Betsson AB

Good morning everyone and welcome to Betssons earnings presentation for the second quarter 2023. My name is Pontus Lindvall and I'm the CEO of Betsson. With me today is also our CFO Martin Öhrmand and Jesper Svensson, operational CEO of Betsson. Here's the outline for today's presentation. We will start with an update about the business highlighting some key financials and interesting activities in our markets for the quarter. Then we will comment on some recent regulatory developments in markets that are relevant for Betsson. Martin will then present our financials in more detail. After that we will provide a trading update for the start of the third quarter 2023 and then we will round off the presentation with a summary of the quarter. After the presentation we will take questions from the audience. The geographic and product diversity continue to serve as well. I'm pleased to see another record quarter for Betssons with continued high customer activity and strong financial performance. This slide shows some key figures for the second quarter 2023. In the second quarter group revenue increased by 27% and operating profit by 87% compared to the same quarter last year. This means new all-time high levels for the quarter. New records were also reported for both B2C and B2B. Revenue increased in all regions during the quarter. Organically total revenue growth was 43% for the quarter. The EBIT margin increased to 23% from 15.7. New quarterly records were also set for casino turnover up 47% and revenue up 35%. Customer deposits across all gaming solutions were also at new all-time high levels for the quarter, growing 47% year over year. Sportsbook turnover was up 32% year on year and the Sportsbook margin was .2% which was slightly below the level recorded in the second quarter last year. Net-net this meant 13% growth in Sportsbook revenue for the quarter. This slide illustrates some interesting activities in the second quarter. I'm proud to see that Betssons involvement in sports continues together with clubs, athletes, fans and customers. In June, an important sponsorship was agreed with the classic Argentinian football club Boca Juniors. The sponsorship was announced in connection with a friendly match between Boca and the Argentinian national team in front of a sold-out stadium in Buenos Aires. Under the agreement, Boca Juniors match shirts will feature the Betsson logo in all matches until the end of 2024. This sponsorship is one of the largest ever for Betsson and will serve to strengthen Betsson's brand and rapid expansion in Argentina and throughout the entire Latin American region. During the quarter, Betssons sponsorship of the Lithuanian national basketball team was also renewed and the sponsorship deal was entered with the Argentinian football team racing club. In June, we announced the acquisition of Betfirst for 120 million euro. Betfirst is a leading sports betting and gaming operator with online and offline presence in Belgium. In 2022, the company had revenue of 51 million euros and adjusted EBITDA of 10 million euros. The deal value is equivalent to 10 times Betfirst projected EBITDA for 2023. At the same time, in June, a new strategic partnership was entered into with the publicly listed French casino operator Group Patouche to offer online casino games in some regulated markets, with Belgium being the first country for this collaboration. Group Patouche operates land-based casinos in France and Switzerland and also holds an offline casino license in Belgium which can be extended to an online casino license. With such a license, combined with the licenses held by Betfirst, a full range of online casino products can be offered to the Belgian markets. Subject to the required licenses being granted by the Belgian regulator, the aim is to launch the online casino offering in Belgium in the latter part of 2023. Speaking of Benelux, a decision was made to withdraw the license applications for the group subsidiaries in the Netherlands. The decision was based on significant delays in the licensing process and resource allocation considerations, giving the current attractive project pipeline for Betzon in other markets. The group will still maintain the possibility of reapplying for license in the future. Betzon continues to focus on investing in product and technology to make sure that the product offering is competitive and that the technology platform is scalable for all its markets. Geographical expansion continued to be a strong focus during the quarter, as well as strengthening of the product offering. For the sports book, more events, sources and sports were integrated, further enriching the total offering. In particular, new content in English and French eSports and stream events were added to match high customer demand. During the quarter, development and launch of native apps, apps built to perform on iOS and or Android, have continued in several markets like in Sweden and Malta. And now a brief regulatory update. In Norway, in the pending matter regarding the season deceased order of the Norwegian gambling authority against Betzon subsidiary BML Group, all of the changes previously agreed with the NGA has been implemented, including the currency change to Europe. The Ml group informed the Norwegian gaming authority of these changes and stated that it in its view has now complied with the season deceased order. BML Group has requested that the NGA make a new overall assessment of BML Group's gambling offering. The NGA has pending this assessment granted a further suspension of the season deceased order until mid September. In Peru, the Congress approved the bill in May that modifies the law regulating remote games and sports betting. On June 29, the new law was officially published. The law will be enforceable 120 days after the technical regulation is officially published, which has not yet happened. In Finland, there is now broad political support for removing the gambling monopoly. The new government stated in its program published in May that the licensing model for online casino games and sports betting shall be introduced before 2026. In May, the Finnish National Police Board issued a prohibition order on marketing gambling services to the Betzon Group's operational subsidiary. Following this, the company removed all content mentioned in the order and filed an appeal against the order, including a request for an injunction from the court. On the 2nd of June, the local court issued an interim injunction decision in favor of the company, prohibiting the enforcement of the order until the court decides on the appeal. For this time being, the Finnish National Police Board must refrain from adding BML Group to the blacklist. The court decision on the merits of the dispute is not expected before the end of this year. In Sweden, the Supreme Administrative Court ruled in May that fines issued by the Swedish gaming authority should be based on gross gaming revenue and not on the annual gaming turnover of the operator. From now on, any sanctions issued by the SGA will have to be based on the operator's GJR. It remains unclear whether the SGA will also review fines issued in the previous years, but operators previously fined on the annual gaming turnover basis will regardless be interested in having their fine amounts reviewed. And now I will hand over to Martin who will take a closer look at the financials in the courtroom.

Thanks for that Pontus. I will now give you some more details of the financials, the second quarter, which again was a good quarter and the sixth consecutive quarter with revenue and EBIT growth and the best quarter ever in Betson's history in terms of revenue, operating profit and operating cash flow. The result is underpinned by -over-year growth of 47% in deposits or 1.2 billion euro in deposits in the quarter, which makes it all-time high in deposits as well as all-time high in casino turnover and casino revenue. Active customer growth has decreased by 10% -on-year, but is slightly up compared to Q1 and is mainly explained by changes in the offering in the Latam region. This defined the right customer acquisition strategy and to make the offering more sustainable in the long run, which is part of our ongoing work to improve our operations across the business and especially in new markets. Reported revenue for the second quarter amounted to 237 million euro, an increase of 27% -on-year and organic growth of 43%. Both the B2B and the B2C business contributed to the growth with 172 million in revenue coming from B2C and 65 million coming from B2B. Casino turnover increased by 48% -on-year and casino revenue was 165 million, an increase of 35% -on-year. The gross turnover in Sportbook across all bets and gaming solution was 1.3 billion euro, which is an increase of 32% compared to the second quarter last year. Sportbook margin was 8.2%, which is lower than the .3% margin in the second quarter last year, but slightly higher than the two-year rolling average margin of 7.8%. Sportbook revenue increased by 30% compared to last year and amounted to 70 million, being the quarter ever after Q4 last year, which was impacted by the World Cup in football. Sportbook revenue represented 29% of the group's total revenue in the quarter and casino some 70%. Breaking down revenue by region, we see growth in all regions. Denmark reported all-time high revenue in the second quarter, driven by growth in both Sportbook and the casino products. Finland also reported growth driven by casino. Sweden and Norway reported decreased revenue in the quarter. In the case of Norway, the offering has been modified to comply with the Norwegian authorities' requirements, where all Norwegian names, words, and associations to Norway have been removed from websites and the language and currency have been changed to English and Euro respectively. The Nordic region represented 22% of the group's total revenue in the second quarter. Revenue from Western Europe increased by 9% -on-year and sums up to 27 million Euro. The Italian market is continuing to perform well and reported all-time high in deposits and showed revenue growth compared to the same period last year. Revenue from the German market is following the same trend as in the past quarters and years and continued to decline for better, driven by the market restrictions that have been implemented in the past years. The Western Europe region represented 11% of total revenue in the quarter. The Sika region increased by 68% -on-year and reports new all-time high of 103 million in revenue, this driven by strong underlying activity in both casino and the Sportbook corporations. Croatia and Greece showed continued positive trends in activity and reported all-time high revenue. Georgia reported growth both compared to the corresponding period last year and the previous quarter driven by the casino product. The Baltics continued to develop well and all markets reported growth in revenue compared to the corresponding period last year. The Sika region represented 43% of the group's total revenue making it the largest region by revenue. Reported revenue in the Latin America region amounts to 51 million Euro representing an increase of 13% compared to the same period last year. Argentina and Colombia reported growth both -on-year and compared to previous quarter. The growth in Argentina is mainly driven by the casino product whilst the Sportbook product drives the Colombian growth in the second quarter. Peru reported decreased revenue compared with the corresponding period last year explained by lower Sportbook margin in the period. The Latin America region represented 22% of the group's total revenue. Revenue from the rest of the world increased by 19% compared to Nigerian operations. Revenue from markets where bets and pay local betting duties increased by 32% compared to last year and constituted 36% of total revenue in the second quarter. Digging into more details of the composition and development of EBIT -on-year, we see that revenue has increased by some 51 million Euro and following that also cost of services provided. Growth profit increased by 44 million Euro compared to the same period last year corresponding to a gross profit margin of .6% compared to .8% last year. Changes in margin is a result of increased revenue and the mix of revenue but also explained by decreased affiliate and partner commission marketing costs and decreased payment provider costs. Marketing spend was slightly higher compared to the same quarter last year but lower than previous two quarters due to the World Cup in football in the end of 2022. Focus in the second quarter has been towards the Latam region and specifically in the new markets such as Argentina. Marketing cost in percentage of B2C revenue amounted to some 19% which is in line with previous year. Personnel expenses increased by 4 million Euro in the second quarter compared to the same period last year due to increased number of employees, yearly salary revisions, performance related compensations, geographic expansion and increased investment in product technology and development. Depreciation and amortization increased by 3 million explained by depreciation following the acquisition of Kikitec Multi Limited that was consolidated into the group in the fourth quarter last year but also by a one-off depreciation adjustment of 1.4 million Euro related to a gaming license in one market. Other costs increased by 10 million Euro were of 3 million on non-recurring costs related to advisory costs following the acquisition of Bed First. Some 2 million of the increases explained by unrealized currency effects on inter-company balances and the remaining increase is driven by sustained increased investments in product development and technology specifically from investments in cloud-based environments and from extension of the sportbook offering. EBIT amounts to 55 million Euro which is all-time high and an increase of 87% compared to the same period last year. Adjusted for the 3 million Euro in non-recurring costs related to the Bed First acquisition EBIT amounts to 58 million Euro representing an adjusted EBIT margin on 24.3%. Shifting focus a bit from the profit and loss items towards the cash flow and financial position we can conclude that operating cash flow is the highest ever in a single quarter amounting to 89 million Euro driven by operating income and changes in working capital. Positive impact for working capital of 28 million is mainly driven by decreased accounts receivable and decreased payment provider balances. Cash flow from investing activities amounts to 15.7 million Euro which the largest part relates to investment in capital development costs and some 4 million to earn out paid out in relation to the acquisition of Kiki Tech Multi Limited. Cash flow from financing activities impacted the cash flow by 34 million Euro where 29 million relates to dividend paid out to shareholders in June. Betson has as end of June a net cash position of 139 million Euro and an equity ratio of 65%. And by that I hand over to you Pontus again to take us through the trading updates.

Thank you Martin. Now let's have a brief look at how the third quarter of 2023 has started. The average daily revenue up until including the 16th of July was 20% higher than the average daily revenue of the full third quarter in 2022. Organically the average daily revenue during the start of the third quarter has been 30% higher than the average daily revenue of the full third quarter last year. During this period the sportsbook margin has been higher than the historical average margin. BetFest has been included for the entire period in July 2023. So finally here is a summary of the second quarter 2023. Betson reported all-time high levels for revenue, EBIT and cash flow in the second quarter. The organic revenue growth was 43% -on-year. New record revenues were reported in both business consumer and business to business. We saw strong performance across the business with all-time high levels for casino turnover and casino revenue. Revenue increased in all regions and customer deposits were up 47% -over-year. For the second quarter a significant increase in the EBIT margin was reported compared to the same quarter last year. Adjusting for one-off costs related to the acquisition of bet first, the EBIT margin reached above 24% in the second quarter. Betson business continues to generate strong cash flows and we ended the quarter with a strong balance sheet and a significant net cash position. Looking ahead we maintain our focus on profitable growth and the third quarter has started well with average daily revenues up 20% compared to average daily revenues in the full third quarter 2022. So we are optimistic for the second half of this year. Thank you everyone for listening in and now we are open for Q&A.

If you wish to ask a question please dial star five on your telephone keypad to enter the queue if you wish to withdraw your question please dial star five again on your telephone keypad. The next question comes from George Atling from Pareto Securities please go ahead.

Hi guys so congrats on the on the very strong quarter. My first question relates to the partnership with the group partosh so what I'm wondering here is if group partosh extends the casino license they have to online will bet first be able to offer online casino on that license?

Yes and that's the purpose with this that that's the initial purpose with the cooperation with partosh is to enable bet first to operate casino in Belgium which they haven't been able to do so far it's an extension of the offerings so we're optimistic about that. Okay great

and I if I understood it correctly the sports margin in last time this quarter was below the historical average is that correct? Yes correct. So I mean do we have any comments here on the on the gross sports book turnover so we can get sort of an understanding of the underlying growth in last time sports?

No we haven't we haven't included that as part of the report so it's unfortunately not something we can we can reveal right now. Okay

and then on the dutch application you said the you're shifting focus here and therefore withdrawing the application but I'm wondering if you could just extend on the on that reasoning and also if you have any assets with a dutch focus that you like brands or stuff like that that you could divest from not entering or re-entering nevertheless?

Yes we have withdrawn the application because we have been in application process for over a year now and it's it's consuming some resources which we want to reallocate to other projects where we see higher growth potential for the time being. This doesn't mean that we have shut the door for the netherlands market for the future so for the time being we are not into divesting any assets that we have in relation to the to the dutch market. Okay

and then just my final question I mean customer activity here is down but or active customers I should say but deposits are really contributing here to growth it could just help add some color to to that dynamic you said that you improve the offering and that drives deposits but could you just be a little bit more specific in those improvements?

Yeah I think you refer to the number of active customers which is lower but that's mainly due to marketing activities and and what this the kind of activities that we do in in certain markets but in general the activity for the group is higher than ever and that is what is resulting in in in the higher revenues than EBITDA proceed. So I think you know the the number of active customers it will keep on fluctuating between quarters depending on what kind of commercial campaigns we are doing and what of events that are occurring in certain quarters but the main thing is that the total activity for all our services is increasing over time.

Okay and if I could just have a final question on the trading update it's quite a lot higher here for Q3 compared to the press release last week in terms of growth so I'm wondering the change here is it impacted by Wimbledon or just a very high sports group margin here in the latter part of the trading update?

I think as we said when we when we send out the press release it was based on a very very few number of days and we always say in trading updates it's just an indication but the longer the period goes the better the indication will be for for a longer period of time so I think nine days as was included in the press release was a quite short period of time.

Okay

that's it for me thanks.

Thank you.

As a reminder if you wish to ask a question please dial star five on your telephone keypad. The next question comes from Oscar Ronquist from ABG. Please go ahead.

Thank you and good morning so I came in a bit late so I'm sorry if I you need to repeat anything but first of all I just wondered the best first acquisition if you are planning to integrate that into your PAM and sports book thank you.

We haven't made any such decisions for the time being that is for for later decisions.

Okay thank you. Just next one I have marketing spend as a percentage of B2C sales seems to be coming down a little bit so I just wondered if there's any change in your strategy here or if that's sort of a one-off as it is a more quiet quarter in terms of like sporting events and so on.

Yeah there is no change in our strategy we want to maintain our high growth which I think is exceptionally strong and that is based on marketing investments but the marketing investments will differ between quarters depending on what kind of activities are ongoing and availability in certain markets and things like that so but our strategy remains.

Got it that was all for me thank you very much.

Thank you.

There are no more questions at this time so I hand the conference back to the speakers for any written questions from the webcast or any closing comments.

If there are any written questions no no more questions and then we will not take up more of your time and thanks you for listening in to today's presentation and see you in three months time.