Good morning, everyone, and welcome to Viaplay Group's Q3 Results Conference Call. My name is Anna Hedenberg, and joining me here this morning is our Group President and CEO, Jørgen Madsen Lindemann, and our CFO, Johan Johansson. Before we start, please be aware that today's call is being recorded. After the presentation, we will open up for Q&A. If you're listening via the web link, feel free to post your question on the message board at any time, and I'll read them out loud during the Q&A. If you prefer to ask your question 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 of our website. We won't be following the slides directly, but they contain all the key information for reference.
With that, I'll hand over to Jørgen to walk us through the highlights of the quarter.
Thank you, Anna, and good morning, everyone. We have continued to execute on our strategy and plan. There's still work ahead of us, but our transformation remains on track, supported by clear priorities, financial discipline, and a sharp focus on long-term value creation. We are becoming a more relevant and commercial entertainment company focused on monetization, performance improvement, and return on investment. The work to team up with Allente has continued to progress well. To date, we have received approval from the relevant authorities in Norway and Denmark. In Sweden, we have received confirmation from the Swedish Inspectorate of Strategic Products under the Foreign Direct Investment Act that the notification is left without action. Competition approval from the Swedish Competition Authority has, as of today, not yet been granted. We expect to finalize the acquisition and close during the fourth quarter.
Once completed, this transaction will mark the next step in our transformation and building on our Nordic core. Together with Allente, we will build on our shared strengths to create a consumer and customer-focused Nordic entertainment business, commercially driven, long-term in its outlook, and fit for purpose. We see clear strategic complementarity between Viaplay and Allente, combining our content and streaming expertise with one of the region's most established TV and broadband platforms. The combination supports our ability to develop new products that serve our customers and creates a foundation for future possibilities and value creation. Our world-class sports portfolio once again delivered millions of viewing hours across our markets. The new Premier League season began with strong engagement, and Viaplay's Premier Sunday returned bigger than ever, doubling its live shows and reaching audiences across all five markets. Formula 1 and Premier League remain the most-watched sports on our platform.
In Norway, our new partnership with TV 2 makes more than 3,000 football matches per year available to a broader audience, a great example of how collaboration can create greater value for customers and partners. Looking ahead, audiences have to look forward to, in Q4, the UEFA Champions League alongside continued Premier League and Formula 1 coverage and the return of the skiing World Cup this winter. Local storytelling also continues to engage audiences across our market. The new season of Paradise Hotel Sverige was one of the most-watched titles in the quarter, while Robinson Expedition and Svenska Fall deliver strong performances. Together, these formats show the strengths of our strategy, combining long-term audience favorites with new ideas that build loyalty and drive return on investment. Our corporations delivered in line with our strategic priorities. Organic sales were down 3%.
However, when excluding sub-licensing and other, which last year included exceptionally high levels of scripted sales, organic sales were up 0.5% year-on-year, with strong performance on D2C and digital advertising in particular. Viaplay's streaming service grew organically by 1% year-on-year, as growth in direct-to-consumer subscriptions and higher ARPU offset the decline within business-to-business. This reflects our continued focus on value over volume. Linear subscription sales declined by 1% organically, as expected, while advertising revenues grew by 2%, supported by digital HVOD and radio, reflecting our strategy to offset the structural decline in linear through digital growth. Sub-licensing and other sales decreased by 37% year-on-year, reflecting a normalization after last year's exceptional scripted content sales, with a proportional cost impact as related production costs are recognized in the same period as the associated sales. This was partly offset by increased sport sub-licensing.
The underlying operating income before ACIs and IACs slightly improved year-on-year, supported by higher advertising and Viaplay sales, sport sub-licensing revenues, and continued cost discipline. The reported result was slightly lower than last year, reflecting higher sports content costs, which we have, to a large extent, mitigated with sub-licensing and other cost savings and minor negative currency effects. Overall, costs were lower compared to the same period last year, driven by efficiency gains and reduced scripted content costs, partly offset by the increase in sport content costs. Our focus remains on efficiency, profitability, operational delivery, and cash flow generation. Looking further ahead, our long-term financial guidance reflects a balanced outlook for the combined group. We expect revenues to remain broadly stable on average, as growth within Viaplay is offset by gradual decline in Allente's DTH business.
The focus will therefore be on margin expansion, driven by continued strong focus on ROI in regards to our content investments, efficiency improvement, disciplined capital allocation, and cost management. This is what will enable us to reach double-digit EBITDA margins by 2028. We also welcome the recent proposal in Sweden to strengthen the legal framework against illegal IPTV. These efforts are an important step forward to better competition and protecting the value of legitimate content distribution. Our priorities remain clear: relevant commercial storytelling, operational delivery, continued monetization of our strong content portfolio, and we are disciplined in our capital allocation, focused on return on investment and commitment to reducing leverage over time, so we are executing our plan with focus as we continue to build a stronger, more relevant Viaplay Group that creates long-term value for our shareholders, partners, and audiences across the Nordics.
And now, I'll hand over to you, Johan.
Thank you, Jørgen, and good morning, everyone. Turning now to profitability and cash flow, core operating income before associated company income and IAC amounted to negative SEK 56 million compared to last year of negative SEK 49 million, hence broadly in line with last year, despite higher sport content costs and tougher year-on-year comps. Adjusting for currency effect, core EBIT before associated company income and IAC improved slightly compared to Q3 last year. Reported core operating expenses were down 4% year-on-year or 2% when adjusting for currency. The reduction mainly reflected lower content distribution costs following fewer scripted sales when comparing to the exceptionally high levels throughout last year, as well as savings in non-sport content costs and SG&A, which are partly offset by higher sport content costs.
The sports content costs increased year-on-year due to contractual step-ups in rights fees for the new seasons, while non-sport content and SG&A costs declined as we continue to optimize spend and maintain tight cost control across the group. Currency remains a factor in this quarter, although to a lesser extent than earlier in the year. The stronger Swedish krona had a negative impact of around SEK 81 million on sales, as revenues in Norwegian krone, euro, and DKK were translated at less favorable rates. Reported costs, however, benefited from a net positive FX impact. The total FX impact on core EBIT was slightly negative. We still expect the full-year FX headwind on EBIT of around SEK 100 million-SEK 150 million, excluding unrealized revaluation effects booked as IAC.
Q3 cash flow for the Group, including financing costs and the SEK 200 million dividend from Allente, was negative SEK 1.193 billion, reflecting seasonal working capital movements of approximately SEK 1 billion. Core free cash flow was negative SEK 1.154 billion, while the non-core segment contributed a cash outflow of SEK 39 million in line with expectations. The working capital outflow mainly reflect
At the end of the quarter, we had a drawdown of SEK 1.8 billion of the RCF due to the seasonal peak in sports payments in Q3. Our financial guidance for 2025 remains unchanged following the update we did in July, which incorporates our Allente acquisition on a pro forma basis. As Jørgen said, the regulatory processes are progressing, and we expect to close the transaction during the fourth quarter. The pro forma guidance reflects the combined group as if Allente had been fully consolidated from the start of the year. For core net sales, the guidance of SEK 21-22 billion includes Allente's external revenues adjusted for related third-party sales between the two companies. For core EBITDA, the guidance range of SEK 0.8-1.1 billion represents the combined EBITDA of Viaplay's core operations and Allente, as if Allente had been fully consolidated for the year.
Finally, the adjusted operating free cash flow guidance of SEK 0.5 billion-SEK 0.75 billion reflects the expected underlying cash generation of the combined group. It includes Allente's cash flow contribution and excludes interest, acquisition-related costs, and one-off working capital effects related to the new financing structure. The new financing structure that follows the transaction will not substantially increase the interest cost and remains fully aligned with our deleveraging ambitions. On a pro forma basis, leverage is around 5.5x based on the top end of our EBITDA guidance range and including the working capital term loan facility. As cash flow strengthens and EBITDA grows, we expect leverage to decline gradually over the medium term. Execution remains our key focus. We continue to deliver on our cost reduction initiatives, improve working capital efficiency, and manage the business with discipline.
We have done a lot to strengthen the foundation, but there is still work ahead of us. As part of our transformation, we remain focused on improving profitability, increasing cash flow, and reducing leverage over time. That concludes my remarks.
Thank you, Johan. We are now ready for all your questions. Operator, please go ahead.
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So we will start with a question from the message board. So Jørgen, do you expect to end the year with a higher volume of core subscribers compared to the third quarter? If not, when should we expect to see sustainable growth in volume of subscribers?
Yes, we have said that the journey we're on right now, also, as you can see from the result where we had declining subscribers in Q3, but still growing the revenue, is value over volume. So that will remain our focus. It is more important for us that we have long-term possible customers than just a lot of customers. So that will continue to be our focus.
Thank you. And then one more for you, Jørgen, on Allente. Can you explain and perhaps also give some color and size of the synergies that could be achieved by acquiring Allente?
I think it is too early to comment on a specific figure in this area, but we clearly see strategic and operational complementarity between Viaplay and Allente. So the two companies bring together relevance in content, technology, and distribution, and that should create a foundation clearly for future value creation. I think once the transaction is closed, we will work jointly with Allente team to identify the best opportunities with a focus on improving clearly how we serve our customers, how we operate, and also by that create long-term value. So we have focused on the value creation part here as well, and we reserve the right to sit down with Allente management to discuss how we jointly can do that.
Thank you. Now one for you, Johan. The original goal of low- to mid-single-digit % growth for core operation net sales in 2025 seems difficult to achieve. When do you expect to achieve low- to mid-single-digit % growth for core operations net sales?
As we said in Q2, we are replacing the guidance for the full year of 2025 with a new guidance structure which reflects the sort of combination of the two businesses, and as I explained, the guidance now for 2025 is between SEK 21 billion and SEK 22 billion, which includes the Allente external revenues, but adjusted for the related partner sales between the companies.
Thank you. Jørgen, what are your expectations for sub-licensing and other sales for the rest of this year and also going into next year? Will the decline we now see, will that continue?
So clearly, we have a lot of focus on making sure that we are right-sizing our content portfolio. We have still too much content in all fairness, and clearly, there's a high focus on making sure that we in this space as well is fit for purpose. So we do hope to sell more next year clearly, but we have not guided for the exact figure, and I will not do that here either.
Thank you. Do you still expect that the original goal for Viaplay core operations of positive cash flow to be positive for 2025? Johan?
Again, the free cash flow targets were also replaced for the 2025 guidance, which we reiterated and talked about now as well. And we do expect the guidance for this year to be SEK 0.5 billion-SEK 0.75 billion, which should again reflect sort of the underlying cash generation in the combined group. But the underlying performance has not changed.
Thank you. And now one on FX. Could you elaborate on the FX impact? How is this possible with negative FX impact in 2025, given such large costs in euros and dollars? That's the first one. And then if current FX rate stays, how would FX impact profitability going into 2026?
So I think, first of all, as I said, we have had on the sales side a negative impact on the Swedish krona of SEK 81 million on the sales, which is related to sort of that we have inflows in euro, DKK, and Norwegian krone. And the sort of Swedish krona, the relation between those and the Swedish krona has changed basically. And then when it comes to 2026, we don't give any guidance on that now, but for 2025, as I said, we expect an FX impact compared to last year of between SEK 100 million and SEK 150 million, which we also have said before.
Thank you, so one more question for you now, Jørgen. Do you have an upper limit for sub-licensing of sports rights, or are there any rights or categories you won't sell or sub-license?
The way we're looking at that is, of course, that we want to make sure that our offer continues to be very competitive. And again, we have a lot of content. We have a lot of different football leagues as an example. So clearly, we want to make sure that our offerings stay relevant, but at the same time, being mindful that we also need to make sure that we are fit for purpose and that we cannot have everything in all fairness. And that is why we have a strong focus on making sure we're selling off. Also, to allocate that capital into new areas, we would like to invest more clearly into our other program areas as well.
Thank you. And then one more. Do you expect advertising sales to be a net positive for the full year 2025?
Again, we have not guided for that. I think the ambition we said we have is, of course, to make sure that the term of declining linear TV, as we see right now, that we are mitigating that decline by a strong focus on digital offerings and that we are also this quarter, as you can see, succeeding. So that is the key focus area for us. One of the strategic focus areas is, of course, to make sure that we grow our digital advertising faster than the decline in linear. So it's a big shift, which we would like to capitalize on as well.
Thank you very much. So that concludes the questions on the message board, and I can also see that there is currently no one waiting on the phone. So with that, thank you for your time and your questions. And if you would like to schedule a follow-up or have any other questions, please don't hesitate to reach out to us at investors@viaplaygroup.com. That's it for today. Thank you and goodbye.
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