Good morning, and welcome to today's presentation of Betsson's second quarter. My name is Ole Kvarnström, and I will be handling the Q&A session later after presentation. First, of course, we will hear from Betsson CEO Pontus Lindwall and CFO Martin Öhman. If you have questions, you can ask them in writing here on the site, or you can dial in and ask them live here. First, now, Pontus, the stage is yours.
Thank you. Hello, everybody. Welcome to the presentation of the second quarter 2020 of Betsson. Here is an outline of what we want to cover today. We're going to start with an overview, and then we're going to discuss how online entertainment is resilient to crisis. We're going to get the financial overview from Martin, and then we will give you a trading update for the third quarter. I will talk about product and technology update, and regulations and sustainability, and growth drivers and summary. After that, we will open up for Q&A. An overview of the quarter. Some financial highlights. We had all-time high revenues of SEK 1.5 billion, and we had organic revenue growth of 12%. We had an EBIT of SEK 218 million, which is an 11% increase compared to last year, and quite a strong EBIT margin of 14.2%.
Our casino revenues were up 40% compared to last year, whereas the sports book revenues were down 34%, of course, impacted by the COVID-19 effect we have seen.
Pause for a second. Is this something that you're satisfied with, or did you expect this going into the quarter?
Going into the quarter, the visibility was very low on how the quarter was going to play out. Looking back now, I am really satisfied with what we have achieved. In such tough conditions, we have managed to deliver a very strong profit, which puts us in a strong position going forward.
Okay.
Speaking about that, our strong position, we have continued all our efforts in the company despite the ongoing crisis in the global markets. This means that we continue to strive forward, and we have fulfilled the integration of the GIG B2C vertical that we acquired. We have made a move into the U.S. through a cooperation in Colorado. We are going to Kenya into the African market, and after the quarter, we have made an acquisition of 70% of Colbet in Colombia. Online entertainment, resilient to crisis. This graph shows that we've had many crisis since the early 2000s, and on the bars, we can see that the online gambling market is really resilient to all those crisis. That's, of course, an interesting and good position to be in.
When it comes to our company, Betsson, we are very resilient due to the fact that we have a very diversified product portfolio, a diversified brand portfolio, we have a broad geographical spread and a strong financial position. This makes us strong for any kind of changes in the market. During this period, we have been working remotely, we are still working remotely. Due to the technological infrastructure that we have, this is working really well. Of course, we see an uplift in the casino during the COVID crisis, and we see an accelerated transition from retail to online gambling. The sports betting took a hit, as I mentioned before, by the end of the first quarter and the first half and even a little bit more of the second quarter. Now it's returning to normal at the end of the second quarter.
We will keep on building for the future, and we keep on all the initiatives that we have started and look forward to the future. Now I'm going to hand over to Martin for a financial overview.
Yes. Thank you, Pontus. Pontus will be back in a few minutes to wrap up the presentation. First, of course, we will have Martin Öhman with us here to go through the numbers. Martin, Q1 started out quite strong with positive momentum in the sports book specifically. Then, as we all know, COVID-19 hit the world and us in Europe very hard, shutting down most sports in a lot of the countries. With that fresh in mind, what's your take on the Q2 numbers?
Thanks, Ole, for the introduction. Yeah, we were on a good trend at the end of the first quarter. Now entering the second quarter, we are still on a good trend, and we see the third consecutive quarter with growth quarter-over-quarter. Revenue for the second quarter was, as Pontus mentioned, SEK 1.5 billion, which is an increase by 20%, of which 12% is organic. The increase comes mainly from casino, where we see all-time high in the second quarter 2020. License revenue from our sustainable B2B business grew from SEK 121 million last year to SEK 209 million this year and now corresponds to some 14% of the group's total revenue. Looking at revenue by quarter, we see increase in all regions but the Nordic region, where we see a decrease by 14% organic. This is all due to the lack of sporting events.
Casino revenue is slightly up in this region, but it's not compensating as it does in the other regions for the shortcomings from sports. Revenue from Western Europe increased by 40%, of which 20% was organic, and now constitutes some 36% of the group's total revenue. Western Europe region is a casino-heavy region, where we find countries like U.K., Italy, and Netherlands, where we historically have seen quite high number coming from the land-based and now transforming to the online. We've also seen harder restriction in those countries than maybe in other regions, impacting this a bit, and accelerating the online transition. Both the CEE&CA region and the rest of the world region are sport book-heavy regions. It's extra fun to see that we see growth from those regions as well.
Revenue from regulated markets increased by 30% compared to the same period last year, and now constitutes some 40% of the group's total revenue. Betsson's current casino offer includes some 3,000 games, of which 2,500 are available on mobile devices. As mentioned, casino increased by 40% in the second quarter, and this is all-time high. We also see that casino grow for the fourth consecutive quarter, and this is mainly due to additional games and features, improved products such as the Pay N Play casino, Jalla Casino in Sweden. We've also seen the shift from offline to online, and the lockdown and social distancing as well. Moving on to the sportsbook. Gross turnover in sportsbook was some SEK 1.4 billion, which is a decline by 16% organic compared to the second quarter last year.
The decline could have been much bigger since the non-existing sporting in the beginning of the quarter. Thanks to our proprietary sportsbook, we've been able to shift our focus, and we have offered some 63,000 live betting events during the quarter. Sportsbook revenue declined by some 34% compared to the same quarter last year, this is of course impacted by the lower gross turnover, also to the lower sportsbook margin of 6.9% compared to 7.8% last year. The eight quarter rolling average margin was 7.4%. Cost of services provided in the second quarter increased by SEK 155 million, this is mainly explained by the change in revenue mix since revenue from the casino side comes with a higher cost of service provider than our proprietary sportsbook.
Gross profit amounted to SEK 959 million compared to SEK 859 million last year, corresponds to a gross margin of 62.5%. Marketing spend is more or less on the same level as last year, we have seen a shift towards more casino-related marketing. As always, we try to get the most out of every spent SEK. That's why we can be quite efficient in marketing. Betsson has managed cost very tightly in the last few quarters, that we will continue with. Personnel and operating costs have slightly increased in the second quarter compared to last year, this is part of the growth plan, we have invested and will continue to invest in developing our technology, broadening our product offering, and also improve the user experience.
We should also keep in mind that we have added the GIG business, adding on some new 60 employees to the business from mid-April this quarter. Operating cost in the second quarter is also impacted by non-recurring items of SEK 20 million relating to a fine received from the Swedish Gambling Authority, which Betsson has appealed. EBIT amounts to SEK 218 million, which is an increase of 11% year-over-year. EBIT margin is 14.2%, and that conveys Betsson's ability to deliver profit, although tough times. Organic EBIT, adjusted for unrealized FX losses of SEK 17 million and the SGA fine of SEK 20 million, amounts to SEK 283 million, representing an organic EBIT margin of 18.5%. Moving on to the cash flow and financial position. Betsson has a high cash conversion ratio and show operating cash flow of SEK 344 million, driven by strong operating income in the quarter.
This is a bit lower than last year, since last year we're quite positively affected by changes from working capital. Cash flow from financing activities mainly relates to the acquisition of the GIG B2C operation, but also to investments in Betsson's proprietary technology. Cash flow from financing activities is purely relating to utilization of the RCF due to the payment of the purchase price for the GIG business. Betsson has a low leverage, and as of end of June, the net debt position amounted to SEK 160 million, corresponding to a net debt to EBITDA ratio of 0.1, and we have an equity ratio of 63%.
Perfect. Thank you, Martin. Martin will, of course, be staying for the Q&A session and answer questions if necessary. First, we'll welcome Pontus back to wrap up the presentation with a few more slides.
Thank you. Yes. I'm going to talk about the trading update in the third quarter, where we see an uplift until the 16th of July with 35%, out were of 23 is organic, compared to the full third quarter last year. This is, of course, a very powerful number, but it's only a short way into the quarter, and it's hard to have a long-term or mid-term outlook for the quarter. I think we can conclude that we are performing strongly, and with the sports coming back and the casino keeping on strongly, I feel that we are in a strong position so far in the quarter. A little bit on the product and technology. As I said before, Betsson has not stopped to invest or to develop. It's in the other way.
We have continued to strive forward. We have done several launches of new technology pieces during the quarter. Mostly are related to the sportsbook, such as increased number of markets and some user experience improvements. We have added features such as 2 Goals Ahead Early Payout in the sportsbook and several other new technological things. Payout by Swish in Sweden is one of those. On the regulatory and sustainability side, I just want to comment on a few updates. The Netherlands needs to be commented all the time. This time, the parliament has proposed that online operators will not be permitted to use their pre-established Dutch customer bases once the market open up, which is planned to be this time next year. In Sweden, the government has implemented a temporary restriction policy from the 2nd of July, just recently, hitting mainly casino players.
In Latvia, there was measures for the COVID implemented, but they have been taken away since the 10th of June.
Can we pause for a second about the Netherlands thing there? Could you give that maybe some more flavor? What would that mean? Wouldn't you like to speculate on that so early?
Yeah. If that would happen, according to the proposal, it means that online operators would have to start off with a clean customer base when the market opens up. Of course, this is something that we don't like this proposal at all, and we will work against this proposal.
Okay. Thank you.
During this sad time of COVID-19, we have activated our responsible gaming measures even more. We have more than doubled the contacts with the interactions with customers in responsible gaming questions, and we have doubled the real-time notifications to customers in this regard as well. From the new depositing clients that we have had in the quarter, more than 40% have started out with a deposit limit on their account. We are moving ahead and we are working even more strongly in responsible gaming than ever before. What are the growth drivers for Betsson, and why have we been able to perform this well? I think the key enablers for our growth is that we have the proprietary technology, we have the scale to scale up for the future.
This proprietary technology makes it possible for us to adjust very quickly to changes in the market conditions. We have strong financials to deliver growth, so that gives us the freedom to act in several different areas. We have a very diversified business through multi-brand portfolio, many brands, many markets, many products, and that makes us strong and resilient. We enjoy the transition from land-based gaming to online gaming, which has been increasing, of course, during this COVID crisis. Most important of all, we have the operational excellence with all the passionate Betssonites out there, and I think we have the best working crew in this industry. To summarize, I'm happy we have an all-time high revenues in this hard period of the year.
During this hard period, we have also made several new market entries like the U.S., Kenya, and Colombia. We have proven once again that we are resilient and we are primed for both organic and acquisitive growth for the future.
Perfect, Pontus. Thank you. That means it's time for questions. If you have questions, you can ask them here on the site in writing, and I will read them up, or you could dial in and ask them directly yourself, then you have to press star one on your phone. With that, I'll hand the word over to our phone operator, Jodi.
Our first question for today is from the line of Martin Arnell. Please go ahead.
Hi, and good morning. Can you hear me?
We hear you loud and clear. I hope you can hear us, too.
Yeah. Great. My first question is on the revenue growth in the quarter and the mix there, with strong Western Europe and perhaps a bit weak Nordics. If you could elaborate a little bit more on the markets in Western Europe. Is it wide good performance across U.K., Italy, Netherlands, Germany, et cetera?
Yes, it's wide good performance. It's very natural that you see a stronger push on those markets than you see in the Nordics, because the Nordics has a higher penetration already of online gambling, whereas in the Western Europe countries, they are more used to land-based gaming. When that disappears, there's a stronger push into online gaming for that reason.
I know Nordics is not your main market anymore, but how are you reacting to these temporary restrictions? What are you doing to offset that?
We still have strong ambitions in the Nordics. It's an important part of our business, we want to be strong here. We didn't like this implementation of new regulation, which we think it's not based on any science, we think the response to the COVID crisis is way too late, that is also proven by the fact that other countries has removed their measures already. We will continue as before. We have launched the strong Jalla Casino during the quarter, the casino which Jalla. We have great hope for the Nordic markets, despite the fact that we now have an even more complicated situation in Sweden.
On the real numbers, how is that possible in a quarter like this where with canceled sports events? Have you pushed casino there, or how can you explain that?
Yes, we have seen a natural transition from sports to casino during this period. We believe that there's an effect as well that probably land-based venues has closed down, and that has pushed new players into the digital market.
Okay. The trading outlook, is that number, does that include faded casino growth compared to the end of Q2, or is it continued strong casino in that number?
I can't give the details on the figures, of course, but I can only say that we have started the quarter strongly in most areas.
Okay, thanks. Just final two questions. Your expansion plans, when do you expect to have decent U.S. revenue streams?
As we have said before, we are going into the U.S. in a cautious fashion, and we're going to establish ourselves there during the next year. I can't reveal any details on our U.S. plans, but of course, we will be happy to see a lot of potential in that market, selling our sportsbook through B2B arrangements. Depending on the outcome, it can become pretty big figures. The U.S. is expected to become one of the biggest markets, if not the biggest in the world.
Okay, thanks. Final one from me. On the GIG acquisition, could you just remind us on the synergies and potential timing for this?
Yes. Now we have taken over the business. It's up and running with an additional 60 people, and we're really happy about that, and it's performing according to plan. We have communicated to the market already that we will be operating on the GIG platform for another two and a half years. After that time has passed, there will be another set of synergies when we go onto our own platform.
Okay, thanks.
Thank you.
Our next question is from Oscar Ericsson. Please go ahead.
Thank you. Good morning, Pontus. A few questions from me, starting with the trading update for July. Very strong organic growth. How should we view growth for the full quarter? Currently, the sports calendar is very busy, of course, most football leagues will now not be active in August, the next season will start mid-September. How should we view the full quarter growth? Do you have any input on that? Thank you.
Yes. Of course, it's impossible even for us to paint that out in detail. As we say, we have seen a very strong start of the third quarter. We expect it to keep on strongly going forward. There will be a little bit less sports events at some period of time during the quarter, but we don't expect a very big drop-down. We expect the quarter to keep on strongly.
Okay, great. Could you say something about the sportsbook margin at the start of Q3? Is it anything out of the ordinary, or it's more volumes and activity that's driving it?
I would say nothing that stands out.
Got it. Looking at Sweden, specifically at the start of Q3, I think it's particularly relevant given the new deposit limit rules, especially. What patterns are you seeing in Sweden? Can you say if Sweden grew year-over-year at the start of July, and how it compares to the rest of the group?
It's too short of a time period since the introduction of the new set of regulations in Sweden to have any judgment. What we can say on a general note is that any kind of limitations that you put or any kind of restrictions will push further players out of the regulations. That's not good. From a Betsson view, we have a strong ambition in Sweden, and our ambition is to grow in Sweden in the future.
With regards to your ambitions, what type of judgments are you making when it comes to allocating marketing spending between Sweden and other markets? Will that change now post second July?
I can't comment on that. That's a detailed question which I can't go into here.
Understood. Final question on Sweden. Do you see a different pattern among your brands with, I guess, Jalla Casino being more focused on Pay N Play, for example?
Yes. I think I can say that we are satisfied with the start of Jalla Casino. It has taken off really well. We can say that the market has surely appreciated the product, and that's very encouraging.
Understood. A question on Q2 numbers. The rest of world region for Casino grew very strongly at 240% year-on-year, really stood out. Can you talk about the mix there? Is Peru the main driver? If so, how do you view the outlook in Peru where you seemingly have a strong market position?
Yeah, that's our strongest market in that region. I think the driver behind the casino growth in that region is the same driver as we see in, for instance, Western Europe. It's not possible to play in retail shops. That pushes people to online casino, and it was not possible to play on sports most of the quarter, and that also pushed players to the casino. It's a similar pattern as in other regions. In terms of the outlook for the region as such, or Peru, Betsson has, of course, high ambitions with that region, which you can see from the investment that we did in Colbet recently.
Excellent. The final question here from me. There's news out today that U.K. tax authorities have started a probe into GVC for bribes to improve the operations in Turkey. What have you heard about this, and could it in some way impact Betsson and Realm Entertainment as well? Any input would be interesting. Thank you.
Yeah, we heard that news as well this morning. It's a matter regarding another company. It's not related to our partner. You also have to keep in mind that Betsson is a technology supplier to an operator in that region, and I think we are pretty far away from what's going on in the U.K. investigation.
Got it. Thank you very much. That's it from me.
Thank you.
Our next question is from Erik Moberg. Please go ahead.
Morning, guys. Can you hear me?
Yes, we hear you. I hope you hear us too.
Yes. All right. Could you perhaps elaborate a bit more on your strategy within B2B sportsbook? You indicated that you want to start providing B2B sportsbook services in the U.S., and do you perceive that you will have to increase your investment in order to keep up pace with competitors that are solely focused on B2B offering?
Of course, there will be some investment in relation to that. We have already geared up for that to go into B2B on the technical side. Regardless of that, we have managed to increase the competitiveness of our sportsbook for the past few years with the current setup that we have. I don't see any draconic cost changes by going B2B with the sportsbook.
Got it. To follow up on the B2B sportsbook. When you entered Spain, you used BetConstruct as a B2B supplier for your own sportsbook. My take is that the U.S. is much more stricter in terms of compliance. Do you assess that your current sportsbook offering currently is able to scale into new states?
Yes, we are. We can't go into every single state in the U.S. tomorrow, but I think we will start out in Colorado, and we will have time to adopt to other markets, which ones we deem fit for our sportsbook.
Got it. Fair enough. That's all for me. Thank you, guys.
Thank you.
There are currently no further questions from the phone lines.
Thank you so much, Jodi. I'll try to ask a few questions myself. Here's one we got in writing on the site. It's a question where you're asked to please elaborate on the GIG deal. How has the brands performed in Q2? Is it better or worse than expected?
We find that the brands that we acquired have performed according to plan, of course, the plan was good for us. That's why we made the acquisition. We are so far happy with where we stand with GIG and the performance.
Okay, looking at your growth initiatives right now, the company might seem to be going in multiple directions at once. Could you elaborate on what your strategy behind this?
Yes. You see a lot of growth initiatives. Betsson has the ambition to be a global player and a big player. We have communicated for a long time that we are going into the U.S. in one way or another. Now we did it. We have been present in South America for some time. Now we are expanding there, which you could possibly expect because we are already there. We now go towards the African market, which we look at as a very interesting market. It's a young market with a young population, huge interest in sports, and not that well penetrated. I think this is in line with our strategy to become a strong global internet gaming player.
Yes. Also going back a bit to the B2B sportsbook offering, what will be your key selling points here? Why should an operator choose to go with Betsson?
We have seen on the casino supplier side that there's a demand from operators to have several suppliers, and there are not that many competitive sportsbook suppliers. We believe that just the fact that we have a highly competitive and high-performing sportsbooks, that gives us a well-deserved place in that market.
Okay, also talking about U.S. entry. You're writing in the report and calling it the first and cautious step. With this Klondike-like gold rush we see towards the U.S. market right now, can one afford to be cautious, or should you go full steam ahead? Could you elaborate on your take on that?
I think even though a lot of things are happening in the U.S. and probably now faster after the corona crisis, that market has a long way to go still. It's still developing, and there's a lot of states that has not yet implemented any regulation. There will be a lot of possible business opportunities over there. I don't think that we are late to the party. We enter in a way where we are in full control of the situation, and we take the risk, which is in line with our risk appetite. I'm really happy with this way of going into the U.S.
Okay, perfect. I have one last question here. It is about sporting events in Q2. Considering that most sporting events were shut down during Q2, one could expect maybe that the revenue from the sportsbook being down more than it was. Could you elaborate a bit on the customer behavior in the sportsbook market in the second quarter?
Yeah. Of course, there was not too many sportsbook events available for a period of the second quarter. The company managed to find all different sports that was available and where we could get live streaming, we implemented a lot of new betting opportunities on these sports. I think some of the players, they were experiencing new sports, which they hadn't tried out before, and possibly they liked it. Now when the more normal and more broader sports are coming back, I think that people are going back partly to play on soccer and what they are used to, but I still think that some people will keep on playing on esports and these new kind of sports that we introduced.
Okay. Very interesting. That was the last question. If you don't have anything to add, Do you have anything to add?
I just want to thank all the Betssonites out there. You have done a terrific work. I haven't seen you for a long while because we are all working from home except us today. Thanks a lot. You have done a fantastic quarter.
Okay. Thank you so much. That will conclude today's presentation, and we hope to see you again next quarter. Thank you.