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

Good morning, and welcome, everyone, to the Viaplay Group Q1 2023 Results Webcast and Conference Call. My name is Matthew Hooper, and I will be your host for today. As usual, here with me in our Stockholm Studio are Group CEO, Anders Jensen; and Group CFO, Enrique Patrickson. Welcome, gentlemen. You can find all of the results presentation materials on the Investor Relations section of our website as usual. We will take questions after Anders and Enrique have presented the results. So please post your questions on the Message Board and I will read them out. Or if you understandably before the [ time ] of your own voice, you can register to ask your questions yourself by using your phone keypad. But more about that later. You will have seen that we have introduced new segmental reporting this quarter, providing separate reporting and commentary on subs, sales, costs and profits for both the Nordic and International segments. The KPI fact sheet on the website has been updated accordingly for prior periods. This change reflects our new regional organizational setup that was fully operational from the beginning of the year, and we very much hope that this new reporting is of use and help to you. We have also made the reporting simpler by removing our unnecessary adjusted net income metrics. As ever, any questions or suggestions you may have regarding the format of our reporting are welcome. So that's it for the intro. So let's get started. And first of all, over to you, Anders.

Thank you very much, Matthew. Good morning, everyone. I hope you are well. Q1 continued where Q4 left off with continued economic uncertainty and market volatility, fueled by inflation and interest rate hikes. As the effects of the war in the Ukraine disrupted basically everything from food supply, food supply chains to Silicon Valley Bank liquidity and putting further pressure on the consumer wallets and corporate growth. But in these rather extraordinary times, we have continued to deliver high levels of growth across our markets, and we've stayed on track with our profitability targets. Group sales growth accelerated again to 30% on an organic basis compared to our annual target of 24% to 26% growth. And Nordic sales growth also accelerated to 17% compared to our annual target of 12% to 15%. As expected, the primarily driving force for this is Viaplay, which account for more than half of our total sales and generated 68% organic sales growth or 81% reported growth when also including the U.K. business that we acquired in Q4 last year. Our total Viaplay subscriber base grew by 60% to 7.64 million at the end of Q1, and we are well on track to meet our year-end targets of 9 million subscribers. Our Viaplay content offering is stronger than ever. Q1 saw the state of the -- start of the new Formula 1 season, and we have now also added Poland to our Formula 1 coverage across a total of 10 markets. We also premiered Season 1 of anatomy of a champion, which is all about the amazing achievements of raining Formula 1 World Champion, Max Verstappen. It was the second most watched show of 39 new Viaplay original features, series, documentaries and reporter shows that we premiered in Q1, says something about Max's popularity. We remain on track to premiere more than 130 original productions this year. Our most successful Viaplay Premier this spring was Series 3 of Danish crime drama, Those Who Kill. If you haven't seen it, you should. Closely followed by 2 new Swedish series, Beach Hotel and Limbo. All of the content watched on Viaplay in Q1 and all of the content watched on Viaplay in Q1 in all of our markets, 5 of the top 20 titles in terms of unique users were original productions. This combination of live international premium sports and locally relevant originals is very popular as we've said many times, and it provides customers with fantastic value for money at a time when they are questioning all of their spending. It is clear that so far, in-home entertainment is both a staple and a stable requirement. Yes, there's a lot of rival services out there, but they're not offering the same thing at all, and they're not serving the whole family. This unique appeal is also why we have adjusted our Viaplay price points upwards in almost all of our markets to reflect our unique and enhanced content offerings as well as the overall inflation levels in each of our markets. In this context, I'm very happy to say that churn levels have remained fairly stable and demonstrate the importance of high-quality and flexible entertainment packages in these very challenging economic times. Breaking down the 17% Nordic sales growth, Viaplay, of course, led the way with 30% -- 36% organic growth and represented 44% of our Nordic revenues. The subscriber base grew by 33%, and we added 113,000 new subscribers in Q1 alone, which is well in line with our annual target of 400,000 in the Nordics. Prices were up, so ARPU stepped up. And as I said, churn has been stable. The impact of the price increases will continue in Q2 and for the rest of the year. We do expect the subscriber base to decline a bit in Q2 before stabilizing in Q3 and growing again in Q4, all down to seasonality. This primarily reflects the phasing of distribution agreements with our partners, which is the primary growth driver right now. And just to remind you again that our revenue sharing deals are linked to the local recommended retail prices. So the price increases that we're now putting through impacts both the D2C base and the B2B ARPU levels. Our linear subscription and other sales account for 30% of group revenues and 34% of our Nordic revenues. Sales were up 11% on an organic basis, which was in line with our guidance. Wholesale linear channel sales and content sublicensing and studio sales were also all up. The linear channel sales to third-party platforms represented 90% of this particular line and will continue to grow this year due to the price increases that we have introduced. Our advertising revenues account for around 20% now of group revenues and 23% of Nordic revenues. Approximately 70% of our ad revenues come from our TV channels, 20% from radio and the remaining 10% from AVOD sales. On a combined organic basis, these were down just below 2%, which was better than expected given the market environment. The Scandinavia and TV ad markets were weak in Q1 and probably down around 8% on aggregate, while the Swedish and Norwegian radio ad markets continued to be more resilient and were estimated to be up around 4% on a combined basis. So it is clear that we have gained market share on the back of higher TV audience shares in each of our markets. We also raised our TV ad prices again by double-digit percentage points in the annual upfront contract negotiations, reflecting the fact that TV and radio are high-impact media and offer higher returns on investment for advertisers, even if linear viewing levels are structurally in decline. We expect the TV advertising markets to remain soft for the rest of the year with the outlook naturally for H2 being particularly uncertain. Moving now to our exciting international markets. Our sales increased sevenfold to represent 15% of group sales compared to a humble 3% a year ago. Our 13 international markets now have more than 2.9 million Viaplay subscribers, 140% more than a year ago and up 211,000 in Q1 alone. So we are well on track towards our year-end target of 4 million subscribers in our international markets. We launched Viaplay in 2 new international direct-to-consumer markets in Q1. First up in February was the D2C launch in our largest market, yet the U.S., which was followed in March by Viaplay's debut in Canada. In both markets, we are offering Nordic drama and other content from our originals portfolio and high-quality third-party producers and broadcasters. As in the U.K., where we launched back in November last year after acquiring Premier Sports, we are in talks with a number of existing and potential distribution partners building our brand and carefully considering the addition of attractive new content. We've just introduced our app on the Roku platform in all 3 markets and the Viaplay service as a premium channel subscription on the Roku channel in North America. Our Viaplay brand is also present in a further 20 countries through our Viaplay Select service, where we make our curated and branded content available for fixed annual fee to ingest on third-party streaming and broadcast platforms around the world, from Latin America to Australia to Central Europe to Japan. In Q1, we concluded new agreements in Canada, Austria and Germany. And with this, and I want to be clear, we have no plans to extend our D2C operations any further at this time. So any further expansion in the near term will be by means of select deals, and we do expect more of them. We had almost 1.3 million subscribers in the Netherlands at the end of Q1 and almost 1.4 million in Poland. We raised our prices in the Netherlands by some 40% last year. So we are benefiting from that year-on-year effect, and we have now introduced tiered pricing in Poland to reflect the addition of Formula 1 rights last month. The Polish premium price has just been raised 60%, and we have also introduced a base and medium tier like we have in the Nordic countries. Sales will continue to grow, not least because we benefit from the higher ARPU levels. The subscriber bases are expected to either decline or stay flattish in Q2 before growing strongly again in Q3 and Q4. Again, this reflects the phasing of the campaigns run by our distribution partners in Netherlands, in particular. We have multiyear agreements in place with all of the major distributors in Poland and the Netherlands with Solcon having been added in Q1. On the profitability side, I will leave to Enrique to comment other than to say that we've actually came in marginally ahead of our Q1 expectations in the Nordics in terms of margin, while having predictably higher cost in the international markets given our further expansion and fueling the growth that we're seeing. We're not making any changes to any of our '23 or '25 guidance, and we are determined to strike the right balance between maintaining the strong momentum that we see in the business, but also managing the continued uncertainty in the market. Our strategic goals imply total group revenues of approximately SEK 25 billion in 2025 based on the midpoint in the guiding range, and we expect to achieve a group EBIT margin of approximately 13% in 2025, which will then imply group profits before ACI and IAC of above SEK 3.2 billion. Group and Nordic sales growth is expected to accelerate this year with the rising ARPUs and with a higher Nordic EBIT margin and then lower international losses. And please remember that we expect to deliver a combined profit for the international operations already in late 2024, a year ahead of schedule or so as well as a group positive free cash flow with the start next year. In conclusion, and as I say, and each time on all of these calls, all of our plans and actions are about building a sustainable business in all aspects, one where financial performance metrics are only part of the story. We have a strong culture at Viaplay, a purpose-led and values-driven culture that welcomes change and actually embrace challenges and engaged and energized organization that constantly seeks opportunity and constantly drives innovation. Our business strategy and our sustainability strategy are completely interlinked and it was great to be recognized in Sustainalytics for the second consecutive years for our top-rated and leading sustainability performance in a peer group of more than 15,000 companies around the world, and we were ranked #8 of 294 global media businesses. We will not rest on our laurels until we're #1. Please do read more about this and all that we're doing in our recently published digital Annual Financial and Sustainability Report. Hitting our ESG and EDI milestone in a world of social disruption and climate change is absolutely critical to our development, and we have a clear road map to do just that. So that's it for my initial comments. I will now hand over to Enrique for his comments on our financial performance, position and outlook. Enrique, over to you.

Thank you so much, Anders, and good morning, everyone. First of all, we had a currency translation tailwind again this quarter due to the relative weakness of our Swedish krona reporting currency against the Danish and the euro in particular. So our reported growth was higher than our organic growth by about 3.6 percentage points at group level and 2.6 percentage points in the Nordics. Our reported costs are also, of course, inflated by the same currency effects, and I'll come back to that in a moment. The first full quarter contribution from newly acquired Premier Sports business boosted our group organic sales by further 2.6 percentage points or about SEK 85 million. Conversely, the U.S. dollar and other FX transactional headwinds amounted to about SEK 100 million against us in the quarter, which directly impacted EBIT. As a reminder, we expect to have a full year transactional headwind of about SEK 350 million for the full year. We hedged the majority of our committed U.S. dollar costs, and this delays the impact of FX changes by about 16 months on average, and this gives us time to plan, which is why we're able to offset this impact with our previously announced cost savings program. As Anders said, our Q1 Nordic and group sales were above our full year organic growth guidance levels. So we have started the year really well despite the tough economic times that we are living in. The Nordic margin also came in above expectations at 4.2% versus 3.4% level in Q4, while losses for our international operations were higher because of a number of factors. We have the new Polish F1 rights, the new Premier League rights from second half of last year and the launch of Viaplay in the U.S. and Canada and the scaling up of our U.K. operations, which contribute to the first full quarterly results. We expect our Nordic margin to be higher in the second quarter compared to Q1 and higher in the second half versus first half. And that's given our ARPU increases and subscriber growth profile that we see. We will be able to achieve the guidance level for the high margin for the full year when compared to last year. And on the international side, our losses are expected to come down year-on-year so that we can reach our full year target. Our operating expenses were up 43% in the quarter, which reflected all the factors that I just mentioned. Essentially, we will continue to see the effects of sports and original content investments we have been making before they start to have the year-over-year comparisons in the second half and the cost inflation will begin to slow. The international expansion accounted for about half of that cost increase and content accounts for about 3/4 of our total cost. So with live sports being the largest category and our total content spend was [ up ] by about 50% in Q1. And that includes as well the cost of our original investments, which, as you know, we amortized straight line over 6 years. In the quarter we as well reported SEK 44 million in items affecting comparability, which was slightly lower than what we announced in February. So no surprises there. This residual amount primarily relates to the integration costs for the Premier Sports acquisition in the U.K. On Allente, Allente is performing broadly in line with expectations, but we have higher costs, including hardware costs, operator fees and SG&A, and they have only just now raised its prices. So EBITDA was down for the year. It contributed with SEK 11 million of associated company income in Q1, which is short of the full year contribution that we expect of SEK 150 million to SEK 200 million for the full year. As you know, Allente's PPA amortization rate has been increased to about SEK 440 million for the year compared to SEK 340 million previously. In addition, borrowing cost increases and some other negative currency impacts as well impacted the results negatively. The company is now implementing a cost reduction program, which together with the price increases means that we are maintaining our full year guidance for this year. But with a clear weighting to second half improvements as we expect lower results in Q2 when we expect the company as well to take restructuring charges. As expected, we did not receive a cash dividend in Q1, but we still continue to expect to receive about SEK 300 million in the second half of this year. In May of this year, we will have been the 50% owner of Allente, together with Telenor for 3 years. We have captured the cost synergies from the merger and over 70% of Allente subscribers have Viaplay and 37% have the V channels as part of their subscriptions. We have said before that we are -- we don't believe that we are the best long-term owner of this asset, but we don't have any further updates at this time on that. On taxes, our effective tax rate for Q1, when excluding the share of net income from associates was 20%. And we expect the effective tax rate to be about 21% for the full year. Our cash flow from operations reflected primarily the investments in sports and original content and in our international expansion. The negative change in working capital was about SEK 650 million and was in line with our guidance for the full year, but below last year as some sports rise payments will flow into Q2. We continue to expect a full year buildup of working capital of about SEK 2 billion. With regard to our financial position, we ended the quarter with SEK 2.5 billion on net debt or SEK 2.2 billion when excluding leases. We had SEK 2 billion of cash and cash equivalents and SEK 4.2 million of total borrowings. And this is very much in line with our expectations. As I mentioned last quarter, we have proactively added short-term borrowing to adjust for the seasonal buildup of our working capital. As a reminder, we have SEK 150 million bond maturing in June this year, which will be covered with short-term funding. The remaining SEK 3.25 billion of bonds, which are all in Swedish krona, will fall due between 2024 and '27. And we're paying a blended rate of about 4.6% on our borrowings in Q1 and earning 2.9% on our cash deposits, and that's about the 0.5 percentage increase, both on the debt as well as on the cash side. Our net interest and other financial items total a minus of SEK 37 million in Q1, which was lower than expected, mainly due to the higher interest payments received and the positive impact of currency and the revaluation of financial items. We still expect these net financial items to total about SEK 200 million to SEK 250 million negative for the full year. All in all, we have a good line of sight over the majority of our operating expenses and our financial and tax expenses. Our 2023 outlook and our 2025 targets are unchanged. We're for sure operating in less certain and more challenging market conditions, which is why we're saving on costs to offset the headwinds that we see, yes, that we've done in the past and we've no doubt have to do as well in the future. We're adjusting to this new economic reality, but please remember that we remain one of the fastest-growing media and entertainment companies with 25% midpoint guidance on group sales growth and 23% Viaplay subscriber growth forecast for this year. That's all for my comments now. So over to you, Matthew.

Thank you, Enrique, and thank you very much, Anders. We are now ready to take your questions. [Operator Instructions]. So I think, first of all, we're going to go to the telephone phone lines. And first up there, we have Derek Laliberte from ABG.

I'd like to start off by asking on the recently -- or the recent new Telia agreement and corporation, if you could share any thoughts on how that's performed in Q1 in terms of B2B subs, et cetera?

I think the best way to describe that one is that it's performing in line with what we anticipated. There is a good ramp-up of new subs. And if you look around the media landscape, you will see that Telia is pushing their sports offering quite extensively, where Viaplay is an important part, so all fine.

Okay. Sounds good. And could you also give some additional flavor on the international business, perhaps specifically on the Netherlands, Poland and also now the U.K. market, which has been online for a bit of time here. And if you could give something on the sub split would be great as well.

Yes. So I think starting with the U.K. The U.K. is, as you know, small by comparison to the size of the U.K. market. We acquired Premier Sports to be ready if and when we see something attractive. And in the meantime, we operate in itself attractive business, and that's where we are right now. It's really all about distribution. Matthew and the U.K. team are working hard on exactly that, extending our distribution. And in the meantime, we are happy to see sort of that some of the results in the sports portfolio. For example, the Viaplay Scottish League Cup played out in a very good way with Celtic and Rangers battling it out for the trophy. So U.K. is doing basically exactly what we anticipated and wanted to do at this point. But it is really and ultimately a question of if and how we scale it over time. But the benefit of having Premier Sports on board now rebranded as Viaplay is that we can take our time and only act when we see something really accretive to the business. The other 2 larger markets in Continental Europe, Poland and Netherlands, let me start with Poland because Poland is doing well. It is now our largest market with around 1.4 million subs at the end of Q1. Netherlands is to run up with around 1.3 million. But the growth in Q1 has been driven predominantly D2C in Poland and then in distribution and campaigns in the Netherlands. And obviously, Formula 1 has been a major driver in both those markets. But I would like to say that Poland is standing out in a positive way in comparison.

And then finally from my side, the -- I mean, you've been very active on these various Select launches. So any comments on how that's performed so far?

No, Vanda and her team in the North American and Select team are really going from strength to strength. As you have seen, we recently announced the agreement with Deutsche Telekom in Germany, and there is a good pipeline of new agreements coming on board, both in existing countries but also extending our footprint to new countries. And this is -- and especially in this [ day and age ] this kind of high margin contribution to our business, benefiting from the very attractive portfolio of content that we have built up is going to be increasingly important. And I think we can share a lot more about the potential and our ambitions and our guidance for Select in isolation when we come to CMD later this year. But I've said it before, and it's by no means any guidance, but I think it definitely has SEK 1 billion potential in the next couple of years, and we're working very, very focused towards that.

Okay. Thanks very much, Derek. For those of you posting questions on the message board, if they're already taken through the telephone, I obviously won't repeat them, but just going to the message boards now quickly. First question we have here from Klas at Nordea. Is on the churn being stable or fairly stable? Are you seeing this also in accounts that are covered by the price hikes, i.e., accounts where they've had direct price impact?

Yes. The short answer is yes. The stability that we're seeing are indifferent of impact of price increases and not, which is a positive. We have rolled out the absolute majority of price increases and a stable churn year-on-year in this environment and with the price increases is a positive for sure. The new sales markets are as anticipated, and as one can expect, they are a bit muted. So maintaining churn under control is absolute key. But it also means that we can save a bit on our spending for acquiring new subscribers. So the mix is good. And then we have good line of sight to and year ambitions given the distribution agreements we have in the various markets. So stability is a good word these days.

Okay. And then the second half of Klas' question is, could you again detail the ARPU development expected throughout the year considering that there was no sequential step-up in Q1?

No. What we see in Q1 is the direct-to-consumer impact, would then hits the later part of Q1. And then you have a slight delay effect all linked, as I mentioned before, to the recommended retail price in the distributors. So the step-up will be significantly more visible in Q2 and then grow over time in Q3 and Q4. And with the current stable churn levels, the outlook for Q2 is quite positive when it comes to ARPU uplift.

Great. Okay. So I think that was Klas' questions covered off. So we'll now move back to the telephone lines. And the next person on telephone lines is Saim Saeed from Berenberg. So Saim over to you.

Just a question on international ARPU and its decline from Q4 then from Q1. Can you maybe just comment which countries drove that? Or was it more just a mix effect from B2B or B2C or some of the larger geographies? And another question is, I believe there were some headlines during the quarter on the Dutch government considering the streaming law on spending 5% of the total turnover on local Dutch production. I'm just wondering do you already satisfied with that criteria? Is it some sort of concern? And do you have any sense of the time line on that? And the final question is just on Sweden. I guess Sweden in Q1. Was Telenor, I think they were doing some hard bundles on some sports sales on the recently new launched TV packages. Was that one of the main drivers for subscriber to the Nordics? And are the upcoming sort of distribution agreements in the Nordics already agreed? And it's maybe just a massive waiting for the date of execution?

Thanks. Very good questions. International ARPU mix is an effect of the mix between Poland and the Netherlands, which, as I mentioned, tilts to the advantage of Poland. And then if you zoom in on the Netherlands specifically, it was very much about the campaigns kicking off the F1 season with the distributors. So a fair amount of campaign subs in the number, putting a bit of pressure on the ARPU mix. Similar to the Nordics, with the price increases and when the campaigns run out in Q2, you will see a quite significant uplift on that, assuming we continue to manage the churn, which we have all intention to do. So it is purely a mix effect between Poland and Netherlands, in general, and then the mix in Netherlands in isolation. But all fine. I think the important part is to connect to the households, work with it and then get the uplift as we have seen before. The Dutch streaming tax or cultural contribution or whatever it's going to be called, as we've seen in some other markets. Yes, it is a concern because it always risks of sort of creating unbalance in a level playing field and fair competition. So we are engaging quite actively with the local regulator as we are also doing with the EU. And different countries take different approaches to this, which also adds to the complexity and sort of counter the whole intention of the EU, I think. But for now, it's not sort of a major concern with everything that we have learned, but I prefer to be a bit cautious because as we have seen, especially in Denmark, it can swing from East to West and up and down very quickly. But it is a concern for the industry and for a level of sort of playing field when it comes to competition. The Telenor hard bundle that you mentioned, no, it was not a major driver in Q1, was a driver together with the Telia agreement, together with Tele2, doing what they are doing and together with the small share of D2C as well. So it was a fairly well-balanced mix, I would say. I think the last part of your question here, the sort of the outlook for the full year and the campaigns and the activities. Yes, we do have a good line of sight to what the plans are and how to support our distribution partners in the best possible way for them to achieve their targets, meaning they can deliver on what they have committed to us. And this is one of the reasons why we're in the light of stable, well-managed churn, but slow direct-to-consumer markets still feel fairly comfortable around maintaining our full year guidance, knowing pretty much what's going to come and when.

Okay. Good. Saim, I think we've covered those off. Feel free. And when you...

It sounds like he has a follow-up.

Yes. Did you have a follow-up, Saim, was that it? I think he's fine.

On the sort of full year guidance and why it wasn't created in Q1, you just mentioned about the level uncertainty you felt over the rest of the year. Do you feel more or less certain relative to the Q4 call?

If I look at our business in isolation, a Q1 that is delivered in line or slightly better with expectations is a step in the right direction. So in that context, the short answer is that, yes, one quarter down, more positive. But the world around us is uncertain and things are swinging around us quite quickly. So it would be careless of us to try to not sort of look at that aspect and just stare blindly on what we can see in our own business. We feel confident to reiterate our guidance. And I think in this landscape and in this context, that's a positive.

Good. Okay. Saim, hopefully, that covers it. Feel free. I mean you can ask all your questions upfront or [ some spare ] Anders is spending time, you're welcome to ask them sequentially as well, whatever is easiest for you. I think next, shifting gear one for you, Enrique, if I may. Working capital changes and net debt. If we look forward, obviously, the guidance stays the same. How do you think about the phasing for the remainder of this year in terms of those working capital changes?

Yes. Thank you, Matthew. So we're looking at Q2 that where we expect to have quite a flat development on working capital. And then we have a bit more pronounced buildup in the second half, in particular in Q3, where we have more sports payments. So those payments are a bit higher than the actual underlying cost that we report in the P&L. So -- but still keeping to the SEK 2 billion for the full year guidance.

And the same net debt set up.

Yes, exactly. So the consequential net debt out of that, yes.

Good. Okay. And then I think we'll take it back to the telephone lines again. [Operator Instructions] Next up, we have Jamie Bass from Redburn.

Just a couple from me. Firstly, sorry, I know you went through this, but I didn't quite catch it. Could you go through again on the Nordic and International, you talked about your subs phasing from Q2 through to Q4? Could you quickly touch on that again, please? And one other one on Viaplay Select again, I mean you say you're going to give more disclosure about this and talk about it more at the CMD. A check is, at the moment, how material it is to the international numbers? And if you are going to further down the line when it's a bigger number, if you're going to separately disclose it, are we going to see basically a dilution of ARPU in the international Viaplay segment, if those numbers are currently included and therefore, it's what we're calculating ARPU of. If you then separately disclose Viaplay Select, is that going to make the ARPU look worse on a 1-quarter basis?

There was a lot of very good questions. A lot of very good questions in those questions. Let me start with the first one and how we see subs throughout the year. And let me try to sort of be as clear as I can. We -- as I've said, we have good line of sight to delivering on the full year guidance based on everything we know with the distribution agreements that we have, the volumes that will flow in as a consequence of those. The current churn development, which we are monitoring and working very actively on and then combining that with fairly muted direct-to-consumer markets as they are right now. And if we put all of those together in the blender, we come up with a cocktail that says, well, that looks like we are well in line with our full year guidance. But there will be some swings between the quarters. And I can give you a very concrete example. We do expect Q2 to be more muted if churn is in line and distribution agreements are coming in as we anticipated, mostly hitting Q3 and Q4. And there is a slow direct-to-consumer market that has in previous years, to some extent, compensated for seasonality. That means that Q2 this year if the market is softer, will be more flattish or even down to some extent. But that doesn't really impact our full year expectations. The flip side to that is that ARPU will come through even stronger in Q2 and build up throughout the year. So this is about understanding how to manage a subscription business and the customer base in the best possible way during these kind of more turbulent times, maintaining churn in control, full line of sight to the distribution agreements and not overspending on SEK in a market where people are not shopping. That is the way we are looking at it. We're not chasing low ARPU subs in the direct-to-consumer market just for the sake of it. We want to manage our cost against the return on investment for those subs. And that will come through distribution and churn control. I hope that clarifies. So that means lower expectations for Q2, not a problem. When it comes to Viaplay Select, will we sort of -- will we report it separately? Yes, at some point because otherwise, that's a content sales business that will otherwise dilute our ARPU for the business that is directed to consumers. It's not material enough yet for us to do that. But as we have said before, when we come to the end of the strategy period in 2025, we're probably looking at a more segmented reporting that reflects the ongoing run rate of our business. We're still in the buildup phase. So right now, it would not be neither helpful for you in the market or practical from a competitive point of view to disclose too much too soon. It will confuse more than clarify. But when we get there, yes. But I can give you a flavor on what Viaplay Select does. Because if we take our U.K. market, our U.S. and Canada markets, combine them with Viaplay Select, they are not loss-making this year despite the investments that we are making. And that is actually down to Viaplay Select contributing to those investments. So that's a positive versus our original base case. And we will continue to build that over time. But the dilution on international ARPU as a whole is not significant enough to warrant a separate reporting yet. I hope that clarifies as much as I can at this point.

Yes, that's very clear. Can I ask one follow-up, if that's okay.

Yes, for sure.

Just based on what you're saying on the U.K., U.S., Canada in Select, can you give us a sense of -- I know you're not going to give actual numbers or anything per market. But is there one market that's getting closer to breakeven among the major ones, I mean, essentially I'm talking about Poland and Netherlands here, are they tracking towards breakeven at the rate you would expect? Is there one that's more heavily loss-making at this point and one that's tracking more towards profitability? Or is it sort of a 50-50 split right now?

I can give you some flavor without saying too much. I mean we've said before that Netherlands is ahead of schedule and remains ahead of schedule. We just have to see exactly when we hit breakeven this year, which we anticipate it will, depending on how the market develops. The interest in Formula 1 is, of course, important, but we also see a lot of benefit in the rest of the content in our packaging, but we still see line of sight to breakeven for Netherlands this year. Our original anticipation for Poland, our largest market in terms of households has always been 2025, and that hasn't changed. We invested a lot in building a market with penetration of streaming services, hovering around 20%, 25%, and there is so much upside in the future. So it's not investing now would be a mistake further down the line. But the road to profitability hasn't improved, and it hasn't worsened for Poland. Netherlands, better. The question is how much better. We'll see that later, and we'll know more when we talk about Q2 in the summer. U.K., with the addition of Premier Sports is breakeven-ish already. And that's a good starting point. North America and Select is profitable this year, contributing to a small but still to the markets to Select, compensate whatever investments we're doing in U.S. and Canada. So I think fair to say, it's a balanced approach that we're taking right now with some positives.

Over to you again, Enrique, if I may. Allente. So just to be clear on this, the profit contribution in Q2 will be low again. So then with a big step-up in the second half with restructuring programs going on, no change in the cash dividend profile. Is that largely a summary?

Yes, correct. So we expect quite of a muted first half for Allente. We expect them as well to be reporting some form of restructuring charge for -- yes, during Q2. And then they're taking a bit of incremental cost for this year. So everything from hardware cost and they've had a bit of an increase in SG&A and marketing costs. So price increase and that restructuring will be very important.

Good. Very clear. Then one other question we have from the Message Board. And this is rather open-ended one for you, Anders. How is Norway doing? Is Norway in line with expectations? I assume this is more to do with Premier League and other things, but it's...

Not Norway as a country.

Not as country, probably not the geopolitics right now.

No. No, I would really sort of stay away from that one. Norway is doing very well. Norway has gone from a troubled market not that many years ago to one of our strongest Nordic markets. And the Premier League question, of course, given that we didn't reach exactly where we wanted to go in the beginning. That is then compensated now by the slower than originally anticipated price increases and slightly higher. So Norway is doing well. And we are -- I mean, we're going from strength to strength when it comes to winning prices for originals being talked about as the most prominent investor in our content. So the only way to say is that Norway is doing well, and I'm really, really proud about what we -- and our fantastic team in Norway has achieved with that business. We've gone from marginalized to leading in 2, 3 years' time. That's pretty good.

Great. Good. I hope that answers your question from the message board. We're going to go back to phone lines again now and back to London. So next up on the list is Tom Singlehurst from Citi. So Tom, over to you.

Perfect. Hopefully, you can hear me. Yes. Magic, magic, magic. It's Tom here from Citi. So I'll ask my questions sequentially, make it easier and more exciting. But if we could start with talking about just the sort of position of Viaplay, in particular in the Nordics within the sort of pantheon of sort of competing streaming services. Obviously, you've had this big price increase, but you've maintained stable churn. I'm just interesting whether that tells us something about the fundamental stickiness of the Viaplay offering relative to other SVOD players, in particular, the international, but also other sort of streaming services like music. Can you, I mean, just share what your research and experience is telling you about just how important Viaplay is in that sort of world where a household might have 3 or 4 subscriptions and where you feature on the list.

Yes, absolutely, Tom. So the way I would describe it is that among the non-globals, Viaplay is the household Nordic name. We have strong local competitors in Sweden, Denmark and Norway, but also Finland, but they are on market players with variances in their portfolio. So if you look at the Nordics as a whole, and that's the way we look at our capital allocation. Viaplay is the most common combination with the leading global platform, Netflix, 60% of the households in our respective customer bases are expected to have both services. So they are in many ways, sort of staples in many of the households, which is exactly the position we want to have. And it is a position that is now manifesting its value when people are looking at how and where to spend. The frequency of new and original content, the frequency of good movies, the good portfolio and the good library from Hollywood, combined with a very sticky high-profile sports that we typically focus on all markets, it's not just A sport for A market, but for all the markets that is proving, it's worth. Not just as you say, up against other video streamers. It's also audio, also books and everything. How do you spend your money? And we have a strong position in that equation. The weak spot some years ago, as I mentioned, was Norway, where we were down to fourth and fifth place. And now we've come up to a very solid #2 in terms of subs and probably #1 in terms of revenues. So it is a position that we are aiming for, and it's the same position that we're aiming for in our 2 largest international markets, Poland and the Netherlands. And then we tailor make our position in the other markets based on return on capital and attractiveness of our content. And combine all of that, then we have a total footprint of close to 40 million households that we can work with, which means that once we hit the 12 million target, net of whatever we do outside Europe, the growth is not over far from it.

That's very clear. And the -- I suppose the sort of follow-on question from that is about price you've had this big step up in the 1Q across various markets, which in some regards, feels like catch-up. I'm just wondering whether you think there's a step change in the group's pricing power as a consequence of that sort of change in prominence and position?

No, that is the billion-dollar question these days because the value of the proposition and the value of what we bring to the households clearly suggest that there is a lot of pricing power in the future, and we have every intention to benefit from that pricing power. Streaming as a main source of entertainment in your household is very, very cost efficient still. But we also have to balance it up against people's sort of willingness to pay in these distressed times for the households. So each and every price point, need to be carefully considered, balanced and all the sensitivity analysis that you can think of need to be made before we push something through because market shares take time to build, and they can easily be lost. So we have to be mindful about it. So we remain on track with our price increase plans. We have no reason to change anything right now. We just follow it very, very carefully. But the pricing power is far from over. And I think it's fair, like you're saying, it's more sort of a catch-up after a quite significant race for market share. Now we need to make sure that we capitalize on that without throwing out the subs with the prices, so to say.

Yes. That makes sense. I suppose one way you could justify further prices is by injecting value. And I know it's only one market, but can you comment on the attractiveness or not of Champions League in Sweden?

Well, I've said it before, and I really want to be very, very clear, sports rights and the cost of sports rights has, together with other content, as we and others have basically raised to build strong positions, that cost will have to come down in various ways, either as a cost of total share, meaning that the prices need to go up so we can manifest the value of the sports rights. And in an environment where that is not fully possible, the prices, the cost of goods sold will need to come down. And that is very much true for sports rights, especially if it's larger commitments like say, the Champions League in Sweden coming up. But it's not just the Champions League coming up, it's all the UEFA club tournaments for a number of our markets. And whether we will stay in that game, whether we will pay more or less or whatever? The only thing I can say is more is not really an option. The rest is tactics that I will save for later. But if you look at the cost of goods sold in our industry for both sports and nonsports content, outside Hollywood, we've been doing quite well. In Hollywood, the race is still on, and that's going to put pressure on the U.S. platforms, and they're pulling back from local content now to probably fund that journey. This is where we need to find our sweet spots of how to manage our cost base. Sports rights are certainly in the focus of that.

Super clear. And one final one. I mean with Allente, I suppose some heavy illusions from you that it's sort of the end of the road in the sense of your sort of ownership of it, the comments about having held up for 3 years and what have you. Is there an active process to try and resolve the sort of ownership of that currently? Or is that something that we should think about as potentially in the future?

No, we are actively engaging on the matter with our partner. And if we find a good solution in various ways, we will consider it, but there is nothing new to report today. So that hasn't changed from before. But yes, we are actively pursuing and looking at alternatives. But I think it's fair to say that there's not really any rush. We have gotten all the synergies by doing the merger handsome. We continue to see good cash contribution. I think when we see all the upsides, we didn't really get share appreciation for what we managed to get out of Allente. And I don't think it should be a concern on the downside right now either. Allente has served its purpose. It is a structurally challenged business, but with a lot of good years still ahead of itself. And management is now taking good sort of steps to manage cost bases to continue to deliver cash back to the owners. It is attractive for us or any new potential owner in the future. But if and when something happens, you will be the first to know.

Thank you very much, Tom. [Operator Instructions] So next, we're going to go back to the phone lines again. And this time, it is Martin Arnell from DNB.

Hello, guys, can you hear me?

We hear you, Martin.

Okay. So I have 3 questions. And the first one is, I'm just struggling to understand how you can be so confident in the full year subs guidance, given what you're now flagging for the second quarter. I mean there's lots needed in the second half with the distribution deals, and there's no new key sports rights like you had in this quarter and the previous ones. So those were my question.

Yes, do you want to start with that one before you take the other 2?

Yes, please.

Yes. No, I mean the confidence comes out of -- from 2 sources. First, we did well in Q1, which is typically a quite slow quarter. So for the Nordics, we've ticked off 1/4 of the ambition for this year. We have good line of sight to volumes coming in later in the year and the other quarters are typically stronger, especially than Q3 and especially Q4, of course. So I think having done 113,000 in Q1 and then have a little bit less than 300,000 to go, I think with everything we know, that's absolutely doable. No reason to adjust for that. In international, there is still package population and opportunities to work with our content in the various ways to drive growth in the markets. That's one side. And we do have some plans for the second half of the year, and especially Poland has really sort of shown that, that was a good step to take to drive both ARPU and volume. Netherlands, we're still in one package scenario. And we do have a new year for campaigns with many of the distributors in especially Netherlands. And then some volume potentially from new distribution deals that Matthew will get done in the U.K. and Roku and a few other things in the U.S. even if they are not significant in the greater context, everything adds up and that gives us a fairly good view on subs for the full year and enough confidence to say that we have no reason to believe that we cannot deliver on our subs guidance.

But is there a distribution deal that has been moved to the second half? Or have you been looking at Q2 as this stable or slight down quarter before this spring?

Yes. Yes, that's a good question. We haven't moved anything. They are basically what we wanted it to be in the beginning. We've upped a little bit towards the second half of the year. We are, of course, also considering how to best support our distributors in this troubled financial landscape. And if inflation is coming down, it's probably in the second half of the year, then it's probably more advantageous for them to push campaigns then rather than in Q2. And we have no interest in just pushing Q2 for the sake of it and spending a lot of expensive marketing dollars and our SEK in general on a quarter that is likely to be a bit muted. So this is all about careful planning on how we create enough value for us and our partners in this environment. So I wouldn't say there are any fundamental changes, but there is a very good dialogue and ongoing planning on how to maximize the return on the investment for us and our partners. I would much rather have good ARPU customers later in the year than too many low ARPU customers early in the year.

Yes. Okay. I got it. And just 2 minor questions. When will be the quarter when you say sort of now we see the full effect of the price hikes?

That would be late Q2, early Q3. So we will report in Q3, that would be a full effect, but we can talk about the full effect probably towards the end of Q2 from a run rate point of view, full P&L impact Q3.

Yes. Perfect. And finally, do you expect a profit in international in Q4?

Not in international as a whole. We do hope to be able to report breakeven for Netherlands in Q4. But international, as a whole, including sort of, as I said, Poland, that will take some time to get to breakeven. We're not in profitable territory at the end of the year this year.

Thank you very much, Martin. And now we have a last question, actually, which comes through the telephone line again. And this time, it is from Rasmus Engberg from Handelsbanken. So I'll now hand over to you, Rasmus.

Just on the back of the rundown of the subscribers. Can you give somewhat of a similar view on the international that you gave on the Nordics, what you expect there? And I guess the other question then ties in with that, the phasing of international losses, I assume they are gradually going down now from these levels. But if that effect bigger in Q2 or in Q3 or Q4? Or how does it actually look in your mind?

Yes, Rasmus, I mean, yes, losses are gradually coming down quarter by quarter. So -- which will then accumulate and take us to the guidance for the full year that Enrique repeated earlier. So a gradual decline quarter-on-quarter. So Nordics and International combined then in Q2, will warrant a significantly lower loss than in Q1 and exactly how far we can come, it will be quite clear quite soon. But down, yes. When it comes to subs in international, it's pretty much the same picture in international as in the Nordics, how we run the campaigns and how we not put too much effort into Q2 being seasonally challenged and new sales in D2C being more muted. We want to build on good ARPU uplift in the second half of the year. And that also counters the potential sluggishness of the ad markets that we see out there. Now we have a better line of sight to Q2. So we want to sort of avoid as much sort of volatility in the business as possible and managing our total P&L towards the cash flows that we see and towards the buildup and run rate into 2024. In that sense, 2023 is the final transition year when 2024 is something different. So I hope that clarifies further.

Yes. So it's pretty much a straight line reduction of -- there's no particular quarter that comes out there. That was the question really.

Q2 stands out. Rasmus, Q2 stands out in the sense that where new sales in D2C have, to some extent, compensated and we've had new markets, and we launched, as you know, in the Netherlands last year. So Q2 this year is a more muted affair than it has been in the past. That's not a problem. That's important to say.

That mean earnings wise.

Earnings wise is better than Q1. Earnings wise is going to look gradually better throughout the year. I'm just talking about the subs.

Okay. Thank you, Rasmus. I think we're less bang on time on the [ our ] marks, that does conclude the question-and-answer session. So thank you very much to everyone for your time and your questions today. We do really appreciate your interest and always welcome your feedback on the format and content of this session. We are road showing today in Stockholm and tomorrow in London. So please don't hesitate to reach out to my colleague, Anna or me if you would like to schedule a meeting or have any follow-up questions. We will host our AGM this year here in the studio on Wednesday, 16th of May. So if you do or will own Viaplay shares, please do come along and join us if you can. That is it for today. So thank you again. Goodbye for now, and see you soon. Thank you.