Betsson AB

STO:BETS B

Earnings Call Analysis

Record Q1 Performance with 15% Improved Q2 Start

Betsson reported a strong start to 2024, with Q1 revenues up 12% year-on-year to EUR 248 million and a record-high EBIT of EUR 58 million, marking a 35% increase. Despite foreign exchange challenges, casino revenue climbed 19% while sports betting grew 25%, though sportsbook margins dipped to 6.6% from 8%. The company expanded in Italy, Colombia, Belgium, and Argentina. The start of Q2 looks promising with average daily revenue up 15% compared to the same period last year.

Robust Start to 2024

Betsson had a stellar first quarter of 2024, marked by a 12% year-over-year revenue growth, totaling EUR 248 million. This impressive performance was supported by a significant 20% growth in customer deposits and a 15% increase in active customers. The operating profit (EBIT) soared to EUR 58 million, an increase of 35% from the previous year, making it the highest EBIT recorded in a single quarter for the company. Notably, the EBIT margin improved to 23.3%, up from 19.4% last year, reflecting enhanced cost control amidst rising revenues.

Strong Performance in Key Segments

The growth in figures was driven primarily by a substantial increase in casino and sports betting segments. Casino revenue grew by 19% year-over-year to EUR 181 million, contributing to 73% of the total revenue, with casino turnover up 14%. Meanwhile, sports betting turnover surged by 25% to nearly EUR 1.7 billion, although the sportsbook's profit margin fell to 6.6%, influencing revenue to decline slightly to EUR 66 million. Both segments showcased Betsson's capacity to attract and retain customers, enhancing their competitive position.

Geographic Expansion and Regulatory Developments

Betsson is strategically diversifying its geographic presence. The launch of Betsson's flagship brand in Italy and a new online casino offering in Belgium under the betFIRST acquisition highlight this strategy. Additionally, Betsson expanded its footprint in Argentina, where it now operates in three provinces, enabling access to approximately half of the population. The company has also made progress with its proprietary technology platforms, particularly in Colombia, which enhances operational efficiency and customer experience.

Navigating Challenges in Latin America

Despite overall growth, Betsson faced challenges in Latin America, where revenues decreased slightly to EUR 44 million due to currency devaluation effects, particularly in Argentina. The company reported a decline in casino activity in the region, which contributes to the sports betting sector. However, local currency growth in Argentina provides a silver lining, indicating robust underlying operations despite broader economic pressures. Additionally, regulatory movements in Peru and potential future licensing in Finland are areas of focus and promise.

Positive Outlook and Strategic Growth Initiatives

Looking ahead, Betsson remains optimistic. Average daily revenues in the second quarter following the first quarter are up 15% year-over-year, and the operating margin is expected to stabilize or improve as marketing efforts ramp up ahead of major sporting events. The management signaled commitment to balancing capital distribution strategies, considering dividends and potential buybacks, alongside ongoing investments in growth via mergers and acquisitions. CEO Pontus Lindwall showcased a strong position, suggesting that the company's robust balance sheet enables flexible future decisions.

Sustainability and Corporate Responsibility

Sustainability is recognized as a core aspect of Betsson’s strategic approach. Initiatives to support responsible gaming practices were emphasized, alongside a 16% reduction in carbon emissions year-over-year, solidifying the company’s status as climate positive. These efforts not only reflect corporate responsibility but also align with evolving regulatory requirements expected under EU directives, adding further strategic value to the organization.

Final Remarks for Investors

For investors, Betsson's first quarter results underscore a resilient business model geared towards sustainable growth backed by strategic market expansions and a focus on customer engagement. The challenges in Latin American markets present both risks and opportunities, balanced by the company's robust performance in Europe and consistent operational efficiencies. With a proactive approach to leveraging its assets and future growth sectors, Betsson remains a compelling opportunity in the gaming sector.

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to Betsson Q1 Report 2024. [Operator Instructions]. Now I will hand the conference over to CEO, Pontus Lindwall; and CFO, Martin Ohman. Please go ahead.

[Pontus Lindwall, executive]

Good morning, everyone, and welcome to Betsson's presentation of the interim report for Q1 2024. My name is Pontus Lindwall, and I'm the CEO of Betsson. With me today is also our CFO, Martin Ohman.

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 EUR 58 million 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 2 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 4 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, the 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 market. At the same time, a new sports infotainment platform was launched with a 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 offering. In Belgium, the acquired company, betFIRST launched a new online casino offering based on the category A+ license. The license enables a 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 EUR 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 continues 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 enabling improved functionality and stability going forward.

Technical preparations for licensing on the new regulated markets in Peru continued 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 Zone, CPZ 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. Betsson 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 Betsson 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.

[Martin Öhman, executive]

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 EUR 159 million in the end of 2021 to EUR 250 million in the end of 2023. EBIT has more than doubled from EUR 21 million in the fourth quarter 2021 to EUR 58 million in the first quarter of 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 Betsson's history.

Operating profit is the highest ever, and this, although the sportsbook margin has been lower than last year and lower than the 2-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 EUR 248 million, an increase of 12% year-on-year and 25% organic growth. Both the B2B and the B2C business contributed to the growth with EUR 180 million in revenue coming from B2C and EUR 68 million coming from B2B. Casino turnover increased by 14% year-on-year. Casino revenue was EUR 181 million, an increase of 19% year-on-year which is the second highest revenue ever for an individual quarter. The gross turnover in sportsbook across all Betsson gaming solutions was almost EUR 1.7 million, which is the second highest ever turnover after Q4 last year and represents an increase of 25% compared to the first quarter last year.

Sportsbook margin was 6.6%, which is lower than the 8.0% margin in the first quarter last year and also lower than the 2-year rolling average margin of 7.4%. Due to the low margin, sportsbook revenue decreased by some 2.5% compared to last year and amounted to EUR 66 million. Sportsbook 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 CEECA region, a slight decrease in LatAm and 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 sportsbook margin than the historical average. Decreased revenue in Sweden comes from lower activity in both the sportsbook and the casino products.

Denmark reported increased revenue driven by growth in both the sportsbook 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 with the addition of betFIRST 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 sportsbook product. And as Pontus said, at the end of January, a full -- new full-fledged online casino offering was launched in Belgium based on the new A+ 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 Betsson brand was launched in the Italian market as a complement to the StarCasino brand that has been the main brand opened in Italian market previously. Revenue from the German market is following the same trend as in the past quarters and years and continued to decline for Betsson. The Western Europe region represented 17% of the total revenue in the quarter. The CEECA 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 product. Georgia and Lithuania reported decreased revenue compared to the corresponding period last year, following a lower sportsbook margin in both markets.

The CEECA region represented 44% of the group's total revenue. Revenue in Latin America region amounts to EUR 44 million, representing a slight decrease compared to the same period last year and compared to previous quarter. The decrease is mainly driven by the sportsbook product that suffered 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 sportsbook, much higher than other regions, the region's revenue is more affected by the low sportsbook margin. Argentina reported growth compared to the corresponding period last year, but reported decreased revenue compared with the previous quarter 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 sportsbook 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 EUR 26 million. And following that, also cost of services provided. Gross profit increased by EUR 17 million compared to the same period last year and amounts to EUR 164 million, 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 EUR 3 million 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 EUR 2 million, driven by increased depreciation from the acquisition of the betFIRST that was consolidated as of July 2023. Other costs consist mainly of sportsbook related costs, costs for consultants and software licenses costs and is more or less in line with previous years. EBIT amounts to EUR 57.9 million, 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 the 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 EUR 50 million. Operating cash flow is driven by an EBIT of EUR 58 million and negatively impacted by changes in working capital arising from increased receivable on payment providers and increased prepaid expenses. Cash flow from investing activities stands up to EUR 32 million with the majority related 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 EUR 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 EUR 68 million and an equity ratio of 63%.

And now I hand over to you again, Pontus, to take us through the trading update.

[Pontus Lindwall, executive]

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% 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 margin for the last 8 quarters.

So let's wrap up with a 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.

[Operator]

[Operator Instructions]. The next question comes from Oscar Ronnkvist from ABG.

[Oscar Ronnkvist, analyst]

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?

[Pontus Lindwall, executive]

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.

[Oscar Ronnkvist, analyst]

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?

[Pontus Lindwall, executive]

For sure, we are. For sure we are. We are completely compliant and we look forward to receive a license in Finland.

[Oscar Ronnkvist, analyst]

All right. 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 devaluation of the Argentinian peso. Is that explaining the total? Did you say that you grew sequentially in local currency in Latin America?

[Martin Öhman, executive]

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

[Oscar Ronnkvist, analyst]

All right. So in the remainder of Latin America, do you see any increase the competition. I know that it's a focus market for many operators at the moment. So just wanted 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?

[Pontus Lindwall, executive]

I think it's too much to pencil out some kind of trend out of 1 quarter, and it's not a weak activity that we have in LatAm. Of course, when there are less activity in sports, then there is 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 seems to follow what Betsson does because we seem to do the right thing. And -- but we welcome that competition, and we will beat them easily.

[Oscar Ronnkvist, analyst]

All right. Just 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?

[Pontus Lindwall, executive]

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.

[Operator]

The next question comes from Georg Attling from Pareto Securities.

[Georg Attling, analyst]

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?

[Martin Öhman, executive]

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 personnel 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 in line with past quarters. And corresponding period last year was impacted by the World Cup in football. And normally, when you come into such periods, we see a bit higher marketing spend.

[Georg Attling, analyst]

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

[Pontus Lindwall, executive]

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.

[Georg Attling, analyst]

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?

[Pontus Lindwall, executive]

No, we don't see -- it is likely that you implement a full slot ban in the Netherlands. So that's -- we don't take that into consideration as of now.

[Operator]

The next question comes from Martin Arnell from DNB Markets.

[Martin Arnell, analyst]

So I mean it seems you did fairly well in the quarter here in a wider perspective, I must say. And 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?

[Pontus Lindwall, executive]

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's -- we're very happy to see that and the scalability in the business model that we have.

[Martin Arnell, analyst]

And when we look at the upcoming events, Euros and Copa America, how should we look at like the historical Q2 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?

[Pontus Lindwall, executive]

No, we haven't changed any kind of general view of how to enter these tournament 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.

[Martin Arnell, analyst]

Yes. Great. And on CEECA region. Are there any markets that you want to highlight as contributing especially well apart from Turkey in the results?

[Pontus Lindwall, executive]

Yes. I think for our own B2C markets, we are growing strongly in Greece and Croatia. And Greece, we opened up [ green-fielding ] from start 2 years ago, and we're putting some efforts into that market. So we're really happy with the outcome there.

[Martin Arnell, analyst]

And a question on Western Europe, the growth outlook there. Do you have any views on outlook for online casinos in France and also the start to the Betsson brand in Italy would be interesting to hear some color on.

[Pontus Lindwall, executive]

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 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 StarCasino 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, Betsson 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.

[Martin Arnell, analyst]

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

[Martin Öhman, executive]

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 is nothing to worry about the negative impact in this quarter. It will even out in the long run.

[Martin Arnell, analyst]

Yes. Okay. 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.

[Pontus Lindwall, executive]

Yes, 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 the main thing is that we have a strong balance sheet, and that gives us a lot of room and possibilities.

[Operator]

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.

[Pontus Lindwall, executive]

Okay. 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. And thank you and looking forward to see you next time. Bye-bye.