Betsson ends difficult 2019 with weak Q4
Betsson has reported year-on-year declines in full-year revenue and profit for 2019, after a year in which the company struggled with regulatory developments in key markets - Sweden especially - ended with a weaker-than-expected Q4.
Total revenue for the year amounted to SEK5.17bn (£414.2m/€493.3m/$537.0m), a 4.6% decline from 2019. Chief executive Pontus Lindwall (pictured) said the year represented a “notch” in the business’s growth curve, which had been traditionally faster than the market.
This followed a 10.2% decline in Q4 revenue to SEK1.29bn, the operator’s third consecutive quarter of revenue decline. Lindwall blamed this on difficult operating conditions in Sweden - an issue that also impacted performance in the second and third quarters.
“We had expected some recovery in the closing fourth quarter, above all in the Swedish market, but we did not reach our objectives there,” he explained.
Lindwall said that there had not yet been the market consolidation expected in Sweden, resulting in a large number of licensees competing in a small market, without generating profits.
"On the other hand, we have seen declining channelisation, which makes it difficult for the licensed operators who pay 18 percent gaming tax and it also jeopardizes consumer protection,” he added. “High channelisation contributes to competition on equal terms for the companies in the sector that operate in the Swedish market.”
During the quarter, revenue from the Nordic region accounted for SEK450.2m of group revenue, down 31.7% year-on-year. The contribution from Western Europe also declined, falling 14.8% to SEK387.7m, which was offset in part by a 37.1% increase in revenue from Central and Eastern Europe and Central Asia, to SEK369.9m, with the final SEK81.7m coming from other markets.
In total, locally taxed revenue increased 40.5% to SEK464.9m, accounting for 36.1% of the group total for the year.
Looking at revenue by product in Q4, casino reigned supreme, accounting for SEK964.1m, and while this was down 11.2% year-on-year, it still represented 74.8% of total revenue. Sportsbook followed with revenue of SEK311.6m, down 9.6%, amounting to 24.2% of the group total. Revenue from all other products fell 41.3% to SEK13.8m.
Included in this revenue was an SEK175.4m contribution from Betsson’s B2B deal with Realm Entertainment, operator of the Bets10, MobilBahis, CasinoMaxi and CasinoMetropol brands. B2B revenue could grow further in 2020, following a similar supply deal with Claymore Group's ibet.
The fourth quarter saw an increase in cost of services, which grew 7.7% to SEK450.6m, mainly due to increased betting duties in Italy and Sweden and increased payment costs, as well as a negative currency exchange rate impact of SEK5.9m. This resulted in gross profit falling 17.6% to SEK838.8m.
However, operating expenses fell 5.7% to SEK638.3m, which Betsson credited to ongoing work on cost efficiencies, which saw marketing expenditure reduced to SEK211.8m. External expenses declined to SEK183.9m, despite work to expand the business’ product offering and explore opportunities in new markets.
However, the lower revenue resulted in operating profit declining despite the reduced expenses, falling 41.3% to SEK200.5m. After finance-related costs, pre-tax profit fell to SEK187.0m, while an SEK17.4m tax benefit resulted in a net profit of SEK204.4m for the quarter, down 34.8% year-on-year.
Turning to full-year profitability, cost of services grew 11.9% to SEK1.75bn, including an SEK19m fine levied by the Swedish Gaming Authority (Spelinspektionen) for violating bonus regulations in June 2019. This left a gross profit of SEK3.43bn, down 11.2%.
Operating expenses for the year were down 3.9% at SEK2.56bn, following reduced spending on marketing, personnel and other external expenses (not to mention a marginal increase in capitalised development costs), offset in part by increased amortisation and deprecation charges. As a result, operating profit fell 27.5% to SEK865.0m, though Lindwall said he was proud of the figure.
"The operating profit shows Betsson's ability to deliver profitability, also during the challenges that 2019 entailed,” he commented.
After financial expenses of SEK54.2m, profit before tax was down 29.6% at SEK810.9m, while net profit after tax for the year fell 27.0% to SEK787.1m.
Despite a difficult year, Lindwall said Betsson’s long-term ambitions of growing faster than the market, both organically and through acquisitions, remained in place.
“Our efficient organisation, the strong cash flow and the strong financial position provide a good foundation for acquisitions,” he said. “During the fourth quarter we made a minor strategic acquisition and continue to analyse several opportunities, both in locally regulated markets and in markets that will be regulated.
The operator acquired a 75% stake in Brazilian sports betting operator Suaposta in December 2019, designed to put Betsson in pole position to grow in Brazil’s regulated sports betting market.
“By further increasing the geographical distribution, we can reduce the impact of temporary downturns in individual markets,” Lindwall added.