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Betsson AB
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Welcome to today's presentation with Betsson. With us today we have CEO, Pontus Lindwall; and CFO, Martin Ohman.
My name is [ Christopher Bergen ] and I will handle the Q&A session in the end. If you have any questions, you can write them directly on the page or you can dial in and follow the instructions.
With that, said Pontus, take us through the last quarter.
Thank you. Welcome to the presentation of Betsson's first quarter 2022. Today's agenda includes the following topics highlights, progress, financials by Martin, trading update, regulatory update, and I will end with summarizing the quarter before moving over to the Q&A session.
Some years ago, we conducted an extensive review to capitalize on growth opportunities on the gaming market that will maintain profitability. Thanks to hard work from all our employees, we have been able to take advantage of the growth opportunities identified, which has resulted in increased revenue and solid profitability.
The first quarter highlights are the revenues of EUR 170 million, EBIT of EUR 23.7 million with a margin of 13%. Active customers reached all-time high at 1.3 million, representing a growth of 33%. Casino revenue was down 5% and the Sportsbook revenue was up 45%, representing an all-time high.
We have gradually extended and expanded the structure that makes up our business strategy. The common values from the foundation of the strategy are: talented people, quality products, and operational excellence.
We strive to strengthen our position in existing markets by prioritizing the segments where we are best placed to offer leading products with good efficiency. We try to establish in new markets to find new opportunities for growth. And we try to leverage on the technical assets that we have through B2B offering. We support the growth with M&A.
I will now outline some of the activities we have undertaken during the quarter to achieve the objectives for the company. On the existing markets, we have, for instance, been launching several interesting initiatives to attract more customers.
In Sweden we have changed the direction for our award-winning web series Fimpens Resa, when Betsson and Fimpen steer the ship away from the highest division of hockey, and instead focus on the lower divisions. In our bid to continue creating the best content within the gaming industry in Sweden, we have signed up with a football star Pontus Wernbloom as its new brand ambassador and outcome in Sweden looks good.
Looking at Italy, we have sponsored the Serie A teams Milan, Inter, and Napoli and we engaged the fans of all these teams through different consumer promotion activities. Italy reported an all-time high in revenues, deposits, Casino turnover and active customers during the first quarter.
On the last quarterly call, we spoke about the launches in Argentina. Whilst the land-based gaming market is very mature in Argentina, online gaming is still relatively new and thereby represents significant potential for Betsson in the country.
Our ambition is to become a market leader in the rapidly growing online market by combining our digital knowhow and technical platform with our partner Casino de Victoria's local market expertise. By operating in the City and Province of Buenos Aires, we are reaching the most active customer bases in Argentina that represent more than 50% of the country's gaming activity.
The operations in Greece continues to grow, supported by several different market activities, like Acropolis Rally, and Basketaki top amateur basketball league. These are 2 examples.
In the end of March, we launched our Sportsbook product under the Betsafe brand in Colorado in partnership with Dostal Alley Casino. The business to consumer launch of Betsafe serves as an opportunity to showcase our U.S. adopted Sportsbook for new and existing operators in the market.
In connection with the launch, Betsson has also opened an office in Downtown Denver, allowing for a local presence on the ground in Colorado that serves for both the B2C and the B2B operations. Since the launch we have been focusing on finetuning the product before we will start marketing the offer. We will initiate marketing campaigns in May 2022.
On the B2B side, we are participating in several RFPs and similar, and the key in being able to close any deals is having a live product that we can showcase and that people can try. Well in all we have received great reception to-date. Thanks to the -- to that, the rumor has spread. We have seen high activity, given the fact that almost no marketing has been done and we have received great feedback from the industry.
Speaking about technology, that's a vital part of our operations. More efforts are done on the native apps. And one example is the Betsafe app for Colorado. During the quarter, we launched online game -- gambling offerings in the City and Province of Buenos Aires, Argentina. And we have done efforts to migrate Betsson's brands to the cloud to optimize the proprietary platform. And this provides both improved system capacity and an overall improved customer experience.
Finally, Betsson's U.S. customized Sportsbook is fully integrated now on Strive's platform.
During the quarter we have been awarded with several different awards, including the Operator of the Year at the EGR Nordic Awards, other awards which stand out are the Safe Gambling Operator of the Year and Great Place to Work.
As you can see in the annual and sustainability report, Betsson is working very actively within this area. Sustainability is an integral part of Betsson's business strategy and a prerequisite for generating shareholder value, and at the same time taking long-term responsibility for customers, employees and communities where we operate.
Betsson sustainability framework has 5 focus areas responsible gaming, business compliance, employee impact, social impact and climate impact. Each area has ambitions, goals and KPIs. And more on that in the annual and sustainability report and a set of governance process among -- with regular updates to the Board of Directors. As seen in the annual and sustainability report. We report sustainability data according to GRI standards, core level.
In May a new Vice President for Communications and Investor Relations, Roland Glasfors will join Betsson. Roland, will also be responsible for sustainability. Welcome, Roland.
We have a responsibility to support customers in and -- in controlling their gambling and to identify and help customers at risk of problem gambling. The full integration of an updated version of the group's responsible gaming prediction tool was completed during this first quarter. This is not something new. It's an in-house tool that we have further improved and launched this second version of.
The tool provides a 360 degree view of the customer's gaming behavior, monitoring play behavior and identify patterns and alert staff to signs of risk for problem gambling. Through the alerts provided by the system, the dedicated responsible gaming team can tailor their interactions and support individual customers through the provision of tools for sustainable gambling.
The compliance team has launched a new mandatory yearly training in anti-corruption for all employees globally. They're also working on the AML Code of Conduct for the industry together with EGBA.
Since the start of Russia's invasion of Ukraine, Betsson has been closely following the course of events in the region. Betsson has assisted and continues to assist its consultants in Ukraine with practical and humanitarian assistance for those who wish to, and had the opportunity to leave Ukraine, and those who wanted to or were required to remain in the country.
In the climate area, we are compensating for our emissions for 2021 plus an extra 10% by purchasing reduction units in verified carbon standard projects.
By that I will hand over to you Martin to walk you through the financials of the first quarter.
Thanks for that, Pontus. Today, I will take you through the financials of the first quarter which is a continuation of the good momentum we saw in Q4 with 33% increased growth in active customer year-on-year. Growth of 9% in deposit, growth in Sportsbook turnover and all-time high Sportsbook revenue.
Overall this quarter is yet another example of, that the Betsson strategy and its geographical diversification has proven to be right. Although, like other companies within our industry, we have experienced regulatory headwinds in the past quarters, even resulting in full loss of revenue for some markets and still Betsson managed to deliver overall revenue growth on a group level.
Before we dig into details, I wanted to notify you that as of 1st January, 2022, we have changed our reporting currency from Swedish krona to euro. For comparison, we have recalculated 2021 numbers with euro as a base currency. Early periods before 2021 are presented in euro based on historical currency rates used between SEK and euro. On our webpage we have provided historical figures quarter-by-quarter back to 2011 restated in euro.
Reported revenue for the first quarter amounts EUR 170.2 million an increase of 8% year-on-year and with 14% organic growth amounting to EUR 180.2 million, making it the highest organic revenue within a single quarter in Betsson's history.
Casino revenue was EUR 111 million an increase -- sorry, a decrease of 4.6% year-on-year, explained by the loss of revenue from the Netherlands due to the decision to stop accepting Dutch customer as of the end of September 2021 following the policy change by the Dutch gambling authority.
The gross turnover in Sportsbook was EUR 948 million an increase of 10% compared to the first quarter last year, which makes it the second highest Sportsbook turnover ever. Sportsbook margin was 8.3% which is higher than 7.2% margin last year, and also higher than the 2 year rolling average margin of 7.4%.
Some of the contributing factors to the high margin were strong returns from domestic football leagues, and particularly strong returns from Champions League and Europa League competitions. Sportsbook revenue increased by 45% compared to last year and amounts to EUR 56.4 million which is all time high. Sportsbook revenue represents 33% of the group's total revenue.
New for this quarter is that we are presenting Latin America as a separate region and not part -- as a part of Rest of the World. We're doing this to be even more transparent as revenue from the LatAm region is growing fast and the region's contribution to the total revenue is increasing and becoming more material at a fast pace.
Breaking down revenue by region, we see a decrease in Western Europe, the CEECA region being flat, while the LatAm region, the Nordics and the Rest of the World show growth.
Starting off with the Nordic region, we see an increase of EUR 6 million, representing 12.5% year-on-year growth explained by increased Sportsbook revenue, as well as increased Casino revenue.
Digging deeper, we see that Sweden continues to develop well, mainly driven by the development of the Sportsbook with growth in both deposits and Sportsbook turnover. Denmark reported all-time high in both revenue and deposits during the first quarter. Revenue from Norway and Finland increased both compared to last year and the previous quarter, mainly driven by sportsbook.
Revenue from Western Europe decreased by 44%, equivalent to EUR 17.1 million affected by decreased Casino revenue and is explained by the changed regulatory landscape in the German market and due to the decision to stop accepting Dutch customers as of the end of September last year.
The Italian market is continuing to perform well and reported all-time high revenue deposits, Casino turnover and active customers during the first quarter. The CEECA region is flat year-on-year. B2B, revenue decreased in the quarter, but was counteracted by all-time high revenue basically all B2C markets, except Georgia which to some extent was impacted by changes in the regulatory framework, including increased taxes and further restrictions on offering such as marketing bans and increased minimum age of 25 years on casino games.
Reported revenue in the LatAm region amounts to EUR 37 million, representing an increase of 174% compared to the same period last year, which of course is all time high revenue. And the policies were more or less -- and the policies were more or less all countries in the region showing growth.
Revenue from Rest of the World now, executing the LatAm region grew by 19% compared to the same period last year, and the growth comes from both Sportsbook and Casino verticals. The growth in the Rest of the World is mainly driven by the Canadian operations during the first quarter.
Revenue from markets were Betsson pay local betting duties increased by 13% compared to the last year and constitutes 36% of group's total revenue.
When looking at the EBIT development year-on-year we see that revenue has increased and following that also cost of services provided. Increased cost of services provided of EUR 8 million is mainly explained by higher costs related to betting duties following increased share revenue from local regulated markets, and increased payment provider costs.
Gross profit increased by EUR 4.7 million compared to the same period last year corresponding to a gross profit margin of 63%. Marketing spend was slightly lower than in the same quarter last year and constitute some 19% of B2C revenue and 26% when including affiliate marketing as well. The effective marketing spend may fluctuate between quarters depending on the region or regions that Betsson chooses to focus on during the respective period.
Focus in the first quarter has been towards the LatAm region, while investments were reduced somewhat in some of the more expensive European markets where Betsson, for the time being, expects lower future returns.
Personnel expenses has increased by some EUR 3 million in the first quarter compared to the same period last year due to geographic expansion and increased focus on the tech side from developing our proprietary technology.
Other costs increased by EUR 6 million and is mainly driven by sustained increased investments in product development and technology, specifically from increased investments in cloud-based environments and increased depreciation cost.
When breaking out costs related to the development of new markets, this sums up to approximately EUR 10.3 million in the quarter or which EUR 2.4 million are attributable to the U.S. expansion. The remaining EUR 7.9 million consists of EUR 4.6 million in marketing costs, EUR 0.7 million in personnel costs, and EUR 2.6 million in other costs.
EBIT amounts to EUR 23.6 million and EBIT margin is 13.9%. Organically EBIT increased by 40% to EUR 38.2 million which is the second highest organic result ever of the Q2 in 2021.
Moving on to the cash flow and the financial position of Betsson. We see cash flow from operating activities amounting to EUR 26.9 million, driven by operating income, however somewhat negatively impacted by changes in working capital by EUR 2.9 million.
Cash flow from investing activities and amounted to EUR 9.4 million and mainly relates to investments in our proprietary technology. Cash flow from financing activities impacted cash flow by EUR 1.2 million and solely relates to lease payments. Betsson has as end of March a net cash position of EUR 70 million and an equity ratio of 65%.
And by that, I hand over to Pontus again to take us through the trading update followed by a regulatory update.
Thank you Martin. Okay. So a trading update for the second quarter so far up till the 25th of April, revenues were up by 13.5% compared to the full second quarter last year. Adjusted for currency revenues were up by close to 18%. And we have to remember that we compare with quite tough comparable for the last -- for the same quarter last year.
In the second quarter so far, the margins on the Sportsbook have been higher than the average margin level, but in line with the margins that we saw in the same quarter last year.
So for the regulatory update. In terms of regulatory development, I will be focusing on Norway, the Netherlands, Sweden, Canada and Belarus in this presentation.
In the quarterly report, you'll find a complete description of the regulatory developments in all relevant markets. So for Norway, the new Gambling Act has been decided. Betsson has received a formal cease-and-desist letter, which Betsson will object against in court. Betsson's operational subsidiaries filed license applications with the Dutch regulator, KSA, in February 2 applications, and March 1 application. The application review process is up to 6 months.
In Sweden, the second instance court upheld the judgment of the court of the first instance regarding the fine of SEK 14 million imposed by SGA for non-compliant bonus offering in 2019. Betsson has sought live for final appeal of the matter with the Supreme Administrative Court.
Moving over to Canada, Ontario launched regulated online gambling market on the 4th of April, 2022. Betsson has applied for both an operator license and a supply license for Ontario, planning to go live in the summer, given being granted the license.
Having taken into consideration Belarus support to Russia in its war against Ukraine, Betsson decided to surrender the Belarusian gaming license and ceased the operations that was ramping up in Belarus.
So that's it for regulatory. And to summarize the first quarter of 2022, revenue growth driven by continued good momentum in the Sportsbook and through geographic diversification. We had a strong activity in our Sportsbook resulting in all-time high Sportsbook revenues. These grow by 45% year-on-year.
The strong overall revenue growth year-on-year has primarily been driven by Latin America. All-in-all, this has resulted in a strong financial position with a positive net debt, making us capable to continue our growth journey in the future.
We have also a solid outlook for the rest of 2022, especially given the satisfactory start with the first quarter and given the trading updates so far in the second quarter.
We have exciting launches expected in Mexico and Canada later this year. We're also looking to replicate the success from last year soccer tournament in this year's FIFA World Cup which will be arranged in November.
By that, I would like to thank all that listening to the call, and Martin and me will now be happy to take any questions.
Thank you, Pontus and Martin for the presentations. Before we started Q&A, just a reminder, you can dial in and follow the instructions or you can visit the webpage and write your questions on the page.
And before I hand over to the operator, I would like to ask you Pontus and Martin. This was a strong quarter. Is there anything special that you would like to highlight or stress out a bit extra from the last quarter? Pontus, we'll start with you.
Yes. I want to highlight or emphasize the fact that we are -- that the Sportsbook which is in-house technology that it keeps on developing so strong. We have seen this strong traction for quite some time now. And it's a very important product for us and to see that continue is very satisfying.
Martin?
Yes, to that I'm also very happy to see that our geographical diversification is paying off as being resilient to regulatory changes in individual markets, making us being able to actually continue growing.
Thank you. And with that said, let's check with the operator if we have any questions.
[Operator Instructions] Currently no questions coming through from the phone line so far.
Let's start with the questions from the audience then.
Casino versus Sportsbook is now 65%, 35% -- 33%. This was 85% - 15% 2 years ago. If we look a bit ahead, where do you see this ratio?
I'm really happy with the development. And we have an ambition to grow the Sportsbook part of our business, so that's very satisfactory to see. Then again, sports is about changing conditions, and it has to fluctuate. It will go up and down a bit, but the important part for us is that the trend for the sport is heading upwards, and that looks very good.
And if we look at the Belarus section, how big was your Belarus revenue? You just surrendered? By the way, a good decision.
Yes. It was not substantial at all. We had been opening there very recently. We had opened an office in Minsk, which is now closed. And it's very sad that we had to make this decision, but it was the -- we felt that it was the right thing to do.
And if we look at the tech capacity from Ukraine, how large was that previous to the war?
It's around 50 people working for us there, and these people are still with the company. Some of them have left the country, some are still working from the country. So it's an important part. We have been in Ukraine for many, many years, and we hope that we will be able to continue there.
Okay. How is B2B in Germany going?
You want me to answer that?
Yes, you can take it.
Germany is a very challenging market due to the regulations and we will cease the cooperation with ProSieben because it's -- they have decided that it's not possible to make the kind of big impact in the market given the circumstances with the tough regulations. So that will be ceased.
But I think it's important to also state that they are really happy with the technology. It's not based on any of the tech side, but it's rather the sort of market conditions in the country that has made them to take this decision.
Okay. Next question then from the web.
Is your North American division set or are you still employing lots of new personnel there?
We have an organization in place. We expect to take on a few more headcounts. We will not build up a very large organization there. It's not needed for the way we're going to operate, so it's not something that will be -- that will add a lot of more cost to the P&L.
And moving on to the Kenyan market, can you give us a comment on how that is developing?
It's developing in -- its growing, but it is not where we expected it to be when we launched it. So we've had more challenges than we expected, but it's growing.
Okay. And can you give any comment on your investment in betBonanza?
No, it's a small investment. It's not much to comment on.
Okay. And are there any other African market that you are interested in for Betsson?
We're not into any other markets for the time being. But we believe that continent will be a big gaming market in the future.
Okay. Strive and the Canadian investments, are they developing as planned?
Yes. We are live on the Strive PAM in Colorado. Strive has a lot of interest for the PAM in the North American market. So yes, it's developing according to our plan.
Has the change of ColBet to Betsson in Colombia have been good?
Yes. I think that there is change call, but it's a fantastic local or was a fantastic local brand. But I think it's wise to choose to Betsson in the way that we do a lot of large marketing initiatives that spills over between markets and global marketing initiatives. So I think it's a good move.
Let me check then with the operator. Do you have any questions, via phone.
We've had one question come from the phone line. That's from [ Dennis Peterson ] of -- he is a private investor.
I was watching the webcast and it was delayed, so perhaps you have already addressed these questions. So there are 3 questions. Some year ago, we had a provision of about SEK 50 million, stemming from some payment provider in, I think, it was South America. You said that you would try to collect some of it. Have you had any success on that? Or can we consider those as gone? That's the first question.
And in the same theme, I see that short-term receivables from payments providers increased to EUR 60 million this quarter, can you elaborate on the increase? And do you see any risk of new provisions from payment solutions?
I can start with the first question. Regarding the SEK 44 million provision that was made in 2020. We are still working on that. We have not given up hope on them. So hopefully, we will be able to collect some of them. And once we do that, we will, of course, notify you of that.
In regards of the balances in this quarter, there are many reasons for the decrease, and it's not anything to be worried about. It is not causing any needs for provisions. We have seen growth in deposits in the quarter. We have entered many new markets with new payment providers, and that is also adding up to higher balances.
As a comparison, in last year, it was also pretty low levels due to the different reasons. So it is not easy to just compare them. But to answer your first question, it is not any need for worrying for provisions, no.
And my last question is regarding the trading update. How was earnings spread in Q2 2021 during the month due to the Copa America and Euro 2020 being executed in June?
I think we can say that June last year or the last quarter -- second quarter was pretty even over time, whereas this year, we expect a little bit slower June due to less sporting events.
[Operator Instructions]
Let's continue with the questions from the web then. This is a question we get a lot. Given the strong financials of Betsson, are there any plans for stock repurchase?
We have a mandate and we have the possibility to do buybacks, but we compare that possibility always and evaluate it against M&A opportunities and other value-accretive opportunities. Main thing is that we have quite a strong financial position, so that we have the option to choose how to -- where to put the money to create more growth.
Next question then. Given your success in developing a B2B sportbook, combined with your long history in casino, would you consider developing an in-house live casino product?
The short answer is no. It's a very complicated product. It's -- there are good suppliers in the market. And no, I think we would see -- if we would see payback on that investment, it would be very long payback time on that. So we're not going to develop our own live casino product in the near future, at least.
I think we have reached the end with the questions from the web as well. And I don't think we have any questions from the operator. We have one question on the web left. And it's for you, Pontus. I don't know if you have received this question before.
But if you were to hold a Ted talk, what would it be about?
Obviously, it will be about Internet gaming. And most likely, it would be about the shift that this kind of Internet gaming has brought to the gaming industry over the long period where I have been working with this. It's been an amazing journey. It has created so much new possibilities for the customers. So it has been a fantastic journey. I think I will talk about that.
Okay. That sounds excellent. Looking forward to that talk.
Yes.
That was the final question for today from the web. And if we don't have any additional questions from the operator, I think we will round off this presentation by thanking Pontus and Martin for the presentation, and thank you to all the viewers for all the questions. And Pontus, any closing word for the audience?
Yes. When we are into thanking, I want to thank all the Betssonites out there. You've been doing an amazing job. You always do an amazing job. And this is a result, which is really good for this quarter, and it's made by all of you out there. Thanks a lot.