Edited Transcript of NENTb.ST earnings conference call or presentation 23-Apr-20 7:00am GMT

Being able to make fast and accurate decisions in times like this is absolutely vital. It is clear to me that the new organization and operating model that we have put in place have enabled us to do exactly that. And that these decisions has protected our people and helped us to look after our subscribers and partners. These decisive actions included making sure our people were working effectively from home at an early stage, being the first to reduce prices for our sports subscribers and partners and taking quick measures to reduce our costs and improve our cash flows without any reductions to our permanent workforce. I’m proud and very inspired by the response of our team to this crisis.

We have found new ways of working together, of looking after each other and of motivating each other and not just internally but also with our customers, our partners and society in general. Our people are not just focused on how we will get through this, but also how we will accelerate our transformation by coming up with new innovative ideas and solutions to limit the negative impact of the crisis and accelerate the development of our streaming operations. This gives me great confidence that we will come out of this even more focused than before because change and transformation are what we do best and times of crisis also bring opportunity.

At a time when many companies are paralyzed, there is a clear window of opportunity to structure new deals and collaborations with partners. Both companies and governments are now receptive to things that they would have — not have considered before.

Now let me turn to what we’re seeing across our business and start with our subscription sales, which increased by 5% and accounted for 67% of our revenues in Q1. We’re already seeing continued growth in viewing levels, subscribers and revenues for Viaplay before the crisis, and this accelerated dramatically in March once people started to stay home. Viaplay added 102,000 paying subscribers in Q1, which included our highest ever TV and movies subscriber intake. When adding customers that have access to Viaplay through their Viasat subscriptions, our total Viaplay base was over 2 million by the end of the quarter, and has continued to grow at a fast pace since, which is why we feel confident in raising our full year subscriber intake from the original 250,000 to 400,000. This would represent a 25% increase in the Viaplay subscriber base in 2020.

The Viaplay subscriber intake in the quarter was a result of a very high gross intake and low churn rates for our TV and movie packages. Our sport base was only down 11,000 in the quarter, but was up compared to last year, which demonstrates that our early decision to reduce the sports package pricing on the — to the TV and movies price point on March 13 was the right one, given it will, of course, have a significant short-term effect on our revenue growth.

New sport sales have been predictably low since the postponement or cancellation of almost all sporting events, but churn has also been very low as viewing of nonsports content by sports subscribers has increased dramatically in recent weeks. It is clear that there is a huge built-up demand for live sports when the leagues and events resume.

The total number of started streams on Viaplay was up 34% in Q1 compared to last year, and the growth was an amazing 46% in March, when excluding sports viewing. It is also clear that this period of everyone being at home has led to significant rise in the purchasing and renting of new movies with record sales for both our TVOD and EST stores in March. We set a new record last week on Monday, April 13, when we had more than 1.28 million unique users on Viaplay. The increase in viewing is happening across all categories, series, movies, kids content and, of course, originals. We premiered 8 new Viaplay Originals during the quarter, including Box 21 and the second season of Couple Trouble, which were our 2 — top 2 most viewed originals during Q1. Our kid series, Mia’s Magic Playground, was the third most viewed kid series in Q1, only trailed by the hugely popular international formats, Paw Patrol and Peppe Pig.

The release of the new Bond movie was postponed, but our release of all the Bond movies on Viaplay has been very popular. And we have struck deals with several Hollywood studios to release new movies direct to our stores, given that the movie theaters are currently closed. The deals that we have signed in the last few weeks with Com Hem in Sweden and Altibox in Norway will make Viaplay available in even more subscriber packages. And the launch of Viaplay in Iceland on April 1 has landed very, very well, with more than 5% of the households having subscribed to Viaplay just 2 weeks since the launch.

On the content side, the vast majority of the 30 originals we had planned for 2020 will premiere as planned. Our Hollywood slate is stronger than ever after recent deals with SF, Sony and Disney. And when things return to normal, we will have the broadcast sports offering — we have the broadest sports offering we have ever had.

And we have gone even further by signing long-term deals with the Premier League, Bundesliga, Formula 1 and most recently, UEFA, where we have extended our rights to the Champions League in Denmark until 2024 and added rights to the Europa League, a new Europa Conference League in Sweden, Norway and Finland from 2021.

We have stayed true to our commitment to make a positive return on all sports rights. So we will let go of the Champions League rights in Sweden and Norway after next season as the price inflation moved well beyond what we could justify. We’re, of course, sad to let go of these rights after so many years, but our proactive management of our sports portfolio made this possible and also makes me very confident that with more football and more sports for many years to come, there will be no negative impact on our sports subscriber base.

Our Viasat direct-to-consumer subscriber base was only down 3,000 as growth in our broadband TV offering in Sweden almost fully offset the ongoing decline in the satellite base. Slightly less than 50% of our Viasat direct-to-consumer base subscribed to sports. And we have seen very low churn levels as a result of the postponement of the sports event.

The merger of our Viasat consumer business with Telenor’s Canal Digital is proceeding according to plan. We made the EU filing in March and expect to hear by the end of this month if a Phase 1 approval will be made. If this happens, we expect to close the deal in May. The current crisis has only served to further highlight that this deal is absolutely the right thing to do and could well become the model for similar, much needed, mergers in other parts of the business and industry.

Now moving on to our advertising business, which accounted for 33% of our revenues in Q1, we are considerably less exposed to the advertising markets than most other broadcasters. Our viewing shares increased in Sweden and Norway, slightly down in Denver, while our share of listening was up in Norway, where we have news programs slightly down in Sweden.

The advertising markets had already shown some signs of weakness at the start of the year, but were still broadly in line with our expectations. The onset of the coronavirus crisis in March has seen demand levels fall sharply in the spot market, with advertisers delaying or canceling campaigns. Our Q1 advertising revenues were down 13%, March advertising revenues were down 17%, and our April revenues are expected to be down around 25%. Radio has fared somewhat better than TV in Sweden, but not in Norway where buying cycles are very, very short.

Started streams on Viafree were up 26%, but revenues were down in Q1 due to the lower advertising demand levels from March, in particular. Our advertising business has seen postponements and cancellations across all markets and sectors. If we look at our April and May bookings, the most affected market segments right now are travel, entertainment, retail and especially betting due to the postponed sports event. These categories together represent roughly 1/3 of our ad revenues. The most resilient segments are pharma and health care, FMCG and telcos, which together represent around 1/4 of our ad revs. Approximately 80% of our estimated annual ad inventory has been committed in the upfront agreement at a slightly higher net price than last year, and TV remains the most popular ad medium as it delivers the proven attractive returns on investments.

Naturally, forward visibility is very low right now and would be unwise to speculate. We are seeing clients being very tactical about the planning of campaigns to coincide with the anticipated return to some sort of normality in the weeks or months to come. It is not that they are leaving the market altogether. We do obviously expect that advertising revenues will be down significantly in the second quarter, with may likely to be down more than April.

And just to be very clear again, it is important to remember that our exposure to advertising is limited to approximately 25% of our revenues, so every 1% decline reduce our group revenues and profit by approximately $40 million, that is before any of the mitigation effects that we have taken.

Now finally moving on to our Studio business, which accounted for 10% of group sales. Q1 sales were down 17%. It is clear that the restrictions on people’s movements and abilities together for anything other than absolutely critical activities are severely limiting our ability to produce new content. 5 large-scale scripted shows that were due to start production in this spring has been postponed to this autumn or next spring. The good news is that no scripted shows has been canceled, so the underlying demand remains very, very healthy. We have 16 nonscripted shows that has been postponed and another 12 that has been canceled, as it is simply not possible to continue or even reschedule the productions.

It’s too early to quantify the Q2 and full year impact, but we do expect sales to be slightly — to be down significantly for Studios. But please remember though that the Studios cost base is variable by nature, so the profit impact at a group level is very limited. If we look beyond the crisis, there is no doubt that the demand for high-quality content is only going to increase, and our development slate looks very promising. We have paused the process we started in January to sell the nonscripted events and branded entertainment parts of the business, but there is no change in our decision to do this. It’s just a matter of timing. And we have been encouraged by the continued interest in these attractive businesses. The scripted production parts of the business remain of great strategic value, maybe even more so now and will be key to ensure the continued quality of our regional production pipeline into 2021 and beyond.

So what have we done and what are we doing? Well, our first priority since the start of the crisis has, as mentioned, been the safety and well-being of our people and doing what we can to impact — to limit the impact of the coronavirus on our communities. This is why we took the early decision on March 9 to ban travel from initially affected areas and then all together. And then on the 11th of March, to ask almost all of our people in all countries to work from home using our VPN, cloud computing and video conferencing tools. We have restricted access to our office locations so that we can protect those of our colleagues who do come in to keep our services running. We have made sure that we have followed or even exceeded the guidance of local governments and international health organizations in the measures that we have taken to slow the spread of the virus.

We also put great emphasis on continuous communication and interaction with our people in order to provide guidance and support of both mental and physical well-being. To date, we have 2 confirmed cases of the virus in NENT Group, and both are recovering well at home. We have seen many creative examples from our colleagues across NENT of how to help fight the COVID-19 virus. We are working with health authorities in each of our markets to help inform the public about what they can do to themselves — to keep themselves safe and slow the spread of the virus.

A great example that I’d like to mention is the launch of listener hotline in our Swedish radio stations, where we encourage and celebrate people helping out during the corona crisis. Local music artists had held live performances in our studios to raise money for NGOs, helping with the crisis, and we’re offering 20,000 free months of Viaplay subscriptions to relevant institutions that are supporting people particularly affected by the crisis as well as the many superheroes who are working so hard to look after them.

In addition to helping out here and now with fighting the virus, it is very clear to me that the combination of investing in streaming and taking decisive actions to reduce cost and manage cash flows is the best way for us to protect our people, customers and partners. This will ensure that we come out of this in a stronger position than when we entered into the crisis and that we can continue to create significant shareholder value. We have therefore implemented actions to reduce our cost by at least SEK 700 million this year without reducing our permanent workforce or reducing our ambitions for Viaplay.

The SEK 700 million of savings is made up of 3 buckets, SEK 200 million come from the reduction in the number of freelancers and consultants and the cancellation of all variable remuneration for this year. Another SEK 300 million comes mainly from lower ad hoc content investments in our ad funded TV business. And the final SEK 200 million is the SG&A saving from travel, entertaining and conference bans as well as lower marketing spend in some categories as we use our own unsold inventory to further promote our products. This comes on top of the SEK 250 million of savings from last year’s transformation program.

The preservation of cash flow and liquidity is critical here, which is why the Board has decided not to propose the payment of a dividend for 2019 or any share-based executive incentive plans for 2020. Gabriel will elaborate on our funding profile and cash flow protection measures in just a few minutes. Taking care of our customers and partners has been a big priority for us since the start of this. This is why we very quickly implemented the temporary reductions in our sports package prices for our Viaplay consumers and together with our distribution partners from 13th of March.

As I mentioned before, we were the first media company to do this, and most have now followed suit. Virtually, all sports leagues and events have now been postponed indefinitely or in some cases canceled. We understand, respect and fully support the decisions made by the sports event organizers around the world who are rightly focused on safeguarding the health and well-being of athletes and fans.

We’re in close contact with the organizers to discuss how things will be handled moving forward. We have, in the meantime, stopped amortizing sports rights, and we’re not making any new payment for postponed sport rights until they resume. We do expect to receive compensation for any sports events that are canceled, and indeed have already received back 100% of the cost for this year’s Ice Hockey World Championship that was due to be held in Switzerland. We will also not make any payment for the 2021 season until everything is clear with the current seasons.

Our risk with regard to sports rights is basically limited to 3 months, which is the worst-case scenario, being limited revenues, full cost and no compensation. However, this is not a realistic scenario, especially as we have already started to be compensated for canceled events. And the unlikely event that the lockdown continues throughout the year, then we won’t be making any further sports payments and will not be expensing any sports rights. Taking care of our customers will boost our NPS and the general appreciation of our service. And we will, of course, raise prices back to their previous levels as soon as the events are back on.

Moving back to the bigger picture, it is clear that the coronavirus has accelerated the ongoing shift from linear viewing to streaming. The structural issues with the ad-funded media model are bigger and clearer to me than ever before. And yes, the ad markets will bounce back at some point, but I do not believe that the ad markets and things in general will go fully back to the way they were. The short-term effect of people being confined to their homes is that streaming services are seeing a huge surge in popularity and usage levels. But even more importantly, many more people are now experiencing these services for the first time. This will further impact linear viewing levels and accelerate the cord shaving and cutting trends that we have already been — that were already evident before the crisis.

Our strategy to focus on streaming is therefore more relevant than ever before. And we remain laser-focused on making sure that we fully capture this opportunity by investing even more into Viaplay. The launch in Iceland has demonstrated the popularity and ranging of our content as well as the agility and scalability of our tech platform. So further international expansion may be on pause for now, but only temporarily. Expansion plans makes perfect sense and may be even more cost-efficient and quicker in the change market conditions after the crisis.

Our purpose to tell stories, touch lives and expand worlds has never felt more relevant or correct than right now as we seek to help each other throughout these very difficult times. With this, I will now hand over the call to Gabriel for his comments on our financial performance and position. Over to you, Gabriel.

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Gabriel Catrina, Nordic Entertainment Group AB (publ) – Executive VP, CFO and Head of Strategy & M&A [4]

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Thank you, Anders, and good morning, everyone. I would like to start by quickly running through the Q1 performance. The organic growth in the quarter was down 2% and comprised a 13% decline in advertising revenues, a 5% growth in subscription revenues and a 17% decline in studio revenues. Advertising accounting for 23%, subscription for 67% and studios for 10% of our total sales in the quarter.

Operating profits before items affecting comparability were down 20% or SEK 55 million. And that included a SEK 60 million FX headwind relating to the U.S. dollar in the quarter. We had some cost benefits from the postponed or canceled sports event but also headwind from the depreciation of the Norwegian krona on top of the impact from advertising. Our cash flow from operations was up slightly compared to last year at SEK 247 million. Changes in working capital had a negative impact of SEK 794 million, which reflected normal seasonal patterns, including our investments in Viaplay originals, prepayments on the new Premier League rights agreements that we signed during the quarter as well as the payment related to the now canceled Ice Hockey World Championship, which has been refunded now in April. As a result, our net operating cash flow for the year was down.

As we entered the second quarter, it is clear that the impact of COVID-19 on the business will increase, but it is difficult at this stage to fully predict and quantify the depth or the duration of the impact. As a result, we have decided to withdraw our 2020 outlook for profitable growth. It is too early to provide an updated outlook as that depends on different factors, including the extent and duration of the crisis, the measures implemented by governments across the world, and in general, and in the Nordics in particular, and also on which sport leagues and events will resume later in the year and when and which will be canceled. And also the further actions that we could take to mitigate this additional impact.

Furthermore, the closing of the Viasat consumer and Canal Digital merger will also change our financial profit. As Anders mentioned, we expect this transaction to close sometime in May. Having said that, our ambition is to be as transparent as possible. So I want to try and help you with some of the line items where we have some visibility right now.

The new organization and operating model that was implemented in October 2019 resulted in the reduction in the number of employees. We expect the majority of the savings of approximately SEK 250 million from this in 2020, of which will deliver approximately SEK 50 million in Q1. We expect to generate an incremental SEK 700 million of savings in 2020 from the program that Anders talked about earlier. The effect from this was approximately SEK 35 million in Q1. This number will be closer to SEK 200 million in Q2 and will then gradually increase throughout the year.

The cancellation of the Ice Hockey World Championship, a number of European golf tournaments, including the Open and several Formula 1 races as well as the postponement of the Euro 2020 will already expect to reduce our sports cost compared to our plans by approximately SEK 200 million this year. We expect our transactional headwinds from the U.S. dollar of approximately SEK 200 million for this year, which is slightly higher than our previous guidance of SEK 180 million. And we also expect some translation headwinds from the depreciation of Norwegian krone.

It is also too early to provide any guidance on working capital, but you can see from the Q1 performance that we have made prepayments from the new Premier League contracts, and working capital was affected by investments also from Viaplay Originals. We will also make prepayments in Q3 on the new deal that we just signed with [VEPA].

At the same time, as a result of the crisis, the lower sales in studios will have a positive impact on working capital impact for the year. There are, in addition, likely to be material benefit from government actions to support companies, which we are proactively utilizing. But we will come back later on this when the precise measures and the impact of those can be specified more clearly.

Moving on now to our funding profile and the measures we have taken to safeguard our cash flow generation, I would like to stress that NENT is structurally a resilient company, with a business built on subscription model, and our access to liquidity is good, with a solid bank group and different sources of funding facilities. We ended the quarter with SEK 1.3 billion of unrestricted cash, a SEK 4 billion revolving credit facility maturing in August 2023, of which SEK 1 billion is currently drawn, and an equivalent of SEK 280 million of undrawn overdraft facilities.

At the end of the quarter, we have corporate bonds totaling SEK 2.3 billion, of which SEK 500 million expires in October 2020, with no further bond repayments until 2022. We have short-term commercial paper totaling SEK 2.1 billion, and we have managed to renew SEK 100 million of this in recent weeks. Our net debt ended the quarter at SEK 4.8 billion, which is 2.6x our trailing 12 months EBITDA before items affecting comparability. The financial net debt was SEK 4.2 billion, and we found ourselves at very competitive rates and have closed the long-standing relationships with all of our credit providers.

The positive cash flow impact from not paying any dividend, together with the cash impact of our OpEx savings, will ensure that more than SEK 1 billion of cash will be retained within the business. We are also looking into utilizing actions to manage our liquidity during 2020, for instance, some of the deferral tax payments that will also help to manage our cash flow during the year.

On working capital, we have a standard weekly management process to review cash outflows and receipts. We are continuing to work closely with our customers to ensure timely payments in line with contractual commitments and with sports right holders in terms of future payments and compensation for payments already made in the event of cancellations.

I would also like to stress that we’re constantly reviewing different scenarios of the COVID-19 outbreak and the potential impact on our future revenues, profitability and cash flow, and we are adapting the business and measures to mitigate the impact accordingly. These assessments and judgments are important when valuing certain assets and liabilities such as goodwill and intangibles, account receivables and inventory. And at the time of this report, there is no indication of necessary adjustments, impairments or similar.

So in summary, we have taken and are taking decisive actions to mitigate the impact of the coronavirus on our business, and we remain in a healthy position with plenty of liquidity. Thank you, and now back to you, Anders.

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [5]

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Thank you very much, Gabriel. The year started out well, but the spread of the coronavirus is having an adverse impact on parts of our business. We have acted fast to implement a range of measures to protect the business, and I am convinced that NENT group has the focus, the agility and the bravery to deliver in challenging circumstances and to emerge even more focused and even better positioned to capture the opportunities that lie ahead.

The success of Viaplay in these times proves the validity of our strategy, scaling Viaplay is simply the best way to create sustainable, long-term shareholder value. We’re now looking forward to the closing of the Viasat Consumer Canal Digital deal, which will generate significant cost savings on top of the SEK 950 million mentioned earlier on this call, and further accelerate the growth potential of Viaplay, including further geographic expansion.

So now that concludes our commentary on the results. And over to you, operator, to please start the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So we have the first question from Johanna Ahlqvist.

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Johanna Ahlqvist, SEB, Research Division – Analyst [2]

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A few questions, if I may. The first question to you, Gabriel. If you have any breaches on covenants that you expect to sort of hit during the year? Second question relates to the fact that you expect to get money back from the Hockey rights, I’m just wondering, do you expect in terms of cancellation of, for instance, Premier League or Champions League, do you have sort of the same bargaining situation that you expect to get 100% back of the sort of nonplayed games, if you understand what I mean? And then third question, I guess, a big part of your savings for the year, so the SEK 700 million relates to free TV and the content. And I was just curious, how flexible you are in terms of that content? I was sort of expecting that you signed most of it already going into the year, but it seems like you have a pretty good flexibility there. And then fourth and last question, sorry, for all of the questions, is if you see an accelerated satellite churn or if you expect that to happen as a consequence of this downturn?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [3]

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Yes. Thank you very much, Johanna. I will start with your first three questions and then hand over to Gabriel for the last question on the covenants. We will start with your question on sports. Yes. We are contractually entitled to — on a pro rate basis get back any non sort of concluded sports events, whether that is the Premier League or the Champions League or anything else. We will, of course, not get our money back for the match, which has already played, but we will get money back if something is canceled.

What we see right now is the Ice Hockey, the money has been sort of paid back to us. We do expect some Formula 1 races not to be concluded, and we will get money back for those, while some will be concluded. Premier League, Champions League and general — football in general, we do expect that the leagues will do everything they can to get back to some sort of completion of the season during December. But yes, we are entitled to 100% pro-rate compensation for canceled events.

On your third question, on the content for linear TV, we are every year working with a bucket of ad hoc content acquisitions, very much based on how we see the demand in the market and how much inventory we need to build. So we always keep this open, so we have flexibility and are not totally locked in. If the market, like it has now, goes down, so that flexibility around between SEK 250 million and SEK 350 million we have also going forward. And it may, of course, be so that a slow return from the ad markets means that we will continue to not invest as we would normally do in linear TV content.

We haven’t seen much churn, your fourth question. We haven’t seen much churn on the direct-to-consumer DTH basis when it comes to sports. We are adding — we’re working with them. There are many different price packages in that part of our business. And the team is working proactively with the customer base to give compensation without reducing the prices because it’s very difficult in that part of the business, unlike streaming. So the churn has been, I would say, very, very limited and manageable.

Gabriel, the question on the covenants, please?

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Gabriel Catrina, Nordic Entertainment Group AB (publ) – Executive VP, CFO and Head of Strategy & M&A [4]

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Yes. I mean to answer your question, I think the way we see the business right now, we have a very healthy financial position. And at the same time, we have very strong relationships with our banks and access to funding. But obviously, it will depend how the corona crisis evolves. But right now, we have a very healthy position and don’t see any risk.

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Operator [5]

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We have another question coming from Tom Singlehurst.

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Thomas A Singlehurst, Citigroup Inc, Research Division – MD & Head of European Media Research [6]

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It’s Tom here from Citi. Just a couple of questions, actually, one on advertising. I know you sort of vaguely mentioned it, but minus 25% in April doesn’t actually sound that bad in the big scheme of things. You’ve got prior season talking about minus 40 over the same period. I know you mentioned May is slightly more challenging. Just give a bit more color on why that is? Is there — is it because some of the sort of the guarantees are sort of kicking in and artificially keeping the numbers up? Is there a big differential, let’s say, between sort of traditional linear, advertising and advertising on the sort of AVOD, sort of, Viaplay free service, that would be interesting? So that’s the first question. And the second one, the sort of subscription and other revenue, performance is really very, very creditable given the pressure you’ve got from proactively cutting prices. On the transactional AVOD side, where you’ve been obviously selling a lot more content, is that causing a significant sort of impact to that artificially inflating growth?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [7]

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Thank you, Tom. I hope you’re doing well. On your first question on advertising, why is it only 25%, given that we’re here different from others? Well, I think it’s very difficult to compare market-by-market and broadcaster by broadcast because the way deals are structured is most likely very different. We have 80% locked in, in the yearly agreements. So that is, to some extent, holding the numbers up. And you could also argue that, in theory, decline should then be capped at 20%. But we’re not working like that. We’re trying to help our customers as much as we possibly can. There is no ad hoc market right now. That’s basically gone. So we’re moving campaigns to support clients also into 2021.

And then we have the mix effect, like you mentioned, AVOD and radio is less than the linear TV. So that helps our total sort of decline in sort of — in a positive mix effect. So we are in a slightly different position than many others. The first is, of course, that advertising revenues is much smaller as part of our total revenues than for most other broadcasters. And the second is that we have a different deal structure and a mix effect that impacts the ad revenues. So while 25% is a terribly sort of number — terrible number to talk about, it’s not that bad, consider everything that we’re seeing, and we will see how that evolves, of course, going forward. But that’s what we see right now.

TVOD is increasing significantly. The rental of movies is up on very, very high levels. And it’s — no, did — it provide decent margins, but it’s a very, very small part of the total subscription revenues. So it doesn’t materially move sort of the streaming business short term because of the crisis. It’s just positive to see that we have good traction, especially given that some of the movies coming from — directly from the cinematic window onto TVOD. So we can sort of offer, unlike many other streaming services, the same service as iTunes, for example. So it’s good, but small.

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Thomas A Singlehurst, Citigroup Inc, Research Division – MD & Head of European Media Research [8]

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That’s great. And one final question. I mean we’ve seen lots of data that suggest that your overall sort of usage of the size is up significantly. You’ve obviously reported great sort of net additions for Viaplay. Can you give us any sense of the sort of competitive landscape? I mean are you — do you get a sense that you’re outperforming within the context of this sort of overall bump for the industry?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [9]

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Yes. That’s a good question. And I can speculate to some extent. We — if you look at the numbers that are out from Netflix, and we’ve seen some indications that their growth in the Nordics is very limited, so we are growing sort of ahead of that particular competitor. Others, so obviously, we don’t know that much, but the numbers that we have suggest that we continue to take market share and a more than fair share of the organic growth in terms of deeper penetration of streaming in the households. I think it’s fair to say that in pan-Nordic perspective, the 2 services that are in most households across the Nordics with Netflix and Viaplay, and that is, of course, very encouraging to be top of mind in that sense. The number, 60% of our subscribers also having Netflix is gradually going up. And I think Netflix would say the same if they were ready to give that kind of detail. That the combination of Netflix and Viaplay is the most sought after in the Nordics. So I do believe we are grabbing market share, yes.

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Operator [10]

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Our next question comes from Mikael Laseen.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [11]

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Got a few questions, also. First of all, can you elaborate a bit on the price reduction impact on Viaplay and Viasat, how that’s affected your revenues late in the quarter? And how we should think about the second quarter?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [12]

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Yes. Morning Mikael, I hope you are well. The price reduction only relates to Viaplay. We haven’t made any Viasat price reductions other than on third parties, if that’s what you refer to. On Viasat direct-to-consumer, we have kept and worked proactively with. We — it’s very difficult to give you sort of a straight sort of numeric answer on the impact going forward, it very much depends on when things start to go back to normal. We have almost a full month of impact in the first quarter. But I think that has been, to some extent, being compensated by a lower-than-normal churn also in sports. And we combine that going forward into the second quarter, we will get a little bit of a double whammy effect in Q2 with a full quarter of negative advertising and the pricing impact on the subscription revenues, of course, for sports.

Exactly how much that is? It’s too early to say and really don’t want to go into that. We continue to see very good growth and good conversion rates, and that’s the best way to quickly bounce back from this. And to stay sort of profitable in every single quarter throughout the year, and that is also a key component for us. But above and beyond that, I can’t give you sort of a number, unfortunately.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [13]

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Okay. But if you can say something about the Viaplay side then that you control and know in detail? So the number of subscribers, we know that and the price effect, can you say anything? Is it vertically compound or…

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [14]

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Yes. We have reduced the prices from the — sort of the various sports prices that we have across the footprint down to the TV series and movies package. And you know from history that around 25%, 30% of our customer base is sports. And then it’s very easy to do the math on what kind of impact that has on revenues in general. That should then be sort of measured up against the continued very strong growth in terms of gross adds and a very good growth in terms of net adds with lower churn. And those — if you put those things together, then you get sort of an indication of what a full quarter could potentially cost us in terms of lost revenues for sports.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [15]

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Yes. I’ve done the math also but to check, of course. And just a follow-up on the third-party side. What’s your view on how the operator customers have sort of absorbed this and handled this price adjustment?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [16]

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Well, I think it’s up to each and every distributor to manage their own prices. We can only provide sort of support and recommendations. And we went out very early and offered to take our part of any price reductions that they want to make, which, of course, is the best way to deal with this. It’s a shared pain that we have to take. I think most of them has acted and reacted very positively. We have seen that some competitors have decided not to reduce prices for third-party distributors. And that is, of course, very negative. So I think what I’m seeing is that the industry is not abusing this situation but rather trying to work together to keep customers happy, which is obviously a positive. If and when something happens on the sports side and we get money back, only then can we start to talk about sort of further compensation but not before.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [17]

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Okay. Thanks. And I would like to follow up on the content cost discussion earlier, and what type of flexibility you have. You have already highlighted that the SEK 700 million is — part of that is content cost related. But other things I think in the advertising side, free to decide and in the subscription side, can you say something on how we can manage the costs?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [18]

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Absolutely. If you look at sort of the — like you said, the SEK 700 million bucket of savings this year, the vast majority comes from cancellation not moving but actually canceling some of the ad hoc purchases of content for predominantly linear TV that we’re doing. So that is not money that we move into the future in any way, shape or form, we basically just cut it. And we always have that level of flexibility every single year. So there is a way of working with our inventory in an efficient way.

Then next step will, of course, be to reduce longer-term investments and reduce the number of own-produced content for our TV channels. We can reduce some of the way we amortize the acquired content over a longer period and pull it into the future play out differently. So we do have a fair degree of flexibility to work with our content cost for those areas that are under decline. The most important element for us is to make sure that we don’t have to touch in a negative way the investments in streaming content, which we’re not doing, and we’re actually increasing to some extent to give more content to our subscribers. But we do have a fair degree of north of SEK 350 million in a given year.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [19]

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Okay. And just a couple of questions on the advertising side. Can you talk about Norway, Sweden and Denmark, how the markets develop there? And what you expect in those 25%, and in May that you commented on?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [20]

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Yes. We have seen Sweden had also started the year fairly soft, and that has continued. So the decline, as it has been spread for now in the outlook is Sweden, Denmark, Norway in that order in terms of decline. Of course, Sweden is the bigger market here, so that hurts a bit more. But then, of course, that market is bigger, so whenever there is an opportunity to bounce back, that probably comes a bit quicker. I think the long-term effects in especially Norway will prevail for longer. So that mix effect gives us the decline that you’ve seen in the first quarter and also in the expectations for April of around 25%, slightly more in Sweden, a little bit less so in Denmark and a little bit less so in Norway.

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Operator [21]

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Your next question comes from Peter Testa.

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Peter Testa, One Investments S.A.G.L. – Analyst [22]

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A couple of questions, please. One is just when trying to figure out how to match up any potential restarting of sports with your view on when you can reprice your sports package, as you go into the summer, I mean obviously, you get to the end of a lot of sport seasons. Can you just give some sense as to, if they do, for example, start-up the football extensively for an extended league season to make up what they’ve missed, is that a trigger? Or what is the real trigger for you to consider putting your sports pricing back up?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [23]

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Yes. Peter, yes, the trigger is exactly that. The one defining league is, of course, the Premier League. So if we assume that the Premier League goes back to — the latest reports point to an ambition to start-up in June, of course, remains to be confirmed. But if they do and if they, as we have heard, do it in a slightly different way, playing more matches per day in a cap sort of way to complete the season that will generate a lot of interest. If that is then sided by some other things coming back at the same time, then I think we have good grounds to increase prices back to normal immediately when that is happening.

If it’s so that the Premier League is continuously delayed, and we have smaller leagues, important but not as defining as Premier, we will do gradual price increases. But the ambition is to be back to full prices a little bit with some country variations, so we don’t have the Premier League yet in Norway, so prices will go back probably a little bit later in Norway. But during the — so end of June, August, we hope to be back with the prices.

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Peter Testa, One Investments S.A.G.L. – Analyst [24]

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Right. Okay. And then just looking at the number of Viaplay, you’re looking — you’re saying 400,000 for the year, which, I guess, there’s a lot of different moving parts in that given the situation. I mean obviously you’ve got lower churn, which helps you’ve got the lack of sports in the short term, which would hurt, and then you’ve got your comments on satellite. So when you try to get some visibility as to how those moving parts are driving your view on how you get the 400,000 for year, you’ve got some also — some distribution agreements that have recently been signed, some quite interesting ones, can you just give us some understanding as to how you got to that number?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [25]

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Yes. Happy to. You’re right, we have signed and announced 2 new agreements, one with Com Hem in Sweden, Altibox in Norway that has sort of significant and very attractive sort of B2B components for Viaplay in then we will see Viaplay in the top tiers in more households. That’s one element. We do expect the lower churn to prevail.

And then the kickback when we get the sports, my belief and expectation is that we will get sort of the customers back, the few that have left us, but the way the sports have developed I think there is such a demand for sports short to mid-term. So we will see additional growth in sports when it all bounces back.

And then we have continuously a very strong fall when it comes to new content. And then in addition, albeit a small market, Iceland is doing very well. So I feel very comfortable with everything put together in that mix to upgrade our expectations to 400,000.

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Peter Testa, One Investments S.A.G.L. – Analyst [26]

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Okay. And then the last thing is just on the ambition, that’s probably the wrong word, but just what you’re expecting to try to achieve on the government side in terms of cost support. I mean obviously, you have different situations in Scandinavia than we have in a lot of continent in Europe vis-à-vis state of shutdown, et cetera, and as your business is outside of maybe the programming part largely functioning, so can you just give us some idea of the scope of support that you’re examining with governments at this time, so we have some concept for what you’re looking for, please?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [27]

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Yes. The most notable support that we’re getting currently is to allow people to go on short-term leave, so to speak. And then we get the salary partly or almost fully paid by the respective governments in the countries that is applied in all of our markets. So that’s very hands on. It’s kicking in as part of our savings. In addition to that, we are, of course, in discussions with all relevant regulatory values when it comes to tax breaks and support when it comes to get productions back into full swing when that’s possible. That’s where I think the support from the respective governments is a bit more vague in that area. So more work need to be done to get something really tangible out of it. For now, the support is deferral of payments of social securities and support with salaries. That’s very hands on. But we are seeking more, but nothing has been fully confirmed yet.

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Peter Testa, One Investments S.A.G.L. – Analyst [28]

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Okay. And the extra would be mostly in the production part or would it be in other parts?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [29]

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I think it would be natural to find ways of getting support when it comes to production. Short term that makes sense to get people back into work as quickly as possible. You could be tempted to try to sort of not go back to full swing immediately and to save a little bit extra. But with government support that should not be the case. And I think it’s in everybody’s interest to get people back to work as quickly as possible.

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Operator [30]

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And the last question in the queue comes from Martin Arnell.

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Martin Arnell, DNB Markets, Research Division – Analyst [31]

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So my question is, firstly, would it be possible for you to quantify roughly the increase in Viaplay streaming since mid-March, like, a year-over-year effect relating to this current crisis. Is there anything you could share?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [32]

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You talk about streaming in terms of usage, right?

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Martin Arnell, DNB Markets, Research Division – Analyst [33]

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Daily average streaming time, for example?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [34]

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Yes. The number — we have given a number of a 34% increase on start of streams year-on-year for the first quarter, and that number is, of course, very much influenced by March, demonstrating even higher numbers. And a record number of subscribers being in using the service on a single day is up to 1.3 million, which is an all-time high. So of course, there is a very positive effect. I think it’s important to say that sort of — you could argue, yes, that’s, of course, a one-time effect of the crisis. But yes, it is. But the flip side is, there is a lot of opportunities and choices for any given consumer out there to consume content. And the fact that we’re doing so well under those circumstances is telling us that Viaplay is more and more top of mind and Viaplay is more and more the first or second choice when you decide to watch something during the day and evening. And that will — we will bring that with us into the future. So March has been very strong. We’re looking around sort of between 30% and 50% increases on usage, without the sports, of course.

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Martin Arnell, DNB Markets, Research Division – Analyst [35]

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Perfect. That’s very helpful, Anders. And that continues into April, I assume, the March trend?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [36]

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Yes. It continues to be very strong. Both — we see continued very strong sales, low churn. We continue to see usage doing very, very well. I have to mention Iceland, being a small market, so that — we’ve been there only a few weeks now, and we’re in more than 5% of the Icelandic households. And the conversion rate on people going from free trials into paying is absolutely record high. We’re talking about plus 80% conversion, which is extremely high. So yes, it’s looking good.

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Martin Arnell, DNB Markets, Research Division – Analyst [37]

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Great. And on your Viaplay subscriber base guidance for the full year, the 25% growth, how should we look upon the split B2B and B2C in that number?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [38]

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You will see some significant effects coming from 2 new distributor agreements, Com Hem and Altibox, continued sort of good beat underlying performance in direct-to-consumer. So it’s — we’re probably looking at 30% of this year coming from B2B. That can, of course, accelerate further if and when we make new deals and new ways of working together with others. But that’s the kind of split that you should think about right now.

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Martin Arnell, DNB Markets, Research Division – Analyst [39]

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That’s great. And then on — if you look at the sports rights market, and we’re seeing local telcos in Sweden moving in on the — some of the largest rights, how do you think that…

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [40]

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To be confirmed, I believe.

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Martin Arnell, DNB Markets, Research Division – Analyst [41]

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Yes. To be confirmed, sure. But how do you think that will impact you in the longer term when it comes to views on future partnerships with these telcos?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [42]

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Well, we are very open to discuss ways of working together. I think there is proof-of-concept of the smartness of doing that. If you look at the U.K. as one example, instead of having battled it out for a number of years and then finding a way to work together, I think BT and Sky could have avoided a lot of value destruction. So we are very open for those discussions. But it takes two to tango, and it takes a common view on things. Whether it’s a telco moving into content or some other of our more traditional competitors taking over a ride that is part of the — that’s the name of the game. And we’ve done it for quite some time. And even if we let go of Champions League in Sweden after the next season and in Norway, our portfolio is stronger than anybody else. So whatever discussion we’re going to have in terms of working together, we will be discussing it from a position of strength, and that is as it should be.

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Martin Arnell, DNB Markets, Research Division – Analyst [43]

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Okay. Thanks. And on your cost savings, the SEK 700 million and the SEK 250 million, what’s the timing for realizing that in the coming quarters, like Q2 and the second half?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [44]

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We will see it gradually kicking in already now in Q2, and the spreads are a little bit back loaded, of course, given that it takes some time to realize it, but it’s, of course, all in 2020. But the split over the quarters is back flowing a little bit. So you’ll see gradually more and more in Q3 and Q4. But of course, already some in Q2.

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Martin Arnell, DNB Markets, Research Division – Analyst [45]

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Okay. Great. And on — and just 2 more questions, if I may. On Viaplay international expansion case, your next market there, can you say anything on the expansion case for Viaplay? Is it a nearby market you’re looking at or any flavor on that?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [46]

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Yes. There is a lot to be said about our expansion plans, and we probably don’t have the time for it now, and it’s a little bit premature, and what markets we’re looking at, I will have to leave as a cliffhanger for a number of reasons. What I can say is, the way we look at expansion is that expansion is only interesting if we can fully utilize as with Iceland, our scalability on tech, I think that goes for most markets. We can capitalize on our strong content position, above and beyond our own controlled originals, utilize our relationships with content owners. And by doing all of this, getting to profitability in any given market in much faster pace than you normally expect that’s the only reason why we would go into any market. We will not venture into a sort of walk in the desert trying to find profitability. There would be very, very specific plans for each and every market, if we decide and when we decide to do it. But we hope to be able to get back to in the not-too-distant future and share much more about these plans.

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Martin Arnell, DNB Markets, Research Division – Analyst [47]

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And just finally, on the ad market, how do you think this crisis will impact the advertising — TV advertising market in the longer term? Do you think — I mean will it be like for the print market after the financial crisis? Or do you think that it will be able to recover?

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Anders Hede Jensen, Nordic Entertainment Group AB (publ) – President & CEO [48]

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I think it will recover to some extent. This is, of course, only speculation and belief that it may recover fully, but I would not be surprised if it doesn’t recover to the same levels. And I’m basing that on seeing sort of the move on consumption from linear TV to streaming and new ways of reaching your end customers as an advertiser. Linear TV remains the preferred choice when it comes to reach and quality. But of course, as consumers change, and they do change a lot during this crisis, you will potentially see an acceleration and thus a reduction of the value of linear TV going forward. We are ready for it, unlike many others. And that is very, very important for us.

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Operator [49]

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That does conclude the question-and-answer session. I will now hand the call back to your host, Matthew Hooper.

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Matthew Hooper, Nordic Entertainment Group AB (publ) – Executive VP & Chief Corporate Affairs Officer [50]

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Okay. Thank you, everyone, for your time and your questions today. We will be hosting video conference roadshows over the coming days, both today and tomorrow, and look forward to speaking to as many of you as possible. As ever, please don’t hesitate to reach out to me, Stefan or Emelie and the IR team with any questions or requests.

We will hold our AGM next month, and for obvious reasons, we’ll be doing that in a way that requires as little physical presence as possible. Please do let us know you have any questions about how to register or vote at the meeting.

It is now just over a year since our shares were listed on NASDAQ Stockholm. It’s been an eventful year, and we have a unique story to tell. So thank you for your time and your continued interest. That’s it for this call today. So goodbye for now. Speak soon, and stay safe.

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Operator [51]

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Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.