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 it the most watched Winter Olympics ever and the most successful for Sweden in terms of number of medals, and we showed every single minute of the games on our channels and online products. The result, record high free to view viewing figures and via Play customer intake, which we are very pleased with. The second highlight of the quarter was the exclusive multiyear content acquisition deal we struck with Sony Pictures.
This is the first deal of its kind as we have live in Sony's fantastic content for all platforms across Scandinavia. 3rd, we have merged VIABLADE and GX 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 will achieve through both organic development, such as our OTT service via Play and acquisitions like NetInfo in Bulgaria and Splay in Sweden. All of these 3 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, Boxer in Denmark and now also Alchebox in Norway. Our sales grew 13% at constant exchange rates in Q1 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. 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 in both the Nordic and emerging markets following the investments that we have made.
Our overall profitability was by the investments that we have made in content in general and the Olympics in particular, but 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 us well to grow future earnings and returns. Before we get into the operating review, I also want to say right upfront 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 best established business positions. As always, we take the long term view here.
In the short term, we have so far seen little commercial impact, but weakening in the local currencies will impact our results moving forward. TDC Media has also taken the appropriate steps to govern its relationship with its minority shareholder that is affected by the sanctions. But now as usual, let's briefly review the performance of our businesses and start with the Scandinavian free to go operations where sales accelerated due to our exclusive Olympic coverage in Sweden. We had a 60% commercial share viewing in Sweden during the 3 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. However, 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 2 thirds of the overall inventory. Our commercial order 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 TV2 in January, while Norway was down as TV2 broadcast the Olympics in Norway. We have, however, recently signed an agreement to make a new channel TV 6 in Norway available to all of Eddybox customers, which will increase the channel penetration from 64% to 76%. We have, in addition to that, renewed our distribution agreement with Conheim in Sweden and secured additional distribution for our 2nd largest Danish TV channel, TV3 Plus, 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 3 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 TP6 in Norway. If we then move on to Nordic Pay TV business where revenues were up 7% at constant exchange rates, the contribution from the Danish TV3 sports channels has now analyzed, meaning that organic growth accelerated from 4% in recent quarters to 7%. The main growth engine here continues to be via play where the Olympics coverage in particular drove record subscriber intake. Via play usage also rose sharper 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 ViaSat 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 via Play subscribers. Furthermore, in Sweden, this penetration rate increased by over 40% in Q1 compared to Q4. Premium subscriber base when excluded via Play did grow again on a quarter on quarter basis for the 2nd 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 3rd party base in 2014. However, and more importantly, we do expect that our total subscriber base, including via Play, will continue to show healthy growth.
Segment OpEx was up 7% as we invested in content and the Olympics in particular in the overall development of bioplay. Profits were up year on year in the quarter for the first time in 2 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 20 13, given the positive sales and profit momentum that we have generated. If we then move on to the free TV merchant market business where sales were down compared to last year given the increased competition and top comps in the Czech Republic, which we flagged for last quarter. However, the Baltics, Bulgaria and Ghana all delivered double digit growth.
The funding of 3rd 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 an exceptional growth last year and our main competitor investing in programming and dropping prices in order to regain share loss last year. We can see that our sales will be down also in Q2. Our commercial share a new all time high level for Q1 in the Baltics, while gearing was slightly down from a very high base and we continue to face raging pressure in the Czech Republic. Segment OpEx was up 9% following the Olympics coverage in the Baltics, the launch of TV 1 channel in Tanzania and the consolidation of NetInfo in Bulgaria.
Advertising markets remained volatile, but we do expect audience and advertising market share gains in almost all markets for the full year. If we then move on to our pay deal ratios in the merchant markets where sales were up 10% at constant exchange rate and driven by higher MiniPay subscription volumes. The wholesale MiniPay business added close to 3,000,000 subscriptions in Q1 alone and almost 10,000,000 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 Rauka. OpEx was down slightly, so operating profits were up significantly.
As I mentioned previously, the Russian 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 current exchange rates were to prevail for the rest of the year, the impact on the projected sales would be approximately DKK 75,000,000 of which roughly twothree or approximately DKK 50,000,000 would flow through to EBIT as the vast majority of cut And finally, to the night entertainment, HDX and radio segment, where sales more than doubled at constant exchange rates following the acquisition of NICE, DAG and November Film. 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 public Latino and Strix drama production business both had good quarters and high drama Scandal Noir 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 1st season than the Danish drama The Bridge, which became a global hit. MVGX continues to develop according to plan, and our new AVOD platform has been rolled out across 7 markets now. And DGX also helped deliver the most digital Olympics ever by launching a new dedicated Olympic website and mobile app during the Olympics. We have also reloaded our ViaSat SCE site and related app. Segment profitability was impacted as expected by our ongoing investment in the NG GX Digital Venture, 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 3rd party content providers and distributors. We are making our business more and more fit for purpose and our products more and more relevant. We are future proving our business by shaping the future of entertainment. This is all to ensure that we become the leading digital entertainer in each of our markets.
That completes my comments on the operational performance. So now over to you, Matthias.
Thank you. As you've seen, we reported 13% revenue growth at constant foreign exchange rates, which was the 2nd consecutive quarter of double digit growth. Our organic growth of 5% continues to be in 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 investments in Winter Olympics, New Channels and MDGX, which is our 3 strategic growth drivers: the content, geographical expansion and the digital investments. Our operating profit 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 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 EBIT growth coming back again year on year in our Nordic Pay TV business. And this is the first time, I think, in 2 years that we see that, which is very, very positive for us. CapEx levels have also increased as predicted due to the investments that we are making in our new play out center in the U. K, our Vipass platform and all the digital ventures in MTGX. But they are continuing to be kept at the low single digit percentage of revenues as before.
Our cash flow from operations totaled SEK 195,000,000 in the quarter. This is down SEK 74,000,000 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 mentioned, we are monitoring the impact of the Crimean crisis in terms of operational, currency and asset value impacts. None of these, of course, affect our commitment to the region due to all the potential that mentioned.
And we also, of course, commit to all the operations and investments we are doing. We ended the quarter with a net debt of SEK 738 1,000,000, which corresponds to 0.4 times 12 month trailing EBITDA. And we are now proposing our highest ever annual cash dividend of approximately SEK700 1,000,000, which is equivalent to around 64% payout ratio. We have over the last 6 months refinanced the group on very attractive levels and diversified our overall funding structure by issuing our 1st 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.
So with that, back to Jurgen.
Thank you, Matthias. So 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. So to allow time, please limit yourself to no more than 2 short questions each. Operator, can we have the first question, please?
Thank you, sir. Ladies and gentlemen, we are now ready to register questions. We will now take our first question from Martin Arnold 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? Yes. As you say, there was, of course, fantastic news that we got a lot of new customers into ViaPlay. And I think what we can see right now is that we are getting more and more customers every day on ViaPlay.
And we can also see actually that the uses of ViaPlay, as we mentioned, the start of video streams was up significantly in Q1. So I think that is good news that we get more customers on ViaPlay every day. So Yes. There There's no doubt that the peak, of course, was during the event. It goes without saying that people, they understood that it was a very interesting proposition that we had.
So we see as well the uses not only being up in during Olympics, but also continue to be up in March. So that is very good news for us. Okay. Thanks. And just one more question on Frito Skandi.
Are you still expecting mid single digit cost growth for the full year ex the Olympics? Yes, we do exclude the Olympics, yes. Okay. And just a final question for me. On the Czech Republic, what kind of market development are you seeing in that country?
Yes. It is very difficult to say right now. We definitely believe that the market as it looks right now in Q1, it looks like that it would be up. But we need to understand the market and we need to understand the pricing further from Cieliq 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 the group level, so sales were up 5% organically, costs were up 9% organically. Obviously, a lot of this comes from the Olympics.
But 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? That's the first question. 2nd question regarding the other divisions where losses seems to have been a bit higher than expected. Is that due to the phasing of investments? And could you maybe help us understand how much losses we should expect for the full year in that overall division?
Thank you very much.
Andreas here. I think on the first question, I think it's of course, it's difficult to give a guidance like that, but their 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, PayTV in Nordics. So yes, the ambition is to get back, but when and how quickly that is that we have seen.
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 ex digital investments, there is no seasonality in that. So that's going to plan, and it's largely stable across the quarters and a half years, in line with what we discussed in the last quarterly call as well. I hope that answers the I think that answers the question.
Thanks, Matthias. Maybe regarding the second part of the question, which is how much losses you expect for the full year in that division? I mean, I'm saying losses, but maybe it could be profits. But since you started with losses, I'm assuming that full year would 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. So 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 Bill Oda of Danske Bank. Please go ahead.
Thank you. Just a follow-up on the other business. Should we interpret that as a seasonality primarily is driven by Modern Studios and then NICE? And sort of could you just highlight and remember sort of reiterate which quarters that are of most significance? Is it Q2 and Q4 as in the FreeTV business?
You're right. It's a content business which has the seasonality. And given that we increased the scale of the business that becomes more apparent now I think. The quarters is is probably more all three quarters, Q2, Q3 and Q4 actually. And the reason why Q1 is normally weaker is that there's not much activity because it's so broadcast, they have a little bit more stable seasonality.
So the way you do remember is that we have percentage of completion when you take in revenues and profits at the revenue recognition principle, and that's why you see these swings.
Okay. And then on freeTV scanning, could you just mention sort of how was the performance in terms of audience shares post the Olympic? And are you still seeing some evidence of the sort of positive implications coming into Q2?
Yes. I think what we saw, of course, during the Olympics was a spike in particular in Sweden, obviously, which was during the Olympics. In Denmark and therefore, sorry, Sweden grew in the quarter. And Denmark, had a tougher start because we had the handball and home turf in Denmark, and that went very well for the public broadcaster. But they managed to come up of the quarter, also growing in the best quarter since 2000.
And then Norway, obviously, was affected. That's said that they didn't broadcast the Olympics in Norway. That was on TV 2. So therefore, that was the reason why they've been found.
Okay. And then one final question. I think last report you said that pay TV Nordics would suffer from sort of adverse earnings impact from the Olympics. But EBIT in absolute terms is up year on year. So should we interpret that your outlook for pay TV Nordics now is stronger than it was 3 months ago?
I think if you look at the margin going from Q4 to Q1, you see that there is a margin drop there. But 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 guys' questions. Maybe just could you just give us some feel for what if you would kind of adjust for different events in Q1, what the underlying ratings trend would be in the Nordic markets? And also if you what kind of makes you confident that you will gain ratings share for the year? Is it more ambition?
Or are there any specifics that we should think about that will drive this growth?
Yes. If you look at the different things impacting the rating, of course. As I said, we have for instance, in Norway, we have increased the penetration now of the new churn that we have launched, TV6, by the new deals that we have made, the distribution deals. And 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 3 to 3 plus channel arm that goes into Boxer in the terrestrial network.
So that, of course, should help us well. So 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. And regarding kind of the underlying trends in Q1, if you would adjust for especially Sweden and Norway, I guess, on 2 opposites, what would be the underlying ratings development in the quarter?
It's a bit difficult to say because Northland, we didn't invest that much on production during the Olympics in Sweden, you can say. I think in the Danish market, we have seen a stronger, strong margin. 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. But still we have a very strong growth in the quarter as such and that's of course what we're focusing on.
Okay, great. My second question is just on the pay to the 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? And second of all, the ARPU that sequentially, if that reflects some kind of cord shaving on your subscriptions as well that is offsetting the price increases from last
year? Yes. So I think what we I think the positive thing is now that we see that people are using the products more and more. And that is what I said that we have Viasa subscribers now using the multi screen service even more. And that, of course, is an enhancement of the product.
So we do not expect to see an acceleration in churn after the Olympics or whatever. That is not something that we foresee on the contrary.
Okay. And on the ARPU?
Yes. But can you say that again? I'm sorry.
No, just on the ARPU that the ARPU that was declining sequentially, if that is what I mean despite the price increases last year, if that reflects core shaving within your subscriber base?
No, we don't see that. And you can see that because we are increasing the base. If you look at it as such, you can see that we are combined, we are increasing the premium segment as well. And now that all our Pfizer customers that they have or the cold customers, they do have Viasat players in multi screen service, there's no reason for them to take all the packages. So we don't see that in our subscriber base right now.
Okay. Thanks.
Our next question from Liza Yang of Goldman Sachs. Please go ahead.
Hi, good afternoon. My first question is on free to wear candy. I think you grew your revenue by 4% despite the Olympics, which might look a little bit light. I mean, how do you see the rest of the year without the Olympics? How do you expect to accelerate the growth rate?
Should we expect a kind of slowdown in the coming quarters? Or does that just reflect general kind of market softness? The second question is on the tax rate. It looks like the tax charge was pretty high. So are there any specific reasons for that?
And how do you see your tax rate for the full year? And a third question, if I may, is again on Eastern Europe. It looks like the markets have bottomed out. I mean most markets are kind of turned positive. Is that the general trend you're seeing and you continue to see going to Q2?
Yes. When it comes to the market 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. We of course, you could argue that it went down less than last year. So at least we see somewhat positive trends in that respect.
But the Danish margin go down, that we didn't anticipate, to be honest. So that explains, of course, also the performance in terms of sales. I think we were growing. Going forward, it's very difficult to say. So 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 it is saying right now. On the Norwegian market, which was around 4% last year, should go to a 2.5% growth per year according to the IIM figures. We don't have any forecast for the Danish market. So it is a bit difficult for me to give you any idea there.
But 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. And then if I may ask you a third question and then Matthias will answer your second question. When it comes to emerging markets, so Eastern Europe particularly, we it's not that we see the markets have changed. The visibility unfortunately is very low. We have had a very strong performance for our channel.
That is why we have grown double digit. Ratings has been good. So that is why we have taken shares. But I don't think we can conclude at least least that the markets are doing so much better in Eastern Europe yet.
Okay. And then I'll take the tax question, which was very high in the Q1. 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 Q1 is that it's normally a very small quarter. And all the investments we're doing in, for example, in Africa, Ukraine, Russia, etcetera, we are investing money, so we're losing money, and we don't value those tax losses.
And that's why we have an unproportionate high impact from that. So that's the simple answer. So without those in the Q1, 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. So you can't just take 23% for that purpose.
Okay. Thanks very much. Our next question comes from Mikael Laszen 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.
Yes. It is, of course, a continuation of what we already have with them. But of course, what after so many years together, you sit down and you find out how you can enhance the corporation. And that is in many different areas where you that is a connection to common ideas on sales activities and so forth and channel launches and so forth. So it is different actually for the different deals.
So I think good for us is, of course, that we have a very strong partnership with these partners. And 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 could have we had more to fix and we also had the opportunity to offer that in different kind of different shape. So it is different range of activities and enhancement of the contracts that we have made. But we have a very good relationship with the partners and they are very supportive of our business and our content.
Okay. Thanks. And my second one is, if you could maybe clarify how we should look at free TV margin in Q2 here, what the trends are that you see right now in your different markets?
Yes. 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. And then I think we have good momentum when it comes to the other markets. So right now, I think our eye is on the check ball as it is right now, and we need to understand where the how the market will develop and how the pricing will develop.
And of course, we need to make sure that we perform also stronger when it comes to our own products. And that is, of course, a focus area. It's 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 2,009 to the very high share, which we have right now still. But we thought it was time to up the bar. And that's why we hired new guidance regarding new guidance.
Okay. So similar growth rate year on year would be reasonable as in Q1?
Yes. We can assume that.
Okay. And 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 €150,000,000, €160,000,000 investment spread over the Q4 of this year largely equally, you can say. Okay. Thanks.
We will now take our
you hear me?
Yes, we can.
Good. I just 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 just the Olympics that implied the growth?
Well, of
course, the Olympics was a very important factor for the growth, obviously, because we had a big inventory and we have a lot of customers who want to buy the inventory. So that
is, of course, one of the
bigger obviously, the biggest driver, of course, in the quarter for the growth was Sweden and was Europe.
Okay. So excluding the Olympic, it was maybe marginally up? Or was it flat or down?
Yes. I think you can't say. It is of course, the product as such is attractive in the market in Sweden is growing. So we will hopefully, it's not a growth anyway.
Okay. Right. And then you have as you you've secured long term financing and you do have a low financial leverage as you say. Well, what is it that you're looking at that's interesting out there? In what segment?
What types of businesses?
Yes. But 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, we as I said as well that we would like to accelerate the whole digital business, and that we would do, of course, organically, but also we need to speed up even faster than we would like to do.
So we are looking at acquisitions like of the world, the NetEase of the world. And then last but not least, the content. We do believe that we will there would be a big demand for local and unique content going forward with all these possible distribution forms that we have today. And now we have the content business in 16 countries. We have the distribution business as well in DRG selling formats.
And that is, of course, something that we would like to enhance as well. So the digital business is important for us. The geographic expansion continues to be important. And 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 still closed?
Yes, the papers are signed We are awaiting the last regulatory approval that would happen in the beginning of May hopefully. All right. Okay. Thanks.
That concludes the question and answer session. I will now hand the call back to Jurgen Mattson Lindeman for his concluding remarks.
Thank you, operator, and thank you all for your time today. We will announce our Q2 results on July 17, and our AGM will be held on May 13 in Stockholm. So I very much hope to meet with as many of you as possible to fall in. We have an exciting year ahead of us with many new opportunities. So thank you for your continued interest in our journey, and goodbye