Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q3 20 15 Earnings Call. May I also remind you that you can find the presentation slides for this call at mtg.com. I will now hand the call over to your host, MTG President and CEO, Mr. Juergen Mattson Lindeman, who is joined on today's call by Acting CFO, Maria Redden.
Thank you, operator, and good morning, everyone. This quarter was another record quarter as healthy sales underlying growth was boosted by the addition of 3 exciting new digital businesses. Revenues were up 5% at constant exchange rates, including 3% organic growth. We increased our audience shares in over but one of our 9 markets via Play Again ensured that our subscriber numbers grew in the Nordics, and our group wide digital revenues were up 42% even when excluding the new investments that we announced and consolidated during the quarter. Not only we have grown our sales this quarter, but we also grew our profits by 9% when excluding the nonrecurring items.
Profit would have been up by 43%, excluding the SEK 75,000,000 of ongoing negative currency effects this quarter and up 59% when also excluding the $35,000,000 of M and A costs. This Q3 has been very busy period as we have taken a number of important steps along our path of strategic transformation. The momentum has accelerated as we announced and then implemented the reorganization from a product to a country based organization. This followed the management changes that we made in May, and it's all about accelerating our decision making and bringing us even closer to our markets and customers. The reshaping of the organization has involved painful but necessary decisions, and the DKK700 million charge in our Q3 results will yield DKK600 million of cost saving, of which the majority will be released in 20 16.
We will reinvest the majority of these savings in our core entertainment products and new digital businesses and also aim to grow our next year despite the adverse currency effects. We have already seen the first of these investments now as we bought the majority of 3 exciting new dividend businesses in July. We paid DKK1.2 billion for businesses that are growing very fast and already outperforming our previous estimate for DKK750 1,000,000 of full year sales. And these businesses have healthy gross margins, are only making a small combined annual loss despite the investments we are making to drive their growth. We have also more recently taken some important steps to ensure that we are in the driving seat when it comes to the most important content rights.
We have now secured the rights to the world's best football for years to come. No one in Scandinavia can rival a portfolio that now includes the Premier League, the Champions League, the Spanish League, the Italian League, the French League, the Danish League, the Dutch League, the FA Cup and then just football. You can then add in the NHL, the KHL, High Rocket, the NFL, the European PGA Cup, the Formula 1, the Europe basket and much, much more. We have a big opportunity here to grow our Viasat and Viasat subscriber basis on our platforms and third party partner platforms, So we are now carefully reviewing our wholesale and retail pricing as well as where it could make sense to share or supply some of these rides with other operators. Sports rides are a real differentiator and make our consumers' offering even more relevant and attractive going forward.
So we have real and I can say so as to be able to invest, and we have also focused on continuing the portfolio review that we started last year. Some of this is of our choosing, like the sale of the Hungarian operation that we have expected that we expect to close now in the coming weeks, while other parts are due to the changes in the Russian foreign ownership laws, CEC Media is now moving forward with its announced transaction and then proposes to distribute the cash in the company. While it is, of course, disappointing to exit in this way, our $120,000,000 of cash investment in Russia, including CTC Media, would have yielded dividends and transaction proceeds of over $700,000,000 if you include the proposed CTC distribution. We are also working with our advisers on solutions for our Russian basically channels business in order to comply with the new law by the end of the year. If we then move back to the operation, let's start with the Nordic businesses, which both delivered profitable growth despite the currency impact, higher ratings and advertising prices, combined with growing advertising and subscription media and demand during and sales have more than offset the decline in linear TV during, while our large scale and demonstrates the value of our integrated operating model.
As we have said many times, overall video consumption is growing. It is just being consumed different ways and on different screens, which is why our ability to package popular content for all platforms is so important. If we look at the future operation and sales, we were up at constant exchange rates, and this reflected not just the higher ad prices we introduced early in the year, but the best rating performance that we have had for years. Not only were our combined meterhouse orders shares up in EBIT margin for the first time in 2 years, but so was the viewing share for our Q3 channel in each of the markets. Furthermore, our online viewing minutes were up over 30% in each market, and our AVOD revenues were up 52%.
Our sales were up in Denmark, where we had the highest Q3 share viewing since 2000, and the market was also up. In Sweden, in the first it was the first time in 5 years that all of our 4 channels reported higher audience shares. The 3 d TVS market was down again, but our sales were only slightly down. Our audience shares were also up in Norway, but are yet to result in higher sales in a market that is still growing. Commercial PUD or linear viewing in our target group was down again in Q3 in each market, especially with the final arrival of summer in August, but the trend returned to more moderate percentage point declines in September.
We have continued to balance program investment in each market with savings in other areas, so operating costs were stable despite the adverse impact of the appreciation of the U. S. Dollar. Profits were therefore slightly up for the quarter. If we then move on to the Nordic Pay TV business where ViaSat subscriber volumes and revenues continued to show healthy growth and more than offset the decline in the ViaSat business.
At the same time, the ViaSat business remains highly profitable and more than offset the ongoing investments in Viaplane. So the combined business delivered another quarter of profitable growth despite the significant currency headwinds that I mentioned earlier. Sales were up 1% at constant exchange rates and the slower growth reflected the evolving mix in the subscriber base and ARPU levels. Our growth is coming from buyer play and 3rd party platform, which have lower ARPUs than for the premium satellite business. And the ARPU for our satellite business is now stable rather than growing.
Fireplay did, however, have its 3rd best ever net paying subscriber intake quarter and more started streams than ever before for a single month in September. The positive bioplay viewing trends also continued for Q3 as a whole, and the main category drivers were series, which almost tripled, and kids, which was up 168%. We have also just printed the first episodes of Series 2 of Empire, which is beating Series 1 as our most successful premiere ever. We will now, moving forward, see the impact of the existing TV and movie package consumer customers moving up from 59 to 89 corner price point introduced a year ago and new subscribers moving up from $89 to $99 price point from the beginning of this month. We have also just had our 1st region of covering all Premier League and La Liga and Serie A games, 26 matches in all in Sweden, and the result was a record number of started streams on one day last Sunday on ViaPlay.
Moving now from ViaPlay to ViaSat, where the 3rd party network's premium subscriber bases continue to grow and offset the decline in the premium satellite business base. We also converted onethree of our basic satellite subscribers into premium subscriber this quarter, and premium satellite ARPU is stable, as I said. Looking forward, we have now further strengthened our sports offering for years to come, so we are carefully reviewing our platform and channel pricing and strategies. So we're going to shift the focus now from the Nordics to the international operations. Our free to the emerging markets had sales growth of 9% at constant exchange rates.
Costs were down at constant exchange rates, and we reported substantially reduced losses in the real estate period of the year. The high operational gearing clearly shows the potential in these businesses. The Bulgarian operation was a standout performer with more than 40% order share and 33% constant exchange rate sales growth and substantial market share gains in a growing market. Nova is now the clear number 1 media house in the market and sells a package of 16 Nova and third party channels. Sales for the Baltic retail operations were up by 7% at constant exchange rates.
The Lithuanian and Estonian reported higher sales with rising audiences and ad shares in global TV advertising markets, while the LatAm operation reported lower combined audience share but stable total sales in a declining TV ad market. Sales for Czech operations were down 2% at constant exchange rates in the TV advertising market that is estimated to have been flat. Costs were also down as we started the fall schedule later this year than in 2014. Our media house audience shares were, however, stable, and we are now about to launch our 5th channel our 5th premium channel, Primer Max, before the end of the year as well as the new comedy channel, comedy Central, in cooperation with Viacom, with whom we already have successful partnerships in Scandinavia. We already now sell a package of 10 Prima and 3rd party cameras.
Our online sales for the segment as a whole were up 32%, following a 56% increase in started streams. We have also now introduced miniplate carriage deal structures in all the 3 Baltic countries, Czech and in Bulgaria. It is early days, but the development is going according to plan. And if we then move on to our Payche operations in the emerging markets where sales were stable at constantly changed rates as the growth in Pay TV channel subscription volumes and revenues offset the lower Ukraine satellite platform volumes and revenues and the loss of advertising revenue in Russia following the change in local laws. Paid channel subscriptions were up €8,000,000 year on year to 138,000,000 subscriptions and up $1,000,000 in the core growth in the trade business in particular.
Operating costs were down and included a one off gain for our music rights settlement, so profits were actually up for the quarter, and we also expect to report a full year profit despite the adverse impact of the depreciation of the Russian roof. And then finally, July's entertainment, NTTX and the radio segment where sales were up at constant exchange rates due to the new digital acquisition and investments, radio sales were up in all countries, while Night Entertainment night entertainment sales were slightly down at constant exchange rate as a good performance in drama was offset by lower event revenues. Splay and zoom in results have been consolidated from August and, certainly, itself from September. Splay has more than doubled its sales and video views. Viggo and team followed up on the successful launch of the digital influencer marketplace, Go Snap, now available in 10 countries with a reach of over €100,000,000 with the launch of the Unicont.
Me mobile digital creation platform, and I just So it is now ranked as the 2nd most viewed video media in Brazil. Turtle sales are also growing ahead of plan, ESL broke all records again in August. ESL 1 Polonie was held in Germany's biggest indoor arena and was the most watched ever Counter Strike global offensive event. 1 of the most popular e sports games, the event attracted 25,000,000 unique views, 1,300,000 peak concurrent users across all channels worldwide with 32,000,000 hours watched. The increase in operating costs reflect the consolidation as well as the $16,000,000 of M and A costs in the segment.
The segment, therefore, reported a small loss for the period and will be loss making for the year. So in summary for the group, we have delivered a quarter of profitable growth after record viewing levels market share gains in most of our markets, continued subscriber intake and significant progress with the ongoing strategic transformation, including key investments in high growth digital categories and key premium sports ride content. Recurring profits would have been up 43% if excluded the adverse currency effects, and we are working on solutions to ensure compliance with the Russian mass media foreign ownership laws, and we continue to review the business portfolio to ensure that we focus on those businesses and products that offer the greatest potential and returns. That concludes my comments on the result, and I will now hand the call over to Maria for her comments.
Thank you, Jorgen, and good morning, everyone. I would now like to give you a quick update on the currency impact in the quarter and going forward. The non recurring items in the quarter, the treatment of the CPC Media Holdings and some comments on the tax rate.
Our
Q3 profits were negatively impacted by SEK50 1,000,000 due to the U. S. Dollar exchange rate. This was slightly less than what we expected at the Q2 call and was equally fixed between the Nordic free and paid businesses with only a small impact for the emerging market businesses. The negative impact on the Russian ruble exchange rate was approximately SEK 12,000,000 in the quarter as unmet predicted.
Total currency impact when excluding other net translation and transaction effects added up to negative SEK 75,000,000 in the quarter. So as Jorgen mentioned, the fact that our profits were up year on year despite these headwinds shows just how healthy the underlying operating performance is. Looking at the rest of the year, based on current spot rates and net of forward current hedges, we currently expect a negative dollar exchange rate impact of SEK50 1,000,000 in Q4 and a negative ruble exchange rate impact of SEK20 1,000,000. Other net translation and transaction effects are expected to continue to be limited, but negative. These assumptions would then indicate an unchanged full year 2016 total negative impact of SEK200 1,000,000 from the dollar and a slightly lower SEK70 1,000,000 impact from the ruble.
And as before, please remember that this is not a form of guidance, but an indication of what could be expected given where we are today. While then extending the outlook into 2016, the strengthening of the U. S. Dollar is expected to have a further negative impact of SEK 250,000,000, which is in line with what we indicated at the time of the Q2 results in July. The SEK652,000,000 of non recurring items that we have incurred in the quarter mainly comprised the SEK 700,000,000 of restructuring charges arising from the strategic transformation that we announced in August.
The cash flow impact is expected to be approximately SEK550 1,000,000. And whilst we're on track on the execution of the transformation, we only see a small cash flow effect in Q3 and we estimate roughly 30% of the total amount materialized in Q4 and the remainder is the coming 2016 2017. The majority or roughly 3 quarter of resulting $600,000,000 of savings will come in 2016 and then the rest 2017. We will reinvest the majority of these savings into the ongoing transformation of the business. The other part of the non recurring items is a SEK 48,000,000 net gain that we realized due to the revaluation of display and our content production in Popular, Tina on the balance sheet.
We have increased our ownership in display and now consolidate 100% compared to the previous treatment as an associate company. The price paid has the effect of increasing the value of the shares that were previously held. This has been offset by an extent by exercising an option to increase our ownership in PASKA Latino at a higher price that was previously indicated. We have also assessed the fair value of our holding in C2C Media, which we report as a discontinued operation. We have based our value on the agreement that C2C Media entered into the BUTH and the proposed distribution of the proceeds and cash in the company in Q1 next year.
So for the quarter, this means that we report a negative SEK 80,000,000 which is the difference between the book value or market value as at the end of Q2 and the fair value or proposed transaction value at the end of Q3. The proposed C2C media distribution will not be subject to any tax charges for the group. And if we then look at the isolated Q3 taxes, we do have a positive tax charge. This is due to the fact that the majority of our restructuring charges are tax deductible. When you then exclude the SEK575 1,000,000 on non recurring items for the year to date, you arrive at a tax rate of 27% and we now expect the full year tax excluding non recurring items to land around 25%.
So that is my comments and back to you, Jorgen.
Thank you, Maria. That concludes our commentary on the results. Over to you now then, operator, to start the Q and A session, please.
Thank you, sir. Ladies and gentlemen, we are now ready to register questions. We will now take our next question from Martin Arnell from DNB Markets. Please go ahead, sir.
Hi, guys. It's Martin here. I have a question. Could you just clarify again the negative FX in the quarter? Did I get you correctly when you said it's €50,000,000 from the dollar and €12,000,000 from the ruble?
So €62,000,000 in total on the EBIT in the quarter.
Maria here. Yes, you're correct. The $50,000,000 which we said $55,000,000 in Q2 and then $12,000,000 This quarter, we had a slightly higher charge following the pound and also the NOK falling year on year.
Okay. Thanks a lot for clarifying that. And second question, just on the ViaPlay and the pay to the offering going forward. I guess it's be interesting to see what you do with the packages and how you what you do with the new sports offering. Could you just elaborate a little bit more on what kind of prices you would expect in the longer term for ViaPlay when the improvements have been so strong?
Yes. I think what we're looking at, and as I said over a typical course, is, of course, constantly to understand how we can enhance the product, become more relevant and also understand the pricing power in the product. And now we can see we are raising prices on the TV movie part because we understand that the traction on the product is very strong. And also, the value for money proposition is super strong. I think when you look at the next year, if you take Sweden and you look at the TV, movie and sports packages, we will have La Liga, of course, coming in.
We will have Serie A coming in, and we also have the French league from the summer, 'sixteen. On top of that, you have the World Cup in ice hockey, you have the Olympics and you also have the European Materials in handball sort of taking place in Sweden. So of course, we are constantly working on enhancing the product, getting more customers in and making sure that we constantly move the product forward, which also, of course, gives opportunity to increase prices because the product becomes more strong. And we are investing in the product. So that, of course, will mean that we are investing in the product as well.
Look at last weekend, and it was very interesting to see, of course, with the addition of the new products, how that will be received by the biopsy consumers and the customers. And we saw that we had record high streaming during bioplait last week and because of the football. So we have different plans of the packaging. And as always, we will let the customers know before anybody else when we do something regards pricing and products.
But is it fair to assume, Juergen, that you will sublicense quite a lot of these new rights?
I think what we're looking at right now is, of course, the markets like in Denmark. Today in Denmark, we are sharing the rights with some parties in Denmark, and that model has been very successful for us. And that you could eventually look at, we will continue to do. But otherwise, when we buy rights like Olympics and others, it is, of course, to make sure that we utilize these products and we can offer that to our customers.
Okay. Thanks a lot. And just very briefly, on the premium subs in satellite and third party, you were up in the quarter, guess, due to the 3rd party growth. What explains that? It was a quite good number there.
Yes. It's 2 things. 1, of course, is that in the 3rd party networks, we have seen strong growth. We have seen traction on the product that we have launched. Also, we announced generally, as you know, in Finland as well.
So that has helped, of course, grow the 3rd party network. And then we had an upgrade where we had some basic customers, which was upgraded as well to premium customers.
We will now take our next question from Rasmus Inberg from SHB.
Can I ask you how you would want us to think about the pay TV Nordic business now? Is it focused to grow it? Or do you want to add to the profits as well? I mean, you have added quite a bit of content now. So how should we think about the 2016?
Yes. No, the ambition is, of course, to get in more customers. And that would, of course, imply that you would grow revenue. So the investment is, of course, to make sure that we put our positions forward. And with more customers, hopefully, also should result in better profit as well.
But of course, it is investments we haven't been making in the products and the ambition is to go out and get more customers in at the same time to make sure that we grow profit. That is a core game.
Well, one would assume that you're going to raise 3rd party prices in cable TV, for example. Is that correct? Or do you still think about sub licensing rights in that area? Or how do you think about that?
Yes. As I said, when it comes to the price and price increase and packaging, there we have a fair plan, of course, and that we will announce. We will not give our competitors a heads up on that one. So there we will announce when we do that. When it comes to top licensing, as I said, when we buy rights, it's, of course, with the ambition to capitalize on the rights.
And the only thing I said was in Denmark, we are sharing rights with some parties in Denmark, and that is something we will consider eventually consider continue doing. And that is, of course, disruption which we have right now.
And then this huge black box that is called other operations, how what kind of expectations do you have in terms of its profitability or losses in 2016?
Yes. I don't hope it's a black box. I think they are very fine business, and you can find a lot of information about them in nothing, though, too. I think they are fairly well stipulated there. It is of course, you have a lot of different areas in there.
And as I've also said, we have strong traction when it comes to the businesses, which are placed in that business segment. And they are tracking ahead of plans right now when it comes to revenue. So that is, of course, positive news. That means the XUMIN, the terminals and display. And then we have our content business, NICE, which had a very strong quarter in terms of production, but the event business was not as successful as last same quarter last year.
So therefore, the revenue goes a bit down. And then the radio business is a very strong and sound business before radio is big business. So I think that what we are seeing in that segment is that we are saying overall, it will not be profitable this year, but the business is isolated. The different areas are doing very strong.
And because I guess if the question is more like for next year, now you had a loss in this quarter of SEK 6,000,000 presumably including some M and A costs, meaning that all in all, including the MTG X costs, which you didn't mention, this business, one would assume, looks reasonably profitable on an underlying basis in aggregate.
You're right that we had with the losses a lot of the losses here in that quarter, the first M and A cost there, you're right. And as you know, we are not giving any forecast when it comes to 2016 for the business. So I think what we are focusing on, of course, is the business performance of such of the each individual business in the area. And there, we see some, of course, some strong development. But 2016 forecast, we're not giving for that segment.
Okay. And then finally, in Pay TV Emerging Markets, did I understand correctly that there is a one off positive there. Could you specify roughly how large that was in the quarter?
It was less than $10,000,000 Less
than $10,000,000 Yes. And that business, one would assume that you need to sell or close the Russian businesses within 2 months' time now. Is that correct or
Yes. I think what we have said and of course, this is on the agenda is, of course, to make sure that we comply with the law by 1st January. And as we have said, instead of speculating different options because, obviously, as we also write, we are and I also said, we are looking at different options. We have strong focus on making sure that we will comply with the law and make sure that we will do that from a strategic point of view the most value creating way. So that is our focus.
We will now take our next question from Sami Sammis from Nordea Bank. Please go ahead.
Hi, thanks. I have two questions. Firstly, on the FX headwinds that you just described. Can you explain why you chose not to revise the U. S.
Dollar headwind for next year? If I try to do the math, I would think that it should be a bit lower than what you said after Q2. And then second question is related to Pay TV Nordics. You came down to 1% organic revenue growth in the Q3. Can you elaborate a bit on the growth trends here?
I mean, is this the sort of level we should assume going forward? Or will you be able to improve the situation at 3rd party networks, satellite and wire play platforms? And how will you do that? Thanks.
Hi. In regards to the outlook for the dollar, if you remember, we actually up or the guidance in Q2 where we went from $300,000,000 to $250,000,000 And remember that I know that the dollars improved in the quarter, but we hedged on 12 to 16 months rolling. So this is basically the blended impact that we'll have on hedging and spot rates. And the outlook has improved slightly versus Q2, but it is a rounded number. It is still 250.
Okay.
Yes. And when we're looking at Pay TV, of course, the ambition is that we want to grow the business. We want to have more customers in. I think what we also have said, it is for us very important that we move the position forward and like we have done now in Finland as well where we have acquired the sorry, the Premier League, which we didn't have before, which, of course, will help our 3rd party sales also in Finland and also our VIABLADE business. And the same goes with the investments in the Viga and the other content investment is to get more customers in.
So the aim is, of course, to grow the business in terms of revenue also next year.
Okay. Thanks.
Will now take our next question from Victor Hoglund from SEB. Please go ahead.
Yes. Most of my questions have been answered here, but maybe you can just say something on the YouTube Red that was announced yesterday. Is that a plus, minus or
question.
I was just thinking that yesterday, YouTube announced their pay service there. I was just thinking, is that a positive for you, negative or something insignificant?
No. I think what we are seeing is that you will see a lot of different initiatives from all kind of players going around. As you can see from the investments that we are making, we are focusing on the business that we have and to make sure that we continue to stay super relevant. Our content positions, the sports position, as you can see, is now going all the way to 'eighteen, 'nineteen. Our movie and series positions are also long term.
So we have a very strong position right now. And that's, of course, the focus that we with the content that we have locked up for our customers would be able to get many more on board, of course.
Okay. Thank you.
We will now
Q3?
The cost was $35,000,000 in the quarter.
Sorry, could you repeat that again?
It was 35 minutes in the quarter.
35, okay. Thank you very much.
We will now take our next question from Rasmus Enberg from SHB. Please go ahead, sir.
Yes. Hi. Just on the M and A costs, are they predominantly in the other operations? Are they predominantly in the sort of broadcasting overhead business? Or where are they?
Hi. They're roughly half and half between other broadcasting and other businesses.
Okay. Thank you. That concludes the question and answer session today. I will now hand the call back to Madsen Lindman for his closing remarks.
Thank you all for your time today. We will announce our Q4 and full year results on February 3 and hope to meet with as many of you as possible before then. This year, we are not holding our Capital Market Day as we are focusing on executing the latest steps in the transformation process as quickly as possible. We will be attending, of course, conferences and road showing for the rest of the year, so hope to see you in one of these meetings. Please do call with any questions, and we look forward to keeping you up to date with our further progress.
So thank you, and goodbye for now.