Good morning everyone, welcome to the presentation of the fourth quarter results for Betsson. Today, I wanted to start with a bit of a recap of what we said at the beginning of the year, what was going to happen throughout 2016, going back to the annual report, as a matter of fact. What we said back then was we will continue to actively look for acquisition opportunities. We said that we will aim to grow our sustainable revenues, that is revenue from locally regulated and/or locally taxed markets. We also said we will ensure that our investments, our daughter companies, will deliver on operational excellence and execute on their strategies. When we look back at the deliverables during 2016, we can see that we've done some important acquisitions for scale, improved offering, enabling of organic growth, and synergies.
We have increased our share of regulated revenue. We have added four local licenses to our portfolio. We have also accelerated our product development in order to support and enable organic growth. We have seen strong performance in our casino on back of that, growing annually at 14%. We have seen our market share grow in the Nordics and in some other very important European jurisdictions such as Italy and the U.K. We launched a new technology framework for front end, we call OBG, that increases our scalability and our velocity in product development and also supports growth for the future. Looking a bit specifically on our acquisitions, we have a very clear strategy for what to acquire. It is based on four pillars. We want to primarily buy companies that are outside of the Nordics but within Europe.
We want to buy companies that are preferably in markets that are regulated locally or have a very clear path to local regulation. We like operators that is what we call sub-scale in the face of regulation where technology or volume are not there to cover the increase in compliance costs that regulation brings. Also, operators on third-party technologies gives us great opportunities for synergy outtake. However, we will also consider smaller strategic acquisitions in order to get our hands on licenses that we otherwise wouldn't be able to get or specific products and/or technology. Now mapping our acquisitions and our offer that we recently made on NetPlay towards that strategy, you can see that it maps quite nicely. We started off by doing TonyBet at the end of last year. What we do with TonyBet is we consolidate our Baltic position.
It gives us scale in that region in order to be able to operate it efficiently and put the foundation for further organic growth throughout the Baltic region. It gives us a license in Lithuania, which we otherwise would have had a very hard time to get our hands around. It gives us 100% locally regulated revenue. Moving on to RaceBets, which was completed the last week of December 2016. It is a leading horse racing product, one of the best horse racing products out there. However, it is being deployed on a reasonably small brand with limited resources. We think deploying that product across our brand portfolio has great opportunities. RaceBets has a revenue of about EUR 9.3 million in 2015. Again, on back of limited marketing investments and quite limited brand presence.
When we deploy horse racing on our big brands, Betsafe, NordicBet, Betsson, we see great opportunities. Again, it gives us a license in Germany. Again, 75% of the revenue is locally regulated and taxed. Finally, just a little bit on NetPlay TV. Obviously, this is just an offer. NetPlay TV is a publicly traded company in the U.K., and we are in the middle of that process as we speak. The offer is made, has a revenue of about GBP 15 million the first six months of 2016. If this offer goes through, it clearly strengthens our position in casino in the U.K., 100% locally regulated revenue. A strengthened position in the world's largest regulated gaming market. We also see synergy opportunities here.
Primarily or initially, we see about GBP 1 million in synergies from delisting the company from the AIM market, and then there will be future synergy opportunities as well. I cannot talk about those at this point. To summarize that, 2016 and 2017, we have added about 10% of group revenue, in acquisitions, of which 90% is locally regulated. These pieces might have been of a smaller size, but combined, again, they represent about 10% of group revenue. It also adds about SEK 0.5 to earnings per share. Having said all of that, we are not finished. We continue with the ambition to be active in the consolidation. As you can see, and probably get a feel for, there are plenty of opportunities out there for us. It is just about finding the ones who fits really well with our strategy.
We have money left on the bond we just issued, and we also have another billion within the bond frame that we set earlier this year. Moving on, before I get into the Q4 numbers, I wanted to give you a very quick overview of 2016. Clearly, 2016 was sometimes challenging for Betsson. Particularly the second quarter did not turn out the way we wanted it to be. Despite that, over the year, we managed to grow the company 11% with an objectively reasonably strong margin at 23%, and as a result of that, continue to grow our earnings per share. To the fourth quarter. We feel that the fourth quarter was a strong quarter. Particularly looking at the Nordic region and looking at a casino vertical. Casino grew by 20%, and remember, this is 74% of our business.
74% of our business grew by 20%. Nordic, our largest region, represents about 50% of our business, grew by 17%, clearly taking market shares both in casino and in the Nordics, two of our biggest components of our business. In total, of course, growth was 7.4%. That 7.4% needs to be put into some context. First of all, it compares with a very strong fourth quarter 2015, where we had also much stronger sportsbook margins. Further, it needs to be contextualized with the fact that in that 7.4%, we have a region, Central and Eastern Europe and Central Asia, CEECA, that actually declines. If you take both those things into consideration, we feel that the 7.4% shows good and strong underlying performance in the rest of our business.
Sportsbook in the quarter was, as a lot of our colleagues has reported, affected by play-off friendly results in the last part of December. I've been talking the last couple of quarters about the fact that we're seeing a stabilization in the CEECA region, and in this quarter, despite continued currency headwind, we actually grew the region quarter-on-quarter, as promised. We see continued signs of stabilization and strengthening in the underlying business in the region. 14% growth in deposits and an all-time high number when it comes to active customers. As a consequence of all of that, the board proposes to distribute to shareholders SEK 4.76 per share.
Revenue at SEK 1,119,000,000, returning to growth in the second half of the year after a challenging first half, and growth very much driven by our strong casino product and our strong casino development. EBIT, SEK 265 million, about flat, taking the adjustments of Q4 last year and the adjustment of this year into account. The growth in EBIT slightly muted due to our increase in product development that we have done throughout the year. The decrease in license fees from our partner Realm Entertainment, and an increase in the share of locally regulated revenue, which is now 20%. Despite that, we continue to have, again, objectively, reasonably strong EBIT margin at 23.7%. Looking a bit more detail into the revenue development and how we get to that SEK 1.119 billion number. Nordics growing very strongly, as I mentioned, 17.1%.
That's the biggest part of our business and adds SEK 81 million to the revenue line. Western Europe is turning back to growth. We've had a couple of quarters where we haven't quite delivered what we expected in Western Europe, but it's turning back to growth and we see continued strength in that region. I'm going to get back to that in a few moments. Adds SEK 13 million to the top line. We have the region of CEECA, that declines by 8.3%, takes SEK 25 million off the top line. Clearly a decrease year-on-year, but as I anticipated when I was here for the last presentation, we actually did grow that region between the third quarter and the fourth quarter. There is an underlying strengthening also in that region, we have the ambition to get that region back to growth throughout the year.
Rest of the world's growing at 48%. Obviously, it's small numbers, but we have some really interesting and exciting developments in some parts of that business as well. Let's dig into the region CEECA a little bit and talk about the license fees from Realm Entertainment, our business-to-business partners. What I've been saying for quite some time now is that we see this region stabilizing. With stabilizing, looking at the numbers, that has meant that the decline has sort of decreased. For the first time, we see that the region is actually increasing. Quarter-on-quarter, it increases slightly in reported currency. It increases a bit more in local currency. Again, we continue to see signs of stabilization and strengthening of this partnership.
Having the eye on the local currency, we think we will be able to see, again, continuing strengthening of that business. Small growth in the license fee compared to Q3, a larger growth in the fees in local currency, stable outlook. It remains 12% of our company revenues. We do have continued drop in the currency, and that's, of course, something that's continued in the first quarter. Looking at the revenue distribution, 50% of our business is the Nordics. It's growing very strongly at 17%, and clearly, we are continuing to take market share in our home markets, which makes us very happy obviously. CEECA region, we touched upon, declining by 8% year-over-year. Rest of the world, +48%. Western Europe, like I said, turning back to growth at 5%.
Slightly below what we were expecting, again, we're very happy to see that turning back to growth. I'll give you a little bit of flavor on the drivers behind that growth. If you look at two of the markets here, U.K. and Italy, as a combined entity. U.K. and Italy GGR, Q4 2016 was about SEK 40 million. U.K. and Italy GGR, Q4 this year is SEK 80 million, over SEK 80 million. We have more than doubled the size of the U.K. and Italy business. Clearly, this is us taking market share in two of the largest gaming markets in the world, that also happens to be two of the most competitive markets in the world. It's very assuring for our offering and our product development efforts that we managed to do this. The growth is profitable, and it, of course, gives us increased locally regulated revenue.
An interesting side fact, of course, that with this pace during 2017, there are reasons to believe that the combined entity, Italy and U.K., would actually be larger than the license fees we have from Realm Entertainment in Turkey. Casino continued to develop strongly and is on a very good trend for the entire year, basically, during 2016. Stable growth and less, of course, volatile, given it's not affected by sportsbook results. Represents 74% of our total business. Sportsbook, SEK 264 million, down slightly year-over-year. Mostly driven, of course, by the sportsbook-heavy CEECA region, where we have had currency headwinds, and also by the player-friendly results that we saw in the last part of December. However, those player-friendly results, although they did affect us, they probably affected us at a slightly lesser extent, given that sportsbook represents only 24% of our business.
Sportsbook margin in the quarter was low, 6.6%, so about half percentage point lower than the same quarter last year, which also, of course, then plays into the lower sportsbook numbers. In line with the eight-quarter rolling average. Looking at active players, solid trend upwards. 9% growth in active players, over 550,000, 573,000 active players. Deposits continued to grow robustly and healthy as well, almost SEK 4 billion in the quarter, growing by 14%. Let's talk about the business a little bit. The world's largest mobile casino is here, delivered through OBG, enabled through OBG, our new front-end framework. What OBG really gives our customers is improved search, filtering, favorites, personalization, and recommendations. A vastly improved customer experience. It has shown to increase actives, has shown to increase deposits on the brands where it's been rolled out.
It has also shown to generate more sessions played and actually longer session duration. It has been rolled out on betsson.com, has been rolled out on NordicBet. It is being rolled out as we speak on Betsafe, and following that, some of our other casino brands. Interesting fact, looking into this is primarily, of course, at this point, a mobile casino development. Looking at our mobile casino growth isolated, it actually grows by 83%, clearly driven by the product development in OBG and in our casino. Other than that, we continue to have very strong development in our live casino and very strong development in our portfolio and our offering. So at the moment, we offer 1,246 games on our mobile casino, clearly more than anyone else in the market today. Sportsbook.
We are one quarter or so behind in the development compared to casino when it comes to our sportsbook product, but we are about to roll out OBG, our mobile sportsbook enabled by OBG, from the second quarter and onwards 2017. As a preparation for that, we have significantly beefed up the total number of traded live events by 30% from first to second half of 2016, and we continuously keep pushing the envelope when it comes to concurrent events, and we operate at any given time, 200+, and again, keep pushing that limit. We are also seeing underlying some improved margins for our live trading due to new and updated trading tools. A bit of interesting novelty, NordicBet actually named Bookmaker of the Year in Norway by the independent magazine, Tipsbladet. So very reassuring development for NordicBet and also for our sportsbook in general.
More to come on this and we will keep you updated on that in future presentations. As for regulatory, Betsson have 10 licenses today, newly acquired licenses in Lithuania, of course, and also in Germany. We see future regulations coming towards us in some of our core markets, Sweden, possibly early as the third quarter 2018, Holland anticipated during 2018. But there are some indications that it might be slightly delayed from what we have previously discussed. I also find this very interesting quote from my colleague Lennart Käll at the Swedish monopoly, Svenska Spel, which says that, "All of us that are regulated has many restrictions, for example, when it comes to how we market ourselves. We really look forward to have a market where we can compete on equal terms." Again, I couldn't agree more. We really look forward to markets we can compete on equal terms.
Going forward, revenue in the beginning of the first quarter 2017 was significantly higher than that of the average revenue for the first quarter 2016. Also higher than the average revenue for the fourth quarter 2016. We estimate that the operational expenditure, OPEX, in the first quarter of 2017, including acquired companies, will increase by high single-digit percentage compared to the reported operational expenditures for the fourth quarter. Cost for product development, which was one of the cornerstones for us in 2016, is estimated to increase at a slower pace in 2017 than it did in 2016. Meanwhile, we see good opportunities to market our newly developed and very exciting products. Currency fluctuations are believed to have continued negative impact in the region CEECA, which we have discussed, and I think you are all very much aware of. Finally, Betsson in the market and our position generally.
We feel, of course, as I talked about a number of time, we have very strong underlying growth drivers in our market, almost perpetual growth for a long time. We have a lot of shifts that needs to still be done when it comes to offline moving to online. We see increased accessibility due to multiple screens. Local regulation has shown that it's driving growth. Some of our fastest-growing markets today, as I showed you, is Italy, U.K., and actually also Denmark. CAGR in our core markets, according to H2, is estimated to be about 8.5% up to 2020. Our business is competitive. It's always been competitive, but I feel increasingly it's becoming competitive. We have 70% of our business plus from casino, a low volatility segment. We have a product that is very well-positioned for future growth.
We have what we believe strong EBIT margins, again, 23% for the year. We have a balanced portfolio of brands, geography, segments, products, and also currencies. Our proprietary technology is core to the future success of Betsson. It's scalable, adding volume at very low incremental cost. It gives us opportunity to be very sophisticated when it comes to using data and information about our customers and be very good at data-driven digital marketing. Enables efficient operation that puts the foundation for future organic growth. Finally, of course, M&A, which I spent a lot talking about today. We feel we have delivered upon our strategy when it comes to M&A. We're going to continue to deliver on our strategy when it comes to M&A.
We have strong execution capabilities when it comes to actually managing acquisition and integrating them, and that gives us additional opportunities in the space we're operating. With that, thank you very much, and I will hand over for questions. Martin.
Hello. Is the mic on?
Yep.
Okay. Hi, Martin with DNB Markets in Stockholm. My first question is on this OBG in the Nordics and the casino development in the Nordics, it seems as it jumped in Q3 and jumped again in Q4. Do you expect that to continue in the next two quarters, and is it anything else than this OBG you are talking about that's driving this?
Start with the second part of that question. Clearly, OBG is driving this. OBG has given us a significantly improved product. When it comes to user interface, navigation ability, and the work we did before we actually launched OBG in enhancing our offering also helps. This is a number of things, but it all sort of comes down to the product development we have done. It's no coincidence that it comes in the third and fourth quarter, which is the quarter when we launch OBG. That was driving a lot of that. Whether the growth is going to continue or not, we said that our market grows by 8.5%, as in weighted average. We said that we're going to always have an ambition to grow faster than that. Sometimes we'll grow more, sometimes we'll grow less.
Over time, that's the organic growth rate you should be able to anticipate.
Do you feel that your competitors are equipped with similar tools as this new tool that you have, or?
We feel we are pretty comfortable with the statement that we have the world's largest mobile casino.
Okay. Also a question on the Q1 trading update. What's driving that, is it only better sportsbook margins in that, or?
Yeah. In the trading update, again, yes, some bits of that is driven by strengthening sportsbook margin in January. Again, 74% of our business is casinos. We also see continued good performance in our casino business.
You also mentioned single-digit increase of costs quarter-over-quarter.
That was single-digit.
OpEx you're referring to.
Yeah.
You mentioned something about increasing marketing. Is it mainly marketing that we should expect being up quarter-over-quarter?
Well, the product development cost we've said are going to increase at a slower pace in 2017 compared to 2016. We do see increased opportunities to market our products, given that they are in such good shape now.
Finally on the CEECA region where you say that you see stabilization and growth quarter-over-quarter, is there a chance that you will be back on local currency growth in the first half this year, do you think?
Yeah. Good to isolate it on local currency growth because obviously we don't know what's going to happen with the currency. Local currency growth, yes, our ambition is to get that region back to growth in local currency. It's going to happen in the next couple of quarters. I can't promise that. Again, we see stabilization. We see signs of strengthening, and we will get that back to growth, but I don't want to put a timeframe on that.
Thank you.
Hi, Christian Hellman from Nordea. Just a question on the marketing spend relative to revenues.
There seems to be sort of a trend shift both in Q3 and now in Q4 as well. It used to be around, well, above 20% to revenues, and now I think you were at 18% to revenues in Q4, and you were at 19% in Q3. There's a big difference there, at least compared to historical averages. Are you doing something completely different? Have you changed your strategy, or what's going on?
No, we're not doing anything completely different. Obviously, there's a lot of things playing into this. Digitalization and more regulated market gives us access to different tools to do our marketing, which also increases our efficiency. That's one bit. Second bit is that we spent a lot of money this year on product development. We did that because we thought that in pieces, some of our products were not really where we wanted them to be. The plan was, of course, to spend that money on product development and then hold back a little bit on marketing until we feel that the products are really ready to push. Like I said, coming into 2017, we think that the increase in product development cost is going to be lower than it was in 2016, but we see greater opportunities to actually market those products.
Okay. Thank you.
Hi, Anders Holmgren, ABG. A few questions on Georgia. First, the raised Georgian tax. Could you elaborate a bit on that and sort of give some flavor on what the tax rates are now and also if you see any more changes going forward?
The tax rate in Georgia is a double-edged sword in a way, because at one side, what it is the government in Georgia taking measures to strengthen the currency. They're increasing income across the board, and the gaming industry was not immune to that. It was coming quite quickly at us, actually. There was different proposals on the table, but it ended up being 7% turnover instead of 5% turnover. Again, governments are acting in an attempt to strengthen the currency. That's a good thing. The negative thing is, of course, that it does hit our P&L in Georgia short-term. Long-term, it's interesting how it's going to play out, because obviously, we're not alone in that market. We have some other competitors.
We do know that we are one of the financially most stable groups in the country, and obviously, we have an ambition to always take market share. Potentially, this can give us an opportunity to actually be more aggressive and actually take market share in local currency. We'll see how it plays out.
Okay. Thanks. When it comes to the Eurobet migration, could you give some more flavor on how that is progressing?
Yeah. I've said Q1 this year, and it will be Q1 this year. Probably March time.
Thanks.
Hi, Mikael Lassén at Carnegie. I have a few questions. Just a moment. First of all, can you say and disclose, I didn't really understand how much your growth was in the quarter, organic growth, excluding FX and acquisitions and
Total growth in the quarter was 7.4%.
7.4?
Yeah.
Okay.
That's more or less organic, and there is a little bit of TonyBet in that. We don't side report TonyBet.
Okay, thanks. The second question is about the effect from the player-friendly results in the sports book this quarter. Can you say how much that impacted your margins and the turnover in the quarter?
Well, comparing margins year-on-year, it was 7.1% in the fourth quarter 2015, and now it was 6.6%. It's about half percentage point worse off in margin. We haven't extracted a number on that, but I think you can do that backwards, reverse engineering, if you apply that number to the turnover.
Okay. Yeah. Overall, are you satisfied with the turnover activities and what you do there, overall?
In the sportsbook?
Yeah.
Well, I think when you look at the turnover number, there's a couple things one need to remember. Our CEECA region is very sportsbook heavy. When the currency in that region has a very big effect on the turnover numbers, that's one thing. The other thing is that in the KPIs, we include 100% of our business-to-business partner Realm. That's the policy we've always had. In the revenues, obviously, we don't include 100% of that. That also skews that. When that region decreases in turnover, it almost has a double effect. That's why the sportsbook turnover numbers sometimes can look a little bit misleading in comparison to the total actual performance of the sportsbook. Regardless of all of that, obviously, we want sportsbook turnover to grow.
We have more work to do on sports book, and the launch of sports book on OBG coming up is an attempt to address that.
Okay. You said that you have 30% more live events, but I can't really see any sort of significant change in the live betting mix. Can you explain that, please?
We are more or less maxed out in some of our regions when it comes to live versus pre-match mix. When you look at the total sports book number, of course, it's heavily, again, skewed by the decrease in the sports book in the CECA region. That sort of wipes out a lot of the underlying development in the other regions.
Just my final question is about the financial resources that you have for further M&A. If you can discuss this in terms of net debt to EBITDA, for example, where you feel comfortable.
Well, we have a little bit of money left on the bond we just issued. Within that frame, that was SEK 2 billion, there is another SEK 1 billion available. Obviously, we have the mandate, as you know from before, to also issue shares and pay with shares. I think the covenant says that we can add another SEK 2.2 billion-SEK 2.5 billion in debt. SEK 2.2 billion in debt on the current EBIT levels.
Hi, Martin with DNB again. I have a follow-up question on the Netherlands and the new regulation. I think the base case before was Q1 2018, now you're mentioning that this could be somewhat postponed. What's the new base case for the new regulation coming into effect?
Well, in our model, we actually still have Q1 2018, there's so many grades here, the risk of a delay has increased. We'll see if we make a new estimate. I know some of our colleagues have made an estimate for Q3 2018. It's highly uncertain still.
Thank you. Then final question. Where do you feel that you are on staffing at the moment, what's in the budget for 2017 on adding new employees, in what areas?
Going back to the guidance on OPEX, I think that what we've said is staffing is very much product development. The other cost and the staffing for product development. We've said that is going to increase at a slower pace in 2017 than it did in 2016.
Okay. Thank you.
One question on the phone.
Yes, we go to the line of Rasmus Engberg of Handelsbanken. Please go ahead, Rasmus, your line is now open.
Yes, hi. Just first a question on coming back to the acquisition. I thought that TonyBet had something like EUR 7 or EUR 8 million in revenues per year. Isn't that sort of half the organic growth, or am I misunderstanding something here in this quarter?
SEK 6 million, I think is the number. Of course, it was not fully attributable in the fourth quarter also.
Betsson, when did you consolidate it?
Mid-October.
Okay. All right. Good. Then, just before Q4, you thought that the CEECA division, or whatever it's called, would grow, then it didn't actually grow due to effects. Also sports betting was a bit disappointing for everyone, yet I think you probably beat consensus expectations by 5% on EBIT anyway. Was there anything in this that surprised you on the positive side? Or was this sort of as expected in terms of casino and Nordic and so on? Or were you a little bit surprised by the strength there?
It's a lot of questions in one, Rasmus, let's start with the first one. I didn't say that CEECA was going to grow year-on-year. I said it was going to grow quarter-on-quarter, so between the third quarter to the fourth quarter, it did grow between the third quarter and the fourth quarter. That sort of also answers your second question. We're not surprised by that development, we see continued, like I've been saying now for two quarters, stabilization and actually strengthening of that business in local currency.
Coming back to the non-sports betting growing, and that must be almost all organically more than 20% in the Nordics, I think. Is that right?
Can you repeat that? You said.
In the non-sports business in the Nordics seem to have grown more than 20%. Is that really what you expected?
17% growth in the Nordics in total. There is some sportsbook growth in that. As I said before, we have said that we're going to grow faster than the market, and the market is growing on average 8.5%, maybe 9%. We're going to outgrow that organically. Like I told Martin here before, sometimes we're going to grow more, sometimes we're going to grow less. This quarter, obviously, 17% growth in the Nordic we feel is a very strong number. 20% growth in the casino we feel is a very strong number.
Yeah. That's what I thought, too. Apparently you had already expected that. That was my question, really. Second question. In terms of this acquisition of NetPlay, how does that process work now?
It's a scheme of arrangement process according to the UK Takeover Code. From within the next couple of weeks, we're going to get a court hearing where we get the offer approved, then it's going to go out and be circulated to all the remaining shareholders. Remember, we have the support of just below 40% of the shareholders already. It's going to go to the remaining shareholders. I think we need support of 75% of the shareholders in order for the deal to proceed. The process of going out to the existing shareholders is about three weeks, after that, we will move on to a closing and delisting phase. If everything goes according to the plan, this should be done during the month of April, or finalized in the month of April.
There's some sort of rule about a competing offer. How does that work if that comes along?
Yeah, of course, it's a public company a party could, from what I understand, do a competing offer. That hasn't materialized yet. If it happens, of course, we will have to consider that when it happens.
Right. Your best guess is if things go to plan, this will be yours in the middle of the second quarter sometime or?
Yeah, April.
Right. Okay, thanks.
Thank you. Questions from the chat?
Yes. What is your time plan to migrate more brands to use OBG?
Basically, our last major B2C brand is Betsafe, and it happens as we speak. We move on to launching the mobile sportsbook for OBG, and it will be the same sequence of event. We will do betsson.com first, we'll follow up by NordicBet and after that, Betsafe.
From the same person, when will you launch sportsbook on OBG? Just to repeat.
What we said is from the second quarter and onwards, we're going to start the rollout of the mobile sportsbook on OBG if everything goes to plan.
Thank you.
Obviously, on back of that, we do anticipate that will improve the customer experience and have a positive effect on our business.
Thank you.
Thank you. That's it. Thank you very much for coming, and see you