Flutter Entertainment plc Q4 FY2023 Earnings Call

Good morning, and welcome to the Flutter Entertainment 2023 Earnings Call hosted by CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. Please note, this conference is being recorded. Your lines will be in listen-only mode for the duration of the call. I will now hand you over to Paul Tymms, Director of Investor Relations, to begin today's conference.

Good morning, everyone, and welcome to Flutter's 2023 results call. With me this morning are Flutter's CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. After this short introduction, Peter will open up with a brief run-through of our excellent progress in 2023, and then Paul will run through the 2023 financials and also update on current trading and our 2024 guidance. We will then open up the lines for Q&A. We appreciate that the move to a U.S. reporting format, and U.S. GAAP and U.S. dollars will make our results materials look very different from our previous publications. The IR team and I are on hand today to answer any questions you may have to help with this transition. I would also like to remind you that some of the information we are providing today, including our 2024 guidance constitutes forward-looking statements under applicable U.S. securities laws. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. There are or will be important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors are described under forward-looking statements in our earnings press release, our registration statement on Form 20-F and our upcoming annual report on Form 10-K to be filed with the SEC. In addition, all forward-looking statements are based on current expectations as of today's date, and the company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law. Also, in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today, available in the Investors section of our website. And with that, I will hand you over to Peter.

Thank you, Paul. Before I start, for those of you newer to the Flutter story, I encourage you to look at the listing day presentation we delivered on January 29, which is available on our website. It outlines why we think Flutter is a compelling investment proposition due to the $200 billion plus regulated market opportunity that exists for our products, the scale and diversification benefits we gain from being the global leader with number one positions in the U.S., U.K., Ireland, Italy, and Australia. Our Flutter Edge harnesses the combined power of our global footprint to create superior returns in each of our businesses and markets, our optimal strategy to deliver on this opportunity, and our growth algorithm for translating revenue growth into returns for shareholders. As part of our listing on January 29, we announced our proposal to move our primary listing to the New York Stock Exchange. Subsequent feedback from both existing and potential new shareholders has been very positive, and a special resolution will be put to shareholders at our AGM on May 1. Should this be approved, we expect the transition to the U.S. primary listing to become effective by May 31, 2024. Moving now to the performance of the business in 2023, we are delivering on our strategic objectives. In the U.S., FanDuel delivered its first full year of positive further adjusted EBITDA and has consolidated its leadership position in sports across the key months of NFL and NBA activity, capturing a 53% share of net gaming revenue in Q4. This has been achieved by ensuring we have the best product in the market. Our sportsbook product has consistently been ranked as the number one by various market research firms in the U.S. market, and we are investing to maintain this leadership position. This NFL season, we launched the Parlay Hub and The Pulse, both of which have helped drive parlay penetration higher, which in turn increases our win margin. This included a near threefold year-on-year increase in the proportion of Super Bowl live bets that were Same Game Parlays. This product superiority, combined with our pricing accuracy, means our structural hold margin has also progressed well ahead of expectations, reaching 13.5% in Q4. The strength of our product gives us the confidence to continue investing behind the excellent returns received from our customer acquisition investment. In 2023, FanDuel acquired 3.7 million new sportsbook and iGaming players, 19% more than the prior year. Crucially, the payback period on these upfront acquisition costs remains consistent with long-term trends at less than 18 months despite the move to U.S. GAAP, which has increased the proportion of our costs included in gross profit and now forms part of the payback calculation. The value of our existing customer cohorts continues to grow year-on-year, including Sportsbook revenue growth of 25% in pre-2022 states, demonstrating similar characteristics as we see in our other markets. This, combined with our highly disciplined approach to customer acquisition and generous spending, we believe will drive future year profits and overall value creation. In iGaming, FanDuel Casino is going from strength to strength, becoming the number one brand in the market in January 2024 and has gained seven percentage points of share since July 2022. We said 2023 would be the year we reached product parity with our competitors, and we've locked in exclusivity periods with leading gaming titles, such as Willy Wonka and Fort Knox; signed new partnerships, including the number one iGaming operator in Las Vegas; and are looking forward to welcoming the Beyond Play team to the Flutter family, which will broaden our sportsbook and multiplayer functionality. We already have a strong pipeline of iGaming innovations in 2024, which sets us up well to deliver further market share gains. I'm delighted with how our U.S. business is performing. We are acquiring and retaining millions of players, and our guidance shows a very significant inflection in further adjusted EBITDA for 2024. Outside of the U.S., strong AMP and revenue growth in UKI and International, including the addition of Sisal, more than offset the previously muted trends in the Australian racing market. The UKI business had an excellent year. The combination of compelling new products and improved promotional efficiency has delivered an additional two percentage points of market share in 2023. In sports, we launched new products, including Acca Freeze, and exclusive markets in our Bet Builder products. While in iGaming, we further expanded our Live Casino offering. The proactive actions we took to put our business on a more sustainable footing in 2021 has left the UKI business well positioned as we enter a period where the white paper business is to start being implemented. We take commitments to safer gambling seriously and have invested $100 million in safer gambling initiatives across 2023, a 25% increase from the prior year as part of our positive impact. In Australia, Sportsbet grew AMPs by 2% to 1.1 million, driven by high levels of retention. However, average spend per player has reduced back to pre-COVID levels. We've also seen a softness in the racing market across the second half of 2023, which we expect to persist into 2024. These market trends have combined with increased regulatory and compliance costs. Since 2019, point of consumption taxes and product fees have increased as a proportion of revenue by 10 percentage points, which equates to approximately $150 million in additional costs for the business. The combination of COVID reversion of challenging market and higher regulatory compliance costs will reduce Australian profitability further in 2024. Our Australian business has experienced significant top-line growth in 2019, with compound growth rates of 15% in both players and revenue. We believe Sportsbet's scale from its 5% market share, which is broadly in line year-on-year along with its leadership in brand and product, leaves us well positioned for the future. Finally, in International, our strategy of investing in key focus markets is delivering strong growth across Italy, India, Turkey, Spain, Georgia, Armenia, and Brazil. In Italy, we have the number one online share in Europe's largest gambling market, and our online revenue grew by 20% on a pro forma basis in 2023. Sisal's market-leading products and efficient cross-sell from its retail customer base are driving its strong momentum. Junglee in India has adapted well to the recently introduced tax changes, and player momentum remains excellent, with AMPs 53% higher in Q4. Revenue in Turkey grew 36% year-over-year on a pro forma basis despite a material foreign currency headwind as we doubled our footprint and drove increased online adoption and within our Optimize and Maintain markets with efficiencies in our PokerStars business through leveraging the existing technology and marketing resources of our local hero brand portfolio. In January, we completed the acquisition of MaxBet in Serbia and launched an expanded sports-betting concession in Tunisia. These are further examples of the great opportunities we see in fast-growing markets and ensure we are seeing a greater proportion of the $200 billion total addressable market for our products. To conclude, the business had an excellent 2023. FanDuel has reached an inflection point, where we believe we will generate significant further adjusted EBITDA in 2024, while we continue to see the diversification benefits in our ex-U.S. business. Growth momentum is good across the group, underpinned by the Flutter Edge, meaning we are well positioned as we move through 2024. And with that, I'll hand you over to Paul.

Good morning, everyone. Thanks for joining. Given the detailed revenue information we already provided with our trading update on January 18, I'll keep my comments on our 2023 performance to a high level, then I'll update on Q1 2024 trading so far and provide our 2024 guidance. The group delivered a strong performance in 2023 with year-on-year revenue growth of 25% to $11.8 billion and further adjusted EBITDA growth of 45% to $1.9 billion. This resulted in a 230 basis point improvement in our further adjusted margin, a key output of our financial growth algorithm. This growth is structural from expanding our player base, which we have increased by 20% year-on-year. On a statutory accounting basis, the group had a net loss of $1.2 billion and cash expenses associated with the PokerStars amortization of acquired intangibles and marking to market the value option over shares in FanDuel. The PokerStars reflects our change in strategy from PokerStars being an individual business to making the PokerStars brand available to our local hero brands like FanDuel, Junglee, and Sisal to use in their markets. The increase in further adjusted EBITDA has been the main driver of our adjusted earnings per share growth of 25% to $3.51, and setting the year-on-year movement in the FOX option liability from a credit of $83 million in the prior year to a charge of $165 million in 2023, along with higher interest and tax costs. Adjusted free cash flow grew 63% to $938 million, also benefiting from growth in further adjusted EBITDA. Moving to the segments; in the U.S., excellent top-line momentum and significant operating leverage drove a further adjusted EBITDA increase of $430 million to $167 million. U.S. AMPs and revenue grew 38% and 41%, respectively, and the scale of our existing player base is now generating a more sufficient contribution for our significant investments in new player acquisition, which will, in turn, drive further growth in contribution. Our ability to deploy national marketing strategies and operating leverage in states launched through 2022 drove further scale efficiencies in our investment into sales and marketing, which reduced as a percentage of revenue by 11 percentage points. Outside of the U.S., we grew further adjusted EBITDA by 10% to $1.7 billion. This reflected excellent top line growth in the UKI and our priority Consolidate and Invest market in our international division, offsetting the Australian market trends Peter noted earlier. In the UK&I division, we increased further adjusted EBITDA by 17%, ahead of revenue growth of 14%, with strong operating leverage in sales and marketing expenses due to our market scale. This excellent revenue growth was achieved in both sports and gaming, which grew 11% and 18%, respectively, and enabled us to take significant market share. Further adjusted EBITDA in Australia was 27% lower due to the combination of revenue declines and increased taxes. In our International division, on a pro forma basis, revenue grew 6%, driven by growth of 14% in our consolidated and invest markets, including an excellent performance from our Italian business, Sisal. Further adjusted EBITDA margin expanded by 200 basis points with sales and marketing expenses 570 basis points lower as a percentage of revenue. Moving now to the cash flow; the group generated adjusted free cash flow of $938 million, 63% higher year-on-year. Net debt remained broadly in line year-on-year. However, the growth in our further adjusted EBITDA means our net debt-to-EBITDA ratio reduced to 3.1 times. This rapid reduction in our leverage rate, combined with feedback received from shareholders, means we are raising our medium-term leverage target to 2 to 2.5 times further adjusted EBITDA from the previous target of 1 to 2 times EBITDA. Consistent with our previous target, when appropriate, we will temporarily flex this up to take advantage of attractive M&A opportunities. This increase reflects the confidence we have in future cash flows, combined with the strong returns we can deliver from efficient capital allocation into both organic investment and M&A. Where there is capital in the business that is genuinely surplus, we will return it to shareholders. Turning now to 2024. Trading for the year has started well. Revenue for the 11 weeks to March 17 is 23% higher than the prior year's comparable period. As noted in our IFRS to U.S. GAAP conversion materials, PokerStars U.S. has moved from our U.S. division to our International division in line with how the business is managed. U.S. revenue is 56% higher for the period from strong Sportsbook staking volumes, excellent iGaming momentum, and a positive sportsbook net revenue margin swing of 230 basis points. The large movement in sportsbook net revenue margin reflects the continued expansion of our structural sportsbook win margin, along with the lower comparatives due to our significant investment in launching in Ohio on January 1 last year and, to a lesser extent, Massachusetts from March 10. In the current year, FanDuel launched in North Carolina on March 10, and into Vermont, a relatively small state, on January 12. Excluding the impact of these new state launches in both years, total U.S. revenue grew by 34% for the period, which is broadly in line with our guidance for 2024. In our business outside the U.S., revenue was 6% higher in the current trading period. Strong momentum in UKI, aided in part by current movements, has more than offset Australian market trends and customer-friendly sports results in Italy. We will do our usual full assessment of our Q1 results in May. But until then, we cannot comment further on current trading. This positive start to the year is reflected in the 2024 guidance we have introduced today. In the U.S., we expect revenue of between $5.8 billion and $6.2 billion, which at the midpoint equates to year-on-year growth of 36%. We expect U.S. further adjusted EBITDA to increase by nearly $0.5 billion to $710 million, again at the midpoint, and we expect U.S. cost of sales to be approximately 56.5% on a U.S. GAAP basis. We expect 30% of EBITDA to be generated in H1, with Q2 higher than Q1 due to the timing of state launches noted above. Outside the U.S., using the midpoint of our guidance range, revenue of $7.85 billion represents 6% growth, and further adjusted EBITDA of $1.73 billion represents pipeline growth. This is after a 6% further adjusted EBITDA growth headwind from the Australian business, which is being more than offset by strong momentum in UKI and our International division's Consolidate and Invest markets, including the addition of our recent acquisition of MaxBet. As always, our guidance is provided on the basis that sports results are in line with our expectations for the remainder of the year, with current foreign exchange rates and in a consistent regulatory and tax environment. In closing, after a strong 2023 performance, the business has made a great start to 2024. And with that, Peter and I are happy to take your questions.

And your first question comes from Ed Young from Morgan Stanley. Your line is open.

Good morning. My first question is on the U.S. and your U.S. guidance. It's a strong revenue guide, but at the midpoint, your guidance implies a touch below 30% drop-through to EBITDA from incremental revenue. Your main peer in that market is smaller and isn't leveraging an international business, but they guide to at least 53% drop-through this year. So broadly, could you help us understand your approach to cost of investment, and whether we should just think of this as conservative guidance? The second question on International: Could you elaborate a little bit on the strategic and operational changes you've made to PokerStars? You've provided commentary about the impact, and it would be interesting to understand the revenue and cost synergies from the changes.

Ed, let me give you some high-level thoughts, and then Paul can provide further details. Yes, I think you've heard me refer to the U.S. business as one where we are trying to create the largest business possible while ensuring we meet our return period. That remains the case. We didn't focus the business on achieving an EBITDA positive number last year; it was about the growth math. We're continuing to acquire as much business as we can. It's important to think about the future size of the business, not just its current size. Regarding PokerStars, we see real benefits in integrating this great product into our local hero businesses. For example, being able to offer the PokerStars product within the FanDuel ecosystem enhances customer offerings. We have already implemented this in Junglee and will do the same with Sisal this year. This eliminates costs associated with operating the PokerStars platform in those markets, providing significant cost benefits. However, the main advantage lies in reinforcing our market position in local hero areas.

Thanks, Peter. Regarding our investment in the U.S. market, our cost of sales on a U.S. GAAP basis for 2024 is anticipated to be 36.5%, slightly less than last year. As Peter mentioned, we will continue to invest to win new customers wherever possible because the returns are compelling. It's our top priority for capital use. Concerning PokerStars, the impairment mentioned encompasses one-off noncash accounting adjustments relating to the transition in strategy, which involves bringing the PokerStars brand into our local hero brands like FanDuel, Junglee, and Sisal for which they will pay a royalty fee. We expect that, once fully implemented, this new strategy will increase our profitability from PokerStars while also reducing capital expenditures. This change reflects the challenges associated with our older technology and maintaining the PokerStars brand's previous operational model.

It does. Perhaps just one very quick follow-up on your first answer. You gave a bit of a perspective on where costs of sales might go. Do you plan at some point to update the previous framework for the U.S., but could you provide any kind of a toll on marketing versus betting products in the U.S.?

That's something we will address at the capital markets event planned for later this year. For now, the framework provided is the best indication we can give the market. Thank you, Ed.

Your next question comes from the line of Clark Lempen from BTIG. Your line is open.

Thanks. Good morning. I have two questions. To follow up on the U.S. guidance, could you provide more details on the KPIs underpinning this guidance, such as the structural hold assumptions or handle growth? If we see the midpoint guidance move towards the high 30s or low 40s, would it primarily be driven by market strength and handle growth, or are there additional variables we should consider throughout the year? The second question is on ex-U.S. growth. The 6% growth forecast sounds like there will be significant variance between geographies. Could you help us understand the high-level performance between the U.K. and International, relative to Australia on a full-year basis?

Thank you, Clark. To address your second question first, there are indeed variances. The Australian business continues experiencing headwinds. Yet, it remains a strong business with a 45% market share and an excellent management team. We are confident in its long-term outlook. However, the market is confronting regulatory limitations and additional tax burdens, as the post-COVID market dynamics stabilize. Conversely, the U.K. business has thrived, gaining two percentage points of market share in 2023 and acquiring significant new customers, particularly in gaming, so it is performing excellently. Regarding your inquiry about U.S. KPIs, we currently have no specific updates. We discussed these metrics in detail during our Q4 revenue update on January 18. Q4 and Q1 are our principal quarters with the NFL, thus benefiting our revenue remarkably due to our strong parlay product. We will share more insights during our upcoming Capital Markets Day.

Your next question comes from the line of Paul Ruddy from Davy. Your line is open.

Hey, good morning, guys. Just two quick ones for me. First is on the new leverage target, which is slightly higher. Given how quickly you have been able to deleverage from here, does it indicate anything regarding your M&A aspirations? Secondly, could you provide more commentary on the promotional environment this year, especially any insights on hold and potentially rising competition in the promotional space?

Let me address the leverage target first. Historically, we indicated a target of 1 to 2 times; however, we are now looking at 2 to 2.5 times net debt to EBITDA as a more appropriate target. As we see attractive acquisition opportunities, this allows us to flex our leverage and is a natural evolution of the business maturing and generating more cash at lower risk around the globe. This adjustment does not restrict us from pursuing acquisitions if they meet our criteria. Regarding promotional intensity, we're committed to investing in acquiring new customers as long as we meet our return criteria, which we have been achieving.

Additionally, our recent acquisition in Serbia exemplifies our intent to expand through our product capabilities and investments into promising markets. Seeking podium positions in our international businesses is key. While we focus on the U.S. market, we remain aware of the considerable competition in promotional dynamics. We aim to balance customer acquisition effectively while maintaining our strong return criteria.

To clarify, is it fair to conclude that M&A is currently a top priority for your cash usage?

Absolutely. Our cash priorities are firstly investing in the business, as Peter noted, to acquire new customers, followed by pursuing M&A opportunities, particularly in market-leading positions. Any genuinely surplus capital may then be returned to shareholders.

We are in a fortunate situation where we don’t need to make acquisitions unless they meet our return criteria, which remains a critical consideration in our M&A approach.

Your next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Your line is open.

Good day, guys. Congratulations on the solid business performance and U.S. listing. First question, regarding Sisal, you've had ongoing success in converting retail customers online. What specifically is driving that online conversion now in a post-COVID world where it would seem more challenging? Secondly, FanDuel has had unique access to integrated and lower-latency digital streams for its various offerings. How much is this impacting your in-game betting metrics and supporting the technology and Same Game Parlays?

Good morning, Ryan, and thank you for your kind words. Sisal has excelled at converting its retail base into online users. Recently, our market share levels have reached all-time highs for online penetration in both sports and gaming. This success is driven by our fantastic product offerings, creating natural cross-sell journeys. A substantial aspect is our large funnel stemming from lottery customers who purchase tickets through thousands of locations nationwide. They can easily access our gaming and sports services by scanning their tickets, which is particularly beneficial in an advertising-restricted market like Italy. Regarding FanDuel, the primary driver for our performance is the superior quality of our products. Innovations like The Pulse and the Parlay Hub have proven effective in guiding customers toward our offerings. While low-latency streams are beneficial, we're not trying to sway players toward micro-betting within a few seconds, so latency isn't significantly impacting our focus.

Your next question comes from the line of Ben Shelley from UBS. Your line is open.

Two questions from me. First, you mentioned strong U.S. revenue growth, and the data indicates quarter-on-quarter share gains. Could you provide insights into the underlying drivers, including promotional strategies or product innovations? Second, your gross win margin expansion looks strong and continues into Q1. Can you discuss the levers and tailwinds for 2024, particularly regarding the potential for parlay penetration?

Both of your questions are excellent. Regarding current trading, I can only share that we'll provide more details during our Q1 results in about six weeks. Q4 and Q1 are significant since they encompass the NFL and NBA seasons, which significantly boost our revenue, thanks to the quality of our parlay product. We're very pleased with our current net gaming revenue share. In terms of our marketing approach, the focus remains on acquiring as much business as possible while meeting our return criteria. In relation to our structural win margin, I want to clarify that we consistently provide our customers with the best prices. We can achieve this while maintaining a better margin due to our pricing accuracy and robust parlay penetration. While I don't have any forecasts for parlay saturation at this time, I'm pleased with the product quality and our results.

Peter has effectively addressed the sports element. On the iGaming front, we are also pleased with our performance. We've gained a notable market share and have achieved the top rank as of January. The iGaming segment will continue to expand as we approach our typical market share levels, and we see promising signs for 2024.

Your next question comes from the line of Monique Pollard from Citi. Your line is open.

Hi, good morning, everyone. Two questions from me. First, on U.S. iGaming, you've highlighted a strong momentum and that you're now the number one brand in the U.S. Do you see the potential to become the overall industry leader in iGaming as well? The second question is on U.S. costs of sales. You mentioned you're guiding COGS at 56.5% for 2024 compared to 58% for 2023. Within that guidance, are you anticipating any changes in tax rates in specific states, or do you expect those to remain stable with only scale benefits improving your hold?

Good morning, Monique. You've effectively addressed the first question as we do have tremendous momentum in the iGaming sector. We're pleased with the iGaming performance, and we have more innovations forthcoming that we are excited about. As for our market share targets, we will observe where that growth takes us. Regarding the U.S. costs of sales forecast, the 56.5% guidance assumes a consistent tax and regulatory environment aligned with the 50% cost to sell on an IFRS basis that we indicated at our Capital Markets Day back in 2022.

Your next question comes from the line of Joe Stauff from SIG. Your line is open.

Good morning, Peter and Paul. Two questions, please. Firstly, regarding year-to-date U.S. trends you've outlined, particularly around iCasino with a growth of 50%. Could you discuss whether that growth reflects volume and a notable reduction in promotional expenses year-over-year? The second question, with March Madness having just occurred, it's not included in your guidance. Do you believe it positively influenced your trends or diluted the year-to-date metrics that you presented?

Thanks, Joe. We are somewhat limited in what we can disclose due to U.S. regulations. However, I can confirm that the increases we're seeing in the gaming sector are primarily volume-driven. We’ve been very satisfied with our overall performance and take pride in being number one in the market. Regarding March Madness, it's certainly exciting to be in that season, but for today, we will hold any further discussion until our Q1 reports mid-May.

Your next question comes from the line of David Brohan from Goodbody. Your line is open.

Good morning, guys. Two questions. Firstly, regarding the U.K., now that the white paper measures are clearer, have you adjusted your guidance for its impact? Secondly, recent reports indicate a few states are considering tax increases, including Illinois and New Jersey. Can you share anything on that, and to what extent have you factored potential tax increases into your long-term targets?

Good morning, David. Let me address the first point — when we provided guidance around the white paper of $25 to $50 million in EBITDA, half of which will occur this year and half next year. We maintain that position as our outlook remains unchanged. And that guidance has been structured into our current results. Regarding potential tax increases, we have not incorporated any changes into our long-term guidance. We always discuss the existing regulatory and tax regime as we strive to ensure a supportive environment for success. We remain proactive in discussions around states like Illinois to contribute to a healthy market.

Your next question comes from the line of James Rowland Clark from Barclays. Your line is open.

Hi, everyone. Thanks for taking my questions. I have two, please. First, on M&A — you mentioned Brazil as a market of interest for M&A. Could you discuss your strategy for doing M&A there, especially since it's a fragmented market? Secondly, regarding structural win margin, it’s a while until your CMD in the second half of the year, so can you provide insights on the structural win margin's movement expected through 2024, based on your guidance?

Good morning, James. Yes, regarding Brazil, we’re really pleased with our performance there as we managed to achieve a great year-on-year result, although the competition is fierce with a 6.5% market share. The success hinges on developing local-specific products, leveraging our tech capabilities tailored for each market—this allows us to enhance our offering significantly. Acquiring local hero businesses enables us to integrate advanced pricing and risk management capabilities, creating synergy. As for the structural win margin, we’ve committed to providing updates during our Capital Markets Day, but we can assure you there’s ongoing strength in our performance. Our customer engagement with parlays—our highest-margin product—has been positive, contributing to growth. We look forward to sharing more during the upcoming event.

In terms of structural win margin, the continuous expansion of our margin is significant. Consequently, product mix, including popular offerings like parlays, plays a vital role in these margins. Although we can’t give a detailed breakdown right now, we anticipate continued strength in margins supported by our product strategy.

Your next question comes from the line of Kiranjot Grewal from Bank of America. Your line is open.

Just two questions for me. Do you expect 2024 to be the worst year for Australian performance? Secondly, regarding M&A, could you describe the types of assets you're considering? How do you view expanding your footprint into the lottery category?

The Australian market has been unfavorable for us, but recent trading results support our confidence in the provided guidance. Certainly, the business has declined significantly as it has reverted to pre-COVID levels of spending. Nevertheless, we have a strong management team in Australia, and the business holds a 45% market share. Reporting efficiently is crucial, and we've seen excellent outcomes with products developed by our Australian team benefiting global offerings. Regarding M&A, I’ve addressed this earlier. We are open to filling capability gaps, which we have accomplished with the recent acquisitions. The lottery space presents potential opportunities—especially in how we can interlink it with sports and gaming offerings, as seen in Italy.

Your next question comes from the line of Joseph Thomas from HSBC. Your line is open.

Good morning, Peter. Good morning, Paul. Historically, you provided a profit bridge that detailed impacts from regulatory actions, point of consumption tax results, etc. It's not included in this slide deck; could you provide any insights? That information is useful for analysis. My second question relates to the U.K. market where you’ve noted a 2% GGR share increase primarily attributed to gaming. Can you elaborate on how sustainable that might be and whether you've capitalized on market disruptions stemming from the white paper and responsible gambling measures?

Joseph, we would be glad to provide additional details on how the various elements of our financials affect the overall business performance. Due to the complexity of our transition to a U.S. GAAP system, we opted not to include further detail in this release to avoid clutter. However, if you have particular inquiries, we’re ready to discuss them. Moving on to the U.K., Peter?

In the U.K., we've proactively adapted to safe gambling changes ahead of the competition, which has enhanced our market performance. Our diverse product offerings, including successful launches like Acca Freeze and SuperSub, capitalize on the synergies we've gained from acquisitions, showing successful integration progress. We’re proud of the market share growth of 2%—this success is shared across sports and gaming products, reflecting the effectiveness of our overall strategy.

Your next question comes from the line of Andrew Tam from Redburn Atlantic. Your line is open.

Can you quickly provide your outlook for gross margins? Noting the 43.5% guidance for 2024, which represents a 150 basis point increase from 2022. How do you expect gross margins to progress towards top-line scale and operating leverage from here, considering some competitors indicating significantly better margins? Secondly, regarding your 2024 guidance, after excluding hub and net gross margin guidance, it appears your cost base for 2024 is around $2 billion. This shows an increase of a couple of hundred million once we account for stock-based compensation. Can you specify where this increase is expected to appear, particularly in G&A versus sales and marketing?

To clarify, increasing our group margin is key to our financial growth strategy. As we add more revenue to a fixed cost base, we experience organic expansion in margins and cash flow. This scaling is part of our long-term strategies. Our forecast of 56.5% cost of sales aligns with our Capital Markets Day targets. However, we’re not providing specifics for the line items beyond confirming that our long-term strategy remains unchanged. Thank you, Andrew.

I want to take this opportunity to extend a special thank you to the IR team at Flutter. They've done an outstanding job preparing all materials while transitioning to the new U.S. GAAP reporting format. Their hard work has been pivotal in ensuring that these materials were comprehensible, and I hope you all have found them easy to navigate. So, thank you to the team.

With that, Gavin, we’ll conclude the call. Thank you, everyone, for participating.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.