Good morning and good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the MTG 4th Quarter 2012 Results Conference Call. At this time, all participants are in a listen only mode. After the presentation, participants will have an opportunity to ask questions, At which time, instructions for the question and answer session will be given. May I also remind you that you can find presentation slides on MTG's website at mtg.
Ede. Before we start, may I remind you of the following forward looking information and Safe Harbor statement under the U. S. Private Securities Litigation Reform Act of 1995 that this report contains forward looking information based on the current expectations of MTG Management. Although management deems that the expectations presented by such forward looking information are reasonable, such forward looking information is subject to risks and uncertainties and no guarantee can be given that these expectations will prove correct.
Accordingly, the actual future outcome could vary considerably when compared to what is stated in the forward looking information due to such factors as the prevailing economic and business environments in certain markets and the impact of the Eurozone crisis in particular, commercial risks related to expansion into new territories, political and legislative risks related to changes in rules and regulations in the various territories in which the group operates exposure to foreign exchange rate movements and the U. S. Dollar and euro currencies in particular and the emergence of new technologies and competitors. These risks and uncertainties are described in more detail in the 2011 Annual Report, which is available from the group's website at www.mtg.se and in the group's registration statement on the Form 20 F, which is available from the website of the U. S.
Securities and Exchange Commission. I will now hand the call over to Juergen Madison Lindeman, MTG's President and CEO, who is joined on the call today by Group CFO, Matthijs Hermansen. Please go ahead.
Thank you, operator, and good morning and good afternoon, everyone. The Q4 results reflect both the investments that we are making and the measures that we are constantly taking to improve the performance of each of our businesses. We're innovating across all of our businesses and accelerating their development and we have also added to the management team to make even more possible as we build the media house of the future. We have continued to enhance our platforms, channels and services across our markets And we're also launching new products, which will enable us to broaden our reach and benefit from higher pricing levels. We have now signed a number of channel distribution agreement with Telmoo across Scandinavia that are strategically important and the same is true of the deal with Voxer in Denmark.
A lot of the changes that we have made and the deals that we have signed are more marginal gains and these will together add up to something more significant over time. All of this increased activity and speed is about driving the future growth of Modern Times Group in key areas of content, technology and geographical expansion. I will now move straight to our comments on each of the businesses segments. So let's start with the Scandinavian free TV operations. The official TV advertising market data for the quarter is not yet, but we expect that the Swedish and Norwegian market did grow by less than net 2.5% and 5% improvement that IRM forecasted for each market.
No forecast are available for the Danish market, but agency handle invoicing on a gross basis as measured by DRRP was most probably down between 3% 8% in the quarter. Our Scandinavian free TV sales were down 6% at constant exchange rates in the quarter with lower year on year sales in all three countries. Sweden is our largest market and our combined audience share was down year on year and this mainly reflected lower ratings for our secondary channel TV6, which airs almost exclusive acquired programming. Both TV8 and TV10 increased their audience share, while main channel TV3 was slightly down on a full day basis, but up in key prime time slots where we have focused our attention and investments. The spring schedules are now being launched and we have reordered more formats than in the recent seasons in order to build continuity in key slots as well as a number of new international and locally produced shows.
The off prime daytime slots have shown some improvement so far in 2013 and we are now working on the forward schedules to make further improvements for TB3 in particular. TV10 will also now benefit from higher penetration following the agreements with Telenor to include the channel in Canal Digital's cable TV package broaden out the availability in the B2 network later this year. Our overall 2013 gross rate car prices are up and the negotiations with the agencies are ongoing. We do expect the market to grow in 2013 and our vision is clear to gradually regain the orders and market share that we have lost. Furthermore, we have the upside of growing our regional and online audience and advertising market shares.
Turning to Denmark, the combined audience share for our 3 channel was down year on year, but TV3 Plus continued to grow its share and both TV3 Plus and TV3 Pulse achieved higher prime time ratings. The agreement that we have signed with Telenor and Boxer to make TV3 and TV3 Pulse available on local digital terrestrial and satellite networks are strategically very important as our channel will now be available on all the major platforms. And both channels penetration will increase by over 10 percentage points during the year. This is already resulting in higher audience shares, higher advertising market shares as we deliver a better product with more reach and higher carriage fees. A number of hits formats are about to premiere on TV3, while TV3 plus would benefit as it starts to air coverage of the English Premier League football from the summer.
We have also entered into a new sales agreement with Viacom and began selling advertising airtime on their MTV and VH1 channels as part of our media house channels package. This adds approximately 2 percentage points to our reach and will further support our advertising market share. As in Sweden, our 2013 gross rig card prices are up and the negotiation with agencies are ongoing. It is unclear whether the market will grow in 2013, but we will take market shares and expect to grow our revenues. In addition, the catch up services for our Danish channels are the most watched commercial channels online in Denmark, and we are attracting an increasing share of the growing online or AVOS media spend.
Turning finally to our smallest feature operation in Scandinavia. The combined oil and share for our 2 channels in Norway was down year on year and reflected lower ratings for both CV3 and ViaSat-four as a number of locally produced formats did not perform as well as anticipated against the competition. We did see some improvement in December as all day and prime time rating for both channels were up year on year. Tier 3 ratings so far in 2013 reflects the fact that competing channels have launched key owned productions earlier this year, while VASA four ratings are up year on year. Our choice of form and execution is improving with a new management team and we are in the process of launching a number of G shows including formats that have worked well before.
Work is also underway on this year's fall schedule and we are investing further to identify and secure new forwards. We are doing more scouting, more pilots and more testing than ever before, and we are working with much longer planning and commission horizons. In addition to improving our execution, it is also essential that we launch additional complementary channels in Norway in the same way that we have done in both Sweden and Denmark. And this will, of course, increase the reach that we can deliver to advertisers. So we have announced today that we now conclude the distribution agreement with Telenor that will enable us to launch and distribute a 3rd channel in the cable network and we plan to launch this new channel later in the year.
Overall, our 2013 gross rate car prices are up. The negotiation with agencies are ongoing and the market is expecting to continue to grow in 2013. Moving back to the overall Scandinavian free TV business, our OpEx was down slightly less at constant exchange than 6% reduction we reported as we deferred certain programs investments into 2013. We will increase our investments further in 2013 and that starts in the Q1 as we look to regain ground or build on more positive momentum in each market. The level of investment will depend, of course, on both the availability of good shows and the market development.
But as before, we do not anticipate any major increases. Overall, segment operating profit were down year on year in Q4, we still delivered an operating margin of almost 22%. Now let's turn to the Nordic Pay TV business. We are on track with the plan that we laid out to you at the Q3 results and making the investments and operational adjustments that we described at the time. Revenue were up 3% at constant exchange rates following higher HD and VIAFASE subscriber intake after the investments we have made as well as one off pay per view revenues from Middle Kessler title filed in Denmark.
The overall subscriber base continues to grow as ViaPay rapidly grew its OTT online subscriber base. The service is now available on almost all types of Internet connected devices, including the Sony PlayStation 3, the Microsoft Xbox 360 games console for the first time and we have launched new versions of ViaPlay app on the Apple iOS and Google Android platforms. We also raised the price for ViaPlay's top package in Sweden by 25% in January, which demonstrates the flex in the model and the popularity of the sports content, which we have secured on multi year deals. Satellite subscriber base continues to decline in the quarter, which was due mainly to the competitive pressures in the Danish market, as we have described last quarter as well. However, Nordic premium satellite subscriber ARPU was up 4%, following the HD subscriber intake as well as price increases.
Nearly 60% of our premium satellite subscribers now have HD subscriptions. The decline in the number of satellite subscriber is not fully offset by the growth in the 3rd party network subscriber base, but we have now strengthened our offering to further strategic deals with Telenor. Our Danish satellite platform and pay TV channel package now include SBS, Danish free TV channels, Canal 4 and Canal 5 and CMOS channels 8 Sport and Channel 9 for the first time. And we have also rebranded the fully owned TV2 Sport and TV2 Sport Premier League, pay TV channels as TV3 Sport 1, TV3 Sport Premier League and launched a new TV3 Sport 2 channel. This means that Viasat subscribers can now watch Danish, English, Spanish, Italian Football League games as well as Champions League Football, all of the major free TV channels and premium movie and documentary channels.
We have also broadened our the availability of our Norwegian pay TV offering by making another deal with Telenor to include all of our channels and catch up services on the Canal Digital cable TV platform for the first time. Looking forward, we continue to expect the total Nordic pay TV subscriber base of both ViaSat and ViaPlay subscribers to grow, but we also continue to expect that the ongoing decline in the satellite premium subscriber base will not be fully offset by the growth in the 3rd party network premium subscriber base in 2013. Segment OpEx was up more at a constant exchange rate than the reported 7% increase in Q4 and reflected the investments that we have been making in premium movie and sport content and via play. Segment profits were therefore down in the quarter and we had a margin of just under 16%. Looking forward, we do expect our Nordic Pay TV revenues to continue to grow at constant exchange rates in 2013, following the acquisition of the remaining shares in TV2 Sport.
The Nordic KTV business is still expected to report an EBIT margin in the previous provided range of approximately 10% to 12% for the full year 2013 and a higher margin in 20 14. If we then move on to the FreeTV merger market business, this is the standout performance of the quarter. Our sales were up 8% year on year at constant exchange rates and we grew our sales and increased our advertising market share in almost all of our territories. And we also benefited from the consolidation of the LNG operations in Latvia. Sales were up even more by 10% when excluding the result of the Slovenian operations that we closed down in the Q1 of last year.
And combined sales for the largest market, you take Baltics, Czech and Bulgaria, were even up more by 12%. Segment operating costs were up at constant exchange rates in the quarter, as the impact of the closing down of the Slovenian operations and the ending of the depreciation charges for the Czech and Bulgarian terrestrial broadcasting licenses were more than offset by the consolidation of the LNG operations and ongoing program investments in the Czech Republic. Segment operating profits were therefore up 55% in the quarter with a substantially increased operating margin of over 15%, while combined profits for the largest market were up 35% with a margin of 17%. Looking at the 3 largest markets in turn, let's start with the Baltic, where our sales were off 39% at constant exchange rates and included the newly consolidated LNG operations in Latvia as well as year on year sales growth for the Lithuanian operations. The Latvian and Lithuanian TV ad markets are estimated to have grown in the quarter, while the Estonian market is estimated to have declined.
Are the largest media house in these markets and our Latvian media house audience share has been boosted to over 60% by the addition of the LMT channels. We are facing increased Russian language programming competition for the Tv3 plus channels in Estonia, whilst the analog switch off in Q4 in Lithuania has benefited smaller channels, but also increased the number of rival channels with national distribution. Secondly then to the Czech Republic where our sales were up 4% year on year, constant change rates in a cheap advertising market that we estimate to have grown slightly in the quarter and our media audience share continues to grow. We have this month launched the 4th national free TV channel, Prima Zoom, which targets male 35 plus euros, complement the existing channel portfolio and already has a household penetration of over 90%. Like the sales cooperation with Viacom in Denmark, I mentioned earlier we also started selling advertising airtime on TV Brando channel at the beginning of this year.
And the combined target audience share for our channel plus the Brando channel would have been 47 percent in Q4, which places us head to head with CME as market leaders now. And finally to Bulgaria, where our sales were up 5% year on year at constant exchange rates in the TV advertising market that we estimate to have declined in the quarter. And we now have a substantially higher combined audience share for an investment we have made in successful locally produced programming. As in Denmark and Czech Republic, we also have a strategic sales corporation in Bulgaria and currently sell advertising airtime for the Discovery Channel, for TLC, the Disney Channel, Cartoon Network for Fox, Fox Crime, Fox Live, 24 Kitchen and the National Geographic Channel. These additional channels would have boosted our target audience share by 10 percentage points to 42% in Q4, again placing us head to head with CME as market leaders now.
Overall then, we have not yet seen any significant or sustained trend shift in advertising spending or pricing across these markets, but we have a clear operational momentum and we are investing in programming and the new tech channel launch in order to further increase our market shares moving forward. And now to the Pay TV operation in the emerging markets where segment sales were up 19% at constant exchange rates following continued healthy subscriber intake for our satellite platforms in the Baltics, Russia and Ukraine, as well as high mini play channels subscription growth in Russia in particular, in what is the seasonally strongest sales period of the year. Our satellite platform added a net up totaled 52,000 new subscribers year on year and 41,000 subscribers in Q4 alone, while we have also added more than 19,000,000 wholesale mini pay subscriptions over the past year and more than 8,000,000 subscription in Q4 though. We have been selling our premium package of 4 HD channels in Russia, Ukraine and CIS since the beginning of December and 2 of the largest Russian cable networks have already signed contracts to distribute the package. The lower than anticipated increase in segment operating costs in the quarter reflected the focus on operational improvements that I mentioned earlier, including general and administrative cost savings and the renegotiation of content rights, which offset to some extent the previously announced investment in the 3 new HD Pay TV channels in particular.
The level of investment in Ukrainian UHTV prepaid satellite service was lower than anticipated and will also be lower in 2013. This is because we are reviewing our UATV package and pricing structure in light of the popularity of the low cut DTT offering introduced last year. And there being no clear timeline yet for the free TV channel encryption, which will accelerate pay TV penetration when it comes. We therefore reported a small operating profit in the quarter compared to the previously anticipated operating loss of up to SEK 20,000,000. Looking forward into 2013, we expect the investments we are making to generate healthy ongoing revenue growth levels and for the segment to achieve a breakeven able result for the full year following the operational performance and adjustment I have mentioned.
This compares with our previous expectation for a loss of less than SEK 50,000,000. We continue to expect higher profits in 2014. And finally, just a quick word on the other business segment where the reported sales and cost decline mainly reflected the sales of Bet24 operations in May. Segment sales were down 2% in the quarter at constant exchange rates when excluding the contribution from the Bet24 operations. The decline mainly reflect the lower Swedish radio advertising sales as we ceased operating the 20 energy licenses in Sweden at the end of the year.
It was offset to some extent by the growth in the Norwegian radio business and MGD Studios operations, but not completely. We continue to believe that SPS should not be allowed to take over the operation of the 20 energy licenses and assume a dominant position in the market with some regions of Sweden now only having 1 commercial radio station. This potentially set the market back to conditions not seen since the early 2019 when it comes to business choice. Segment operating costs were up at constant exchange rates when excluding the bit 24 operation, which reflected the consolidation of the Paprika Latino production business and increased MGD studio production cost on lower radio cost. Segment operating profits were therefore substantially down and the segment broke even in the quarter.
In terms of outlook for these other businesses, the Swedish radio cost base has now been adjusted. The Norwegian radio business is expected to continue to grow, but the revenue and cost flows in the production business will continue to fluctuate depending on production schedules and format sales. This is all for me for this time. Now over to Jurgen, Jurgen.
Thank you. Group sales for our continuing businesses were up 4% year on year at constant exchange rates in the 4th quarter and reflected sales growth across 3 of our 4 broadcasting divisions. Currency exchange rate movements did again play a part in this quarter with fairly large swings in exchange rates between the Swedish krona and the Danish krona and euro in particular. Our sales performance was therefore better at constant exchange rates than at reported rates for all of our business segments and especially for the emerging market segments where the delta was up to 5 percentage points during the quarter. Group OpEx was up year on year at constant exchange rate as well and even more so when you exclude the operations we have discontinued or sold.
This reflects the ongoing investments that we've been making in the Q4 and as we discussed that we will continue to make throughout this year. Group operating income excluding associated company was down year on year as the higher profitability in the emerging markets free to the operations was offset by lower profits for the Nordic operations. Our share in earnings of CTC Media reflected the impairment of their analog broadcasting licenses in the 3rd quarter following the announcement of the terms for a second DTC multiplex. The part of these charges that is related to Peretz is accounted for in our equity rather than as an impact over the P and L as we sold this channel to CTG Media in 2008 and we didn't record a gain on that channel. Meanwhile, total depreciation and amortization were up in the quarter as we consolidated the more capital intensive Sitius open network operator and this will be the case moving forward as well.
Our effective tax rate was below 25% in the quarter and for the year as anticipated. As we said in Q3, we currently expect our full year 2013 effective tax rate to be in the middle of the 25% to 30% range. When it comes to cash flow generation, we had a very strong 4th quarter and also a very strong full year. We managed to convert 93% of group EBITDA into net operating cash flow for our fully owned operations. The conversion level was higher than previous year quarters due to the positive working capital change that we saw.
We generated over DKK 1,900,000,000 of net cash flow in 2012, which was 7% higher than in 2011 and we invested DKK 300,000,000 of that during the year in used businesses. In Caprica Latino, the Eastern European Studios, L and T and Asitios as we discussed before. Group CapEx were up in the 4th quarter, which was mainly due to the ongoing investments in ViaPlay and also the consolidation of CTOs. We expect CapEx to increase slightly from the 1% of revenues during this year we saw sorry, for 2012, but we still expect this asset light CapEx model that we believe is very beneficial for us to be the same moving forward. Following the strong cash flow quarter, we reduced our borrowings by a net DKK377,000,000 in the 4th quarter and reduced our net debt from DKK 800,000,000 to virtually 0 for the full year.
We continue to be in a strong and stable financial position and therefore we are proposing to increase the ordinary dividend by 11% to SEK 10 per share to the AGM this year, which is equivalent to 42 percent payout ratio. Our focus is still to be a growth company and we will continue to invest organically and through M and A transactions to accelerate the future growth and development of the group. We continue to review a number of targets in both existing and new markets and we are doing this at a time when a large number of our competitors do not have the financial flexibility that we have and we don't have the same options that we have. And this we believe is and will be a clear competitive advantage moving forward. And now back to you Jurgen.
Thank you, Matthias. And just a quick summary before we move that to the Q and A. So the Q4 reflects the investment that we have been making as well as the adjustments that we make every day to improve the performance of each business line and the group overall. The emerging markets free TV assets are almost all performing well and taking further market advertising market shares in markets that will return to higher level of growth over time. Our Scandinavian 3 gigabytes ratings are a major priority and the deals that we have done with Tillner and Boxer are major steps forward for us.
VIAF is performing well and growing rapidly, and we are constantly improving the customer experience and clearly have the strongest content offering in this key area. We have also enhanced our satellite pay TV platform and channel offers in the Nordics and this will of course help us moving forward. The emerging market page collaboration have shown strong growth and we now have an even more large scale mini pay channel distribution agreements in place. We are innovating across the board with new products, services, channels and corporations and we are bringing in new talent all the time to help us build the media house of the future. Finally, we're proposing a higher dividend giving our very strong balance sheet and we are hunting down and reviewing organic and M and A led expansion opportunities across our current and new markets in order to further accelerate our development and drive the group's future growth.
That concludes our comments on the result and we will now be happy to answer your questions. We have a lot of people on this call today and we want to answer each of your questions. So please allow time. Please limit yourself to not more than 2 short questions. Operator, can we have the first question, please?
Thank you, sir. Ladies and gentlemen, we are now ready to register questions. The first question comes from Stefan Nelson of SEB. Please go ahead.
Starting off on just to understand your pay TV guidance, do you still expect the 2013 sales growth to be flat excluding TV2? And if you don't expect ViaPlay to compensate for a decline in premium subscribers, what do you see will drive the ARPU to kind of help you reach flat?
I think when Stefan, it's Matthias. When you answer the first question, I don't think we said anything firmly on revenues. We still have to see that how the year develops. The second question I didn't understand or I didn't hear.
Okay. So the growth is just including Chile II. That's how I should understand the revenue guidance?
Yes. But it can happen a lot during the year. So that's why we're not so firm on any firm guidance on this.
Sure. Okay. Then I'll use my second question. So what do you see in terms of ARPU going forward? You're kind of whole house cards are not growing anymore.
And so would you see any opportunity to raise ARPU? And will the distribution deals that you've signed support that in any way?
Yes. What we are seeing right now is, of course, as we said as well that the DJ platform as such, we will see a decline in 2013 as well we believe. And then if you take the DTS platform, the 3rd party partners we have and via play combined, we expect to grow our base, our combined base. And that is also what we have seen right now is, of course, there's a very good traction on via play. And therefore, combined, we will see subscriber growth in 2013.
That is what we expect.
Sure. But just on the distribution deals, deals, what will that how will that help your pay TV business, the traditional one going in 2013, the ones you signed in Norway and Denmark?
I think Norway is very spectacular in that respect. We are going to have all our pay TV channels in Canal Digital, Cambridge Universe. And of course, that will increase our footprint there. Of course, we would be exposed to more new clients, of course. And that, of course, is interesting for us.
When it comes to the distribution deals as such, we will also have a new channel. As we mentioned as well, it will be a new channel in Norway going into the basic tier in Canal Digital cable. We made a distribution deal with them in Denmark where CanalDxel is now they can now distribute TV3 and TV3 Poise. And at the same time, we are now able to distribute Canal 4, Canal 5, CMOS Channel 8 and 9 to our DJ subscribers, which of course makes our DTH package in Denmark much stronger. And in Sweden, the deal consists of TV 10, which will go into basic cable in Tindor in Norway, so in Sweden, which of course would increase the penetration of TV 10, making TB10 available to more customers.
So overall, it is quite an important strategic deal that we have concluded with Telenor in the different Nordic markets.
Right. Okay. That mainly helps you free to be I guess more than your pay to be?
Be? No. It helps pay to be of course as well because we are coming out broader and of course we have more opportunities to sell. For instance in Norway our Pay TV channels, our movie channels and our sports channels we sold. We will be more customers in Norway, we have the opportunity to buy these channels.
So that will help our pay TV channels. And in Denmark as well, we have a better package now. We have been without the C More channels and the SBS channels, yes, since we started basically. And of course, now we are on an even playing field with some of the other distributors in Denmark. And of course, that should help and improve package should help our pay platform in Denmark as well.
Okay, great. Thanks so much.
We will now take our next question from Lisa Yang of Goldman Sachs. Please go ahead.
Hi, good afternoon. My first question would be on Via Playa. I really appreciate really any detail you can give. I understand you won't reveal the subscriber trends, but at least the churn, the output trend target breakeven? And also, I just wanted to have your thoughts on the Netflix launch.
I mean, they commented they had a very successful launch in the Nordics. Have you seen any impact on your on ViaPlay? So that would be my first question.
Yes. When it comes to ViaPlay, I think what we have seen is that the product has been very well received. We see that we are gaining subscribers, yes, once by month. So therefore, it is a very appealing and a tragic product that we are having in our Nordic regions. When it comes to Netflix, I think the interesting thing is, of course, that the total market is a big potential.
And of course, the more operators you have in the market, of course, the more interest you will have as well from consumers and so forth. So what we are seeing right now, of course, with us is that we now have with the product that we are having the opportunity to reach all households in the Nordic region with our movie offering and with our sports offering. And that is of course what we are focusing on.
And what do you think differentiates yourself from your competitors? Is that more your sport offering or is it also technology?
No. I think it is very clear when you look at the content offering. We have invested a lot in movies. And if you look at our movie lineup, it is a very strong movie lineup. We also have own unique produced content in our offering as well.
We have our own produced content in VIA Play as well, which you get as a VIA Play subscriber, which is unique. And then of course, we have on top of that the sport. So the product as such is very strong. And of course, we are constantly analyzing what we should do with the products, how to improve the price points and so forth. And therefore, as you probably have noticed as well, recently we managed to we increased the price in Sweden for the high play for our sports offering with more than 25% of 25% exactly because that we saw there was a big consumer attraction to the product.
And then of course, it is interesting for us to make sure that we constantly put more content into the product to make sure that we are a very good offer when consumers has to choose these kind of services.
Okay. And my second question if I may would be on PayTV Nordic. I mean since you gave the PayTV guidance at last Q3 results, have you seen any changes at all in the competitive dynamics, especially in Denmark? And can you also quantify the one off impact of the pay per view revenue in Denmark in Q4?
I think what we are saying and what it is important is that we are expecting a 10% to 12% margin in 2013. We have seen in the Q4 that we have a higher HD intake. So it looks like that our investments that we have done in HD seems to be good in terms of good subscribers as well. And Nestorovia Play as well, of course, has increased as well as subscribers in the Q4. I can't split off the different items for you.
But Kessler, he will fight again. I can promise you in month of May, I think you will meet a guy in England. So he will come in the Q2 again hopefully. And if he wins, we'll continue to do a lot of interesting paper during the launch.
Okay. Thank you. We will now take our next
I have two questions. On FreeTV Scandinavia, could you just reiterate what you stated about the pricing environment in Sweden or Denmark for 2013 what you've seen so far?
Yes. What we are seeing right now is that we have seen for us we have increased we have our gross rate card prices in all the 3 countries we have gone out with as an increase. And we have seen as well that during the of course, during the negotiation we haven't right now, we still see very good traction for our products. We still have we have very interesting target groups. But pricing wise, we have increased our rate card and that is what we can say for now.
And in terms of audience share gains, you clearly state that you aim to grow those figures. How should we view programming spend or OpEx growth 2013? Is it the mid single digit range that you have in the past? You deferred some programming spending to 2013 according to the report.
Yes. When it comes to audience growth, there's many ways of doing that. And as you know as well, we have increased our penetration for TV 3 and TV 3 parts in Denmark with over 10 percentage points.
And that is a way of growing already now. We can
see that TV 3 Denmark is up 20% versus last year in the month of January. So this is one way of doing it. And yes, we are investing more in the programs as it is right now. So Q1 OpEx will be up.
But is it fair to assume that mid single digits is that a fair assumption for 2013 in terms of OpEx program expense growth?
I believe it's I think we deliberately decided not to give a firm outlook for this because it varies as you've seen throughout 2012. But what is clear that we continue to invest in programming and as Jorgen said it will be up and it will be up in Q1 as well just to make sure we understand that everyone. And how much it will be up of course it depends on the availability of programming and also the market and the competitive dynamics in the market, I think. But remember as well that the Norwegian channel launch will come in throughout the year and rather not in the first half of the year, I guess.
Okay. Thanks.
We will now take our next question from Adrien de Saint Hilaire of Exane. Please go ahead.
Yes. Hello. Good afternoon, everybody. A few questions on emerging markets. So first of all, on pay TV.
Should we expect the growth to remain close to 20% since because you've launched a new offering in Russia and Ukraine? Or was the 20% growth just a factor of easier comparatives?
Yes. Of course, we are very happy with the development we are seeing in the emerging markets right now. As you say, it's certainly been a very fine quarter. And the mini page subscriptions, as you know, as well were up with 8,000,000. Euros So and also we are launching as we have launched our premium movie offering.
But to give you an expectation for the full year, I think it's very difficult. It is big markets and of course, we are negotiating with a lot of potential partners right now both for our MiniPay channels and our Movie channels. So it is very difficult for us to give you an expectation there.
I think just to Matthias here, Jan. I think just to be clear as well, I mean, just so people don't get too carried away. I think Q4 was a very strong quarter when it comes to growth rates. So even though we believe of course we should grow very fast and this will be probably one of the fastest growing segments we have, there is some level of gravity as well the larger you become and the more difficult it is to keep up the high growth rates itself. Okay.
And on the free TV side in emerging markets, can you discuss about start of the year at trends? And I'm particularly interested in Czech Republic where it seems that you have had a very strong start into the year?
It is very early stage. So it would be difficult for me to give you any guidance or any expectations on that. Of course, what we know is that we have increased our share for the premium portfolio. Zoom has increased as well. The commercial share viewing for the total house and then we also have the TV bag under in our portfolio now.
So we have enhanced our product in Czech. But the market development, it is too early to say.
Okay. And if I can just sneak in one last question is, can you continue to grow and expand margins in free TV emerging markets despite the fact that you're launching new channels for example in Czech Republic?
It depends on many things as well. It depends on market development and so forth. But right now, people in the countries are doing very well. They innovate a lot. We have a very good traction when it comes to the ratings.
So they are doing fine. But it is a long term game in Eastern Europe also for free TV of course. So that depends a lot on markets and performance and so forth.
Okay. Thank you very much.
We will now take our next question from Rasmus Enberg of Handelsbanken. Please go ahead.
Yes. Hi, guys. I'm going to make another attempt to get something on the FreeTV Scandinavia on the cost side there. I mean, you did lose ratings here and your costs were down. Do you think you can turn around this business without committing significant investments on the cost side?
Or how do you see that?
I think first of all, I think it is important that we look at when we see the investments, it is not enough just to put a lot of money into the schedule, if you don't have the right side if you don't have the right ideas and if you don't execute well. And I think that is what we have been struggling with the last year. Now it's doing much better. As you know, TV3, they were up in the Q3 on the channel for full day or full quarter basis. And what we see now as well actually in Sweden is that the prime time where we have invested the money is actually up as well in the 4th quarter.
Unfortunately, we didn't see the daytime and nighttime is dropping a bit more, so the overall share is down. So for us, Rasmus, it is about execution. It is about going out, finding the right formats and then invest. But we are finding more formats now. We are taking more formats from spring 2012 into 2013 from fall 20 12 into fall 2013.
So that of course means that then we have to find less new shows and then of course put a different pressure on our programming people so they can focus on the shows that we actually can see we want to continue to build on and then, of course, the new shows which we want to have into the schedule. And yes, we will invest more. We are investing more already in the Q1 in terms of program, because we see to a large extent a better execution and a better
show
selection. That is what we are seeing right now. You saw the spin off of The Hollywood Wives, which turned out to be very successful. It was a test. We had few programs, but had a rating almost similar to the original format.
And that is, of course, something which makes me happy that we have this innovation and, of course, that we can see that it is possible to make very good shows also on the things we're broadcasting tough.
Yes. Can you give some
sort of indication on what I mean, given you will of course know what you're going to broadcast in Q1 and most likely for most of Q2 as well. What types of cost increases should we be looking at would you suggest? Or are there cost increases at all in free TV?
For the year, it is very difficult. It depends first of all of market developments. If the mileage will continue to be or the market will be very strong, of course, we want to invest more. And if we find shows, of course, we want to invest. So that depends a lot of the market development.
In Q1 as you say we know it and yes we will increase the spending and it is a lower single digit number that we increase our program spending within Q1.
Fair enough. Thank you.
And it is not because we don't want to be more specific, but of course it depends a lot on the market and it depends a lot of the shows out there. We don't want to throw good money after bad money. So that's why we want to make sure that the things that we are forecasting will have an impact.
Is that a reflection that you're a little bit uncertain of where the market is actually going to go in this year? Or how should we have been talking about?
I don't know. I think if you talk to IIM, they expect the market to go out in Sweden as we go out in Norway. That is what they have said so far and that is of course based on the intelligence that they have. And in Denmark, we have no clear view right now how the market will perform full year since we don't have the same expectations systems in Denmark that EIM that they have in Sweden and Norway.
All right. Thanks.
We will now take our next question from Filippo Lofranco of JPMorgan. Please go ahead.
Good afternoon, everyone. I have two questions, please. The first one is on Frito in Scandinavia. You said that you're asking for a gross price increase. My question is that what you make you so confident that eventually you will have a net price increase given that your audience share continue to be weak?
It's somewhat related to the strength maybe of the advertising market that make you think that advertisers will accept to pay higher prices. So this is question number 1. Question number 2 is on Pay TV Nordics. Overall, you continue to lose subscribers. When do you think that we are going to see stabilization?
Or maybe should we expect a continued decline in the number of subscribers? Thank you.
We're talking about free TV Nordic. What we're seeing right now is that we see price increases on rate cards for all the broadcast of between 5% and 10% largely. And that is because there is a demand of course and that we also see that TV as an advertising medium continues to be very strong. So it is something that the advertisers of course have focused on to get a good return on investment and that you get through TV. At the same time, of course, we have very good time groups.
Our channels are very well positioned as well and we have very interesting time groups on our channel. And that of course makes our proposition appealing to the advertisers. You have the Danish situation now as well where you are increasing your penetration by 10 percentage points. Of course, that makes our product in Denmark much more appealing in terms of reach and so forth than it was before the increase. And now in Norway as well with the opportunity to launch a new channel, of course, we will have a better product there.
So that is why we are we definitely believe that we will see price increases. And for our sake, of course, we will see a better product in some of the markets.
In terms of
Yes, sorry to interrupt Justin. The fact that VAS is a strong media, it's something which is related with the overall advertising market? Or is it because he takes share from the declining print media?
Yes. What you see is that we do take share of the full advertising market. Then TV and online they do take share. Yes, they do take share. Yes, 2 large exchanges.
And then you talked about the Nordic subscriber. We do expect 2013 that we will decline in DTH subscribers. And again, it is largely related to Denmark. The Swedish platform is doing fine. We have very good product there.
But in Denmark, we do see fierce competition. Of course, we do expect as well now that we have added a lot of new channels to the Danish platform that we will hopefully see a better traction for the platform now than we saw in the past. Now we have a more complete offering, which we didn't have just a few months ago. So of course, that should help the Danish platform. But we overall, we will lose DJ subscribers in 2013, we expect, but mainly due to Denmark.
Okay, fantastic. Thank you very much. Bye bye.
We will now take our next question from Anders Wennberg of Braemar and Partners.
Hello. Anders Wennberg here. And kind of on the pay TV ARPA development, of course, ARPA has been driven by 2 things. It's been driven by price increases, but also been driven by growth of all these products ViaSat Plus, multi room, high HDTV, etcetera. And a lot of this you give data and report on a lot of these sub sectors or sub product banks and a lot of them seem to be slowing down or even declining down a little bit Q on Q in Q4.
Isn't that going to make it a bit harder to continue to drive up ARPU for the Pay TV business?
I think it is a trend that we've seen we talked about for quite some time. I think that the high ARPA growth rate we've seen historically is not going to stay at or as high as we've seen it. So gradually it's going to come down the ARPA growth I think, which is a natural thing. I think you probably know that we charge extra for the ViaPlay multi screen in one country, but it's included in the offer in other parts. So of the 2 other countries.
So yes, it is slowing down a little bit, but that's the name of the game I think.
Okay. Secondly also, I wonder if you can help us quantify I know people tried before, but the boxing thing in Denmark and also the positive FX movements in the pay TV business. And on the free TV as an upside, the deferral of the cost into next year, can you say anything about the size of these effects?
I think as we said in Denmark, the boxing in Denmark was mainly a revenue effect and less of an EBIT effect. It's we don't want to tell the whole world how much money we had to turn over in that event. So that's the reason why we don't want to say it. It's not 100% of the overall delta, let me put it that way. So it's part of it.
But is it the majority of the delta? I'm just
trying to tell you more than that sorry. And then the same with FX. It's a mix of everything. So what we discussed is the difference between the largely the same as Q3 revenue base and the new revenue base is the boxing. It's some of the FX.
And also as I think which we didn't stress as much is the intake of Via Play subscribers in the Q4 is much stronger than we expected, which is obviously quite good particularly as we increase the price on sports etcetera. So it seems to be a good product in market.
Good. And on the cost side in the free trial business, how much was that deferred into next year?
Well, I mean, it's I think we had some outlook for the full year, I think, and that's the difference, the delta you saw now and what the outlook was.
Okay. Thanks.
We will now take our next question from Will Smith of Jefferies. Please go ahead.
Yes. Thanks, guys. Just one question for me. You mentioned that net debt is down near 0 now. We're all aware with the investments going into content and the increase in the dividend that you just highlighted today.
But can you talk a little bit about where you see an efficient capital structure and how you're thinking about cash returns looking out over the couple of years given the payout ratio hasn't changed?
Well, I think the policy payout rate didn't change I guess, but the actual payout ratio changed up I think 10 percentage points I think. But I think it's what we started to talk about today is we believe fundamentally right now that it's very good to have a very balance sheet, because there's a lot of opportunities out there that we don't to be able to capture when they come by us. And we see I think some of our competitors being fairly weak. Some of our competitors are selling assets, selling content, selling and cannot afford to launch as many products as they wish probably. So that's the fundamental belief I think.
Over time, it's sorry to be a little bit boring, but it is a broad decision in the end of the day how a leverage position will be. But I think given what we just said, in the short term, I think we feel quite comfortable with the fairly low leverage in the balance sheet.
Great. Very clear.
That concludes the question and answer session. I will now hand the call back to Jorgen Maertsen for his concluding remarks.
Thank you, operator, and thank you all for your time today and for your continued interest in MGG. We look forward to talking with you over the coming weeks months to keep you updated on our progress. So thanks for now and goodbye.
That concludes today's conference call. Thank you for your participation.