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Interim report January – September 2019

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Quote from Therese Hillman, Group CEO
“The most significant event of the quarter was the strategically important acquisition of Red Tiger. The two companies complement one another well, both in terms of geography and product offering, and together we believe we can attain a stronger market position and realize economies of scale throughout our business. The main objective of the deal is to drive growth and we estimate that the transaction can result in annual synergies of at least 150 SEKm, of which a large part will come from revenue synergies.”

Third quarter 2019

  • Revenues for the third quarter amounted to 443 (449) SEKm
  • EBITDA of 196 (227) SEKm(1), corresponding to a margin of 44.3 (50.6)%.
  • EBIT of 112 (172) SEKm, corresponding to a margin of 25.3 (38.3)%
  • EBIT, excluding Red Tiger Gaming Ltd (”Red Tiger”) contribution and acquisition-related items, amounted to 125 SEKm in the quarter, corresponding to a margin of 30.1 (38.3)%
  • Profit after tax of 97 (155) SEKm
  • Earnings per share of SEK 0.32 (0.65) before and after dilution
  • Red Tiger was consolidated from the beginning of September 2019 and contributed to revenues by 30 SEKm, to EBITDA by 20 SEKm and to EBIT by 19 SEKm
  • Acquisition-related amortization amounted to 9 SEKm. The results also include 25 SEKm of other acquisition-related costs. Additionally, 34 SEKm of financing-related expenses have been prepaid and allocated over the term of the bank loans (four years)

First nine months 2019

  • Revenues for the first nine months amounted to 1,281 (1,317) SEKm
  • EBITDA of 594 (612) SEKm(1), a margin of 46.4 (46.5) %
  • EBIT of 368 (455) SEKm, a margin of 28.7 (34.6)%
  • Profit after tax of 337 (441) SEKm
  • Earnings per share of SEK 1.32 (1.83) before and after dilution
  • Red Tiger was consolidated from the beginning of September 2019 and contributed to revenues by 30 SEKm, to EBITDA by 20 SEKm and to EBIT by 19 SEKm
  • Acquisition-related amortization amounted to 9 SEKm. The results also include 25 SEKm of other acquisition-related costs. Additionally, 34 SEKm of financing-related expenses have been prepaid and allocated over the term of the bank loans (four years)

Important events in the third quarter

  • Acquisition of Red Tiger, primarily financed through new bank loans, for an enterprise value of 200 GBPm plus a conditional earn-out payment of maximum 23 GBPm with possible payout in 2022
  • Games were launched with several operators in Pennsylvania and with DraftKings in New Jersey, USA
  • NetEnt released 8 (4) slot games, of which Butterfly Staxx 2 was the most successful

Comments by Therese Hillman, Group CEO

Continued challenging situation in some of our largest markets
We continued to see a challenging situation in some of our largest markets in the third quarter. Revenues for the quarter amounted to SEK 443 (449) million, including those of Red Tiger from the beginning of September. After adjusting for the acquisition and FX changes, NetEnt’s revenues decreased by 10.0 percent compared to the third quarter of 2018. EBIT, excluding Red Tiger contribution and acquisition-related items, amounted to SEK 125 million in the quarter, corresponding to a margin of 30.1 (38.3) percent.

The primary reason for the lower revenues was attributed to continued weak developments in the Swedish market. Sweden accounted for 7 percent of the decrease, but Norway and UK also had a negative impact on revenues. On the positive side, it’s worth highlighting the US, with continued strong growth in New Jersey and a great start in Pennsylvania during the quarter. Revenues from these two US states could continue to grow for many years to come to potentially account for a greater share of our total revenues in the future. NetEnt released 8 (4) slot games in the quarter, of which Butterfly Staxx 2 was the best performing title. In addition, Red Tiger released four games during September. Within Live Casino, we continue to pursue our plan to make improvements to the product and organization. We rolled out an upgraded user interface for a better player experience as well as products such as Perfect Blackjack and Network Branded Casino to our customer network.

Red Tiger: a strategically important acquisition to drive growth
The gaming industry is undergoing a period of consolidation in which NetEnt intends to participate to secure long-term growth and profitability. The acquisition of Red Tiger is strategically important, resulting in a stronger market position and economies of scale for the combined companies. The two businesses complement one another well both in terms of geography and product offering, and the customer feedback from both companies’ customers has been very positive so far. The main objective of the deal is to drive growth and we estimate that the transaction can yield annual synergies of at least 150 SEKm fully phased from 2021, of which a large part will come from revenue synergies. NetEnt is present in 22 regulated markets and has more than 200 active customers, and during the first month we have set out a plan to roll out Red Tiger’s games to those customers that don’t have them yet. Further, we are now taking the best of our game assets to develop new games together, and as a first step we have already managed to build a new version of NetEnt’s game Piggy Riches with Red Tiger’s daily jackpot format as an option. The new game will be released in January and we expect to present more of these shared innovative game concepts during next year.
Like we have said before, we are developing our technical platform to include important operator functionality and third-party content aggregation. The addition of Red Tiger’s product portfolio is a natural step in this process, and I am convinced that together we will be able to offer the best games and functions for online casino operators worldwide.
We also continue to work hard to reduce costs and improve the efficiency throughout NetEnt’s operations and the integration of Red Tiger, a young, fast-paced company built to optimize development and production, can serve as a catalyst in this process.

Future outlook
Together with Red Tiger we have new opportunities to strengthen our market position. With our global distribution, combined brands and customer relations, we have the right basis to defend, and over the longer term increase our market shares in online casino. We expect that our slot games, including Red Tiger’s portfolio, together with Live Casino will contribute to solid growth for NetEnt in 2020.

Presentation of report
On Thursday, 24th October 2019, at 10:30 a.m. CET the report will be presented by CEO Therese Hillman live via a telephone conference and webcast. The audiocast can be followed in real-time on NetEnt’s website, the link is: https://tv.streamfabriken.com/netent-q3-2019

For additional information please contact:
Therese Hillman
Group CEO
Phone: +46 8 5785 4500
therese.hillman@netent.com

This information is information that NetEnt AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation (MAR). The information was submitted for publication, through the agency of the contact person set out above, at 7:30 CET on October 24th, 2019.

About NetEnt
NetEnt AB (publ) is a global gaming company, providing premium gaming solutions to the world’s most successful online casino operators. In addition to the company's NetEnt brand, our portfolio also includes Red Tiger Gaming. Since our start in 1996, we have been a true pioneer in driving the market with innovative games powered by a cutting-edge platform. NetEnt is committed to creating the future of gaming, is listed on NASDAQ Stockholm (NET–B) and employs around 1 000 people in Malta, Stockholm, Sofia, Kiev, Krakow, Gothenburg, Gibraltar, London and New Jersey. For more information, please visit www.netent.com.

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