Welcome to Betsson Q2 Report 2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing hash five on their telephone keypad. Now, I will hand the conference over to CEO Pontus Lindwall and CFO Martin Öhman. Please go ahead.
Thank you very much. Hi, everyone, and welcome to Betsson's earnings presentation for the second quarter of 2024. My name is Pontus Lindwall, and I'm the CEO of Betsson. With me today is also our CFO, Martin Öhman. This slide shows some of the key figures for the second quarter. The high customer activity continued throughout the entire quarter, and as expected, the Euros and Copa América contributed positively in June. It was great to see the active customers increased by 25%, and that deposits increased by 15% year-over-year. We saw continued good revenue growth and improved profitability, with new records in both revenue and operating income in the quarter. The growth in the quarter was primarily driven by the B2C operations. Revenue increased by 15% year-over-year to EUR 271 million, and operating income increased by 18% to EUR 64 million.
The operating margin strengthened to 23.6%, and worth mentioning is that this was our 10th consecutive quarter with increasing operating income. I'm particularly pleased to report a stronger operating margin in the quarter and the highest ever operating income, given the increased share of revenue subject to local gaming taxes. Revenue from locally regulated markets amounted to 55%, up from 36% last year, and includes Peru for the first time, where local gaming tax was accrued during the entire second quarter. For several years, Betsson has been positioning itself as the leading brand for sports betting in Peru. In June, the group obtained its first local licenses for the newly regulated market in the country for the Betsson and Betsafe brands, and in July, licenses for the Inkabet brand has also been obtained.
Moving on, I'm pleased to say that Betsson's commitment to sports partnerships continues. In July, an agreement was announced with the Italian Serie A champions and last year's Champions League finalists, Inter, which means that for the next four years, the Betsson.sport brand will be displayed on the front of the team's jerseys. Inter is one of the world's most successful football club, clubs ever, as well as a global brand with hundreds of millions of fans. The club has special ties with Latin America, a key, key region for us, with a long list of historical club icons, as well as the current star striker and team captain, Lautaro Martínez, who scored the winning goal for Argentina in the Copa América final. We now look forward to following the club's pursuit of new titles together with the team and their fans.
Since June last year, Betsson is the official sponsor of Boca Juniors in Argentina. In April, the club celebrated its anniversary by introducing a new third jersey, inspired by the flag of Sweden, which can be seen on the picture on the right-hand side of this slide. A main focus during the quarter was the major football tournaments, Euro and Copa América, and substantial resources were invested in various market activities, such as dedicated ad campaigns and PR initiatives. Looking at the strong indicators such as new customers, deposits, gaming turnover, as well as actual financials, like reported revenue and profit, as I mentioned on the first slide, it's very clear that these activities paid off. This slide shows the growth in sportsbook revenue on a gross basis, including all gaming solutions, isolated for the major football tournaments this summer.
Compared to the Euros and Copa América back in 2021, gross sportsbook revenue was up 92%, and compared to the World Cup in 2022, the increase was 19%. This growth demonstrates how Betsson has grown as a company in the past years, entering new markets and attracting new customers, and consequently, handling larger betting volumes than ever before. In the second quarter, Betsson hosted a sustainability track at the well-known iGaming event, NEXT Valletta . During the day, topics such as responsible gaming, investor relations, employee experience, climate, and social responsibility were discussed. On this picture, you can also see Martin on the left-hand side of the top picture. At the end of June, Betsson was awarded an AAA rating by Morgan Stanley Capital International, MSCI ESG ratings, an upgrade from the previous AA level.
The AAA rating is the highest possible and confirms our dedicated efforts in environmental, social, and governance ESG matters, which we see as a prerequisite for running a profitable business long term. Like the rest of the organization, the product and tech team put a lot of efforts into the preparations for the major football tournaments, Euro and Copa América, in the second quarter. I'm pleased to say that the platform was up and running and able to handle even the most critical moments during the tournament, with high volumes and betting taking place. Geographical expansion also continued to be a focus area, especially preparations for licensing on the newly regulated market in Peru. As always, strengthening of the product offering continued to be a top priority. For the Sportsbook product, a new Bet Builder function was launched on all brands for pre-match and live betting.
New native apps were developed and launched during the quarter, for example, in Italy. Also, new payment and authentication solutions were launched in a few markets. Now I will hand over to Martin for a closer look at the financials.
Great. Thanks, Pontus. The combination of a company showing revenue growth over time, and at the same time constantly increasing the profit margin, is a rare combination. When reviewing the Betsson performance in a longer perspective, we can conclude that the temporary step down in revenue in the first quarter in 2024, is now back to growth with a stable growth trend over time. EBIT is now the highest EBIT ever, and the second quarter is the 10th consecutive quarter with EBIT growth. On top of that, the EBIT margin in this quarter is the highest since 2018. This, although, the percentage of locally regulated revenue has increased significantly in the quarter, and following that, materially higher cost for gaming taxes.
The scalable business model, that is now the foundation of the Betsson operation, is based on a dedicated strategic approach, focusing on sustainable and long-term profitable growth through the geographic diversification and supported by our in-house technology. The second quarter was yet another record quarter, with growth and all-time highs in total revenue, Sportsbook revenue, as well as Casino revenue. The Q2 result is supported by a year-over-year growth of 15% in deposits, which is also the highest deposit levels ever for a single quarter, and growth of 25% in active customers. Reported revenue for the second quarter amounted to EUR 271 million, an increase of 15% year-on-year, and 38% organic growth.
Growth is mainly coming from the B2C business in the quarter, which contributed to the growth with EUR 201 million in revenue, while some EUR 70 million came from the B2B operations. Revenue from locally regulated markets increased by 75% compared to last year, and now constitutes 55% of total revenue in the second quarter. The gross turnover in sportsbook across all Betsson gaming solutions was almost EUR 1.5 billion, and represents an increase of 17% compared to the second quarter last year. Sportsbook margin was 8.6%, which is higher than the 8.2% margin in the second quarter last year, and also higher than the two-year rolling average margin of 7.5%.
The combination of high turnover and somewhat higher margin resulted in increased sportsbook revenue by some 13% compared to last year, and amounted to EUR 78 million, which is the highest sportsbook revenue ever. The graph on the top right corner displays that the sportsbook margin has somewhat fluctuated from quarter to quarter, but regardless of that, the sportsbook revenue has increased steadily over time. Casino turnover increased by 7% year-on-year, and casino revenue increased by 16%, which is the highest revenue for an individual quarter. Casino revenue represented 70% of the group's total revenue in the quarter, and sportsbook, some 29%. Categorizing revenue by region, we see growth compared to previous year in all major regions, except for the Nordics.
The decline in the Nordics in this quarter, compared with last year, is primarily driven by lower activity in the casino products. However, the Nordic region has showed quarter-on-quarter growth for the past 3 quarters. The Nordic region represented 17% of the group's total revenue in the second quarter. Revenue from Western Europe increased by 62% year-on-year, or by EUR 17 million, where the addition of the betFIRST revenue, as from beginning of July 2023, contributes to the growth. Revenue from Belgium increased compared with previous quarter, mainly driven by the updated casino offering, launched on the back of the A+ license in the end of the first quarter. The Italian market is also contributing to the growth in the Western Europe region, driven by both the sportsbook and the casino products.
The Western Europe region represented 16% of total revenue in the quarter. The CEECA region increased by 11% year-on-year, driven by strong underlying activity in both sportsbook and casino. Croatia, Estonia, Lithuania, reported all-time high revenue in the second quarter, driven by the casino products. Greece and Latvia reported growth compared with the corresponding period last year, also driven by the casino product. Georgia reported decreased revenue compared to last year, following a lower sportsbook margin and lower activity in the casino product. The CEECA region represented 42% of the group's total revenue. Revenue in the Latin America region amounts to EUR 63 million, which is a new all-time high, representing an increase of 22% compared to the same period last year. The increase is mainly driven by the casino product in Argentina and Colombia.
This, although a strong currency headwind in Argentina. The Peruvian market is now a locally regulated market, where Betsson has received licenses for the Betsson brand, the Betsafe brand, and Inkabet, and pays local betting duties as from April. The Latin America region represented 23% of the group's total revenue in the second quarter, compared to 18% in the first quarter this year. Changes in EBIT year-on-year is impacted by increased revenue by some EUR 35 million, and following that, also increased cost of services provided. The increase in cost of sales and decrease in gross profit margin is mainly explained by higher gaming taxes, following increased revenue from locally regulated markets.
However, gross profit increased by EUR 14 million compared to the same period last year, and amounts to EUR 177 million, which corresponds to a gross profit margin of 65.1%. Marketing spend is in line with past quarters and also in line with the same quarter last year. Marketing cost in percent of B2C revenue amounted to some 16%- 22% when including affiliate marketing as well. Personnel expenses increased by some EUR 5 million in the second quarter compared to the same period last year, due to increased number of employees, yearly salary revisions, geographic expansion, and increased investments in product and technology development. Depreciation and amortization costs increased by EUR 0.5 million, driven by increased depreciation from the acquisition of betFIRST , that was consolidated as of July 2023.
Other items consist mainly of sportsbook-related costs for consultants, software licenses costs, and effects from foreign currency fluctuations. EBIT amounts to EUR 64.1 million, which is all-time high and an increase of 18%. EBIT margin was 23.6%, compared to 23% last year and 22% in previous quarter. Operating cash flow amounts to EUR 76 million, which is an increase of 52% compared to previous quarter. Operating cash flow is driven by EBIT of EUR 64 million and positively impacted by changes in working capital, and negatively impacted by increased paid taxes. Compared to previous year, the positive impact on working capital is lower due to temporary buildup of payment provider balances in the end of the second quarter, following the increased volumes from Euros and the Copa América.
Cash flow from investing activities sums up to EUR 40 million, where the majority relates to investment in own technology and product development. Cash flow from financing activities impacted the cash flow by almost EUR 36 million, where the first of the two dividend payouts had an impact of almost EUR 46 million, which was somewhat counteracted by a release of a guarantee related to the Inter sponsorship. Betsson has, as of end of June, a net cash position of EUR 93 million and an equity ratio of 61%. Now back to you, Pontus, to present the trading update.
Thank you, Martin. Now let's have a look at how the third quarter has started. The average daily revenue in the third quarter of 2024, up until and including the July 15th, has been 20.5% higher than the average daily revenue of the full third quarter of 2023. The football tournaments, Euros and Copa América, have contributed to the high activity during this period. So, now let's summarize the Q2 report. Customer activity continued to be high throughout the entire quarter, supported by Euros and Copa América in June. This resulted in strong KPIs, such as growth in active customers and deposits. The main growth driver was the B2C operations. New all-time highs were recorded for group revenue and EBIT. This was the 10th quarter in a row with sequentially growing EBIT.
The business continued to generate solid cash flows, and the balance sheet remains robust with a net cash position. As shown on the previous slide, the start of the third quarter has been positive, with average daily revenue up 20% in the first 15 days of the quarter compared to the entire third quarter last year. Thanks, everyone, for listening to the presentations. We can now move on to Q&A. We welcome your questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Oscar Rönnkvist from ABG Sundal Collier. Please go ahead.
Good morning, all. Thanks for taking my questions. My first one, which is on the regulatory environment. So I think that we have seen a sort of a step change in the regulatory environment, or at least in the communication. So we can see, for instance, the Netherlands being quite forward-leaning, I suppose, so suggesting, you know, a ban on high-risk gambling, not a big market for you. Now, with the acquisition, maybe have some sort of exposure, but not too much, and also some increased taxes in Sweden and U.S. states and so on. Just on the trend or the development, do you have any comments on what your thoughts are on the regulatory environment at the moment?
No, I think this, the regulatory environment will always change in different directions, and it's... I think we will see things maybe swinging back in the future as well, because in some regions or countries, we have seen that too much forward-leaning regulatory initiatives kind of takes away the whole idea with regulating. So at some point of time, I think it will swing back. But of course, there will be changes in the regulatory environment also going forward.
All right. Thank you. Then just my next question would be, I know this has been asked before, just on sort of any update we've seen your sector peers, Kambi and Evolution now also, you know, starting with the new capital distribution policies with buybacks for all of the excess cash. So is it anything that have changed in your mind on the capital allocation policies, or is it still M&A that is sort of first in line on the agenda?
I think Martin will kind of drill down a little bit more on that, but I can encourage you to say that this is something that is being discussed in every single board meeting, so it's not something that we are, you know, not aware about. This is something that we have on our radar as a possibility. Maybe Martin, you want to comment more deeply on it?
No, I can just echo that. I mean, we are in a growth phase. We like M&A, and if you find good M&A opportunities, that's kind of the first priority. But of course, we have share buybacks and dividend as tools in the toolbox to use for looking at the distribution of our capital or the capital allocation.
Got it, thanks. Just a follow-up. Are you—I mean, just on the... You have a very strong balance sheet. Are you sort of in favor of taking up some leverage to do either M&A or buybacks, or are you planning to stay at a net cash position?
I mean, we have had a net cash position for quite some time now, but nothing is kind of written in stone. If the right opportunities arises and we need to take up more debt, that is also a possibility and a tool in our toolbox. I think we have previously communicated that we can have a certain leverage if needed.
Understood. Thank you very much.
Thank you.
The next question comes from Georg Attling from Pareto Securities. Please go ahead.
Good morning, guys. I just had two questions. So, starting with the sponsor deal here with Inter. The figures that I've seen in media of how much that will cost you a year is obviously quite a lot of your marketing spend a year. So I'm just trying to get a feel for if you're trying to balance this with decreasing marketing in other parts of in other markets or other channels, or if this is a step up in marketing structurally.
It's a good question, and of course, sponsoring a team like Inter, which is one of the world's most famous teams, doesn't come for free, even though we are an attractive brand. But I think if you look historically, we have been very stable in how much of our revenue line that we allocate towards marketing. And without giving too much detail guidance, I think you should not expect too much deviations from our historical figures.
Okay, that's helpful. That would obviously mean that you decrease marketing in other channels and markets. Is there any particular markets or channels that you can point out that you feel like you could decrease the marketing spend in?
I can't comment on that, really.
Yeah, fair enough. And then on the trading update, obviously, strong numbers, but we know we had the knockout stages of very strong sporting schedule. Do you have any feel for, you know, roughly the tailwind that has come from these championships in the trading updates?
As we write in the report, it's an active period of June from the championships, and I think everyone who follows this sector knows that now we go into a little bit calmer period for a short time, but then it builds up when the big leagues open up again, and it's not far away. So it's quite a normal pattern, but of course, the activity in the first part of June was strengthened by the fact that we had the tournaments.
Yep. Okay, that makes sense. And then just a final question, if I may, on the B2B development here in the quarter. Growth obviously slowing quite a bit. Is there anything you can point to that's happening here or just facing tougher and tougher comps?
We have no comments on that, really. It's going up and down over time, the B2B revenues and there's nothing that stands out in this quarter.
We are really pleased with the growth as such, and I mean, part of our business model is being diversified. That means geographic diversification, that means diversification between B2B and B2C. So we are equally happy if the growth comes from B2B or from B2C.
Okay, good. That's all for me. Thank you very much.
Thank you very much.
The next question comes from Martin Arnell from DNB Markets. Please go ahead.
Hi, guys.
Good morning, or good, good day.
Good day. Yeah. So, my first question, your start to Q3, you had almost 50% growth and 20% reported. It's a big division here, when it comes to FX. Is the performance broad, or is it, like, specific to one market? If you could comment on that.
The performance is broad in the first part of June, so it's not one market that sticks out, really.
Mm. Okay. And I want to ask you on LatAm as well, which was a bit above our forecast. Could you highlight what stands out there? What did well? Is it casino or in Argentina behind the strong numbers, or?
We don't really go into the markets as such with detailed comments, but obviously we have obtained licenses in three different regions in Argentina, and this is a country where we put a lot of efforts. So that is, of course, one part that is driving the LatAm business.
When you look ahead into the second half, it can be quite lumpy in LatAm, depending on your activity and sports margins, et cetera. Are you confident that it will be a double-digit growth region also in the second half?
This, we can't really go into details on because we can't comment on it. It's tough for us.
But you're a growth company in LatAm, and you're hoping that will stay the same in the second half?
Yeah. I mean, LatAm is a huge region. I think we have conveyed to the market, you know, our ambitions for that very large opportunity, and that ambition remains, so we will put a lot of efforts to grow there. But then again, everything goes in steps. We'll see how it plays out and when, but we definitely have the tools, we have the ambitions, and we have a lot of new opportunities and measures coming up to increase the growth in LatAm.
Can you say anything on the preparations in Brazil?
Not really. No, I can't.
No, I think it's, there's been so many turns back and forth, so I think it's better if you don't say anything until it's properly in place.
Okay, fair enough. My final question: I think you had a 25% active player growth in the quarter. And these events, usually the effect from it is in the coming quarters when you sort of capitalize on the intake. Should we expect a similar situation as before in the past or anything different this quarter?
We haven't made any major changes, so in general, I can say that we should expect the similar pattern as before. As you know, these kind of tournaments, what we have seen now, kind of attract the general players more. So that's why we get a good growth in active players, and now it's. Now we will try, of course, to keep them active into the next quarter and see how we succeed with that.
Okay, excellent. Thank you, guys.
Thank you very much.
As a reminder, if you wish to ask a question, please dial hash five on your telephone keypad.
We have received some questions from the web audience. First off, it's about the revenue increase, the difference between the reported 15% year-over-year increase and the organic revenue growth of 38%, if we can elaborate on the difference and how the organic revenue growth is calculated. Yeah, I mean, I think we have stated in the past reports that the FX implication is only coming from direct impact, meaning it's only from direct currencies. And in the back of our report, we present a more detailed table, where we kind of explain how much of revenue and EBIT that is coming from acquired growth and what is coming from currency fluctuations.
You can also see in the back of the report the kind of main currencies that is impacting, and there you see that the Argentine pesos is one of the currencies with the highest changes in the quarter.
Next question is about the tax rate in Q2, which was 22.2%, well above the 15% that's required by the Pillar Two regulation. If we can explain why that is, and what to expect going forward in terms of tax rates.
I mean, you can, you can never give a guidance on the exact rate going forward, but what we have seen here is, I think, a fair estimate of the levels that we will see going forward as well. The reason for the step up is that, firstly, you have the Pillar Two effect, which is a minimum tax of 15%. On top of that, you also have, we, or at least we have, more revenue coming from, countries where we have local companies, such as Belgium and other countries, where you pay higher, much higher taxes, local taxes, than the stipulated 15% in the Pillar Two. So, these levels is a fair indication on, where we will head going forward.
The rest of the web questions are, I think, have been already asked by the analysts, and in general, covered throughout the presentation.
Okay, then there are no more questions, I guess. If that's the case, thank you very much for listening in today. It's been nice to present again, a great report. We are really happy with what we have achieved for the second quarter, and the company is obviously doing well, and we are trending well. So, we are looking forward to the autumn and the rest of the year, and we'll see what we can achieve there. Thank you all for listening in, and see you next time. Bye-bye.