Year-end report 2018 and quarterly report October – December 2018

“In the fourth quarter, several of our new games performed well and revenues increased by 9.5 percent (3.9 percent in euro). The adjusted EBIT margin improved to 37.3 percent, supported by higher volumes, the weaker Swedish krona, and better cost control. I look forward to another busy year as we continue to strive for higher organic growth with maintained cost control.”

Fourth quarter 2018

• Revenues for the fourth quarter amounted to 465 (425) SEKm
• EBITDA was 204 (194) SEKm, a margin of 43.9 (45.7)%. Reorganization-related costs of 22 SEKm. Adjusted for these costs, EBITDA was 226 (194) SEKm, a margin of 48.7 (45.7)%
• Operating profit (EBIT) of SEK 146 (153) million, a margin of 31.4 (35.9)%. In addition to aforementioned costs, a VR-project was written down by 5 SEKm. Adjusted for these costs, EBIT was 174 (153) SEKm, corresponding to a margin of 37.3 (35.9)%
• Profit after tax of 137 (155) SEKm. Earnings per share of SEK 0.57 (0.65) before and after dilution
• 8 (8) new customer agreements signed, and 9 (11) new customers’ casinos launched

Full year 2018

• Revenues for the full year amounted to 1,782 (1,636) SEKm
• EBITDA of 816 (740) SEKm, a margin of 45.8 (45.2)%. Adjusted for reorganization-related costs in the fourth quarter and severance pay for the previous CEO, EBITDA was 844 (740) SEKm, a margin of 47.4 (45.2)%
• Operating profit (EBIT) was 601 (582) SEKm, a margin of 33.7 (35.6)%. Adjusted for aforementioned costs and the writedown of a VR-project, EBIT was 634 (582) SEKm, a margin of 35.6 (35.6)%
• Profit after tax of SEK 577 (547) million. Earnings per share of SEK 2.40 (2.28) before and after dilution
• Proposed cash return to shareholders of SEK 2.25 (2.25) per share
• 31 (37) new customer agreements signed, and 38 (35) new customers’ casinos launched

Important events in the fourth quarter

• Customer contracts signed with ATG and Svenska Spel in Sweden, and Veikkaus in Finland
• Customer contracts signed in the US with Churchill Downs (New Jersey) and Penn National Gaming (Pennsylvania)
• Live Casino contract signed with William Hill
• Reorganization completed to increase profitability and competitiveness
• Lars Johansson appointed Chief Financial Officer (CFO)

Comments by Therese Hillman, Group CEO

More new games and increased commercial focus in the fourth quarter

In the fourth quarter, several of our six newly launched games performed well and revenues increased by 9.5 percent (3.9 percent in euro) to 465 SEKm. Adjusting for restructuring-related costs and the writedown of a VR-project, the EBIT margin improved to 37.3 (35.9) percent, supported by higher volumes, the weaker Swedish krona, and better cost control. In a number of our markets, we are facing higher expectations than ever as a supplier; we have to deliver more and faster, while we continue to offer innovative products and entertaining gaming experiences to customers and players. To better meet such expectations and to drive efficiency and commercial focus, we continued to make changes in the company. In December, we announced a re-organization that leads to a more decentralized structure with clearer areas of priority and accountability. We have strengthened key management positions across the group and recruited a new head of Live Casino, which continues to be an area that we invest in. We also communicated that we are increasing the pace of development and aim to release 30 – 35 new games in 2019, compared to 21 games in 2018. In order to keep costs under control and to allow for continued investments into increased production, we also announced staff reductions affecting 55 full-time positions, mainly within corporate support functions in Stockholm.

Strong cash flow, solid financial position and stable dividend in 2018

As we close the full year 2018, we see that revenues grew by 8.9 percent to 1,782 SEKm and EBITDA increased by 10.3 percent to 816 SEKm. Revenues were boosted by the weaker Swedish krona and we are not pleased with the underlying growth rate in euro, which was 2.3 percent for the full year. Still, NetEnt’s business continued to generate solid cash flows, resulting in a net cash position of 501 SEKm at year-end. This leaves us room to continue both investing in growth initiatives and delivering solid cash returns to our shareholders. For 2018, the Board has proposed an unchanged dividend of SEK 2.25 (2.25) per share.

Regulations create new market conditions

Locally regulated markets accounted for 37 (33) percent of our revenues in the fourth quarter. If we include Sweden, more than half of our revenues come from locally regulated markets. The new Swedish regulation that is in place since January 1st means new rules and requirements for all market participants, as well as new conditions for responsible gambling and fair competition. We have launched our games with most of our existing customers in Sweden, as well as the new WLA customers ATG and Svenska Spel. So far this year, our total gamewin in euro terms is approximately five percent lower than it was in the corresponding period of 2018, mainly due to lower volumes in Sweden. While it is still too early to predict the mid- to long-term effects of the Swedish regulation, we expect the key customer signings in Q4 2018 and our upcoming game releases to contribute to new revenues in 2019. When it comes to organic earnings growth, we have clearly higher ambitions than the pace we saw in 2018.
In the US, we follow the developments closely after the Office of Legal Counsel of the US Department of Justice issued its opinion about online gambling in January. This has created some uncertainty, but at this stage we do not see any reason to reconsider our US growth plans, which include growing on the regulated markets in New Jersey and Pennsylvania. With regards to timing, however, we see that the launch in Pennsylvania will be delayed due to changes in the regulatory requirements.

Next steps – increasing the pace

We are just back from the largest industry exhibition of the year, ICE in London, where we unveiled a number of new products. The latest addition to the NetEnt Rocks series will be Ozzy Osbourne and we will be developing a game based on the legendary character Conan. Further, NetEnt Engage will have new features to improve the player experience. Last but not least, just in time for the big horse races this spring we will be releasing a new game in collaboration with the famous British jockey Peter Scudamore.

I would like to thank all our employees for their valuable contributions during 2018 and look forward to another busy year. I am convinced that we will offer more and better games than ever, for all types of players and preferences.

Presentation of report

On Tuesday, February 12th, 2019, at 9.00 a.m. the earnings 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-q4-2018

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 February 12th, 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.