Interim report for the period 1 January – 30 September 2016
All amounts in the report relate to the Group and are stated in SEK thousands, unless otherwise indicated. Figures in brackets refer to the corresponding period the previous year.
Acquisition completed, strong growth continues
Third quarter
- Net gaming revenue amounted to SEK 4,873 (3,118) thousand, an increase of 56%.
- Gross profit amounted to SEK 3,129 (2,102) thousand, an increase of 49%.
- Operating profit/loss was SEK -705 (-944) thousand.
Period 1 January – 30 September 2016
- Net gaming revenue amounted to SEK 13,733 (7,325) thousand, an increase of 87%.
- Gross profit amounted to SEK 8,943 (4,664) thousand, an increase of 92%.
- Operating profit/loss was SEK -2,065 (-3,639) thousand.
Significant events in the third quarter
- Net Gaming has signed an agreement to acquire Highlight Media for an initial purchase consideration of SEK 280 million on a cash and debt free basis. There may also be an additional purchase consideration of up to approx. EUR 12.9 million, based on Highlight’s EBITDA for 2016 and 2017. If the total additional purchase consideration reaches the maximum, Net Gaming can opt to pay EUR 3.7 million in shares.
Important events after the end of the quarter
- Net Gaming completed the acquisition of Highlight Media on 14 October 2016. To finance the acquisition, after the end of the reporting period, Net Gaming issued bonds totalling SEK 200 million at an annual interest rate of 13%, maturing in September 2019. In addition, Net Gaming has also issued a convertible loan with an annual interest rate of 9.5% and a conversion price of SEK 4.50, maturing in October 2019. Net Gaming has the right to redeem up to 50% of the convertible loan until 11 October 2017.
- The investment company Varenne has invested in Net Gaming, both through the convertible loan and the purchase of shares from Henrik Kvick AB.
- CEO Marcus Teilman has subscribed for 1 million options from Henrik Kvick AB, with the right to subscribe for 1 million shares in Net Gaming. The maturity is 3 years.
- The Extraordinary General Meeting on 14 November 2016 adopted the Board’s convertible loan proposal.
- Jonas Bertilsson was elected as a new Board member at the Meeting on 14 November. Jonas Bertilsson works as Investment Manager at Varenne. He also serves on the Boards of Pema Sweden AB, Mengus Stockholm 2011 AB and Bed Factory Sweden AB.
CEO’s comments
“Highlight reported EBITDA of SEK 8.6 million in October.”
Net Gaming completed the acquisition of Highlight Media on 14 October 2016 and this also marks the start of a new era for Net Gaming as a group of companies.
The acquisition of Highlight Media makes Net Gaming a strong player in performance-based digital marketing with a strong focus within iGaming, also known as lead generation. Other major players in the same area include Catena Media and Game Lounge, and we can now seriously compete with them. In the period January – October this year, Highlight reported revenue of over SEK 108 million and EBITDA of SEK 71 million, representing earnings growth of approx. 25%. Highlight reported EBITDA of SEK 8.6 million in October. Operations have continued to perform well since then, and Net Gaming will share in the earnings and cash flow from 14 October 2016.
Highlight is a pioneer in lead generation for iGaming and was founded back in 2003. It currently operates over 100 different sites around the world and is active in over 30 markets. The traffic that Highlight delivers to customers, gaming companies (operators), is of a very high quality and it is our assessment that the value of the traffic, i.e. leads, is one of the highest in the industry.
Through Highlight’s long history, the organisation has amassed considerable knowledge of the industry, and with a consistent, data-driven approach, we can create new growth opportunities in new markets and new verticals – both within iGaming and also other interesting online verticals.
Through our operator business, Net Gaming possesses detailed knowledge of Highlight’s visitors, i.e. the end customers (players) who visit the operators’ websites, and with this knowledge we can add a further dimension of development and strength to Highlight’s core business.
I am naturally very proud that Net Gaming has successfully acquired Highlight Media, one of the leaders in the industry with operations that generate stable cash flows, and which is well equipped for further growth.
Third quarter
Net Gaming’s operator business performed well during the third quarter, with growth of 56% compared with the same period the previous year. Gross profit increased by 49% during the same period. A high payout percentage to players for our casino in the third quarter has resulted in reduced revenue and therefore also had an adverse impact on earnings. The payout percentage may fluctuate in the short term, but is stable over time.
As already mentioned, Net Gaming will share in Highlight’s cash flow and earnings after the end of this report, i.e. 14 October 2016, and this share will then be consolidated and included in the year-end report issued in February 2017. With Highlight showing development over the year, I am really looking forward to summarising the fourth quarter, with continuing profit growth. We have many interesting growth paths, both in terms of markets and verticals.
Marcus Teilman, President and CEO
Telephone: +356 9936 7352
