Net Entertainment: Interim report January – June 2014

Quote from CEO, Per Eriksson

– The second quarter showed positive development and revenues increased by 38 percent compared to last year. Primarily due to a strong development from NetEnt’s customers but also due to more setup fees than usual in combination with a positive currency development. This is yet another record which is very pleasing.

Second quarter 2014

— Revenues for the second quarter increased by 37.8 % to SEK 205.0 (148.7)
million
— Operating profit amounted to SEK 56.7 (38.7) million, an increase of 46.6 %
— Operating margin was 27.7 (26.0) %
— Profit after tax amounted to SEK 52.5 (39.6) million
— Earnings per share amounted to SEK 1.33 (1.00) before dilution and SEK 1.32 (1.00) after dilution
— Ten license agreements with new customers were signed, 13 new customers’ casinos were launched

First six months 2014

— Revenues for the first six months increased by 32.2 % to SEK 393.4 (297.5) million
— Operating profit amounted to SEK 107.9 (79.7) million, an increase of 35.5 %
— Operating margin was 27.4 (26.8) %
— Profit after tax amounted to SEK 98.6 (73.4) million
— Earnings per share amounted to SEK 2.49 (1.86) before dilution and SEK 2.48 (1.85) after dilution
— 14 new license agreements were signed and 15 new customers’ casinos were launched

Important events in the second quarter

— One agreement was signed with Rational Group for delivery to Full Tilt Poker and one agreement was signed with William Hill for land based gaming machines
— Bet365 and Sky Betting and Gaming were launched
— Six agreements were signed with customers for delivery of mobile games and 10 customers launched mobile games in the quarter
— Five agreements were signed for delivery of Live Casino and nine customers launched Live Casino in the quarter

Comments from Per Eriksson, President and CEO
The second quarter showed positive development and the revenues increased by 38 percent compared to last year which was another record. The increase was primarily attributable to strong development with NetEnt’s customers but also due to more setup fees than usual in combination with a positive currency development. In addition the 2014 World Cup did not affect revenues negatively which is often the case during larger sport events as it can take attention from casino. The operating margin increased to approximately 28 percent which was higher than previous quarter and the same period last year. Capitalized development cost continued to decrease which I view as positive as it leads to lower depreciation long term. Cash flow is not affected by this but it creates a negative margin effect short term.

22 agreements were signed in total during the quarter, 10 were new customer agreements, five were for Live Casino, six for mobile games and one agreement, the first of its kind, was signed with William Hill for land based gaming machines (retail) where some of NetEnt’s games will soon be available in William Hill’s 2300 betting offices across the UK. According to the market research company H2 Gambling Capital the retail market is nine times larger than the online casino market in Europe, a market where NetEnt has not had any
presence in the past. The launch of William Hill Retail will initially include a limited amount of games. The royalty level is lower compared to online games but long term, the retail segment will contribute positively to the growth.

NetEnt has been evaluating the developments in North America and believe the prerequisites and timing is right to intensify the preparations for an entry in both the U.S. and Canada. Initially NetEnt will focus on the licensing process in New Jersey in the U.S. followed by additional states as the regulatory landscape evolves. The objective is to launch NetEnt’s products in the U.S.
during the second half of 2015. Björn Krantz, currently Managing Director of Net Entertainment Malta Ltd. will lead the expansion and will be replaced in Malta by Enrico Bradamante who is currently Head of Account Management and Deputy Head of Malta Operations.

Revenues from NetEnt’s mobile games have continued to show positive development, now representing 13 percent of the gross gaming yield in the NetEnt’s casino. Live Casino has also developed positively during the quarter and we had a total of 27 customers launched by the end of June compared to 18 launched customers at the end of March.

I look forward to the rest of the year with a solid underlying growth with our customers and several large growth projects that have been initiated, such as the entry into North America and the retail contract with William Hill. In addition, I expect NetEnt to finalize the licensing process in the UK which is undergoing regulation and we are currently evaluating the regulation in Spain. We are also investigating the opportunities in Asia.

For additional information please contact;

Per Eriksson, President & CEO,
Phone: +46 8 578 54 549, per.eriksson@netent.com

About Net Entertainment
NetEnt, Net Entertainment NE AB (publ), is a premium supplier of digitally distributed gaming systems used by some of the world’s most successful online gaming operators. The NetEnt Casino Module™ is a complete gaming system comprising both a management platform and a full suite of high quality games. Operators are provided a customized casino that is easily integrated ensuring short time to market and a cost efficient operation. The company that was founded in 1996 has 550 employees in Malta, Stockholm, Gothenburg, Kiev and Gibraltar. NetEnt is quoted on Nasdaq OMX Stockholm (NET-B). http://www.netent.com.

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