Good morning, everyone, and welcome to the 2nd quarter results for Betson. Let's start with the highlights of the quarter, and we feel that this quarter there's actually quite a few of them. We had strong growth, total revenue up 26%, of which 15% organic. This despite that we have a decline in our region circa. Casino growth of 28% and this is now then the 3rd consecutive quarter with casino growth above 20%.
We're also happy to see that we have 15% growth in our sportsbook, 48% sports book growth in our Nordic region despite the comparison to Euro 2016 last year. Clearly, the growth in our sports book has been driven by the product development efforts we have invested in during 2016. We're gaining market share in all the Nordic countries and in the very important region for us, Western Europe. Our share of sustainable revenue, locally regulated revenue is continuing to grow. And of course, we did launch horse racing on our BetSafe brand during the quarter.
BetSound's revenue continued to grow in a stable way as it's done for a long time and we see long term continued revenue development. Our earnings per share for the first half of the year is also up compared to last year despite slightly higher financing costs and a larger degree of regulated revenue and increased betting duties. Financial snapshot then, the revenue, as I said, grew by 26%. EBIT grew by 31% up to 207,000,000 euros In this, we have betting duties that increases by 71% to 53,500,000 dollars License fee from our business to business partner Realum is declining by 16% and we have a negative currency impact on the EBIT line of almost 18,000,000 euros Our EBITDA in constant currency was €224,000,000 a little bit above. Operating margin as reported was 17.6%.
However, adjusted for the currency fluctuations and acquired entities, the operating margin was 20.4%. Other than that, we also had an all time high in deposits over SEK4 1,000,000,000 in the quarter. Now this slide is aimed to be a clarification of the underlying report of the business adjusted for currency and acquisitions. So as I said, we had a negative currency fluctuations that significantly affected our EBIT line for the quarter. Our operating margin in constant currency was in constant currency and adjusted for acquisitions was 20.4%.
Looking at the column to the left, you see the adjusted numbers. So the revenue adjusted for currency and acquisitions, €1,065,000,000 operating expenses, €564,000,000 and the operating the adjusted operating income then 2.18 percent equaling the margin of 20.4%. The conversion of Betson's revenue base is continuing. We are absorbing more and more betting duties as more and more of our revenue are becoming locally regulated. We're also getting less high margin B2B revenues from our B2B partner Real.
And now the license fee from our B2B partner Real is below 10%. And clearly, the license fees has a gradually diminishing effect on the total group results of Betsson as now 90% is pure B2C business. As a consequence of the increasing share of regulated revenue and the decreasing share of B2B business or license fees, our business is becoming increasingly balanced and very different from, say, 1 year
ago.
PetSao's revenue has doubled looking back to 2012. And we are in a very, very exciting market that still only have about 12% of total market being executed online. There's a huge opportunity and almost perpetual growth ahead of us in the industry. There is really no reason why Betsson's growth will not continue for a long time going forward. As an example of that, if you look at our compound growth rate 2012 to 2016, it was 17%.
If you look at our growth rate in 2017, first half, it was 18%. We also had strong profitable growth development over time. EBIT comparing Q2 2012 to now has actually doubled. And we do see what we've been talking about for a while, the conversion of revenue impacting our margins, but still our EBIT growth in absolute numbers. Now to some of the other exciting numbers in this report.
So clearly, 28% growth in the Nordics is something we're very, very happy with. And if you go back to last year, the Nordic region was not affected by the challenges we had in Q2, 2018 2016. So this is a very strong number on back of a reasonably challenging comparison as well. Western Europe growing 69%, 31% of that being organic. Sika then declining slightly 15%, mainly driven by continued decrease in the Turkish lira, but also in this quarter some unusually low sportsbook margin in Georgia.
Other regions, primarily Latin America, this is growing at 64%. These numbers then means that Western Europe is now 30% of our business. Nordics is 47%. In terms of products, 74% of Betsson is continuously casino and 22% is our sportsbook business. Looking a bit at the growth per product, it is now like I briefly mentioned the 3rd quarter 3rd consecutive quarter where growth in our casino has been 20% or above, with 28% growth in the casino in this quarter, of which about 20% was organic.
So very strong casino development again, and we expect our casino development to continue to be very strong going forward. Mobile Casino interestingly under that number is growing by 76%. So again, a testament to the OBG and our new mobile casino and the effect that has had on our customer experience. Sportsbook, 15%, growing quite nicely given that we did have a Euro 2016 last year that affected the sportsbook activity and results. Driven by our product development efforts throughout the year, increased offer both in terms of simultaneous event and the actual market depth as well as new functionality and now the latest launch of horseracing.
Sportsbook in the Nordics growing by 48%, obviously also that a testament to the product development effort, the increasing offer and how that is having effect on our numbers. We are going to roll out the mobile new mobile sports book based on OBG. We have started to roll it out and we expect to see full effect of that towards the Q4 this year. So we are quite excited about the outlook for our sports book in the second half. Now looking a bit in detail behind the sportsbook numbers and the turnover.
So sports book turnover is down a little bit. Obviously, this is an effect of the seasonality with very, very high activity in the sportsbook during the Euro 2016. However, it's also an effect of the Turkish lira. So almost €400,000,000 is the Turkish lira effect on sportsbook turnover. So if you remove Turkey from this equation and look at the growth in our sportsbook turnover excluding our partner Real, that is actually up 25%, again despite comparing to a Euro 2016 quarter.
So the underlying activity, excluding the business to business partner Real is actually very, very strong also in our sports book. Sports book margin on about normal levels, 6.4%. The rolling 8 quarter average on Again continuing on the underlying activity, deposits were at an all time high, strong continuing trend when it comes to deposits. Active, slightly down, but again relatively normal given the very, very high activity levels we had for the Q2 last year after the euro. So we think that it's a reasonably normal development when it comes to active customers.
Looking at the business in some detail. So, first of all, I wanted to say a few words on the impact of the 2 acquisitions that was closed this year. So Premier Casino, now known as starcasino.es and Jackpot Joy sorry jackpot 20 fourseven, Vernon's and Super Casino. So the Netplay TV brands jackpot 20 fourseven, Vernon's and Super Casino, we have done a lot of actions to improve that profitability. And we started with the delisting, obviously, and downsizing Board and management.
We have moved all payment operations, CRM, customer service and merged it into our Malta operation. We have closed down and merged the U. K. Offices that we had at Betson before and Netplay. And obviously, there's a lot of renegotiations now going on when it comes to supplier contracts.
So margins on that business going forward will improve. And if you add the entity Premier Casino, which we have rebranded to StarCasino. Es, we have fully integrated into the Betts on Malta operation, so no local team for the Spanish entity. And we have increased the casino portfolio, the offering of the games. So looking at the combined, those two entities in the second half, we think margins will be above 5%.
And looking a little bit further forward coming into 2018, towards the end of 2018, we should be able to run those 2 entities at the same level of margin as the rest of Betson.
A very exciting quarter for
us when it comes to our sportsbook and our product development in the sportsbook. So we launched horseracing. And as I talked about before, we believe horseracing has a really, really big opportunity on Betsson. If you remember the acquisition race, Betten had about €9,000,000 give or take in revenue. And we see there is no reason why our individual large sportsbook brand should not be able to do that or more on horseracing as well.
We did launch the horseracing product just a couple of days before Ascot. And actually even during the 1st weekend of Ascot, BetSafe horseracing was almost on par with RaceBet's horse racing numbers. So very impressive launch and we're very, very excited about the future of horse racing. What horseracing also gives us in the U. K.
Is a much more sticky customer base and we see that effect also on the rest of our sportsbook customers, better loyalty and less churn. On top of that, we've started to roll out the OPG mobile sportsbook. We're in selected customer testing and come the Premier League season start, it should have been rolled out on all our main sportsbook brands. We also significantly improved our live streaming offer coming into the new season. So very exciting quarter when it comes to sportsbook deliveries.
As for casino, again, 28% growth in the biggest vertical of our business is obviously exciting for us. We have continued to develop this product during the quarter. We'll continue to add suppliers, most recently Novomatic, Green Tube and EGT. We have new providers in the quite special market of Italy. And that in total, we now have over 80 game suppliers, so game providers integrate to our platform and launched on our brands.
That means 2,096 games available, of which over 1500 available on mobile. So again, reinforcing the position as the world's largest mobile casino. On top of that, we continue on our strategy to launch exclusive games for the Betsson family, most recently Trolls Bridge. Regulatory updates. Our share of locally regulated revenues is now 24%.
We paid CHF 53,500,000 in betting duties in the quarter. That's significantly up from the CHF 31 $1,000,000 that we paid. This cost is, of course, on the cost of goods sold or cost of sales cost of services provided line item. We see good progress in the reregulation of the Swedish market. The bill is expected somewhere around March 2018, as communicated by the minister.
And we do anticipate a new regulation for Sweden to be in place around somewhere in the second half of twenty nineteen. As for the Netherlands, there has been some recent development as you all are aware of. The consequence of the parliamentary situation in the Netherlands is that we believe that the proposed new law will probably not be in place until after next election. The next election as it stands now is somewhere 2021. I want to reiterate the fact that the current Dutch law is not compliant with EU law.
The European Commission has warned Holland twice about this, 2006,007. And on back of that, Wetzel has now filed a complaint to the commission in order for them to address this. This is Betson's way of saying that we need to fight for our right to be regulated. Trading update. The quarter started strong.
The daily revenue up until July 2017 was higher than the average daily revenue for the full Q2 2017, so sequential. Also, they were much higher than the average daily revenue of the Q3 2016, so year on year. And please note, again, this is not a forecast for the quarter, but a trading update of the 1st 17 months of the quarter or 17 days of the quarter. That's it for today. And I would like to hand over for questions.
Martin Annal with DNB. My first question is on this active player base. So despite you're growing quite a lot on revenues, did the player base is actually flat year over year as far as I can see? And then you have also consolidated quite a lot of acquisitions. So could you dig into that a little bit more and explain why it's flat?
Yes. I think, again, the acquisitions doesn't quite neutralize the fact that we had a massively increased activity level during the year 2016. And I always said also back in 2016 that tournaments like the Euro or World Championships, they are primarily an activity driver. They might not give you immediate revenue, but they give you very high activity levels that you can capitalize over time. And even though we had challenges last year, activity was not one of them.
We had very, very good. We had all time high in activity in our sports book for a lot of our brands. So it's purely the fact that it's equaling out on back of the comparison last year.
Is it possible for you to comment on where you're gaining customers and where you're churning out customer just on an overall view?
Obviously, the sports book turnover in Turkey, as you've seen, is currency related, but the activity increase during a euro championship in a sportsbook heavy market like Turkey is, of course, much also greater. So we have a comparably lower share of active customers from Turkey normally when we don't have a euro quarter. Markets that performs really well for us, all the Scandinavian countries performing really well. And maybe most exciting at the moment is we're getting some really good traction in Denmark, which we haven't had a lot of good traction in before. U.
K. Performs continues to perform very, very strongly. Germany performed strongly. So there is a lot of market that performs strongly in our sports book.
Your organic growth in Italy, U. K. Combined? Can you comment on that?
Not commenting on that, but I can say, which I also alluded to before that U. K. And Italy is 2 of our absolute fastest growing markets at the moment.
And then following up on the cost guidance for Q3, you're investing more in marketing, I guess, which is driving the OpEx. And looking a bit further ahead, is this a level we should expect quarter over quarter also into the season, a strong Q4? Or will you continue to guide on this near term cost development?
Yes, I think we'll continue to guide on the near term cost development at least for the time being. And you also see that there has been some changes in capitalization, amortization and that's why that's included in the total OpEx guidance. And that's why it's important that's very hard for you guys to predict. So it's very important for us to guide on that number a bit more specifically.
On M and A
pipeline, can you comment anything on that? What's the deal flow? And what markets are you looking in?
It's repeating myself. We continue to look across the European markets that are regulated or have a very clear path to regulation. There are plenty of exciting opportunities in the pipe. But again, of course, we're also always opportunistic. And if there's opportunities further in Central Asia or in the Nordics, we will, of course, look at that.
But primary strategy is continue to grow in the Western European region. And again, there are a few very exciting opportunities out there.
And final question for me. What makes you expect regulation coming into effect in Sweden from the second half of twenty nineteen?
I don't think that's an exact science to be perfectly honest. It could very well be the Q2. But why some experience of these things now, they tend to take longer time than people say and what people believe. So I think it's a fair assumption to say that also this will take a little bit longer time.
Thank you.
Hi, Mikael Lasse here in Carnegie. I have a few questions. First of all, can you say something more and comment about the sales improvement in Q3 so far? How much improvement have you seen approximately? Is it in line with the cost increase 5% or is it below that level?
If you take the average level of the previous quarter this quarter's Q2, we're above that level and that in itself would apply double digits, right? So just from those numbers that we've given you, you will get to that.
Thinking about the quarter on quarter improvement.
Sequentially. Yes. And I try to answer that question by giving you the numbers for the sequential quarters.
Okay. Thanks. It would be interesting to hear more about net play also. You have that consolidated for the first time. Are you happy with the performance of 70,000,000 approximately?
And could you also say something about the outlook, seasonality and what you expect in terms of cost for that?
For sure. I think I said about GBP 25,000,000 in revenue for the full 2017, and I repeat that, they're on track to do that. Obviously, both those brands coming in, in the seasonally stronger part of the year just as the rest of Betsson. Like I said, margins was very weak this quarter because of our restructuring cost. It will now from this point on continue to improve.
And for the second half, we think margins of about 5% is reasonable for 2018. Towards the end of 2018, margins in line with the rest of Betson Group should be expected.
Okay. And when it comes to Turkey, would be and also the Netherlands, we'll be interested here. There's been a lot of discussions amongst the investors I think and regarding recent events that those two countries are becoming more strict in terms of their so how they look at the operators?
Well, first, let's just start with one of them, business to business operation in with Realme in Turkey. So, I mean, there's no news here, right? It's been Bedson has been having this partnership for a long, long time. Now that business is less than 10% of our total business. So, obviously, we will be continuing hit by currency.
But at the end of the day, the effect that that little slice of the business is having on the total group is of diminishing character. So I think, again, no surprises, smaller part of our business, less impact on the total performance of the group. We have 90% of the business in other places. Now that's one thing. The other thing on you mentioned Holland.
This is also nothing new for our industry. You got to remember that also Sweden has a legislation that is not in line with EU principles. And the EU Commission has warned Sweden twice as well. Following that, Sweden has now decided to re regulate on back of that. Holland did the same.
They had this exact same scenario. They were won twice by the commission. They promised to re regulate. Now the difference in Holland is that they don't have the parliamentarian sort of substance to actually vote through that legislation, which means that they it will now be delayed and most likely then or we at least think that EU Commission would have to open infringement proceedings towards Holland.
Okay. Thanks.
So then we hand over to the telephone.
The first question comes from Matthias Svensson from Kiel Capital.
I have a question regarding the Netherlands and the regulation there and to what extent it differs from the verdict against Hungary. As far as I understand, it is illegal for everyone to have certain verticals like online casino, poker and slots. And from what I also understand, that's also compliant with EU regulation that you are allowed to ban certain verticals. Do you agree with that?
First of all, I don't think it's super important what I think. I think what's important is what the European Commission thinks. And the European Commission has said twice to Holland that their current law is not compliant with EU law. The Hungary verdict is, of course, a second piece of this, which is extremely important as a complementary fact. And that says that membership state that has laws that are not compliant with EU law are not allowed to enforce those illegal laws.
So those 2 combined for Betson means that it's business as usual and we await the decision from the commission that we expect will open infringement proceedings.
Okay. So it is not allowed for a country to have certain verticals banned for all operators?
I think you're mixing the things. It's not allowed for the countries to enforce illegal laws. Then it's also not allowed for countries to have local legislations that are not compliant with EU law.
Yes. Could they ban certain verticals?
You cannot ban certain verticals for no particular reason. Now you got to remember that the monopoly within the European Union has a very special status and monopolies are to some extent allowed. However, they need to be very, very clearly defined why you have them. And if you don't have them, you cannot have discriminatory terms. And in Holland, you don't have only a monopoly.
You have private operators, but you don't have fair and transparent licensing for all. So it's a discriminatory factor as well. It's not only about the monopoly question.
So even if the monopoly is not allowed to have certain verticals, it's still not allowed?
Don got that question.
So if the monopoly is not either allowed to have online casino slots and poker, It's breaking it's still breaking the EU law.
Unless the monopoly is approved under the special circumstances that is required for a monopoly within the European Union.
The next question comes from Lars Holstrom from Pareto Securities.
Hi. It's Olas Ola from Pareto Securities. Congrats to a good report. I have two questions. 1 is for Turkey and one from Georgia.
The first, can you say some more specific details on the underlying growth in local currency? How is the Randstad offering outstanding versus competition right now?
Well, local currency was about flattish. We're down 4%, which I attribute mainly to the comparison of the euro last year and seasonality. So no nothing major alarming. It really goes in line with what we've been saying now for the last four quarters that, that business is stabilizing. Some quarters has been bouncing back a little bit to growth.
This quarter, it bounces back a little bit below the 0 line. But the outlook is the same. The business is stabilizing. It's continuing to stabilize. And until we have launched all our improvement efforts, then we will be able to be more comfortable in our outlook when it comes to growth of the brand.
And all our improvement efforts will be launched throughout the Q3. So coming into the Q4, we're really interested to see the effect of that and how that will play out for 2018.
Okay. So it has been more a market downturn during the Q2?
Yes, for sure. Compared to last year, no euro, very sport book heavy market, absolutely seasonal.
Okay. Perfect. And Georgia, you said that there were some unusual low sport book margins. But how is the casino business progressing there? You migrated Europe back to Texan last quarter.
So how is the casino business performing?
The casino business developed very, very nicely. And again, arguably, we have the best mobile casino product in that market and a very, very robust upgrade from what was there before. So the casino is growing very nicely, including the live casino vertical.
Our next question comes from Rasmus Enberg from
SHB. Just on your cost guidance, what type of cost is it that you foresee that you are going to raise? Is it come back to Q2? I mean, going into Q3, is it marketing? Or is it you seem to be starting up a bit as well on can you shed some light on what's going on there?
If you look at this quarter's Q2, we did increase marketing spend a little bit despite that we had high spending in the Q2 last year during the euro. And we see that that is having traction. Our growth is very robust. 15% organic is one the best growth numbers we've seen for a while. Strong growth in the Nordics.
And we feel our products is very much in a position where they can leverage increased marketing spending. So the cost for the coming quarter and the guidance on that is primarily driven by increased marketing.
Right. And I presume that there will be more of that in the Q4 as your sports book rollout comes more complete?
Well, in line with or continued growth, yes.
Yes. Good. And can you just help us with trying to understand the trading update. I know it's not a guidance, but just for our information, I would have thought that July, the first 2.5 weeks of July, is that a strong or a weak daily average period?
Well, normally July is, of course, low season as June because there's very little sports event going on. But despite that, we feel we had a very strong start to the quarter. Now again, it's only 17 days. There's a long way to go, and we know with sports book margins and so forth. But it was a very strong start to the quarter.
And as we wrote, it is much above the average of the Q3 2016.
And that's not normally the case, right?
Again, July is normally seasonally low, yes.
Yes. Is there could you would you be willing to say something about how the sports book has done? I mean, is it margin driven or is it broad based activity driven?
It's broad based activity driven. Casino continues to perform incredibly well. And we are very, very proud and excited about how the casino develops. Now on top of that, there has been slightly higher than average sportsbook margin as well during the beginning of July. But of course, sportsbook in this time of the year is not a big part of our business.
Great. Thank you.
Thank you. Our next question comes from Christian Helman from Nordea. Please go ahead. Your line is open.
Hi, thank you. Pretty much all of my questions have already been brought up. I have one left and that's on deposits. You grew 10 percent organically in deposits. Could you comment a bit on that number and perhaps break it down in different geographies or give some more flavor on deposits?
Yes, for sure. It's important to know when it comes to deposit that that's also very much affected by currency fluctuations, which means that the Central Asia region, Oseka region is, of course, struggling with the deposit numbers on back of the currency downfall. Equally then, the rest of our business, the other 90% or 90.5% is having a quite nice development across the line.
All right. And just a final one, and that's just to clarify. I had some problems with the sound my headset. But on the trading update, coming back to that for a final time, you said sequentially that we should interpret your wording as being up at least double digits, right?
Now I have some problems with the sound. You said sequentially, we should interpret it being
up by double digits.
No, no. What I said to Mikael before was that if we say that we've said that we're above the average of the past quarter. So sequentially, just taking that run rate for the Q3 would effectively mean double digit growth, yes. But again, it's not a forecast. It's just an indication of the 1st 17 days.
Right. Okay. Thanks.
Thank you. The next question comes from Sharish Aziz from Danske Bank. Please go ahead. Your line is open.
Thank you so much. I do have a couple of questions. The first one goes to the regulation in the Netherlands. Just looking at what you said initially during the presentation at which year do you actually expect regulation in the country? And do you guys foresee any repercussions given the fact that I know you've asked that a couple of times that the Dutch regulation is not compliant with EU regulation, but do you guys see some risk for not actually getting licenses in the Dutch market when it first opens up?
No, I think the again, reiterating the case from the European Court on the 22nd June, countries are not allowed to do enforcement of companies and enforcement of illegal laws, which means includes fines or prohibiting us from getting licenses or whatever means of enforcement that might be. So the answer on that is currently no. And then in terms of outlook for the legislation in Holland, I mean, the fact of the matter is there was an election in Holland in the spring. The parliamentarian situation means that there are not enough votes in the 1st chamber to vote to pass this law. 1st chamber can only say yes or no, cannot amend change.
It can only say yes or no. And simply, as it stands now, there's not enough votes to pass that law, which then means that there won't be a law until there is a new election. That election could come before, but it's currently scheduled to somewhere 2021.
Okay. So, potential regulation in the Netherlands would probably come in 2021?
As it stands now, that would be my best guess, yes.
Okay. And my next question is on the fact that total marketing came in at 29 percent of sales, including affiliate and traditional marketing. And then you guys still had an outflow of 56,000 active customers sequentially. Why did we have that affection? You actually have much higher level of active players if you spend more marketing in 1 quarter?
Well, marketing is, of course, also has an effect on existing active customers. So it's not only new active customers, which is important to understand. The downfall in active customers is purely due to seasonality and the fact that it's also abnormal seasonality this year, given that last year we had a year 2016 that really inflated activity. So, the seasonality is really the answer to the active customer question.
Okay. Thanks. But I guess you said that, of course, this the new active players and the recurring active players, but you don't give any breakdown on that. How should we actually get so many new active players have had over the quarter?
Well, I think the indicator of how well we manage our customer base is the growth of our revenues, right? And revenues grew 26%. So that's sort of the relation you should probably look at.
Okay. And then last question on betting duties. Those increased quite heavily sequentially and annually or year on year. What about Q3? Which level which markets are growing the most?
Where do you think that will see the highest growth in betting duties?
Well, betting duties will continue to increase. There's no doubt about that. And as I previously mentioned, we do continue to see strong growth in Denmark with strong growth in Italy, strong growth in U. K, all of them regulated markets. So clearly, a lot of our growth is coming from the regulated market.
However, you also see a lot of growth coming out of the Nordics, which is slightly different dynamics to it. So it's a little bit of both. And it's we're not forecasting the exact betting duty number for the Q3. But generally, you should anticipate that they will continue to increase.
Yes. But my question, I know that you can't forecast an exact number, but my question is more which pace do we expect these duties to come in Q3? Will they grow in the same pace as we've seen now? Or are they more likely to come down a bit? And of course, you're mentioning the Nordic markets, but you guys are not paying any bidding taxes there, right, yet?
Yes. I mean, year on year, I think the pace is there or thereabouts for the time being because you now will use the net the netplay numbers will come in for the full year. So year on year, I can't give you an exact number, but it would probably there or there balance on the year on an annual sort of comparison level.
Okay. All right. That's it for me. Thank you.
Thank you. There appear to be no further audio questions. I'll return the conference back to you, sir.
So then I hand over to questions from the chat.
Two questions. One is just what about China? And the other about what about live casino?
Well, China, we still have our joint venture in China. All gaming sites is shut down or legal gaming sites is shut down. So there is no further development on that end. When it comes to live casino, yes, what can I say? It's an exciting product.
We have, I think, 4 suppliers at the moment. It's a vertical that continues to grow. We get even more assets in that space once we start to utilize the Netplay live casino product. So, again, exciting space and of course part of fueling our casino growth. So I think that's it for today.
So have a good summer everyone and see you in the next quarter. Thank you.