Evolution to Navigate Market Risks with Strategic Growth Initiatives

Risks

• Financial risk management: market risk (including currency risk and cash flow interest risk), credit risk and liquidity risk.
• Political decisions and other legal aspects. 12/20/24 Regarding review by UK Gambling Commission. The review was initiated after the Commission identified Evolution games being accessible from the UK through operators not holding a Commission license. About 3% of Evolution’s revenue is from the UK market
• Operations subject to official approval. Evolution’s customers operate in a regulated industry, the laws and regulations of which are in a constant state of change.
• Disruptions to operations and information security breaches.Third quarter of 2024 presented two exogeneous factors that have had a negative impact on the quarter.Downsizing of Georgian studio due to sabotage activities. 60%.Significant increase in advanced cyber-attacks against our Asian video distribution thereby impacting our Asian revenue negatively.
• External anomalies like virus or geopolitical events.
• End users. As a B2B supplier, Evolution has customer relationships with gaming operators, who in turn own the relationships with the end users. Generally, the gaming operators are licensed in a limited number of jurisdictions while operating in a global market and allowing play from various geographic areas
• Dependence on key personnel and skilled employees: Approximately 87 percent of the Group’s employees work on tables as hosts and dealers
• Incentive programme The company has one incentive programme. Upon full exercise of the warrants within the programme 2023/2026 (adopted by the Extra General Meeting on 9 November 2023), the dilution effect will be approximately 0.9 percent
• Dependence on major customers. In 2023, the top five customers (in terms of revenue generated) contributed 41 percent (30) of Evolution’s revenue.
• Seasonality. Evolution’s operations are, to a certain extent, influenced by seasonal patterns in end-user activity. The Group’s customers generally notice increased end-user activity and an increased volume of operations in the fourth quarter of each year, which is consistent with the Group’s experience of increased online casino traffic and commission income earned in the fourth quarter.
• Counterparty risk. Primarily the risk of payment default by operators
• Competition. Competition is expected to continue to intensify as new live casino providers enter the market and existing providers improve and expand their product and service offerings.
• Intellectual property rights
• Risk management. Evolution is exposed to the risk of money laundering and fraudulent activities by its customers, end users and third parties, as well as the potential collusion by operators and end users.
• Tax situation. Evolution primarily conducts its business through subsidiaries that are active in the geographic markets in which it operates. Regulatory or legislative changes, or decisions by tax authorities, may impair the present, future or previous tax position of Evolution, which could have a material adverse effect on the Group’s business, financial position and profit.

Catalysts

The Online Gambling Market grew from USD 79.80 billion in 2023 to USD 88.33 billion in 2024. It is expected to continue growing at a CAGR of 10.57%, reaching USD 161.32 billion by 2030.

https://www.researchandmarkets.com/report/online-gambling

The company’s future development is mainly dependent on the development of the online casino market. Evolution’s medium to long-term objective is to grow faster than the total global online casino market.

And most importantly, the business model is scalable.

Acquisition of group companies

Evolution has acquired 100 percent of the share capital in Livespins Holdings Limited, a B2B social streaming game provider that enables operators to offer their players the opportunity to bet behind their favourite streamers, brand ambassadors and influencers. The up-front cash consideration was EUR 4.3 million net on a cash and debt free basis. In addition, Evolution may pay an earn-out based on Livespins’ performance in 2026. Livespins is included in the consolidated accounts, the effect on Evolution Group’s results of operations and financial position is not material.

Evolution has entered into an agreement to acquire Galaxy Gaming, Inc. for a total equity value of approximately USD 85 million, payable in cash. Closing is expected in mid-2025, Galaxy Gaming Inc. is therefore not yet included in the consolidated accounts.

Evolution has decided to extend the earn-out period related to the purchase of BTG until 2026. The earn-out liability has been reduced with EUR 59.7 million which is recorded as other operating revenues. Remaining earnout with net present value of EUR 102.7 million may be paid at the latest in 2026.

Valuation

• Where do you think the business will be in 5 years time?4.000.000.000€
• What do you think revenue and profit margins will be?14% revenue increase and profit margins 45% due to the increase in personnel costs and the necessary investments in cybersecurity.
• What do you think the valuation multiple will be in the future?12X
• Risk level9%