Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q3 2015 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 Q&A session will be given. If any participant has difficulty hearing the presentation, please press star zero for operator assistance. 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. Jørgen Madsen Lindemann, who is joined on today's call by Acting CFO, Maria Redin.
Thank you, operator, and good morning, everyone. This quarter was another record quarter as healthy sales underlying growth was boosted by the addition of three exciting new digital businesses. Revenues were up 5% at constant exchange rates, including 3% organic growth. We increased our audience shares in all but one of our nine markets. Viaplay 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 non-recurring items. Profits would have been up by 43%, excluding the SEK 75 million of ongoing negative currency effects this quarter and up 59% when also excluding the SEK 35 million of M&A costs.
This Q3 has been a 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 is 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 SEK 700 million charge in our Q3 results will yield SEK 600 million of cost saving, of which the majority will be released in 2016. We will reinvest the majority of these savings in our core entertainment products and new digital businesses and also aim to grow our earnings next year despite the adverse currency effects.
We have already seen the first of these investments now as we bought the majority of three exciting new digital businesses in July. We paid SEK 1.2 billion for businesses that are growing very fast and already outperforming our previous estimate for SEK 750 million of full-year sales. These businesses have healthy gross margins and 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 bold and 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, La Liga, Serie A, Ligue 1, the Danish Superliga, the Eredivisie, the FA Cup, and that is just football. You can then add in the NHL, the KHL Ice Hockey, the NFL, the PGA European Tour, the Formula One, EuroBasket, and much, much more. We have a big opportunity here to grow our Viasat and Viaplay subscriber bases on our platforms and third-party partner platforms. 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 rights with other operators. Sports rights are a real differentiator and make our consumers offering even more relevant and attractive going forward.
We have reorganized and saved so as to be able to invest. We have also focused by continuing the portfolio review that we started last year. Some of this is of our choosing, like the sale of the Hungarian operations that we expect to close now in the coming weeks, while other parts are due to the changes in the Russian foreign ownership laws. CTC Media is now moving forward with its announced transaction. It then proposes to distribute the cash in the company. While it is, of course, disappointing to exit in this way, our $120 million of cash investment in Russia, including CTC Media, would have yielded dividends and transaction proceeds of over $700 million if you include the proposed CTC distribution.
We are also working with our advisors on solution for our Russian pay-TV channels business in order to comply with the new law by the end of the year. If we then move back to the operations, let's start with the Nordic businesses, which both deliver profitable growth despite the currency impact, higher ratings, and advertising prices, combined with growing advertising and subscription video on-demand viewing and sales, have more than offset the decline in linear TV viewing, while our large-scale traditional subscriber business remains highly profitable. This ability to capture and monetize the changes in video consumption and spending is unique to our business 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 in 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 free-to-air operation and sales, we were up at constant exchange rates. 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 media house audience shares up in every market for the first time in two 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 viewings since 2000. The market was also up.
In Sweden, it was the first time in five years that all of our four channels reported a higher audience share. The Swedish TV ad 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 parts or linear viewing in our target group was down again in Q3 in each market, especially with the final arrival of summer in August. The trend line returned to more moderate percentage point declines in September. We have continued to balance program investment in each market with savings in other areas. Operating costs were stable despite the adverse impact of the appreciation of the US dollar. Profits were therefore slightly up for the quarter.
We then move on to the Nordic pay-TV business where Viaplay 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 Viaplay. 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 Viaplay and third-party platforms, which have lower ARPUs than for the premium satellite business. The ARPU for our satellite business is now stable rather than growing. Viaplay did, however, have its third-best-ever net paid subscriber intake quarter and more started streams than ever before for a single month in September.
The positive Viaplay viewing trends also continued for Q3 as a whole. The main category drivers were series, which almost tripled, and kids, which was up 168%. We have also just premiered the first episodes of series two of Empire, which is beating series one 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 SEK 59 to SEK 89 price point introduced a year ago, and new subscribers moving up from SEK 89 to SEK 99 price point from the beginning of this month. We have also just had our first weekend of covering all Premier League and La Liga and Serie A games, 26 matches in all in Sweden. The result was a record number of started streams on one day, last Sunday, on Viaplay.
Moving now from Viaplay to Viasat, where the third-party network's premium subscriber bases continue to grow and offset the decline in the premium satellite business base. We also converted a third of our basic satellite subscribers into premium subscribers this quarter. Our premium satellite ARPU is stable, as I said. Looking forward, we have now further strengthened our sports offering for years to come. We are carefully reviewing our platform and channel pricing and strategies. We then shift the focus now from the Nordic to the international operations. Our free-TV emerging markets had sales growth of 9% at constant exchange rates. Costs were down at constant exchange rates. We reported substantially reduced losses in the really stage period of the year. The higher operational gearing clearly shows the potential in these businesses.
The Bulgarian operation was the standout performer with more than 40% audience share and 33% constant exchange rate sales growth and substantial market share gains in a growing market. Nova is now the clear number one media house in the market and sells a package of 16 Nova and third-party channels. Sales for the Baltic free-to-air operations were up by 7% at constant exchange rates. The Lithuanian and Estonian operations reported higher sales with rising audiences and ad shares in growing TV advertising markets. While the Latvian operation reported a 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 a 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 was, however, stable. We are now about to launch our fifth channel, our fifth premium channel, Prima MAX, before the end of the year, as well as the new comedy channel, Prima 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 third-party channels. Our online sales for the segment as a whole were up 32%, following a 56% increase in started streams. We have also now introduced mini pay carry fee structures in all the three Baltic countries, Czech and in Bulgaria. It is early days, the development is going according to plan.
If we then move on to our pay TV operations in the emerging markets where sales were stable at constant exchange 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 million year-on-year to 138 million subscriptions and were up 1 million in the quarter. Growth in the trade business in particular. Operating costs were down and included a one-off gain from a music rights settlement, profits were actually up for the quarter. We also expect to report a full-year profit despite the adverse impact of the depreciation of the Russian ruble.
Finally to Life & Entertainment, MTGx 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 Life & Entertainment sales were slightly down at constant exchange rates as a good performance in drama was offset by lower event revenues. Splay and Zoomin results have been consolidated from August and Turtle 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, GoSnap, now available in 10 countries with a reach of over 100 million with launch of Unikorn.me mobile digital creation platform, and I Just Want to Be Cool app. Zoomin sales were up more than 50%. We have just passed the 100 million subscriber mark.
Zoomin is now ranked as the second most viewed video media in Brazil. Turtle sales are also growing ahead of plan. ESL broke all records again in August. ESL One Cologne was held in Germany's biggest indoor arena and was the most watched ever Counter-Strike: Global Offensive event. One of the most popular esports games, the event attracted 25 million unique views, 1.3 million peak concurrent users across all channels worldwide with 32 million hours watched. The increase in operating costs reflected the consolidation as well as SEK 16 million of M&A costs in the segment. The segment therefore reported a small loss for the period and will be loss-making for the year.
In summary for the group, we have delivered a quarter of profitable growth after record viewing levels and 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 rights content. Recurring profits would have been up 43% if excluded the adverse currency effects. We are working on solutions to ensure compliance with the Russian mass media foreign ownership laws. 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. I will now hand the call over to Maria for her comments.
Thank you, Jørgen, 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 CTC Media Holding, and some comments on the tax rate. Our Q3 profits were negatively impacted by SEK 50 million due to the U.S. dollar exchange rate. This was slightly less than what we expected at the Q2 call and was equally split 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 million in the quarter and as predicted. Total currency impact when excluding other net translation and transaction effects added up to negative SEK 75 million in the quarter.
As Jørgen 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 currency hedges, we currently expect a negative dollar exchange rate impact of SEK 50 million in Q4 and a negative ruble exchange rate impact of SEK 20 million. Other net translation and transaction effects are expected to continue to be limited but negative. These assumptions would indicate an unchanged full year 2015 total negative impact of SEK 200 million from the dollar and a slightly lower SEK 70 million impact from the ruble. 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.
When extending the outlook into 2016, the strengthening of the US dollar is expected to have a further negative impact of SEK 250 million, which is in line with what we indicated at the time of the Q2 results in July. The SEK 652 million of non-recurring items that we have incurred in the quarter mainly comprise the SEK 700 million of restructuring charges arising from the strategic transformation that we announced in August. The cash flow impact is expected to be approximately SEK 550 million. 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 to materialize in Q4, and the remainder is to come in 2016 and 2017.
The majority or roughly three quarter of resulting SEK 600 million savings will come in 2016. The rest in 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 million net gain that we realized due to the revaluation of the Splay and our content production company, Paprika Latino, on the balance sheet. We have increased our ownership in Splay 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 expense by exercising an option to increase our ownership in Paprika Latino at a higher price than was previously indicated.
We have also assessed the fair value of our holding in CTC Media, which we report as a discontinued operation. We have based our value on the agreement that CTC Media entered into the UTH and the proposed distribution of the proceeds and cash in the company in Q1 next year. For the quarter, this means that we report a negative SEK 18 million, 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 CTC Media distribution will not be subject to any tax charges for the group. If we 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 exclude the SEK 575 million of 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%. That is it for my comments, and back to you, Jørgen.
Thank you, Maria. That concludes our commentary on the results. Over to you now operator to start the Q&A session, please.
Thank you, sir. 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 the queue. Should you wish to cancel, please press star two. 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 SEK 50 million from the U.S. dollar and SEK 12 million from the ruble, so SEK 62 million in total on the EBIT in the quarter?
Hi, Maria here. Yes, you're correct. It's SEK 50 million from the U.S. dollar, which we said SEK 55 million in Q2, and then SEK 12 million from the ruble. This quarter, we had a slightly higher charge following the GBP, and also the NOK following year-over-year.
Okay. Thanks a lot for clarifying that. Second question just on the Viaplay and the pay TV offering going forward. I guess it's going to be interesting to see what you do with the packages and 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?
Yeah, I think what we're looking at, and as I said, over several quarters, of course constantly to understand how we can enhance the product, become more relevant, and also understand the pricing power in the product. Now we can see we are raising prices on the TV movie part because we understand that the traction of the product is very strong and also the value for money proposition is super strong. I think when you look at the next year, when 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. We also have the French league from the summer 2016.
On top of that, you have the World Cup in ice hockey, you have the Olympics, and you also have the European Championship in handball also taking place in Sweden. 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. 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, it was very interesting to see, of course, with the addition of the new products, how that will be received by the Viaplay consumers and the customers. We saw that we had record high streaming during Viaplay last weekend because of the football.
We have different plans of the packaging, and as always, we will let the customers know before anybody else when we do something regard pricing and products.
Is it fair to assume, Jørgen, that you will sub-license quite a lot of these new rights?
I think what we're looking at right now is of course the markets like we're in Denmark. Today in Denmark, we are sharing the rights with some parties in Denmark, and that model has been very successful for us. That you could eventually look at we will continue to do. 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. Just very briefly on the premium subs in satellite and third-party, you are up in the quarter, I guess due to the third-party growth. What explains that? It was quite a good number there.
It's 2 things. One, of course, is that in the third-party networks, we have seen strong growth. We have seen traction on the product that we have launched. Also, we announced Champions League, as you know, in Finland as well. That has helped, of course, grow the third-party network. Then we had an upgrade where we had some basic customers, which was upgraded as well to premium customers.
Thanks a lot.
We will now take our next question from Rasmus Enberg from SHB. Please go ahead. Your line is open.
Yes. Hi, good morning. 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? You have added quite a bit of content now. How should we think about the 2016?
No. The ambition is, of course, to get in more customers. That would, of course, imply that you would grow revenue. The investment is, of course, to make sure that we put our positions forward. With more customers, hopefully also should result in better profit as well. Of course, it is investments we have 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, of course, the aim.
Well, one would assume that you're going to raise third-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?
Yeah, as I said, when it comes to the price and price increase and packaging, there we have a firm plan, of course, and that we will announce. We will not give our competitors a heads up on that one. That 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. The only thing I said was in Denmark, we are sharing rights with some parties in Denmark, and that is something we will eventually consider continue doing. That is, of course, discussion which we have right now.
This huge black box that is called other operations. What kind of expectations do you have in terms of its profitability or losses in 2016?
Yeah. I don't know if it's a black box. I think they are very fine businesses, and you can find a lot of information about them in nothing, no true. I think they're fairly well stipulated there. Of course, you have a lot of different areas in there. As I've also said, we have strong traction when it comes to the digital businesses which are placed in that business segment. They are tracking ahead of plans right now when it comes to revenue, that is, of course, positive news. That means the Zoomin.TV, the turtles, and Splay. We have our content business, Nice, which had a very strong quarter in terms of production. The event business was not as successful as I think for last year, therefore the revenue goes a bit down.
The radio business is a very strong and sound business. P4 Radio is big business. 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.
I guess the question is more like for next year. You had a loss in this quarter of SEK 6 million, presumably including some M&A costs, meaning that all in all, including the MTGx 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 a lot of the losses here in that quarter, the first M&A cost. There you're right. As you know, we are not giving any forecast when it comes to 2016 for the business. I think what we are focusing on, of course, is the business performance of each individual business in the area. There we see, of course, some strong development. 2016 forecast, we're not giving for that segment.
Okay. 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 SEK 10 million.
Less than SEK 10 million. Yeah. That business, one would assume that you need to sell or close the Russian businesses within two months’ time now. Is that correct, or?
Yeah, I think what we have said and of course is on the agenda is, of course, to make sure that we comply with the law by 1st of January. As we have said, instead of speculating different options, because obviously, as you're also right, 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 MTG's point of view, the most value-creating way. That is our focus.
Okay. Thank you.
We'll now take our next question from Sami Sarkamies 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 US 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. Second question is related to Pay TV Nordics. You came down to 1% organic revenue growth in the third quarter. 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 third-party networks, satellite, and Viaplay platforms, and how will you do that? Thanks.
Hi. In regards to the outlook for the dollar, if you remember, we actually upward the guidance in Q2 where we went from SEK 300-SEK 250. Remember that I know that the dollar's improved in the quarter, but we hedged on 12 to 16 months rolling, so this is basically the blended impact that will have on hedging and spot rates. The outlook has improved slightly versus Q2, but as a rounded number, it is still SEK 250.
Okay.
Yes. 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 chance to show the Premier League, which we didn't have before, which of course will help our third-party sales also in Finland and also our Viaplay business. The same goes with the investments in LaLiga and the other content investment, is to get more customers in. The aim is of course to grow the business, in terms of revenue also next year.
Okay, thanks.
As a reminder, to ask a question, please press star one on your telephone keypad. We'll now take our next question from Viktor Höglund from SEB. Please go ahead.
Yeah. Most of my questions have been answered here, maybe you can just say something on the YouTube Red that was announced yesterday. Is that a plus, minus, or insignificant for you?
Yeah. Sorry, I couldn't hear the 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're seeing is that you will see a lot of different initiatives from all kind of players going around. As you can see from the investment 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 18, 19. Our movie and series positions are also long-term. We have a very strong position right now, and that is, of course, the focus that 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'll now take our next question from Martin Arnell from DNB Markets. Please go ahead.
Yes. Hi. Just to follow up on the costs in the quarter. Could you just clarify how much was M&A and advisory costs in Q3?
The cost was SEK 35 million in the quarter.
Sorry, could you repeat that again?
It was SEK 35 million quarter.
35. Okay. Thank you very much.
As a reminder, to ask a question, please press star one on your telephone keypad. We will now take our next question from Rasmus Enberg from SHB. Please go ahead, sir.
Yes. Hi. Just on the M&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 Jørgen Madsen Lindemann for his closing remarks.
Thank you all for your time today. We will announce our Q4 and full year results on February the 3rd, 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. Thank you, and goodbye for now.
That concludes today's conference call. Thank you for your