Interim report January–March 2019

Quote from Therese Hillman, Group CEO
“In the first quarter, we continued to focus on improvements throughout the organization. The operating margin (EBIT) was 30.2 percent. It is difficult to predict the long-term market dynamics, but with our investments in new games, Live Casino, new functionality for customers and players, as well as a strong balance sheet, we are in a good position to defend and, longer-term, increase our market shares.”

First quarter 2019

• Revenues for the first quarter amounted to SEK 418 (430) million
• EBITDA was SEK 196 (182) million, corresponding to a margin of 47.0 (42.2)% (1)
• Operating profit (EBIT) was SEK 126 (134) million, corresponding to a margin of 30.2 (31.2)%
• Net profit was SEK 120 (146) million
• Earnings per share was SEK 0.50 (0.61) before and after dilution
• 8 (6) new customer agreements were signed, and 9 (8) new customers’ casinos launched

Important events in the first quarter

• Customer contract signed with Parx Casino in Pennsylvania (USA)
• Five new slot games released, of which Turn your Fortune was the most successful
• Brand collaborations for new games based on Conan and Ozzy Osbourne, and a new Live Casino product called Perfect Blackjack, were presented at ICE in London
• Authorization obtained to deliver games in Pennsylvania (USA)
• Permanent license obtained in New Jersey (USA)

Important events after the period

• The Board of Directors decided to commence share repurchases
• The nomination committee presented its new Board proposal, including three new Board members. Three Board members declined to be re-elected

Comments by Therese Hillman, Group CEO:

Lower volumes from the new regulated market in Sweden
In the first quarter, NetEnt’s total revenues decreased by 2.8 percent (-7.0 percent in euro) compared to the corresponding period in the previous year. The Nordic countries accounted for almost the entire slowdown, mainly due to lower volumes in Sweden as the new regulation was introduced at the start of the year. The new rules have impacted our customers and players to an extent that we had not foreseen, and the combined effect of fewer players and lower average revenue per user has led to a weak start on the new regulated market. As expected, the new gaming tax lowered our revenues by about 2 percent in the period. Around 50 percent of total revenues came from locally regulated markets, and excluding Sweden, our revenues in these markets grew by about five percent in the quarter. This occurred despite a backdrop of some market weakness in Italy, caused by changes in regulation regarding marketing and gaming taxes.
In the second quarter, we are set to launch our games with the Finnish state-controlled operator Veikkaus and to distribute more games to Norsk Tipping in Norway.
In the US, we see continuing strong growth in New Jersey, a market that still has much lower online penetration than the Nordic markets and hence the potential to grow for many years to come. For Pennsylvania, the latest estimate is that the market will open in July.
During the quarter we released five new slot games: Turn your Fortune, Strolling Staxx, Golden Grimoire, Scudamore’s Super Stakes and Temple of Nudges.

Continued focus on change
The new organization is in place since the start of the year and we keep working to improve the efficiency and speed of our product development. The plan to release 30 – 35 new games this year remains and we continue to develop our new initiatives within affiliate marketing and social casino, which support our strategy to move closer to the players and should generate new revenues over time. To respond to more competition in slot games we make continuous improvements to our offering, not only with more new games but also through a more diversified game portfolio, for example by adding more localized games. Released in March, Scudamore’s Super Stakes is such a localized game and so far, it has been one of our most successful new game releases in the UK. As such, our product strategy continues to be centered around high quality for different player types and markets. Furher, we are now rolling out more Engage-functionality in our platform to better cater to the needs and preferences of customers and players. Our ambition is to have the market-leading customer offering in terms of game content, functionality and service.
Within Live Casino, we now have a new management team in place that are making changes to the product and business model to ensure that we can offer a competitive product.

Strong balance sheet and share buybacks
Just like before, we have a debt-free balance sheet and in the first quarter, cash flow after investments amounted to SEK 90 million. The Board has decided to commence share repurchases to improve the capital structure and to support increased shareholder value.

Future outlook
The total gamewin in our games so far in April has been at about the same levels as during the first quarter and we see a challenging growth outlook in several markets for the rest of the year, due to stricter regulations. At the same time, we continue to execute on our agenda to return to growth and to strengthen NetEnt. Our release calendar looks interesting with six new games scheduled for the second quarter, and even more games for the third and fourth quarters. Yesterday we released Dead or Alive II, a much-awaited sequel to the game Dead or Alive, which has been on the market for ten years. The game has high volatility and offers players the chance to win big prizes. Narcos is coming out in May, and in June we will bring a new game to the market based on the MAX-concept, which means that operators can select different levels of volatility in the game. It is difficult to predict the long-term market dynamics, but with our investments in new games, Live Casino, new functionality for customers and players, as well as a strong balance sheet, we are in a good position to defend and, longer-term, increase our market shares.

Presentation of report
On Thursday, April 25th, 2019, at 9.00 a.m. the report will be presented by CEO Therese Hillman live via a webcast. The presentation can be followed in real-time on NetEnt’s website, the link to the webcast is: https://tv.streamfabriken.com/netent-q1-2019

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 and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 7:30 CET on April 25, 2019.

About NetEnt
NetEnt AB (publ) is a leading digital entertainment company, providing premium gaming solutions to the world’s most successful online casino operators. Since its inception in 1996, NetEnt has been a true pioneer in driving the market with thrilling games powered by a cutting-edge platform. NetEnt is committed to helping customers stay ahead of the competition, is listed on Nasdaq Stockholm (NET–B) and employs 1,000 people in Malta, Stockholm, Gothenburg, Gibraltar, Kiev, Krakow and New Jersey. For more information, please visit www.netent.com.