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 questions, at which time instructions for the question and answer session will be given. If any participant has difficulties hearing the presentation, please press star followed by zero for operator assistance. May I also remind you that you can find presentation slides for this call at mtg.com. I will now hand the call over to your host, MTG President and CEO, Jørgen Madsen Lindemann, who is joined on today's call by Group CFO, Mathias Hermansson.
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. Profits were stable compared to last year, when excluding the net positive effect of the restructuring in Sweden and the copyright settlement in Scandinavia. This is despite SEK 75 million of adverse currency headwinds and continued investment in our digital products. The Nordic markets continue to be a relevant and 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. Total video consumption is growing faster through online and mobile services. This is only happening first 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 TV play services, Viaplay, 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 Sappa, the Swedish cable operator, and our free TV 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. Thirdly, we are at the same time identifying and reviewing some complementary and scalable digital investment opportunities and have 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 SEK 50 million 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 Russian 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. Processes have been established and are underway.
As you would have seen, we have designated two new members to the CTC board to take the process forward with the advisory team that has been put in place. We will of course, keep you updated as we move forward. Mathias will provide an update of the current situation in a minute after I briefly review the performance of each of our business areas. Let's start with the Scandinavian free TV operations, where sales were down 8% at constant exchange rates, but profit was stable, which reflects 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 up 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 put or linear viewing in some of our target groups was again down in each market with a significant part of the 20% fall in Sweden and 15% fall in Norway, reflecting the Olympic coverage last year. Denmark was down less than 5% and the March 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 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.
At 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 or online video advertising sales were up 39% in the quarter, while our YouTube network, Splay, which is the biggest in Sweden, now has 96 million views per month across the Nordics. That's up from 75 million at the end of last year, and more than 11 million subscribers on more than 360 YouTube channels. If we then go 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. Viaplay continued to be the principal growth driver.
The partnership with Google's Chromecast and retailer Elkjøp 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 plan. The positive viewing trends that we have seen with Viaplay continue in Q1, as Viaplay had its third-best quarter ever in terms of net intake of paying customers. The number of started streams was up 73% compared to Q1 last year and up 18% compared to the busy Q4 period. The main category drivers continue to be kids content, which was up almost 400% to last year, and TV series, which were up 125%. Moving now from Viaplay to Viasat, the subscriber trends continued with growth in the third-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 series content. We have continued to strengthen our combined Viaplay and Viasat content offering by adding the UEFA Champions League rights in Finland for the next three years and exclusive coverage of the widely anticipated world title fight between Floyd Mayweather and Manny Pacquiao. You can buy a ticket to this once-in-a-lifetime event on Viaplay for just $4.99. Hope you will join us in Vegas on May 2nd.
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 bases moving forward into Q2 and the rest of the year. If we shift the focus now from the Nordics to the international operations, where our free-to-view emerging 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. We almost broke even in this seasonally low sales period. We had healthy sales growth in all but one of our eight markets and are particularly happy that sales growth has headed into positive territory in Czech as comps have now eased. Our AVOD sales for the region were up 51%.
Only one of the Baltic markets is estimated to have declined in the quarter. 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. Upfront prices in Czech are stable versus last year, while prices are down for Bulgaria as a result of the switch to the Nielsen People Meter system, which effectively has provided us with much more and bigger inventory and will provide a great opportunity moving forward as our media sales package of our own and third-party channels is now the number one in the markets. Now to our pay-TV operations in the emerging markets, where sales were up 22% at constant exchange rates and driven by the consolidation of Trace.
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 million 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 Trace, but negatively impacted by the ad ban and the depreciation of the ruble, as I mentioned before. There are many moving parts, but our ambition is still that the segment should reach break even for the full year.
Finally, to Nice Entertainment and [CH] and MTG 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 first quarter in the Nordics last year, but performed well internationally this year, and especially the Paprika Latino business did well. MTG 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 MTGx are offset by the profits from the radio and the content businesses. 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. Before we answer your questions, I will hand the call over to Mathias for an update on the currency situation. Over to you, Mathias.
Thank you, Jørgen, 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 US dollar was approximately SEK 40 million and higher than we previously discussed. This is mainly due to the timing of unhedged US dollar cost flowing through the P&L in February and March. They were slightly higher than anticipated. 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 million was largely equally split between the two 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 was approximately SEK 25 million in the quarter and in line with we expected. Remember here that the Russian ad ban 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 million combined. The total currency impact year-over-year was negative SEK 75 million in Q1, as Jørgen 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, as is in the first quarter.
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 dollar and ruble have strengthened recently against the SEK, 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. If you look in the short term for Q2, the impact of the more expensive dollar cost would increase from SEK 40 million in Q1 to approximately SEK 55 million 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 on profits would have even come down from the SEK 25 million in Q1 to under SEK 20 million for each of the remaining quarters of the year. Other net translation and transaction effects are expected to be limited but slightly negative. All in all, the combined full year impact of the dollar would be minus SEK 225 million compared to SEK 200 million as previously discussed, and the ruble would be around minus SEK 75 million compared to minus SEK 100 million as previously discussed. Again, with a 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 million. Obviously, 2016, we still have some time to work on this, of course, since it's more than a year or since a year down the road.
We are working on that as well. Finally, 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 currency impacts only serve to accelerate this process that we're going through. That's all for my comments. Back to you, Jørgen.
Thank you, Mathias. 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, please limit yourself to no more than two questions, please. Operator, can we have the first question?
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, you will enter a queue. Should you wish to cancel, please press star two. The first question comes from [Adrien de Saniler] from Morgan Stanley. Please go ahead.
Yes, good morning. Sorry. Good morning, everyone. A couple of questions, please. Two 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 Scandi business? First question. Second question, still again on the free TV Scandi business. Obviously, you had difficult comps in Q1, 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? You must have a good visibility now on how the year will shape up for the free TV Scandi business. Are we talking about a business declining 4%, 5% for this year? Thank you very much.
Hi, everyone. Jørgen here. First of all, when you look at the businesses Q1, as I said, we had a strong performance in Norway, where we have invested as well into content, we had good sales, the same goes for Denmark. That is, of course, good news for us. Also, as I said, we have managed to increase prices all over in the Nordics. 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. I think the underlying thing we're seeing is that we had a strong quarter in Denmark and in Norway, 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 Mathias also said, that is an ongoing process. 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. It is something we are looking at, and of course, the currency issues that we are facing, of course, only promotes that we should do that even more focused. That goes for the whole organization, which, of course, is focusing on this issue.
Okay, thanks.
Thank you. We will take our next question from Lisa Yang in Goldman Sachs. Please go ahead.
Good morning. I will have two questions. Firstly, what has been the decline in TV viewing on average by market in Scandinavia in Q1? Basically, for the year, how much decline in TV viewing can you tolerate so that can be offset by the price increase you just put through? Second question is on your capital allocation. You have exited a number of small stakes of some more businesses that you see are non-core recently. I was just wondering if there are kind of a 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 geographical expansion. Thank you.
On the first question on the put, I think as I said, we saw a put decline in Sweden of around 20% in the quarter. We saw 15% in Norway. You have to bear in mind that also includes the Olympics, which of course, took a lot of commercial viewers into the quarter last year, and they might not be to the same extent looking commercial television this year. That's why we said if you look at March, which should be a somewhat more normalized March, we have seen approximately 10% decline in some target groups in Sweden and Norway, and a stable put in Denmark. Again, we don't know the put level going forward. It's difficult for us, of course, to give you a guidance on that.
Therefore, whether the prices that we increased, 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. It is an ongoing evaluation from us, of course, to make sure that we understand what we keep and what we do more of and what we are seeing, like the Sappa or whatever have served its purpose. That is an ongoing process where we have a portfolio review.
Just to jump on your comments on the portfolios. Would it still make sense to have those satellite operations in 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. 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 viewers. That's the question, how you believe that that market will develop in the future. As I said, everything, of course, is under scrutiny. Everything else would not be professional. Of course, we are looking at the business that we're having and understand where we want to put our money in the future. 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. Luckily, we managed to increase the group's digital sales by 33% this quarter. That is an area, of course, we see great potential.
Okay. The price increase in net terms is around high single digits?
Yeah, we're not commenting on the price increases, but our products are strong, and the target groups that we're having are strong, so therefore we managed to get the price increases through. They were good.
Okay. Thank you.
Thank you. We'll take our next question from Stefan Nelson 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 free TV market, it seems that you're also continuing to lose a lot of market share, at least in Sweden. Have you changed your strategy in any way and are focusing much more on profits? If that's not the case, what would be willing to reinvest to try to regain at least some relative market shares?
Yeah. When you look at the market shares then for Sweden, it is true that I think we are losing market shares when it comes to Sweden. 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 shares, and it is not on purpose. We want to grow market shares. The situation has not changed. The issue is that we have a TV3, which is not as strong as we want it. We have a TV6, which is strong. We have a TV8, which is strong. TV10, we want to improve, of course. It's the same situation that we're seeing still. We managed to keep up well. We are the second largest broadcaster in Sweden.
If you look at the market shares in Norway, yeah, we gained market shares because we grew sales in a market which we believe has been down, and we grew for sure market shares well in Denmark because we increased sales in Denmark, where we believe that the market at best would have been flat. 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 shares. The fact that we don't take market shares in Sweden is not on purpose. We want to continue to invest in the product and take market shares, but we need to find the relevant products.
Okay, it's not that you cut down on your 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. 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. I think overall, I think we're talking about a 0.5%-0.8% share, so it is something you can manage. Yes, it is irritating, and we want Swedish business to perform better. We want to move our positions forward and take market shares. That lies in the DNA.
Okay, great. 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-TV assets and potentially some of the free-to-air assets as well, like Africa? Would they still be core? Do you still have kind of enough synergies if you lose the Russian pay-TV business?
Yeah, it's very specific. I think I would answer a bit more generally. Of course, we are reviewing the business, as we said, where we want to be. We have strategy review every year, of course, that we discuss with the board what to be in and we analyze constantly the businesses and where we see the opportunities are, where we want to invest more. This is a process which goes on in order to make sure that we understand where to put our money. 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 this call, I think is a bit tough.
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. There's a lot of things, of course, you look at when you decide where you want to be. Digital businesses is an area we have identified, and there we want to do more.
Yeah, 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?
You can't make that conclusion. Depends on as well what you do in Russia and so forth. 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 free-to-view Eastern Europe, where we are ahead of the curve as well when it comes to the digital development. We grew our sales 51% in free-to-view East in this quarter. It is an opportunity. Trace is another example where we have invested, and we have a lot of opportunities for many more products worldwide. To draw the conclusion that, of course, we have some issues in one country like Russia, then we have skipped the whole strategy for other business, I think that is a bit harsh.
Yes, we are looking constantly on how to optimize the portfolio to make sure that we get the best returns on the investments that we make. That goes without saying.
Okay, great. Thanks.
As a reminder, to ask a question, please press star one. We will take our next question from Bilal Aziz in Danske Bank. Please go ahead.
Thank you. I just wanted to clarify a couple of things. On top of the SEK 77 million in positive one-offs you recorded, we should add another SEK 25 from the restructuring and the copyright settlement, right?
Correct.
Thank you. 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 that's by far the largest cost item overall?
No, it is abroad, all the businesses. It is about efficiency and of course your operations is about efficiency and 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. It 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. One final question. In terms of the puts in Sweden in particular, is there any quarter where you've identified where comp starts to normalize? 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 decide as well to look at March, month of March, which didn't have this artificial boost because of the Olympics. It is difficult to forecast. I think when you look around Europe as well, TV remains still very strong. Of course, it continues to be a strong media. To forecast how the different target group will develop is a bit tough. Again, the 10% we're talking about is in certain target groups. You have other target group, perhaps in the older demographics, where you don't see the same pace decline. What we have discussed now is some of the young target 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 Engberg in Handelsbanken. Please go ahead.
Yes. Hi, guys. I just wanted to ask you about the potential effects in 2016. Is that predominantly in pay TV or where is it predominantly going to impact you?
I think as we see it right now, it's largely similar between free and pay.
Okay. Right. Then, you talk a lot about Splay from time to time. What's the scale of that business in terms of revenues? Is it profitable and where is it accounted for? 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. 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've launched called GoSnap , which is an extremely promising product.
If you look at a 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. Explosion in terms of the usage and also top line growth, although from a small level.
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. I think it's also a question of making sure that the guy who is running it right now, Vigor, is extremely good, that he has the potential of running it the way he wants.
Just a nitty-gritty-
He has good support from us, of course.
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 two things. One is that we obviously don't have any interest income from our E.ON convertible any longer. That was gone from Q4.
Yes.
The volume of the interest cost right now, it looks higher than it does before because of, now it becomes a little bit technical, but the hedge contracts. There is an interest differential between the U.S. dollar interest and the Swedish krona interest that has grown a little bit, and that's what we record as unrealized, you could say, interest cost.
Okay.
You shouldn't expect it to be moving materially away, I think, from Q1. It's not cash.
Okay. Cool. Right. Thanks.
Thank you. Our next question comes from Sami Sarkamies in Nordea. Please go ahead.
Yes. I have one question regarding capital allocation. You talk about your ambition to optimize this. Far, we've been seeing mostly divestments. It could be that we will 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 smaller deals and increased shareholder remuneration? Thanks.
I think the focus we have, of course, 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. Digital is an area which we definitely will focus on. That is an area, and again, it depends on 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. 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&As, and that is, of course, the focus area we have. As you know, we acquired a big company from Sanoma. As well in Bulgaria, we acquired NetInfo, which is a big digital holding, which has more video starts than YouTube. It is opportunities for us, of course, to grow the digital presence in our market, and 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. Jørgen Madsen Lindemann for any closing or additional remarks. Thank you.
Thank you all for your time today. Our AGM will be held on May the 19th in Stockholm, so I hope to see you there, if not before. We will then announce our Q2 results on July the 21st. 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.