Catena Media plc (CTM) Earnings Call Transcript & Summary

Welcome to the Catena Media Q4 Report 2019. [Operator Instructions] I'll now hand the floor to Interim Group CFO, Erik Edeen. Please begin your meeting.

Yes, and good morning. We have, from Stockholm live transmitting, Erik Edeen, Group CFO; and Per Hellberg, CEO. I'd like to welcome you to the Q4 report for 2019 and also the full year report. We will, as always, take you through the agenda as follows. We will start with the quarterly highlights, followed by business update of the fourth quarter. Followed by the detailed financial handled over by our CFO, and then we'll look a bit forward by, once again, putting some focus on our strategy, more long-term but also short-term initiatives and then what outlook that could bring us. And we finish with Q&A. So if we then continue into the quarterly highlights, as such. I think that we are happy to announce that our work of rebuilding this business back to growth is working. The first slide we have in the presentation is about our continued improvements of revenue growth quarter-to-quarter. As we all remember, we had a rough start to the year where we had not only regulations impacting us, but also issues with certain products internally that actually reduced in revenue because of reducing traffic. We indicated that quite quickly in the year, that we needed to do something about it. We adjusted the work. And by mid-year, we started then to show positive signs and start to grow back. So we ended the second quarter better than it started, then grow the business in third quarter, and yet again, operational revenues that we generated has increased towards the right direction. It's still not fully in par with last year, but getting very close. However, in this result, we had a onetime adjustment of EUR 0.6 million -- sorry, EUR 0.5 million. That relates to a historical adjustment we need to do in U.S., and I want to cover that obvious to start with because I might think it is interesting for people to understand. In all our agreements with affiliates, we have -- with mid-operators, we have a possibility then to deduct the customers they wanted to have in the database. So when we're setting customers, they have some time afterwards to adjust according to our agreements to deduct customers or the existing. In U.S., the systems compared with rest of the world is quite immature. They are not real in place yet, in that it takes time to do this. This specific operator that we have in the State of Pennsylvania came back with these adjustments far after the third quarter and second quarter was confirmed. So [ that in was ] the result. But in the end, we had to reduce it. So it's a [ value in tab ] for quite some time. And at that time, that operator was also the only one available in the state. And they came in, in that state with a big database of land-based casino customers. That was where they had the database from. Now that is not an ongoing problem we see, as a very few of these state-based operators -- land-based operators have online business, but also we now have more operators in place in Pennsylvania, so we can send our traffic, other ones. Hence, we don't see this being an issue going forward. All in all, growth in both EBITDA and revenue compared with the previous quarter. But then we need to look at last -- compared to same period last year, where we're still not empowering growth, but we're getting very, very close. And to those of you who remember, the beginning of the year started fairly good last year, only to start to decline in the second quarter onwards. So we believe that we should soon be back and start to build on these numbers positive again compared with previous year. If we then continue more into detailed business updates, we went into this quarter by giving a guidance back when the Q4 -- Q3 report happened. And what we then said in order to follow what had happens is then, to give you clarity in that, that a lot of these things actually happened as it should. We see a positive nice growing trend for our [ reissue can ], AskGamblers, achieved yet again all-time high, grow their numbers nicely. The Italian business, as we said in the end of Q3, started to come back to previous levels, and they did now in the fourth quarter. So delivering both the casinos posted very positive numbers. So only the signs of the impact of the ban -- marketing ban in Italy. So we're growing that nicely back. The European casino signs after the work we have done are starting also to continue to show positive trends in terms of traffic generation and the revenue coming out of that. And I think for U.S., important questions, we grow compared with the third quarter, in combination of, as also explained by that, but no month basically in Q4 was as high as September in Q3. But all of those months together because of normally September being the driving month in the third quarter, this quarter together ended up above. It was 3 months with stable revenues, then outperformed 1 good month in the third quarter. So we have been announcing that we had a good growth in there as well. Also, as some of you probably have heard, this industry in the last quarter have had -- and also beginning of this year had significant impact of recent global updates for both operators and the affiliation business in general. Not only this segment has had some quite tough situation where Google changed their algorithms, and that's impacting traffic negatively. I have to inform that does not apply to us. Our sites remain positive, stable and are growing currently. If we then look at the things that we don't see as positive then, of course, the impairment of intangible assets. It's never a good thing that you need to write down assets that you want to pay for. In this stage, a big part of that revenue related to the fact of investments into financial services. Erik will come back with more details there. But basically, with the big change on the market conditions and those sites focusing on Europe, we could simply not protect the value in those. And just very close to this presentation, we concluded that our orders that are [ positive ] we need to do, and the media can talk about it to the market. We also had some casino assets that we had to write down, which was also quite a considerable amount, predominantly for assets that, today, business model do not apply for. Typically, sites where we have a lot of historical income coming from pay-per-click advertising that today margin has gone. We cannot protect the value, and hence, we have to deduct that as well. Not the best thing to do, but we need to turn page, move on and focus on the future. And as we don't believe those assets are worth investing anymore, we need to focus on the one that can produce future value for us, big ones. And therefore, we need to take the disposition. If you look at Germany and U.K., I think Germany, we had -- both of them, we had -- as this industry in general, had a little bit less revenue share coming out, impacting our revenues negatively. We also have some operators in Germany, who in the [ variant ] hold back their spend a bit, but they're now back on track again for this in the first quarter. Japan actually ended up as forecasted. But of course, it has a negative year as it actually was forecast to decline a bit compared with Q4 -- sorry, Q3 due to seasonality. In the end then, the sports in France, we have said that we're revealing those as we continue to do that. We are doing a continued massive rework, and we've not launched this yet. And therefore, we cannot grow the business in the Q4 either. And in the end, as this -- as I mentioned, these export adjustments in U.S., which we don't foresee being an issue going forward. So all in all, in a tough quarter with quite tough margins in sports, with massive Google updates, we're quite happy to see that the operational revenues are growing. And therefore, also the [ resulting profit ]. With that, we then need to see and hand over to Erik for more financial details.

Good morning. So looking into our revenue development here in the fourth quarter, we did EUR 23.4 million in search revenue, we had our paid revenue at EUR 2.8 million and subscription revenue at EUR 0.4 million. And looking on the quarterly organic growth, we increased by 2%. The number you can see here is deducted then by the 0.5 that we mentioned previously. And if we dig down into our revenue streams, we increased our fixed fees here during the fourth quarter. That has primarily driven to an increased demand for branding on our side from -- on the operator side, where they find it very valuable. So we -- from that perspective, we have more requests and fixed fees [ that can upscale ] in the fourth quarter. Cost per acquisition and revenue share, quite in line with each other, and that is primarily related then for a decline in revenue share. It's related to the low performance within German sports that I mentioned as well as sports U.K. If we look it down into our development in terms of EBITDA and costs, we ended the fourth quarter with a margin of 44%, in parallel with the third quarter. We used a lower amount of pay-per-click in general during the quarter, and direct costs hence affected the margin positively. Personnel expenses margin-wise, in line with last quarter and also continuing on the same level, margin-wise. If we look into our operating expenses, those increased somewhat here during the fourth quarter, primarily related to increased marketing and content-related activities during the quarter, where most of it is related to investments in the U.S. market. If we look at our segment performance, we had a 59% of our revenues in the fourth quarter in the casino segment, with revenues at EUR 15.7 million. Our sports revenue came out at 36% of our revenues at EUR 9.6 million. And our financial services segment represented 5% of our total revenues in the quarter, ending at EUR 1.3 million. If we then go down into the details and the financial net [ and the ] effects below EBITDA, we had some nonrecurring items, exceptional items here during the fourth quarter. We have preannounced some of them, but these are primarily relating to the IFRS 9 implementation. And the assessment model we have are implemented in that regard. I will come back to that and elaborate a little bit more on the changes we've done there. It also relates to -- primarily, it relates to this adjustment we had in the U.S. relating to previous periods. We also had, as Per mentioned earlier, here an impairment. I will also come back to that one a little bit more into detail. But as you can see, it gives quite some effects here in -- below the EBITDA in the fourth quarter. Also, as we know when we only have what you're getting used to see is the fluctuation on the bond where the value on the bond has gone up on the market, hence it impacts our fair value assessment negatively in the P&L, as we do a fair value on a quarterly basis in relation to the development on the underlying bond [ part ]. So looking to a little bit more in the specifics when it comes to the impairment of intangible assets here during the fourth quarter, as we previously announced there in the first quarter, we were to do a strategic review. We have done that review where we look into our segments and our assets, in particular, where we've done an assessment. And as the accounting regulation says we have to do that, divide it into our cash-generating units. And we have 3 cash-generating units within Catena; that is, the financial services unit, it is the sports unit and the casino unit. The sports unit and casino unit covered their values as cash-generating unit in the impairment sales. Hence, the Financial Services segment, we're not able to defend its value. Therefore, we have to do an impairment related to the segment or the cash-generating unit of financial services, in the quarter. We also did an individual assessment, a useful life assessment, as it's called here. And 4 products were classified as infinite -- or with a finite useful life, in this case, not an infinite useful life. And as we mentioned here at the start of the presentation, it was within -- primarily within -- in finance, in this case. But also, we have assets within the casino segment with very low revenue numbers or a declining channel or [ narrow ] products that we aren't putting any further focus and also a smaller product within the sports segment. And for the same reason, they're primarily related to PPC investment and web share accounts. Other than that, and that gives a total effect during the quarter of EUR 32.1 million. And the products with low revenue, as I mentioned, has been reclassified as inactive in our strategic review. We see, as we also mentioned, a positive development in the underlying business, and we are comfortable with the current levels here in terms of where we are with our assessment in this regard. When it comes to the recognition of impairment loss, that is related to the IFRS 9 assessment, where we, here in the fourth quarter, took a reassessment according to the new models, those were implemented in -- the relation is implemented in 2018. We are still a quite young company, meaning we use a lot of data points and assessment in -- when doing these types of adjustments. But we comply with the company regulations, and the Board has decided to take a conservative approach in terms of assessing the future default in this case, the default risk, which is related to a lot of data points and also including market data, et cetera, to conclude on a default risk level that is applied on the future expectations in this regard. So a conservative approach and a shift in underlying models in the accounting [ which we have ] impact. If we then continue to look at our new depositing customers here in the quarter, we increased NDCs from 100,000 up to 113,000 in the quarter. That is primarily driven by the legacy business in Europe, where we saw an increase in NDCs in the quarter. If we look at the graph on the left side, where we have the value, Europe for NDC, we see a decline, and that decline is partly related to the negative effect we had from the U.S. adjustments. When we calculate this graph, we use, of course, the reported numbers. If we look into our statement of financial position and balance sheet, it is the latest update where we have the assets end of December here at EUR 332.5 million. And as you can see, our assets committed to in acquisitions is continuing to decrease here during the quarter. And I will get back a little bit more on that here on the next page. So as you can see, over the year, ending Q4 2018 at EUR 81.9 million in asset purchase commitments now down to EUR 18.1 million, of which we have announced here in December and January. But the majority of that remaining value has been settled now related to the U.S. acquisition where 70% was paid in shares here during January. And the remainder of the payment in industry-wide for the U.S. assets will be done in April 2020. There is a small acquisition to be paid as well in this valuation, the asset called Bonusseeker. But also, we'll confirm with you here during the second quarter. If we continue then to look into our statement of cash flows, we ended the year with a cash conversion of 106% and an underlying operating cash flow of EUR 9 million. That corresponds to a total net cash generated from operating activities in 2019 of EUR 38 million compared to approximately EUR 40 million in 2018. Some updates then on our refinancing activities. And for those of you who, of course you are aware that we have an unsecured senior bond with the framework of EUR 250 million, where we utilized EUR 150 million currently, which matures in March 2021 as well as a revolving credit facility with Swedbank. And we are in the process of refinancing, and we have looked at several options and worked with this for quite some time now and evaluated a lot of different options during the past year. We are having a very good momentum in this regard and positive dialogues with the banks and financing institutions, and we will get back as soon as we have further information to give in this regard. We have also now, during the quarter, just recently updated our financial targets due to the changed marketing condition here over the last year. The financial targets has been reviewed by the Board. And the new financial targets that we are implementing is, one, to have a profitable double-digit growth on a yearly basis, organic, as one of our long-term financial targets; and the other one is that we are changing the phrasing a little bit on our leverage target to be -- to operate below a net interest-bearing debt adjusted EBITDA of 1.75x long term. So we are decreasing that compared to the previous amount as we are soon to be -- we settled with the earnouts we have and -- in combination with a positive cash-generating income. So we expect this to be good long-term points.

Right. Thank you, Erik. So let's now move into a bit towards the strategic part of this presentation and how we foresee the short, but also the long-term growth. It's no secret that we leave a very tough year behind us. We're going into this with severe changed market conditions, but also with our own legacy that was actually creating a decline in our business. To sort out, we needed to apply a big turnaround project to the business. And the way how we do that is that -- we did that was, A, to stabilize those assets that are -- were in decline, then started to clean up, meaning that stop focusing on certain assets that we don't believe can be of value, hence also writing them off. And when things are stabilized and we have a clean sheet in the [ one ], we can then start to build. That project is going a little bit different between this -- depending on the segments we're in and where we are in the world. But the standards that we have applied is what you see in front of you now. It's basically all the core parts being that the focus on organic growth because that is, what we believe, showing the strengths in the company. Doing so, we also need to have some local regulatory changes, which have been many this year and will be over the course of the years proceeding in a lot of markets. So we need to be good at that and [ need to enact that ] accordingly. Geographical expansion into -- of existing products, also invest in the new ones, but this also at the time when we're also trying to improve efficiency in the company in terms of costs. We mentioned some of these points already in the last presentation. But to summarize, is that in the mature markets where we don't foresee as fast growth pace as other parts of the world, the key thing is to improve efficiency. Revert the structure, focus on less products, take out costs. So we can increase margin by doing so. And I will come back a bit in more detail about these projects. But it's also then to, in areas where we can grow, which is, in many places around the world that already exist business. It is U.S. program stays on board, but it's still in a very early stage. But also elsewhere where we have business like in Asia, various parts in Europe, et cetera, we believe that we can grow that business not only in the pace of the market, but outgrow it. In some case, we need to invest. But in some case, we can then probably take out some further costs. So fast growth and a good margin from that as well. But then there's a day tomorrow as well, and there are a lot of things happening. One example is new states to come in U.S. that we -- has historically have worked very good for us. We want to have sites up and running when the state [ provides us ] from day 1 and send traffic. So that, we invested a lot in those sites and the people who manage them and the product support and investments that have to have in order to be successful also in the future. But we know that also things are happening fast the Latin America, various places in Asia. So we want to be on the starting grid there fully here to move on very fast there, and that's why we want to invest in that. I think the most important thing here is that we want to grow very fast, we want to grow more and we want to do so very efficiently. So the work is not finished yet. We have managed to conclude in a way that will stop the decline and started to rebuild, but of course we want to accelerate quicker. Therefore, we need to look into certain couple of things more. If you look at sports Europe, which is predominantly a lot of revenue starts from the initial market like Sweden, U.K., et cetera, we have started a business revision, same thing, same strategy, less products, focus on the hero. So we are now going to start on focusing a hero brand with sports like, for example, AskGamblers for casino. We prioritize organic growth and acquired revenue as [ brings ] better margin to us. I think the most important thing is also that we're doing cost-efficiency improvements here, return costs around and take out costs and only invest where we really believe we have a good ROI going forward. Casino, we all have been through many times, but its continued focus on quality improvements. We are rebuilding a big site now that we couldn't have seen [ we retired ] from the past, but [ priority is ] on slots based on the product that is not driving more traffic a lot these days, but we want to do that. So that's on the rebuild and will be launched here as soon as they're ready with us. Important thing is to also look into the entire marketing and the commercial functions within the company to get more efficiency there and be able to support our operators in the more efficient ways we help them grow their business. And this we do by also using the tools they have available to us due to a lot of improvement projects in the company to do that. Other than that, of course, we continue to focus on AskGamblers, which is our core casino brand. We will launch -- are planning to launch 3 new languages within 2020. We will do this in a certain interval to make sure that when the site updates, that is the full control and that we retain both short-term and long-term traffic increase from that. So that's why we're spreading it out over the year, and it will be in languages that are in not in just 1 continent. We will expand the horizon of these products in the new markets. Other than that, the U.S., of course, we mentioned that we're doing a lot of investments and we also continue our cost-efficiency projects. So to do this, we need a lot of hard work. We also need different experience in, and therefore, I'm happy to announce that we have 2 new executives in the management team that have recently started. One is Hamish Brown, who is our Vice President of Casino. Hamish joins from a gaming experience a lot within product management, turnarounds, geographical expansion. He's very good in this, and he's a very good, suitable candidate for casino products. We also have Chris Welch, who -- for those of you in the industry, also knows very well. He comes in from a long experience, was in iGaming where he have various roles, anything from sports, casino culture, both in marketing and CEO, et cetera. And this trend also brings, together with Hamish, a good commercial knowledge in there that we need that we can improve not only the product, but also our big offering of those products to the world of operators. So we're very happy to welcome them onboard. Now U.S. Exciting things there is, of course. I think it's important to understand that there are things happening all the time. And we're having -- just starting to recognize these pages now in our presentation where we try to summarize. But rest assured, in a couple of days, this will have a change again. But to summarize in Q4, the good thing was that in Pennsylvania, more operators came onboard, so meaning that we could then start to send traffic to more operators there, meaning that not only we can channel the traffic to avoid the things which we discussed before, but also to stably course for the payment you can get for those traffic. So CPA rates, cost per acquisition rates, starts to increase. In the very end of the quarter, it was positive. Indiana, who came out that they want to launch a tad late just rushed the launch and actually launched 6 months ahead of schedule, which was very good. They unfortunately missed the NFL kick-off, but another state is good. And now they're starting to build up also their operator presence so as to benefit from growth work. Because of these quite fast movements and people and states wants to benefit from the taxation and the legislation of this, you could also see that Colorado passes the Betting Referendum where legally then so that in the late 2020. But as you will see below, they are going to move ahead quickly on that. And we decided then to start to continue and invest in the stage to [ be live ] in the future. Since then, Q1, we can see that a lot of states outside New Jersey continues to add operators. We have more coming in, in West Virginia. We have casino operators coming in Pennsylvania, which is very good. And Indiana is also launching more operators for sport. All very good. Of course, we have a larger demand, not only in sports, but also in casino. New Jersey, why not there? Well, there's already a lot of operators there, so adding more would actually not benefit our business greatly there. But in the other ones is where we need more, and we are happy to see that happening. Also, even though very small state and initially very small investments, but we are live with affiliations to get the Draftkings in New Hampshire. Another interesting thing is that because casinos are to launch going in more states, social casinos is a very big thing, and if the operators as such can maintain a large volume on their side when the state regulate, they can have a good business. Therefore they are very easy to get traffic. So we send also that to them in the space not yet regulated. And even though not as high, [ costs that we can short ] is still an incremental volume, which is very good. And as mentioned, Colorado, they decided to move this faster. So now we look at the May-June online launch, which is great because that means that it will [ be back online ] before the NFL kick-off. So another boost there. Another thing we're doing because of the online development, we also have a lot of states where you only have land-based today. And because of the massive traffic on the sites that we [ called to those and said do you think ] by any means with the space not yet online-ready, can you help us try to [ steer us ] customers [ for that ], and we do that as a trial as well to see if we can [ start ] that. And we also decided to intensify our investments into new markets as more of them are estimated to launch earlier. So on the next slide, you see -- you recognize this [ slide ]. There are things being moved up to this timing, all the time there are more states passing the bill. I think the interesting part with that one is that there's a lot of states about to launch where a bill is passed. We don't know whether that will happen, if it will be mid this year, end this year, or 2021. But just to give you an idea, if you take -- once these states here that are inserted here and that are estimated to launch at some part, population-wise, they represent an increase of about 80% compared to today. But once again, it means that timing is yet to be defined, but we know that we have a potential revenue operators above 80% most likely, compared with what we can see today in the States. And bear that in mind, that the states we're in today are very, very low penetrated so far by this industry. So this looks positive, but of course it's not only there we need to grow, we need to grow in many places. So if we then start to look at the ongoing thing, we have done, not only work in the U.S., but we're doing a lot of rebuild. And happily we can announce today that the year has started good. Even though January last year was not impacted that much yet by our internal legacy products going down, even though it was impacted by the Swedish regulation, we still had a rather good deal still going on. And we're happy to announce that our preliminary numbers for January, January is showing a 9% revenue increase compared to last year. So the quarter has started good. But of course, it's just 1 month. We also know that certain areas will actually decline a bit later in the quarter, which I would like now to go through here, and then conclude what we believe in the short-term thing here. So if you look at U.S., nice start of the year. All this with Super Bowl coming out and March Madness in basketball. But after that, we have to understand that the sports business in the U.S. more or less dies and very little event to be launched. So a good start, but we'll end the quarter quite slow. That's important as gamblers continue to show good traffic performance and we don't foresee any decline going there. As for Italy, France, once again, we counted that to be slow for known reasons. And Germany, we believe we will track according to seasonality, meaning first part may be [ off the mound ] a bit slow because very little Bundesliga, but then it starts and picks up while the casino is stable. Japan, positive compared with Q4, as Q4 has slow seasonality. European casino, of course, continue nice trend, but compared with last year is still below was last year. Around this time, it was the peak before the big decline started. But still, we believe that traffic continues to grow. The key thing in this one is that we generated more traffic, but we also know that because of seasonality in general, there's a little bit less revenue in some markets generated by customers. And as we have a big part of revenue share coming into us, we could see, of course, a big decline in terms of seasonality in Q1, which is quite normal. But we also see that we have some positive momentum in this, as I mentioned, we have new start. We have asked gamblers to add some of our products. So our view is that we don't foresee the company should be negatively impacted by traditional seasonality in the quarter as such. But yet again, early indications, only we have 2 months to conclude, and we have to come back to that on reporting date on that. So then if we look at the more forward-looking for the full year, of course it's very difficult to be detailed here. But if we summarize what we have been working on now for quite some [ long ] and how we foresee that. If you just looked at revenue, we know that second half will be much more active and aggressive than first half. Why? Because you have the entire U.S. NFL football season started. And we know since [ these were ] that time, from August, September onwards, it's a big boom. We will have some states like Pennsylvania probably having a bit hangover because they launched this year, and we see the second year always being a bit lower. But on the other hand, the U.S. is growing nicely. We have Indiana, we have new states coming onboard, Colorado, et cetera, which is actually very nice. We are working very hard now -- that for a long time now really rebuild the sports business managed out of U.K., the U.K. market, Sweden, other places. And we will have benefit on that in the second half. But it's working on and potentially we'll see in the first half, but definitely in the second half and also seasonalities in [ payment ]. We know that -- we see the traffic is continuing well, and we know that in general we have a seasonality that is stronger in the second half than first half. And after that, the championships in the summer, which will help us to build a good thing, but back-ended, quite fast growth in the end of the year [ corrected. ] So in order then to benefit from that and send that to the bottom line, we need to be in control of our costs. And obviously, we've been reworking the cost structure over the year. But if you look at then what the cost we booked for, for the fourth quarter and analyze that, so how we will foresee then the cost development in the company? First of all, we don't foresee any total increase in cost comparing to fourth quarter roughly. In fact, when it comes to direct costs, we don't expect to increase it, meaning pay-per-click and performance-based marketing. We have conducted a review to understand the ROI efficiency here. And if that doesn't turn out well, we have to potentially cut it. But if we can find other ways of doing it and securing an accepted margin, we will maintain those levels in the same level. Otherwise, it will go down. We are currently taking out costs both in other OpEx and personnel, and we are doing that. We did it [ in Q2 ] but also continue to [ do so ] in the first half. But the most important thing is I mentioned that we also have a date tomorrow, and we're planning then to reinvest those savings into new markets and into [ the debt ] markets. And to give you an idea about what those investments represent is that about 7% to 10% of the run rate is what's going to be invested in the new markets this year. And obviously, their full cost will also be taken out from the legacy business. So all in all, to conclude, we are, compared with the bottom in the summer here, continue to grow both operational revenue and profits. And we had to do some adjustments obviously, meaning that we had some short term negative impact on that, which we have explained. We are continuing our cost control activities and then continue to focus that a lot. We're not done yet. We're trying to find efficiencies every day. And as soon as we can, we will continue to cut costs. But a lot of those will be reinvestments, so there's a nice future growth because we want to grow fast and profitable. Hence, we have updated our financial targets. And as Erik mentioned, we are having then positive discussions with refinance activities and plan to communicate that to market really soon, that's what we want to do. So all in all, that concludes the presentation, and I guess we'll now open up for questions.

[Operator Instructions] Our first question comes from the line of Hjalmar Ahlberg of Kepler Cheuvreux.

First, just a question about the write-downs. And historically, you have viewed your assets as a single unit and then that -- I mean, [ all whole asset ] that should be considered and then valued asset. Just I'm wondering what changed in that? And how do you view that as going forward, if you still view it as a whole or if you'll leave it as single assets going forward?

So how it works in terms of the regulations is that you're right, that you look at the impairments on a cash-generating unit perspective, that is one way of looking at it. But if you have assets where you've taken a decision, and I'm not going to do any further investments or if they can't significantly offset their value, you have to do a -- you don't have to do, you should do -- a useful life assessment, and that's what we've done in this case for certain products that we have reclassified as inactive and that we will not do any further investment in. So it's products that has been declining revenue-wise and that we won't do any further investment in. So we've done a decent assessment and a very careful assessment in this case, and we will not expect frankly any further adjustment in that regard.

Okay. And a question on the start of January. I mean you discussed a bit on how 2019 Q1 last year looked. And it sounded like, I mean, January was, I mean, not the weakest month. But rather, I mean, January, February, March were all a bit weak. Maybe can you say something more about how last year looks? We understand, I mean, if January was a very weak month compared to the full quarter of last year.

I think we need to [ state it ] down a bit because, obviously, we all knew what happened and how it will happen in Sweden, for example, with the revenues there in the first month, which were extremely low. So being in the levels we are today, of course, that helps. Casino European, correct, in general, one we'll be working on. They did better last year than they do now because that's post the peak. And even though we're growing all them back, they're not really were all the way back, but we expect them to do so. But other than that, obviously, U.S. did better this year because we're in more states and more -- we have the other casino products. We have AskGamblers, [ we have bet ] in Japan doing better, et cetera. So I think it's pretty much to what we tried to guide here as well, is that there are some problematic things that we have adjusted in the year that are going back, but some of them are not yet not back to full potential, while the other ones are continuing steady growth quarter-on-quarter, that's what gives us the nice potential revenue here at the start of the year.

Okay. And looking on your sports betting asset now with the Euro 2020 Championship. You mentioned France is still not fully up running, and you're working on some improvements on your Hero sports betting sites. Do you think that will be up and running to the Euro 2020 Championship?

Well, I think the -- first of all, the Hero product is a new product. So that is just incremental, whatever we do. The key thing is, of course, in sports and this work we're doing now is to take the existing assets we have and improve them and taking out cost and then make them more efficient. So that is of course the target, to benefit from that from the championships. So I think, in general, we foresee a positive impact of the championships. But we also have to remember that the championships also replace traditional league [ staying ] on. And the championship is great, there's a lot of investment, but then also the result is depending on less events. So you can have big swings of revenue share. That's why we need [ in the end ] how good it will be. But definitely, we have -- all the works we're doing is to benefit as much as possible for those improvements [ through use ], and these events will grow furthermore.

Got it. And the other question for you is, I mean, you just discussed just a bit, New Jersey was very strong in 2018 when the market launched, and now Pennsylvania was very strong when that launched online in 2019. Where do you see New Jersey now in 2020, I mean, has it -- is it declining or [ I guess is it more ] steady?

Hjalmar, we need different cycles. That's what we see in U.S. because it's quite different, Pennsylvania is very different from New Jersey. What we typically see is the second year, NFL, we have a bit of a hangover because you get a lot of push when it opens up, if it opens up around NFL kick-off. And then typically, in the same market thereafter, you get a big decline in sports because there's so much focus. It's still generating all the new customers, but we get a hangover. How that will play for Pennsylvania this year, we'll have to see. Because also, you have to remember, the time for NFL kick-off this year had a very limited amount of operators, meaning that the marketing effort to the public was slow and there was not a lot of activities in that sense. So that could compensate a bit from that hangover while you have other states coming onboard. So I think that's why we believe that going forward here, we foresee a nice growth and even if new states wouldn't come onboard. Having that on top, we see a very positive outlook on that, but timing remains to be decided.

And just last question on the retention business, which we talked about, a bit about before, and the [ South Quenestring ] is that generating any revenue yet? Or is it's more in the making?

No. Basically, still, we decided that we had quite some substantial other things to look at as we can surely could see in the numbers it would happen and so did the operators. This was business predominantly focused on areas like U.K., et cetera. And as we've [ realized ] in this business, we have potentially not focused [ a lot on that ] that's why it's still here. We believe that's a good thing. I cannot mention to who we are in discussion with now and who we're refinancing it with, but it will be implemented at some time, but there's nothing major in revenue generated for us yet.

Our next question comes from the line of Christian Hellman of Nordea.

Just first, a question on the cash flow for the first 2 quarters of this year, just to help us project it a bit, Per. You have some earn-outs that are due to be paid for the U.S. assets. Could you just be a bit more specific, when will you pay these earn-outs and what are the amounts?

So I will pick up on that question. We have already, and what we announced here in January is the amount that will be paid in cash for the U.S. assets, that is in U.S. dollars and the exact number can be found in the press release that we have now in January, and that payment will fall due during April, that cash payment. And so [ in the form there ]. Then we have the smaller one less than -- for that one, we have not announced yet, how that will be settled, and that is for [ cubolesiket ] that remain in part of that 18.1 million but it's a small part.

Right. But that is due in Q2 as well?

You're correct. Yes.

Okay. Okay. And then just on the U.S., I came in a bit late in the conf call here, but you spoke a bit about the U.S. in the beginning. And I think it also mentions in the report that you saw growth versus Q3, but in the report, you stated the U.S. declined a bit from -- versus Q3. Can you just be a bit -- comment a bit on that again, please?

Okay. So it's [ a bit lot in ] the U.S., you need to see a couple of different things. So in general, the business in U.S. grew but we had to do that adjustment as well, of course. So the operating business was growing, and casino is more or less flat. Sports started the quarter quite good and only to reduce a bit in the end. But I think it's the operational income we had and then you need to deduct the adjustments, that means that [ we actually final ] reporting that revenue numbers there are misleading a bit if you compare it quarter-to-quarter.

;Okay. So taking that adjustment into account, you grew versus Q3 but not including it? Okay. And then just on the trading update, if you could speak a little bit about -- you have made some comments on the U.S., but just in general, these -- the growth in January of 9%, how does that look in Europe, U.K., Sweden, Germany? Could you elaborate a bit that on that, please?