Good morning, everyone, and welcome to Viaplay Group's Q1 results conference call. My name is Anna Hedenberg, and joining me here on the call are our CEO, Jørgen Madsen Lindemann, and our CFO, Johan Johansson. Before we start, please note that today's call is being recorded. After the presentation, we will open up for a Q&A. If you're listening on the web link, feel free to post your questions on the message board at any time, and I'll read them out during the Q&A.
If you prefer to ask your questions live, you can do so by using your phone keypad, but more about that later. You can find all our results materials, including the presentation deck on the Investor Relations section on our website. We won't be following the slides directly, but they contain all the key information for reference. With that, I will hand over to you, Jørgen, to walk us through the Q1 highlights.
Thank you, Anna, and good morning, everyone. It has now been one year since we finalized the recapitalization of Viaplay Group. Since then, we have refocused our content strategy on commercial, locally relevant storytelling, prolonged key sports rights at market value, and sub-licensed or sold selected titles to right-size our cost base to stay competitive and relevant.
We have worked closely with partners and suppliers to ensure that future agreements are sustainable and mutually beneficial. We have entered new and exited partnerships and focused on return on investment across all areas. We have launched new, fairly priced products and implemented account-sharing measures across all core markets to protect the value of our content. We exited the U.K. and the Baltics, divested our studio operations, and streamlined our organization to gain greater fit for purpose and cost control alongside proper capital allocation.
The exit of Poland, our last non-core market, is progressing according to plan and will be finalized in the summer of this year. Our Q1 results reflect the direction we are taking, but we are not yet where we want to be. The transformation is focused on performance improvements, monetization, value over volume, and cost control, and building long-term sustainable business. We reiterate our 2025 targets of low to mid single-digit revenue growth and positive free cash flow for core operations.
Our core operations revenue decreased by 5% organically, driven by lower year-on-year sales within sub-licensing and others. All other revenue streams grew year on year. Viaplay, which represents nearly half of our core revenue, saw organic sales growth of 1%, driven by price increases and improved product mix. D2C subscribers' numbers and ARPU continue to grow year on year, supported by both Film and Sport and Film and Series subscribers.
Account-sharing restrictions now fully implemented across core markets continue to support monetization and reduce the value leakage. We make clear choices about how we package and price our offering, focused on relevance, the right positioning, and improved monetization. These choices are deliberate and needed, and while the full impact will take time and may result in lower subscriber numbers and revenue in the short term, we are seeing positive signs in subscriber value and ARPU development.
Linear channel subscriptions grew 2% organically in the quarter. That reflects the price adjustments and new distribution agreements. We increased our share of viewing audience across all our core markets, underlying the continued relevance of our content. In advertising, the structural shift from linear to digital continues. Growth in digital and radio offset the linear decline, and the combined advertising business grew 1% organically.
Digital ad inventory grew by 50%, largely due to the expansion of our HVOD products. Our HVOD offering is now also available in the Netherlands, which strengthened both our reach and our commercial flexibility in one of our core markets. We also continue to invest in anti-piracy measures and enforcement, working closely with partners to protect the value of our content and limit unauthorized access.
Sub-licensing and others declined by 53% organically compared to the same period last year, which was expected. Q1 2024 included revenues from exceptional scripted content deals, which were not repeated this year. Instead, the focus now is on sports sub-licensing and creative partnership that maximizes reach and return on investment. The Sport product continues to be a key audience driver.
During the quarter, our rights portfolio delivered strong engagement across all markets, with highlights including the Premier League, the FIS World Cup events, and the start of the new Formula 1 season. As we look ahead now into Q2, we expect continued momentum from the UEFA finals, the ongoing Formula 1 season, and the Ice Hockey World Championship. Our revised content strategy continues to resonate with the audience, and the focus on commercial non-scripted formats is improving investment efficiency.
Returning hits like Paradise Hotel in Denmark and Norway, and new titles such as Bättre Sex and S:t Görans Sjukhus in Sweden, now that relevant storytelling drives both, show that relevant storytelling drives both engagement and return of investment. We remain disciplined in how we invest and equally disciplined in how we operate. Value over volume, cost control, ROI-based decisions, and simplification remain at the center of everything we do.
Losses from non-core operations were in line with expectations, and we remain focused on minimizing negative cash impact as we finalize the exit from Poland. We still have a lot to do, and the transformation continues, but our strategy is clear. We are all focused on building a Viaplay Group that is more relevant and competitive, in sync with consumer and partner demands, aligned with market trends, leaner, sharper, and with content that is more relevant to our audiences.
Everything we do is focused on what our business needs to compete and create value over time. We will continue making the necessary trade-offs to protect long-term value and ensure that our content, products, and partnerships reflect that ambition. That concludes my remarks, so Johan will take you through the finances. Over to you, Johan.
Thank you, Jørgen, and good morning, everyone. As we start the year, our focus remains on financial discipline, cost efficiency, balancing risks, and improving our cash flow. We continue to execute on the operational and structural changes initiated last year, and while we're making progress, these efforts take time. Our full-year targets remain unchanged, and delivery will require continued focus across all areas of the business, especially as comparables become more challenging in the second half of the year.
Our Q1 reported sales were once again impacted by currency fluctuations. Organic growth was slightly better than reported, with an FX headwind of approximately SEK 50 million on core revenue and SEK 60 million on cost. To note also that the organic growth for the first quarter was affected by lower content distribution sales, and excluding that effect, the organic growth was approximately 1%.
Core EBIT, excluding ISCs and associated company income, was negatively impacted by approximately SEK 110 million FX in the quarter. This FX impact derives from that a portion of the content rights were paid in advance prior to the recent strengthening of the Swedish krona. At the same time, reported revenues in Norwegian krone, and Danish krone were negatively affected by the transaction FX during the period.
During the first quarter, we have locked in FX rates for a part of the content cost for Q2 to Q4 through payments in advance, as well as building up cash positions in euro and dollar. However, we are exposed to the FX effect on the revenues for Q2 to Q4. This means that our net exposure in dollar and euro has come down for the rest of the year for our transactional FX effects.
Hence, based on where the FX effects are at the moment, we expect a full-year FX headwind on core EBIT of approximately SEK 100 million-SEK 150 million. That excludes the potential FX effects reported as ISCs. Operating expenses declined year on year in Q1, reflecting lower accelerated amortization from content sales and savings in non-sport content, as the previous scripted strategy has now been phased out. Content costs continue to represent approximately 8% of our core operating expenses, with the majority related to sports.
All new contracts are carefully evaluated based on return on investment. However, a number of legacy agreements that were signed in a much more competitive environment come with the contractual step-up that will increase our cost base over the course of the year and are one of the reasons why comparables in the second half of 2025 will show tougher comps.
SG&A was broadly flat compared to last year, which reflects our continued implementation of cost savings initiatives, which offsets the underlying cost effects, for example, inflation. Core EBIT was SEK -222 million in the quarter, an improvement of SEK 48 million compared to the same period last year. Remind again that we had a SEK -110 million FX effect compared to last year included in that. We expect the year-on-year improvement in core EBIT to be stronger in the first half than in the second half of the year.
For the non-core operations, we made a loss of SEK 5 million in the first quarter, and the wind down of the Polish business is set to conclude by the summer. The items affecting comparability for the quarter amounted to SEK +231 million and primarily related to currency translation effects.
Following the recapitalization, we have not been able to enter into new hedging arrangements covering these exposures, which has resulted in unhedged currency exposure. This has led to revaluation effects on the acquired content and liabilities during the quarter due to FX rates movements, as well as currency revaluation differences related to provisions made in 2023 for the onerous contracts. These effects will continue to be reported as ISCs until we have reestablished sustainable hedging.
Our associated company income for the first quarter was SEK 34 million, and we did not receive any dividend from Allente in the quarter. Turning now to cash flow, group free cash flow for the quarter was n SEK -671 million, with core operations negative contribution of SEK 756 million and non-core SEK +85 million. The positive free cash flow from our non-core operations was driven by working capital timing effects.
We still expect the full-year non-core cash drag to be approximately SEK 500 million . The quarter included working capital build-up of SEK 328 million driven by seasonality in rights payment in combination with improvements and changes in payment terms and reduction in scripted content payments, which, as I said before, has now materially unwound. In addition to revenue and cost discipline, we will continue to focus on improving working capital efficiency, which remains an important priority to support free cash flow improvements.
Our financial net debt, excluding SEK 302 million in net lease liabilities, amounted to SEK 1.583 billion at the end of Q1, with cash and cash equivalents of SEK 909 million. Total borrowings of SEK 2.667 billion and SEK 175 million in prepaid borrowing expenses. We had utilized SEK 800 million of the SEK 3.392 billion revolving credit facility at the end of the quarter.
We are reiterating our full-year guidance of low to mid-single-digit revenue growth and positive free cash flow for the core operations in 2025. To summarize, this is supported by gradually improving the core EBIT over time, although quarterly fluctuations should be expected in the second half as we absorb the contractor step-up rights cost.
We also expect working capital to be positive for the year, with other cash flow items such as finance, net, CapEx, and tax, and dividends remaining broadly stable. Execution will continue to be critical as we work through this transition. We remain focused on improving capital efficiency across all areas, from content investments and partner agreements to working capital and cash flow management. While some effects will show up quarter on quarter, others may take longer time to materialize fully.
There are both risks and opportunities ahead, and we are focusing on the right balance, making sure we protect value, unlock efficiencies, and remain disciplined in how we allocate resources. Thank you.
Thank you, Johan and Jørgen. We are now ready for your questions. Operator, please go ahead.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. Once again, if you would like to ask a question via the telephone, please press star one and one. We currently have no phone questions. I will pass the call back to Anna.
Thank you very much. We can start with a quite short question that is to you, Johan, and that is if you can explain the change from last year in Q1, where we had net income of SEK 605 million for the quarter, whereas in Q1 this year, the same number is SEK -125 million.
Yeah, I can remind that last year comprised the one-off impact of SEK 1.19 billion as a result of the debt write-down made in connection with recapitalization in February 2024. That is the material difference.
Thank you. Now here's one for you, Jørgen. What concrete measures have you implemented to curb account sharing, and how many account sharers have been converted to subscribers as a result?
Yeah, so clearly what we have done is made sure that people identify themselves and where they're using the account. You still can use your account outside your home, but you need to make sure that you verify that you are the account holder. We have made sure that we have limited the account accessibility to fewer people, meaning that you can watch two simultaneous streams at home.
Clearly also, as I said, you can take your account with you when you go to summer house or whatever. Different though in different markets as well. Some markets we have treated a bit different where we have had account sharing development earlier. It's quite an important measure clearly, and we see now the uptake.
A lot of the new sales that we can identify is actually the people who we can see have used to be account sharers, meaning that they used to share an account with somebody. We can recognize them. That is, of course, has a positive impact on our new sales, and we are very happy for that clearly.
Thank you, Jørgen. A short follow-up on that one. Will you experiment with add-on accounts at a reduced price like others have done?
Yeah, no, clearly we are inspired by others, what they're doing. Also, our shareholder can influence us having different accounts like student accounts and other things, which we are exploring how we can eventually get that implemented in our markets as well. There is a range of opportunities, different packaging, different accounts, different needs, which we will be able to launch in our markets.
Thank you. We have a question on the phone. Operator, please back to you.
Thank you. Just as a reminder before I take the question, if you would like to ask a question via the telephone, please press star one and one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the box and click submit. We'll now take the phone question. One moment, please. Your phone question comes from the line of Kyle Koka from Swedbank. Please go ahead.
Hi, thanks for taking the question. The sublicensing revenue segment, a little bit difficult to predict from our side, and obviously down based off of the one-offs that were a year ago based on the sales of the scripted content. Would you say that this level is the kind of level that we can expect moving forward and, I guess, restricted now just to the Sports sublicensing?
Yeah, I think we have to divide it in two pockets, yeah. There is the Sport licensing, and then, of course, there is the bracket cleanup of all the scripted shows that we have sublicensed as well. Yeah, but really what we are aiming for is, of course, that we would like to sublicense more Sport, and that is what we have said all along, that we have too much in all fairness. That is something where we would like to see an increase, but the normal content should be to some extent flat. Hopefully, going forward, you will see a higher sublicense on Sport.
Okay, thank you. Yeah, from our side of things, the levels and the amounts of the scripted content sublicensing makes it sort of difficult, I guess, on a year-over-year level to kind of accurately model. Helpful to know that this has maybe stabilized a bit there.
Another question with regard to there's some commentary around the step-ups in the costs in the second half of the year from the previous onerous contracts, etc. To what extent was that taken or not taken in the large IAC in 2023 that reduced what was classified as cost of sales and sort of the right-sizing? Were those step-ups also not included in terms of those kind of right-sizing activities that were done in the income statement?
Yeah, if I may, I think when you, so there's two different pockets, isn't it? Because one thing is the ordinary contract, and that is what we're talking about in the Nordics to a large extent, is, of course, that some of these contracts, they have inflation built in, yeah? That is what we are witnessing. That is one pocket. Then the onerous one, contracts for international, that is a different pocket, as you know, where we sold that right to the rights owners.
What we focus on is, of course, the contract that we have, and that is legacy contract for, yeah, everything, basically, even some studios as well, which clearly we are in conversations with them about to right-size as well, yeah, which some of them understand and have supported with, and some are living in their own bubble, have not understood it yet, to be fair. That is the reason why we are talking about the increasing cost in the year's second half year is because of these legacy contracts.
Yeah, I got it. I mean, I'm just thinking about it from the context of, I guess, there were also it wasn't just the non-core, I guess, that saw IACs. I guess my understanding is there was right-sizing of the core portfolio as well to adjust for the onerous contracts.
I guess it's just, yeah, to an extent, I guess maybe that some of the inflation was not taken on the income statement as part of that 2023 exercise, and I guess it's just going to be continuing to funnel through and show up on the income statement in future years, it sounds like. Another question with regard to the RCF. I see that there was a draw on this during the quarter, now stands at SEK 800 million.
Can you explain a little bit around the need for that draw, given that, I guess, the second quarter is typically operating cash flow positive, what we've seen in the past? Is it just temporary fluctuations for payments, or how do we think about that?
Yeah, you won't hear here. I think it's, as you said, we used the RCF on the need for working capital swings, both within the sort of the quarter and between the quarters.
Would you describe it more of an intra-quarter? Because, I mean, we're expecting typically a more positive working capital effect by the end of the second quarter.
No, but -
Is that fair?
As I said before, I think for the full year, we are expecting to sort of improve the working capital, but we will see working capital swings between the core quarters based on the seasonality we have in the payment terms and the way we also see sort of the revenues are coming in. I think it is the natural pattern. On top of that, as I said, we are trying to sort of work to improve the working capital efficiency throughout the year with a range of initiatives.
Okay, thank you very much. That's it for now. Thanks.
Thank you. There are currently no further phone questions. I will hand back to Anna.
Thank you. We will keep going with the questions here on the message board then. Johan, this is a quite short question, but it's for you. When do you think you will be able to hedge again?
We are working to improve our capabilities in this area, but we do not have any specific timeline that we can share on. It is something that we will work throughout the year to implement.
Thank you. Johan, and here's one for you, Jørgen. It seems like there has been a recent growth in the illegal actors in the market, like IPTV, in response to price increases in the industry. Could you maybe share your view on that? One more here. Do you believe this has impacted your subscriber amount negatively this far?
Yeah, I think it is, unfortunately, recognized as a growing area, meaning that it is becoming bigger, the illegal viewing of the piracy. That is, of course, as we have said as well, something that we are together with a range of stakeholders working on and trying to prevent. There are also now different legislations and different initiatives, latest year also in Sweden coming up now to make sure that we can be more active in this space together with partners and so forth.
It is, unfortunately, something we see, which is a problem for all, as you can argue. It's just like going to the cinema without paying for your tickets, and it's a little bit difficult to run a cinema, to be fair. The same, of course, goes for us. It is something where we are focused on to protect the value of our content and investing in assets right now.
Thank you. We will continue with a question for Johan. That is, could you please help us understand the building blocks to reach a positive free cash flow in 2025 for your core operations when you started the year with EBIT of SEK -220 million, when H1 comps supposedly are easier than later this year?
Yeah. No, as I said, we will gradually improve our EBIT throughout the year. I think the first half is a little bit easier comps-wise, and the second half a little bit tougher. We will also gradually improve the working capital to reach a positive free cash flow for the core.
Thank you. Then we have one for you, perhaps, Jørgen. That is, what has been the drivers for the large decrease in subscribers from Q4 to Q1? This was not the case from Q4 to Q1 last year. If management sees subscribers returning to old levels in the current quarter?
Yeah, but there's been different drivers, actually. Clearly, I would have loved to see that we would have kept many more of those customers. Some rights, we had some one-off events as well where we had rights which had very strong local participation. Clearly, we have not been good enough in keeping those customers long-term.
That is something we need to understand why that did not happen. It is actually a mix of a range of things. I would also have loved to see clearly a bigger takeoff now. There is also some seasonality, of course, in it as well, which we are looking at. Also, we were impacted as some of the races in the Formula 1 started during nighttime as well, which was not the case last year. Yeah, different areas, to be fair. Clearly, we should have been much better in keeping the customers. That is, of course, something we're focusing on.
Thank you, Jørgen. If there are no more questions on the phone, we will now conclude this Q&A. Thank you for your time and questions. We really appreciate the interest, and we're always happy to hear feedback on the format and content of these sessions. If you'd like to schedule a follow-up, do not hesitate to reach out to me at investors@viaplaygroup.com. That is it for today. Thank you, and have a good day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.