Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG's Q1 2015 Earnings Call. At this time, all participants are in listen only mode. After the presentation, participants will have the opportunity to ask May I also remind you that you can find presentation slides for this call atmtg.com. I will now hand the call over to your host, MTG President and CEO, Jorgen Madsen Lindeman, who is joined on today's call by Group CFO, Matthias Permansen.
Thank you, operator, and good morning, everyone. Q1 was another quarter of record sales despite the fact that we did not have the Olympics this year. Profit was stable compared to last year when excluding the net positive effect of the restructuring in Sweden and the copyright settlement in Scandinavia, and this is despite SEK 75,000,000 of adverse currency headwinds and continued investment in our digital products. The Nordic market continued to be a relevant clear case study of how we are transforming ourselves as a group. Traditional or linear TV viewing is falling and traditional pay TV platforms are getting smaller.
That is an established fact and will come to other markets too. Our total vehicle consumption is growing faster through online and mobile services. This is only happening currently in Scandinavia because of the generic availability of high speed broadband access. This is exactly why we have for some time now been investing to develop our online and digital entertainment offerings, not just in Scandinavia, but also in our other markets. This illustrates what we have said all along, video is growing.
It is just being consumed in different ways, and we are helping to shape those trends with our online free to play services, via play and businesses like Splay in Sweden and NetInfo in Bulgaria. Our total digital sales were up 33% in Q1 for the group, and this growth was fueled by enhanced efficiency levels in our traditional businesses, and we now have more customers enjoying our content and services than ever before. Like all industry shifts, the current transition is reflecting in a change in behavior. We are reviewing our portfolio of products and businesses to make sure that we are as relevant and competitive as possible and to focus our resources on areas that offer the greatest potential. This is why we have continued to optimize our capital allocation and exited businesses such as Sapa, the Swedish cable radar and our free to be businesses in Hungary pending regulatory approval.
Secondly, it is also why we are taking actions across the group to focus and balance our cost and investments and mitigate the ongoing currency impact as much as possible. And thirdly, we are at the same time identifying and reviewing complementary and scalable digital investment opportunities and has increased our stake in Splay, the biggest YouTube network in Sweden that is now expanding into new markets. Before we get into the segmental business performance, I would like to update you on the complex and challenging situation we have in Russia. Firstly, the ban on advertising is now in place for all pay TV channels in Russia with more than 25% of non Russian content. This loss in sales will, as we've mentioned before, reduce our Russian pay TV profits by approximately DKK 50,000,000 in 2015.
Secondly, we are exploring a range of options regarding our Russian operations and holdings in order to comply with the changes to the mass media law by the beginning of 2016 and seek to protect the stakeholder value that we have built up over a number of years. Process have been established and are underway. As you would have seen, we have designated 2 new members to the CDC Board to take the process forward with the advisory team that has been put in place. There's nothing further to report at this stage, but we will, of course, keep you updated as we move forward. Matthias will provide an update on the current situation in a minute after I briefly review the performance of each of our business areas.
So let's start with the Scandinavian free delivery operations where sales were down 8% at constant exchange rates, but profit were in favor, which reflect the fact that we had Olympics last year plus the positive net effect of the Swedish restructuring and a copyright settlement and despite the currency headwinds that we are facing. Our sales were in Norway and Denmark, but down in Sweden. The Swedish and Norwegian TV ad markets are estimated to have been down in the quarter, while the Danish market is estimated to have been stable. The commercial puts or linear gearing in some of our target groups was again down in each market with a significant part of the 20% fall in Sweden and 50% fall in Norway, reflecting the Olympic coverage last year. IMMA was down less than 5% and the margin levels, which are more comparable year on year, were down approximately 10% in Sweden and Norway and stable in Denmark.
Put and price are correlated. As we have said before, it is a supply and demand driven and reflects TV position as a national reach media delivering large scale predictable and measurable prime time audiences with an attractive return on investment for advertisers. So as flat, we have managed to increase our upfront annual agreement prices for 2015 in all three countries with the highest increase in Sweden. Our AVOD, our online video advertising sales were up 39% in the quarter, while our YouTube network, Splay, which is the biggest in Sweden, now has 96,000,000 views per month across the Nordics. That's up from 75,000,000 at the end of last year and more than 11,000,000 subscribers on more than 360 YouTube channels.
If we then move on to the Nordic Pay TV business, where revenue were up 4% at constant exchange rates, profits were slightly higher even when excluding the copyright settlement and despite the currency headwinds. While they continue to be the principal growth driver, the partnership with Google's Chromecast and retailer, Edgiganten, has been very successful and has now been prolonged for the rest of the year, while the partnership with Swedish Telco Tele2 is still in its early days, but sales are so far trending above the plan. The positive gearing trends that we have seen with Viaplay continue in Q1 as Viaplay had its 3rd best quarter ever in terms of net intake of paying customers. The number of styles streamed was up 73% compared to Q1 last year and up 18% too compared to the busy Q4 period. The main category drivers continue to be kid content, which was up almost 400% to last year and TV series, which were up 125%.
Moving now from VIABLADE to VIABLADE, the subscriber trends continued with growth in the 3rd party network subscriber base and decline in the satellite base. The rise in premium satellite ARPU also continued following the previously introduced price increases. We did have higher costs in Q1 than in Q4 due to the currency impact on content costs as well as selective online investment in kids and serious content. We have continued to strengthen our combined bioplay and Viasat content offering by adding the UEFA Champions League rights in Finland for the next 3 years and exclusive coverage of the widely anticipated world title fight between Floyd Mayweather and Manny Baccaccio. You can buy a ticket to this once in a lifetime event on ViaPlay for just ZAR4.99 So hope you will join us in Vegas on May 2.
To be clear though, given the currency impact that we have seen in Q1, which will continue, we have already accelerated the actions that we are taking to optimize our cost basis moving forward into Q2 and the rest of the year. If we then shift the focus now from the Nordics to the international operations where our 3 GB merchant market sales were up 9% at constant exchange rates as we continue to invest in our programming on the back of audience and market share gains, and we almost broke even in this seasonally low sales period. We had healthy sales growth in all but one of our 8 markets and are particularly happy that sales growth has headed into positive territory in Czech as comps have now eased. Our ABOR sales for the region were up 51%. Only 1 of the Baltic markets is estimated to have declined in the quarter and the Czech TV ad market is estimated to have been up, while the Bulgarian market is estimated to have been stable.
We have managed to increase our upfront price in 2015 in all three Baltic countries. Offfront prices in Czech are stable versus last year, while prices are down for Bulgaria as a result of the switch to the Nielsen Diehl meter system, which effectively had provided us with much more and bigger inventory and will provide a great opportunity moving forward as our media house sales package of our own 3rd party channels is now the number 1 in the markets. Now to our Payday operations in the emerging markets where sales were up 22% at constant exchange rates and driven by the consolidation of trade. Sales were up 2% on an organic basis as healthy growth in our channel business more than offset the impact of the geopolitical situation in Ukraine and the advertising ban on the Russian pay TV channels. Profits were down compared to last year due to the performance of our Ukrainian satellite business and the ongoing Russian ruble currency impact.
The number of mini pay subscriptions were up 6,000,000 since the beginning of the year and driven by the growth in both Viasat and Trace channels, while our Ukrainian satellite subscriber base was down compared to Q4. Moving forward, our sales and profits will be positively impacted by the consolidation of trade, but negatively impacted by the Advan and the depreciation of the ruble, as I mentioned before. There are many moving parts, but our ambition is still that the segment should be should reach breakeven for the full year. And finally, to NICE, entertainment and CX and MEG radio, where sales were down 1% on constant exchange basis, with double digit growth in our radio business being offset by lower revenues in NICE Entertainment due to tough comps. NICE had a strong Q1 in the Nordics last year but performed well internationally this year and especially the public our Latino business did well.
MGS continues to develop according to plan and facilitate our digital development across the group. Moving forward, our ambition is to deliver a profit for the segment in 2015 as continued investment in NGG, ex are offset by the profits from the Radio and the Content businesses. So in summary, for the group, another quarter of progress in our transformation with more people using our products than ever before. We have significant currency headwinds that we are taking actions to offset as much as possible. We also continue to invest in the businesses as the underlying operations are performing well.
And we are constantly reviewing the asset base to make sure we allocate our capital to the areas that offer the greatest potential and return. That concludes my comments on the results. But before we answer your questions, I will hand the call over to Matthias for an update on the current situation. So over to you, Matthias. [SPEAKER STEPHEN
ROBERT BINNIE:] Thank you, Jurgen, and good morning, everyone. I would like to give you a little bit of quick update on currency and how it's actually changed compared to what we saw last quarter when we had the conference call last time around. If we start with the Q1 impact, the negative impact from the strengthening U. S. Dollar was approximately SEK 40,000,000 and higher than we previously discussed.
This is mainly due to the timing of unhedged U. S. Dollar cost flowing through the P and L in February March, and they were slightly higher than anticipated. And also the fact that the dollar, as you remember, has continued to appreciate quite sharply after the conference call we had in February. The SEK 40,000,000 was largely equally split between the 2 Nordic segments, free TV and pay TV, and with only a smaller part impacting Central Eastern Europe segments.
The negative impact from the weak Russian ruble approximately SEK 25,000,000 in the quarter and in line with what we expected. And remember here that the Russian add down also obviously impacted as well. If we then look in the quarter on other net translation and transaction differences, they impacted profits in the quarter negatively by around SEK 10,000,000 combined. So the total currency impact year on year was negative SEK75 1,000,000 in Q1 as Jurgen previously discussed. In this slide, the underlying operating performance continues to be very strong as the operations actually absorb all of this negative FX impact.
If we then look at what we currently see for the remainder of the year and just to be clear as well, this is obviously a moving target that is in the Q1. But the purpose is more to help you to understand how the swings are rather than try to give a formal outlook as we know that the markets of course continue to be quite volatile. Given that both the balance ruble have strengthened recently against the kroner And based on the current spot rates and net of forward currency hedges, we would have an additional negative impact from the dollar for the rest of the year, but that would be offset by a lower negative effect from the ruble and those ones equally balance each other out. So if you look in the short term for Q2, the impact of the more expensive dollar cost would increase from SEK 40,000,000 in Q1 to approximately SEK 55,000,000 in Q2 as we see it now and then continue to gradually increase this year over the next quarters after that. The negative ruble impact of profits would have ever come down from the CHF 25,000,000 in Q1 to under CHF 20,000,000 for each of the remaining quarters of the year.
Other net translation and transaction effects are expected to be limited but slightly positive sorry negative. All in all, the combined full year impact of the dollar would be minus SEK 225,000,000 compared to SEK 200,000,000 as previously discussed, And the ruble would be around minus €75,000,000 compared to minus €100,000,000 as previously discussed, again with the reminder of the translation and the transaction effects being limited but negative. When we extend the outlook into 2016, the stronger U. S. Dollar increases the negative impact to around SEK 300,000,000.
But obviously, SEK 16 is still some we still have some time to work on this of course since it's more than a year down the road. But we are working on that as well. Finally, and as we highlighted also last quarter, the business is performing well with healthy underlying profit growth when you exclude these material FX impacts. However, we are where we are and we therefore continue to review our activities and efficiency levels, and these substantial current impacts only serve to accelerate this process that we're going through. That's all for my comments.
So back to you Jorgen.
Thank you, Matthias. So now we are ready to take everyone's question. As usual, we have a lot of people on the call today. We want to answer each of your questions. So please limit yourself to more than 2 questions, please.
Operator, can we have the first question?
Thank you, sir. Ladies and gentlemen, we are now ready to register The first question comes from Adrian De Saint Hilaire from Morgan Stanley. Please go ahead.
Yes, good morning. Sorry, good morning, everyone. So a couple of questions please. 2 of them. First of all, what do you think will be the net positive impact from restructuring in 2015 for Sweden and the free TV scan business?
First question. And second question, still again on the free TV scan business. Obviously, you had difficult comps in Q1, but shall we view the decline that you had in Q1, let's say, excluding the difficult comps as a sort of good run rate for the year? I mean, you must have a good visibility now on how the year will shape up for the free TV scanning business. So are we talking about a business declining 4% or 5% for this year?
Thank you very much.
Yes. Hi, Eirgen, here. Yes, first of all, when you look at the businesses and Q1, as I said, we had a strong performance in Norway, where we have invested as well into content, and we had good sales and the same goes for Denmark. So that is, of course, good news for us. And also, as I said, we have managed to increase prices all over in the Nordics.
So everything, of course, depends on how the rest of the year plays out also when it comes to the product performance. That is a bit early in all fairness to discuss. But I think the underlying thing we are seeing is that we had a strong quarter in Denmark and in Norway. And also when we see Q2 right now, we see that the traction is fairly strong to the product, particularly in Denmark and Norway. When it comes to the restructuring, as Matthias also said, that is an ongoing process.
And of course, what we want to do is to make sure that we spend the money the right way and of course are more focused on where to spend the money in order to make sure that we get the best return. So it is something we are looking at. And of course, that the currency issues that we are facing, of course, only promotes that we should do that even more focused. And that goes for the organization, which, of course, is focusing on this issue.
Okay. Thanks.
Thank you. And we will take our next question from Lisa Yang in Goldman Sachs. Please go ahead. Good morning. I'll have two questions.
I mean, firstly, what has been the decline in TV viewing on average by market in Scandinavia in Q1? And basically for the year, how much decline in TV viewing can you tolerate so that it can be offset by the price increase you just put through? And second question is on your capital allocation. I mean you've exceeded a number of small stakes, some of our businesses that you see on non core recently. And I was just wondering if there are kind of few more areas, a few more actions you could take to optimize your kind of portfolio of assets, especially since now the focus is more on digital rather than kind of geographical expansion?
Thank you.
Yes. On the first question on the product, I think as I said, we saw a product decline in Sweden of around 20% in the quarter. We saw 15% in Norway. But you have to bear in mind that, that also includes the Olympics, which, of course, took a lot of commercial viewers in to the quarter last year and they might not be to the same extent looking commercial television this year. So that's why we said if you look at March, which should be a somewhat normalized month, we have seen approximately 10% decline in some type of groups in Sweden, Norway and a stable put in Denmark.
And again, we don't know the put level going forward. I can't it's difficult for us, of course, to give you guidance on that. So therefore, whether the prices that we increase that we have managed to get through, whether that is sufficient and so forth, it's too early to say. When you look at the whole portfolio review, of course, that is very important for us to make sure that we are in the right areas, that we make sure that the businesses that we're having cater for the consumer trends that we are seeing. So it is an ongoing evaluation for from us, of course, to make sure that we understand what we keep and what we do more of and what we have seen like the Sapa or whatever have served its purpose.
So that is an ongoing process where we have a portfolio review.
But just to jump on your comments on the portfolios. I mean, would it still make sense to have those satellite operations Ukraine, for example, which are really undermining your growth? Would you consider doing anything there? Or
I think I don't want to be specific. But everything, of course, is, as I said, something you analyze. And if you on the other hand, if you talk about Ukraine specifically, of course, it's a very big market where you have a lot of satellite use. So that's the question how you believe that that market will develop in the future. But as I said, everything, of course, is under scrutiny.
That would be everything else would not be professional. So of course, we are looking at the business that we're having and understand where we want to put our money in the future. And yes, we have said all along the digital businesses, the change we see in consumer trends, of course, is a big focus area for us. And luckily, we managed to increase the group's digital sales by 33% this quarter. So that is an area, of course, we see great potential.
And the price increase in net terms is around high single digit? Yes.
We're not commenting on the price increases, but they are our products are strong. And the type groups that we're having are strong. So therefore, we managed to get the price increases. So they were good.
Okay. Thank you.
Thank you. We'll take our next question from Stefan Nielsen in SEB. Please go ahead.
Thank you, guys. I have two questions. I'll take them one at a time. Just trying to understand also on the Scandi Free2 market. It seems that you're also continuing to lose a lot of market share at least in Sweden.
I mean, are you have you changed your strategy in any way and are focusing much more on profits? And if that's not the case, what would we be willing to reinvest to try to regain at least some relative market shares?
Yes. When you look at the market shares then for Sweden, it is true that I think we are losing market share as it comes to Sweden. And of course, last year, we had the Olympics. But I think even without the Olympics as we see right now, I would say that we are losing share. And this is not on purpose.
We want to grow market shares. We and the situation has not changed. The issue is that we have a TV3 which is not as strong as we wanted. We have a TV6, which is strong. We have a TV8, which is strong.
And then TV10, we want to improve, of course. So it's the same situation that we are seeing. Phil, we managed to keep up well. We are the 2nd largest broadcaster in Sweden. If you look at the market shares in Norway, yes, we gained market shares because we grew sales in a market which we believe has been down.
And we grew for sure market share as well in Denver because we increased sales in Denver where we believe that the market at best would have been flat. So we are gaining market shares and that is of course an important measurement for us in order to see how successful our products are that we take market share. So the fact we don't take market shares in Sweden is not on purpose. We want to continue to invest in the product and take market share, but we need to find the relevant products.
Okay. So it's not that you cut down on your kind of prime time program or kind of reduce the hours where you really show good programming or just chasing kind of more selective market shares. That's not the case?
No, it's not the case. And you can see as well that some of the programs are performing very strong, super strong and some of it is not performing as we wanted it to be. But I think overall, I think we're talking about a 0.5 to 0.8 share. So it is not it's something you can manage. But yes, it is irritating and we want Swedish business to perform better.
We want to move our positions forward and to market shares That lies in the DNA.
Okay. Great. And then my second question regarding overviewing your portfolio. I'm Thinking about apart from CTC, if you would be forced to get out of the pay TV business in Russia, which it looks like, what happens to kind of the remaining pay to be assets and potentially some of the free to be assets as well like Africa? Will they still be core?
Do you still have kind of enough synergies if you lose the Russian business?
Yes. Stefan, it's very specific. I think I would answer a bit more generally. Of course, we are redoing the business as we said where we want to be. We have strategy review every year.
Of course, we will discuss with the Board what to be in and what we analyze constantly the businesses and where we see the opportunities are, where we want to invest more. So this is a process which goes on in order to make sure that we understand where to put our money. And as I said earlier as well, we see a lot of interesting movements in the digital space right now. That is, of course, something we want to make sure that we have the funds and we can be a relevant player there. To discuss specific our strategies for each of the businesses, at call, I think, is a bit tough.
So I think in general, yes, we are reviewing where we should be. We are, of course, taking the market conditions into consideration and the markets of the future outlook for these markets also. So there's a lot of things, of course, you look at when you decide where you want to be. But digital businesses is an area we have identified and there we want to do more.
But just a little less specifically, but if you get out of Russia entirely, will there be other parts of your Eastern European or non Nordic assets that become less core? Or is that entirely separate issues?
I can't. You can't make that conclusion. It depends on as well what you do in Russia and so forth. So that is not the conclusion you can draw. I think what we have seen as well is that we have continued to invest, particularly in 3 TV Eastern Europe where we are ahead of the curve as well when it comes to the digital development.
We grew our sales 51% in 3 gsV East in this quarter. So it is an opportunity. Trace is another example where we have invested and we have a lot of opportunities for many more products worldwide. So to draw the conclusion that of course we have some issues in one country like Russia and then we have skipped the whole strategy for other business, I think that is a bit harsh. But yes, we are looking constantly on how to optimize the portfolio and make sure that we get the best returns on the investments that we make.
That goes without saying.
Okay, great. Thanks.
And we will take our next question from Bill Darr in Danske Bank. Please go ahead.
Thank you. I just wanted to clarify a couple of things. So on top of the EUR 77,000,000 in positive one offs you recorded, we should add another €25,000,000 from the restructure and the copyright settlement, right?
Correct.
And thank you. And then also thinking about the actions that you are reviewing in order to compensate for the FX situation. Is that primarily through optimizing your content portfolio since it's that's by far the largest cost item overall?
No, it is abroad all the businesses. It is about efficiency and of course the operations, it's about efficiency in the marketing that we do. And of course, as well content to understand where we want to gamble now or where we want to invest and so forth. So there is all over actually that we want to make sure that we try to offset as much as we can on these issues we have.
Okay. Thank you. And then one final question. In terms of the puts in Sweden in particular, is there any quarter where you've identified sort of comp starts to normalize? So is that in Q2?
Or do you foresee continued sort of minus 10% in overall viewing over the coming months in the near term?
It's difficult to forecast, but that is why we decided as well to look at March, March of March, which didn't have this artificial boost when they because of the Olympics. So it is difficult to forecast. I think when you look around Europe as well, TV remains still very strong. And of course, it is a yes, a yes, continues to be a strong media. So but to forecast how the different target group will develop is a bit tough.
And again, the 10% we are talking about is in certain target groups. Then you have other target groups perhaps in the older demographics where you don't see the same pot decline. So what we have discussed now is some of the young tile groups where we see the biggest decline. These are the ones moving also then to the online world where we luckily have a lot of products, which you can see is growing fairly fast as well. So we capture at least some of them going out.
Okay. Thank you.
Thank you. We'll take our next question from Rasmus Engeberg in Handelsbanken. Please go ahead.
Yes. Hi, guys. I just wanted to ask you about the FX potential effects in 2016. Is that predominantly in pay TV? Or where is it predominantly going to impact you?
I think it's as we see it right now, it's largely similar between free and pay.
Okay. Right, right. And then on the you talk a lot about F Play from time to time. How what's the scale of that business in terms of revenues? Is it profitable?
And where is it accounted for? And what is your current share now?
I think it's accounted for as an associated company right now. It is profitable, but it's not an enormous profit nor and we're investing quite a lot on the back of trying to grow this business both outside Sweden and Scandinavia, but also, of course, expanding internationally outside Scandinavia as well, particularly with this new product we have launched called GoSnap, which is extremely promising product. If you look at the big scope of the whole MTG, it's not moving the needle enormously right now, but obviously the direction of the YouTube viewing and so on is only going one direction. It's an explosion in terms of usage and also top line growth, although from a small level.
Banks. And what is your ownership share?
It's just below 50%.
Okay. Is that something that you sort of think about consolidating eventually? Or what's your strategy for it?
I think long term, obviously, we want to consolidate and own more of this business. But I think it's also a question of making sure that guy who is running right our vehicle is extremely good and he has the potential of running it the way he wants.
And then just an nitty gritty What's the
best response from us, of course.
Yes. Sorry, just a nitty gritty question. What happened with the financial net in this quarter? It seems awfully large for having no debt more or less.
I think it's a combination of 2 things. 1 is that we obviously don't have any interest income from Marci on convertible any longer. So that was gone in Q4. And also the volume of the interest cost right now, it looks higher than it does before because of not a little bit technical, but the hedge contracts, there is an interest differential between the dollar interest and the Swedish krona interest that has gone a little bit. And that's what we record as unrealized, you could say, interest costs.
Okay. So you shouldn't expect this to be moving materially away, I think, from Q1. But it's not cash.
Okay. Cool. Great. Thanks.
Thank you. Our next question comes from Sami Sarkomianz in Nordea. Please go ahead.
Yes. I have one question regarding capital allocation. You talk about your ambition to optimize this. So far, we've been seeing mostly divestments. It could be that we'll also be seeing divestments regarding Russia.
In a way, you have been making the situation even worse, so you're holding even more cash today. How are you planning to fix this? Are you planning a major acquisition? Or should we expect a combination of small deals and increased shareholder remuneration? Thanks.
Yes. I think the focus we have of course is when it comes to acquisition is of course to make sure that it is in line with the strategy and the things that we see right now. And digital is an area which we definitely will focus on and that is an area and again it depends on the the opportunity. It is difficult to say whether it's large or small or whatever. I think Splay was one of the investments we made, that was a fairly small one, but has turned out to be a very good investment meaning that the business is growing in relevance and so forth.
So it is of course an area where we need as well to make sure that we become even more relevant. And that is not done only organically. That is also done through M and A. And that is, of course, the focus there we have. As you know, we acquired a big company from Sanomar.
As well in Bulgaria, we acquired NetInfo, which is a big digital holding, which has more video stuff than YouTube. So it is opportunities for us, of course, to broaden digital presence in our margins. That is what we are looking at.
Okay. Thanks.
Thank you. There's currently no more questions in the queue. I would now like to hand the call back to Mr. Jorgen Madsen Lindeman for any closing or additional remarks. Thank you.
So thank you all for your time today. Our AGM will be held on May 19 in Stockholm. So I hope to see you there, if not before. We will then announce our Q2 results on July 21. So thank you for your time and interest today, and I look forward to speaking to you again soon.
Thank you.
That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.