MRG Q Results. Friday, 20 th July Transcript produced by Global Lingo London

Transcription

1 MRG Q Results Friday, 20 th July 2018 Transcript produced by Global Lingo London

2 MRG Q Results Per Norman Chief Executive Officer, MRG Opening Remarks Welcome to our presentation of the second-quarter results. I am Per Norman, CEO of MRG; and I have our CFO, Simon Falk; and our Investor Relations Director, Åse Lindskog, beside me. This is a special day to us, since this is the first report under the new name of MRG. It was in conjunction with our Capital Markets Day on 23 rd May that we unveiled the new name of the Group. Rationale for Name Change Portfolio of brands Let us turn to slide 2, where we describe the rationale for the name change. This slide comprises all our present major brands. A little more than a year ago, our portfolio of brands was much slimmer; the strong casino brand Mr Green was then predominant and our key asset. Then in April 2017, we acquired the Danish online company Dansk Underholdning with the strong Danish brands BingoSjov and BingoSlottet. Besides these local brands, the acquisition also gave us the opportunity to launch Mr Green in Denmark at the end of last year. Then, in February this year, we acquired Evoke Gaming with a strong, international sports brand, Redbet. The acquisition also gave us the local brands Vinnarum, MamaMiaBingo and Bertil. In June, we announced that we will enter the Baltic market through the acquisition of the Latvian igaming company 11.lv. We strongly believe in what we call a selective multi-brand strategy. We have two local brands with different customer segmentation: Mr Green and Redbet. In addition to that, we have a number of strong local brands and cash cows. New ventures In parallel with these three acquisitions, we have expanded in the value chain and initiated two new ventures. Green Jade is our company where we develop new games; it is 100% owned by us and the intention is to launch the first game called Hammer of Fortune in the third quarter of this year. Our esports venture is a joint venture with Gamingzone Entertainment. We own 55%, and the intention is to create a new community for esports fans with a focus on entertainment, content and news but also the possibility to place a bet. Name reflects who we are Besides the growth potential all these new brands and ventures have given us, the brand portfolio also raised the question about the name of the Group. We wanted to have a name and a brand design that are more in line in what we actually are: an innovative, fast-growing, igaming company. As you can maybe understand, it was an easy decision then to change the name to MRG. Strategy 2020 Let us go to slide 3 and also repeat what we stated on the Capital Markets Day regarding our strategy

3 Focus on growth and innovation We will continue our focus on growth to gain scale and to build a base which enables us to continue to innovate, build unique products and services. Economy of scale will offset increased local betting duties and costs for compliance. Geographic expansion In addition to continued growth in existing markets, we will continue our expansion into new geographical markets. We know that our brands, Mr Green and Redbet, are globally viable. In addition to the Baltics, we are reviewing a number of markets, preferably according to our strategy regulated markets or markets in the process of being regulated. Expanding the value chain We have also taken the step of expanding in the value chain. Through our game provider, Green Jade, we will provide the MRG brand with unique content, but this is also a separate business and a new opportunity. Green Gaming Green Gaming: we should continue to be the industry s leader within responsibility, and all of our brands should be closely connected with Green Gaming. A cut above the rest Finally, we shall continue to build upon the existing strong corporate culture. We have one leading value statement, and that is to be a cut above the rest. Q2 Highlights Let us move to slide 4 and highlights from the second quarter. Growth well above target Also in this quarter, we grew well above our growth target. For seven consecutive quarters, we have demonstrated growth above our target. Revenues in the quarter increased with 43.4% and ended at SEK 413 million, an all-time high. Established in the Baltics The acquisition of 11.lv is really two birds with one stone: we gain a foothold in the Baltic and we will launch our strong brands, Mr Green and Redbet, in the region; in addition, we got access to a highly competent team and a successful local brand. 11.lv is an impressive, fast-growing company which grew 93% in the quarter, and I feel very confident about our future development in the Baltics. Esports venture Our esports venture is running ahead with full speed at high energy levels; we plan to go live in Q4 this year. This is an exciting joint venture, which is growing the big and a quickly expanding esports market. Evoke Gaming reports profit Finally, Evoke Gaming has really turned out to be a golden egg and has, for the period May-June, delivered profit. I know that some of you were sceptical when we announced the acquisition and I will come back to figures in a while, but I hope we have convinced you all now that this is really a very healthy acquisition. 3

4 Guidance for 2018 and Financial Targets Let us move on to slide 5: our guidance for 2018 and our new financial target, which also were presented during the Capital Markets Day. We have guided on a top line growth of at least 40% for the full year 2018 and an EBITDA margin of approximately 15%. Up to the year 2020, we intend to achieve annual growth of 25% and an EBITDA margin of 15%. After 2020, our intention is to grow organically, quicker than the European igaming market with a sustainable 15% EBITDA margin. We have not changed the dividend policy. For the fiscal year 2017, we distributed in total SEK 53.1 million to our shareholders. Q2 Revenue and EBITDA Let us move on to slide 6 and dig a bit deeper into the Q2 figures. Revenue Of course, we are very happy with the strong growth trend and the 43.4% growth in the quarter. We grew organically with over 30% and FX gave us a favourable tailwind of 4.4%. The growth from the previous quarter this year was over 8%. Key growth drivers The key growth driver is our attractive customer offering; our offering is differentiated from competition through innovation and product development. We also have a very strong offering in Green Gaming, which is highly attractive to customers and supports our brand promises. Of course, our customer communication is the key element to deliver on our growth strategy. In absolute terms, the largest growth is within casino. In relative terms, we see the highest growth in live casino and Sportsbook. The Sportsbook increased with over 200% in the quarter. We did see a positive impact for the World Cup. However, the strong interest in the Sportsbook started already prior to the World Cup and is driven by recent enhancements in the product. EBITDA impacted by marketing cost As we communicated earlier, EBITDA has been impacted by a higher marketing spend. We took the decision to increase marketing for two major reasons: the first is the continuous strong marketing efficiency we have seen over the last quarter, and the second is, of course, the World Cup. These actions have turned out to be successful, as you will see later in this presentation. In order to reach the profitability target of an EBITDA margin of about 15% for the full year, we will focus more on cost control in the second half of this year. However, profit development will favour from the continuous strong top line growth, as well as full realisation of the synergies from the integration of Evoke Gaming. Marketing spend will decrease in relation to total revenue in the second half for

5 Revenue 1-19 July far beyond growth target It is a top priority for us to deliver on the guidance for the full year 2018, and current trading up to July 19 has been far beyond our growth target. Geographical Growth Good organic growth in all regions Let us move on to slide 7 and our geographical growth. We have had a stable growth trend in all regions over the past quarters. Nordics especially strong I would like to point out the robust growth in Sweden, and also stress that we had a good organic growth besides the impact of the acquisition of Evoke Gaming. Denmark continued to develop very favourably due to the success of the launch of Mr Green, and the Sportsbook will be launched in Denmark during Q3. Redbet introduced In the quarter, we introduced Redbet in our German-speaking market, which will be followed by increased marketing. Redbet is a strong global brand and so far the response from our customers has been very, very positive. As I said previously, we have now taken the step to establish Mr Green and Redbet in the Baltics through the acquisition of 11.lv in Latvia. Our Baltic operation is reported as part of the region Southern, Eastern and Central Europe. Customer and Deposits Growth All-time high records Let us move on to slide 8, which I really like a lot: our customer and deposits growth. As you can see, the second quarter was just another quarter with all-time high records in deposits and returning depositing customers. The continued growth in deposits, 64.3%; and depositing customers, 61.5%; are partly driven by the increased marketing spend. However, let me also point out the strong growth in returning deposit customers, up 53% as well. Entertainment a key growth driver This is the proof of uniqueness in our offering, as well as efficient customer communication. Our customers come to us because we offer them a superior experience in a Green Gaming environment. The growth in deposits and customers are essential KPIs, since they are the solid foundation for the continued rapid growth in the coming quarters. Marketing Efficiency So let us move on to slide 9 and investigate our marketing efficiency. This slide shows the significant change in marketing efficiency between 2016 and 2017, which was the main reason for the turnaround in The high level has continued in 2018, and during the second quarter it has proven to be sustainable, despite an increased marketing spend. This is the result of a strong focus in digital marketing, along with efficient internal processes and supported by the continuous innovation of the products. 5

6 Successful Integration of Evoke Gaming We move on to slide 10 and some more detail on our new golden egg, Evoke Gaming. The acquisition of Evoke Gaming has exceeded our expectations on all characteristics. The synergies have turned out to be larger than we anticipated, and the performance of the business has been stronger than we calculated in our business case. Evoke Gaming showed profits already in the period May-June this year, which is earlier than we had anticipated. Further, we will see the full effects of the synergies already in Q4. When it comes to the business growth, we have seen good development across all brands and especially Redbet; it, combined with Evoke brands, grew with 43% in the quarter. Next Steps We move to slide 11 and a few words on what is in the pipeline: We will continue to roll out Redbet in our existing markets; As previously, we will introduce Mr Green and Redbet in the Baltics; We will increase focus on cost and gain scale advantages from the rapid growth; No one has missed the fact that Sweden will become a licensed market as from 1 st January next year. Of course, we want to have a licence in our home market, and we are working on the application at this very moment. Having said that, I would like to remind you, though, that Sweden represents less than 20% of our total revenues; Finally, we continue to develop a Green Gaming tool; we are working hard on implementing it on all brands and for the Sportsbook. The Green Gaming tool is important not only for our customers and their trust in us; it is also an essential part of our brand, employer branding and crucial when we recruit new colleagues. Summary Finally, to summarize: we have had yet another strong quarter, and we look forward to a continued exciting development during the third quarter. We have guided on both top line and profitability for the full year 2018 and are confident that we are very well prepared to deliver on financial targets, both short- and long-term. We are ready to take questions. Q&A Oscar Erixon (Carnegie): A few questions from me; quite impressive growth here. Could you say something about the organic growth in the Nordic space? Redbet is obviously doing well; it would be nice to have some breakdown of organic growth for the Nordics. Per Norman: Yes, the Nordics as such grew 60%, with especially strong growth in Sweden and Denmark. Part of that is Redbet, but if you take out Mr Green, Mr Green is also growing very good organically in the Nordics and also in Sweden. We are not disclosing the actual figure of each brand s growth, but it is good organic growth for Mr Green and also, of course, then fuelled by the Evoke brands. Oscar Erixon: You mentioned Sweden and Denmark. 6

7 How is Norway and Finland doing? We have been hearing some things about the quite tough conditions there due to regulation mainly and also increased competition in general. Per Norman: Yes, and we discussed that in the last quarter that Norway has been a problematic market for us and it represents less than 5% of our revenues. However, in Q2 we have seen pretty good development in all the Nordic countries, but especially Sweden and Denmark. The decline that we have seen before in, for example, Norway has flattened out now, so we are growing in all markets. Oscar Erixon: The trading statement if we can call it that, you say it is far beyond your 40% growth target. Can you quantify a little bit if it is 50% or 80%, or what should we interpret that as? Per Norman: We decided not to quantify it for two reasons. Firstly, it is only 19 days of the quarter. Therefore, by giving an exact percentage point, I think it could be dangerous in that sense. Even though our Sportsbook is gaining a higher share of the revenues, we could also see that it could be affected potentially by the World Cup during the first weeks in July. That s the second reason why we do not go out with the figure. However, as you pointed out, it is far beyond the growth target. I think it is bouncing, which we would actually expect it to be due to the very, very strong deposit figures and customer figures we saw in Q2. It is something we expect to continue to happen in Q3 with that effect. Oscar Erixon: Marketing was quite high as expected and guided for, but can you say something about the quality of the customers you are taking in? Are you happy with the quality of the new customers in Q2? Per Norman: Yes, we are, and of course we are measuring and following it up very closely, but we are happy with the quality. When we measured market efficiency, as mentioned during the call, we see that market efficiency in Q2 is very, very high despite the increased marketing which usually then goes the other way around. We see that also in deposit figures, that deposit figures follow the customer figures, so it looks like they are fairly good customers. Oscar Erixon: Final question: Sportsbook up 200% year-on-year from quite low levels obviously, but could you quantify roughly how much of that is Redbet? I suppose Redbet is quite strong on Sportsbook compared to Mr Green. Per Norman: Yes, Redbet is much stronger on Sportsbook than Mr Green, but Mr Green has also grown by 200%. This is 200% growth actually for the Mr Green Sportsbook as such, or separately. So, we had a growth in the Mr Green Sportsbook of over 200%. Viktor Högberg (Pareto Securities): About your growth targets, we have been hearing some negative news out of Italy, and you stated Italy to be part of your growth targets. Could you say something about how much you expect Italy to drive growth in 2019 and 2020; also if potentially the UK tax rate is considered in your EBITDA target as well? Per Norman: Starting with Italy, Italy is a very small market for us at present. We see that it has a huge growth potential given the size of the market, and therefore we have pointed out that as one possible new-growth market. We are following the discussions in Italy very, very closely. We still believe that we could have a good position in Italy, and that is mainly due to 7

8 the fact that we have such a strong brand name. When you have acquisition-driven marketing, the brand name is even more important. We are following it very closely, and if it will be very difficult in Italy, we would change the plans and we would likely look into some other markets or reposition the marketing spend into new markets. We have not and we do not plan to change the overall growth targets for 2019 and 2020 due to Italy. It is one of the markets we intended to grow in, but if the world map changes then we will change accordingly. As many others, we have done that just during last year; when Poland and the Czech Republic changed, we repositioned from those markets. The good news here is that it will not affect the revenues as such that much, since it is such a small part of the revenues at this stage. The second question, the UK: we do not think that is going to change our position in the UK either. Of course, high taxes will take out competition; we know that, for example, from Austria which has a good side to it as well. We are continuing to position ourselves in the UK. For us, it is just a mid-size to larger market, not one of the really big ones. However, we are growing and we have a very, very strong brand name there so nothing has changed. Viktor Högberg: If we were to look at the cost of sales, we could feel the betting business grow slightly over Q1. I guess that is due to live casino and sports growing, but will you be able to get that down as well with the synergies from Evoke Gaming and such? Will we see the rate to come already in Q3, or is it expected to be around 18%, 18.5% or 19%? Per Norman: We expect it to come down and totally as you said, the reason it goes up is the growth in live casino and Sportsbook. We expect it to come down for two or three reasons: the synergies from Evoke being fully realised during Q3 and Q4; going further, as announced by Kambi two days ago, we will have one Sportsbook as the provider; and also the scale and growing by 43% will reduce the cost of sales, putting ourselves into better positions with the suppliers. So, we expect these to come down for these reasons. Viktor Högberg: Already in Q3 a material effect, or from Q4 and beyond? Per Norman: I expect it to start in Q3 and to continue in Q4 and beyond. Viktor Högberg: The marketing spend ahead, since you have your EBITDA targets for the year, is it fair to say that you are looking to have it relatively flat in absolute terms in Q3, Q4 as in Q2, or will that be enough to better your position in Sweden ahead of regulation? What are you thinking about the marketing spend? Per Norman: The marketing spend as a range will definitely come down. If you look on the full year 2017, we were slightly below 34%. We are now more on 35%, so it will come down in these coming quarters to the range between 31% and 33%, somewhere around there. It is always hard to state a figure, because at the end of the day it will depend on the actual growth for the last weeks in that quarter. However, it will come down to a range where we have a full year marketing spend percentage-wise more in line or below Viktor Högberg: If we were to look at the hold the ratio of the NGR over the deposits they came down 31% in Q2, it was 33% in Q1; it has been steadily declining. When do you see that trend flattening out, or what are the dynamics to the whole thing in coming down? 8

9 Per Norman: I do not see any specific trend between these quarters of that hold. Firstly, when you acquire something, when you get companies in there before you get things aligned, it takes some time. For example, if you look on the number of customers that you have in Evoke, it also depends on new customers. There are a lot of things in this; I would not draw any major conclusions between Q1 and Q2. Viktor Högberg: Then there is the effect of the new deposits. Per Norman: It is the effects of new deposits. As you can see also between Q1 and Q2, the NDCs went down slightly, partly due to the fact that we saw lot of low-value customers coming especially through the Evoke brand, and that has been cleaned up. Viktor Högberg: Is there anything you can say about Austria, or is there anything new since the Capital Markets Day would you say? Per Norman: Unfortunately not; we are waiting for a decision in the next instance, which is informed to us to be in the beginning of 2019, so for the moment no news in Austria. Oscar Erixon: Just a few more detail questions. D&A was quite high in the quarter. Could you shed some light on if there was something extraordinary there, or if you expect this to continue into H2, around SEK 30 million? Per Norman: No, if you look on how we activate cost: compare Q and Q to this year, we are activating more but less percentage-wise, so the growth is 23%. The reason for the activation going up here is mainly due to the acquisition, and also the customer base and the acquisition. If you exclude the acquisition: the growth from last year s sprint going from 16 to 22 which is 34% growth, versus then the overall growth of 43%. So, I see that we have peaked in activating cost, which of course will take time before we see that being reflected in depreciation. However, this is of course something that we will follow very closely also in combination when we are reviewing the cost now during the second half of this year. Kristoffer Lindström (Redeye): Congratulations to the strong report. I would to start with the large increase in mobile-related revenue. Could you give us some colour? It amounted to 61% which is a large increase both on a yearly basis and from the previous quarter. What is driving that uptake? Per Norman: It is a lot of product innovation and when we develop products today, we develop mobile first so of course the general product development is driving the mobile use, so I think that is one thing; the second thing is the growth in Sportsbook. Sportsbook has a higher mobile usage, and I think there is a spill-off effect there. When you place a bet with Sportsbook, and also then moving into casino already using your mobile phone, you will get increased numbers of mobile users also in casino games. I think these are the three reasons for it: better mobile product, high Sportsbook figures and the spill-off from Sportsbook into casino games using mobile. We are very happy with the figures. Kristoffer Lindström: Do you see any large differences between your reporting regions for mobile versus desktop? 9

10 Per Norman: Yes, there are some significant differences if you compare, for example, higher mobile figures in the Nordics especially Sweden and in the UK, and lower figures in the German-speaking countries. Kristoffer Lindström: The acquisition in Latvia of 11.lv, they continue to show a strong growth and profitability during the quarter. Could you comment something about your intent to launch Redbet? What about the other Baltic countries and what is your strategy there? Will there be more acquisitions, or do you intend to apply for licences and all that? They are slightly more strict in these things, the restrictions in the Baltic. Per Norman: Yes. Together with the team there, we are hammering out now the detailed strategy in entering the other countries. Of course, there are different licence processes if you compare Estonia, Lithuania and also Latvia, and also then the possibility of launching Mr Green in Latvia. We are reviewing and looking into all these possibilities to see which one will come first. The main intention is to stay with 11.lv and use that as the hub into the other markets, but of course if something comes up we will look upon it. In Lithuania, there is a connection with a land-based casino operator that you need, one way or another, to get a licence. Short term, we are now making sure that 11.lv can utilise some of the agreements we have and maybe support them with some other games, but to continue that business and at the same, plan for the rollout in new markets and also for Mr Green in Latvia. Kristoffer Lindström: I was thinking about the Green Jade initiative. Could you briefly comment on what is your plan there for taking external customers, and how large and how many employees do you expect to be in one year? Per Norman: We plan to take external customers, we plan to see it as a game production company; however, starting with Hammer of Fortune launched within Mr Green or MRG brands. We are already developing new games within Green Jade. Our structure is not to employ and have developers in house. We look upon a structure where we own the copyright; we own, we come up with the ideas; we are the project leader; we have all the marketing and sales organisation, but we have a virtual development organisation. For the moment for these first games we are using a studio in San Francisco and that could likely be somewhere else for the next coming games. We do not intend to employ a huge number of developers. Kristoffer Lindström: So, it is more like a publishing entity, if you compare it to original gaming, than in-house development? Per Norman: There is no in-house; there is the conceptual, creative development and securing that we have the intellectual property rights and sales at the end. We will then close the call, and thank you very much everyone for taking your time. Have a pleasant, warm summer, and looking forward for the Q3 presentation coming up in October. Thank you. [END OF TRANSCRIPT] 10