Betsson AB

Good morning everyone and welcome to Betsson's earnings presentation for the full year and fourth quarter 2023. My name is Pontus Lindvall and I am the CEO of Betsson. With me today I also have our CFO Martin Öhman. So here's the outline for today's presentation. We will start with a brief overview of the achievements in the past quarter. and full year and also highlight some interesting business activities from the quarter. Then we will comment on some recent regulatory developments in the market that are relevant for Betsson. Martin will then present our financials more in detail. After that, we will provide a trading update for the start of the first quarter 2024. And then we will round off the presentation with the summary of the quarter. After the presentation, we will take questions. I'm pleased to report another strong quarter for Betsson with continued high customer activity and record figures. In the fourth quarter, group revenue increased by 14% and operating profit increased by 42% compared to the same quarter last year. This means new all-time high levels for group revenue and EBIT at €252 million and €57 million respectively. The EBIT margin increased to 22.6% from 18.1% in the fourth quarter 2022. New quarterly records were also set for casino turnover, up 29% year on year, and for casino revenue, which was up 25%. Customer deposits across all gaming solutions were also at new all-time high levels for the quarter, growing 27% year on year. Sportsbook turnover was up 18% year-on-year compared to the fourth quarter 2022, which included the Football World Cup. However, the sportsbook margin was only 6.2%, clearly below the level in the fourth quarter last year. This was due to player-friendly football results. The low sportsbook margin resulted in the 5% decrease in sportsbook revenue year-over-year. When we sum up 2023, we can look back at a new record year for Betsson. Several important strategic initiatives were taken to strengthen the product offering, manage risks through geographic diversification, and to create the conditions for continued profitable growth with an increased share of revenue from locally regulated markets. For the full year 2023, revenue increased by 22% to €948 million, and operating profit EBIT increased by 60% to Euro 211 million, which corresponds to an operating margin of 22.2%. For the full year, operating cash flow amounted to Euro 230 million, which was also a new record. The board proposes a 48% increase in the dividend for 2023 to Euro 0.645 per share. In the fourth quarter, a new sponsorship was initiated in Greece, through which Betsson will have the naming rights to the classic and important cup in Greek football. Also, Betsson's involvement in Italian football was broadened in the past quarter through new sponsorships in Serie C, with the clubs Juve-Stabia and Messina, as well as the official VAR partnership with Serie B, named DKT. In general, 2024 will be a big year for football, with both European Championship and Copa America in the summer months, and we look forward to following the games together with fans, customers and employees. At the end of January, a new online casino offering was launched in Belgium under the brand name BetFirst, based on the category A plus license that was obtained in October of last year. The license enables a full online casino offering, including slot games, table games, and live casinos. In November, an online sports betting offering was introduced in France with the Betsson brand under the local gaming license that was obtained in September. Betsson continues to focus on investing in product and technology, Geographical expansion continued to be a strong focus during the quarter, as well as strengthening the product offering. Technical preparations were made to be ready for the new regulation in Peru, as well as significant enhancements to the product in Colombia ahead of planned new marketing activities during 2024. During the quarter, especially large focus was put into integrating and launching new payment solutions in several markets. And now let's look at some of the latest regulatory developments. In Italy, the government approved a decree to reform the online gambling sector in December. The decree will form the basis for a new public tender of gambling licenses, thus eliminating the need to extend further the current concessions set to expire at the end of 2024. According to the decree, the cost of concessions will sharply increase. and the aim seems to be to reduce the number of licensed websites. In Brazil, the bill regulating online sports books and casinos was adopted after a lengthy process. The president approved the law on the 29th of December, 2023, and it was published in the official Gazeta on the 30th of December, 2023. The new law establishes a 12% tax on GGR, a 15% tax on winnings for players and a license fee of approximately 5.5 million euros for five years. In Norway, BML Group continued the dialogue with the Norwegian gambling authority, NGA, regarding the cease and desist order against the company. In November, the NGA found that while the company's general offer was indeed compliant, The fact that Norwegian residents could deposit and withdraw money on the sites operated by the company indicated in the NGA's view that the company's offer was still targeting Norway. As requested, the company submitted its use to the NGA in December 2023 and subsequently correspondence with the NGA has continued in January 2024. In Chile, Congress voted on the law proposed by the Economy and Treasury Committee in early December. The law introduces a 19% gaming tax on GGR, a 19% VAT on GGR, a 12-month blackout period for operators who were previously active on the market, as well as a 36-month retroactive 31% tax rate on GGR to those operators who have been active in the market between 36 and 12 months before the implementation of the new law. As the next step, the approved text will move to the Senate for further discussions and votes. In Sweden, the Patent and Market Court of Appeal on the 21st of December 2023 ruled in the pending matter of a former customer claim against BML Group Limited. The Court of Appeal reversed the earlier judgment of the lower court and ruled in favor of the former customer. VML Group Limited has appealed the judgment to the Supreme Court. 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 fourth quarter, which again was a record quarter and is now the eighth consecutive quarter with revenue and EBIT growth and the best quarter ever in Betsson's history. This in terms of revenue, casino revenue, sportbook turnover, and operating profit, which all show all-time highs in the quarter. This, although the sportbook margin has been lower than the two-year rolling average margin. The result is underpinned by year-over-year growth of 27% in deposits. Active customers have slightly decreased compared to the same quarter last year, explained by increased activity from the World Cup in football last year. Reported revenue for the fourth quarter amounted to €252 million, an increase of 14% year-on-year, organic growth of 36%, and also quarter-on-quarter growth of 6%. Both the B2B and the B2C business contributed to the growth, with €187 million in revenue coming from B2C and €65 million coming from B2B. Casino turnover increased by 29% year-on-year and shows the highest turnover ever. Casino revenue was 183 million, an increase of 25% year-on-year, which is all-time high, and also 6% quarter-on-quarter growth. The gross turnover in Sportbook across all Betsons gaming solutions was almost 1.7 billion euro, which is the highest ever turnover, and an increase of 18% compared to the fourth quarter last year. Portfork margin was 6.2%, which is lower than a 7.3% margin in the fourth quarter last year, and also lower than the two-year rolling average margin of 7.6%. Portfork revenue decreased by some 5% compared to last year and amounted to 67 million, but increased by 6% compared to previous quarter. This, although the margin was lower in the fourth quarter this year compared to both previous year and previous quarter. Port Poker Revenue represented 27% of the group's total revenue in the quarter and Casino Sum 72%. Breaking down revenue by region, we see growth compared to previous year in all major regions except the Nordics, where we see a decrease of 7 million euro. However, compared to previous quarters, we see growth in all regions. Starting with the Nordics, we see a decrease of 13% compared to last year, Sweden and Finland reported decreased revenue due to lower activity in casino in Finland and lower activity in both the sport book and casino product in Sweden. Denmark reported increased revenue driven by growth in both sport book and the casino product. The Nordic region represented 18% of the group's total revenue in the fourth quarter. Revenue from Western Europe increased by 62% year on year with addition of the best first revenue from the Belgian market as from beginning of July contributes to the growth. The Italian market is also contributing to the growth in the Western Europe region and reported all-time high revenue in the fourth quarter. The increase in revenues is mainly driven by revenue from the casino product where both deposits and turnover were the highest ever. Revenue from the German market is following the same trend as in the past quarters and years and continue to decline for Betsson. The Western Europe region represented 17% of total revenue in the quarter. The Sika region increased by 25% year on year, driven by strong underlying activity and revenue growth in casino. The sport book activity was strong, but the sport book margin was low, which impacted sport book revenue in the quarter. Greece showed continued positive trends and reported all time high revenue in the fourth quarter, driven by a strong underlying activity with new records in turnover, number of active customer, and in deposits. Croatia continued to develop well in the fourth quarter, driven by the casino product. Georgia reported decreased revenue compared to the corresponding period last year, driven by lower export book margin. The Baltics continued to develop well, and Estonia and Lithuania reported growth in revenue explained by the casino product, Jone Peter Reistadler, Latvia reported decreased revenue compared to previous year explained by lower sports margin, the secret region represented 42% of the group total revenue in the quarter. Jone Peter Reistadler, Revenue in the Latin America region amounts to 53 million euro representing a slight a slight increase compared to the same period last year and compared to the previous quarter. Growth is driven by the casino products while the sport book revenue was limited in the quarter due to both lower activity in the sport book and lower sport book margin. Comparable period last year includes the World Cup in football. Argentina and Colombia reported growth both year on year compared to previous quarter and the growth is mainly driven by the casino products. Revenue from Peru decreased due to lower activity in both the casino and the sport book product in combination with a lower sports book margin. The Latin America region represented 21% of the group's total revenue in the fourth quarter. Revenue from the rest of the world decreased by 9% and is mainly driven by lower sports book margin in Nigeria compared with the corresponding period last year and lower activity in the Canadian operations. Revenue from locally regulated markets increased by 53% compared to last year and now constitutes 46% of total revenue. Focusing on the composition and development of EBIT year on year, we see that revenue has increased by some 31 million euro and following that also cost of services provided. Gross profit increased by 20 million euro compared to the same period last year and amounts to 165 million euro, which corresponds to a gross profit margin of 65.6%, which is the same margin as last year. Increase in cost of sales is mainly explained by higher gaming taxes following increased revenue from locally regulated markets. Marketing spend was lower than last year, and this is explained by a step up in marketing activities during and ahead of the World Cup in football in the comparable period last year. Marketing cost in percent of B2C revenue amounted to 17% and 24% when including affiliate marketing as well. Personnel expenses increased by €7 million in the fourth quarter compared to the same period last year due to some 150 more employees, yearly salary revisions, performance-related compensations, geographic expansion, and increased investments in product and technology development. Depreciation and amortization costs increased by €4 million following the acquisition of Kikitec Malta Limited in the fourth quarter 2022 and that first acquisition made in July 2023. The vet-first purchase price allocation presented in the Q3 report has been somewhat adjusted, and quarterly amortization costs related to customer databases have increased in comparison to the quarterly numbers presented in the third quarter report. Other costs decreased by 3 million euro, where increased sportbook-related costs, costs for consultants, and software licenses costs have been counteracted by currency effects. Ebit amounts to 57 million euro, which is all-time high, and an increase of 43%. Ebit margin is 22.6% compared to 18.1% last year, and the increase is explained by increased revenue and gross profit, and at the same time more or less maintained operating costs. Looking at the cash flow and financial position, we can conclude that operating cash flow amounts to 48 million euro. Operating cash flow is driven by EBIT of 57 million euro and negatively impacted by changes in working capital arising from increased accounts receivable and increased prepaid expenses. Cash flow from investing activities amounts to 14 million, where the majority relates to investments in own technology and product development. and some €4 million to paid earn-out for the Kikitech Multi-Limited Acquisition. Cash flow from financing activities impacted the cash flow by €35 million, where €31 million relates to dividend paid out to shareholders in October, and remaining amounts come from lease payments and loans granted to associated companies to fuel their growth. Betsson has as of end of December a net cash position of 60 million euro and an equity ratio of 62%. And now I hand over to you again Pontus to take us through the proposal on dividend distribution followed by a trading update.

Thank you Martin. Now let's have a look at the proposed dividend. The strong cash flows of the business and the solid balance sheet allows us to continue paying out attractive dividends to our shareholders. and investing in future growth at the same time, which is quite an unusual combination. The board of directors proposes to the AGM that Euro 88.5 million corresponding to Euro 0.645 per share should be distributed to the shareholders through two automatic share redemption procedures. The first one in June and the second in October, just like last year. Now let's have a brief look at how the first quarter of 2024 has started. Just to be clear, this is not a revenue forecast, but only an indication of how the first quarter has started. It's also important to mention that as of 1st of January 2024, the definition of organic growth has been changed and now only includes adjustments for currencies with direct impact as well as adjustments for acquisitions. And now to the actual figures. The average daily revenue up until and including the 11th of February has been 5.9% higher than the average daily revenue of the first full quarter in 2023. Organically, the average daily revenue during the same period has been 16.3% higher than the average daily revenue of the first full quarter 2023. During this period, the sportsbook margin has been significantly lower than the historical average margin. And finally, here's a summary of the report. Betsson reported all-time high levels for revenue and the EBIT in fourth quarter and for the full year. We saw continued high customer activity across the business with all-time high levels for customer deposits casino turnover, casino revenue, as well as sportsbook turnover. Our scalable business model supported an increase in margins. Betsson's business continues to generate strong cash flows, and we ended the quarter with a strong balance sheet and a significant net cash position. The board has proposed a 48% increase in dividend for 2023. Thanks everyone for listening in to the presentation. Now let's move over to Q&A. We welcome your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Oscar Ronquist from ABG Sundal Collier. Please go ahead.

Thank you. Good morning, Martin. Good morning, Pontus. Thanks for taking my questions. First one would just be on bet first. So I think that it has a bit of a slower run rate than last year or the numbers that you put out when you acquired it. So I just wondered if you're seeing the same impact as Kindred did in in Belgium with the deposit limits being lower and that impacting the group revenue or if this is just sports book margin related or if you see anything else. And then also if you could elaborate a little bit on Belgium casino if you have any early indications or also the French launch if you have any early indications of how those launches have started to develop. Thank you.

On the first one BetFirst is quite heavy on sports betting and of course the margin has been a little bit lower since we acquired and that's the only reason for the impact in the figures that we see and that follows the rest of the trend for sports betting, not the trend but the results for this period for sports betting on all the brands, so it's nothing specific for Belgium.

Nevertheless Pontus, I think it's worth mentioning that we see an increase in Q4 in revenue compared to Q3.

Yeah. And then on the casino, the 8 Plus license, it's been launched just a few weeks ago, so it's too early to say. But obviously we have quite some expectations on that for going forward.

Okay, thank you. I saw some comments from an interview this morning where you mentioned M&A possibilities going forward. Can you talk a little bit about balancing potential buybacks with M&A? Because obviously you have a strong balance sheet, good cash flow, solid organic development. Balancing the evidence of M&A success versus your share valuation at the moment in potential buybacks. Thanks.

Yes, as we heard over the presentation, we have a strong balance sheet, which gives us quite a nice freedom within the area of M&As or buybacks. We see some quite nice possibilities for M&As, and we have global ambitions, and we have a good situation in being able to integrate acquired assets. So we will continue on the path that we have done quite successfully up until now, meaning that we are still looking for opportunities for M&A.

Thank you. So just follow up there. So on M&A, is it mainly B2C operations you think that you are looking for in terms of geographical expansion, or is it to enhance your B2B offering firstly, or is it both maybe?

We have done a few B2B acquisitions in the past few years to support our B2B offering, but we are mainly looking for B2C assets to keep on going into new areas and territories with our operation.

Got it. Thank you. Just the next one on Latin American sports book, which is trending downwards, just, I mean, in the exact opposite of casino that is going very, very strong. So what do you think is driving this? I mean, of course, tough comps in Q4, slower sportsbook margin, but just the decoupling of casino and sportsbook development, I guess that just the comps and sportsbook margin can't explain it all. So do you see higher competition in sports than you do in casino, or how should we think about this?

No, I think the explanation is about the margin in the sports book and the fact that we had some more activities and some more potential offerings in the comps figures. But I think the more important part is to see the traction in the casino. That's a proof of continued strong development. And that will, of course, go for the sports book as well going forward.

All right, thank you. Sorry, just a final one, sort of a standard question for me. I apologize for that, but just on the marketing to sales ratio, if you see any structural change, I think it seems to have trending downwards, pretty sharply. And if I recall correctly, you've communicated in the previous quarters that you don't really expect any significant change in strategy. So if you have any comments, that would be helpful. Thanks.

Yeah, there are no changes in strategy. our ambitions within marketing but I think the standard answer is that it varies between quarters and it depends on availability and also on the sports calendar and as you know 2024 has some interesting sports events coming up so there will be quarters where we spend a little bit more and also in the future some quarters where we spend a little bit less but we will continue to do marketing and we are still a strong growth company and that will continue.

Right. So I guess that Q1 seems to be, I mean, sort of normalized and then Q2 may be a little bit higher on marketing ahead of the World Cup or sorry, the Euro 2024.

We will not, you know, go into any projections on that. But if you look historically at we can conclude that we have put a little bit more money into marketing in relation to big tournaments.

Thank you very much.

The next question comes from Dennis Peterson from Private Investor. Please go ahead.

Hello, hello. Congratulations to a good quarter and a good year. Thanks a lot. My first question is on your thoughts on the development of professional football, considering the spread between the best teams and the teams beneath. Those best teams seem to be growing. I assume that the betting activity are bigger on the more known teams, and especially the big European leagues and the Champions League, where this trend seems to be inherent. Do these trends worry you and do you see this as a threat to the sportbooks margin going forward?

That's a very interesting question, almost on the philosophical side. I've been thinking about that, that some teams become so professional and some other teams can't really cope with that development. But if you look at the outcome The recent outcome, you can still see some strong teams losing when they are not expecting to and draws. So we believe that the sports betting model will be able to adopt to any kind of development within the sports going forward. But it's an interesting assumption that you do there.

Okay, thank you. Can you please share your thoughts on the B2B progress in North America? Are you still active in search for potential customers? Are you having a talk with some or are you even in the progress of closing some agreements?

We still have our B2B offering in North America. We haven't concluded any deals yet on the sports book. And as a company, I think we can say that we have put more efforts into our own development of B2C offering in Latin America than on the B2B side in North America. And just to be clear, I'm sure you are aware, we did not go into North America with a B2C offering, but only this B2B offering, which we are quite happy about today.

As I recall, you had big expectations for the North American launch. So you're saying that you're now more focusing on your B2C towards Latin America?

Yes, that's how things have developed. We have not left North America at all with our B2B offering, but we have put more efforts into our B2C offering in Latam and in some European markets. That's how it has turned out.

Okay, thank you. Do you have any updates on the Sportbooks margin from the date of the trading update until now?

No, we have only communicated what's in the report.

Okay, thank you. One last question. Looking to the summer with the Euro 2024 and the Copa America, Obviously the Copa America, previous Copa America was a big success. Are you satisfied with your position going into those championships?

Yes, very much so. I think we have a strong brand recognition across many markets in Latam. We did really well the last time. It's a very good opportunity for customer acquisitions. We have our technology in order. So I think we're well positioned for the upcoming tournaments.

Okay. Thank you. That was all for me.

Thank you. Thank you. Bye-bye.

There are no more telephone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Okay. Jone Peter Reistadler, We have the.

Jone Peter Reistadler, I think there was a question from private investor about the change in the organic growth calculation when it comes to effects changes and. Jone Peter Reistadler, question I think was whether that was already affecting the queue for organic growth calculation or only in the trading update for Q1.

No, that's a good question. And I think as Pontus said when he presented the trading update, it is only reflected in the trading update and the Q1. So this will be a new definition going forward, but it has not impacted the Q4. It is the old way of looking at the organic definition.

Okay. Thank you, Martin. And there was no further questions here. Then I want to say thanks to all of you that listened in. See you in a couple of months. Bye bye.