Betsson AB

Good morning everyone and welcome to Betsson's presentation of the interim report for Q1 2024. My name is Pontus Lindvall and I'm the CEO of Betsson. With me today is also our CFO Martin Öhman. I'm very pleased with the start of the year. First quarter 2024 was another strong quarter for Betsson with high customer activity across the board, solid revenue growth and a record operating profit. In the first quarter, group revenue increased by 12% and operating profit EBIT increased by 35% year-over-year, despite FX headwinds. EBIT at 58 million euro was the highest ever in a single quarter. We saw strong growth in gaming turnover for both casino and sports betting, up 14% and 25% year-over-year. Casino revenue increased by 19%, year over year. The sportsbook margin was only 6.6%, which was below the level in first quarter 2023 and lower than the rolling average margin for the past two years. Again, this was due to player-friendly football results and meant that the strong growth in sportsbook turnover was not fully reflected in revenue. The EBIT margin increased by almost four percentage points to 23.3%. Our ambition is to generate stable earnings growth in the long run. The strategy to deliver on this is based on geographic diversification and growth investments within existing markets, new markets, business to business and M&A. At the start of the year, a new sponsorship was announced with one of the largest football clubs in Colombia, Atletico Nacional. In March, the flagship brand Betsson was introduced on the Italian markets. At the same time, a new sports infotainment platform was launched with the former superstar of Italian football, Francesco Totti, as the main ambassador. In Argentina, Betsson went live with the province of Cordoba during the quarter. This is the third province in Argentina where Betsson is live and means that about half of the country's population can now access the customer offerings. In Belgium, the acquired company BetFirst launched a new online casino offering based on the category A plus license. The license enables the complete online casino offering, including slots, table games, and live casino. The online casino launch means that the first synergies from the acquisition of BetFirst are now being realized. In February, Holland Gaming Technology a gaming operator with a license in the Netherlands, and Holland Power Gaming, a game studio that develops casino games, were acquired. The total consideration amounted to €27.5 million on a cash and debt-free basis and is financed with our own funds. The transaction was also completed in February, but is still subject to post-closing approval by the Dutch gaming regulator KSA. When it comes to product and technology, geographical expansion and strengthening the product offering continue to be in focus during the quarter. In Colombia, the migration to the proprietary technical platform and in-house sportsbook was completed during the quarter, which will offer benefits of scale and enable improved functionality and stability going forward. Technical preparations for licensing on the new regulated market in Peru continue during the quarter. The sports betting offering was enriched with expanded functionality and new promotional tools. Some new casino game providers were integrated during the quarter and were continued on new apps for several markets. Sustainability continues to be an integrated part of Betsson's business strategy. During the quarter, Betsson sponsored the consumer protection soon DP set at the gaming fair Ice London. All proceeds and donations go to nonprofit organizations working with Safer Gambling. The group's carbon footprint calculation for 2023 was finalized in the past quarter, showing that total emissions decreased by 16% compared to 2022. Betsam operations have been climate positive for several years, which means that the group offsets its emissions including estimated emissions by customers when they play on bets on brands. Finally, preparations are well underway to start reporting according to EU's Corporate Sustainability Reporting Directive or CSRD. In Sweden, this will be mandatory from fiscal year 2025 for companies that are in scope. And now I will hand over to Martin for a closer look at the financials.

Thanks Pontus. Before we go into more details of the financials of the first quarter, I want to take a moment to look back and reflect on the development of Betsson for the past years. We can conclude that quarterly revenue has increased from 159 million euro in the end of 2021 to 250 million euro in the end of 2023. EBIT has more than doubled from 21 million euro in the fourth quarter 2021 to 58 million in the first quarter 2024. And the EBIT margin has increased from 13 to 23% in the same period. This is the result of a dedicated strategic approach, which has been focused on sustainable and long-term profitable growth built on geographic diversification and both organic investments and M&A within existing and new markets. The first quarter in 2024 was yet another record quarter and is now the ninth consecutive quarter with EBIT growth and revenue wise, the second best quarter ever in Batson's history. Operating profit is the highest ever. And this, although the support margin has been lower than last year and lower than the two year rolling average margin. The Q1 result is underpinned by year over year growth of 20% in deposits and 15% growth in active customers. Reported revenue for the first quarter amounted to 248 million euro, an increase of 12% year-on-year and 25% organic growth. Both the B2B and the B2C business contributed to the growth with 180 million in revenue coming from B2C and 68 million coming from B2B. Casino turnover increased by 14% year-on-year. Casino revenue was 181 million, an increase of 19% year-on-year which is the second highest revenue ever for an individual quarter. The gross turnover in Sportbook across all bets on gaming solution was almost 1.7 billion euro, which is the second highest ever turnover after Q4 last year, and represents an increase of 25% compared to the first quarter last year. Sportbook margin was 6.6%, which is lower than the 8.0% margin in the first quarter last year, and also lower than the two-year rolling average margin of 7.4%. Due to the low margin, Sportbook revenue decreased by some 2.5% compared to last year and amounted to 66 million. Sportbook revenue represented 26% of the group's total revenue in the quarter and Casino some 73%. Breaking down revenue by region, we see growth compared to previous years in Western Europe and the Sika region, a slight decrease in Latam and the rest of the world, and a 10% decrease in the Nordics. The decline in the Nordics compared with last year is primarily driven by lower activity in the casino product and a lower sport margin than the historical average. Decreased revenue in Sweden comes from lower activity in both the sport book and the casino products. Denmark reported increased revenue driven by growth in both the sport book and the casino products. The Nordic region represented 19% of the group's total revenue in the first quarter. Revenue from Western Europe increased by 60% year-over-year, where the addition of Betfors revenue as from beginning of July 2023 contributes to the growth. Revenue from the Belgium market increased compared with the previous quarter, mainly driven by the Sportbook product. And as Pontus said, at the end of January, a new full-fledged online casino offering was launched in Belgium based on the new A-plus license. The Italian market is also contributing to the growth in the Western Europe region and reported all-time high revenue in the first quarter. The increase in revenue is mainly driven by the casino product, where both deposits and turnover were the highest ever. In the end of the first quarter, the Betsum brand was launched in the Italian market as a complement to the Star Casino brand that has been the main brand offered in the Italian market previously. 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 17% of the total revenue in the quarter. The Sika region increased by 18% year on year, driven by strong underlying activity in casino. Greece, Croatia and Latvia reported all-time high revenue in the first quarter, driven by the casino products. Estonia reported growth compared with the corresponding period last year, also driven by the casino products. Georgia and Lithuania reported decreased revenue compared to the corresponding period last year, following a lower support margin in both markets. The Sika region represented 44% of the group's total revenue. Revenue in Latin America region amounts to 44 million euro representing a slight decrease compared to the same period last year and compared to previous quarter. The decrease is mainly driven by the Sportbook product that suffers from low Sportsbook margin in the first quarter and by negative currency effects, especially from Argentina. Since the region has a high proportion of revenue from the Sportbook, much higher than other regions, the region's revenue is more affected by the low Sportbook margin Argentina reported growth compared to the corresponding period last year, but reported decreased revenue compared with the previous quarters due to negative currency effects following a major devaluation in December last year. However, the underlying operations continued to develop strongly in local currency and grew quarter on quarter. Revenue from Peru decreased compared to the corresponding period last year, explained by the Sportbook product, and reported both lower activity and lower margin. The Latin America region represented 18% of the group's total revenue in the first quarter. Revenue from locally regulated markets increased by 34% compared to last year and now constitutes 44% of total revenue. Changes in EBIT year on year is impacted by increased revenue by some 26 million and following that also cost of services provided. Gross profit increased by 17 million euro compared to the same period last year and amounts to 164 million euro, which corresponds to a gross profit margin of 66.1% in line with the margin as of last year. The increase in cost of sales is mainly explained by higher gaming taxes following increased revenue from locally regulated markets. Marketing spend is in line with past quarters, but lower than the corresponding last year This, since spending then, was impacted by the World Cup in football in Qatar. Marketing costs in percent of B2C revenue amounted to some 17% and 23% when including affiliate marketing as well. Personnel expenses increased by some 3 million euro in the first quarter compared to the same period last year due to increased number of employees, yearly salary revisions, geographic expansion, and increased investments in product and technology development. Depreciation and amortization costs increased by 2 million, driven by increased depreciation from the acquisition of the bet first that was consolidated as of July 2023. Other costs consist mainly of Sportbook-related costs, costs for consultants and software licenses costs, and is more or less in line with previous years. EBIT amounts to 57.9 million euro, which is all-time high, and an increase of 35%. EBIT margin is 23.3% compared to 19.4% last year and 22.6% last quarter. The increase is explained by increased revenue and gross profit, and at the same time, more or less maintained operating costs. Looking at cash flow and financial position, we can conclude that operating cash flow amounts to 50 million euro. Operating cash flow is driven by an EBIT of 58 million euro and negatively impacted by changes in working capital arising from increased receivable on payment providers and increased prepaid expenses. Cash flow from investing activities sums up to 32 million, where the majority relates to the acquisition of Holland Gaming technology and investments in own technology and product development. Cash flow from financing activities impacted the cash flow by some €16 million, where the majority comes from guarantees related to future marketing commitments and loans to associated companies. Betsson has, as of end of March, a net cash position of €68 million and an equity ratio of 63%. And now I hand over to you again, Pontus, to take us through the trading update.

Thank you, Martin. So now let's have a look at how the second quarter has started. The average daily revenue in the second quarter up until and including 22nd of April has been 15 percent higher than the average daily revenue of the full second quarter of 2023. During this period, the sportsbook margin has been higher than the average bargain for the last eight quarters. So let's wrap up with the summary of the Q1 report. The high customer activity continued in the quarter, leading to solid growth in customer deposits and gaming turnover for both sports, betting and casino. Betsson reported double digit revenue growth despite FX headwinds and reported the highest ever EBIT for a single quarter. We continue to execute on our strategy with several growth initiatives, both organic and M&A. The start of the second quarter has been positive, as I just mentioned, with average daily revenues up 15% year over year. Thanks, everyone, for listening to this presentation. And now it's time for Q&A, so we welcome your questions.

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

Thank you. Good morning, guys, and thanks for taking my questions. So the first one would just be on Finland. So could you just elaborate on sort of what the impacts have been for you from the payment blocking from the government, and what's your thoughts on the market at the moment? Are you, for instance, reducing marketing spend, and how has this affected you? Thanks.

It's hard to tell about... payment options. Of course it's never good when you don't have the full-fledged payment offerings in the market. There's not much marketing to be done in that region for the time being and I think we can say that we rather look forward to the regulation that's going on and we look forward to Finland entering as a regulated market with a sustainable

regulation that's what we're looking for now okay got it and sorry but do you think that sort of affects your ability to obtain a license in the future in any sort of way or do you think that i mean you're still completely sort of compliant for you to be regulated once the regulation is set for sure we are for sure we are we are completely compliant and we look forward to receive a license in finland All right, thank you. Just Latin America seems quite weak in the quarter, and I think you alluded to both the sports win margin, of course, but I also think that just looking at the casino development, it was down 16% from Q4, and I know that you alluded to some effects from the devaluation of the Argentinian peso. Is that explaining the total? Did you say that you grew sequentially? in local currency in Latin America?

No, that was not what I said. I said that we grew locally in Argentina since it was a major devaluation, yes.

All right, all right. So in the remainder of Latin America, do you see any increased competition? I know that it's a focus market for many operators at the moment. So just wondered to see if now that Peru is regulating for instance if you see any changes in the market that could explain the softer growth in the region at the moment.

I think it's too much to pencil out some kind of trend out of one quarter and it's not a weak activity that we have in Latam. Of course when there are less activity in sports Then there's also less activity in the casino because there's always a crossover. We see increased competition in the market and it's natural. Many companies seem to follow what Betsson does because we seem to do the right thing. But we welcome that competition and we will beat them easily.

All right, thank you. Just the final one on Netherlands after the acquisition. Are you able to utilize your former customer base in any sort of way to reactivate those or do you have to start from scratch with the new acquisitions customer base?

We have acquired a company with the customer base and they will continue to build up the customer base It will have nothing to do with our previous activities in the countries that we shut down many, many years ago.

Okay, got it. Thank you very much.

Thank you.

The next question comes from George Attling from Pareto Securities. Please go ahead.

Good morning, Pontus and Martin. Just a couple of questions from me on the cost base. So, personnel cost is down here, 9% over Q4. I was just wondering, is that due to the performance-related compensation in Q4 primarily, or are there any other things to look out for in the comparison over Q4 in terms of personnel costs?

I think we have been working with cost control for a long time, and I think we can say that we are quite good at that. And if you look at personal costs, as you say, the Q1 costs are in line with kind of the historical trends apart from Q4 last year, which, as you mentioned, was impacted by performance-related compensation due to a very good year. And when it comes to marketing, as I said earlier, also it's it's in line with past quarters. And the corresponding period last year was impacted by the World Cup in football. And normally when you come into such periods, you see a bit higher marketing spend.

Yeah. And on the marketing here for the rest of the year, I know it's a very busy sporting schedule, especially in your core regions. Are you looking to come back to sort of 20% of B2C marketing, B2C revenue or is there anything you can guide on here?

No, we can't guide on it. There will always be small fluctuations between quarters. We will allocate according to what we find best investments and availability. But there are no changes of trends of how we look at marketing going forward. So I think that's the message we can send today.

Yeah, okay. And then just a final question also on the Netherlands. I'm sure you noticed that the potential slot ban, is this something that changes your view of the acquisition of Holland Gaming Technology or not really?

No we don't see it is likely that you implement the full slop ban in the Netherlands so that's we don't take that into consideration as of now. Okay that's clear that's all for me thank you. Thank you.

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

Hi guys.

Good morning.

So I mean it seems you did fairly well in the quarter here in a wider perspective I must say. You know, these margins, the high margin that you have now, how should we view that strong progress? Are there any special items at all here that you want to highlight or is it a clean margin from your end?

No, there are no special items in the P&L for this quarter and I think a simple way to look at it is that we have higher activity We're growing the company as we have a long-term ambition to do and we are in cost control and we have managed to keep the costs in a good shape and then it's the increased activity spills over to EBIT so that we're very happy to see that and the scalability in the business model that we have.

Yeah, I understand. and when when we look at the the upcoming events euros and cop america how should we look at like the historical um q2s to to try and grip the marketing increases or has anything changed compared to history how you move into such an event with your planned costs we haven't changed any kind of general view of how to enter a

these tournaments that is turning up. Obviously, the tournaments will start by the end of this quarter and it's always a little bit shaky, bumpy road initially in the tournaments, but activity will go up for sure. And we will have a higher customer acquisition than we have in general. for sure, so we look forward to the tournaments.

Great, thanks. And on the SEKA region, are there any markets that you want to highlight as contributing especially well apart from Turkey in the results?

Yeah, I think for our own B2C markets, we are growing strongly in Greece and Croatia.

and greece we opened up green fielding from start a few years ago and we're putting some efforts into that market so we're really happy with the outcome there okay um and a question on western europe the growth outlook there do you have any any views on outlook for online casinos in in france and also the start to the bets on brand in italy would be interesting to hear some color on

Yes, I think when it comes to casino in France, I think what we can say is that it has been discussed at trade shows and in general in the industry. There are no official signs that it's going to happen at any certain period of time or so, but I think we can say that there are traces in the market that discussions are ongoing. And of course, that would be good for us and good for the industry as such. And when it comes to Betsson in Italy, I think we can say that first of all, we have a proven track record as a company that we are very able to operate in Italy. We have a big activity there with Star Casino that we launched many, many years ago. Italy being a very large sports betting market with one of the most experienced fan bases for soccer in the world. It's a very interesting market for us to go in with our main brand bets on which we are now doing and we see good KPIs initially. We just opened recently, so it's nothing that puts any big marks in the P&L at this point of time, but it's a promising start and there's a lot of things to harvest over time in Italy.

Excellent, thank you. And a final question on the cash flow. When you look at the working capital, it's quite a big negative swing there. Martin, maybe you want to comment on that?

I think it's the standard answer. You need to look at the swings in working capital over a longer period of time. So there's nothing to worry about the negative impact in this quarter. It will even out in the long run.

Yeah. Okay. Thanks. And final question, Pontus. How do you view the capital distribution strategy of the company and the board discussions when it comes to potentially adding buybacks on top of the dividend distributions.

Yeah, that's always an option, as we say, and we have never excluded buybacks. And looking at our balance sheet now, it's maybe stronger than you have seen it for a very, very long time. So we're in a good position at the same time. M&A landscape looks interesting as well I think we have done acquisitions that are strategically important and we are looking forward to continue on that track as well so without promising anything I will say that we have both doors open going forward both buybacks and other ways of using our capital on the strong balance sheet but main thing is that we have a strong balance sheet and that gives us a lot of room and possibilities excellent thank you for that answer and that's all for me thank you

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

Thanks a lot. There are no written questions, so that must mean that the report is very clear and easy to understand. We're happy about that and that the message about our view on the quarter and the future seems to be understood. Thank you and looking forward to see you next time.