The fundamental concept of any online business, is that business can take place on a global scale, and this concept applies to online gambling. This type of business without borders is also a model that is intrinsic to the freedom of trade principles adopted by law-makers of the European Union (EU). However, when it comes down to online gambling and EU free trade principles, many EU countries still practice monopolistic approaches. This is frowned upon by the EU.

Now Dr Christos Dimitriadis – Intralot’s Head of Information Security has spoken at a Berlin conference, and said that “it is inevitable that new types of mobile games that could incorporate gambling features will become legal across the European Union”. Intralot builds lottery systems, terminals, and so on, and has a presence in fifty-five countries globally.

He was a guest speaker at the ISACA Insights World Congress 2013, when he made clear that their firm would be both keen, and able to investigate new business breaks, if the entire EU were to make mobile gambling legal. The gambling sector is currently merging mobile services and the cloud, which is proving to be incredibly popular with punters, and is showing exponential growth with many UK-based operators.

The problem with this form of gambling for EU member countries, is that they are not all on the same page, when it comes down to legalising games of chance that are internet based. As we said in the first paragraph – even though the European Commission has drafted an across-the-board framework for the online gambling industry – member states are being very reluctant to come to the party. It is unfortunate that regulatory changes have to be made country-by-country, but it is what it is.

The belief is that eventually there will be a way in which each member state controls e-gambling. They must play a regulatory role because of the “responsibility” factor. Gambling is believed to be best when it is controlled by law, or otherwise unscrupulous operators are able to take advantage of the public. The problem is that the EU has a great business model to follow in the UK, but don’t seem to be able to apply the lessons learned by the UK into their own situation.

Great Britain is home to the most mature sector of the global online gambling industry, and their legal framework seems to work, although like times, technology changes, and laws should be tweaked to compensate for this change. Mobile gambling in the UK, has hit the ground running in the past couple of years, and consistently appears to be enjoying an exponential growth swing.

We have been seeing some incredible growth figures for the mobile gaming sector of the online gambling industry. It has become obvious that this sector has grown so fast and so quickly, due to the fact that mobile technology now offers the capability of entertaining gamblers on the go. Increased smartphone use is one of the biggest heralds for this boom, and mobile-friendly online casinos are taking advantage of the feeding frenzy.

Some pundits of this industry are telling us that the mobile gambling marketplace will be worth more than $100 Billion by the year 2017. This could be more, but online gambling concerns are banking on sharing $45 Billion in profits, if the market reaches this figure. As one can imagine, some serious business people are looking at this business rather seriously.

Now that smartphones and tablets have been blamed as being the key drivers for this increasing trend, researchers have been taking a look at these users. Currently in the UK alone – 62% of the population are in possession of a smartphone. This is an increase of 14.2% since October 2011. Combine this use with the fact that gambling online has also grown, and we see that the mobile sector is responsible for a massive amount of virtual gambling spend, and it is they who are sparking increased profits for operators. In fact the fastest growth sector has been seen in online, and in-play sports betting by mobile.

Currently 15% of the entire gambling sector of the UK is driven by mobile gamers. A smartphone or tablet is eminently portable, much more so than a laptop ever was. The smaller these devices are, the more desirable they are, and much of a smartphone is taken up by screen. This makes it easy to use to access a game, and the game is easily seen, with superior graphic quality.

We have mobile banking apps too, so, it hasn’t taken long for gambling operators to work out mobile payment systems for playing these games for real money, and winning real money prizes too.

Gone are the days where we had to get dressed up, travel, and pay through the neck to have a night out in a casino. We take our mobile phones wherever we go, so wherever we are is our mobile casino. Games and many apps are free to download, can be played for free or real money, and casinos offer a ton of incentives to get us to play these games. They even give away free money.

Earnings report 2011 – Quarterly report October – December 2011

2011 WAS A YEAR OF NEW INITIATIVES FOR CONTINUED SUSTAINABLE GROWTH

FOURTH QUARTER 2011

• Revenues for the fourth quarter increased by 21.6 % to SEK 121.1 (99.6) million
• Operating profit amounted to SEK 42.2 (33.8) million
• Operating margin was 34.9 (33.9) %
• Profit after tax amounted to SEK 36.6 (29.0) million
• Earnings per share amounted to SEK 0.93 (0.73) before and after dilution
• Two new license agreements were signed, and two new customers’ casinos were launched

FULL YEAR 2011

• Revenues for the full year increased by 16.1 % to SEK 427.6 (368.3) million
• Operating profit amounted to SEK 129.7 (136.4) million
• Operating margin was 30.3 (37.0) %, 31.9 % excluding costs amounting to SEK 6.7 million related to former senior executives
• Profit after tax amounted to SEK 115.6 (120.5) million
• Earnings per share amounted to SEK 2.92 (3.05) before and after dilution
• Seven new license agreements were signed, including G.Matica and Sky Betting & Gaming. Eleven new customers’ casinos were launched
• Proposed transfer to shareholders is SEK 2.00 (2.00) per share

IMPORTANT EVENTS IN THE FOURTH QUARTER

Revenue growth for the fourth quarter was 21.6 percent compared to the fourth quarter 2010. The strengthened Swedish currency has held back revenue growth in SEK. In local currency, revenues increased by 23.1 compared to the fourth quarter 2010.

The number of game transactions amounted to 2.6 billion in the fourth quarter, an increase of 19.6 percent compared to the previous quarter and 48.9 percent compared to the same period in 2010.

During the fourth quarter agreements were signed for delivery of the casino portfolio to several large operators on the newly regulated online market in Denmark. On January 1 2012 Denmark opened up as a regulated market. Operators signed include Betsson, Unibet, Bet24, Sportingbet (including Scandicbookmaker and Danbook). Companies who intend to operate on the local market must fulfill the gaming authority’s compliance requirements during the fourth quarter 2012.

During 2011, Net Entertainment has adjusted and developed the Company’s system and games to be compliant with mobile units. In December the first mobile games were launched on the market. The initial launch includes mobile games supporting IOS terminals, i.e. Iphone, Ipad and Ipod, with three of the Company’s most successful casino games, Gonzo’s Quest, Jack Hammer and Blackjack. Net Entertainment’s mobile offering will be launched under the name NetEnt Touch™ and will include some of the best games from both the existing portfolio and new game releases. The launch of new mobile games will follow a phased roll-out approach to several partners during 2012.

Net Entertainments strategy is to be the leader within online casino. It is a continuous process to improve and expand the product portfolio and the Company constantly analyzes new opportunities. As a result from this, the Company has decided to launch its own Live Casino product with a planned release to the market around year-end 2012. This product segment is a complement to the Company’s existing games portfolio and is estimated to contribute positively to the Company’s growth in the future.

During the fourth quarter Per Eriksson was appointed CEO of Net Entertainment with a start date on March 1, 2012. Per is presently serving as CEO and President of Dustin Group AB. Prior to that, Per has had a long career within Dell, where he left as Head of Dell EMC (Europe, Middle East and Africa).

Intralot Interactive was launched in Italy where Net Entertainment is now live with five out of eight operators.

COMMENTS FROM BJÖRN KRANTZ, ACTING PRESIDENT AND CEO

Year 2011 was a year of new markets and product initiatives to secure continued solid growth for Net Entertainment moving forward. Revenues increased by 21.6 percent during the fourth quarter which is a result of organic growth. Net Entertainment has been successful in strengthening the position as a leading supplier of games and systems within online casino and our focus on customer closeness and product and technology leadership will continue to differentiate us. During 2011 our market share in Europe increased to 22.4 percent compared to 19.3 percent in year 2010 1.

Net Entertainment has a clear focus on online casino and to complement the existing product portfolio and strengthen the Company’s offering it was decided during the fourth quarter to launch our own Live Casino product with a planned release around year-end 2012. Live Casino is a relatively new form of gaming which has proven to be successful and is also expected to show good growth in the coming years.

We are committed to and take part in the ongoing regulation of our industry in Europe. Whether Net Entertainment enters a regulated market or not, is evaluated from case to case with regards to the financial, organizational and the strategic impact on the Company as a whole. Net Entertainment was among the first to enter Italy which regulated the market in July 2011 and Denmark which was regulated in January 2012.

We have now commercially launched five out of eight operators in Italy. The roll-out of remaining customers will take place as soon as practically possible. In addition, it is our ambition to launch slots as soon as the Italian authority allows it.

As a response to the growing mobile market the first mobile games were completed and launch took place according to plan during December 2011. Ongoing launches of new mobile games will take place during 2012 and we will monitor the development closely. The launch of new customers will take place continuously during 2012.

Several successful games have been lunched during 2011. Frankenstein was developed as part of our collaboration with Universal Studios and during the fourth quarter the development of Scarface was initiated which is one of the most well known brands ever in the movie industry. Two new platinum games were launched during the year, Robin Hood and Jack and the Beanstalk with graphics and a gaming experience which truly proves why Net Entertainment is the leading premium supplier of online games on the market today.

We will continue to invest in our business and organization to secure the opportunities identified by the Company, and to ensure short and long term competitiveness. We are taking another step towards becoming a full scale provider within online casino and it is very exciting to be able to offer our partners a broader product portfolio which strengthens both business and customer value in our strategic delivery responsibility as a supplier. I am convinced that Net Entertainment is well positioned for 2012 and I look forward to another exciting year.

(1), The market share is based on the gross gaming yield with Net Entertainment’s customers in relation to the European online casino market, estimated by H2 Gaming Capital in December 2011.

Net Entertainment is very proud to announce the launch of its first mobile portfolio games to the market. Players can now play Net Entertainment’s casino games wherever they are, whenever they want. Initial launch will include mobile games for IOS devices, i.e. Iphone, Ipad and Ipod, with three of the Company’s most successful casino games, Gonzo’s Quest, Jack Hammer and Blackjack. Net Entertainment’s mobile offering will be released to the market under the name NetEnt Touch™, which will consist of best in breed games from its existing portfolio, as well as new game releases.

The launch of Net Entertainment’s mobile games will follow a phased roll-out approach with several partners during 2012.

“The Net Entertainment brand is about quality and passion for gaming. This is a great moment for Net Entertainment, our partners and their player base, and I am confident that our mobile games will be very well received as the usability and total experience is truly magnificent. Our partners have been waiting for the day Net Entertainment introduces its first mobile games, and I am very happy that we now can offer their players a great end to end experience moving forward. We will continue to build up a solid portfolio of mobile games, which will frequently be launched to the market,” comments Acting CEO Björn Krantz.

Best Net Entertainment Casinos: Betsson Casino, Unibet Casino and Cherry Casino.