Betsson AB
STO:BETS B
Earnings Call Analysis
Q4-2023 Analysis
Betsson AB
Investors would find the company’s latest financials indicative of robust growth, with an all-time high group revenue and operating profit. In the most recent quarter, revenue surged by 14% to EUR 252 million, while operating profit leaped by 42% to EUR 57 million compared to the same period last year. The full year 2023 showed a similar pattern, with revenue climbing by 22% to EUR 948 million and operating profit up 60% to EUR 211 million, reflecting an operating margin of 22.2%. Such growth in profitability hints at effective cost management in light of the revenue increase.
In contrast to the general financial upturn, the Sportsbook segment experienced an 18% rise in turnover, which was undercut by a lower than expected margin of 6.2% due to player-friendly football results. This resulted in a 5% year-over-year decline in Sportsbook revenue. This segment’s margin performance, deviating from historical averages, seems to be a temporary setback rather than a structural issue, illustrated by the company’s confidence in future growth of both its Casino and Sportsbook offerings.
The company has been successful in its expansion plans, launching a new online casino offering in Belgium and introducing online sports betting in France. Technical enhancements in Colombia and preparations for new regulations in Peru demonstrate the company’s agility in adjusting to local market conditions. Meanwhile, revenue from locally regulated markets increased by 53% from the previous year, suggesting a successful adaptation to regulatory changes. The robust local growth, especially in Italy and Greece, showcases strength in Western Europe and supports the company's strategy in balancing global reach with regional customization.
The company is navigating a shift in the regulatory environment, marked by Italy’s online gambling reform and Brazil’s regulation of online sportsbooks and casinos. In Italy, tensions arise with an expected reduction in the number of licensed websites, while Brazil's regulation introduces new taxes and license fees. Chile has also shifted its regulatory stance, introducing various taxes and a retrospective tax for previous operators. These developments indicate that the company is actively adapting to changes, emphasizing the importance of regulatory strategy in shaping its market approach.
The company's marketing strategy remains ambitious, with expenditures varying according to the sports event calendar and market opportunities. The approach balances maintaining strong growth ambitions with spending fluctuations reflective of event-driven marketing cycles, particularly in anticipation of events like the Euro 2024. This suggests the company recognizes the impact of high-profile sports events on consumer engagement and is prepared to invest appropriately in marketing to capitalize on these opportunities.
With a solid balance sheet, the company remains on the lookout for M&A opportunities, continuing a path which has thus far proven successful. Its global ambitions, and specifically a strategic focus on Business to Consumer (B2C) operations in Latin America, indicate a tactical shift away from prospective B2B endeavors in North America. This pivot serves as a reminder to investors that the company’s geographic and operational focus is dynamic, aligning with market potential and corporate strategy.
Looking ahead, the company provided a snapshot of the average daily revenue in early 2024, which outstrips that of the first full quarter in 2023 by 5.9% and exhibits an even stronger organic growth of 16.3%. Such preliminary data can be viewed as a positive indicator of the company's momentum entering the year, with management expressing confidence in a well-positioned offering for upcoming major sports tournaments like the Euro 2024 and Copa America. This forward-looking optimism is crucial for investors considering the company's medium-term prospects and the potential impact of large sports events on its business.
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Welcome to Betsson Q4 Report 2023. [Operator Instructions]. Now I will hand the conference over to CEO, Pontus Lindwall; and CFO, Martin Ohman. Please go ahead.
Good morning, everyone, and welcome to Betsson's Earnings Presentation for the Full Year and Fourth Quarter 2023. My name is Pontus Lindwall, and I'm here -- I'm the CEO of Betsson. With me today, I also have our CFO, Martin Ohman. So here's the outline for today's presentation. We will start with a brief overview of the achievements in the past quarter and full year and also highlight some interesting business activities from the quarter. Then we will comment on some recent regulatory developments in the market that are relevant for Betsson.
Martin will then present our financials more in detail. After that, we will provide a trading update for the start of the first quarter 2024. And then we will round off the presentation with a summary of the quarter. After the presentation, we will take questions. I'm pleased to report another strong quarter for Betsson with continued high customer activity and record figures. In the fourth quarter, group revenue increased by 14% and operating profit increased by 42% compared to the same quarter last year.
This means new all-time high levels for group revenue and EBIT at EUR 252 million and EUR 57 million, respectively. The EBIT margin increased to 22.6% from 18.1% in the fourth quarter 2022. New quarterly records were also set for casino turnover, up 29% year-on-year and for casino revenue, which was up 25%. Customer deposits across all gaming solutions were also at new all-time high levels for the quarter, growing 27% year-on-year.
Sportsbook turnover was up 18% year-on-year compared to the fourth quarter 2022, which included the Football World Cup. However, the Sportsbook margin was only 6.2%, clearly below the level in the fourth quarter last year. This was due to player-friendly football results. The low Sportsbook margin resulted in a 5% decrease in Sportsbook revenue year-over-year. When we sum up 2023, we can look back at a new record year for Betsson. Several important strategic initiatives we've taken to strengthen the product offering, manage risks through geographic diversification and to create the conditions for continued profitable growth with an increased share of revenue from locally regulated markets.
For the full year 2023, revenue increased by 22% to EUR 948 million, and operating profit EBIT increased by 60% to EUR 211 million, which corresponds to an operating margin of 22.2%. For the full year, operating cash flow amounted to EUR 230 million, which was also a new record. The Board proposes a 48% increase in the dividend for 2023 to EUR 0.645 per share. In the fourth quarter, new sponsorship was initiated in Greece through which Betsson will have the naming rights to the classic and important cup in Greek football.
Also, Betsson's involvement in Italian football was broadened in the past quarter through new sponsorships in Serie C with the Clubs Juve Stabia and Messina as well as the official bar partnership with Serie B, named BKT. In general, 2024 will be a big year for football with both European championship and Copa America in the summer months, and we look forward to following the games together with fans, customers and employees.
At the end of January, a new online casino offering was launched in Belgium under the brand name betFIRST based on the category A plus license that was obtained in October of last year. The license enables a full online casino offering, including slot games, table games and live casino. In November, an online sports betting offering was introduced in France with the Betsson brand under the local gaming license that was obtained in September.
Betsson continues to focus on investing in product and technology. Geographical expansion continued to be a strong focus during the quarter as well as strengthening the product offering. Technical preparations were made to be ready for the new regulation in Peru as well as significant enhancements to the product in Colombia, ahead of planned new marketing activities during 2024. During the quarter, especially a large focus was put into integrating and launching new payment solutions in several markets.
And now let's look at some of the latest regulatory developments. In Italy, the government approved a decree to reform the online gambling sector in December. The decree will form the basis for a new public tender of gambling licenses, thus eliminating the need to extend further the current concession set to expire at the end of 2024. According to the decree, the cost of concessions will sharply increase and the aim seems to be to reduce the number of licensed websites.
In Brazil, the bill regulating online sportsbooks and casinos was adopted after a lengthy process. The President approved the law on the 29th of December 2023, and it was published in the Official Gazette on the 30th of December 2023. The new law establishes a 12% tax on GGR, a 15% tax on winning for players and a license fee of approximately EUR 5.5 million for 5 years.
In Norway, BML Group continued the dialogue with the Norwegian Gambling Authority, NGA, regarding the cease-and-desist order against the company. In November, the NGA found that while the company's general offer was indeed compliant, the fact that Norwegian residents could deposit and withdraw money on the sites operated by the company, indicated in the NGA's view, that the company's offer was still targeting Norway.
As requested, the company submitted its views to the NGA in December 2023, and subsequently, correspondence with the NGA has continued in January 2024. In Chile, Congress voted on the law proposed by the Economy and Treasury Committees in early December. The law introduces a 19% gaming tax on GGR, the 19% VAT on GGR, a 12-month blackout period for operators, who were previously active on the market as well as the 36-month retroactive 31% tax rate on GGR to those operators, who have been active in the market between 36 and 12 months before the implementation of the new law.
As a next step, the protect will move to the Senate for further discussions and vote. In Sweden, the Patent and Market Court of Appeal on the 21st of December 2023, ruled in the pending matter of a former customer claim against BML Group Limited. The Court of Appeal reversed the earlier judgment of the lower court and ruled in favor of the former customer. BML Group Limited has appealed the judgment to the Supreme Court. And now I will hand over to Martin for a closer look at the financials.
Great. Thanks, Pontus. I will go into some more details of the financials of the fourth quarter, which again was a record quarter and is now the eighth consecutive quarter with revenue and EBIT growth and the best quarter ever in Betsson's history. This in terms of revenue, Casino revenue, Sportsbook turnover and operating profit, which all show all-time highs in the quarter. This, although the Sportsbook margin has been lower than the 2-year rolling average margin.
The result is underpinned by year-over-year growth of 27% in deposits. Active customers have slightly decreased compared to the same quarter last year, explained by increased activity from the World Cup in football last year. Reported revenue for the fourth quarter amounted to EUR 252 million, an increase of 14% year-on-year, organic growth of 36% and also quarter-on-quarter growth of 6%.
Both the B2B and the B2C business contributed to the growth with EUR 187 million in revenue coming from B2C and EUR 65 million coming from B2B. Casino turnover increased by 29% year-on-year and shows the highest turnover ever. Casino revenue was EUR 183 million, an increase of 25% year-on-year, which is all-time high and also 6% quarter-on-quarter growth.
The gross turnover in Sportsbook across all Betsson's gaming solutions was almost EUR 1.7 billion, which is the highest ever turnover and an increase of 18% compared to the fourth quarter last year. Sportsbook margin was 6.2%, which is lower than a 7.3% margin in the fourth quarter last year and also lower than the 2-year rolling average margin of 7.6%. Sportsbook revenue decreased by some 5% compared to last year and amounted to EUR 67 million, but increased by 6% compared to previous quarter. This, although the margin was lower in the fourth quarter this year compared to both previous year and previous quarter.
Sportsbook revenue represented 27% of the group's total revenue in the quarter and Casino on 72% Breaking down revenue by region, we see growth compared to previous year in all major regions, except the Nordics, where we see a decrease of EUR 7 million. However, compared to previous quarters, we see growth in all regions. Starting with the Nordics, we see a decrease of 13% compared to last year.
Sweden and Finland reported decreased revenue due to lower activity in casino in Finland and lower activity in both the Sportsbook and Casino products in Sweden. Denmark reported increased revenue driven by growth in both Sportsbook and the Casino products. The Nordic region represented 18% of the group's total revenue in the fourth quarter.
Revenue from Western Europe increased by 62% year-on-year with the addition of the betFIRST revenue from the Belgian market as from beginning of July contributes to the growth. The Italian market is also contributing to the growth in the Western Europe region and reported all-time high revenue in the fourth quarter. The increase in revenues is mainly driven by revenue from the Casino product, where both deposits and turnover were the highest ever.
Revenue from the German market is following the same trend as in the past quarters and years and continue to decline for Betsson. The Western Europe region represented 17% of total revenue in the quarter. The CEECA region increased by 25% year-on-year, driven by strong underlying activity and revenue growth in casino. The Sportsbook activity was strong, but the sportsbook margin was low, which impacted Sportsbook revenue in the quarter.
Greece showed continued positive trends and reported all-time high revenue in the fourth quarter, driven by a strong underlying activity with new records in turnover, number of active customers and in deposits. Croatia continued to develop well in the fourth quarter, driven by the casino product. Georgia reported decreased revenue compared to the corresponding period last year, driven by lower Sportsbook margin.
The Baltics continued to develop well, and Estonia and Lithuania reported growth in revenue explained by the Casino product. Latvia reported decreased revenue compared to the previous year, explained by lower Sportsbook margin. The CEECA region represented 42% of the group's total revenue in the quarter.
Revenue in the Latin America region amounts to EUR 53 million, representing a slight increase compared to the same period last year and compared to the previous quarter. Growth is driven by the Casino products, while the Sportsbook revenue was limited in the quarter due to both lower activity in the Sportsbook and lower Sportsbook margin, comparable period last year includes the World Cup in football.
Argentina and Colombia reported growth both year-on-year and compared to previous quarter, and the growth is mainly driven by the casino products. Revenue from Peru decreased due to lower activity in both the Casino and the Sportsbook product in combination with the lower Sportsbook margin. The Latin America region represented 21% of the group's total revenue in the fourth quarter.
Revenue from the Rest of the World decreased by 9% and is mainly driven by lower Sportsbook book margin in Nigeria compared with the corresponding period last year and lower activity in the Canadian operations. Revenue from locally regulated markets increased by 53% compared to last year and now constitutes 46% of total revenue.
Focusing on the composition and development of EBIT year-on-year, we see that revenue has increased by some EUR 31 million and following that also cost of services provided. Gross profit increased by EUR 20 million compared to the same period last year and amounts to EUR 165 million, which corresponds to a gross profit margin of 65.6%, which is the same margin as last year.
Increase in cost of sales is mainly explained by higher gaming taxes following increased revenue from locally regulated markets. Marketing spend was lower than last year and is explained by a step-up in marketing activities during and ahead of the World Cup in football in the comparable period last year. Marketing costs in percent of B2C revenue amounted to 17% and 24% when including affiliate marketing as well.
Personnel expenses increased by EUR 7 million in the fourth quarter compared to the same period last year due to some 150 more employees, yearly salary revision, performance-related compensations, geographic expansion and increased investments in product and technology development. Depreciation and amortization costs increased by EUR 4 million following the acquisition of KickerTech Malta Ltd. in the fourth quarter 2022 and betFIRST acquisition made in July 2023.
The betFIRST purchase price allocation presented in the Q3 report, has been somewhat adjusted and quarterly amortization costs related to customer databases have increased in comparison to the quarterly numbers presented in the third quarter report. Other costs decreased by EUR 3 million were increased Sportsbook related costs, costs for consultants and software license costs have been counteracted by currency effects.
EBIT amounts to EUR 57 million, which is all-time high and an increase of 43%. EBIT margin is 22.6% compared to 18.1% last year. And the increase is explained by increased revenue and gross profit and at the same time, more or less maintained operating costs. Looking at the cash flow and financial position, we can conclude that operating cash flow amounts to EUR 48 million. Operating cash flow is driven by EBIT of EUR 57 million and negatively impacted by changes in working capital arising from increased accounts receivable and increased prepaid expenses.
Cash flow from investing activities amounts to EUR 14 million, with the majority related to investments in own technology and product development and some EUR 4 million to paid earn-out for the KickerTech Malta Ltd. acquisition. Cash flow from financing activities impacted the cash flow by EUR 35 million, where EUR 31 million relates to dividend paid out to shareholders in October and remaining amounts come from lease payments and loans granted to associated companies to fuel their growth.
Betsson has, as of end of December, a net cash position of EUR 60 million and an equity ratio of 62%. And now I hand over to you again, Pontus, to take us through the proposal on dividend distribution followed by a trading update.
Thank you, Martin. Now let's have a look at the proposed dividend. The strong cash flows of the business and the solid balance sheet allows us to continue paying out attractive dividends to our shareholders and investing in future growth at the same time, which is quite an unusual combination. The Board of Directors proposes to the AGM that EUR 88.5 million corresponding to EUR 0.645 per share should be distributed to the shareholders through 2 automatic share redemption procedures, the first one in June and the second in October, just like last year.
Now let's have a brief look at how the first quarter of 2024 has started. Just to be clear, this is not a revenue forecast, but only an indication of how the first quarter has started. It's also important to mention that as of 1st of January 2024, the definition of organic growth has been changed and now only includes adjustments for currencies with direct impact as well as adjustments for acquisitions.
And now to the actual figures. The average daily revenue up until and including the 11th of February, has been 5.9% higher than the average daily revenue of the first full quarter in 2023. Organically, the average daily revenue during the same period has been 16.3% higher than average daily revenue of the first full quarter 2023.
During this period, the Sportsbook margin has been significantly lower than the historical average margin. And finally, here's a summary of the report. Betsson reported all-time high levels for revenue and the EBIT in fourth quarter and for the full year. We saw continued high customer activity across the business with all-time high levels for customer deposits, casino turnover, casino revenue as well as Sportsbook turnover.
Our scalable business model supported an increase in margins. Betsson's business continues to generate strong cash flows, and we ended the quarter with a strong balance sheet and a significant net cash position. The Board has proposed a 48% increase in dividend for 2023 Thanks, everyone, for listening in to the presentation. Now let's move over to Q&A. We welcome your questions.
[Operator Instructions] The next question comes from Oscar Ronnkvist from ABG Sundal Collier.
First one would just be on betFIRST. So I think that it has a bit of a slower run rate than last year or the numbers that you put out when you acquired it. So I just wondered if you are seeing the same impact as Kindred did in Belgium with the deposit limits being lower and that impacting the group revenue? Or if this is just Sportsbook margin related or if you see anything else?
And then also if you could elaborate a little bit on Belgium casino if you have any early indications or also the French launch if you have any early indications of how that -- those launches have started to develop?
Okay. Yes. So on the first one, betFIRST is quite heavy on sports betting, and of course, the margin has been a little bit lower since we acquired, and that's the only reason for the impact in the figures that we see. And that follows the rest of the trend for sports betting, not the trend, but the results for these periods, for sports betting on all the brands. So it's nothing specific for Belgium...
Nevertheless point is I think it's worth mentioning that we see an increase from -- in Q4 in revenue compared to Q3.
Yes. Yes. And then on the casino, the A plus license, it's been launched just a few weeks ago, so it's too early to say. But obviously, we have quite some expectations on that for going forward.
Okay. Then just Pontus, I saw some comments from an interview this morning where you -- I believe you mentioned M&A possibilities going forward. So can you just -- I mean, can you talk a little bit about balancing potential buybacks with M&A because obviously, you have a strong balance sheet, good cash flow, solid organic development. And just -- I mean, balancing the evidence of M&A success versus your share valuation at the moment in potential buybacks?
Yes. As we heard over the presentation, we have a strong balance sheet, which gives us quite a nice freedom within the area of M&As or buybacks. We see quite a nice -- some quite nice possibilities for M&As, and we have global ambitions, and we have a good situation in -- being able to integrate acquired assets. So we will continue on the path that we have done quite successfully up until now, meaning that we are still looking for opportunities for M&A.
So just a follow-up there. So on M&A, is it mainly B2C operations do you think that you are looking for in terms of geographical expansion? Or is it to enhance your B2B offering firstly? Or is it both maybe?
We have done a few B2B acquisitions in the past few years to support our B2B offering, but we are mainly looking for B2C assets to keep on going into new areas and territories with our operations.
Got it. Just the next one on Latin American sports book, which is trending downwards just -- I mean, in the exact opposite of the casino that is going very, very strong. So what do you think is driving this? I mean, of course, tough comps in Q4, lower Sportsbook margin, but just the decoupling of Casino and Sportsbook development, I guess that's just the comps in Sportsbook [indiscernible] can't explain it all. So do you see higher competition in sports than you're doing casino? Or how should we think about this?
No. I think the explanation is about the margin in the Sportsbook and the fact that we had some more activities and some more potential offerings in the comps figures. But I think the more important part is to see the traction in the casino that's a proof of continued strong developments, and that will, of course, go for the Sportsbook as well going forward.
All right. Sorry, just a final one, sort of a standard question for me. I apologize for that. But just on the marketing to sales ratio, if you see any structural change, I think it seems to have trending downwards pretty sharply. And if I recall correctly, you have communicated that in the previous quarters that you don't really expect any significant change in strategy. So if you have any comments there, would be helpful.
Yes, there are no changes in our ambitions within marketing. But I think the standard answer is that it varies between quarters, and it depends on availability and also on the sports calendar. And as you know, 2024 has some interesting sports events coming up. So there will be quarters where we spend a little bit more and also in the future, some quarters where we spend a little bit less. But we will continue to do marketing, and we are still a strong growth company and that will continue.
Right. So I guess that Q1 seems to be -- I mean sort of normalized and then Q2 may be a little bit higher on marketing ahead of the World Cup -- or sorry, the Euro 2024.
We will not go into any projections on that. But if you look historically, I think you can -- we can conclude that we have put a little bit more money into marketing in relation to big tournaments.
The next question comes from [ Dennis Peterson ] from Private Investor.
Congratulations to a good quarter and a good year. My first question is on -- your thoughts on the development of professional football, considering the spread between the best teams and the teams beneath those best teams seem to be growing.
I assume that the betting activity are bigger on the more known teams and especially the big European Leagues and the Champions League where these trend seems to be inherent. Do these trends worrying you? And do you see this as a threat to the Sportsbook margin going forward?
That's a very interesting question almost on the philosophical side. I've been thinking about that, that some things become so professional so -- and some other teams can't really cope with that development. But if you look at the outcome -- the recent outcome, you can still see some strong teams losing when they are not expecting to [ undraw us ]. So we believe that the sports betting model will be able to adopt to any kind of development within the sports going forward, but it's an interesting assumption that you do there.
Okay. Can you please share your thoughts on the B2B progress in North America? Are you still active in search for potential customers? Are you having a talk with some? Or are you even in the progress of closing some agreements?
We still have our B2B offering in North America. We haven't concluded any deals yet on the Sportsbook. And as a company, I think we can say that we have put more efforts into our own development of B2C offering in Latin America than on the B2B side in North America. And just to be clear, I'm sure you are aware, we did not go into North America with the B2C offering, but only this B2B offering, which we are quite happy about today.
As I recall, you have big expectations for the North American launch, but -- so you're saying that you're now more focusing on your B2C towards Latin America.
Yes, that's how things have developed. We have not left North America at all with our B2B offering, but we have put more efforts into our B2C offering in LatAm and in some European markets. That's how it has turned out.
Okay. Do you have any updates on the Sportsbook margin from the date of the trading update until now?
No. We have only communicated what's in the report.
Yes, one last question. So looking to the summer with the Euro 2024 and the Copa America, obviously, the Copa America -- previous Copa America was a big success, are you satisfied with your position going into those championship?
Yes, very much. So I think we have a strong brand recognition across many markets in LatAm. We did really well the last time. It's a very good opportunity for customer acquisitions. We have our technology in order. So I think we're well positioned for the upcoming tournaments.
There are no more telephone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.
Okay. We have...
I think there was a question from a private investor about the change in the organic growth calculation when it comes to FX changes. And question, I think, was whether that was already affecting the Q4 organic growth calculation or only in the trading update for Q1?
No, that's a good question. And I think, as Pontus said when he presented the trading update, it is only reflected in the trading update in the Q1. So this will be a new definition going forward, but it has not impacted the Q4. It is the old way of looking at the organic definition.
Okay. Thank you, Martin, and there was no further questions here. Then I want to say thanks to all of you that listening and see you in a couple of months. Bye-bye.