Betsson AB

Thank you. Good morning everyone and welcome to Betsson's presentation of the interim report for the third quarter 2023. My name is Pontus Lindvall and I'm the CEO of Betsson AB. With me today I have our CFO Martin Amman. To start with, here's the outline for today's presentation. First I will give an update about the business, then we will comment on regulatory developments in markets that are relevant to Betsson. Martin will then present the financials for the quarter in more detail. After that I will provide a trading update for the start of the fourth quarter and then we will finish off with the presentation with the summary. After the presentation we will open up for questions from the audience. So Betsson's third quarter 2023 was about continued high customer activity, strong financial development and further investments in products and new markets. The third quarter in a row with sequential growth in both revenue and earnings. On this side you can see some key numbers for the quarter. New quarterly records for group revenue and ebits. Reported revenue increased by 19% while EBIT was up 46% year over year. Active customers and deposits increased significantly during the quarter and turnover was high for both casino and sports betting. Casino revenue was the highest ever in a quarter for Betsson, up 27% year over year. The sportsbook margin was .3% which was a full percentage point lower than in the third quarter last year. Consequently the high sportsbook turnover did not fully translate into a similar increase in sportsbook revenue. All in all I'm very pleased to see record revenues and earnings figures for the despite the lower sportsbook margin. Betsson's strategy is based on four key areas. Existing markets, new markets, business to business and M&A. This slide highlights some recent commercial activities in our existing markets. Betsson's first ever global ad campaign was launched at the end of the summer. The theme is a bet makes a difference and focuses on the excitement and entertainment that comes from placing a bet on sports or casino rather than the chances of winning. The campaign is part of the group's marketing strategy to achieve economies of scale and competitive advantages for the business through a strong global brand name. The Betsson brand was introduced in Denmark which strengthens the group's position on the Danish market where Nordic bet is already a established brand. I'm proud to see that Betsson's involvement in sports continues together with clubs, fans and customers. Our collaboration with the popular Italian series club Roma was recently extended. Next slide please. Betsson's geographical expansion continues and several new milestones were passed during the quarter when it comes to new markets. In Serbia a license was granted and online casino offering was launched on the locally regulated market. In France the local license for sports betting was obtained and Go Live is expected to happen in the fourth quarter. France is an important gaming market in Europe with great long-term potential for online gaming and this is a first step for Betsson to be able to offer French players a first-class experience in sports betting. As I mentioned M&A and B2B are also two key pillars for Betsson's strategy. In the third quarter the acquisition of Betsson in Belgium was completed and consolidated into the Betsson group. After the end of the quarter a license for online casino, a so-called category eight plus license, was obtained in Belgium with the scope of the part within the scope of the partnership with Group Partouche. The group was established in the the aim is to launch the new casino offering under the brand Bet First. We are excited about the growth plans for Belgium going into next year. The addition of Belgium has contributed to a higher share of revenue from locally regulated markets and this figure was 45 percent in the third quarter, a big step up from a year ago. On the B2B side the Betsson Sportsbook Solutions was launched with B2C operator Beth Hard in September. Betsson continues to focus on investing in product and technology to ensure that the customer offering remains competitive and that the technology platform is scalable for continued global expansion. Work to migrate Betsson's brands to the cloud continued during the quarter as well as the development of more native apps. The casino offering was strengthened through the launch of several games with a focus on new types of content for Latin America. The sports betting offering also continued to expand with the addition of new events as well as new betting options. Also the Sportsbook platform of Kikitec acquired in 2022 was integrated into Betsson's in-house platform Texon during the quarter. And now a short regulatory update. Regarding Peru, on October the 13th the local regulator published a decree to implement online gambling and sports betting regulations and the new regulated market in Peru now looks to set to go live towards February-March next year. In Brazil the chamber of deputies adopted the bill to regulate sports betting and online casino games in September. The bill requires the senate approval to become law and the senate has until November the 11th to consider the bill. In Sweden as part of the budget proposal 2024 the government announced that it plans to raise the gambling taxes from the current 18 percent on GGR to 22 percent from July 2024. In Chile in September the Supreme Court delivered a judgment in favor of the public lottery operator where one of the local telecom providers was ordered to block the websites of 12 online gambling operators including Betsson. In contrast the denied a similar appeal of the same public lottery operator last year. Even though the judgment is applicable only to the specific telecom provider the government is using the judgment to try to apply market-wide blocking of foreign online gambling sites. Likewise the Ministry of Justice ordered the football association ANFP at the beginning of September to terminate its contracts with online gambling operators within 30 days. And now I will hand over to Martin for a closer look at the financials.

Great thanks Pontus. I will go into some more details of the financials of the third quarter which again was a good quarter and the seventh consecutive quarter with revenue and EBIT growth and the best quarter ever in Betsson's history. This in terms of revenue, casino revenue and operating profit which all shows all-time highs in the quarter. The result is underpinned by year over year growth of 31 percent in deposits and an increase in active customer by 17 percent year on year. Active customers are also increasing quarter on quarter. Reported revenue for the third quarter amounted to 238 million euro, an increase of 19 percent year on year and organic growth of 39 percent. Both the B2B and the B2C business contributed to the growth with 182 million in revenue coming from B2C and 56 million coming from B2B. Casino turnover increased by 32 percent year on year and shows the second highest turnover ever. Casino revenue was 172 million, an increase of 27 percent year on year which is all-time high. The gross turnover in Sportbook across all Betsson's gaming solutions was more than 1.3 billion euro which is an increase of 24 percent compared to the third quarter last year. Sportbook margin was 7.3 percent which is lower than the 8.3 percent margin in the third quarter last year and also lower than the two-year rolling average margin of 7.7 percent. Although the lower margin, the Sportbook revenue increased by 2 percent compared to the same period last year and amounted to 63 million. Sportbook revenue represented 27 percent of the group's total revenue in the quarter and casino some 72 percent. Breaking down revenue by region, we see growth in all major regions except the Nordics where we see a decrease of 14 percent. Sweden reported decreased revenue coming from the decreased activity in both the Sportbook and the casino product. Denmark reported increased revenue driven by growth in both the Sportbook and the casino products. During the third quarter as Pontus mentioned, the Betsson brand was also launched in Denmark in addition to the Nordic Bet brand. The Nordic region represented 19 percent of the group's total revenue in the quarter. Revenue from Western Europe increased by 57 percent year on year and sums up to 39 million euro. The main reason for the increase is the addition of BetFest revenue from the Belgian market as from beginning of July. The performance of BetFest in the third quarter is in accordance with expectations. The Italian market is continuing to perform well and reported all-time high again 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 continues to decline for Betsson. The Western Europe region represented 16 percent of total revenue in the quarter. The Seeker region increased by 23 percent year on year driven by strong underlying activity in revenue growth in casino. The Sportbook activity was strong compared to the same period last year but the Sportbook margin was significantly lower which impacted Sportbook revenue in the quarter. Croatia and Greece showed continued positive trends in activity and reported all-time high revenue. This is mainly driven by the casino product. Georgia reported growth compared to the corresponding period last year also driven by the casino product. The Baltics continued to develop well and Estonia and Latvia reported growth revenue explained by the casino product. Lithuania reported decreased revenue compared to the previous year explained by lower Sportbook margin. The Seeker region represented 41 percent of the group's total revenue. Reported revenue in the Latin America region amounts to 52 million euro representing an increase of 33 percent compared to the same period last year. Argentina and Colombia reported growth both year on year and compared to the previous quarter. The growth in Argentina is mainly driven by the casino product whilst both the casino and the Sportbook product drive the Colombian growth in the quarter. Revenue from Peru decreased due to lower activity in the casino product and a lower Sportbook margin. The Latin America region represented 22 percent of the is mainly driven by lower Sportbook margin in Nigeria compared with the corresponding period last year and lower activity in the Canadian operations. Revenue from locally regulated markets increased by 48 percent compared to last year and now constitutes 45 percent of total revenue. Focus on the composition and development of EBIT year on year we see that revenue has increased by some 37 million euro and following that also cost of services provided. Gross profit increased by 23 million euro compared to the same period last year and amounts to 157 million euro which corresponds to a gross profit margin of 65.9 percent compared to 66.8 percent last year. Changes in cost of sales and in gross profit margin is mainly explained by higher gaming taxes following increased revenue from locally regulated markets. Marketing spend was lower than both last year and previous quarter. Marketing restrictions in Finland and some other countries in combination with the resale of prepaid marketing assets in the Netherlands as a result of the group's decision to withdraw the license application in the country explains the lower marketing spend in the quarter. Personnel expenses increased by 4 million in the quarter compared to the same period last year due to some 130 more employees, yearly salary revisions, performance related compensations, geographic expansion and increased investment in product and technology development. Depreciation and amortization increased by 2.7 million explained by increased depreciation following the acquisition of Kikitec Multilimited and BetFirst that was acquired in the fourth quarter 2022 and in July 2023 respectively. Other costs increased by 6 million euro where half of the increase is explained by unrealized currency effects mainly on inter-company balances and the remaining increase is driven by increased investment in product and technology development. EBIT amounts to 56 million euro which is all-time high and an increase of 46 percent. EBIT margin is 23.6 percent compared to 19.2 percent last year and the increase is explained by increased revenue and at the same time maintained operating costs when excluding unrealized currency effects. Organically EBIT increased by 129 percent to 88 million euro. Turning towards the cash flow and financial position we can conclude that operating cash amounts to 45 million euro. Operating cash flow is driven by operating income of 51 million euro and change in working capital. Negative impact from working capital of 17 million is explained by increased payment provider balances, increased accounts receivable and the addition of the BetFirst operations. Cash flow from investing activities amounts to 119 million euro whereof relates to the acquisition of BetFirst and some 10 million euro relates to the tech investments in the form of capitalized development costs. Cash flow from financing activities impacted the cash flow by 71 million euro and is mainly explained by two things apart from leasing costs. Firstly we have issued a new senior unsecured bond of 75 million euro under the framework of 250 million euro with a floating interest rate of your arrival three months plus 160 basis points and the bond has a final maturity date in September 2026. Secondly loans of 2.5 million euros have been granted to associated companies to fuel their growth. Betsson has at the end of September a net cash position of 66 million euro and an equity ratio of 62 percent and by that I hand over to you Pontus again to present the trading update for the start of the fourth quarter.

Thank you Martin. Now let's have a brief look at how the fourth quarter of 2023 has started. The average daily revenue up until including the 20th of October was 12 percent higher than the average daily revenue of the full fourth quarter in 2022. During this period the sports book margin has been significantly lower than the average historical margin. Organically adjusting acquisitions and currency changes the average daily revenue during the start of fourth quarter has been 37 percent higher than the average daily revenue of the full fourth quarter last year. Next. So finally here's a short summary of the third quarter 2023. Betsson reported all-time high levels for revenue and EBITS in the third quarter. This was the seventh quarter in a row with sequential growth in revenue and earnings. Underlying customer activity was high with solid increases in active customers and deposits. Casino was the key growth driver in terms of product with new record revenue reported for the product category. Geographically the revenue increase was broad based with strong growth across SEKA, Latin America and Western Europe. Betsson's scalable business model continues to support stronger profitability on the back of the higher revenue. Our 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 sustainable value creation for our shareholders. The fourth quarter has started well with average daily revenues up 12 percent compared to the average daily revenues for the full fourth quarter of last year despite a low support margin. Thank you everyone for listening to the presentation. So now we can move over to 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.

Good morning guys and congratulations on another strong quarter. I just have a couple of questions starting with the B2B revenues down 14 percent sequentially. If you could just help us break down the contributors to that lower quarterly revenue over Q2.

I think it's made it due to the fact that the sportsbook margin has been lower and we are more heavy on the sportsbook side on the B2B revenues than on our B2C offerings. So that's a natural explanation. As we mentioned in the presentation the underlying activity has been really strong so this is nothing that we are at all worried about.

Okay that's all thank you very much and on my second question on the marketing outlook of course coming down quite sharply year over year here the marketing spend. How should we look at the Q4 and next year is this sort of a new base to to grow from or is this a uniquely low quarter?

Yeah this is a quarter with lower marketing spend mainly as Martin described due to the fact that we could resell some of the assets that we have already acquired previously. But if you look at our results on a more longer term I think we can say that we are pretty consistent in how much what kind of part of the revenues that we put into marketing so there are no new platforms or new ways of handling our marketing going forward. Okay and

can you quantify the sort of the impact from that resell of marketing in Netherlands?

No we can't quantify it more than that it's just a comment that it had an impact on the marketing spend in this quarter.

Yeah okay and on just on the capital allocation side as you said a very very strong balance sheet and also very low valuation on the stock but you have been more pursuing M&A in the last couple of quarters could you just discuss sort of the buyback versus M&A here going forward given the over capitalization you have?

Yeah as you all know M&A is a part of our growth strategy. So we tend to look at different opportunities all the time and that is the same now as ever and we believe that we will continue to do M&A to build our scale and to maybe add on to markets that we have or open up new markets where we are not present today. So the main thing here is that we are really happy about the way our balance sheet looks and it gives us a big freedom to look at possibilities.

Well that makes sense and just a final question on bet first you know say that you have all the sort of the regulatory things in place to launch the casino offering. Could you provide a timeline of such a

launch? We cannot provide a detailed timeline but it will happen in the not too far distance. We believe that it will happen in the first part of the next year and that will be a very welcome addition to our offering. We have a very strong brand in the in and for the first time now we will have a full-blown offering as well so that we look forward to that a lot.

Perfect that's all for me thank you very much.

Thank you.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Hi everyone good morning.

Good morning.

So my first question is on the let's talk about the trading statement. It looks really strong given the fact that the sports margin was lower here in the period. What is driving this? Is it new markets or can you elaborate a little bit more?

I think what you see in the third quarter we have a strong development on the main markets where we are active on the larger markets and that has continued this strong activity into the fourth quarter and as you sure know you're interested in sports yourself. There has been quite a lot of favorite winning and a lot of goals which is quite good entertainment but not as good for the sports margin but the activity is there so we are very optimistic about the fourth quarter.

So it's mainly like activity driven the trading statement that's so strong. Okay and it's broad based it's both Europe and that time?

Yes it is.

Okay and speaking of Latin how do you view the outlook? For example Brazil is really interesting to talk about. What does your team think when we're discussing Brazil?

Yeah of course Brazil is a huge market. We are not as big as we want to be in that market for the time being but it's a part of Latin where we're going to put more focus and we have huge expectations for that market in the future.

Are you signing a contract with the European partnership deals? I remember you did that quite a while ago but if it's happening you know the commercial work that you're doing are you doing stuff there?

Yeah we are doing stuff there we can't go into details on what we are doing but as you have seen from other markets in Latin we tend to be quite successful in signing partnerships and creating good traction for our marketing efforts.

And the performance in Latin is it still mainly the growth the incremental revenue is it still mainly Peru that is behind it?

It's not there are other markets where we put a lot of efforts now that are growing and as usually we are a bit boring but we don't go into to market details market by market but we do initiatives in several markets that develop well in Latin.

Yeah and I noted you did a lot of things in Argentina in this quarter for example but okay thank you. Thank you. Yeah and

the next question comes from Alice Beer from ABG Sundal Kalia. Please go ahead.

Good morning I'm studying for Oscar today I'm just wondering if you could shed some lights on the what do you think about the casino timing in Belgium? Thank you.

Sorry could you repeat the question the

casino timing in Belgium? Are you happy with that start or?

Casino timing do you mean what Pontus just mentioned about us receiving the A plus license or?

Yes if you could expand a bit on that.

Yes that part of the offering is not yet live according to our plans we will be live during the first half next year and then we will see the outcome of that but for sure the team is doing a great work on the product and it means that once we launch we will have a more complete offering so we have great expectations for that.

All right thank you.

Thank you.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Hi guys I just wanted to ask a follow-up on this discussion about M&A versus Pibax and I mean you have a track record of acquisitions but and it's going to be interesting to see this last one in Belgium but the multiple on that one was higher than your own so in that perspective you know this question this discussion about you know Pibax versus M&A is quite interesting to discuss. Do you understand that? Yeah I

understand your point there and obviously we understand the mechanics in the KPIs you mentioned as well but then you have the strategic rationale about being on one European market which was a white spot for us and where we see big and great potential going forward so there's a part of strategic value into that acquisitions and many of the other M&A's that we do that doesn't really sometimes get reflected in the KPIs.

And to add to that Martin as well I mean the KPIs that you mentioned they do not consider any kind of synergies that this could bring to table that needs also to be considered when you look on it in that

way. Okay thanks that's helpful and what would you I mean what do you think you know in the board discussions you know Pibax must still be an option on the table here given the strong balance sheet despite the fact that you did this acquisition?

It's an option of course but on a higher level I would like to mention that the investments that we do are really long term and we are on a very long journey as a global company to become more or less fully global and I think that builds great value for the shareholders over time and we are happy that we can you know while building this platform to become bigger and bigger we are still very profitable when doing that so we think we are going in the right direction you see that we have great profits today and give great dividends. The strategy that we discuss in the board is how can we become even bigger and give bigger dividends in the future and that is what we're investing for right now that will pay off in five years ten years.

Okay thank you for that good color.

Thank you.

As a reminder if you wish to ask a question please dial star five on your telephone keypad. There are no more questions on the teleconference at this time so I hand the conference back to the speakers for any written questions from the webcast or closing comments.

We have a couple of questions from the web audience at the start of maybe it's for you Martin. How do you view the risk of Betsson will have to pay 15% tax from 2024 in line with the new EU legislation?

I mean that's that is that is part of what the appeal to stipulates for companies with over a certain size so yes we will be impacted by that and that will most likely increase our tax that we pay. Exactly how much that will impact us is a bit unclear today. There are different things that is going on that that can impact the exact amount of tax that will be paid going forward so for now we can't be more exact than saying that it will increase our tax burden.

Yes another question here is about you can comment on the progress with the B2B in the US.

Yes we have our B2B offering in the US still with the Betsson Sportsbook and we're also part owner of Strive Gaming which is a PAM provider in the US market. We haven't signed any contracts apart from from one which we have already mentioned for the for the Sportsbook but the Strive business is doing well and they have a good pipeline so it's moving ahead slowly in the US.

There is another question about M&A and in what part of the world are you mainly looking for M&A opportunities?

I can answer that one. We are looking almost everywhere I was about to say but we have a strategy of which regions we are putting more efforts into of course and and these are the regions where we put a little bit stronger efforts also on the on the M&A side so it's easier to say where we don't put our efforts in the Nordics we are less active than in Europe and Latin so we have plenty of opportunities in rather big geographies to look at.

There are no more questions from the web.

No more questions from the web. No more questions on the phone it seems. Thanks to all of you for listening in and we'll get back to work and we look forward to see you in three months time and then discuss the fourth quarter. Thank you for listening. Bye.