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Good morning, ladies and gentlemen, and thank you for holding. Welcome to MTG Q1 Earnings Call. [Operator Instructions] Presentation slides to accompany the call are available via the link on the homepage of mtg.com. I will now hand the call over to your host, President and CEO, Jørgen Lindemann, who is joined on today's call by EVP and CEO of Nordic Entertainment Group, Anders Jensen; and CFO, Maria Redin.
Thank you, operator, and good morning, everyone. Before we get into the numbers, let's take a few minutes to discuss the strategy and direction of MTG. We have, in recent years, been managing the transformation of a leading traditional broadcaster into a global digital entertainment provider. We have invested significant time and money to become the #1 entertainment provider in the Nordics. We have the leading streaming services in the region with Viaplay and Viafree. And we also have the best and broadest content offering, which spans a mix of premium sports, acquired content and originals. We have divested all of our broadcasting businesses outside the Nordic region in order to fund our investment in DTH, in general, and esports and online gaming in particular, 2 businesses that are global by nature. We are today the world's leading esport company, and our ambition is simply to build a super brand in the world of sport out there with the NFLs, the Formula Ones and the UFCs. We have 2 proven concepts in the online gaming space, and this is an area where we are looking to expand further through M&A. So we are today a combination of a Nordic entertainment powerhouse and a global digital entertainment player. This model has worked well. But the world keeps changing, and we want to continue to reinvent MTG in order to make sure that we capture the opportunities that new consumer behavior is creating. This is why we are prepared to split MTG into 2 separate listed companies.Please move on to Slide 2. We are a big believer that a split will accelerate growth and create additional shareholder value through a sharp strategic focus, increased flexibility when it comes to capital allocation and faster decision-making. This would be to the benefit of all stakeholders and would also provide investors with 2 separate, attractive and different investment cases.The work to establish Nordic Entertainment Group is ongoing and is expected to be finished in the second half of this year. We have joint -- We recently announced leadership appointments for the Nordic Entertainment Group, and we have established a number of work streams relating to the cover. The plan is for the shares of the Nordic Entertainment Group to be distributed to MTG shareholders and listed on Nasdaq Stockholm in Q4 this year, after approval by the shareholders at an EGM to be held in Q4. We will keep you regularly updated on our progress and hope to speak to as many of you as possible throughout this process.Now turning to Slide 3. You'll see that the rising demand for our products that we have seen for some time now continued into Q1. Sales were up 9% on an organic basis, which marked the seventh consecutive quarter of organic growth of at least 5%. The strategic investments that we have made in the expansion of our digital products and content offerings have clearly paid off, and our products and services are more popular than ever before. Our digital sales were up 88% in Q1 and accounted for 35% of total sales. Profits were up 73%, which was driven by healthy underlying performance as well as the contribution from InnoGames.Moving on to Slide 4, you can see the group reported sales were up 26%, driven by the organic sales growth of 9% as well as the consolidation of the InnoGames and Kongregate online gaming businesses.The very positive trend and performance of our Nordic and International Entertainment businesses continued into Q1 as both segments reported higher sales and profits. MTG Studios reported slightly lower sales and losses in the seasonally small quarter. MTGx sales were up 27% on an organic basis. And EBITDA loss of SEK 71 million last year was turned into a SEK 45 million profit this year and was fully consolidated in the result of InnoGames.I will now hand the call over to Anders for his comments on the Nordic Entertainment and MTG Studios businesses.
Thank you very much, Jørgen, and a very good morning to you all. Can I ask you to please turn to Slide #5. The total Nordic Entertainment sales were up 6.2% on an organic basis. This is indeed a very strong performance in a quarter where we were up against 11% comparison from last year and also the fact that the Winter Olympics was covered on competing channels. Free-TV and radio sales increased as the decline in organic shares and linear viewing were more than offset by higher prices and continued double-digit growth in Viafree. We have, during the quarter, added Disney to our existing sales corporation with Viacom, Fox and History Channel. We have also launched a new product concept with thematic content verticals such as classic TV series and sports for Viafree. Our Swedish radio business has continued to deliver double-digit organic growth, following solid underlying market conditions and share gains. And this is obviously very promising given that the new license is coming into action later this year. Nordic pay-TV sales were up, and Viaplay continues to be the main driver of this growth, continued very high, very healthy subscriber intake and higher prices. And we have continued to see strong growth in our dual- and triple-play fiber offerings in Sweden.Our satellite and third-party products have also performed well. While losing some 11,000 satellite subscribers, we managed to offset this significantly by a record net intake of 43,000 third-party subs. And this follows the successful introduction of new packages, in general, and with Wow in Denmark in particular. We want to expand our product offering in each markets, and Wow and the recently groundbreaking deal with Telia in Finland around ice hockey are 2 perfect examples of just that. Viaplay broke a new record in February in terms of subscriber intake for our series and movies packages and the lower churn following continued product improvements and investments in content and marketing. And we also started the year by setting a new viewing record already on January 1, and then we went on to beat the record 4x during the first quarter.We launched 2 new Viaplay originals: Stella Blómkvist and Advokaten. Advokaten is the strongest-performing original on Viaplay to date, which is obviously is very encouraging, giving the strong lineup we have for the coming years. The average usage continues to grow quickly, which clearly demonstrates that our customers love the product, and the product is about to get even better. We have, during Q1, released support for the new EU portability regulation, allowing Viaplay customers in Sweden, Denmark and Finland to bring their Viaplay account with them wherever they are traveling within the EU.The profits in Nordic Entertainment were up 4%, a new all-time high for Q1. This was also now the sixth consecutive quarter with profit growth, which solidly demonstrates that we have a solid underlying business that is set to continue to deliver on our profitable growth ambition. And we're now very much looking forward to the World Championship in Ice Hockey broadcasted from Denmark, and it will be broadcasted exclusively in Sweden and now also in Norway on our linear channels and streaming services during the second quarter.I ask you to please move to Slide #6, where we have a look at the MTG Studios. The sales were down a modest 2% on the organic basis. Solid growth in non-scripted segment was offset by lower events sales and timing differences in the production schedule for the scripted drama. The underlying demand for scripted drama remains very strong, and the pipeline looks very, very promising.Q1 is a seasonally weak quarter and, therefore, typically loss-making, which was the case again this year, but the operating loss is slightly decreased compared to last year despite some startup costs for Atrium TV. Now, it is the biggest content production company in the Nordics. I see material benefits from having these fantastic storytellers in the Nordic Entertainment Group. And it's absolutely my clear ambition to gradually increase the share of in-house productions across all products and genres. Also, I see a significant opportunities to accelerate our digital first production capabilities with a significantly closer cooperation between Nice One and Splay Networks.That's it for my comments for now. Back to you, Jørgen.
Thank you, Anders. And if I can ask you to turn to Slide #7, you can see that sales for International Entertainment segment were up 14% on an organic basis and driven by double-digit growth in both Nova Group and Trace. Total segment's profit almost doubled compared to the last year as both businesses reported improved profitability.We have, as part of our ongoing transformation, announced agreements earlier this year to sell our interest in both Trace and Nova, which are the remaining businesses in the International Entertainment segment. Both transactions are expected to close during Q2 after receiving all the necessary regulatory approvals.Turning to Slide #8, we can see that MTG sales were up 27% on an organic basis and 226% on a reported basis. And we have turned an EBITDA loss of SEK 71 million a year ago into a profit of SEK 45 million this year.Our esports business delivered 32% sales growth in the quarter, ESL's revenue from owned and operated events, ESL key focus area were up 70%. We have the same number of events as last year, so the growth came from treaty enrollment of key distributors and sponsorship like Facebook and Vodafone and Mercedes and Intel. ESL's white label events, revenues were down as we have one less major event than in Q1 last year.DreamHack sales were up in constant currency. And we signed a number of important multi-year distribution and sponsorship deals in Q1, including with the likes of Twitch, Monster Energy and Complex. Q1 is a small quarter for DreamHack and was even quieter this year as DreamHack Masters was moved from March to April.The key esports event for the quarter was Katowice. 169,000 fans attended the sales event surrounding festivals. We had 2.2 million peak online viewers during weekend 1 and 1.7 million for weekend 2. These figures were up 80% and 26%, respectively, compared to last year. A total of 3.4 billion minutes of content was watched from this year's Katowice event.We have made significant investments in esports over the last year in order to professionalize the organization, upscale the events and build the brands of our owned and operated tournaments. The combination of these investments with seasonally small revenue quarters for both ESL and DreamHack was started in higher combined losses for our esports business. We'll have more ESL mega events in Q2 this year than last year, it's 4 versus 2. So we expect higher sales growth in what is also a seasonally stronger sales quarter. Of these large-scale events are owned and operated, so we would invest further, but we will still expect total esports losses to be down in Q2 compared to Q2 last year and Q1 this year.ESL announced the reorganization last week in order to create a simpler, more focused and more efficient company. As the industry has grown, so has the number of service providers and the ecosystem around esports, which enable us to contract further and start a number of functions in areas such as studio operations. We are doing this in order to both benefit from economies of scale and to increase the quality of our products and events by concentrating on the actual entertainment experience.This is how we will continue to be the preferred choice for fans, players, partners and partnerships. We're reducing our investment in non-core areas so that we can invest where it matters. We will, therefore, have a one-off restructuring charge of approximately SEK 30 million to SEK 50 million in Q2, which will be reported as an IAC and, therefore, not impact the segment's numbers or what I just said about improving profitability. We do then expect the combined esports business to be profitable in the second half of this year. And if we move to the online gaming, the combined sales for InnoGames and Kongregate totaled to SEK 577 million and were up approximately 25% on a pro forma basis. Forge of Empires and Elvenar continued to perform very well. And the South Lords -- or Warlords has received great user ratings, which is promising ahead of the margin launch in Q2. Kongregate has continued to develop according to plan across both the developer and publishing businesses. The combined sale of our digital video content businesses were up 19% in the quarter. The competition for our talent has heated up, and the margins in general remains very competitive. We see opportunities to accelerate the growth in our -- this is the first production business by our closer cooperation between Nice One and Splay, which Anders talked about earlier. Meanwhile, Zoomin continues its gradual transformation from a traditional YouTube model into a broader content provider and branded entertainment creator. So to sum up MTGx, we see esports continue to grow and improving profitability. We are building a sports super brand here, and we are very well-positioned. Our online gaming businesses continue to perform well, with the established games providing the growth and profitability platform for promising new title launches. And our digital video network have continued to generate double-digit sales growth despite challenging market conditions. We, therefore, expect continued high-growth levels and rising profits for MTGx in Q2 and the second half.That concludes my comment. So I'll now hand the call over to you, Maria, for your comments.
Thank you, Jørgen, and good morning, everyone. If you please turn to Slide 9. The reported sales were up 26%. This includes 9% organic growth and a 15% contribution from acquired businesses, primarily driven by the consolidation of InnoGames and Kongregate. The currency impact was a positive 2% in the quarter. Operating income was up 73% compared to last year. Our entertainment businesses and InnoGames contribute -- continued to be the key profit drivers. Q1 was burdened by SEK 12 million of M&A costs.If you then turn to Slide 10. Cash flow from operations almost tripled in the quarter, but this was offset by a significant swing in the working capital development. The working capital built is a function of normal prepayment pattern, but with some timing differences in receivables between the quarters. We expect the working capital development to improve significantly over the coming quarters, but we still expect a negative change for the full year.Our net debt increased to SEK 2.3 billion following the working capital buildup that I just mentioned. This corresponds to 1.4x trailing 12-months EBITDA before items affecting comparability. I would, in this context, also state that we are yet to receive the payments for our shares in Nova and Trace, which amounts to approximately SEK 2 billion.So that's it for my comments, and back to you, Jørgen.
Thank you, Maria. And now on to Slide #11. So overall, the Q1 was another quarter of organic sales, profit and margin growth for the group. Our Nordic Entertainment business performed very well against very difficult comparisons. MTGx reported healthy organic sales growth and a SEK 116 million positive EBITDA swing, and we expect continued good growth and improving profitability moving forward.We have continued our strategic transformation by announcing the disposal of the remaining International Entertainment businesses. And we have also announced our intention to split MTG into 2 separate listed companies by distributing Nordic Entertainment Group to our shareholders. This will drive further growth and shareholder value for both businesses, and we look forward to keeping you updated on our further progress.So that concludes our commentary on the results. Over to you then, operator, to start the Q&A session, please.
[Operator Instructions] The first question comes from Victor.
So just the first question here. You comment a bit around the profile for MTGx and how you see the margins improving. But could you maybe just comment on when you think that -- I understand it's a bit premature maybe, but when we can expect the whole MTG to be the new MTG, so the old MTGx should be cash flow neutral. That's the first question. And then given the gaming launches in InnoGames, if you can just give some thoughts on how we should model the growth and margin profile for InnoGames this year, that will be very helpful. Any pointers you can give would be appreciated on that. And then I have a question for Anders on, or any of you really, on the Nordics here. Is there anything special that boosted Q1 Free-TV that we should keep in mind? Or is this a lasting strong effect because it's very good numbers, given the comparison?
Yes. Thank you, Victor. If I just start with the -- your question on Nordic Entertainment and Free-TV for the first quarter. The main driver for the strong result is the fact that we're stable despite the Olympics on our main channels, TV3, both in Norway and in Sweden. So that's a sign of strength of the stability in that product. But the main driver for the increase in sales is Viafree where we see a very, very healthy uptake of both ad sales and usage on the platform. So that combination is a strong one. And we see that we can resist fairly throughout a tough competition like the Olympics in the first quarter with that combination. So you can expect some robustness coming from that going forward.
So you -- yes, sorry.
Well, you go ahead.
I just have a question on -- you expect to continue and outgrow the market this year then driven by Viafree, that's how we should interpret...
Well, I think what we can see now is that we're concluding the yearly negotiations for the ad sales prices, and they look very encouraging. So you can expect some of us to land in a higher single digit or lower double-digit number on that, and that's a good sort of solid foundation for offsetting the put. And that in combination with strong performance in the products and growth in Viafree. Viafree gives us a good outlet for the year and in the Free-TV radio on Viafree segment, yes.
And then, Victor, to your question on MTGx from the cash flow, I mean, what we are posting this year what Jørgen also sort of guided on or gave our ambition on is on the EBIT level to make sure that we will drive a profitable EBIT for the segment and then also second half, improve profitability for the esports. So that's what we're focused on. Cash flow, as you could see for '17, I mean, it was a negative cash flow from the business. And as we also updated, I mean, the key cash contributor is, of course, InnoGames. And in that business, we own 51%, which is important to note as well when you look at the cash flow modeling of the new MTG AB. But of course, that is something that we will focus a lot on. And then on the InnoGames, can you repeat your question? I didn't fully get the question that you had on InnoGames?
Yes, just wondering when you launch the new games and the marketing initiatives around that, do you expect margins to come down first and then up again? Or is it more stable? Or how do you view just the trend for InnoGames basically this year?
No, we were just expecting that marketing should go up in Q2, as announced with Elvenar and to speed up the launch of Warlords in Q2. We have done a soft launch, where it looks very promising in Q1. But of course, beyond the soft launch, you have very little marketing time line. We did, however, launch Elvenar mobile extension in late Q4. But still, I mean, the bigger ramp-up, you will see in Q2, and that's also why you saw slightly improved margins in Q1 because we have less marketing behind [Forge of Empires] in particular, the existing games which drove the performance, which is, of course, very good as well because there, you see the traction of both existing and new games.
We will take our next question from Rasmus.
I think that's me, Rasmus with Handelsbanken here. Just on -- can you give us some sort of pointer on -- relating to the cash flow? What is the CapEx requirement now in this changing entity we have compared to last year?
Yes, let me -- as we said, I mean, you should expect CapEx for the full year '18 to go up versus '17 as we fully consolidate InnoGames and Kongregate, which do have higher CapEx levels than what we have seen before. Though both those assets are otherwise asset-light, so the investment in CapEx is going to be the key driver and will be able to perform the cash flow. And then you also have, of course, in the Nordic Entertainment Group, which is the other entity, you have the new radio licenses coming into play in Q3, which will also, of course, drive CapEx investment in relate to those.
So it's going to be a bit higher than last year?
Yes, including with the radio licenses, which I look at it as a sort of one-off, it will be higher this year. But the run rate is also higher with InnoGames and Kongregate as a part of the portfolio.
Yes, yes. And then can you -- Jørgen, did you say that the esports is going to be profitable in the second half of the year? Is that what you said? I sort of lost it a bit there.
Yes, no, that's the ambition that we -- the esports business as a standalone should be possible in the second half, yes.
Yes, but not in Q2, right?
No.
Q2 is going to be better than Q1, right? That was the comment, wasn't it?
Yes, that is what we said as well, of course, net of this [ 1% ].
Yes, exactly. Good. And then finally, for the group this year, where do you think we would have the group central or overhead cost? And if you can give us any sort of indication of where that would be, although it would be separate companies next year, but any kind of indication on where we should see that?
Yes. I mean, for this year, you should expect them to be up year-on-year because we do have the cost as far as the split. I mean, we are not ready yet to give you the firm breakdown on the costing and the cash flow impact on the split, but we will come back shortly with that as well. But for the full year, it will be up. And then also for the 2 new separate entities, let's say that, that is currently in the workings. But to give you some sort of high-level estimates, I mean, what you should look at is an approximate for the new MTG AB, I would say between SEK 150 million to SEK 200 million, and that also includes overhead that we today have sitting in MTGx; and then for the new Nordic Entertainment Group, around sort of SEK 250 million. But again, we will come back with more details there as well.
The next question comes from Mikael.
Mikael Laséen here, Carnegie. Can you say something about the growth for InnoGames year-on-year and also Kongregate on a pro forma basis, how they performed, those 2 companies?
Yes. I mean, as a total growth for the gaming segment was 25%. Of that, of course, InnoGames is the largest part, and they grew slightly below the 25%; and Kongregate had a faster growth. So that's how we look at the 2 businesses.
Okay, great. And it would be interesting to hear your comments about the ESL side within the esports area versus the white label development, how much they are approximately in Q1 and the outlook for those 2 areas?
I think our focus is pretty clear, meaning that our focus is, of course, on our owned and operated products. We see the biggest value creation in that. But that doesn't mean that we would like -- that we don't want to do white label. I think that is a very efficient way for us to introduce new partnerships to the world of esports by having a one-off event or a few events, which we are producing for them so we can show the value, which can be created. So we see more focus on the owned and operated. And also, as you can see from the result in Q1, that is also where we see the growth of the 32% is actually related to the events that we have in -- as owned and operated, and we are declining in the white label. So that is the focus area going forward, more owned and operated.
Can you say something about the profitability difference in Q1 between these 2 areas?
No, I cannot say specific about Q1. But in general, of course, you will have -- the white label is more a production where you have a certain margin where you just produce something for a given client. I think owned and operated is where we go in and we invest a lot into the concept part, into the experience or into the tournament creation. So that's a different ballgame right now, where you have seen us investing a lot with new partners, such as the ESL which were present at all Katowice events. So that is long term for us where these white label -- where we have the content, but it's more production -- of a production business.
Okay. I was thinking about -- I'm curious regarding the ad prices for your gaming businesses. The marketing sort of cost-out, that is impacted by ad prices on social media. Have you noticed any significant changes in Q1 or Q4 there? Or is it sort of generally higher and higher?
Yes, it depends, of course, what region because this lottery is quite a lot actually and also what media you are using. What we have seen increases, obviously, increasingly, in many areas, we see strong traction there, of course, also for our products. And of course, we do see some social media as well. But that depends on where we are, depends on what kind of content that we are producing. So we don't have a general view on that, to be fair.
Okay, fair enough. And the last question is about the subscriber growth or the third-party network grew significantly quarter-on-quarter. Can you explain why?
Yes, there are a couple of drivers behind that, specifically 2 that sort of adds a lot of value, and that's the Wow deal with new packaging that we made in Denmark. That has driven a very good solid growth for us. And the second one is new packaging in Sweden where we have added C More to the portfolio. So those 2 combined has given a very good traction in pay-TV, giving a net growth of 43,000.
So this is not a one-off. This is a sustainable improvement.
It's not a one-off. These are 2 new product offerings. Again, we get a ramp-up from the Wow deal, given that it's a completely new one. So you can expect that, that one sort of ramps up and then flattens out. Obviously, C More is also a new proposition and product for us in Sweden, but very encouraging results on the back of the launch, so we hope that one to continue to grow. But obviously, you'll get a ramp-up when you launch 2 new products to the market.
[Operator Instructions] The next question from Henrik.
Coming back to the question here about subscribers and the third-party network and the Wow deal and C More. When -- remind me, when were those new products launched?
They were launched during the first quarter; the Wow deal, quite recently. C More, we launched gradually, with the start in February. So basically, you have roughly 1.5 months effect on both of them in the first quarter.
Okay. And also, staying with the third-party, how did the ARPU develop in that segment in the quarter?
The ARPU on the third-party networks were fairly stable year-on-year. We also see some increased stability in our traditional DTH segment year-on-year. So looking forward to the rest of the year, we expect to be fairly stable on ARPUs on both third party and core networks for us.
Okay. And if we move on to the esports. I know you mentioned you have a strong pipeline in Q2 compared to Q2 last year. I think you said 4 events versus 2 last year. But if we compare it to Q4 2017, how does the pipeline compare then?
Yes, I think the bench work plan, as you can say, and gradually, you get more and more customers in, that means you get more sponsors in and you get more media companies in all the time, obviously. So esport events were planned when we discussed in Q4, they were planned for being launched in Q2.
Okay. But what I'm trying to understand here is if the event sort of lost -- or the number of events and the magnitude of the events is on par with Q4, then, I mean, I understand that you have increasing revenue basis from different parts of your revenue streams, but the pipeline is such just the event. Are they on par with Q4?
In terms of the products or -- I can't hear you properly.
Yes, in terms of the product, yes.
So events?
Yes. I mean, you mentioned you have 4 events planned for Q2. How many big events do you have in Q4?
Yes, I need to come back to you on that one. I'd say we don't have it here. It is -- it will fluctuate over the year, as we said, the event calendar. And as you see, the DreamHack moved again from Q1 to Q2. At the same, we have 2 more events into Q2 here, which we didn't have last year.
Okay, okay. Just sorry to explain, I'm trying to understand if we -- if it is reasonable to expect revenues to be on par or even beat what you achieved in Q4, but we can come back to that later. Coming back -- sorry, coming back to Nordic Entertainment as well. You mentioned investments pressuring profitability in that segment. Can you elaborate a little bit on what these investments are and what the costs are and how we should look upon them going forward?
The improve -- come again, please? I didn't get the question.
Yes. So I think I read somewhere that you highlighted the margin was pressured by investment in the offering. Can you elaborate exactly what you've been investing in that pressures the margin year-on-year?
Yes, got it now. The margin was slightly down and predominantly due 2 main reasons. One, we had the Handball European Championships that put a little bit of pressure on the sportscast -- added a little pressure in the sports cost. And then we had sort of the ramp-up of marketing activities for these new offerings that we launched with Wow and with C More in Sweden and also some increased [tax] driven by that to make sure we get off to a good start. So those are investments that we consider as one-offs.
[Operator Instructions] We will take our last question from Rasmus.
It's Rasmus here. Can you explain again the reorganization cost you're taking in MTGx? Was that related to ESL? Or is it the overall MTGx company? Or what is it that you were doing?
It is related to ESL in particular and the reorganization that we do in there. And the span, as you could hear, it is quite broaden, that is because we have just now started rolling it out. And we will come back with more precise numbers. So that is to make sure we get it that right based on the focus as we're running it right now.
Okay. And then the final question. The stronger dollar that we have seen, when would that sort of impact your Nordic business, roughly, if it stays here?
Okay, the stronger dollar. It's -- I mean, it will have a small positive impact. It is marginal, so what you should expect high level is to see sort of in the '18, '19 marginal positive impact.
Positive impact from FX?
Yes, marginal effect. I mean, based on the current rate, I've seen that it's increasing up, but you have hedged it on a 16-month rolling basis.
Okay, 16 months, yes. All right.
That concludes the question-and-answer session. I will now hand the call back to Jørgen Madsen for this concluding remark.
Yes. Thank you all for your time today. We will announce our Q2 results on July 18, and hope to see many of you at our AGM on May 22. We also look forward to keeping you up-to-date with our progress on the split of MTG. Thank you for your continued interest in MTG, and we look forward to talking to you and meeting with you all soon. Thank you.
That concludes today's conference call. Thank you for your participation.