Thank you, operator, and good morning and good afternoon, everyone. Welcome to the Conference Call for the Fourth Quarter and the Full-year Results for 2011. As you may have seen, sales were up year on year to a new record level for both the quarter and the full year, following the growth for each of our four broadcasting segments for both periods. If you put this into perspective, we have achieved a healthy growth despite the eurozone crisis and the tough economic backdrop that are obviously impacting the whole industry, in particular the regions we are operating in. We have, as well, as we all know, and we have mentioned before, some rating issues to fix with some of our channels in some of our markets, but this is the point of the media house, what I want to stress here as well.
We sell the combined reach of all our channels in each market and not any more standalone channels. Running a business always involves managing problems, and the bigger picture is that we are a broadly diversified group that continues to benefit from integrated pay-TV and free-TV operations across multiple territories. We are committed to continue to invest because these are the moments to invest, we think, and to take market share. We have three clear focus areas if it comes to investment. One is technology, the second one is new markets, and the third one is content. Despite these investments, we have delivered best-in-class full-year margins for our Scandinavian free-TV channels with a 25% EBIT margin, and Nordic pay-TV operations topped in class as well with 20% EBIT margin and a group operating margin of over 14% when excluding associated company income and non-recurring items.
As announced, we have recognized SEK 3.2 billion of non-recurring costs in the fourth quarter. A majority of these costs were non-cash and related to the impairment of the remaining goodwill and other intangible assets that arose from the acquisition of Nordic TV in Bulgaria in 2008. The Bulgarian TV market is yet to return to growth, but it will, obviously, at one point in time, and we will be well-positioned when it does, as you can see from what we have done, for example, and achieved in the last couple of months in the Czech Republic, which is structurally a pretty similar market. Because of these one-off effects, it is more relevant, I think, this time to look at our net cash flow from operation as a key performance indicator.
This one was up 17% for the year and 10% for the quarter alone and included the increased dividend payments we received from CDC Media. This strong cash flow has enabled us to reduce borrowing levels further, and therefore, we propose a 20% higher full-year dividend of SEK 9 per share to the shareholder meeting. I think the sustained combination of healthy growth and cash conversion levels has also resulted in us adopting a dividend policy to distribute at least 30% of recurring annual net profit as an annual ordinary dividend moving forward as of this time. We have issues to fix, as always, but overall, I think we are in good shape with a strong balance sheet and the ability to invest in future growth drivers in areas such as Viaplay, Eastern Europe, and Africa.
If we then move to the operations in more detail, and let's start looking at our free-TV business in Scandinavia as the first one. There are no official numbers out yet, but we estimate that the Swedish TV advertising market was up around 7% in the fourth quarter compared to the IRM latest official estimate of 9%, while we estimate that the Norwegian TV advertising market was up approximately 5% year- on- year compared to IRM's forecast of 7%. The Danish market is estimated to have been down around 1% year- on- year in the fourth quarter, according to official sources. Our sales were up 3% year on year at constant exchange rates in the fourth quarter, and we took advertising market share in Denmark.
Our advertising market shares were obviously down in Sweden and in Norway, following the lower ratings and audience shares we have seen in the fourth quarter. The spot prices continue to rise in each country in the fourth quarter, and we were sold out in all three territories for most of the period. If we talk about the Swedish situation, obviously, our Swedish ratings were affected by the weaker than expected performance of TV3, as several high-profile home productions did not deliver as expected. However, and again, it's important to put in perspective sometimes, our secondary channels have performed well, and the overall media house reach is what we sell to our customers.
If it comes to TV3 and the ratings issue, we have to change the programming director in the fourth quarter, and the spring schedule was launched earlier this year and contains a mix of prime, local, and international formats and programs. TV3 ratings have stabilized now, as we can see more or less, and the other channels are continuing to perform well, so the media house trend is still on the positive side. Furthermore, very important as well to remember, we are extending our regional coverage from 6 to 19 regions in the first quarter, and this is a substantial opportunity for us over the medium to longer term as TV is underrepresented in the SEK 14 billion regional advertising market. We, in this TV advertising market, the regional one, have less than 10% share, which in this overall SEK 700 million market.
A good opportunity for us to grow, obviously, as well it comes with investments at the same time. The situation in Norway is different. The ratings in Norway continue to be down in the quarter, following weaker than expected performance of a number of local production show sales as well, and as we mentioned before, the structural impact of new channel launches by our competitors. There as well, we have taken action in order to improve the situation. We have changed management during the fall, and we are working with our spring schedule in order to stabilize and to recover our audience share. This will take some time though, so you have to be a bit patient with us in that respect. The Danish ratings were affected by lower viewing figures from the football and the impact on commercial put levels of the Danish general elections.
The spring schedule is being launched earlier with a lineup of new seasons of well-established and successful shows. As you remember, in Denmark, the most important criteria for us is to keep the premium towards SBS. All in all then, we have some work to do, obviously, with some of our channels, but at least for me, this is not the first time that we have faced such issues in Scandinavia. As before, we are taking the required step to recover our positions. On a broader level, running a company in more than 30 countries, it is a kind of recurring item that you have in some of the channels rating issues. Normally, you know what to do. If we talk about OpEx segment, OpEx was up nearly 10% at constant exchange rates in the quarter, following increased program investments in all three Scandinavian countries. OpEx was up 7% for the full year at constant exchange rates, which is slightly lower than expected. The total operating profits were therefore down year- on- year, but the Scandinavian free-TV business still delivered an operating margin of 23% in the quarter and 25% for the year, which is amongst the highest in Europe. If you go to the outlook, we have raised our rate card prices in all three Scandinavian markets and are in the midst of the annual upfront negotiations. These discussions are running later as they used to do, but there is a clear demand that is reflected in these pricing discussions we have. Overall, visibility remains low with the same short booking cycles as previously. Our best estimate, therefore, at this moment is that the TV ad market will grow by low single-digit percentage points in 2012.
As we can see from external sources, this will not be the case in the first quarter when both the Danish and the Swedish markets are expected to be down year- on- year. We expect our full OpEx to be up by mid to high single-digit percentage levels for the full year 2012. Again, remember that the comms mean that the growth will be front-end loaded with the first quarter expected to be up in line with the last two quarters. We are catching up on the investment levels we have done in the beginning of 2011. That's about the free-TV business. If we then move on to the Nordic pay-TV business, which is a very stable and solid business, we have seen revenues up 7% year- on- year at constant exchange rates, which primarily reflects the 5% growth in premium satellite subscriber ARPU.
The ARPU was driven by the price increases introduced during the year and the rising penetration of PVR, multiroom, and HD service. Our total premium subscriber base grew by 16,000 net new subscribers in the quarter, which is a very good figure, and it was driven by the addition of third-party network virtual operator subscribers in Sweden in particular. Our OTT service Viaplay, we can see that the Viaplay subscriber base is also growing, and although we are not providing subscriber numbers for this business, it is developing according to plan. We have added nine new catch-up channel services to the satellite set-top box-based offering, and new content and features are being included all the time. We are excited about the potential for Viaplay and this kind of business, and it is no accident that Skyfox has just announced that it's launching a similar service now in the UK.
The Viasat satellite platform is now in its 21st year, and we have just announced the rebranding of our TV 1000 channels as Viasat Film in Sweden, Norway, and Denmark. We are launching four new Viasat Film premium HD channels in March, and we'll then have a market-leading offering of 11 thematic movie channels all under the brand Viasat. Operating profits were up 18% year- on- year if it comes to pay-TV Scandinavia, despite the ongoing investments in Viaplay, HD services, and premium sports content that we have been making in the last year. The business reported an increased operating profit margin of 20%.
If you have an outlook on the pay-TV side, first, it's worthwhile to mention that one of our virtual operator contracts with the Norwegian IPTV operator is coming to an end in January, not because they canceled the contract, it is because the operator has been acquired by a cable company. Our third-party network subscriber base will be reduced by approximately 12,000 in the first quarter as a one-off effect. However, since we have standard mini-pay agreements with the cable operator, there will be still revenues, of course, coming in for those 12,000 customers. We expect them of all that the satellite premium app will continue to grow by low to mid-single-digit percentage points in 2012, and we do expect further growth in the number of virtual operator subscribers, excluding, as I said, the one-off effect of the 12,000 in the first quarter.
Viaplay will also increasingly contribute to our subscriber and revenue growth during the course of 2012. If we talk about OpEx, the segment OpEx will continue to increase in 2012, obviously due to rising sports rights costs, the investments we are making, and the rebranding of our film channels, which is taking place in the first quarter and the second quarter, and the launch of the HD channels. Sports rights costs are expensed now on a yearly basis throughout the year, and this includes the new Champions League and the Danish Football League agreements. You will not see a big increase in cost anymore in the third quarter. As a result of the investments we are making, we expect the full-year operating margin to return to the normal level of approximately 18%.
The level will vary between the quarters, and as I mentioned earlier, Q1 will be impacted, obviously, a bit by the film channel rebranding in particular. If we then move to the emerging markets free-TV operation, where it was, we can say maybe a mixed picture in terms of market developments in the fourth quarter. The Czech, the Estonian, and the Ghanaian advertising markets were all estimated to have grown in the quarter, but recovery in the other emerging markets has still not picked up. However, I think the picture was clearer when it comes to our own performance. We increased our audience share in almost all territories and increased our TV advertising market shares in each of the Baltic territories, the Czech Republic, and Ghana.
Despite the ongoing investments in the content and growth, we reported a 19% increase in operating profits in the quarter with an improved operating margin of 10%, and we were profitable for the year. We announced as well at the beginning of the year that we have taken the somewhat difficult decision to close down our loss-making Slovenian operation. Just to be clear, this was not the result of any operational issues. I think the TV3 Slovenia team has done a fantastic job, and I can only thank them for what they have done, taking the channel with less than 1% commercial share of viewing when we bought it to over 11% in five years. It's quite an operational achievement.
However, we have not been able to develop the business as planned because our competitor has abused its dominant market position, and despite all the efforts we have tried to do, the authorities have not acted to create a level playing field. We have fought hard, but at one point in time, of course, you have to focus on shareholders' money and on markets where you can generate a fair and sustainable return on our investment in the medium and longer-term future, and that's the reason why we took the decision to end our engagement in Slovenia. At the same time, as you can see, we move forward, and the announcement of the acquisition of MNT in Latvia, where we are awaiting regulatory approval, is a good example that we see other opportunities coming up at the same time.
If we then go into the three markets in turn, the largest markets we have, which together generate 9% year- on- year sales growth, let's start with the Baltics. There as well, there are no official market statistics out yet, but estimates are that the Estonian TV advertising market was up a couple of percentage points, while both the Latvian and Lithuanian markets are expected to have declined by approximately 5% year- on- year in the quarter. Our Baltic sales were up 1% year- on- year at constant exchange rates in the fourth quarter and 8% for the full year. Our target audience share were up "quote-unquote" in all three Baltic countries, so no rating issues here. The new Lithuanian channel TV8, which we launched early in the fourth quarter, has developed well and already proven popular with our viewers.
Outlook for the Baltics, the markets are still soft, and it is not yet clear that each of the markets will grow again in 2012. However, I think we are well-positioned, and we will benefit directly from any growth in these markets if it comes. We will continue to invest selectively in programming in 2012 as well, but do not anticipate any significant increase in OpEx at this stage if it comes to the Baltics. If we then move to the Czech Republic, which is a good story, the TV advertising market has probably grown, as we estimated, by approximately 5% in the fourth quarter and the full year. We not only increased our target audience share year- on- year from under 26% to 30%, but we also grew our sales by more than 20% in the quarter at constant exchange rates and by 20% for the full year.
Although prices have remained under pressure, it is clear that we have taken significant market shares during 2011 in the Czech Republic. All of our channels have performed well, and the Prima Love channel has exceeded our expectations since its launch in April. We have rebranded our number one channel as Prima Family with effect from the beginning of this year, which is expected to enable us to offer an even more differentiated and complementary profile and reach for advertisers. Outlook for the Czech Republic, there are no official estimates yet either, and there is short visibility, but currently, we expect the Czech TV ad market to continue to grow by low single-digit percentage points in 2012. We do also expect to continue to take market share given the higher audience shares that we have now achieved.
And then finally, to Bulgaria, where the TV advertising market is estimated to have been down approximately 5% in the fourth quarter and the full year, while our sales were down 11% at constant exchange rates in the quarter and 12% for the full year. Pricing levels have remained low, but our target audience shares did increase year- on- year. If you look at the outlook for Bulgaria, we still do not see any signs of growth in the Bulgarian TV advertising market for this year, and we are continuing to see pricing pressure from our competitors. While we have written down all of the goodwill related to our acquisition of Nova TV, we remain committed to the Bulgarian market. The cost of content is coming down clearly, and we do not see the need to increase our levels of investments in Bulgaria beyond what we have already done.
Last but not least, if we move to the pay-TV emerging market business, sales were up 6% year- on- year at constant exchange rates as a result of accelerating subscriber intake on our Ukrainian and Russian platforms, as well as growth in the Baltic subscriber base. We added a total of over 100,000 net subscribers in 2011 and 72,000 subscribers in the fourth quarter alone. Clearly, a good momentum if it comes to our pay business. The number of the wholesale mini-pay subscribers was up 28% year- on- year in Q4, and we surpassed 64 million subscriptions at the end of the year. The increase in operating costs for the combined pay-TV emerging market businesses reflected the launch of 10 new mini-pay Viaplay channels since the beginning of 2010, as well as the investments we are making in the development of our platform in Ukraine and Russia.
Please also remember the comms effect of the consolidation of 50% of Raduga TV in Q1 last year and 100% of Viasat Ukraine in Q2. Profits were down on the back of the investments we are doing, but we were still profitable for the full year. Last but not least, remember as well the impact of the Ukrainian accounting alignment when looking at the results for this segment. Outlook, we do expect continuous subscriber intake in 2012 on the satellite platforms and following the additional mini-pay channels we have launched, but the comms obviously are getting tougher and tougher for the mini-pay business as we are now available on most platforms in Eastern Europe. Profits for the segment should also be up in 2012 as the Russian and the Ukrainian platforms move towards break-even. That covers much about the operational side.
I'll now hand over to Mathias to run you through the financial side.
Thank you. Record sales for the quarter and the year have, as you've seen, been converted into very, very strong cash flow, particularly in the fourth quarter, which also included the receipt of increased dividends from CTC. Furthermore, we had also tied up SEK 56 million more only of working capital at the end of the year, despite the significant expansion of our operations during last year. We expect to see the usual seasonal patterns in the working capital movements during next year, or actually this year, it is. For the first quarter and the third quarter respectively, you should see significant negative swings as we see it right now. We did not acquire any businesses during the year, and our asset-light business model ensured that CapEx continued to remain around or even below 1% of our revenues.
We used our cash to pay down almost SEK 900 million of borrowings in the fourth quarter alone, so we ended up in the year with only SEK 1.5 billion out of our SEK 6.5 billion credit facility drawn down. We had cash balances of SEK 470 million at the end of the year, plus our CDON convertible bond that has performed quite well, particularly this year. Our net debt was SEK 800 million, which is equivalent to around 0.3x our 12-month trailing EBITDA. We did have, as you have seen, of course, a number of one-off effects in the fourth quarter, which we all pre-announced, and most of them were non-cash impacting in 2011. The write-downs followed the prudent view taken during the regular year-end impairment tests, and at this stage, we are not aware of any other impairment risks right now.
In that one-off cost, we also fully provided for the cost of closing down the loss-making Slovenian operations, as I've already mentioned. When combined with a EUR 3 million lower amortization cost for the Bulgarian broadcasting license that we also wrote off, our emerging market free-TV operations will have approximately SEK 60 million more profit in 2010 when compared to 2011, when you're looking into this year. As promised, we also disclosed the dilution impact of CTC Media new share issues and the change in value of the option element of the CDON Group convertible on our website after the end of the quarter. For those of you who are interested, you should continue to look at it there because they can be very difficult to predict otherwise.
These two effects created a SEK 45 million positive impact in our financial net in the quarter and a SEK 36 million positive impact for the full year. The rest of the delta compared to the total other financial items is mainly due to realized and unrealized exchange rate differences in our balance sheet. Fundamentally, we ended the year in a strong financial position with substantially reduced borrowing and considerable financial resources to continue to invest in the growth and development of the business and to increase the total shareholder returns by means of the 20% increase in the full year dividend for the year. Finally, the dividend policy that we have now adopted reflects the group's ability to combine healthy growth and cash conversion levels.
Our primary focus remains to grow, which is why we're committed to continue to invest in all the new technologies, all the content, and all the territories that we'll see. We also believe that shareholders obviously should benefit directly and consistently from our strong cash flow generation. Then back to Hans-Holger.
Thank you, Mathias. Maybe before we come to the Q&A, just with some of the kind of key highlights of the full year announcement and the fourth quarter announcement. As we said before, we have seen that we have delivered, despite the environment we're in, record sales growth across each of our broadcasting business. We have seen as well that despite operational issues we are aware of, of course, and we have to work on, like the rating situation, we have best-in-class margins on the operational levels, and we delivered a 14% full year underlying margin despite all the investments we are doing in the growth side. We are adding, which is very important as well, subscribers in the Nordic and emerging markets, like we have done always.
As I said, we have some work to do with our rating situations in Scandinavia, but other markets, for example, like Eastern Europe, we see very positive trends in terms of rating perform. More important as well, cash conversion levels are high, and we have not only reduced our borrowings but also increased our proposed full year dividend payout and adopted a dividend policy for the first time. Overall, I think the group is in good shape, and we are investing into growth and into the future, and we want to drive the company forward as we have been done in the past. No substantial change in that respect. That concludes our comments and results, and now we will be happy to answer your questions. 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 your question, please press star two on your telephone keypad. Our first question comes from Stefan Nelson from SEB and Skulda.
Hi everybody. A few questions if I may. Just maybe starting off on the rating side in the Nordics. Obviously, you're investing a lot, but on the other hand, you lost the Hockey World Championship to TV4 this year, and there are a lot of events that you don't have the rights to. Should we expect you to be able to maintain your ratings in 2012, or what are your expectations?
The impact of the loss of the Icehockey World Championship, we calculated, is less than 0.1% or something like that on a full year basis. It is not as big as people sometimes believe. It is more kind of image factor you had. We believe what will have a bigger impact, obviously, in the second quarter are the Olympics, but they are more on the public broadcaster for the time being and therefore do not have a kind of impact on the commercial side. Overall, I think you are going to see in Sweden the trend that we see is still good momentum of positive developments if it comes to the media house. We expect somewhat of a stabilization of TV3 during the first half year and then a better performance probably after the summer when we launch the new fall schedule.
If you look at Norway, the situation is a bit more tricky because TV3 is, of course, bigger there for us still. There we have to work a bit longer, and the earliest where we see probably more positive development is in the second half of the year. I think overall, the kind of combination first year, you can say stable media house is still fine, TV3 is stabilizing, and then the impact in the second half.
Okay. When it comes to other free-TV revenues from Denmark, especially the pay-TV that's included in free-TV, do you have any price increases in plan there as well for 2012?
No, there's nothing special to it. It's business as usual if it comes to those revenues in Denmark.
Any growth would be from ad markets and ratings improvements, that is?
Exactly, exactly.
Okay. Also, going on to the pay-TV side, maybe we could just kind of be slightly more clear on the margin development. You say the big impact on costs will come in Q1, or should we expect the pay-TV margins to drop more in the second half when new content, especially new Champions League, is included? How will the kind of seasonal effect be?
No, you have, as I said, you have a margin which will swing around to 18%, the normalized levels, and the cost normally will be spread over the kind of full year, but there can be differences. What do you do in terms of special marketing campaigns? What do you do in terms of special investment campaigns? For example, if you launch or the launch of Viaplay Film will have a bigger impact in the first quarter, and therefore you see maybe a slightly different margin in the first quarter, but it will be catch-up then by better quarters during the year. If you take it on a kind of aggregate level, it will be around the 18%.
Okay. When it comes to the price increases, when will you start seeing the effect of that? The ARPU is flat quarter on quarter in Q4.
Normally, I mean, we increase prices like every year, again this year as well. It will be the kind of normal procedure. Of course, you have the kind of delayed effect. Over the year, you're going to see exactly the kind of normal ARPU increases through prices like we had in the previous year. It's pretty steady in that respect and can be compared to previous years.
The reason that ARPU hasn't increased Q4 versus Q3, is that because the price increases have not kind of carried through to your revenues yet, or is there another reason behind the flat ARPU?
No, it's correct what you just said. It hasn't filtered through yet.
Okay.
You can remember as well that there is also some level of mix effect as well that we need to consider, and the upselling of new services. It's all a big mix effect. It's not only to look at the headline price.
Sure. You expect ARPU to grow despite the kind of mix from DTH to third-party IPTV subscribers? You should still be able to improve the ARPU on an aggregated basis, or?
Yes, we foresee that. Exactly.
Okay, thanks so much.
Thank you.
We will take our next question from Nicholas Dubourg from JP Morgan.
Good afternoon. A couple of quick questions on Scandi free-TV. Back in December, the indication was gross upfront up 12%. I was just wondering how that was carrying through and how it was translating into revenues for 2012. Also, if we could just have a bit more color on the OpEx guidance for Scandi TV in 2012, where are you spending more? Where are you just switching spends and things which aren't working into things that are? Thank you.
If we go to the first point, the figure we thought out in December, the 12%, there was a rate cap increase, and it was always a gross price. I would be a bit careful to take this as a kind of running number. On a general note, however, you can see that prices are going up on the upfront. To what extent as well, we have to see a bit because you close later than last year, for example, some of the upfront agreements. Yes, prices are up on the upfront, but the 12% figure which was out was a rate cap figure and therefore is not the real figure and should be treated with caution. If it comes to the cost increase this year, again, for the free-TV side, you're going to have a mid-single-digit or a bit higher single-digit percentage figure cost increase.
You will see, however, which is important to stress again, the weighting towards the first half year and particularly towards the first quarter because on the comms last year, we didn't launch our full schedule as early as we do this year, which we had to do in order to be competitive. Therefore, you will see more cost increase first half and then a kind of more normalized situation when it comes to the second half. You're welcome.
We will now take our next question from Stefan Leich from Deutsche Bank.
Hi guys. I have a couple of questions on the pay-TV side. Firstly, could you just clarify what you talked about when it comes to sports contracts and particularly then the Champions League? The new contract will just start to hit the P&L from Q1. Is that what you said?
Yeah, that's correct. We take the full 2012 cost spread over 12 months.
Wonderful. When you say that the margin should be around 18% or swing around 18%, is that the guidance? Didn't you do like 20% or something here in 2011? Is that because you're investing now in content or is there something else?
What we've seen all the time is, of course, when you have lower investment levels or lower marketing initiatives or whatever it is, margins in a quarter can go up to 20% like we have, for example, in the fourth quarter. Similar efforts, if you have more investments or you do new campaigns or new things, of course, margins can be below 18%. This is what we're saying is it will swing around. Just to put it exactly on a potential figure, we don't do because we don't do forecasts. That's the kind of level you have, and it's exactly in line like we had in previous years. There's no change.
Wonderful. Just to be clear, you said the third-party network there and the 12,000 subs. I didn't understand. You will lose them in Q1, but you will still recognize revenues for how long will that be?
The situation is important. We had an agreement, a virtual operator agreement with a small broadband company where we had 12,000 subscribers in Norway. That company has been acquired by one of the bigger cable companies in Norway, the only two. It is the number two you can get. Therefore, we have to, accounting-wise, take them out as own subscribers because we don't control them fully anymore ourselves as virtual. They're going to be turned into cable customers, of course. You still, of course, since you have revenue from the cable company, have revenues against it. It is more a kind of effect, of course, on net subscriber intake for the first quarter. If you look then at the end of the first quarter, you have to remember the 12,000 one-off effect.
Okay, wonderful. Last question, Viaplay. Are you going to continue to invest into that business? Are the losses, are they going up or do you sort of, as you now get more revenues into that, the losses go down? Could you just help us understand what you're doing with that business?
As I've thought, it is important if you take on a short-term quarter perspective, the long-term initiative, and this is one of the most important initiatives we have to be leading or whatever it comes to technology changes in our business. Therefore, Viaplay is very important, and we continue to invest, and I committed to continue to invest into the technology, into the content, into the marketing. We grow with the flow at the same time. We're not over-investing. As I said, it is product-wise very strong nowadays, and it is in terms of its performance in line with our plans. Overall, we are fine with the performance here.
Okay, thank you.
Thank you.
We will now take our next question from Lisa Yang from Goldman Sachs.
Lisa, are you there? If Lisa is not there, Operator, we may take the next question.
We will take our next question from Mikael Holm from Erik Penser.
Hello, Mikael Holm, Erik Penser. First of all, regarding the Nordic ad market, you're talking about Sweden and Denmark probably being down in Q1, and I guess the new price levels should be on the mind of your clients currently. Why are you optimistic then on the full year that there actually will be growth in the Swedish and Danish ad market?
To a certain extent, of course, we're trying to read the market and read our customers. When you talk to customers, you don't get the impression it's a kind of fully negative outlook. We don't know much more right now like anyone else. It's a mixed bag. As we said earlier, it's mixed with the positive sign that prices are coming up, and the negative sign is that if I am forecast that the market in Sweden and Denmark will be down. It's not a clear picture. I think the key point for us is to see a bit more in the March booking and then see the beginning of the second quarter. That can be due to a certain extent as well to the hangover effect from a very strong market last year, and now people are a bit more cautious in terms of investments during the first quarter.
It's hard to judge. If prices will be down as well and under pressure, we would have a more negative outlook. The combination of both doesn't give us a clear picture, and therefore we're just saying wait and see, and we refer to the official sources.
Okay. Could I also ask you about the capital structure? I think you yourself have said that it's not value creating having a too strong balance sheet. How do you look at the balance sheet today, and how long could it be in, at least in my view, this strong?
Yeah, it's a trade-off, of course, between opportunities you see in the market and the optimal balance sheet and return to shareholders. We do it normally, of course, like a process once a year together with the board and then come up with the dividend and the dividend policy now time. We have seen examples as well, of course, that you can look in between those kind of periods if you feel the balance sheet is too strong or not used in the right fashion. I think fundamentally it's more important that we get those three criteria together, which are the signature right now if you look to the financial structure. A, we are committed to growth and we are committed to investments, and we're going to do investments, particularly in technology, new markets, and content.
At the same time, as I said, we can do acquisitions as well as they arise, and we can afford despite all the things still to go with the dividend policy as of now, which is, I think, a strong combination. I think it shows a bit that there is a discipline from the board and the management to look at those things. Again, as I said, if we feel during the year something has to be done, we may reconsider with the board.
Okay. My last question then is on free-TV in the market. You're talking about the possibly flat market for this year. What about OpEx levels for 2012?
It's a bit mixed. If you look at Bulgaria, for example, we can see that programming or cost for programming is coming down. The market is adjusting to the new reality, which will be positive. We rather see decline costs than increased costs. Fortunately, no increased costs in that field, rather decline. If you look at the Czech market, we see increased costs because we're investing still in growth and we have the momentum right now. If you look at the Baltic markets, it is the flat market. There we're going to adjust to the market performance, really.
Okay. Thank you.
Thank you.
We will now take our next question from Rasmus Enberg from Handelsbanken.
Yes, hi. Can you hear me?
We hear you clearly.
Good. I wanted to ask you about your satellite pay-TV platforms in Russia and Ukraine. Can you give some sort of indication where you had the stronger intake of customers in this quarter? Also, if you could just remind me of the expected or what you currently think in terms of break-even for those two operations, when that will happen?
Yeah, I think if you look at the intake, there are two impacts we have seen in the fourth quarter. Our experience is when you launch pay-TV platforms for pay-TV operations, you have a kind of hockey stick performance sometimes. You need an acceleration point when the product becomes more known and the brand becomes more known and people start to buy it, which you have seen probably in the fourth quarter where sales have accelerated quite clearly. The second point as well, however, to keep in mind is that we see in Russia and in Ukraine still this kind of seasonal pattern like we had in Scandinavia, where the fourth quarter is a very strong quarter in terms of new sales.
I think it's a combination of both, but it shows that the underlying trend, particularly in Ukraine, is very positive and one of the good growth opportunities we have as a company going forward. On the back of this kind of performance we see in Ukraine, we are committed, of course, to capture the market and take the market fast. Our main focus is not to reach break-even as we have planned normally for this year. There may be as well that we look for more content to be added or more investments to be done on a marginal scale. The black figure is not the kind of most important point. It's more to keep the momentum and keep the growth. The operations are coming close to break-even as well.
The intake was bigger in Ukraine than in Russia in this quarter. Is that?
Yeah, it's half. We can say nearly half and half. What is more important, in Ukraine you have a real premium customer base, so the ARPU is higher.
I just wanted to ask you, what do you think the tax rate will be this year, jumping widely?
I think we stay with the same as we did for 2011, between 25% and 30%. I think 2011 we came in pretty much in the middle of that range. That's probably where we're looking at for this year as well.
Okay. All right. Thank you.
Thank you.
We will take our next question from Adrian Dissum-Eller from Exam.
Hi. Good afternoon, everybody. It's Adrian from Exam. Thanks for taking the questions. Thanks for all the details on the advertising trends. First of all, I was just wondering if you could give us your view on the carriage fees, carriage revenues increase in Scandinavia for 2012. That would be my first question.
I think we tried to explain that in the last one. Maybe it wasn't so clear because it's normal price increases, nothing fundamental trend shifts compared to what you've seen so far. No extravagant increases anywhere, really.
Okay. Can you share with us what your expectations are moving on pay-TV in terms of subscriber losses or potentially wins for your satellite platform going into 2012? Are you seeing the trends slightly improving coming from a previous deterioration, or are you still expecting the same amount of subscriber loss?
We see fundamentally the same trends like last year, meaning DTH will decline structurally in terms of numbers of net subscribers. The virtual operator model, the IPTV model will grow. Still, the third-party networks we're going to see intake, and the combination of both will be then a kind of net subscriber growth for the year. Again, exclude the one-off effect in the first quarter. Obviously, long term, if you take a kind of five-year right or whatever, you see migration as well from the old distribution forms, broadband, cable, and DTH to OTT. That is more the kind of long-term trend. Overall, you're going to diversify more and more the distribution forms you have towards your customers.
Okay. Now moving to emerging markets. First on free-TV, did you quantify what the impacts of the public TV ad ban would be in Czech Republic? Have you seen any positive impacts in the first months of 2012?
Yeah, it was a very low percentage figure, I think, which was remaining with the public broadcasters. You've seen it starting in October, and it gradually came in in the fourth quarter, and you see maybe still a small impact in the beginning of this year. It comes gradually, but it's a smaller amount.
Okay. Finally, two questions on pay-TV in emerging markets. You suggested that the number of mini-pay subscribers is somewhat plateauing and that you're kind of reaching a saturation. Are you therefore suggesting that the growth rates have peaked in emerging markets or in pay-TV emerging markets operation? A second question, kind of a technical one, is what was the growth of this segment if you exclude the kind of accounts restatement that we were planning to forward? What was the growth excluding this adjustment at constant currency, sorry?
Yeah. If you start maybe and Mathias can do the other point. If you start with the pay-TV channel business, what we're saying is, of course, if you have 64 million subscriptions and the distribution platforms we have currently, the comms are getting tough and tougher. You are not going to have this extreme strong growth rate anymore like in old days. Growth in terms of numbers of subscribers will slow down. There may be still, of course, opportunities to add subscribers, but that's the kind of general trend we are foreseeing. Therefore, the game is moving more towards ARPU. If you look at the ARPU side, of course, there's opportunity for us to grow. It goes ahead as well, of course, to a certain extent to invest into quality of the channel, into the programming of the channels, the brands of the channels. It's a kind of mixed bag.
Overall, it's still going to be a growth area per definition. Clearly, the bigger driver in the future will be more and more the satellite business in Ukraine and in Russia. If it comes to the other point, I hand over to Mathias, and you can answer that one.
I have to give you a kind of an estimate now because I don't have the number in my head, but I think we showed 6% reported and 14% in the third quarter. I think if you strip out that effect, it would be roughly north of 10%. I can put it that way, at least.
Okay. Right. If I could just sneak in one last question, there were some recent estimates made by the CEO of Tricolor regarding the Russian satellite markets, kind of bullish, very bullish assumptions in terms of subscriber intake. Would you agree with such assumptions in terms of growth in the number of subscribers in the next five years?
Structurally, we are positive about the market because we believe satellite is one of the dominant distribution forms for long term in the Russian landscape. Therefore, the satellite business in itself is very strong. About the figures, we never comment on those ones, but structurally, we are positive about the market as well.
Okay. Thank you very much.
Thank you.
We will now take our next question from Lisa Yang from Goldman Sachs.
Hi, can you hear me? Hello?
Hello?
Hi. Sorry, I had some mic issues early on. Sorry, just a couple of more specific questions, especially in free-TV Scandinavia. How much were you sold out so far? Also, you were talking about the tough comms in Q1. You expect the markets to be down. What's your expectation in terms of declines in the market? On your audience share, can you give us more color on how much was your audience share trend in January and February? If you can quantify that, that would be great. Can you clarify your dividend policy? Is that continuous same level of increase going forward, or is it more in terms of payout ratio? Thank you very much.
Some of the questions I can do short because we have been touching them already. I think if you look at the advertising market in the first quarter, the forecast is that Sweden and Denmark are declining. That is what is the kind of statistic we get from IRM. In terms of solo ratio, we are close to being sold out so far in the year, for the quarter. That's the tendencies we have seen in January. In terms of audience in Sweden, we see media house doing fine. TV3 in Sweden is stabilizing. In Norway, we still have issues to be fixed, and we're going to decline probably in the first quarter slightly.
In terms of the dividend policy, I think that's a policy going forward, which is in connection for profit on net income, which just underlies that we're going to have a healthy mix now of dividends per year and still invest into the growth opportunities if you want to invest them.
Okay. I can now also have a follow-up question. Why did you underperform so much the market in Bulgaria in Q4 despite better ratings year- on- year? Thanks.
We are a victim there of the sales strategy of the number one channel, who is selling inventory on a very low base cost, lowering prices and selling out inventory. By that, of course, they can take a better market share. It's a temporary thing. We don't think it's going to be the kind of trend line, for example, this year.
Okay. Thank you.
We will take our final question from Sarah Slyman from Berenberg Bank.
Yes, hi. Just a kind of long-term question. Given the decline in your DTH base in Scandinavia, can you see a force? Can you foresee a situation where you just essentially close that business ultimately and switch to entirely alternative distribution? Allied to that, can you just give us an idea of the economics of distributing via satellite versus via IPTV, for example, or other platforms?
I think the situation with DTH is structurally a declining or stable business. If you benchmark to other markets, for example, in Europe, DTH is actually flat or even growing in, like in Holland, for example. We are suffering a bit from the structural disadvantage we have in Scandinavia that we have two competing platforms which are not offering the full program lineup. That answered then the first question that DTH will not be closed down. It's just a business, of course, which is a saturated market, and you have to manage a bit different. Therefore, the kind of offerings we are doing with new services to our existing customers like DTH, for example, with Viaplay, will play a more and more important role. Long term, I remain or keep my statement that at one point in time, we don't care anymore what kind of distribution form we have.
We just care about the customer we have and what he's paying to us. It becomes less an issue for us. In terms of economics, obviously, it's different on the DTH customer. You have the subscriber acquisition cost. In the first two years, the net profit from a DTH customer is not as high. If you stay as long, of course, it becomes a very profitable customer for us going forward. On IPTV, it's completely opposite. You have, of course, no subscriber acquisition costs, so profitability is pretty high. If it goes long term, of course, then it becomes lower than a DTH customer. If you look at OTT distribution costs or mechanics, you have good net gross margin from a customer because distribution costs are lower and you don't have the kind of hardware investments you are doing.
That's a reason, for example, why we can afford to have such an aggressive price policy on Viaplay and still make nearly as good margin, for example, from a Viaplay customer like we do with a virtual operator customer. That's the kind of mix you have.
Great. Thanks.
Thank you.
As there are no further questions in the queue, I will now hand the call back to Hans-Holger Albrecht for his closing remarks.
Thank you, everyone, for listening in and asking us all the good questions. I hope we answered them in a satisfying way. We will speak again with you in the next coming days and weeks, and then for the first quarter announcement in 2012. In the meantime, thank you for your patience and your support, and good luck.