Viaplay Q3: “Comprehensive recapitalisation” underway
December 1, 2023
After much delay, troubled streaming service Viaplay has posted its Q3 results revealing that operating income for the quarter dropped by SEK -321 million (€28.1m). Further quarterly highlights included:
- 7 per cent Group organic sales growth with reported net sales of SEK 4,536 million
- 17 per cent Viaplay organic sales growth and Viaplay now represents 52 per cent share of Group net sales
- IAC of SEK -253 million, primarily related to restructuring and redundancy costs
- Total reported operating income of SEK -538 million including ACI of SEK 36 million
- Net income of SEK -693 million and EPS of SEK -8.85
In a lengthy statement, Jørgen Madsen Lindemann, President & CEO, said: “We have just announced the proposal of a comprehensive recapitalisation of the Group, in order to address our financial challenges and provide for the future development of the Group. This follows our strategic review of the entire business and extensive discussions with our major shareholders and debt providers, and includes the renegotiation of our credit arrangements and the proposed injection of new equity into the Group.
We have been implementing a wide range of measures since we introduced our new strategy and plan with our Q2 report in July, in order to improve our operating performance and financial position. These have included the introduction of our new country-based operating model, a major cost reduction programme, which sadly resulted in a more than 30 per cent reduction in the size of our workforce, the renegotiation of partner distribution agreements to focus on value over volume, and the signing of new commercial deals with content providers that will improve our return on investment. These agreements have included an innovative new strategic partnership with Formula One in the Netherlands, which secures our profitability and adds further value for sports subscribers and F1 fans.
Our core Nordic, Netherlands and Viaplay Select operations have stable Viaplay subscriber volumes and rising ARPU levels, a much-improved content mix, and growing content sales to third party platforms. We are well on track to reach our year end revenue and profitability targets for these operations, as we set out in July.
The non-core international operations in the Baltics, Poland and the UK have continued to perform below expectations, but better year-on-year due to the range of cost savings initiatives that we have implemented. We now expect to report higher full year losses for these operations than previously guided for, due to the range of commercial initiatives that we have not been able to initiate now that we are exiting the markets. The route to profitability for these operations is not clear or realistic, which is why we have now reached agreement to sell our UK operation, subject to regulatory approval, and we will exit the Baltic and Polish markets by summer 2025. The negative cash effect of exiting these loss-making operations will be approximately SEK 2.2 billion over the coming years. In addition, we have reached agreement to sell our Paprika Studios content production business, subject to shareholder approval, which will further sharpen our Nordic focus.
Group organic sales growth of 7 per cent in Q3 was primarily driven by 17 per cent organic sales growth in Viaplay, which now accounts for 52 per cent of Group net sales. Our Nordic organic sales growth was 3 per cent, with Viaplay delivering 9 per cent organic sales growth and accounting for 43 per cent of our total Nordic net sales. The Viaplay sales growth reflected positive ARPU developments in almost all markets. We have further cleaned up the subscriber bases and set clear return requirements for our marketing investments, and we have therefore reset our year end subscriber target to reflect a more stable forward trajectory, where our priority is accurately pricing and packaging our very strong content offerings.
The Nordic advertising markets continued to be under pressure in Q3, and our combined advertising sales were down 10 per cent on an organic basis, as the growth in digital AVoD sales could not offset the fall in linear TV and radio sales. We are working on increasing our digital advertising inventory and expect the growth in this segment to continue as buyers increasingly pivot to digital platforms.
The 5 per cent organic sales growth in our Nordic linear subscription and other sales reflected growth in wholesale channel sales, sublicensing revenues and external sales by our Studios operations. Wholesale linear channel sales account for almost 90 per cent of this line, and the growth reflects our price increases and new agreements with existing partners.
Group operating income before ACI and IAC was, as expected, lower year on year as we continued to report substantial losses in the non-core international markets, and Nordic profits were impacted by the lower advertising sales, the locked in inflation in content costs, and continued adverse currency exchange rate developments.
The IAC in the quarter primarily related to the workforce rightsizing programme, which has been necessary to reset the business according to our new strategy and plan, and in the context of company and market circumstances.
We continue to feel the pressure of higher previously committed original content costs, built-in sports rights inflation, and adverse currency effects. Our full year 2023 sales expectations are unchanged, but we now expect full year operating losses before ACI and IAC of approximately SEK 1 to 1.15 billion, due to the underperformance of the international non-core operations. Our sales and profitability expectations for our core operations in 2024 are unchanged, as is our expectation that margins will then gradually rise in the following years towards the long-term objective of double-digit EBIT margins.
We understand the current state, and future potential, of the business, our products, and our people. The energy, enthusiasm, and enterprise of our teams, especially in these challenging times, is fantastic to see. We have much to achieve together and the proposed recapitalisation of the business is a necessary part of resetting the Group for a much more sustainable future, where our attention and resources are focused on those markets where we can compete for the long term, and where our products are relevant, popular and generate healthy returns.”
Earlier this week, Premier Sports announced it ws buying back its business from Viaplay.
Investment bank Jefferies has responded to the results.