Betsson AB

STO:BETS B

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to Betsson Q4 Report 2022. [Operator Instructions] Now I will hand the conference over to CEO, Pontus Lindwall; and CFO, Martin Ohman.

[Pontus Lindwall, executive]

Good morning, everyone, and welcome to Betsson's Results Presentation for the Fourth Quarter and Full Year 2022. My name is Pontus Lindwall, and I'm the CEO of Betsson. I'm joined here today by our CFO, Martin Ohman.

Here's the outline for today's presentation. First, we'll go through some of the financial highlights for the quarter and the full year before presenting some activities in our markets. Martin will then talk about our financials in more detail. After that, I will present the trading update for the first quarter 2023 so far, comment on some regulatory developments and then conclude the presentation with the summary. And at the end, we will open up for questions, as usual, from the audience.

As you can see on the logo in the top right-hand corner of this slide, this year, the group celebrates its 60th anniversary. Gambling is a popular form of entertainment everywhere in the world. And for 60 years, we have been offering casino, sports betting and other types of games to our customers.

We've been leading the digitalization of the industry with the migration to online gaming, and we continue to work with the pioneering mindset in everything we do.

If we look back at the past 10 years, we see a solid track record of profitable growth, strong cash flow generation and a tradition of running our business with a solid balance sheet and returning dividends to our shareholders.

In the past few years, we have focused on geographical diversification, entering new markets around the world and on strengthening our product offering. Combining this with our relentless focus on profitable growth and disciplined capital allocation, this has paid off, and we can look back at the best year ever for Betsson.

On this slide, you can see some key figures for the full year 2022. Total revenue amounted to EUR 777 million, which is an increase of 18% year-over-year. Organically, the growth was 27% for the year. EBIT amounted to EUR 131 million, which is an increase of 11% compared to the previous year. This represents an EBIT margin of 16.9%. Operating cash flow was EUR 179 million for the full year. And the Board has proposed a total cash distribution of EUR 60 million, representing EUR 0.436 per share.

Now let's look a bit closer at the key figures for the fourth quarter, which was a fantastic quarter for Betsson. As you can see here, the fourth quarter was dominated by the largest sports event of the year, the Football World Cup. For Betsson, the World Cup turned out to be the largest sports event ever and it contributed to new record levels for pretty much all our KPIs in the quarter, such as group revenue, EBIT, Sportsbook turnover, Sportsbook revenue, Casino turnover and Casino revenue, active customers and customer deposits.

The strength across the board was very much activity driven as the sportsbook margin was actually lower than in the previous 3 quarters. Casino turnover was up 35%, and Sportsbook turnover increased 38% year-on-year.

Reported revenue growth was 40% year-on-year and organic growth was 48%. just like the previous quarters, regionally, the growth was driven by Latin America and Central and Eastern Europe and Central Asia.

Compared to the previous quarter though, it is the strong development in LatAm that really stands out. EBIT for the group amounted to EUR 40 million, and the EBIT margin was 18.1%. Customer deposits were up 40% year-over-year, amounting to nearly EUR 1.1 billion in the quarter.

In the fourth quarter, we successfully ran World Cup marketing campaigns across all our markets. The World Cup offers an opportunity both to engage with new customers and to be long-term brand awareness for our brands. We continue to invest strategically for the long term in LatAm. In Peru, the naming rights sponsorship for the highest football league, Liga 1 Betsson was recently extended another 4 years. In Chile, the new naming rights deal was recently agreed with the highest football league, which has been named Campeonato Betsson. Both leagues kicked off at the end of January, and I'm pleased to see Betsson's continued engagement in football together with clubs, fans and customers.

Here, we also wanted to give you a quick update on our B2B business and our investments in Strive Gaming. With regards to our B2B business, we currently have 11 external customers, and in total, they account for 22% of group revenue. We continue to have advanced discussions with several potential new customers in North America. Betsson owns 40% of the shares in Strive Gaming. The company has developed and launched a proprietary Player Account Management system, PAM and a market-leading native apps, specifically tailored for the North American gaming market.

So far, Strive Gaming has signed 6 customers and is live with 3 of these: Golden Nugget, DeseDiamond as well as Betsafe ourselves in Colorado. Another 3 customers are planned to go live in the first half of 2023. Strive is applying for licenses to enter big casino states such as New Jersey, Pennsylvania and Michigan.

We continue to invest resources into development to secure that we have competitive product offerings and scalable technology for all our markets. Within product and tech, the focus was also mainly on the World Cup during the quarter. The organization reached all goals regarding scalability, quality and stability at times in exceptional circumstances with very high player activity. As an example, during the final, customers placed 3x as many bets as during the Champions League final, which is, otherwise, opened the busiest event for the sports book in the entire year.

Some new functionality was also added such as boasted odds for live betting, which was frequently used during the World Cup. Work with cloud migration and native app development continued and a new native app was launched in Greece.

I'm very pleased to say that during 2022, Betsson won 28 awards in various categories related to our overall business, product and innovation, marketing as well as customer service and the workplace. Together, we will continue to deliver the best customer experience in the gaming industry, supported by a positive culture based on teamwork, passion and fair play.

Turning to the sustainability area. It's worth mentioning that in the quarter, Betsson became a participant of the United Nations Global Compact initiative. By doing this, Betsson has pledged to integrate the Ten Principles of UNGC into its business, including principles on human rights, labor, environment and anticorruption.

Within Betsson sustainability framework, the most important area is, of course, responsible gaming. To increase transparency and raise awareness about risky gambling in Sweden and how proactive contacts can change player behavior, Betsson recently started to report KPIs for problem gambling for the Swedish market.

Last week at ICE in London, Betsson supported the consumer protection zone, which is a dedicated area to showcase innovation in safe gambling. The financial support this year goes to these organizations in the U.K. and the Netherlands network to support safe gambling.

Now let's have a look at some regulatory developments in the fourth quarter. In the pending complaint regarding the cease-and-desist order of the Norwegian gambling authority against our company, BML Group Limited, the Ministry of Culture and the Lottery Committee issued their decisions to uphold the cease-and-desist order in November and December, respectively.

Following that, BML Group and the Norwegian gambling authority started a dialogue with regards to the changes made and plans to be made to the company's websites.

In Peru, publishing of the regulation of the new sports betting and online gaming law, which is required for the new licensing regime to enter into force is somewhat delayed at this stage due to the recent political developments.

At the beginning of February, Betsson subsidiary was granted an online gaming license in the province of Cordoba, in Argentina, which is the third license for the group in Argentina. In Finland, the government announced in January that they were considering the possibility of replacing the company's gaming monopoly with a license-based online gaming system.

As a first step, the Ministry of the Interior will carry out a research project over 3 months that examines alternatives to the current exclusive rights system.

And now I will hand over to Martin, who will take a closer look at the financials in the quarter.

[Martin Öhman, executive]

Thanks for that, Pontus. I will now take you through the financials of the fourth quarter, which was the best quarter ever in Betsson's history, both in terms of revenue and profit, and this was the first time the operating profit reached EUR 40 million. The result is underpinned by growth in all-time highs in active customers, now exceeding EUR 1.4 million; all-time high in deposits, which in the quarter stands up to almost EUR 1.1 billion; all-time high in Casino and Sportsbook turnover; all-time high in Sportsbook and Casino revenue; and also all-time high in organic revenue.

Reported revenue for the fourth quarter amounted to EUR 220.6 million, an increase of 40% year-on-year and organic growth of 48%. Both B2B and the B2C business contributed to the growth with 171.8 million revenue coming from B2C and EUR 48.8 million coming from B2B. The World Cup in football was played in November and December and contributed to the increased activity in the quarter in both Sportsbook as well as Casino.

Casino turnover increased by 35% year-on-year and Casino revenue was EUR 146.1 million, an increase of 27% year-on-year. The growth turnover in Sportsbook across all Betsson's gaming solutions was EUR 1.4 billion, which is an increase of 38% compared to the fourth quarter last year, impacted by higher activity from the World Cup in football. Sportsbook margin was 7.3%, which is higher than the 6.0% margin in the fourth quarter last year, but lower than the 2-year rolling average margin of 7.7%.

Sportsbook revenue increased by 76% compared to last year and amounted to EUR 70.7 million. Sportsbook revenue represented 32% of the group's total revenue in the quarter and Casino, some 66%.

Breaking down revenue by region, we see growth in all regions. Starting off with the Nordic region, we see a slight increase of EUR 1.2 million, representing 2.4% year-on-year increase. Finland showed growth driven by increased Sportsbook revenue. Denmark reported all-time high in both Casino and Sportsbook. Sweden reported decreased revenue in the quarter, mainly explained by decreased Casino revenue. The Nordic region represented 24% of group's total revenue in the fourth quarter. Revenue from Western Europe increased by EUR 5.4 million, correlating to an increase of 26% year-on-year. The Italian market is continuing to perform well and reported all-time highs in turnover, deposits and revenue during the fourth quarter.

A new sports betting product was launched in the third quarter. This will strengthen the local brand StarCasinò in the Italian market. And in the fourth quarter, additional features and improvements have been added.

We have described the regulatory landscape in the German market in the past presentation and reports. Revenue from that market is following the same trend as in the past quarters and years and continue to decline for Betsson. Betsson's license application for virtual slots and online poker for the risk brand was approved by the regulator in Germany in December. At this point in time, this license is more in place to be able to follow the market development rather than go full steam ahead with marketing of the risk brand.

The Western Europe region represented 12% of total revenue in the quarter. The CEECA region increased by 53% year-on-year and report a new all-time high. This driven by high underlying activity in both casino and sportsbook operations.

Croatia and Greece showed continued positive trends in activity and revenue performance. The Baltics continued to perform well during the fourth quarter, both compared to prior year and the previous quarter, where Latvia and Lithuania reported growth for both the casino and the sportsbook products. Estonia reported decreased revenue in the quarter, mainly driven by lower Casino margin compared to corresponding period last year.

Georgia reported both -- growth both compared to the previous quarter and the corresponding period last year, driven by both the casino product and the sportsbook.

The CEECA region represented 38% of the group's total revenue, making it the largest region by revenue.

Reported revenue in Latin America region amounts to EUR 52.3 million, representing an increase of 102% compared to the same period last year, where all countries in the region reported revenue growth driven by growth in deposits, active customer and growth in turnover in both sportsbook and casino.

The Latin America region represented 24% of the group's total revenue in the fourth quarter. Revenue from Rest of the World increased by EUR 0.6 million or 17% compared to the same period last year and is mainly driven by the Nigerian operations. Revenue from markets where Betsson pays local betting duties increased by 31% compared to last year and constituted 34% of total group revenue in the fourth quarter.

Focusing on the EBIT development year-on-year, we see that revenue has increased by some EUR 63 million. And following that also cost of services provided. Gross profit increased by EUR 47.1 million compared to the same period last year, corresponding to a gross profit margin of 65.6% compared to 62% last year, which is a result of increased revenue and a favorable revenue mix, where the share of Sportsbook revenue has increased in relation to the total revenue.

Marketing spend was higher in absolute numbers compared to the same quarter last year. This to increase the brand awareness in relation to the World Cup in football. Focus in the fourth quarter has been towards the LatAm region and other new markets. In particular, Argentina has been a focused market in this quarter. This since the World Cup in football has been an important event for the country as such with the National team also performed very well and being the new world champions. Marketing cost in percent of B2C revenue amounted to some 22% and 26% when including affiliate marketing as well, which is in line with previous years.

Personnel expenses increased by EUR 8.4 million in the fourth quarter compared to the same period last year due to increased number of employees, yearly salary revisions, performance-related compensations, geographic expansion and increased investment in product and technology development. Other costs increased by EUR 7 million, of which EUR 5.6 million relates to other external costs and is mainly driven by sustained increased investments in product development and technology, specifically from increased investments in cloud-based environments and from extension of the Sportsbook offering.

When breaking out cost related to development of new markets, this sums up to EUR 15.3 million in the quarter, of which EUR 2.7 million are attributable to the U.S. expansion. The remaining EUR 12.3 million (sic) [ EUR 12.6 million ] consists of EUR 9.2 million in [indiscernible] in other costs with the bulk of the costs related to external consultants within the tech development.

EBIT amounts to EUR 40 million, which is all-time high and an increase of 92% compared to the same period last year. The EBIT margin is 18.1%. High customer activity in general, combined with a favorable revenue mix and Betsson scalable business model have contributed to the higher EBIT.

Moving on to the cash flow and financial position of Betsson. We see cash flow from operating activities amounting to EUR 75.5 million, driven by operating income and changes in working capital. Positive impact from working capital of EUR 26 million this year should be compared to a negative impact of EUR 15 million last year. The positive impact comes from decreased payment provider balances. Cash flow from investing activities amounts to EUR 19 million, of which the largest part relates to investment in capitalized development costs and acquisition of 80% of the shares in the B2B Sportsbook business, KickerTech Malta Limited.

Cash flow from financing activities impacted the cash flow by EUR 31.3 million, mainly explained by dividend of EUR 25 million distributed to shareholders in October. Betsson has, as of end of December, a net cash position of EUR 65.7 million and an equity ratio of 64%. And by that, I hand over to you, Pontus, again, to take us through the proposal on dividend distribution followed by a trading update.

[Pontus Lindwall, executive]

Thank you, Martin. As you can see on this slide, the Board of Directors proposes a total cash distribution to shareholders of EUR 59.7 million. This corresponds to a dividend of EUR 0.436 per share which is approximately 19% higher than last year. The cash distribution is to take place through an automatic redemption process in 2 installments in a similar process like last year. The proposed dividend represents 50% of net income, which is in line with our dividend policy.

Now let's have a look brief -- let's have a brief look at how the first quarter of 2023 has started. The average daily revenue up and including the 8th of February was 34% higher than the average daily revenue of the first full quarter of 2022. Adjusted for currency effects and acquisitions, the average daily revenue up to and including the 8th of February was 41% higher than the average daily revenue of the full first quarter 2022.

During the start of the first quarter 2023, the Sportsbook margin has been somewhat higher than the historical average.

And finally, here's a brief summary of the fourth quarter 2022 to conclude the presentation. Betsson reported all-time high group revenue and EBIT, driven by new customers and high activity. The organic revenue growth was 48% year-over-year. We saw a strong performance across the business with all-time high levels for turnover and revenue in both Sportsbook and Casino. Customer deposits were up 40% year-over-year, reaching about EUR 1 million for the quarter.

Regionally, the main growth driver in the quarter was Latin America. We ended the quarter with a strong balance sheet with a significant net cash position.

Looking ahead, we maintain our focus on profitable growth, and the first quarter has started well with average daily revenues up 34% compared to the average daily revenues in the full first quarter of 2022.

So thanks, everyone, for listening to the presentation. Now it's time for Q&A, and we welcome your questions.

[Operator]

[Operator Instructions]

The next question comes from Oscar Ronnkvist from ABG.

[Oscar Ronnkvist, analyst]

First, I would like a question on the trading update. So is it possible for you to quantify the Sportsbook margin boost to the trading update. So for example, Kindred show that it was 30% above the average for their start. And also in the report, you said that it was higher than the average. And now in the presentation, you said it was somewhat higher. So if you could give any color would be very helpful to understand sort of the underlying development here.

[Pontus Lindwall, executive]

Yes. But we cannot say much more than we said in the report. It's somewhat higher. That should give a pretty good guidance in my view.

[Oscar Ronnkvist, analyst]

All right. Understood. Then just looking into 2023, is it possible to give some sort of marketing guidance, like marketing as a percentage of sales? Should we think that it's supposed to like stay relatively the same as in 2022 as a percent of B2C sales? Or is it anything driving a higher or a lower percentage share?

[Pontus Lindwall, executive]

I think you can look at historical figures, and we have been pretty consistent over time with how we spend money on marketing. Obviously, we tend to shift between quarters if there are certain events like in the fourth quarter, we put some more money into marketing due to the world championship. But in general, I think you should expect no major deviations from what we have done so far.

[Oscar Ronnkvist, analyst]

Okay. Understood. Just 1 more specific question. You talked about 11 partners, B2B. I assume that includes Strive partners, am I correct there?

[Pontus Lindwall, executive]

No. It's the partners that we have. And we got quite a bunch of new customers through the acquisition of KickerTech, the second sportsbook that we have. So that has kind of put some more clients on our client list.

[Oscar Ronnkvist, analyst]

I see, I see. Then just 2 more questions pretty quickly. But first of all, in Norway, so Kindred reported quite a decline in Norway. And I think that both you and Kindred -- or historically have been quite, quite strong. I mean, except for the Norwegian lottery of course. But have you gained market share in Q4 when Kindred -- they changed their offering due to the Norwegian authorities putting some pressure on them by regulatory. But I don't think you have made really any changes. So could we expect that you took some market share from Kindred or how should we expect that one?

[Pontus Lindwall, executive]

We don't comment on that market as such in the report. So I can't do that here either. But as we say in the report, we have made changes to our offering as well, and we are in a good dialogue with the Norwegian authorities.

[Oscar Ronnkvist, analyst]

Okay. But Norwegian wasn't like a big drag for you in Q4?

[Pontus Lindwall, executive]

We can't comment on the specific market. We did well in Q4 in general.

[Oscar Ronnkvist, analyst]

Okay. Yes. Last question, just if you have anything new to say on the Netherlands. If there's anything stalling you from getting the license?

[Pontus Lindwall, executive]

Not really, we are in the process, and the licenses will come when they come.

[Operator]

[Operator Instructions]

There are no more questions at this time. So I hand the conference back to the Pontus and Martin.

[Pontus Lindwall, executive]

Okay. So no more questions. Let's see if there are questions coming in, in other channels. .

[Jonas Rodny, executive]

Actually, there is a question from the web audience. Comment on LatAm and specifically on Brazil and Mexico, and what Betsson is doing there in the future potential in those markets?

[Pontus Lindwall, executive]

Yes. I can't comment on the activities that we do in those markets specifically, but more on a general level in LatAm as you can see and as we write in the report, this is a focus area for us geographically, and we see a huge potential. LatAm is somewhat behind the Nordics and Western Europe in terms of development, which means a good potential going forward. And also looking at the size of that market, it's huge. So we have a lot of expectations for LatAm going forward.

No more questions. Okay. No more questions. And then thanks all for listening in. And thanks all Betssonites for all the hard work that you put in, in 2022. You are the best, and we are the best, and we will continue 2023. Thank you.