Report
Press release
Interim report January 1 June 30, 2007
All figures in this report are in SEK. Numbers in parenthesis indicate the corresponding period of the previous year.
Second quarter
- The groups net sales increased by 147 percent to SEK 155.7 (63.0) million.
- Operating profit increased to SEK 47.2 (-12.8) million.
- Betsson.com launched its French-language site.
- Subsidiary Net Entertainment was distributed as dividends to shareholders and noted on NGM Equity
- New dividend policy was adopted. Up to 75 percent of the companys income after taxes will be distributed
to shareholders.
Interim Period
- The groups net sales increased by 134 percent to SEK 311.7 (133.1) million.
- Operating income increased to SEK 92.7 (-14.3) million.
- The Groups income after taxes for the remaining operations amounted to SEK 85.1 (-11.6) million, which
corresponds to SEK 2.15 (-0.30) per share.
Events after the end of the interim period
- Italian, Spanish and Greek language sites launched
- The market for Betsson's products continues to grow strongly
- Strong introduction to Q3 with increased gaming revenues
- The Betsson share was upgraded to the Mid Cap list on the OMX Nordic Exhange in Stockholm
Today, Tuesday, August 21 at 09:00 CET, Betssons Group president, Pontus Lindwall, will have a telephone
conference presenting the interim report. The presentation will be followed by a Q&A session. The presentation will be
held in English.
To participate in the telephone conference, call: +46(0)8 5352 6458 (Sweden) or +44(0)20 7806 1967 (UK).
The presentation can also be followed at 09:00 by Webcast (sound and PowerPoint presentation) on www.betsson.se
under Financial Info. The presentation can also be followed at www.financialhearings.com, Betsson.
Second quarter 2007
Betssons focus on profitability before growth during the years historically weakest quarter has been successful. Despite
the seasonal decline and difficulties on the Turkish market, the company has reached the same revenue level as Q1
2007 and has successfully increased its margins somewhat.
Revenues during the quarter amounted to SEK 155.7 (63.0) million, which represents an increase of 147 percent
compared to Q2 2006. Operating profit rose to SEK 47.2 (-12.8) million and operating margin totalled 30.3 percent.
The seasonal effect that normally begins at the end of March and continues through mid-Q3, and which draws down the
gaming volume compared to the rest of the year, means that Q2 is historically Betssons weakest period. Based on
experience from the companys marketing efforts during Q2 in previous years, Betsson this year has been more
economical with marketing and free offers for new customers, and instead focused on existing customers and product
development. Betsson has successfully chosen to prioritise profitability instead of recruiting new customers during this
normally weak period. As a result, growth in the customer database and the activity level during Q2 has not been as high
as in previous years, but the outcome in income was satisfactory.
Turkish legislation against online gaming has complicated Betssons participation on the Turkish market. The gaming
volume from Turkey has declined significantly from the end of last quarter. This reduction, as well as the fact of offering
less free gaming, has reduced the number of active customers and the activity level during the quarter, while the
operating profit has increased somewhat. This is primarily because there had previously been a large number of active
Turkish customers, but in general each has played for small amounts.
Despite the Turkish decline, Betsson has successfully maintained the gaming volume since other markets have had good
growth in net sales during the quarter.
Interim period JanuaryJune 2007
The Groups revenues rose 134 percent SEK 311.7 (133.1) million compared to last year.
The Groups operating profit rose to SEK 92.7 (-14.3) million. Operating margin increased to 29.7 (-10.7%) percent.
Income before taxes increased to SEK 93.1 (-15.3) million.
Income after tax from continuing operations amounted to SEK 85.1 (-11.6) million which corresponds to SEK 2.15 (- 0.30)
per share.
The interim periods income after taxes, including discontinued operations, amounted to SEK 96.6 (1.8) million,
corresponding to SEK 2.44 (0.05) per share. The income from discontinued operations refers to the previously included
business areas Net Entertainment and Cherry Casino, and amounted to SEK 11.5 (13.4) million, corresponding to SEK
0.29 (0.35) per share.
Return on equity was 16 (- 2) percent and return on total capital 15 (- 2) percent. Equity per share amounted to SEK
13.69 (12.09) at the closing date.
Gross Profit
The purpose of implementing the gross profit as income standard in the report is to simplify comparison with other
gaming companies.
The gross profit from the Groups gaming operations is composed of the net of received gaming wagers and paid winnings,
minus gaming taxes, license fees to game suppliers, and the net of income and expenses for bank and credit card
payment services for depositing gaming wagers and paying winnings. Bonus does not affect the Groups gross margin.
Instead, the net cost of free games is reported as a marketing cost under other external expenses.
During Q2 2007, the gross profit amounted to SEK 125.0 (51.1) million. Operating margin in relation to gross profit
increased to 37.8 (- 25.0) percent. For the entire six-month period, gross profit increased to SEK 250.6 (107.3) million,
and operating margin in relation to gross profit increased to 37.0 (-13.3) percent.
Gaming operations
Betsson offers Internet gaming to end consumers on a global market through the gaming portal betsson.com and the
casino sites CasinoEuro.com and CherryCasino.com.
Products
Betsson currently offers the following products:
- Sports betting, which offers a wide variety of possibilities for wagering, both on sports and other happenings of interest
to European players.
- The betting exchange, which is a marketplace for wagering. Unlike sports betting, here customers play against each
other. Betsson receives commissions from those who win a wager.
- Casino with a large variety of world-class casino games that require no download. Here there are both traditional and
innovative games including Black Jack, Roulette, Casino Holdem, video poker games, gaming machines and much
more.
- Poker with several different poker games connected to Ongame, the largest poker network in the world with close to
twelve million registered poker players.
- The scratch card Trio, which gives the player a high payout and winnings on average from every third card.
- Bingo, which was launched at the end of March for the Swedish market, offers several different bingo games. A bingo
host is present in the chat, where players also have a chance to chat with each other.
Customers
At the end of Q2 2007, the number of registered customers was 774,000, an increase of 13 percent compared to Q1 2007
and an increase of 41 percent compared to Q2 2006.
The number of active customers decreased during the quarter by 25 percent to 94,500, but has increased by a total of 57
percent compared to Q2 last year. The decline in active customers during the quarter is primarily from a lack of free offers
and Turkish players difficulties using the site. The number of active customers on Betsson's primary markets in
Scandinavia are the same in Q2 as Q1. Profitability per active customer has increased, and the operating income has
increased during Q2 2007 compared to Q1 2007.
The number of active customers distributed by product (previous quarter given in parenthesis) was:
* Betting (Sportsbook and Exchange) 41,700 (69,000), 40 percent decrease
* Casino 33,900 (52,800), 36 percent decrease
* Poker 42,500 (45,200), 6 percent decrease
* Trio 5,400 (8,400), 35 percent decrease
* Bingo 10,900 (launched at the end of Q1 2007, so no comparison figures are available)
An active customer is defined as a customer who has played for money during the last three months.
Betsson actively markets through various media, and through result-based cooperation and partnerships to increase the
number of customers. At the same time, Betsson has an active loyalty program to keep existing customers playing.
Markets
Betsson.com is established in 14 countries, with the Scandinavian countries composing the most important geographical
market. CasinoEuro.com is available in 16 languages. Betsson still has its strongest footing in Scandinavia, but is now
growing more and more rapidly throughout the rest of Europe.
Personnel and organisation
The average number of employees during the period was 99 (62) for the Group. At the end of the period, there were 108
(75) employees.
Distribution of subsidiaries
On March 30, Betssons extraordinary general meeting decided to distribute Net Entertainment as dividends to Betssons
shareholders. The company was listed on NGM Equity on April 5.
Annual General Meeting, cash dividends, mm
At the annual general meeting on May 22, the decision was made to pay cash dividends of SEK 0.50 per share.
New dividend policy
The Board of Directors has adopted a new dividend policy for Betsson AB that will be valid from 2008. The ambition of
the Board is for Betsson to pay dividends of up to 75 percent of the Groups profit after taxes, assuming that a reasonable
financial structure can be maintained.
Ownership
In June, Betssons largest owner, Straumur Investment Bank, sold its entire holdings in Betsson to various institutions
and existing shareholders.
Parent company
The operations of the parent company, Betsson AB (publ), are primarily directed toward Group administration. The
company provides and sells internal services to other Group member companies in the areas of finance, accounting,
administration and management, and in addition has certain external rental income streams.
Net sales (including intra-Group items) for the reporting period amounted to SEK 3.7 (4.2) million and the loss after financial
items amounted to SEK 5.9 (13.5) million.
The parent companys investments in fixed assets amounted to SEK 0 (24,000) during the reporting period. Cash and cash
equivalents amounted to SEK 14.8 (16.2) million at the closing date. The company has no bank loans or bank credits.
During the period, the parent company paid cash dividends of SEK 19.8 million and distributed shares in subsidiaries to
shareholders for a book value of SEK 4.0 million. For more detailed information, see the income statement and balance
sheet on page 10.
2007 Prospects
The first half of 2007 has been strong and the second quarters result is in line with the companys expectations. The third
quarter has also begun strong.
In March, the European Court of Justice confirmed through the Placanica ruling that national legislation prohibiting
practicing gaming operations without license or governmental permit constitutes a limitation on freedom of establishment
and freedom to provide services within the EU. Later in March, the EU commission announced that it had taken
measures to stop the prevention of free movement on sports betting services in Denmark, Finland and Hungary. The
European Court of Justice and the EU Commissions point of view and actions can in the long term result in improved
opportunities for Betsson.
Turkey has adopted legislation against Internet gaming. The legislation, whose purpose is to protect the state-owned
gaming company IDDAA, is, according to legal experts, a violation of Turkeys agreement with the EU, which is intended to
facilitate Turkeys transition toward possible EU membership. The Turkish legislation complicates Betssons participation
on the Turkish market.
During the year, Betsson will widen its product offering to include new gaming products, some unique and some already
established in the market. At the same time, Betsson has launched in several new geographical markets. The goal is to
grow both organically and through acquisitions in these new markets.
Betsson aims to grow faster than the market, maintaining an operating margin of at least 30 percent.
Financial reports
The next interim report (third quarter) will be released on 8 November 8, 2007.
Accounting principles
Betsson applies the International Financial Reporting Standards (IFRS) as adopted by the EU. This interim report has
been prepared in accordance with IAS 34, Interim Financial Reporting. The accounting principles remain unchanged
from the year-end accounting 2006. Further information on the Groups accounting and valuation principles can be found
in note 1 of the annual report for 2006.
The Groups business area for development and licensing of online gaming products Net Entertainment was
distributed as dividends to Betssons shareholders at the beginning of April 2007 and was listed at NGM Equity. The
Groups traditional gaming operations in the business area Cherry Casino were distributed as dividends to shareholders
under the name Cherryföretagen AB and listed at AktieTorget in September 2006.
Net Entertainment was consolidated in the Betsson Group through March 2007, and Cherry Casino was consolidated in
the Group through August 2006.
In accordance with IFRS 5, Noncurrent Assets held for sale and Discontinued Operations, the periods income for the
distributed business Net Entertainment is reported in the groups Income Statement within the item Income for the
period from discontinued operations. This means that income and expenses for the business area Net Entertainment
were excluded from all items in the income statement for the actual period and comparison periods. Income and
expenses for the business area Cherry Casino were also excluded from all items in the income statement for comparison
periods.
The cash flow statement reports separately the effect of business area Net Entertainment on the interim and comparison
periods cash flow, as well as business area Cherry Casinos effect on the comparison periods cash flow.
The business area Net Entertainment is excluded from the balance sheet for June 30. The balance sheet for comparison
periods are those already published, which means that Net Entertainments balance sheet items are included in the
Groups balance sheet for the reported comparison periods, while Cherry Casinos balance sheet items are included in
the Groups balance sheet for all comparison periods through August 2006.
For additional information, please refer to the summaries included in the interim report of the Groups statement of
income, balance sheet, equity summary, and cash flow statement as well as notes and key ratios for the period and
comparison period and the annual report for 2006.
Risks and uncertainties
Gaming on most national markets is regulated by law, and all gaming operations are in principle subject to authorization.
Political decisions can therefore affect Betssons operation. Betsson is dependent on the legal situation for the gaming
industry, particularly within the EU where the majority of the companys customers are active. The European Court of
Justice has, in a series of much noted and landmark rulings (the Schindler, Läärä, Gambelli, Lindman and Placanica
rulings), determined that governmental restrictions on the gaming area are in principle considered restrictions on the EUs
basic principles. Nevertheless, a number of member states maintain restrictions in order to complicate or render impossible
the operations of private online companies.
It is likely that within the near future several European gaming monopolies will be challenged by national legal proceedings.
It is currently difficult to have a clear view on how the legal situation will affect the commercial conditions for online
operators. In the context it should be emphasized that Betsson does not offer its services to customers residing in the USA
after a legislative proposal prohibiting relaying payment transactions from Internet gaming in the USA came into effect in
October 2006.
Persons suffering from gambling addiction could sue companies within the Betsson Group for their gambling addiction.
Even if such claims would most likely be rejected, they could create significant expense and even reduce confidence in the
Betsson Group, leading in the long term to reduced revenues. Betsson is accredited by the organisation G4, which works to
prevent gambling addiction. As a part of this, Betsson has modified its sites to offer full support for G4s established
guidelines.
Betsson is exposed to seasonal variations, since gaming decreases during the summer. The fluctuations do not however
affect the operation significantly. Betsson is not insensitive to market swings, but they do not significantly affect the
company.
The Groups operation on Malta has, until now, been partially exempt from VAT. The Maltese authorities are currently
reviewing their regulations, but it is difficult to predict which, if any, regulatory changes may be made. If portions of the
companys operations become subject to VAT, it will most likely affect the result negatively.
For more, see the section on risk in the 2006 Annual Report.
The Board and CEO herewith state that this interim report provides a true and fair picture of the activities, financial
position and results of the parent company and the Group, as well as describing significant risks and uncertainty factors
to which the parent company and the companies belonging to the Group are exposed
Stockholm, Sweden, 21 August 2007
John Wattin Rolf Blom Per Hamberg
Chairman of the Board Boardmember Boardmember
Emil Sunvisson Patrick Svensk Kicki Wallje-Lund
Boardmember Boardmember Boardmember
Pontus Lindwall
CEO and President
Review report
I have reviewed the interim financial information in summary for Betsson AB (publ) as of June 30, 2007 and for the six-month period that
ended on that date. The Board of Directors and managing director are responsible for the preparation and presentation of this interim
report in accordance with IAS 34 and the Annual Accounts Act. My responsibility is to express a conclusion on this interim financial
information based on my review.
I conducted my review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information
Performed by the Independent Auditor of the Entity. A review consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A review has a different emphasis and is substantially less in
scope than an audit conducted in accordance with (RS) and other generally accepted auditing practices. The procedures performed in a
review do not enable me to obtain a level of assurance that would make me aware of all significant matters that might be identified in an
audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based
on an audit.
During my review, nothing has come to my attention that causes me to believe that the accompanying interim financial information is not, in
all material respects, prepared on behalf of the Group in accordance with IAS 34 and the Annual Accounts Act, and on behalf of the parent
company in accordance with the Swedish Annual Accounts Act.
Stockholm, 21 August 2007
Gunnar Liljedahl
Authorised Public Accountant, Ernst & Young
For further information, please contact:
Pontus Lindwall, President and CEO, phone +46 (0)8-556 967 10, +46 (0)708-27 51 55, [email protected]