Betsson AB
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Betsson AB
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Welcome to the presentation of the fourth quarter from Betsson. And to all of you on the web, welcome as well. So I'm going to start with going through some highlights for the fourth quarter. We're seeing all-time high revenues of SEK 1.4 billion, with growth across all our operational regions. There's also an all-time high EBIT of SEK 342 million, and this is, of course, from successful operations and the efficiencies that we have implemented in the company that continue to show effect. We have also received gaming licenses in Sweden during the fourth quarter, which are now up and running on our operational sites in Sweden. And we have received eCogra Safe and Fair seal certificate during the quarter. So we're going to dig into the figures a bit. And our total revenue grew at 14%, where 12% was organic. Casino revenue grew 24%. Sportsbook revenues were down 5% compared to the same quarter last year. But we have to remember that in that quarter a year ago, we had a really high Sportsbook margin, whereas in this fourth quarter 2018, it was more of a normalized margin at 7.3%. The Sportsbook average margin for the past 8 quarters is 6.9%. So with all this, we can conclude the EBIT at SEK 342 million and a quite strong and impressive margin, in my view, at 23.8%, which is an increase by 56% compared to the same period last year. So the Board of Directors proposed a dividend to the AGM of SEK 539 million, which corresponds to SEK 3.89 per share, to be distributed by automatic redemption process. This is in line with the dividend policy of distributing 50% of the net income. So to elaborate a little bit of what is behind this, in my view, strong report. We started -- we initiated a program in the beginning of 2018 called the back on track. And that plan spans across and right through the whole company, including technology, marketing, organization and everything. In central of this plan was the culture and organization. The organization is the most important asset that we have in this company, and we have made quite strong changes to that organization. And around that, we have put 4 pillars in this plan, namely, to get back to growth in core markets, to work with efficiencies all across the company and right through the company, to enhance and develop our technology and our product and to put M&A on hold in order to be able to focus on the other part of the plan. So I think the results for this quarter and the past quarters as well show that we have set the group back on track, and now we're going to stay on track and keep on enhancing the company even more. So on the product and technology side, we have made quite a few improvements on the product offering and also the speed of the services. We have added a lot of functionality to the Sportsbook. We have modified the product to be compliant with the Swedish Gaming Authorities and the regulations in Sweden. We have started to roll out OBG on the desktop, which is still ongoing, and there are some other things we have done as well like automated chat box for customer service and some improved functionality on the responsible gaming tools that we have. I'm really happy to see that we grow in all regions. This was another part of the plan to get back to growth in all our main regions. And as you can see on this slide, we grow in the Nordics. We grow in Western Europe. We grow in CEECA and we grow in Rest of the World. And that is what builds up to this increased revenue. Then the third important pillar is the efficiency, and we have been working a lot with that. And as you can see, it has resulted in a lot higher profit, and we are starting to get the EBIT margin back to a very healthy level despite the fact that we pay more and more taxes. So for the product, on the casino development, we have -- we now offer 2,700 casino games, whereas 2,000 on the mobile. The casino grow by 24%, 20% organically, and casino was 75% of the total revenue in the quarter. Mobile casino increased 35% and now accounts for 64% of the casino revenue. And we see an increased revenue from our proprietary games, which are unique to Betsson. On the Sportsbook side, we have an extensive offering on the Sportsbook. And we served close to 47,000 live betting events in the fourth quarter, which is an increase by 24% compared to the last year. The turnover grew with 6%., but the revenue was down 5%. But as I mentioned before, it's compared to the quite unusually high margin of the fourth quarter 2017. So Sweden is newly regulated since 1st of January. We now pay 18% betting duties in Sweden, and we have received a 5-year license for 4 brands that we applied with. We see a bit of an impact on the EBIT in the beginning of the quarter. We had welcome bonus for many customers under the new regulation. We have done increased marketing, and we pay the betting duties. Another effect from the Swedish reregulation is that close to 20,000 customers have self-excluded so far via the functionality at spelpaus. We now see new marketing channels opening up, and we have introduced Swish as a payment method on our site. Now over to the regulatory update. We have licenses in 12 jurisdictions, including Sweden from 1st of January 2019. So the revenue share from regulated markets is estimated to increase from 24% in 2018 up to somewhere between 30% and 40% for the year of 2019. There's a re-regulation of the gambling market in the Netherlands ongoing, and we will see when that will turn into effect for us. Betting duties increased in Italy from 1st of January 2019 and in the U.K. from 1st of April 2019. So to summarize all of this. I'm really happy that we have an all-time high, both revenue and EBIT, and I think we can definitely conclude that 2018 brought the company back on track. We are now very focused to stay on track with continued improvements of products and technology. We're going to keep on working on efficiencies, so that we're able to absorb betting duties. We will continue to grow in our core markets. And we will continue to work on our geographical spread, which is quite wide, in order to spread our risk. So I think our long experience and considerable size gives us a solid foundation going forward. Thank you, and we open up for questions. We start here in the room. We have microphone.
Martin Arnell with DNB Markets, Stockholm. My first question was on the numbers in the quarter on EBIT. I think you mentioned that there were some one-off items affecting the EBIT. Can you elaborate and explain what that was?
Yes. We have 2 -- we had mainly 2 provisions that we have done. One is a provision made for recalculation of taxes in the license market, and the other one is for a provision for claims from a payment provider. So that is estimated to -- is close to SEK 20 million that is to be considered as one-offs.
Okay. And on your back on track plan, is the effect from that also going to be visible in Q1, and it ends from there or...
We're going to close the plan by the end of the first quarter. We have come to situation with the company, where we are now a lot more effective than a year ago. But of course, after the plan or the program is closed, we're going to continue to work with other parts of the company to increase the effectiveness even more.
Okay. And on Sweden, what's your view on the start of the reregulated market and how Betsson has performed so far?
First of all, we're really happy about -- that it finally became a regulated market. We see strong activity figures, a lot stronger than the last year in terms of activity. But of course, as you could notice on the market, all operators offered a lot of bonuses to keep the client in the start of the year. And that, of course, has an impact on the revenues for the beginning of this year.
So is it fair to assume that revenue, sort of the growth, the year-over-year development would be back-end loaded in Q1? Or should we see this 10% for the group as sort of a guidance for the quarter or...
No, we shouldn't see the -- the statement for the first part of the quarter shouldn't be seen as a prediction for the rest of the year at all. And when it comes to the Swedish market, it's really hard for us to estimate how it will develop during the year. We are now like 40 days into -- or 45 days into the regulated market, and it's too early to say how it will develop. We are happy about the activity, and it remains to be seen how it will behave for the rest of the year.
What's your view on channelization so far in Sweden? And are you live with all the brands that you had before the regulation?
We're live with all the brands that we applied for license with, and all the other brands are shut down for Swedish players. We did not expect channelization to be 100% because that has never happened in any regulated market. So far. I think the channelization looks quite healthy, but it remains to be seen, and we need to look deeper into that.
Okay. And then I must ask you on the discussions in the Netherlands, the ongoing discussions ahead of potential reregulation. What's your comments about what has come out so far from the debate in the Netherlands and then potential impacts for Betsson?
Yes, we're really happy that the process is moving forward. This is something that we have been waiting for, for a long time. And our latest view is that the regulation will come into force possibly by the end of 2020, otherwise in 2021. And we look forward to the regulated market and to take part of that market.
But can you give any comments on the potential risk for a cool-off period for operators that are being discussed and the potential negative impacts for Betsson?
There a lot of details being discussed right now. The cool-off period would, in my view, hit the whole international industry, and that would not be in line with the ambitions presented by the regulator to channelize the players to licensed operators. So I think we should look at the history. And there has been discussions on cool-off periods in many different countries, but it has never made it into regulation, and I don't think that we will see that in this case either.
Okay. Are you are you sort of taking part in any discussions with the authorities in the Netherlands now? I think I remember in the last earnings call, I asked you if you had initiated discussions with the KSR, for example. Has anything progressed there?
We just follow the development on the market from our end.
Okay. And then on Italy, there's a change of tax. How will that impact Betsson? How big is Italy for you?
Italy is a part of Western Europe, which is a strong region for us. And Italy is showing strong growth. It's one of the markets where we have put strong efforts to become successful, and we are successful there. Now we will face a little bit more tax than we did before, but we have reached the size in the Italian market where we can handle that tax. And that goes for the whole company with the way we have managed to put efficiencies into the company. I think we are better suited than most parties in this market to handle local taxes.
Mikael Laséen, Carnegie. I -- a few more questions on Sweden. Can you say something about, maybe not from your own perspective, but from the total market, how the bonus offerings are in the market in total? What are the operators offering the customers in general?
Nowadays, I guess, more or less, nothing. There was this ability to give a welcome bonus to clients. And I think most operators offered a bonus to all their customer bases, which, of course, has an impact on the figures in the first part of the quarter. But apart from that, there are not, as far as I know, much bonuses being offered in the market.
Okay. And how long time would it take to consume these bonuses? Is it sort of pretty fast, given the churn and the activity level that...
It should be pretty fast. It should mainly be in the first quarter.
Okay, okay. And in the report, you talk about increased competition from larger players. Can you talk about the competitive landscape in Sweden so far, what you're experiencing?
Yes. I think if we would count the number of sites, then you could come to the conclusion that the competition has decreased. But we have to -- a few new players in the market, namely the Swedish incumbents. And they are, of courses, in a strong market position, and they offer healthy competition to us and other players. So Sweden was a competitive market before the regulation and Sweden will be a competitive market even after the regulation.
Okay. And you are growing by 8% organically so far in Q1. Can you say something about the Sportsbook margin? Is that on the historical average now in Q1? Or is it higher or lower?
I can't comment on the margin other than saying that it's nothing exceptional. If it was exceptional, then we possibly could have stated it in the report, but it's nothing exceptional.
Okay. And just a final one regarding the Netherlands. This cooling-down period of 2 years and sort of the -- focusing on actively -- operators actively targeting that market, can you talk about what that means? Sort of when does this period start? And is it -- you highlighted also...
I don't think that -- there is no decision about the cooling-off period yet. And I have a hard time to see that it should happen because it's not very -- it wouldn't be very good for the market. If it would happen, it would probably hit all international operators in the same way, and that would be probably not very good for the development of the Netherlands market. Okay. Do we have any more questions in the room? Yes, we have one more before we hand over to telephone.
Yes, It's Martin here, yes. Can you explain why Realm improved so much in the quarter?
Realm improved operationally. They really -- we made a lot of changes to the product, and that reflect -- that had an immediate impact on the revenues. So it's mainly driven by the enhancements that we did in the product, and sites did some offering in the Sportsbook and things like that.
Okay. And then on your acquisition strategy, you had a pause during your back on track plan. Do you still expect to sort of start looking for more acquisitions already this year or...
We are still on the plan as to the end of the first quarter. After that, we may start to investigate. But we have a strong, healthy, organic growth, and we're going to keep on working on that to make sure that it is sustainable. After all, that's the best way to grow our business in the long run. But we are always open for opportunities. If we find something that fits our geographical map, then we are open for it.
Okay. And my final question is on the percent from regulated markets this year when Sweden has now regulated. What do you expect that will be this year?
We expect to end up somewhere between 30% and 40% of revenues from regulated markets for the year of 2019.
Okay. And if -- just, theoretically, if Sweden had regulated a year sooner, what would it have been in 2018?
I haven't done that calculation, but -- I can't answer that. Okay. That was questions in the room. Then we hand over to the operator for further questions.
[Operator Instructions] Our first question comes from the line of Hjalmar Ahlberg from Kepler Cheuvreux.
Just a question on Sweden and sudden increased activity on the customer's using bonuses, could say anything about this? Is it existing clients using the bonus to increase activity? Or are you seeing a lot a flow from the new customers? So are old customers coming back? Any comment on that?
Yes. The answer is that it's our existing clients, but it's also new clients. And internally, we refer to this time period as the jump-around period because we find that, most naturally, when there is like a onetime bonus, some customers tend to jump around between operators to pick that bonus. So it's a little bit hard to draw any conclusions from what we have seen so far in the quarter. But to answer your questions, it's both our existing clients and these new clients. And that's why we see quite a high activity on the Swedish market.
Okay, got it. And as you said, you're coming to the end of your plan in Q1. Have you started thinking about the U.S. supporting this? Or will you have to wait until the plan is finished before you start looking?
We are monitoring the development in the U.S. closely. And it's not really related to the plan, even though it's true that we have been putting more focus internally for the past year. We have no immediate plan to run to the U.S. to do anything, but we will keep on monitor the market and see if any possibilities open up there for us.
] Okay. And then just maybe one more on the Netherlands from me. As you say, if they would be some cool-off period, it would hit a lot of players. What do they think that the international operators would still then provide a casino or sports betting to Netherlands although they maybe cannot advertise? And so what do you think could happen if they do the cool-off period?
It's -- these are all speculations and I'm not -- I can't speculate on that. I think it would be a drawback for the Netherlands market if all the international operators would have to shut down because that would open the door for Dutch consumers to move to unregulated markets and operators, who are not licensed anywhere. And that would be in conflict with the interest of the regulator, which actually is to protect the Dutch consumers.
Our next question comes from the line of Lars-Ola Hellstrom from Pareto Securities.
Starting with the Q4 and what's happened in the Nordics. I learned from the Kindred report yesterday that they had been investing quite a lot in Sweden through high bonuses. Was that an effect for you as well, affecting growth in the Nordics in Q4?
No. We didn't have any dramatic bonus changes for the Nordic market in the fourth quarter. So it didn't happen, any unusual bonuses during that period.
Okay. So the sequential downtick was mostly related to that Q3 was really, really strong?
I don't follow you, really. The -- yes, of course. Okay, you talked sequential to Q3. Yes, Q3 was -- had the World Championship effect in it, and that has an impact, of course.
Okay. And in the Western Europe growth, is it still the same markets, Italy, Germany, the Netherlands, that is showing -- continue to show good growth?
Yes. These are the markets that you mentioned that show strong growth. And also, I can mention Spain, even though it's a very small country for us still, but the growth figures are doing all right there. So it's across the board, I would say, apart from the U.K., where we have decreased our investments in marketing and our ambitions in the market.
But in Q3, you were not super happy with the product in Spain. Is that in place now? And are you pushing it even more now?
It's not in place yet, and we are not pushing it hard. But still, we see some growth. But we have higher ambition for that market in the future. We have not been able to push it as hard as maybe we planned initially because we have been putting a lot of focus on where it was mostly needed, which was inside the company. And that has given the outcome that we wanted. So -- but I hope we will be able to push even harder in Spain in the future.
And the improvements we saw in the CEECA region, is it mostly Turkey or is it Georgia as well?
It's both Turkey and Georgia.
Perfect. Going to the Swedish regulation. I guess, there has been a bonus effect in January, and that effect is diminishing, but have you also seen an effect of lower player values?
I haven't checked that in detail, but I could, by guessing, assume that if we would calculate player value in the beginning of January, we would see a lower value. But that's very natural because there's a lot of shopping around, as I mentioned, what we call the jump-around period, where people come and pick up bonuses and then leave. And that kind of -- has an impact on the player value, of course, for a short period of time.
But do you think that the player values will remain on the same levels in 2019, by the end of 2019 as they were in 2018 in Sweden?
I can't speculate in that. I hope we will know in a year.
And this bonus effect, do you think it will -- almost will be gone by end of Q1 that we will see a smaller difference between GGR and NGR compared to what it was in 2018?
Yes. And I definitely hope that and I believe that we will see, in the latter part of this year, a different structure on that compared to the first part of the first quarter this year, where we had this quite big bonus cost.
Okay. And on marketing spend, should we assume that you will keep marketing in line with Q4 in -- now in Q1? Or will you ramp up a little bit to protect your position?
I don't want to go into any outlook on that. But I think if you look back, we have been pretty consistent in how we market. And of course, it differs a little bit between quarters, and it will, in the future, also differ between quarters, but you should not expect any big diversions.
And on the OpEx, is this on a level from where to grow now? Or is there more to do?
We will keep on working on efficiencies. As I said, most of the job has been done there. But, of course, I hope that we can find some areas of improvement, some more areas of improvement.
Okay. And on Netherlands and concerning the cool-off period that has been discussed here during the call. If we will have a regulation in place next Tuesday, if they vote in favor of it, when do you expect that we can have some kind of news flow explaining how they will treat operators that has been fined? Do you think it will be out in coming months or it can be 1 year away?
That one is impossible for me to predict. I can ensure that we will communicate as soon as we know anything more about the regulatory process in the Netherlands. Okay. Any more questions from the telephone?
[Operator Instructions]
Maybe I should be speaking with a few questions from the webcast.
Yes, we have a few questions from the webcast, please.
The first one is from [ Robert Gustafsson ], who asks, "Regarding all the actions that you have been doing to be more efficient, do you believe that the effect of this is bigger than the impact of the Swedish taxes?"
I haven't put those next to each other, but we have made all these efforts to -- first of all, to get the company fit, and we have really managed to do that. And by doing that, we have prepared the company to be able to consume future taxes because that is something that all of us know is going to affect this industry in the future. And the fittest companies will survive, and we definitely are one of the fittest, if not the most fit.
Okay. We have more questions from [ Robert Gustafsson ]. He also asks about Spain. Of course, you mentioned Spain before, but he says that, "In the last report, you said you were waiting to implement some platform updates. How is that process ongoing?"
Yes. We have not -- we don't have our Spanish operations on our own platform yet, and I can't communicate any detailed time plan for doing that. But still, we will work on changes to the existing platform to make it better during the year. We have -- we believe a lot in the Spanish market. It's a big market, and it's going to be -- it has great potential. We have to start working our way upwards there, as we did in Italy, by small steps. And some time -- at some point of time, we will become big in Spain as well.
Okay, I will continue with a question from [ Jamie Taylor ]. How should we think about the contribution margin from Holland versus group average margin?
Obviously, we don't do marketing in the Netherlands. And that is, of course, different from what we do in other markets like in Sweden. So of course, that has an impact on the EBIT margin. So that's probably how you should think. Now that goes for all the operators active in the Netherlands, as no international companies does any marketing there.
Another follow-up questions about Holland from [ Robert Gustafsson ] again. Do you see it as a possibility to apply for licenses with a number of your operators -- with other operators in Holland?
These are details that I haven't looked into. We look forward to the regulation, and we will apply for license, as we have done in all other jurisdictions. And hopefully, we will be operational there in 2021 under license.
Okay. Let's see. We can take a last question from [ Robert Gustafsson ]. We touched upon the question before. There is a big focus on Swedish regulation when it comes to your estimates, about 30% to 40%. Is it -- you mean that around 35% would be a probable guess?
Well, let's see now. 35% is between 30% and 40%, so that's a guess as good as anything in that bracket. It's very hard for us to see how the market will play out, but we think, when we summarized 2019, that will be between 30% and 40%. And as I said before, we are 40, 45 days into Swedish regulation. The market is hard to predict from this short time span, but we are in a good position with a strong product, so we should definitely look forward to the nice ride in Sweden for the rest of the year. So do we have any more questions here in the room?
I have one more question from the webcast that just came in. How do you think about share buyback programs?
This is not something that we comment on in this report. Okay. Any more questions? Okay. If not, thanks a lot. And thank -- before I quit here, I want to say it's been a fantastic year, 2018. We have gone from one situation -- I was actually, this morning, reading through the presentation for the fourth quarter '17 and what I said in that report and how I felt. And it's a big change that we have been going through during this year. And it's -- we have this strong organization in Betsson with all these people fighting hard every day, and I'm really happy about that. So thanks to all of you. We have done this together, and see you next quarter. Bye.