Thank you, operator, and good morning and good afternoon, everyone. We have had a busy start to 2014, that's for sure, and a number of major highlights, not least of which was our coverage of the Sochi Winter Olympics in Sweden and the Baltics. Not only was this the most-watched Winter Olympics ever and the most successful for Sweden in terms of number of medals, we showed every single minute of the games on our channels and online products. The result, record high free TV viewing figures and Viaplay customer intake, which we are very pleased with. The second highlight of the quarter was the exclusive multi-year content acquisition deal we struck with Sony Pictures. This is the first deal of its kind, as we have licensed Sony's fantastic content for all platforms across Scandinavia.
Further, we have merged Viaplay and MTGx to create a leading digital entertainment powerhouse to drive the ever-increasing level of online video consumption. Our goal is clear: to be the leading digital entertainment house in each of our markets, which we'll achieve through both organic development, such as our OTT service, Viaplay, and acquisitions like NetInfo in Bulgaria and Splay in Sweden. All of these three key developments demonstrate in different ways the benefit of our integrated structure and how we are shaping the future of entertainment with our partners and for our customers. We simply want to make fantastic content, channels, and services available as broadly as possible. This is why we have signed new long-term distribution deals with a wide range of key distribution partners, including Com Hem, Telia, Box in Denmark, and now also Altibox in Norway.
Our sales grew 13% at constant exchange rating to one as the investment that we made last year accelerated our development. The growth was driven by both organic growth of 5%, as well as the contribution from acquired businesses and Nice Entertainment in particular, where we had audience share gains in most regions, and our subscriber growth was also positive in almost all markets. Our pay TV business reported higher sales and profits in both the Nordic and emerging markets, following the investments that we have made. Our overall profitability was impacted by the investments that we have made in content in general and the Olympics in particular, also by our ongoing expansion with new channels in Norway, Tanzania, and the seasonality effect of our now much larger content business and our group-wide digital ventures.
These investments that we have made and our strong balance sheet are a fantastic foundation and position as well to grow future earnings and returns. Before we get into the operating review, I also want to say right up front that we are carefully monitoring the effects of the geopolitical situation in Ukraine. We are committed to our investments and operations in the CIS region, given the substantial market opportunity and our well-established business positions. As always, we take the long-term view here. In the short term, we have so far seen little commercial impact, weakening in the local currencies will impact our results moving forward. CTC Media has also taken the appropriate steps to govern its relationship with its minority shareholder that is affected by the sanctions.
Now as usual, let's briefly review the performance of our businesses and start with the Scandinavian free TV operations, where sales accelerated due to our exclusive Olympic coverage in Sweden. We had a 60% commercial share viewing in Sweden during the three weeks of the games and fully capitalized on the event with both advertising and sponsorship sales. Ad markets remains mixed. The Swedish and Norwegian TV ad markets are both estimated to have been up, supported by the boost in media spend around the Olympics. The Danish market is estimated to have been down again. We have now closed the upfront deals for 2014 with low to mid-single digit net price increases in all three markets. As usual, these annual deals are expected to account for roughly two-thirds of the overall inventory. Our commercial audience shares were up in Sweden and Denmark, but down in Norway.
Sweden was obviously boosted by the Olympics. Denmark reached its highest Q1 level since 2000, despite the Handball World Championship being shown on TV 2 in January, while Norway was down as TV 2 broadcast the Olympics in Norway. We have, however, recently signed an agreement to make the new channel, TV6 Norway, available to all of Altibox customers, which will increase the channel penetration from 64% to 76%. We have, in addition to that, renewed our distribution agreement with Com Hem in Sweden and secured additional distribution for our second largest Danish TV channel, TV3+, which will be available in the Danish Boxer terrestrial network from the beginning of July 2014. Our online revenues have also continued to grow in each of the three Scandinavian countries, and the number of started streams were almost up 70% compared to last year.
The 9% OpEx growth reflected the investment in the Olympics, overall program investments, and the launch of TV6 in Norway, where revenues were up 7% at constant exchange rates. The contribution from the Danish TV3 sports channels has now annualized, meaning the organic growth accelerated from 4% in recent quarters to 7%. The main growth engine here continues to be Viaplay, where the Olympics coverage in particular drove record subscriber intake. Viaplay usage also rose sharply with the number of started streams up almost 50% in Q1 when compared to Q4. Our Olympic coverage also drove a record high number of Viaplay subscribers using Viaplay, which we know reduces churn by providing a TV everywhere solution. Over the last year, we have doubled the number of subscribers on our satellite platform who are now also active Viaplay subscribers.
Furthermore, in Sweden, this penetration rate increased by over 40% in Q1 compared to Q4. The premium subscriber base when excluding Viaplay, did grow again on a quarter-on-quarter basis for the second consecutive quarter, with the growth in third-party subscriber base more than compensating for the slight fall in the satellite base. We do still, however, expect our satellite subscriber base to continue to decline and only be partly offset by the growth in our third-party base in 2014. However, more importantly, we do expect that our total subscriber base when including Viaplay, will continue to show healthy growth. Segment OpEx was up 7% as we invested in content and the Olympics in particular, and in the overall development of Viaplay. Profits were up year-on-year in the quarter for the first time in two years, and the EBIT margin was stable at 11%.
We continue to expect margin expansion for the full year when compared to 11.6% in 2013, given the positive sales and profit momentum that we have generated. We move on to the free TV emerging market business, where sales were down compared to last year, given the increased competition and tough comparables in the Czech Republic, which we flagged for last quarter. However, the Baltics, Bulgaria, and Ghana all delivered double-digit growth. The bundling of third-party channels in our offering in Czech and Bulgaria from the beginning of last year is now, of course, also in the comps. The 14% sales decline in the Czech Republic reflects the exceptional growth last year and our main competitor investing in programming and dropping prices in order to regain share lost last year. We can see that our sales will be down also in Q2.
Our commercial share viewing reached a new all-time high level for Q1 in the Baltics. Bulgaria was slightly down from a very high base, and we continued to face rating pressure in the Czech Republic. Segment OpEx was up 9% following the Olympics coverage in the Baltics, the launch of TV1 channel in Tanzania, and the consolidation of NetInfo in Bulgaria. Advertising markets remain volatile, but we do expect audience and advertising market share gains in almost all markets for the full year. We move on to our pay-TV operations in the emerging markets, where sales were up 10% at constant exchange rates and driven by higher MiniPay subscription volumes. The wholesale MiniPay business added close to 3 million subscriptions in the first quarter alone and almost 10 million compared to last year.
Our satellite pay-TV subscriber base declined by 27,000 compared to the previous quarter, driven by seasonality, but also the ongoing uncertainty surrounding the licensing status for Rutube. OpEx was down slightly, operating profits were up significantly. As I mentioned previously, the Russian and Ukrainian currencies have weakened substantially due to the geopolitical crisis. If currency exchange rates continue at this level, we will feel adverse translation and transaction effects. This is why we are not currently reiterating our previous expectation for segment profits to be up for the full year.
If currency exchange rates were to prevail for the rest of the year, the impact on the projected sales would be approximately SEK 75 million, of which roughly two-third or approximately SEK 50 million would flow through to EBIT, as the vast majority of costs are in euro, dollars, kronas, or pounds, whereas roughly a third of sales are denominated in rubles or hryvnia. Finally, to the Nice Entertainment, MTGx, and Radio segment, where sales more than doubled at constant exchange rates following the acquisition of Nice, DRG, and Novemberfilm. Sales were up 6% on an organic basis as positive growth in our content production business more than compensated for lower sales in our radio business.
Our Paprika Latino and Strix Drama production business both had good quarters, and Nice Drama's Scandinavian series, Thicker Than Water, airing on SVT, which is one of The Hollywood Reporter's 10 hottest drama series, achieved higher viewing figures in its first season than the Danish drama The Bridge, which later became a global hit. MTGx continues to develop according to plan, and our new AVOD platform has been rolled out across seven markets now. MTGx also helped deliver the most digital Olympics ever by launching a new dedicated Olympic website and mobile app during the Olympics. We have also relaunched our website and related app. Segment profitability was impacted as expected by our ongoing investment in the MTGx digital venture, but also by the seasonality of our now substantially larger content production and distribution business. In summary, Q1 2014 was a very significant quarter for MTG.
We have delivered another quarter of double-digit growth and our highest Q1 sales ever with our investments generating accelerated momentum. New content, new channels, new digital service, new countries, and new deals with third-party content providers and distributors. We are making our business more and more fit for purpose and our products more and relevant, and we are future-proofing our business by shaping the future of entertainment. This is also ensuring that we become the leading digital entertainer in each of our markets. That completes my comments on the operational performance. Now over to you, Mathias.
Thank you. As you've seen, we reported 13% revenue growth at constant foreign exchange rates, which was the second consecutive quarter of double-digit growth. Our organic growth of 5% continues to be at the upper end of our peer group. OpEx was up 17% at constant FX and 9% on an organic basis, which reflected the acquisitions we made and was also driven by our investment in the Winter Olympics, new channels, and MTGx, which is our three strategic growth drivers, the content, geographical expansion, and the digital investment. Our operating profits are, of course, impacted by these investments, but it is these investments that are and will drive our future growth in both revenues and profits.
As Jørgen said, we are tracking according to plan, and you can see that in the continued high organic growth level, and that we now have, for example, started to see the EBIT growth coming back again year-on-year in our Nordic Pay TV business. This is the first time, I think, in two years that we see that, which is very positive for us. CapEx levels have also increased as predicted due to the investments that we're making in our new playout center in the U.K., our Viaplay platform, and all the digital ventures in MTGx. They all continue to be kept at a low single-digit percentage of revenues as before. Our cash flow from operations totaled SEK 195 million in the quarter. This is down SEK 74 million from last year, which is a reflection of the earnings development.
Our cash conversion level continues to be high, with 76% of the earnings converted into operating cash flow. As Jørgen mentioned, we are monitoring the impact of the Crimean crisis in terms of operational currency and asset value impact. None of these, of course, affect our commitment to the region due to all the potential that Jørgen mentioned. We also, of course, committed to all the operations and investments we are doing. We ended the quarter with a net debt of SEK 738 million, which corresponds to 0.4 times 12 months trailing EBITDA. We are now proposing our highest ever annual cash dividend of approximately SEK 700 million, which is equivalent to around 64% payout ratio.
We have over the last six months refinanced the group on very attractive levels and diversified our overall funding structure by issuing our first domestic bond in the quarter and initiating a commercial paper program. This provides us with a platform for further investments in long-term growth and sustainable shareholder value creation. With that, back to you, Jørgen.
Thank you, Mathias. That concludes our comments on the results, and we will now be happy to answer your questions. As always, we have a lot of people on this call today, and we want to answer each of your questions. To allow time, please limit yourselves to no more than two short questions each. Operator, can we have the first question, 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 a queue. Should you wish to cancel, please press star two. We will now take our first question from Martin Arnell of ABG Sundal Collier. Please go ahead.
Yes. Hi, guys. I'd like to start off by asking a question on Viaplay. When you get a lot of new customers on board due to the Olympics, what kind of churn should we expect on those newcomers after the event?
Yeah, as you say, there was, of course, fantastic news that we got a lot of new customers into Viaplay. I think what we can see right now is that we are getting more and more customers every day on Viaplay. We can also see actually that the usage of Viaplay, as we mentioned, the started video streams was up significantly in Q1. I think that is good news that we get more customers on Viaplay every day.
Would you say that you have a higher intake after the event than before the event, or?
There's no doubt that the peak, of course, was during the event. That goes without saying that people, they understood that it was a very interesting proposition that we had. We see as well the usage not only being up during the Olympics but also continued to be up in March. That is very good news for us.
Okay, thanks. Just one more question on Free-TV Scandinavia. Are you still expecting mid-single digit cost growth for the full year ex the Olympics?
Yes, we do. It is during the Olympics, yes.
Okay. Just a final question from me. On the Czech Republic, what kind of market development are you seeing in that country?
It is very difficult to say right now. We definitely believe that the market, as it looks right now in Q1, it looks like they will be up. We need to understand the market, and we need to understand the pricing further from CME before we can say anything about that.
Okay. Thank you, guys.
Our next question comes from Adrien de Saint Hilaire of Exane. Please go ahead.
Yes. Good afternoon, everyone. A few questions, please. If you look at group level, sales were up 5% organically, costs were up 9% organically. Obviously, a lot of this comes from the Olympics. What I was wondering, if and when you expect this trend of cost going higher than sales to reverse, maybe as early as Q2, or if maybe Q2 will be still a quarter of investments? It's the first question. Second question, regarding the other divisions, where losses seems to have been a bit higher than expected. Is that due to the phasing of investments? Could you maybe help us understand how much losses we should expect for the full year in that overall division? Thank you very much.
Hi, Adrien. Mathias here. On the first question, I think it's difficult to give guidance like that, but our ambition, of course, is to get back to growing EBIT as soon as we possibly can. That's of course the intention, and we see that positive trend in one of the segments right now where we made a lot of investments, Pay TV Nordics. Yes, the ambition is to get back, but when and how quickly, that we have to see. On the second question, on the other business segments, I think the simple statement there is that it's mainly due to seasonality, which is probably different than what people have expected.
When it comes to the digital investments, there is no seasonality in that, so that's going according to plan, and it's largely stable across the quarters and half years, in line with what we discussed in the last quarterly call as well. I think that answered the question.
Thanks, Mathias. Regarding the second part of the question, which is how much losses you expect for the full year in that division. I'm saying losses, but maybe it could be profits. Since you started with losses, I'm assuming that the full year will be loss-making.
We don't expect losses. In this business, we acquired Nice, and we believe that that is going to come with decent profits for us.
Right. You expect the overall other business to be profitable in 2014, is that correct?
That's our ambition, yes.
Okay, cool. Thank you.
Our next question comes from Bile Daar of Danske Bank. Please go ahead.
Thank you. Just a follow-up on the other business. Should we interpret that the seasonality primarily is driven by MTG Studios and then Nice? Could you just highlight and remember, reiterate which quarters that are of most significance? Is it Q2 and Q4 as in the free TV business?
You're right. It's a content business which has the seasonality. Given that we increase the scale of the business, that becomes more apparent now, I think. The quarters, it's probably more all three quarters, Q2, Q3, and Q4, actually. The reason why Q1 is normally weaker is that there's not much activity because it's so dark up here in the north. If you compare us with, for example, other Southern European broadcasters, a little bit more stable seasonality. The way to remember is that we have a percentage of completion when we take in revenues and profits as a revenue recognition principle, and that's why you see these swings.
Okay, thanks. On Free-TV Scandinavia, could you just mention how was the performance in terms of audience shares post the Olympics? Are you still seeing some evidence of positive implications coming into Q2?
Yeah. I think what we saw, of course, during the Olympics was a spike, in particular in Sweden, obviously, which was during the Olympics. Therefore, Sweden grew in the quarter. Denmark, they had a tougher start because we had the handball in home turf in Denmark, and that went very well for the public broadcaster. They managed to come out of the quarter also growing, and the best quarter since 2000. Norway, obviously, was affected that they didn't broadcast the Olympics in Norway. That was on TV 2. Therefore, that was the reason why they did that.
Okay. One final question. I think last report you said that Pay TV Nordics would suffer from adverse earnings impact from the Olympics, but the EBIT in absolute terms is up year-over-year. Should we interpret that your outlook for Pay TV Nordics now is stronger than it was three months ago?
I think if you look at the margin going from Q4 to Q1, you see that there is a margin drop there. I don't think we have any specific view on whether it's stronger or weaker than we thought before. I think we're tracking according to plan.
Okay. Thank you.
Our next question comes from Stefan Nelson of SEB. Please go ahead.
Thank you. It's a bit of a follow-up on the other guy's questions. Maybe just could you just give us some feel for what, if you were to adjust for different events in Q1, what the underlying ratings trend would be in the Nordic markets? What makes you confident that you will gain rating share for the year? Is it more ambition or are there any specific steps that we should think about that will drive this growth?
If you look at that, different things impact the rating, of course. As I said, we have, for instance, in Norway, we have increased the penetration now of the new channel that we have launched, TV6, by the new deals that we have made, the distribution deals. Of course, that should help our performance going forward in Norway as well. In Denmark, we have also increased the penetration, for instance, for our TV3+, channel now, that goes into Boxer in the terrestrial network. That, of course, should help as well. There are, of course, both product enhancement, we believe and, of course, also the structural things where we can gain penetration that is helping our performance in terms of commercial share as well.
Okay. Regarding the underlying trends in Q1, if you were to adjust for especially Sweden and Norway, I guess, on two opposites, what would be the other underlying ratings development in the quarter?
It's a bit difficult to say because, in all fairness, we didn't invest that much own production during the Olympics in Sweden you can say. I think in the Danish market, we have seen a very strong March, and we've seen a strong period as well in Norway some of the days. Sweden, we see, I would say a bit more troublesome TV3 because TV4 is doing good right now. Still, we have a very strong growth in the quarter as such, and that is, of course, what we are focusing on.
Okay, great. My second question is just on the pay TV Nordic trends. Could you comment a bit? Do you think that there is a lot of churn prevention, specifically in Q4 and Q1, on the traditional subscriber base that may reverse going forward? Second of all, the ARPU that is, I guess, declining sequentially, if that reflects some kind of cord shaving on your subscriptions as well, that is offsetting the price increases from last year.
Yeah. No, I think the positive thing is now that we see that people are using the products more and more. That is what I said, that we have Viasat subscribers now using the multi-screen service even more. That, of course, is an enhancement of the product. We do not expect to see an acceleration in churn after the Olympics, whatever. That is not something that we foresee, on the contrary.
Okay. On the ARPU?
Yeah. Can you say that again? I'm sorry.
No, just on the ARPU that was declining sequentially. Despite the price increases last year, if that reflects some kind of cord shaving within your subscriber base?
No, we don't see that. You can see that because we're increasing the base. If you look at it as such, you can see that combined, we are increasing the premium segment as well. Now that all our Viasat customers, all the core customers, they do have Viaplay as a multi-screen service. There's no reason for them to change all the packages. We don't see that in our subscriber base right now.
Okay, thanks.
Our next question comes from Lisa Yang of Goldman Sachs. Please go ahead.
Hi, good afternoon. My first question is on Free-TV Scandinavia. I think you grew your revenue by 4% despite the Olympics, which might look a bit light. How do you see the rest of the year without the Olympics? How do you expect to accelerate the growth? Or should we expect a kind of slowdown in the coming quarters? Or does that just reflect general kind of market softness? My second question is on the tax rate. Looks like the tax charge was pretty high. Are there any specific reasons for that, and how do you see your tax rate for the full year? A third question, if I may, is again on Eastern Europe. It looks like the markets have bottomed out. Most markets are kind of turned positive. Is that the general trend you're seeing and you continue to see going into Q2?
Thank you.
Yeah. When it comes to the market as such in Scandinavia, I think a big surprise for us, in all fairness, in Q1 was, of course, that the Danish market decided to go down. That was not part of the plan. Of course, you could argue that it went down less than last year, so at least we see somewhat positive trends in that respect. The Danish market to go down, that we didn't anticipate, to be honest. That explains, of course, also the performance in terms of sales. I think we were growing. Going forward, it's very difficult to say. What we have, of course, is that we have the IRM figures, and the IRM figures suggest that the Swedish market should go from a flat market last year to a growth of 1.7% this year. That is what they're saying right now.
On the Norwegian market, which was around 4% last year, should grow to a 2.5% growth per year according to the IRM figures. We don't have any forecast for the Danish market, it is a bit difficult for me to give you any idea there. Still, as I said to you, it should not at least have the same decline as we have seen last year. That we don't expect. If I may ask you a third question, Mathias will answer your second question. When it comes to emerging markets or Eastern Europe, particularly, it's not that we see the markets have changed. The visibility, unfortunately, is still fairly low. We have had very strong performance for our channels. That is why we have grown double digits. Ratings has been good. That is why we have taken shares.
I don't think we can conclude at least that the markets are doing so much better in Eastern Europe yet.
Okay. I'll take the tax question, which was very high in the first quarter. I think for the full year, we still expect it to be in the range of 25%-30%. I think the reason why it was high in the first quarter is that it's normally a very small quarter and all the investments we're doing in, for example, in Africa, Ukraine, Russia, et cetera, we are investing money, so we're losing money, and we don't value those tax losses. And that's why we have an proportionate high impact from that. That's the simple answer. Without those in the first quarter, I can imagine the underlying tax rate would have been 23% without those effects. But of course, those ones we will have over the course of the year as well. You cannot just take the 23% from that for that purpose.
Okay, thanks very much.
Our next question comes from Mikael Laséen of Carnegie. Please go ahead.
Hi. I have a question regarding the new deals that you have with Com Hem and Telia. Can you say something what you have accomplished in these deals broadly? It's sort of new for you.
Yeah. It is of course, a continuation of what we already have with them. Of course, after so many years together, you sit down and you find out how you can enhance the cooperation. That is in many different areas, where there is a connection to common ideas on sales activities and so forth and channel launches and so forth. It is different actually for the different deals. I think good for us is, of course, that we have a very strong partnership with these partners. Of course, they see the value of the content investment that we have made, and particularly around the Olympics. Of course, it was interesting for them that now we had more Olympics, and we also had the opportunity to offer that in different shape.
It is different range of activities and enhancement of the contracts that we have made. We have a very good relationship with the partners, and they are very supportive of our business and our content.
Okay, thanks. My second one is, if you could maybe clarify how we should look at Free-TV emerging in Q2 here. What the trends are that you see right now in your different markets?
Yeah, I think we will continue to see a tough quarter when it comes to Czech, obviously. I think that they will continue to be fairly aggressive. I think we have good momentum when it comes to the other markets. Right now, I think our eye is on the Czech ball as it is right now. We need to understand how the market will develop and how the pricing will develop. Of course, we need to make sure that we perform also stronger when it comes to our own products. That is of course the focus area. It is also why we changed management in Czech, where we have taken back the guy who actually took the channel from having a fairly low share back in 2009 to the very high share which we have right now still.
We thought it was time to up the bar, and that's why we got a new guy as well.
Okay. A similar growth rate year-over-year would be reasonable, as in Q1.
Yeah, you can assume that.
Okay. My last question, if I may, MTGx, could you remind us on your investments there and what you expect for the full year, please?
I think the view is the same as we had last quarter in the conference call, where we're basically looking at around SEK 150 million, SEK 160 million investments spread over the fourth quarter of this year, largely equally you can say.
Okay, thanks.
As a reminder, ladies and gentlemen, to ask a question, please press star one. We will now take our next question from Rasmus Engberg of Handelsbanken.
Yes. Hi, can you hear me?
Yes, we can.
Good. I wanted to ask you on the free TV business. You obviously showed growth in Sweden in this quarter. Would you say that you grew excluding the Olympics as well, or was this just the Olympics that implied the growth?
Of course, the Olympics was a very important factor for the growth, obviously, because we had a big inventory and we had a lot of customers wanting to buy the inventory. That is, of course, one of the biggest driver, of course, in the quarter for the growth, was Sweden and was the Olympics.
Okay. Excluding the Olympics, it was maybe marginally up or was it flat or down or?
That you can't say. Of course, the product as such is attractive. The market in Sweden is growing. We will hopefully have a growth anyway.
Right. As you said, you've secured long-term financing, you do have a low financial leverage, as you say. What is it that you're looking at that's interesting out there? In what segment, what types of businesses?
Yeah. I think what we have is that, as we have said, is that the emerging markets we find very interesting. We would like to do much more when it comes to the emerging market. That means Eastern Europe and Africa. Obviously, as I said as well, that we would like to accelerate the whole digital business. That we would do, of course, organically, but also we need to speed up even faster, we would like to do. We are looking at acquisitions like the Splay of the world, the NetInfo of the world. Then last but not least, the content. We do believe that there will be a big demand for local and unique content going forward with all these possible distribution forms that we have today. Now we have the content business in 16 countries.
We have the distribution business as well in DRG serving formats, that is, of course, something that we would like to enhance as well. The digital business is important for us. The geographic expansion continues to be important. Of course, last but not least, the content business and of course to invest in the business we already have.
Sorry, can you just remind us, this TV company in Africa, is that deal closed?
Yeah, the papers are signed. We are waiting the last regulatory approval that will happen at the beginning of May, hopefully.
All right. Okay. Thanks.
That concludes the question and answer session. I will now hand the call back to Jørgen Madsen Lindemann for his concluding remarks.
Thank you, Loretta, and thank you all for your time today. We will announce our Q2 result on July the 17th, and our AGM will be held on May the 13th in Stockholm. I very much hope to meet with as many of you as possible before then. We have an exciting year ahead of us with many new opportunities, so thank you for your continued interest in our journey, and goodbye for now.