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Betsson AB
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Hello, everybody. Welcome to the presentation of the first quarter of 2018 of Betsson AB. This is a quarter that has been characterized by our continuous work to improve the company, to improve the company's performance and to work with a lot of initiatives to bring the company back on track. And I think we can see some output from that in the report.Some highlights from the first quarter. We see continued casino growth in Western Europe, pretty strong; continued positive development in the sports book. I'm extra happy with the fact that we grew 22% in the Nordics, which is a very competitive market and it shows that we are getting the customers' approval for our product as we move more volume to the mobile interfaces and we enhance the product, so that's very promising now before the World Championship that comes up in June. In Q1, we also did a big organizational restructure where we took off some layers and some departments, and we are now in a new era with a new more flat organization, which I find more effective and, as a result of that, we will also have a cost saving in the future even though that was not the purpose of the reorganization.So for the financial summary. Revenues increased by 10% out of 4% organic to SEK 1.2 billion. Gross profit of SEK 864 million. The gross margin 71.4% is a little bit decreased because of betting duties and license fees to games providers. It's actually the highest amount we have paid in Texas ever so far, and now we have 25.6% of our revenue being locally taxed. EBIT was SEK 211 million, but the organic EBIT was SEK 242 million. Including in this figure is the nonrecurring item of SEK 50 million related to the restructuring program that we did in the first quarter.So to look at the organic development, we can have a look at this table, start in the right-hand top corner with the Q1 reported revenue, then we add the impact from acquisitions and the currency effects, and the organic revenue is then SEK 1,149,000 -- SEK 1,149,000,000. So it's a revenue growth of 4%. In the same way, we had negative impact from acquired companies and also from currency effects of around SEK 50 million each, so that makes up the organic operating income to SEK 242 million.Revenue development by region. As you can see, the Nordics is still our biggest region followed by the Western Europe, and if you compare with the same quarter last year, the Nordics had a growth of 7%. Western Europe pretty strong at 39%. CEECA had a decline of 15%, and that's mainly due to currency effects. And Rest of World a decline of 3%, but that's very small figures, and that makes up the reported revenue for this quarter.Sportsbook development. The revenue was plus 5% year-on-year. The gross turnover was SEK 5.8 billion, almost flat compared to last year, and the margin was 6.6%, which is a little bit lower than the fourth quarter last year but not far away from our rolling average. So it's a, I would say, it's nothing special about that figure. We have an increased number of games traded and football markets and also the stability and performance of the Sportsbook has been really good. The rollout of the new Sportsbook on apps has begun, so the whole offering to the customer has increased, and it's now better than it was before. But we will see more enhancements and improvements coming also in the future. But this gives a good starting point for the Sportsbook for the World Championship in soccer.Casino development. We saw growth of 12%, whereof organic was 5%. We were quite slow in the Nordic markets, but we are now rolling out the OBG front-end framework also on apps and on desktop, and we think that will contribute to a better situation in the future for this product. It's still an all-time high in the casino all in all, so we shouldn't complain that much.On the product updates, the casino now offers 2,700 different games, whereof 2,000 on the mobile channels. We have added a lot of markets in the football and other major sports as I mentioned. We have increased live offering on e-sports, so there's a continuous work to get the product on track and we will see more enhancements going forward even before the World Championship in soccer. We have also been working a lot with ensuring compliance with the GDPR, and that has taken some resources. And we are in a good situation when this comes into force in May.So on the staff side. We did this restructuring program and reduced headcount by 160 during the first quarter. We have also made outsourcing in Georgia, which reduced our headcount there with 84 persons. So we expect the personnel costs going forward to be below SEK 200 million per quarter for this year. And of course, all these changes we have done doesn't have a negative impact on the output or ambition of the company. It's actually the other way around that we will hopefully see even higher output from the organization despite the fact that we are fewer headcounts.On the regulatory side, we look forward to the reregulation of the Swedish gambling markets. I'm impressed by the speed that this market is being reregulated compared to some other markets that has been discussed reregulation for a very long time, and I actually think that we will see a reregulated market in the 1st of January 2019. The reregulation of the markets in Netherlands is still on hold, and we have received an infringement report during this quarter stating that we are breaching the Dutch Betting and Gaming Act from 1964. Of course, Betsson believe that, that is not the case, and we will continue to fight for our rights to offer our games if we have to, but the government's ambition in Netherlands is still to launch new regulation next year 2019.So about the Swedish regulation, which I mentioned, I'm impressed by the speed, and we worked on our side full speed ahead from the company to be prepared when the new regulated market opens. There will be licenses for online casinos, Sportsbook and bingo. Tax rate will be 18% on gross gaming revenue. Match fixing will be criminalized. There will be a duty of care, called omsorgsplikt in Swedish, introduced. And the government is -- aims to achieve 90% channelization, which means that, of all gaming within our industry in Sweden the government hope that 90% will move over -- at least 90% will move over to a taxed environment. You also see the time line here going forward where there will be a vote in the parliament in June and applications will be sent in, in August. And the reregulation will come into effect in January. Of course, this is a very demanding situation for all parties -- the gaming companies, the authorities and even the politicians -- to be able to make it at this speed and maybe all the detailed regulations will not be in place in the 1st of January, but still I think we will actually launch in January 2009, which is impressive.So what's the focus going forward for Betsson? We will continue with our product improvements, which are being conducted on -- across the board on all our products, and these are no major silver bullets. It's a combined effort of many, many changes in many different areas that will take us to a better situation and better performance for our product, which I'm happy to see we're ready by now that we are moving ahead in this area. We are preparing for the World Cup, and this was -- be a very exciting event. So it's only few months to go before we're there. We are now gearing up for the reregulation in Sweden. We have a project working on that, and we have also strengthened our operational team. We have recruited staff that has good experience from this market, which combined with our own good experience from these markets. We form a very strong team for the Swedish markets. So that's -- I'm looking forward to seeing what will come out of that. And also, we work a lot on our performance and our efficiency in the company. This is work that we started by the end of last year, but it's, as I said, by then and in the beginning of this year, this is not something that will be done in a day or a week. This is a constant work where we have a long program which is quite detailed, which we are conducting over this full year. So we will see a lot of work to improve our efficiencies, and of course we do this with ambition that it will have an impact -- positive impact on the performance of the company and also the financial performance at the end of the day.Okay, that's it for today, and I'm here to answer your questions.
Good morning. This is Martin Arnell with DNB Markets in Stockholm. My first question is on the very recent events that we heard from Norway yesterday where it seems the authorities are looking into protecting the monopoly market even further going forward. What is Betsson's view on the situation?
Yes, this is quite recent news. We got them yesterday, and it seems that there is a proposal being prepared about some kind of maybe DNS blocking, which is a measure to avoid or protect the Norwegian people from participating in online gaming from other countries. We haven't looked at this proposal. We have to remember that it's still a proposal. We haven't looked to it in detail, and I think it will have to go through some legal challenges before it becomes reality. And then we all have to realize the fact that not many initiatives like that has succeeded, and also I think it's quite -- it's not a modern initiative to implement that kind of structure, and it's almost -- it brings my memory back to the discussions of the parabola antennas in Sweden in 1987, and it never happened, which was good. And I hope that this will end up the same way.
You know what you know today from this proposal yesterday, would you ever consider an exit from Norway?
We hope that we should not exit from Norway. We know there's a big demand for our products in Norway and the -- based on this proposal -- today, we take no measures to exit from Norway. We hope that this proposal will not become reality.
Okay, then a question on the CEECA region, which was...
One more comment on that. And even if it should become reality in the way it is stated, it's not the end of the world for gaming companies in other countries. That's important to bring with you from this. It's not that they shut down the internet for us. It's just some kind of information statement about gambling in other countries.
Next question is on the CEECA region, which was down 10% organically. So it seems it's not really improving the soft performance there in CEECA. What's going on, and what are your actions to improve?
CEECA is impacted by several different things, major one being Realm's performance in Turkey and the, of course, they had the -- in the figures, we have the FX challenges, but in the inorganic ones, we also had some operational issues. But I'm still confident because we see at the -- when we look at the KPIs we get from Realm, we still see some strong developments in terms of customer intake and active clients, et cetera. So I don't think this negative trend should continue.
Okay, and then if we look at the Nordics, you mentioned the Sportsbook had a decent quarter with 20% -- 22% growth, but looking at the organic figure, it was 6% for the entire region organic growth. So that implies that you had sort of tough performance in casino in the Nordics. What's up with that? Is that sort of mainly a competitive issue? Or is it things on your end that you think that you will be able to improve?
Yes, that's true. We're not happy with the performance of the casino even though it's not that bad. It's a -- it's better now than it was the last quarter, so it's trending in the right direction. As I said in the presentation, we're rolling out the product on new frameworks, especially for the desktop, and desktop is more used on casino than in Sportsbook, so I hope when that happens, we will see a better uptake in the casino, and the result for this is, of course, the fact that we are in the heavily competitive environments in this region, and we have been a little bit behind on the product. We are now catching up. The mobile product is doing really well, but we have some changes to do on the desktop product that, that will make it better.
When you look at your trading statement for Q2 so far, you compared to the full average Q2 of last year. If you would compare to the exact corresponding period, the days last year, will your revenues be up year-over-year in Q2 so far?
Yes, then it will be up. I don't know the figure, but the first part of second quarter last year was very weak, and we compare it to the full quarter. So that's -- if we would have compared to the start, then we would have been up this year.
Okay, and just a final...
Am I correct? Yes.
And just a final question then on NetPlay, the recovery potential there. What is really the issue here with the NetPlay acquisition?
As we said when we did that acquisition, it was a long-term case. We knew that the company was in some contracts that we will sit with until the end of 2019, which was -- which are not very favorable, and we look forward to being able to follow on -- up on our strategy and move to our platform. But even having said that, we are performing a little bit worse than we expected, so we are taking measures to improve that.
Okay, what kind of measures? Could you mention something or...
Yes, we look at the organization, but we look at everything, and we're going to do everything we can to make it even better or less bad, I would say.
Good morning. [ Oscar Hicks ] in here with Carnegie. I want to follow up on the marketing in the quarter. It was up a bit year-on-year but still quite low given it's a World Championship year. Can you just talk a little bit about the mix there? I know you mentioned lower marketing in the U.K. for example. How has regulation affected that, and -- yes, elaborate, please?
U.K. is a tough market. And also it's been harder to operate in the U.K. since -- not since the -- not that the regulation has changed that much but maybe the implementation or the authorities has been a little bit more strict, and -- but it's also a very competitive market, and we have concluded that we can put that money in other places than in the U.K. and get better effects of it. So we have pulled back from the U.K. in terms of marketing, and it hasn't -- we still make a strong quarter in the Western Europe, as you can see. So it hasn't really affected our revenues there.
Okay, and I know you've mentioned Spain as one of the markets where you are investing more into marketing. Can you talk a little bit about your progress there with the new site in operation?
Yes, we mentioned Spain because it's a new thing that we operate the Sportsbook there. It's still very early days. We can't comment much on figures because it's small figures, but it's a big market. It's a market where that is very interested in sports betting. So that's why we are investing a little bit. Of course in relation to revenues, we invest heavily there, and we deploy the same thinking as we did in Italy. It's a big market. The regulations look quite good. So it's worthwhile investing in it.
Okay, and just look at your customer metrics a bit. Just wanted to figure out there what's going on. So obviously, there is some seasonality, I guess, between Q4 and Q1 but also looking at year-on-year figures with active customers. It's basically flat year-on-year. What is sort of not working there with customer intake?
I wouldn't say that it's nothing -- that's it's something that's not working. Customer intake is quite good. That figure of active customers, it fluctuates a lot depending on what kind of activities you do towards the customer base that you have, and if you do less bonusing and less things like that, then the figure goes down. And I think you should look at that figure in combination with the deposit figure, and if you do that then compared to the same quarter last year, the deposits are up pretty much. That means that we are -- the customers that are active this quarter are more real active clients not driven by special promotions.
Okay, and one more question on Norway as well. You mentioned that it's not the end of the game but just considering if it would come into effect in now in May. What is the enforceability of the Norwegian regulator there? Can they -- if they won't stop operators from actually doing business in Norway.
No, I don't think that is a part of the proposal even that they should enforce the companies from other countries. It's rather local measures within Norway to do some kind of DNS information stuff, and I believe -- as I said before, I don't believe that it will have a very big impact on the situation at the end of the day, if it happens. And if it happens, I don't think it will happen on the 7th of May. I mean, there's a lot of steps to be taken before it could become reality.
Okay, and one final question from me here about The Netherlands. You mentioned the infringement letter. So they're still saying 2019 could be likely, but how likely do you view that as? And when is the next step?
2019 is the last information we got from the authorities. That's -- it's the ambition, but we have got that kind of information before for other time periods, and it has not happened. So we have to wait and see, but it's the last official information we have is 2019.
We have one question from the web before going over to the questions over the conference call. It's from [indiscernible]. The proposed new legislation and [indiscernible] introduces a duty of care. This means that you must actively work to avoid revenue from customers with different levels of gambling problems. How will this affect Betsson's profitability on the licensed market, especially in the profitable segment online casino?
Duty of care is a broad spectrum of things, and most part of it, I think, in order to fulfill duty of care in terms of responsible gaming. The fact is that as soon as we notice or suspect that we have persons with gambling problems then we address that problem already today and eventually shut down their accounts. So it should have no material effect. I mean, we deploy these activities already today.
And any questions from the conference call?
Thank you. [Operator Instructions]. And as there are no questions registered at this time, I hand back to you in the room.
Okay, we have one question in the room here.
Just some more questions here on -- you mentioned e-sports here in your presentation. How far have you come there? And can you comment a bit where you think you are versus competition in this area? How big of an opportunity could this sort of new area be to you?
I think we're -- as a company, we're still in the learning phase. I was actually on betsson.com yesterday and checked the offering, and there was a number of different events in offering. So that has definitely increased. I think we are very curious on this new sport, so to say, and judging by the impact it has, specially on young people, we look very much forward to see what kind of impact it will have on the gaming industry in the future. We are in a learning curve in this industry, but we are definitely following it, and we have implemented it. So we will see if it becomes a big sport for gambling. That is too early to say. There are other big sports, other big sports, but they're not suitable for gaming. So we have to wait and see if this one is suitable. We definitely hope so.
But I mean at first sight, it seems -- it appears that it's quite suitable with a lot of events going on in the tournament almost every second, so...
Yes, it looks very promising because matches and games are pretty fast. It's a lot of action. And it's hard to predict. And there are tournaments and games going on all the time around the clock almost. So yes, the basics are there.
One of your sort of key peers reporting the same time today with this conference call going on right now. They mentioned this morning that they're looking into potential U.S. expansion. What is your views on opportunities in the U.S.?
Yes, the U.S. is a complex market, which is being now regulated on a state-by-state level, so it's -- we are not actively targeting or heading for that market for the time being. If we would do something there, we would definitely do it in some kind of partnership.
But there are no active discussions going on right now?
No active discussions right now.
We have another question from the web. I have a question about the RCF ending in June. Will the cash flow be able to support that? Or will you need to activate another loan for it?
Yes, I'll hand over to the CFO, Kaaren.
Hi. Good morning, everybody. Yes, that's quite right. We have a night -- RCF that expires in June. We also repaid a loan in the first quarter as we made loan repayments of SEK 260 million in Q1, then with the RCF then that expires in June, we have at the moment got a refinancing tender ongoing. So we hope to announce that, that soon. And as you know, I mean, the board also proposed to the AGM a dividend payout, which will also happen in the second quarter. So yes, we are looking into refinancing that.
Just a final follow-up on the casino performance, and how would you comment on the sort of new games available this year so far from your key suppliers when it comes to online casino?
Yes, we have got a bunch of games, and we have also some exclusive games from key suppliers. The difference today from 10 years ago is that we get games from a lot of suppliers, and we get a lot of games. So it's a totally different market as you could see with 2,700 games. It's a different story than it used to be. But I think we have got good games, and I don't have any other comments on that.
Is it a quantity or quality game in the casino games today?
I mean, the quality in general has gone up. So I think the competition about the customer is not based on number of games or quality of games because everybody has the quality of games. It's rather the shop that you serve the games and how you serve the games, that's what will -- and how we act as a company, how -- that is what will make the customer choose the casino.
Any further questions from the conference call? Okay...
There are no questions...
Okay, so no further questions. Then I will thank you for coming here. We will continue to work with our program -- efficiency program in the company. We will continue to enhance our products. We have a dedicated team that is working very hard, and I'm very happy that we have -- we can already now see some results of what we have to do, what we have done, but we have a lot more to do, and we will keep on performing. So we look forward to the soccer championship and see you next time in the second quarter report. Bye.