are impacting the 20 16 profitability for the segment, but provide us with a real opportunity to scale our businesses and continue our digital transformation. If we then shift the focus to from Norway to the international entertainment business, I'm very happy to report that Q1 was the best first quarter in terms of like for like sales and profit development for more than 5 years. Sales were down on a reported basis due to the recent disposals, but up 6% on a organic basis. This reflects very healthy double digit growth in Bulgaria. This was offset to an extent by the previously announced change in the agency structure in Czech Republic, but underlying Czech sales were also up nicely year on year.
Operating costs were both stable on an organic basis, and we achieved a $40,000,000 swing from a small loss to a 5% margin in what is a seasonally weak advertising sales period. International free TV and radio sales were other constant exchange rates with higher sales in almost all countries and digital ABAR sales of 39%. The book area and check TV advertising markets are estimated to have grown, while the Baltic market is estimated to have been stable. The Bulgarian and Czech Media House audience shares were up significantly. Our Pan Porgy share was also up.
Our international Pay TV business is now smaller after the recent disposals, but sales were up on an organic basis following continued growth in the trade business, which is about to launch its own multinational SVOS OTT service. Moving forward, we do expect continued like for like growth for the segment in 2016 and continued year on year margin expansion, but probably not at the rate we've seen here in Q1 as we face more challenging comparisons going forward. If we then move on to NTT Studios, where sales were up 9% on an organic basis, the growth was driven by strong demand for scripted drama production and strong demand for digital productions. Sales were also boosted by a record sales quarter for our content distribution business, DRG. Q1 is a seasonally weak sales quarter, but the operating loss was reduced significantly compared to last year.
And moving forward, we do expect continued sales growth and further profit improvement in 2016. And finally, then EnergyGX, where sales were up approximately 60% on a pro form a basis. TURGE continues to perform above our expectations. Sales were up approximately 75%, and March was the 2nd highest sales month in the company's history as the Intel Extreme Market event in Poland generated over 24,000,000 hours of new coverage. Turtle extended its partnership with Twitch during Q1 and also signed new nonexclusive agreement with YouTube, Asubu, Hip Hop and Microsoft.
The total numbers of hours of content watched was almost up 90% during Q1. Zumia has continued its geographical expansion with an accelerated push into the Asian market, recently opening new offices in China and Japan as well as focusing on the branded entertainment space. Xumeng generated close to 2,500,000,000 monthly views during Q1. Splay almost doubled its sales compared to last year, and it has also continued to expand both geographically and into new segments. This includes the launch of the new platform, unicorn.
Me, which supports online influencers to create and launch their own apps for iOS and Android. Splay also produced Gudjuten again this year, which is the largest YouTube award show in the Nordic. The live streams on YouTube had €671,000 and 1,400,000 votes came in. Splay generated over 200,000,000 dollars monthly views in Q1. The operating loss of €50,000,000 reflected the continued rapid expansion of all the businesses as well as the strategic investments in new portfolio, sorry, studio facilities and new platforms.
Furthermore, Q1 profitability is impacted by the seasonality of advertising revenues and the timing of our e sport events. Moving forward, we do expect continued high revenue growth. Our content is available on almost all the global streaming platforms, which helps us to maximize reach and effectively grow the global viewership. The opportunities are very significant, and we will therefore continue to invest into these businesses. We do expect continued losses but at a more moderate level than in Q1.
So in summary, for the group, we have again grown our sales to record levels. Profit were up despite currency headwind, increased constant cost investments and the expansion of MGTX. The portfolio realignment has continued, and the transformation savings are on track. Our aim for 2016 remains to accelerate our sales growth and grow our full year profits. A higher annual cash dividend is proposed to our ATM, and we expect to receive the cash return from CTC Media in the coming weeks.
That concludes my comments on the results, and I will now hand the call over to you, Maria, for your comments.
Thank you, Jorgen, and good morning, everyone. Q1 sales at a record high for the Q1. Sales were up 5.1% at constant FX, corresponding to 3.3 percent organic growth and a net positive 1.8% impact from M and A. Sales were, however, negatively impacted by 1 0.7% due to foreign exchange, primarily following the depreciation of the Norwegian kroner. Operating income before items affecting comparability was up compared to last year despite SEK70 1,000,000 of negative foreign exchange rates.
This includes both the anticipated transactional effects, but also the translational effect of the weakening Norwegian kroner. The majority of this negative €70,000,000 impacted the Nordic Entertainment segment. Looking at 2016 and based on current spot rates and net of forward currency hedges, we currently expect a negative transaction impact from currency of approximately SEK 250,000,000, which is in line with what we have previously been communicated. Our cost transformation is developing according plan, and we generated savings of approximately $100,000,000 in Q1. We expect savings of approximately $450,000,000 for the full year.
The cost of the program is estimated at approximately $700,000,000 of which $550,000,000 will impact our cash flow. Of the $559,000,000 cash impacts, approximately $270,000,000 of payments have been made so far. This includes $110,000,000 in Q1, and the majority of the rest of the payments will come further in 2016. As before, please keep in mind that we will reinvest the majority of these savings into the ongoing transformation of our company. Cash flow from operations were lower than last year due to the restructuring payments of approximately 110,000,000 which means the underlying cash flow was actually up year on year.
Changes in working capital were negative due to upfront payments for newly acquired and extended for rights along with other covenant investments. Moving forward, we expect the cash flow in 2016 to continue to be negative, impacted by these two factors and return from a normalized level in 2017. We increased our borrowing to finance the Q1 outflows and the net debt increased from $2,100,000,000 at the end of the year to $2,700,000,000 at the end of the quarter. Our holding in CTC CTC Media, which is reported as a discontinued operation, is revalued at the end of the quarter. This generated a loss of DKK 70,000,000 due to the depreciation of the U.
S. Dollar since the beginning of the year as well as the lower expected proceeds from Cixi Media sales of its Russian business for UTV as announced in February by CTSY Media. CTSY Media has now also received approval from the OPEC to proceed with the previously announced transaction. We expect to receive our share of the cash returned to shareholders now in Q2. The final amount is still subject to a number of factors, but we currently estimate that the net proceeds to us will be approximately DKK 1,000,000,000.
CTC will be fully deconsolid once we receive the proceeds. I would like to remind you all that this will give rise to non cash charge of approximately DKK 1,000,000,000, which will be reported in the discontinued operations line. This charge relates to all historical translational effects that needs to be reclassified from equity to net income. Our transformation from a traditional broadcaster to digital entertainment has continued at pace in Q1 and the fact that we're able to increase both sales and profits despite the FX headwinds and the investments that we're making provides me with a lot of comfort that we're on track to accelerate our sales growth and increase our operating profits in 2016. That is it for my comments.
So back to you now, Jorgen.
Thank you, Maria. And that concludes our commentary on the results. So over to you now, operator, to start the Q and A session, please.
Thank you, sir. Ladies and gentlemen, we are now ready to register The first question comes from Yermortia Bollagen from Goldman Sachs. Please go ahead.
Good morning, everybody. A couple of questions from my side. On the Pay TV Nordic part, could you please give us more color on the impact that you've seen from the recent price increases you've put recently? And second, on the free TV part in the Nordics, what is the put level that you see in your key markets? 3rd, we've seen great performance in international entertainment part.
Could you give us more color like about your operational leverage going into the next couple of quarters? And third, we've seen in terms of your KPIs that you've restated some of your numbers. And if you can give us more color like how we should think about these numbers going forward? Thank you.
Yes. I will try to answer the 3 first. Navea, you will take the last one and kick off, you can do that. So when we look at the Pay TV, sorry, Pay TV Laundry, I think there's different things to note. First of all, if we look at the combined premium base that we're having both IPTV and also on DJH, we have actually more customers now in Q1 than we had in Q1 2015.
So that shows, of course, that the content that we have acquired has good traction and, of course, that helps selling our also selling together with our partners like Com Hem and so forth. So we have more sales in that segment. The same goes for BioPlay, where we have more sales as well. So actually, it was the best sales quarter ever for ViaPlay. And also, we had a very strong terms of customers, as you can see.
So today, we have more customers on ViaPlay than we have ever had before. And I think it's quite important to note around the price adjustments that we made that, that was done on the back of increased content. So it is not that we just raised the prices. We had a lot of investment in order to become even more relevant in content. So we have as you know, we acquired the La Liga, the CIR.
We acquired now UFC. We have the Olympics coming up. We have the World Cup Itauge coming up and so forth and so forth. So the product has become more relevant. And therefore, we do see continued strong customer intake for Viaply as well, also again for our 3rd party network partners.
Look at the PUB level, yes, we do see decline in PUB levels. And that varies, of course, from the different markets. You will say that the commercial part in Sweden was down some 2% in the quarter. We will see that the Danish part was down some 7% in the quarter. But actually, in Norway, the pop was up.
So it is also somewhat seasonal as well. But still, it is fair to say that the overall part the trend is that we do see a decline in pot levels around the Nordic markets. The international business is performing very well. They do that on the back of very high ratings and very attractive title groups, which, of course, then gives higher sales, as you can see as well, the sales was up. So that is basically what is happening is that the return we have on the invested in good money we invest in the programs is coming out much better because we are increasing our relevance and rating.
And that explains the very strong performance in this area. And then also, we have invested a lot in the digital businesses in that area as well. So there you can argue we are ahead of the curve. So you don't see the pot level decline. So the magnitude you have seen in the Nordics, but there we are already investing in digital businesses.
So countries like Bulgaria are growing plus 20%, which is, of course, much more than the advertising market. So there's a lot of leverage in the products in these markets, and we have invested over time now and are a big and relevant player in these areas. I hope that answers your questions. And Maria, the last one?
Yes. On the KPIs, I mean, we changed the revised disclosure structure to better reflect on how we actually run and operate the company following the transformation and also how we expect the company to grow going forward. So I believe on the website you will find all the pro form a numbers for the last 2 years broken down the quarter. And if you then you should just bear in mind when you look at these and in the new segments, the MTG X, the different items that were previous in this bunkers, we have reallocated Eibod fully into the Nordics. The sort of close initiatives we have charged into parent and others and central operations in the historic numbers.
And MTG X currently now only reflects the pure venture cost and the operating companies from within the segment.
Thank you.
We will now take our next question from Adrien de Saint Hilaire from Morgan Stanley. Please go ahead.
Good morning, everyone. Thanks for taking those questions. First of all, Maria, can you just repeat the benefits of the restructuring that you've indicated for Q1? Secondly, Jorgen, when you mentioned the growth in MDGX Ventures at 60% that seems to be tracking quite ahead of your 40% target for the full year. And you said it would slow down, but can we get an idea?
And also can we have an indication on the size of the losses that you expect for the full year? Are they front end loaded to the year? Or should we expect the full year losses to be bigger than what you had in 2015? Thank you.
Yes. To start on the savings from the transformation, we saw SEK 100,000,000 roughly in this quarter and it's primarily relating to the Nordic Entertainment segment. It's a small part in the central operations. And we also paid out roughly SEK 110,000,000 in restructuring payments relating to these charges.
Okay.
And on the businesses, I don't think even if we have given out I don't think we have guided or set out a target for the business, how fast they will grow. But yes, they should grow fast. And as you see as well, internal alone had a growth of around 75% in the quarter, which, of course, illustrate the relevance of the product. So that is, of course, the opportunity we have is to continue to invest, which we have done also in Q1 now, where we have invested more in studios, facilities in order to create more content, more leads and so forth, enter into new countries. So that is, of course, something which we will continue to do.
But we do not expect that the losses that you have seen in Q1 is some it will be the same would have the same magnitude in the quarters going forward. But of course, it is fair to say that we do want to capture these opportunities, which we see. But in the plans as it is right now, we do not have the losses to the magnitude you've seen in Q1 going forward.
Okay. And if I could just ask a follow-up to Maria. In the prepared remarks, you said you were very comfortable with your guidance on EBIT growth. Can you refine a bit? Can you clarify a bit what you mean a year and what we should expect in terms of profit growth?
No. I mean, the only thing we said is that we will have growth top line and we will grow profit and that is the guidance we've given. Though of course, it's great to see the transformation is going according to plan.
Okay, thanks.
We will take our next question from Victor Haak Lund from HSBC. Please go ahead.
Yes. Thank you. Some questions here and on the different areas. So to start off, in the international, apart from Bulgaria, which countries are doing good? And do you have more potential in Bulgaria?
What countries do you have more potential in? I'm just trying to figure out here if this unit can reach $350,000,000 or $400,000,000 EBIT, if that's even possible or more than that is possible, just to understand the potential you see here. And then on the City City funds, if you can maybe go back to them a little bit here. You mentioned the net debt ratio being as it is. And should do you see a scenario where you can distribute those funds to shareholders?
Or do you need this cash to invest more in Esports related things or maybe do a bolt on acquisition or something like that in there? And could you also say something on the ViaPlay churn here? You mentioned that the net adds has been good, but just explain a bit on the movements throughout the quarter. Has gross profit improved a lot throughout the quarter from the price hikes or has it been rather stable? And then you said something around M and A costs before.
Could you just repeat that? And the last, very sorry for these many questions. On the free TV side, can you say something on how much of the ads you sell this year have been locked in versus not locked in and sold on spot rates? I'm just trying to figure out the prices and how much is locked in and not locked in.
Yes. On the international segment, we do see a lot of opportunities actually in each of the different businesses, but in for different reasons. If you look at Bulgaria, already now Bulgaria, they have a very strong digital performance. As you know, we acquired a fairly big digital company some years ago, and that is tracking very strong and that has been very well integrated into the other parts of the business. So we have great opportunities in digital book area.
We already have very strong pay TV business as well there with strong sports pay TV channel. And we have now the number one free TV operator as well. So that combined, of course, create a very strong media house, And we do and have seen for some quarters now that we have been able to grow at a pace much faster than the advertising market has been growing. And that is, of course, due to investments we have made there. In Czech, we have launched new channels.
We had launched new channels with Viacom and launched our own new factual channels as well. And there, we also see a great opportunity going forward when it comes to the MiniPay businesses. So you are going to enter into agreement like we have in other markets where you have you get subscriber fees for your channels in the cable networks. And that is something we're seeing right now due to the fact that we have very strong relevance in the content and in the channels that we have produced in Czech. And that is the same situation actually right now on the Baltic as well where we also have a strong subscription business being built now.
So our fee to be our channel there is also getting carriage fees now from the different cable operators. And there, we are also ahead of the curve when it comes to digital investments and also digital performance. And again, we are moving around 40 or 50 share in commercial during most of these markets. So we are fairly big and therefore should also be able to grow the digital at a decent pace. So I think what you have seen now is that all the investments that we have done into digital, into new channels and also into content is actually paying off.
And that is, of course, something we are very happy about, that we have more and more relevant content, which, of course, gives us higher ratings and therefore, more sales in the business. So that should, of course, hopefully, help us going forward in order to capture even bigger market shares. Then you talked about the 3 TV advertising market in the Northeast, I think, you related to, and that was around the yearly contract. And as I said to you, we have invested in content. We have stronger products coming up.
We have deliveries coming up. We have the handball in January and so forth. So the campaign delivery from us is very strong, and the time groups that we can deliver are strong. So therefore, we have increased prices on our products because we are gaining relevance. And also, the advertisers see that.
So we also have had a good fairly good yearly negotiation as well where we have, I think, the normal region around some twothree, seventy percent, something like that, is locked up in yearly contract so far. Then you talked about acquiring new companies. I think you asked about the CTC funds proceeds, whether how they're going to be used. And yes, we are looking at different opportunities, of course, and that is particularly in the digital areas, in the video digital video areas, which we have invested in already to do more with Esports, to do more with Zoom in or to do more with Play and to continue to invest in our actual core business as well is also, of course, very important for us. But if you look at acquisition, it is directed towards new digital video centric digital businesses.
I think that was the question for me. Then there was related to M and A cost and so forth. There was more. Did you have more questions, sorry?
That was a good answer. So just on the M and A cost, you mentioned something before. Just
Yes. I don't remember us having in
Okay. Then I heard wrong.
Yes. So we didn't say it clear enough sort of that.
Thank you very much.
We will now take our next question from Rasmus Enghberg from SHB. Please go ahead.
Yes. Hi, good morning. I think in the report, you talk about a I think a positive one off in the Nordics. Could you explain roughly what that was and what the size was?
It was a positive revaluation of payables in the Nordic Entertainment and we haven't set the value to it that you can expect it was lower than last year, but we still felt that we should disclose it in the report.
Okay. So lower than last year, yes. And then second question, how large price increases have you implemented? And how is the timing of that given the contract length of your clients and that they were announced sort of in February. How should we face that?
And how large is it?
Yes. It depends on the markets that you that we have. But I think on the OGG product, the bioplay, particularly around sport, it came in February where we had the biggest increase there. When it comes to the TV movie service, it has come throughout, I think, the Q1 here and also so that should be implemented now. When it comes to the IPG businesses and for the TSH businesses, that is something, of course, which comes gradually when we are prolonging the customers' contracts.
So that is something you will see coming in gradually.
And if I look at the DTH and the cable business and IP, Broadly, how large price increases are we talking about as an average or something? Is it 10% or 5% or what is it?
Yes. It is on these business areas, again, depending on the country, you should see around 10% price increases, 10% to 15 percent. And Via Play, as you know, was around 50% on the sports side in Sweden. So about around 10%, fifteen percent, again, depending on the country. And Sweden was around 50% on biopramicals.
Right. And then I missed Maria's comment on how much of restructuring payments you expect to have for the remainder of the year.
We haven't specified exactly how much will come in the remainder. What we said in total is SEK550,000,000 and we have so far paid out SEK270,000,000 and you should expect the majority of the rest to come this year. There will be some payments that's going to last to 'seventeen 'eighteen as well.
Okay. And then finally, of course, it was very good growth in the ventures business and especially in total. But we are sort of in the dark about the figures for last year. So I was wondering if you could help us along the way and give us an indication of roughly what pro form a was for Q2 for MTX Ventures?
We haven't given out anything on those numbers, to be honest. What we said now is that this year, Q1, we grow 60% year on year performance.
Yes. But is Q1, I would assume, is the smallest quarter. Is that correct?
Yes, that is correct. I mean, you both have the advertising funded business and you also have a lower events calendar for the E Force business.
And if you were to guess between Q2 and Q3, then which one would be or are they roughly the same?
I would say it's largely the same.
All right. Thank you.
That concludes the question and answer session. I will now hand the call back to Madsen Lindemann for his concluding remarks.
Thank you all for your time today. We have our ATM on May 24 and hope to see as many as possible of you there. After that, we will announce our Q2 results on July 19. Please do call with any questions, and we look forward to updating our further progress, of course. Thank you, and goodbye for now.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.