Viaplay Group AB (publ) (VPLAYB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our Q2 results presentation. My name is Matthew Hooper and I'm Viaplay Group's Chief Corporate Affairs Officer. I'm joined here today for this live stream from our studios in Stockholm by our President and CEO, Anders Jensen and our Acting CFO, Asa Regen Jansson. We have not only announced our Q2 results this morning, but also the acquisition of U.K. sports streaming and TV channel operator, Premier Sports. We will present both of these on the call this morning and then look forward to taking your questions. As usual, presentation materials are available from the Investor Relations section of our website and you can post questions at any time on the Message Board by clicking on the Ask a Question tab at the top right hand corner of the webcast window or you can ask questions yourselves through the phone by registering on the keypad, but more about that later. So let's get started. And first of all, over to you, Anders.

Well, Matthew, thank you very much and good morning, everyone. This is our first set of results as Viaplay Group and the name change is just one of many strides that we have taken towards our strategic goals. It has been a very, very eventful first half of the year and we have maybe even more exciting second half of the year ahead of us. Our momentum has accelerated again. And these results and our forward-looking ambitions clearly demonstrate the strength and the uniqueness of our position. The Q2 results are well in line with our strategy and with our goals. Our Viaplay subscriber base has now grown by 69% over the last year and 16% in the last quarter alone. We added 766,000 subscribers in Q2, 1.54 million in the first half of the year and 2.26 million since the same time last year, amazing numbers. And this growth is coming from both our existing Nordic operations and our new international markets. In the Nordics, we added 459,000 subscribers and 307,000 subscribers came from our new international markets and this allowed us to end the quarter with 5.55 million paying subscribers. The Nordic base has, therefore, grown by 24% over the past year and we have increased the number of international subscribers from a humble 27,000 last year to over 1.5 million this year. So we are already very close to halfway towards our 5-year target of 12 million paying Viaplay subscribers. The growth in the Nordics was driven by the deal we did with Tele2 at the end of Q1 with all Tele2 pay TV packages now including Viaplay and our V channels. The summer is typically a lower growth period in Nordic D2C markets. This year was no different, but we have also seen churn rates coming down sequentially, which is very encouraging. It is quite clear that Viaplay is a differentiated product with a quite unique appeal. This is primarily due to our live sports and original local content offering. Historically, pay-TV has proven itself to be a resilient product in times of consumer spending pressure and Viaplay is now again proving to be particularly so. We upgraded our Nordic subscriber target last quarter and we are delivering well against that ambition. Next up are the Premier League rights in Norway next month, which will further boost our subscriber intake, especially following the move of Norway's superstar Erling Haaland to Premier League Champions, Manchester City. The international subscriber growth also reflects the strong combination of partnership and direct-to-consumer sales. The Dutch and Polish operations led the growth with the Netherlands continuing to account for more than half of the international base. We decided not to raise the year end international subscriber targets at the time of our Q1 results, a bit premature in our view, but the continued momentum and the fact that we will launch our Premier League coverage in the Netherlands, Poland and the Baltics next month, the new deal that we have just inked with Canal+ in Poland and the upcoming launch in the U.K. has given us the confidence to upgrade our year-end international subscriber target from 2.2 million to 2.5 million. Our new goal then is to have a total of at least 7.3 million Viaplay subscribers by the end of this year, which would be equivalent to 82% growth this year and we will then be over 60% of the way towards our 12 million target. All of these subscriber growth translated into 42% organic revenue growth for Viaplay in Q2. And Viaplay now also accounts for 42% of our Group sales. Viaplay sales in the Nordics were up 17% on an organic basis. We expect ARPU and revenue growth to accelerate substantially in the second half of the year due to the anticipated high direct-to-consumer subscriber intake in Norway, in particular, and the near doubling of our premium price in Norway. The price point is, however, still lower than the previous holder of the Premier League rights charged, so it should be very attractive for both B2B and direct-to-consumer customers. On the international side, Viaplay sales grew from a very humble SEK 2 million a year ago to SEK 282 million this second quarter, which reflected both the subscriber growth and the first full quarter of Dutch revenues. Revenues will now accelerate further as we benefit from the higher price point in the Netherlands from August when our Premier League coverage starts and the continued expected subscriber growth. Our linear subscription and other sales, which include both our linear channels, subscription sales, and Viaplay Studios' external sales accounted for 31% of group revenues and were up almost 7% on an organic basis in the second quarter. This accelerated growth was expected as we benefited from the new distribution agreements, which were offset to an extent by lower sub-licensing sales. The Tele2 deal moved revenues from the linear subscriptions revenue line to Viaplay. So we expect the linear subscription and other sales to grow by approximately 10% this year. Our advertising revenues now account for 27% of total revenues and were up almost 5% on an organic basis. We took market share on the TV side as anticipated and primarily due to the coverage of the Ice Hockey World Championships, which were held in Finland. We also benefited from the growth in the Norwegian and Swedish radio advertising markets. Remember that last year's Q2 included the boost from the delayed Euro 2020 for which we held the rights in Denmark. So this will impact the comparables for this quarter. Our annual agreements have been locked in at higher prices and with stable volumes. So we're not changing our outlook for mid-single-digit percentage point growth for this year, as higher prices continue to compensate for falling linear viewing. Overall then, we are managing our Nordic full year organic growth target of approximately 20% and we are raising our full year group revenue guidance from approximately [ 28% ] organic growth to at least 28% organic growth. On the profitability side, our profits were up 27% in Q2, when excluding the international expansion and we delivered close to 11% margin in the Nordics. We will start to take the costs for the Norwegian Premier League rights in Q3. So there is no change to our full year guidance for rising Nordic profits and a stable to maybe slightly lower margin for our Nordic operations when compared to the 8.8% we delivered for the full last year. The international operations are performing ahead of plan and the EBIT loss was lower than expected in Q2, which is why we are now guiding for a full year of international losses of SEK 1.35 billion compared to the original SEK 1.5 billion. So all in all then with SEK 350 million of income from Allente, we expect to be comfortably profitable this year in what is our tough through -- earnings year. When you also include the almost SEK 600 million we received from a Danish court settlement, our reported profits will actually be significantly up this year compared to last year. Looking forward into next year, we expect to see strong sales growth again, as all of the subscribers we have taken in this year contribute to full-year of subscription fees and we continue to grow the base. The Nordic profits and margins are expected to grow again, while the international losses will come further down. All of this will create significant profit growth in 2023 and beyond as we track ahead towards our 2025 targets. Important to say, of course, is that the broader macroeconomic situation and geopolitical context are, of course, a source of concern for everyone, us included. But we are ready to make cost adjustments on short notice, if needed, as and when we feel that there is such a need and we have done this many times in the past and we have this flexibility to do so. But I want to be very, very clear. The operations are in good shape and the expansion is not just well on track, it's ahead of our plans. The fact that we have bought so many sports rights for years to come that we have signed exciting new long-term content deals with the likes of Sony and Paramount and that we have a large slate of committed originals in productions, means that we have full visibility of our content cost for a long time. These costs are locked in and not subject to further inflation, which of course is a great advantage in the current economic environment. The content on Viaplay is stronger than ever and the platform is delivering well, with a 99.9% SLA, 12.4 billion minutes of content were consumed on Viaplay in the second quarter and our originals accounted for 3 out of the top 5 most-watched programs on Viaplay globally, including new format, Billy the Kid, and the latest seasons of established favorites like, Norwegian Wisting, and there is so much more to come this fall, much to be excited about from series and movies about the fascinating lives of female pioneers, Karen Blixen and Hilma af Klint to, of course, Erling Haaland's Premier League debut and Max Verstappen's ongoing battle to retain his F1 crown. We have many great ideas in the pipeline, both in the Nordics and internationally. So there is definitely much to look forward to. The conversion of subscribers from fixed linear viewing to the flexibility and affordability of streaming does, of course, take a bit of time and we are constantly working with infrastructure owners and service providers in each of our markets to ensure that the streaming quality and experience is constantly improving to get to the levels where we want it to be the coming years. We are fully funded for our expansion and we have no need to raise any further money. We expect to generate free cash flow in 2024 and our balance sheet will remain solid. We have also -- we will also continue to review our asset portfolio, including Allente. And if we clearly see that we are not the best owner of any asset, we will seek to monetize if and when the time is right. Indeed, we do have the scope within our existing facilities to make selective bolt-on acquisitions where we see the opportunity to accelerate our development in key markets in a profitable way. Premier Sports in the U.K. is one such opportunity and it effectively puts to work some of the cash that we received from the Danish court settlement. We are buying a portfolio of key complementary sports rights, a growing streaming platform and a subscriber base, proven professional production capabilities and a profitable company with established multi-year distribution contracts for less than one-time forward sales. This will significantly accelerate our growth in the U.K. and position us perfectly for the U.K. launch of Viaplay this autumn. We have also announced this morning that we have hired well-respected industry expert, Ed Breeze as our new SVP for sports in the U.K., which is another reason why we should be able to hit the ground running in the U.K. We have a big opportunity to build our brand here and we will have 2 packages at launch, a film and series package and a total package, including sports and everything. Both will deliver great value for money for consumers and they will clearly stand out from competition. We will announce more details about the launch, the date, the pricing, the distribution deals in due course. We expect the Premier Sports deal to close in September and there will be synergies from the integration of our operations. On the Q1 earnings call, I highlighted 3 ways in which Viaplay is different from other subscription-funded streaming services and we have seen further proof of these points of differentiation in the past quarter. Firstly, our Nordic growth runway is not just based on secular growth, but on specific events that are unique to our story, most notable of which all are the exclusive sports rights that come on stream this year. Add to this our more than 70 new originals this year and our Hollywood studio deals and you can very well see how uniquely well positioned we are also in the current market environment. Secondly, this is just as true for our international expansion where we have only just started to penetrate markets that are them -- some of them themselves at the beginning of their SVOD journey. The average Nordic household SVOD penetration is estimated to have grown to be around 64% at the end of this year, which compares to 71% in the U.S., same percentage, 64% in the U.K., 55% in the Netherlands, 29% in Poland and just 20% in the Baltics. So there is plenty of room for growth and we have helpful mix of market maturity in our footprint. And again, and this is very important, we are not operating a one size fits all strategy, but we are tailoring our offerings to each market with key new sports rights and originals coming on stream all of the time. And thirdly, there are our B2B Viaplay distribution partnerships. We now have these in place for almost all of the major Nordic players. We have extended our deals in Norway to now also include the Premier League rights at higher price points and we have added Canal+ to our list of international partnerships. This means that a high proportion of households are offered Viaplay subscriptions and we will do similar deals in other markets that we will enter as well as deploying our Viaplay Select concept in those markets that we -- where we don't currently intend to enter with our own direct-to-consumer app. The result of all of this is that our subscriber and revenue growth is expected to accelerate, not decelerate, and that we have high incremental margins once we cover our large fixed cost base. And finally, very importantly, I'd like to emphasize again that we are building a sustainable business together for the long term where financial metrics and rewards are only part of the story. We are a values-driven and purpose-led organization, which is why we are working towards science-based targets that will help limit climate change, which is why we are committed to diversity and inclusion in our workforce and our content, which is why we're prioritizing both physical and mental well-being in our hybrid new work spaces, while we have deployed a fast track recruitment program to enable Ukrainian applicants to secure permanent positions at Viaplay Group. We presented our new sustainability strategy to our stakeholders in Q2 and also published our first Task Force on Climate-related Financial Disclosure report. We have also conducted 2 onsite audits of our productions in the first half of this year and will do 2 more in the second half. And this is in order to make sure that we are adhering to the highest standards on the production sets and the highest standards that we set ahead of each production. There are many other examples of these types of initiatives that we can be truly proud of. In this context, I'd also like to mention how important it is that local and European policymakers help create a level-playing field for companies like us as we seek to compete with global giants. We have seen instances of local content levies and taxes being applied in attempt to fund local content production. We are already investing millions into local content production and we will invest more and more, which is why it's so important that such investments is incentivized rather than penalized and that even more pressure is applied by governments to fight the burden of piracy and to protect copyright. We are meeting with politicians across our markets and in Brussels to deliver this message as firmly as we possibly can. So that's it from my initial comments, I will now hand over the call to Asa for her comments on our financial position and performance.

Thank you. Anders, and good morning, everyone. I will just make a few comments as usual and then we can take your questions. First of all, the weaker Swedish krona has given us a reported revenue tailwind again this quarter, which is why our organic sales growth is lower than the reported growth. This has also increased our reported cost base, of course, and the total currency effect is broadly neutral at an EBIT level. We hedged a majority of our committed U.S. dollar cost on a forward basis, which delays the impact for a minimum of 12 months. We are seeing little EBIT effect this year as dollar hedging rates are more or less the same as in 2021 and gains on the NOK have been offset by losses on the euro. We do not anticipate significant effects next year other than on the dollar where we have good visibility through the hedges, which gives us line of sight to proactively manage the cost base as we have done in the past. Our operating expenses was up 25% in Q2, which was primarily driven by the international expansion, which accounted for close to 2/3 of the cost increase as well as our sports and original content investments in the Nordics. The vast majority of our content costs are now fixed for many years to come and we have -- so we have full visibility and are far less impacted by inflation. Our Allente joint venture has contributed to -- has continued to perform as expected. They had a few remaining post-merger integration costs in Q2, which they took as an IAC and are now at the full annual run rate cost synergies of SEK 650 million. The SEK 75 million associated company contribution from Allente this quarter will rise in the next quarters and we'll still expect approximately SEK 350 million of associated company income from Allente this year. We also continue to expect to receive approximately SEK 400 million in cash dividends this year, with equal amounts paid in Q3 and Q4. This is a business doing SEK 6.8 billion of revenue with a 20% EBITDA margin, healthy cash flows, limited leverage, and attractive dividend payout ratios. So as I pointed out last quarter, the equity value is considerably higher than the associated company income would suggest. Our effective tax rate, the first half of this year, when excluding our share and net income from associates, were 17%. We now expect the full year rate to be at around this level, when excluding associated company income. Our cash flows from operations reflected the investment in our international expansion, while the positive change in working capital primarily reflected the seasonality of our sports rights payments. The typical annual payments fall in July and December or January. We still expect a negative change in working capital of approximately SEK 3.2 billion for the year with a larger buildup now in Q3 and flat development in Q4. We repaid SEK 800 million of group borrowings in May and have the new 4-year SEK 600 million bond in place that we arranged back in Q1. We ended the quarter in a net cash position of SEK 1.64 billion. Our financial net cash of SEK 1.97 billion included SEK 5.25 billion of cash and cash equivalents and SEK 3.4 billion of total financial borrowings, excluding net lease liabilities of SEK 338 million. The net cash position reflects our healthy Nordic cash flows, the equity raise last year, the ongoing dividends from Allente and the SEK 595 million that we received from the Danish court settlement earlier this year. So our international expansion is, as Anders mentioned, fully funded and we have a balanced and flexible combination of equity and debt. We have a clear strategy, plan and targets that will create substantial and sustainable value and we are well on track to deliver these. That is it for my comments. So now back to you, Matthew. Thank you.

Thank you, Asa, and thank you, Anders. We're now ready to take your questions. [Operator Instructions] So I think the first question today, operator, will come from Derek Laliberte from ABG.

Yes. Very interesting quarter indeed. So okay. I was wondering here, given your increased ambitions in the U.K., especially with the acquisition announced today, I mean, where do you see the potential in relation to your long-term 6 million international subs target for this market and where do you see the U.K. sort of vis-a-vis the Netherlands and Poland?

Yes, Derek. And I think fair to say is that the U.K. is an evolving opportunity as we have demonstrated today with the acquisition of Premier Sports. And as we also stated, it expects to be closed post regulatory approval in September. So the numbers that Premier Sports brings is not included in our forward-looking guidance and targets today. So there is more to come. We will then in Q3 and definitely [indiscernible] coming Capital Markets Day be able to give you a broader view on our ambitions with the U.K. But of course, with the addition of this bolt-on acquisition, which is quite unique, given that it's accretive from day 1 and it allows us to ramp up our production facilities very quickly, the U.K. is becoming more and more attractive. But I think it's also important to say that it's important that we keep our heads cool. We enter a competitive large market with lots of opportunities in a time with a bit more, shall we say, depressed financial circumstances for many households. So it's very, very important for us that we balance our willingness to invest up against our ability to deliver value for money to the households. And I think we have a rock solid plan to do exactly that. So U.K. will grow over time, but today's announcements and everything that we are planning suggest that the ambition for U.K. has already increased and we'll come back to that in the third quarter.

Okay, great. Great to hear. And would you say now that you're close to done in terms of acquiring your planned sports rights for this market? And also if I may ask, do you have any additional data to share on margins, profitability for Premier Sports or we have to sort of hold until the CMD?

Yes. I think I'm going to have to leave a cliff hanger for the Capital Markets Day, but I want to give you, of course, a couple of comments. On the sports right side, we are never done. But we're in a strong position now. And I see no need to invest or risk over-investing given the very complementary sort of sports rights that primarily Premier Sports hold and that we bring already in our portfolio. One very good example is UEFA rights to the national teams for Scotland, Northern Ireland or Wales, which Premier League sports now secured for '22 to '24, we had already secured them from '24 and onwards. So we can now build a real proposition around these very, very strong rights. It is a competitive sports rights market and I see absolutely no need or interest in overspending rather than focusing on building something that is not existing today in the British market. When it comes to margins, as I said, Premier Sports will be accretive from day 1, given that it -- from this year, it's a profitable business and with the synergies that we're bringing, they will be able to deliver on our margin targets very, very quickly. And on that, you will get more details at the CMD.

Sounds good. And finally, from my side on your upgraded international target and the Poland performance here, what type of contribution are you expecting from this Canal+ Polska agreement?

Yes. The upgrade is driven by 2 components. One is the sort of the organic performance ahead of plan that we already saw sort of the signs of in Q1 and then you have the Canal+ deals that you allude to. And that one is not fully taken in, in the upgrade. We are now addressing a DTH household base of more than 1 million in the Polish market. So there is more to go for above and beyond what we are saying today. The agreement allows us to work with the entire base. But we want to work with that and build a proposition together with Canal+. So we would take this humble first new step and then we take the next step when we have brought on Premier League in August. And then again we can come back in Q3 and give more clarity, but we are very well sort of positioned to deliver the international numbers with this upgrade and potentially more.

All right. Sounds promising.

And as Anders said, you will have seen the tremendous sales growth that Premier Sports generated over the last year. And then again profitable for this year, quite clear on that. The next question comes from Jamie Bass at Berenberg.

Yes. My first question is, I'm afraid, a bit of a repeat, but I guess in a bit of a different way. So we were looking at the new guidance that implies about 1 million new international subs. So how are we thinking about where we get to this? Is it as in could you give a breakdown of the proportion that's coming from the EPL rights in various markets, how much is coming from the U.K., et cetera? Second question is on Premier Sports, unsurprisingly. You've said in the release that it isn't really SVOD, you've got linear and advertising here. So could you just clarify what this is going to mean in terms of how you report your numbers for international? Is it's -- are you going to have to break out your revenue lines into more detail in terms of what's coming from SVOD and what's coming from other moving forward? And finally, could you give some sort of breakdown of what the breakdown of subscribers actually is for Premier Sports in terms of platform which, how much is OTT and how much is linear?

Thank you very much, Jamie. And your first question, which is the same question asked in a different manner, of course, deserves a different answer. And the answer is that your question is phrased so that I will have to guide you on individual markets, which is something that I would like to avoid to do and actually save for more details at the CMD to keep the whole story sort of coherent, but just to give you something, I mean, the 3 buckets that you can look at when it comes to how we're going to get to what we are upgrading to today, first of all, it doesn't include Premier Sports. That should be said because we can't include anything until it has closed and passed regulatory approval, which is a formality, but nonetheless. But the other buckets are of course the addition of new rides in Premier League in our international markets that covers Netherlands, Poland, and the Baltics. That's one important part and then you have, secondly, the Canal+ deal, which as I said, we have taken parts of into the current upgrade. But we are addressing and penetrating a 1 million plus base with some really interesting upsides attached to it. And thirdly, we see continued strong momentum in our direct-to-consumer sales in general and in the Netherlands in particular. And these 3 combined should bring the numbers that you mentioned, and hopefully, a bit more. When it comes to Premier Sports, as I said, we expect it to close in Q2 -- sorry, not Q2, in September, and will be included in Q3. And then we'll come back to what that means for the full outlook. It gives us a very, very good start. But as you say, it includes linear channels and an advertising-based channel as well. What it means for our reporting, of course, remains to be seen, but the ambition is to link everything to Viaplay subscription to keep clarity that these revenues generated through the acquisition of Premier Sports is an extension of the revenues that we will generate with Viaplay to keep it very, very clear. So we don't have to create segments in our international markets that are just complicating things. But we'll come back on that. But the ambition is to keep it very, very straight. You had 3 questions. I'm not entirely sure if I covered all 3, Matthew.

No, I think you did go through them. I mean, Jamie, was there anything else you wanted to add to that?

Yes, there was just whether you could give like a break -- slightly more detailed answer, you probably can't give exact numbers of what the breakdown is in terms of existing Premier Sports base, how much of that is OTC and how much is linear?

Well, we will have to do the closing first before we disclose any details on Premier Sports. We're not in a position to give you details about the company until we have fully taken over. But I can assure you that the mix is very advantageous to the way we see the sort of the bolt-on nature of the business. They have been growing very well as Matthew said on revenues and they are operating a well-functioning, fairly-sized sort of streaming operation in a very competitive market. We will bring a more advanced platform, more content and you combine that, it becomes really, really interesting. But details on it, I will have to save until we have closed the transactions.

And just to reiterate again, more than half of the subscribers in the international side at the end of the quarter were from the Netherlands. Just so everyone is very clear on that one. I think then if we can just drop one question for you, Asa. Our tax rate, that's quite interesting. So we went over that one. I just think, if you could maybe just give a little bit of thoughts around why that's reduced to the level that we are now thinking about and how sustainable you think that can be moving forward?

Yes. For the year, I think it's probably around where we're going to end and the main reason is, of course, the Danish settlement with TV2 earlier on this year, which is then subject to U.K. company income taxes, which are at the lower rate than the Swedish ones. And then also, we had a few one-off items here in Q2.

Great. Okay. So potentially quite a contributor to EPS then, so.

Yes.

Okay. Then the next question comes from Klas Danielsson at Nordea.

Yes. So a lot of the questions answered from the previous 2 speakers here, but I think what's been in scope for you over the last kind of couple of months and even the space as a whole over the last half year has been the potential impact of recession obviously and the risks from that. And obviously I think it's quite clear to see that Viaplay is performing well on the SVOD side compared to at least some of your competitors. But I was just wondering if you could kind of talk us through and give us a bit of additional color on how you view your business playing through in a recession, whether that's in 2023 or so.

Thanks, Klas. I think it's fair to say that we will all be in some way, shape, or form affected by the macro financial and geopolitical situation. None of us are immune to that. So if and when -- as I mentioned earlier, we are ready to take austerity measures to safeguard the health of our business, but we are in good shape today. And if I'm looking at some of the key indicators regarding our product, not just the streaming, but as a whole. But if I just zoom in on Viaplay, as I mentioned, the churn is coming gradually down in this quarter and it is -- the sales remain at the same level that we usually experience for direct-to-consumer in the summer were actually slightly higher. That is good indicators that we have now carved out a position for ourselves, both in our Nordic markets and our new international markets that is unique and value accretive to the household. With that said, I think a lot of sort of the pressure on household economy is ahead of us. And many households are not yet feeling the pain of increasing electricity bills and food prices and what have you. And in that environment in which we have found ourselves in the past, our experience and I think that would prove to be the case this time around again that the must-have entertainment services for the household are if not immune, so at least very resistant to that kind of impact, I think if anything, it will speed up the downgrade of fairly expensive still traditional pay-TV subscriptions to move more and more into streaming. Our partners in Tele2 is now fully embracing that opportunity together with us. That's one thing. Secondly, I think it's very important to be a very sort of attractively priced must-have service, which we have carved out in the Nordics, in the Netherlands, in Poland. We will find a position in the U.K. that is value for money in a more depressed time. All of these things puts us in a pretty strong position actually. And remember that we are working with a cost base that is fixed, so everything that we manage to grow sort of takes sort of a direct positive impact to our ability to deliver profitability. I think the difficulty in the coming market will be for those who are operating traditional distribution operations, unless they manage to integrate streaming in a good way and those who have an unclear position, who are either too small trying to be big or big having a lot to lose in not being clear enough and we've seen that as you alluded to from some of our competitors. So it is a time where you have to navigate. I think our experience from having operated and still operating traditional pay-TV operations and linear businesses and ability to not just become a new streaming player, but actually convert the business into something new, that will play to our advantage. We've done this before, we'll do it again. And we're building a product that adds value to the households and their ability to reduce cost for entertainment. A long answer I know, but it's a very, very important topic that, of course, consumes a lot of time for us, something that we really deep dive into all the time. I take comfort in the fact that we have experience, we have the trends to prove it, and we have the operational sort of approach to deliver.

No, a long but good answer, Anders. But I guess that's largely on the kind of linear and the subscription side. I mean, the advertising has typically been the kind of largest swing factor I guess in recessions and so forth. So I guess you cut costs quite rapidly during COVID. I mean, if this starts to kind of decline once again, how does your room to adjust costs in the advertising side and to kind of tackle the large incremental drop-throughs on that side, I guess, this time around?

Well, if the advertisers are not there on the linear channels to invest, we will pull cost and invest less in those channels and we can do so with fairly short notice. And we have various levers to pull and various tools to achieve that. We proved that during last year, say, during COVID. And that is something that -- that flexibility is something that we have built up in our way of operating. Not everybody can do that, depending on what kind of structure they have, but for us, the cyclical part of our business in advertising has reduced as a size, but it's still very attractive from a margin point of view. But to be able to deal with these kind of swings, we need to have the tools on the cost side. And we do.

That's a good answer. And then just final question from my side. If we look at the international markets, I think it's fair to say that it's been quite a big success story on the distribution side so far, it looks like at least. So I was just wondering, is there any more kind of deals on the distribution side with potential partners that you're not currently in that you're looking at or potential partners essentially?

Well, a lot of the attention and the eyes will now move over to the U.K., because we are very well -- as you allude to, we are well covered now with additional Canal+ in Poland. We stand very strong in the Netherlands. So in the international markets, we are now sort of directing our attention to the U.K. where we actually get attractive distribution bolt-on, so to say, from the acquisition of Premier Sports. But we are well covered and the potential of the deal with Canal+ is, as I also said before, it's sort of in front of us. There will always be smaller and other opportunities, but the big ones are now covered to a great extent.

Now, don't be shy everyone. I know it's a busy day, lots of earnings calls today, but this is the most important one, of course, so please do ask any questions that you may have. I have one in the Message Board here from [ Niels ] which is, I think one for you Anders. Viaplay Netherlands has had criticism about the quality of its Formula 1 broadcast. Have you seen the number of subscribers in the Netherlands grow or decline in the second quarter and what are the figures for this?

No, we have seen the numbers continue to grow and we take a lot of action on those few, but still customers that haven't had sort of the experience that we want to be known for and to deliver. And there are a number of technical factors behind that and we are addressing them all. Some of them are in control, some of them are outside our control. But from a consumer point of view, who is in control doesn't matter. You should be able to expect the best possible experience. It takes a bit of time to move from a well-established linear technology to a streaming service with technologies that are still evolving. Some of the high-resolution expectations that you have coming from linear world over on to streaming is not yet able. We're not able to deliver that yet. We will, but it will take a bit of time. The flip side to it is of course that streaming is available on any device, anywhere, anytime, on any network, which is a great advantage and it's also reflected in the price points for streaming versus traditional TV subscriptions. So it is a trade. The majority, we are surveying our customer base and we are looking at this very carefully. The majority of the Dutch customer base is getting a good service and they are happy with the service from a technical point of view. And those where we find issues, we are addressing them very forcefully. We send people down. We have even sent people home to some of the subscribers where they have had issues. It has typically been related to when you cast your stream up to a larger-screen television. So the stream on smaller devices, tablet or a phone hasn't been a problem, it's the cast up to a larger one and we're addressing that. But it's a fairly small part, but of course, they are quite loud as they should be because they should be able to expect the best possible service from us and we're working on that.

Great. Changing tack again back to the finance side, Asa, if you could just talk to us a little bit about the U.S. dollar and FX rates, because obviously that's been a subject of some debate over the last few months as the U.S. dollar rate has moved quite a lot. We buy a lot of content in dollars. So maybe you could just address how we think about that moving forward.

Well, for this year and as mentioned, we are fairly on the same level as last year. So we have basically no effect from the increase so far this year. And that is also the outlook for the rest of the year. Then for next year, yes, we do see that the increased U.S. dollar rates are having an effect on our -- on us as well. But the good thing, of course, then with hedging is that we actually have a pretty good view well in advance so we can work with it.

Yes. No, absolutely. And fair to say, this is something we deal with on a constant basis.

Yes, it's nothing new.

As dollar rate move and we compensate for those. Yes. Okay, great. We have another question here on the conference call. So Mikael Laseen from Carnegie.

Yes. I was curious about the Viaplay services in the Nordic region. If you can say something how the quarter developed per country maybe and if you can say something about churn patterns in the quarter and also how the Tele2 deal has impacted your subscriber base so far.

Yes. For the Nordics, Sweden stands out as given the Tele2 agreement has a particularly strong market. We have continued to remain robust and growing in Norway and more flattish in the other markets. Finland has taken sort of a good increase, but that's driven by Formula 1 as you would expect. We would have liked to see more in Finland, to be honest, but that's then compensated by overperformance in some of the other markets. But the Tele2 agreement and the impact on Sweden stands out. Sweden is our largest market in the Nordics. Norway is now #2. So there is continued growth and that will, of course, remain the case as they will continue to grow in Norway with the addition of Premier League. So it's a good mix of where we are investing in the respective markets and their subscription bases to follow. During the summer sales, especially direct-to-consumer, as I alluded to, it goes down a bit due to seasonality. But we haven't seen that much seasonal churn related to our sports. It was lower last year than the year before and it's lower again this year.

Okay. And is the Tele2 ARPU impact fully in your numbers now or will that or could that dilute sort of the underlying base a bit more in Q3?

No. On the contrary, there is a greater impact this quarter given the mix between D2C, the seasonal slower D2C quarter and the impact from Tele2. When we come into Q3, D2C will be impacted by especially Norway significantly higher price point and a fairly large chunk of customers moving over to Viaplay. And also in the B2B deals that we've now done in Norway, we have similar to the Netherlands a very, very sort of advantageous and positive rev share in Norway on the Premier League subscriptions. So they will not dilute ARPU in a particular way. So it will swing in the other direction in Q3 even if Tele2 will continue to grow as we believe and hope. So the answer is, no, it's not fully in yet, but it's going to be compensated and more by Norway.

Yes. Got it. And that brings me to my other question, it's about the -- how your guidance -- how we should look at the guidance in terms of the Nordic region when it comes to growth for Viaplay streaming versus linear subscriptions. If you can say something about the difference between those 2 in the second half.

Yes, Mikael. We upgraded our subscriber targets in Q1 with 500,000 coming out of the Tele2 agreement. We make no further changes to neither that nor for the profitability for the Nordics and our ambition to deliver a margin in line with or slightly below, but we are, of course, targeting in line with or better than last year. There are no changes to that. I think we have said what we can say about the Nordics for now. There is not so much swing factors left, if you will, given that we have signed most of the distribution agreements. So the only swing that you could potentially expect is that if we overperformed just a little bit on Viaplay, you get additional sort of a swing factor to the benefit of Viaplay revenues as the other ones are largely fixed now. And that also goes for advertising, given that the majority is locked into the full year agreement. So we expect around 10% growth in linear and other and around 5% growth in advertising and Viaplay remains as we've said before. So not much changes to that. We are on a positive trajectory.

Okay, good. Good to know. And my final one is on the Allente ownership. You mentioned something about your position there or your ownership in your comments, Anders, can you maybe elaborate on the strategic rationale for owning this type of business right now where you are?

Well, the strategic rationale when we did the partnership with Telenor was crystal clear. We took 2 declining businesses, put them together and we've actually, with the great work of the Allente team, created a rather resilient DTH business with the growing IPTV operation, but that is not what we are building as Viaplay Group. So from that point of view, we are not sort of the perfect owner of that asset. I need to be very honest with that. It's value accretive. As also mentioned before, we get our dividends and it's good for the cash flow, but we don't feel that the equity value is fully sort of acknowledged through the associated company income. So then we question, are we really the best from a value creation point of view, are we the best owner. And that is a discussion that we have with our partner and we have very constructive discussions. So if and when we decide to review and potentially initiate the process around Allente, we will make that official given that we are 2 parties in this. But for now, the strategic rationale long term can be questioned, but we are very happy with the fact that we managed to get this merger done and are very happy with how it's played out and how well they are performing.

Now the Message Boards have come alive at the last moment. So a few more coming here. So first of all from [ Nick at Tower House ]. Can you talk about the overlap between incremental Premier League subs to come from Poland and the Canal+ subs who are actually Premier League fans? Quite a detailed question.

Yes. Detailed question from [ Nick ] as one could expect. Well, the overlap is not sort of that significant, if you mean, that our assumptions are higher or lower than the ones that are actually fans, if that is your question. What we do get with the Canal+ agreement is that we get full coverage of the Canal+ -- sorry, the Premier League fans and more, which means that if there are Premier League fans that haven't been covered before, we sort of get more access to those and we were able to give them all the matches and more matches as you know from before. But are we sort of fully addressing the full addressable base of EPL fans? Yes, we are, in a better way now given the Canal+ agreement. If that is a detailed enough answer to the question.

Yes. Okay. It's in the message forward say, Nick, please do follow up if you'd like to go. We got 2 questions.

If that was a rubbish answer, you can just write it on the -- and it will come.

And of course, I will read that out. So we've then got 2 questions from Tom at Citi.

Yes.

First one, Tom, is regarding, will the lower startup costs for international follow through into cash flow in 2022 and will it lead to an accelerated path to breakeven over the coming years or is it a one-off? Now, Tom, you admit that you're busy on some other calls as well. So just to deal with the first point, I mean, yes, it does, but we haven't changed any guidance in terms of working capital for this year, but obviously, there is a reduced loss there, correct.

And we should remember that it's reduced losses, not necessarily lower cost. It's actually reduced losses as a consequence of us selling more. If we want to work with the cost further, that gives us additional sort of leverage. So this is what you want to be the case. You invest, you get more sales than you anticipated for, the losses go down and the road to profitability is improved. That's basically what happens.

Exactly. And so I hope as you've all seen them and obviously that beat in Q2 was driven very much by the top line development as we've said. I think then the second part of the question is, will it lead to an accelerated path to breakeven over the coming years, which I guess is referring to the 2025 targets and how we look at that in the context of this outperformance now.

Yes. I hope that is going to be one of the main themes at our coming Capital Markets Day, where we can say, okay, so we're mid the strategy process, we can already now say that we are ahead of plan. But we can then extrapolate and simulate various sort of ways to get to the profitability potentially ahead of plan. We are working on that. We haven't concluded anything yet. I can only say that we are in a good position given sort of the good start that we've had now in the first round so to say, but potentially yes.

Great. Okay. And then one other one from Tom. Can you talk a little bit more in detail about the plans in the U.K., which I think we have done some of it. But what has changed the approach to have a more broad approach there? It seems odd that you are reducing anticipated startup cost if this project will entail more investment in programming et cetera. But I think, again, just to be very clear about this, Tom, we've said that this acquisition has not played into our guidance yet, because this comes later after regulatory approval.

Yes. But there are benefits, especially when it comes to getting more eyeballs for the investments in content that we're making anyway. Then there are other tactical elements that are moving all the time. One of those is, who buys what sports rights and at what price and how can you leverage your position in various ways. And I think we see -- we are probably looking at a U.K. market that has many often tell me, is very penetrated and very competitive and very expensive. And all of those things are correct, but some of it will change. Some of it will be driven by the necessity for some to change, some of it will be driven by the fact that we are in a more, more depressed financial situation and the need to deliver more value for money at lower price point increases and we can leverage our position in a better way. Our exposure to the U.K. is actually reducing as an effect of what we're doing, but the upside is increasing. But we'll have to come back to that when we can fully integrate the acquisition of Premier Sports in our outlook.

Great. Okay. And then I think the last question for today, on another earnings call this week, there was some discussion around ad-funded models and also password sharing. Can you just give a little bit of context from our perspective on that when we don't have this one size fits all strategy obviously and we're operating in different markets?

I think it's one of the proof points of the fact that we are different and we and some of our colleagues and competitors around the world find ourselves in different phases of our evolution and we operate different businesses. We don't operate a one size fits all operation. We are, as we go along, becoming more and more advanced in tailor-making our proposition for the various markets and adjusting our operations and cost accordingly. It would be premature for us to talk about advertising as a need to increase revenues. It's a future opportunity maybe. It is something that we have built technically, technical readiness for, but it's not a silver bullet for anybody. It's a matter of reach, it's a matter of pricing and it's a matter of how you deliver something that is unique and value accretive to the advertisers in any given market. So it is a bigger question. I don't see the need for us right now. I think it would mess with our ability to deliver both the revenue, the ARPU and the consumer clarity that we want to deliver on. So we're not there yet. Will we get there? I don't know today, to be honest. When it comes to password sharing, we, of course, experienced password sharing as well. Is it a big problem? In our view and in my view, no, it is not because it's a matter of accepting password sharing and put it up against the price points that you have, the user friendliness that you give your subscribers, will they have to pay something extra, the percentage and we know the exact percentage of subscribers that share their password to get a few kronas extra value out of that versus what that would mean for how people view regard our price, our product, the number of concurrent streams, all those things wouldn't be value accretive. And it's a discussion that I think one of our competitors is now engaging and because they find themselves in very different markets where shared economy is part of the economic landscape in a very different way than we are. So I think if hopefully and I think this is important, but this week and what we say and what others say is now demonstrating that you cannot look at the streaming market and talk about it as a unity. You have to look at streaming as a technology and then regard the various actors on that technology based on their own merits and where they're going and what they're bringing. That is extremely important and I think the differences in what we're all saying is now demonstrating that that is the case and that should be the case going forward.

Great. Very clear, Anders. That actually concludes the Q&A session. We're just slightly over time. But thank you, Anders, thank you, Asa, and thank you all very much for your questions today and for your time. We do really appreciate your interest and always welcome your feedback on the format of the session, so please let me know if there's anything you'd like us to change. We are doing physical and virtual roadshow meetings this week and next week. So please do reach out if you'd like to schedule a meeting or you have any questions. There's been a lot of talk today about the Capital Markets Day.

Yes.

You will see an announcement next week with the date. So we hope you hold that in your diaries and we're really looking forward to that later this year. But that is it for today now. I hope you've enjoyed the show and we will continue to keep you updated on our progress as always. Enjoy the summer holidays when you get there, if you're not there already. Good-bye for now and see you very soon. Thank you.

Thank you. Take care.