Flutter Entertainment plc

Good morning and thank you for joining Jonathan and I for this call. Hopefully you've all had a chance to watch our presentation this morning, which provides an overview of why the business is well positioned for future growth and details of our 2022 performance. Before we get to questions, I'd just like to touch on a couple of items. As announced in mid-February, we've commenced a consultation with our shareholders in relation to an additional US listing. We outlined in the announcement the numerous long-term strategic as well as capital markets benefits this could yield. One point to emphasise is should we proceed with the additional listing, it would not change where we are headquartered, domiciled or the taxes we pay. Early feedback from shareholders has been supportive and we will be meeting many more of our shareholders over the coming weeks. At the end of that process, we'll announce the results of the shareholder consultation and until that point, there is very little extra we can say. Turning to our 2022 performance, we delivered another strong year. Our US business is going from strength to strength, and our advantages are compounding with each new state opening. The recent launches of Maryland and Ohio have been our best yet, providing even greater conviction on positive EBITDA for the full year 2023. Outside of the US, the business carries good momentum into 2023. In the UK and I, the product improvements and efficiency initiatives delivered throughout the year resulted in a strong Q4. Our Australian player volumes remain high as the H2 COVID frequency benefit unwound and we saw increased competitive intensity in Q4. In international, our consolidate and invest markets is living strong growth and now make up 76% of the division. The division is at a growth inflection point, and when combined with the U.S. profitability in 2023, will transform the earnings profile of the business. And with that, I'd like to hand it over to Judith for questions.

The first question is coming from Ed Young of Morgan Stanley. Please go ahead.

Good morning. Both questions on the U.S., if it's okay. The first is you gave some detail in the presentation around the cadence of U.S. EBITDA. I wonder if you could do the same for revenue, if that's okay. If I look at previous years, Q4 sort of sets a baseline for the following year, and then there's a step up in Q4 with the seasonality of the business. Is it reasonable to expect the seasonality of the cadence of this year's revenue will look similar to previous years, or are there any other extra considerations we should be thinking about? And then the second one is on paybacks. On slide 26, you're talking to below 12-month paybacks, given what appears to be more improvement in the way you're doing your state launches and state openings. So I'm guessing that's deeper initial investment, quicker payback, as you spoke about historically. You're talking about below 18 months back at the CMD. So is that a change that we can think about for this year or ongoing? And how does iGaming share increases play into that? your thought process around paybacks. Thanks.

Okay. Thanks, Ed. Jonathan, pick up the first question.

Yeah, sure. I mean, it pretty much follows the same seasonality as EBITDA, which is obviously driven by the sporting calendar. The only other thing to say is obviously the EBITDA shape in Q3 is There is a bigger spend there, obviously, in sales, marketing, and promo around that reactivation as we come into the NFL season. And it's obviously the big acquisition point in the year from new people coming into sports betting. So very much the revenue should follow because effectively the cost base, certainly the off-ex is relatively flat, but it is seasonal based on that calendar.

I think the only thing I'd build to add to that, Ed, is of course when there's specific state launches in different parts of the year will have an impact. The start of the football season is always a great way of, and it's the reason we spend a load of money acquiring customers, and clearly if a state has launched at a period of time where they haven't been able to participate in football, we'd see in the next football season an inevitable step up. In terms of the paybacks, Yeah, I think we were talking specifically on that slide about some of the new state launches and stuff. But look, in general, we're very pleased with the trajectory of our acquisition costs. In fact, I think in 22, there were an improvement on 21, if you look at it on a cost basis. But the way we actually run the business is looking at the CACS LTV Dynamics. And in terms of those paybacks, we're very pleased with the way in which the business is performing. We're continuing to improve our structural margins. And if we can continue to drive up structural margins and reduce our acquisition costs, it means that the paybacks are well within our target timeframes.

Thank you. Just one technical follow-up. You mentioned in the release material NOLs. Have you given the number for U.S. NOLs in the statement somewhere? Have I missed it? Or could you give any color on that?

Thanks. No, we haven't. We've obviously had operating losses over the last few years. You can look at the EBITDA and add something to that around the sort of estimates on depreciation. So, there are significant brought forward losses which will obviously impact the amount of tax we'll have to pay over the next two, three years. Okay, thank you.

The next one is from Paul Ruddy of Davie. Please go ahead.

Hey, good morning, Peter and Jonathan. Just two questions if I could. The first one is maybe just on the diverging performances you're seeing or we're seeing between UK and I and Australia. So, And it looks like UK and I performance is strong and you appear to be taking a share there. Australia may be a little bit more challenging in Q4. Could you just maybe talk to the competitive backdrop in both, you know, and how you think about growth actually going to 2023 and potentially market share expectations? And the second one is just appears to be some regulatory developments in India, even in Brazil, popping up on screen this morning. Could you speak to, in particular, your competitive position in India and how that benefits you in the context of, you know, positive regulatory developments? And then also maybe just on the negative side, just maybe to try to question on the UK white paper any kind of thoughts on the recent speculation on the form it may take around affordability limits and revenues, et cetera?

Paul, that's a very good way to try and get two questions in. I think you've got seven in there, but we'll try and deal with them as best we can.

So, look, Paul, in terms of your question around the performance of the UK and Australia, let me give you some high-level thoughts on it, and then Jonathan might follow up with a few more specifics. I think if I look at our Q4 performance in the UK and I, up 14% when the market was down. I'm very pleased with how the business is performing. We've delivered a lot of product enhancements and improvements over the course of the year. And I think with the World Cup and the energy we put into that, I think we were really pleased with the way that the business has performed. And I feel like we've got our mojo back. So we've got lots of momentum we're carrying into this year. In Australia, I think it's important to remember the dynamics that we're seeing in that market. And of course, the Australian market is somewhat behind the UK in terms of the time it's taken for them to come out of COVID. And so Q4, which is their summer, was the first summer period they've had without COVID for a number of years. And we undoubtedly were the main beneficiary of COVID. of COVID as the biggest brand in Australia. And so therefore we saw a disproportionate impact on our engagement with our customers in terms of average player days. But look, the main thing that happened in Q4 was there was a big step up in competitive intensity. Betster launched and was spending a lot of money on very attractive odds. And most players in the market were trying to bulk up in advance of the changes in the consumption tax, which we've seen happen before. So we very deliberately leaned really hard into generosity and spent a lot of money. And you can see the growth we saw in ounce in the quarter, which I think we were very pleased with. In terms of the – and I'll let Jonathan provide you with a bit more follow-up on those, and then I'll turn to the regulatory developments.

I think there's a couple of points I'd make on each of these. I think there's a great slide in the deck, which is slide 30, for those who haven't looked at it, which looks at both the gaming performance and then talks about our sporting performance. I think, you know, for me, overarching the fact that our pro forma amps are up 14% in Q4. Gaming revenue is up 12%. Sports revenue up 16%. You know, really strong results in the fourth quarter. I think, you know, when you look at the progression of what's happened during the year, and that's where Slides 30 gives, I think, a really good picture on gaming. You know, down in the early part of the year as we lapped some of the safer gambling measures. Then we got into the second half. We launched product improvements, as we said we would. And you can see that performance in Q4 and the growth, and that's continued on into 2023. And on the sports side, again... Really strong performance. Very happy with where we were. Sadly, we had about 300 bits of negative luck in quarter four, which we had hoped was going to unwind from the prior year, but actually didn't. We had roughly the same negative luck in Q4 as we did last year. So we're not getting a benefit in that number from sort of an uplift in the luck component or sports results component. So really happy with where we are there. And on Australia, we decided to invest some of the margin we had in order to make sure that we were properly positioned to keep our customer base and to fight back against the increased competitive intensity we saw. And both Peter and I are very happy with where we ended the year. And looking back on that, we would not have done anything different.

Look, in terms of the regulatory developments, What I would say about India, it's probably for us actually our fastest growing market, up sort of 80% and we're really pleased with the performance we've seen there. I think it's nearly our second biggest market in international actually. So it's a great story for us and I think the investment we've made there and the trajectory that that business is on is very, very exciting. There are a number of regulatory reviews going on on a state-by-state basis and indeed some federal changes which would believe or position us well as Rummy becomes accepted in more states in India. I'm afraid I haven't had a chance today to see what's coming across the wires in Brazil, so I can't comment on that. With respect to the white paper, I've sort of slightly lost count on how many of these meetings we've been talking about here because we've unfortunately had to talk about it for a long time. We're really keen it gets published. We've made a number of changes. We've taken 150 million of revenues out of the UK business. We've made massive strides forward. focused on doing the right thing and I think the extent to which the white paper can be published and can encourage other operators to pick up the slack and join us I think would be very helpful for the sector.

That's great. Thank you. The next one is from Ryan Signal of Grey Cone. Please go ahead.

Good morning, guys.

Hey.

Good morning, guys. Appreciate you taking the time for a question. Just one on the U.S. I want to talk at a higher level and then one follow-up. So with many operators hoping to get to positive EBITDA at some point this year, our thesis is some of those have structural challenges scaling to meaningful profits beyond that. We agree with you guys, FanDuel can and will, but how do you think about the need to achieve positive EBITDA now versus making investments in the near term to build a business that can earn potentially billions in profits longer term.

And did you have a follow-up, Ryan, or do you want me to take that one up first?

Then just on the follow-up, just curious how Ohio, Maryland, very strong starts. Just curious how your marketing strategy, the state launch playbook have changed or if they're similar.

Look, I think the point you make about the US is a very important one. And whilst we're very confident that the business will be EBITDA profitable this year, I think people need to be careful that they're not just focused on getting across the line on that. If you look at slide 18 of the presentation, that cohort analysis, it doesn't require a lot of imagination to see how When you add in the business that we've acquired this year to that chart and then you think about what the business starts to look like into 2024, the reason we're talking about this being a transformational year is you'll see a very significant change in the profile of our US business. We're very excited about it and we've always taken an approach of focusing on acquiring as much business as we possibly can whilst we ever have the rights of tactile TV dynamics, and that's something that we're doing. You've seen us lean very heavily into customer acquisition this year, acquiring more business year-to-date than we did in the first quarter last year. I think the important thing is that we're compounding the advantages we have in the market. So we're continuing to see higher levels of hold against our handle than our competitors do. The parlay penetration was fantastic in things like the Super Bowl, and the product offering that we have there is the best in the market, and we're continuing to develop and improve it. So we have a structural advantage in revenues, and we know that we are more efficient than anybody else from a customer acquisition perspective. And when you start rolling for those cohorts, I think that, yes, we are going to be EBITDA positive in 2023, but it's actually when you start looking at the trajectory that that business delivers. I think it's very exciting. John, I don't know whether you want to add anything.

Yeah, I'll add a slight nuance to the point made, which is some of our competitors are targeting getting to profitability in Q4 of this year. We've never targeted getting to profitability this year. We said it was a resultant outcome of slide 18. So, you know, this is not a be-all and end-all target. We expect it to happen because of the cohort. But I think Peter's point is absolutely right. People need to focus on 24 and the 25 potential of where this business gets to. because that's, for us, the big story here on the transformation of the earnings profile, the cash flow profile, the deleveraging benefits of 24 and 25, and what that actually means for the group is fundamental.

Look, with regard to the launch in Ohio and Maryland, you will know as well as anyone, Ryan, how complex these states can be from a rules and regulatory perspective. We were really pleased with the way in which the team performed there. To get to a point where we've got 6% of the adult population customers have found jewellery in such a short order in Ohio and to have 50% of the market was pretty remarkable. We were clearly leveraging our DFS base hard in the state and I think we probably got to nearly 60-70% penetration of our DFS base in Ohio already which is a new record for us. I think the team refined and enhanced and improved the state launch playbook with each one that we see and I'm really pleased with the results that they delivered.

Congrats on the performance. Thanks, Peter Johnson. Good luck, guys.

Thanks, Ryan.

The next one is from David Bohan of GoodBuddy. Please go ahead.

Good morning, guys. Just two questions for me, both on the U.S. Firstly, on the iGaming side, I think it's very encouraging to see the share gains there. Just wondering, where do you think your product sits now versus peers? In the past, you had mentioned that the product needed some improvements. And then also, just wondering if there are any updates you can give on the potential termination of FoxFest in August of this year. Thank you. Hi there, Vic.

Look, on the survival gaming side, we are the world's biggest online casino operator. If you look at the strength of our business in the UK, which is a fiercely competitive market, and those figures that Jonathan just quoted are clear in the presentation. We know how to run these businesses and we're very successful. And look, we are our hardest critic. And I think when we look at the quality of our products in the States, we knew it was not good enough. We have made some improvements to it, but there's a lot more that we're going to bring to the market. So, you know, we're very pleased with the share gains that we've seen so far, but, you know, we're not standing still from a product perspective, so we're going to continue to make improvements, which, you know, we expect to enhance the offering we have in the market. With respect to FoxBet, look, you know, the... Fox is a big partner for us. One of the things that's worth acknowledging is that they were transmitting the Super Bowl this year and actually rather than promoting FoxBet, Angel was promoted. I think these subscale operators are very difficult to make money in and the long tail of operators I think are probably struggling as FoxBet is. We'll review what we do with the business at the appropriate time.

Okay. Thanks, guys.

The next one is from Clark Lampin of BTIG. Please go ahead.

Hey, thanks. Good morning, guys. I've got two follow-ups. The first is on the U.S. Peter, you talked about parlay penetration and the product offering. I think two-thirds of U.K. customers used Build-A-Bet during the World Cup. Is there a stat you could share around usage rates for comparable products, you know, whether it's with the World Cup or maybe NFL activity? Just curious what peak usage sort of looks like to level set. And then for Australia, the trading comments were pretty clear around early year performance, but I'm curious if you could share thoughts around how what looks like really strong player acquisition could begin to either accrue or, I guess, offset some of the competitive headwinds that you talked about throughout the year of those cohort seasons. Thanks a lot.

Thank you.

Thanks, Clark, and I appreciate you getting up early. Look, in terms of your question around the parlay product, I mean, look, I think there's a couple of things I'd share with you. I mean, I think, yeah, first of all, if I take the Super Bowl, so around three-quarters of our actives bet on a sort of same-game parlay in the Super Bowl. So, you know, it's pretty high levels of penetration, not that dissimilar to what we'd have shared around the bet build-up for the U.K., And, you know, look, as Connor shared with you the Capital Markets Day... You know, the in-house pricing is really important there. So, you know, around 90% of the handle of the parlays is a price in-house. And that means we get to keep all of the economic benefits associated with it. And so, you know, we believe we've got one of the best products in the market. We're continuing to evolve it and improve it and price more of it. And that means that we capture all of the economics associated with it. But most importantly, our customers absolutely love it. So, you know, we're seeing really good engagement with them on that. In terms of Australia, I think the important thing for us to focus on in our business, and it's one of the reasons we use it as one of our important KPIs, is the Gantt figure. And so we were very pleased that we're continuing to grow the engagement in Australia, particularly as people are able to live a normal life for the first time in their summer period. So if you think about the way that COVID restrictions are working in Australia, back end of 2021, many states were only just coming out of lockdown. So in Q4 in Australia this year, we were really pleased that people for the first time were able to plan things overseas holidays and all those sort of things, you know, amps were up 13%. We have definitely seen a sort of moderation of engagement. So the average, you know, so the player days are down. The training back down towards the levels we saw pre-COVID. And that's a phenomenon we've seen in the UK and other markets. And I think we have got these point of consumption tax changes coming into the market. If you're a smaller operator and you're making a small profit, I think it'll probably push you into being unprofitable. Last time around, we saw a bunch of people reacting and changing margins and overruns and generosity to try and deal with that. We have the scale to cope with those tax changes and the important metric for us is to keep driving engagement with our customers.

I think that's probably the critical point is that we didn't just behave in an aggressive fashion in Q4 because of the competitive intensity. It's also in the run-up to these incremental point-of-consumption tax changes because we felt that the strategy that was employed in the business, as Peter said, in the run-in to the last point-of-consumption tax or the introduction of this significant point-of-consumption tax changes a few years ago was a successful one and we've You know, we followed that, and I think the team have actually executed really well in Australia in terms of the approach they've taken and the way they've executed.

Thanks very much. Thanks, Carl. The next one is from Joseph McNamara of Citi. Please go ahead.

Hi there. Thanks for taking my questions. First one's on the US. I just wanted to ask about the Super Bowl. In prior years, you offered extremely generous odds for new customers. And this obviously had an outside impact on Q1 win margins. Am I correct in thinking you didn't pursue the same kind of 57 to 1 odds? And can you explain the rationale and any color on that? I guess the impact for Q1 profitability kind of this year and going forward. And the second one is on CISO, very strong numbers there. What should we expect for 2023 as kind of retail comps normalize and any kind of ambition to bring product launches such as Giro and Tipsa to other brands within the Flutter portfolio? Thank you.

Yeah. Thanks, Joseph. Maybe I can take the first thing. You're correct in that we didn't employ the 56 moving to 57 to 1 offer this year. We actually ran a fantastic sort of campaign around the grunt kick at halftime, and that really caught the imagination of... of punters but it also did it through the sort of playoff period as well so we really think we benefited a lot in FanDuel over that whole period and actually in the sort of playoff stages we saw activity up you know two thirds year on year so we were really pleased with the way that that campaign actually went on for quite a long time rather than just being a one and done. I think the second thing is that the offer that we put in the market last year we saw just short of half of those punters being effectively one and done, and therefore, you know, we re-evaluated the overall economics, and actually what we've seen this year is, you know, really good value coming into the business. We think the offers that we had in the markets were the right ones for driving medium and long-term value, so we're very happy with where we ended up in terms of our offer on the Certainly, you can see the market share stats are pretty strong through the start of this year in the US.

I think I just build on that, Joseph. We think that the, as Jonathan said, the benefit of acquiring customers in the period of time leading up to the Super Bowl rather than on the day itself meant that the average value customers were acquiring was much higher and we think we've got much better of an engaged base actually when we look at the volumes. As I said, we've already acquired more customers this year than we did in Q1 last year, so undoubtedly we think that the change in strategy has been the right one. But with regard to the work we're doing with CSAO, Look, we talk a lot about the flutter edge, which is this symbiotic relationship we have with all of the different parts of the group benefiting and contributing as well. I think if we look at things like from a product perspective, the duo tips and stuff are definitely things that we are interrogating and making sure that we... use those in other parts of the group as far as it makes sense. But likewise, we're also taking things into C-SAL as well. So they're already now using our risk and trading capability. And when cash out was made available from a regulatory perspective in Italy, we were able to do it in a very accelerated fashion because of the capabilities we have elsewhere in the group. With regards to the retail and online performance, we are very pleased with how CESAL exited 2022. Fantastic momentum in their core Italian business, the online business, reaching some more sensible levels of penetration, but we believe there's still a very long way to go. We were definitely helped in terms of customer acquisition numbers by the enormous super NL auto jackpot of €370 million. And we need to see what happens this year as we operate with more normal lottery jackpots. But I think the team have got an excellent capability there in terms of having a million customers a week checking their lottery tickets on the C-SAL app and using that as a vehicle for cross-selling people into gaming. And I think we're also benefiting in T-SAL from some of the international elements. So we're really excited about the opportunities that we see in Morocco, Tunisia, and of course the business we have in Turkey as well. So it's been a great acquisition for us. We're really pleased with the performance and we think that they're on a very positive trajectory. It's part of what gives us real conviction in the turnaround in the international division.

And just adding to that, I think the thing that in terms of the Italian part of the performance that was most pleasing was, you know, when retail came back, we actually, you know, the team were very, you know, looking carefully at the performance of the online business. Actually, we saw the online continue to grow through this period, which I think shows the strength of the underlying product, but also the strength of the omni-channel offerings in that market versus those who are online only. So we are really pleased. with the way the business performed online with retail returning. The other thing I'd just say, as we obviously highlighted in the presentation, you know, the CISO made £247 million of EBITDA this year. We obviously paid around £1.6 billion for it, so that's sort of 6.6 times. We're really happy with this acquisition, and we look forward to going from strength to strength, both in Italy and in some of the international markets where we've got these fantastic positions, and hopefully you'll have seen the presentation and seen a little bit of a deep dive that Peter did on the Italian and international business for CESA.

Excellent. Really appreciate it, Carlos. Thanks a lot. Thank you. The next one is from Louise Wieser of UBS. Please go ahead.

Hi, Louise from UBS. Thanks for taking my question. On the U.S., I was wondering if there's any indication you could give on where you are on UBS profitability and margin in the kind of like more mature states, so New Jersey, Pennsylvania. Have any of these states got closer to the long-term margin you expect from the U.S.? ? And then the second question is on the consumer backdrop. Has there been any change in the consumer behaviour in 2.4? I think in the past you said that you were not seeing any impact on the consumer. I just wonder whether that's still the case or if you've seen any change and if there are any differences between the different regions.

Thank you. In terms of the EBITDA margins, we're not going to comment on a state-by-state basis. We did give a breakdown, I think, of the Interim's around the EBITDA trajectory in New Jersey. I think the most important thing is aligning the chart 18 in the deck with the chart 7, the numbers on 17. You can see the improvement in EBITDA percentage from the overall business as we get the top line driving operating leverage and that flywheel effect. And then secondly, slide 18, as these contributions from these cohorts come through, the trajectory is very, very clear. But we're not going to comment and say if I say business. And then you get into all sorts of questions of allocation of national marketing and this sort of stuff. I don't think it's But I can tell you from looking at the trajectory on slide 18, you can see that the contribution is increasing in each of the states and that gives us high levels of confidence of getting to sensible levels of EBITDA in this business going forward as we talked about in the equity capital market.

And with regards to your question about consumer behavior, we're seeing no discernible impact across our business. You know, whether it's Tombola or any of the brands in the U.K.

or any other market, we're seeing no impact. The next one is from Joe Stills with Saskana.

Please go ahead.

Good morning, Peter. Good morning, John. I wanted to ask about Australian user growth. You had AMP growth of nearly 13%. What's the right way to think about that? Is that, you know, in the context of where, say, the penetration is in Australia of the adult populations for, you know, obviously online gaming, is that, you know, do you read that as customers kind of you know, trying out your product or is that, you know, say new customers, you know, in terms of increased penetration in that market?

Joe, is there anything else you wanted to ask? Was that with you?

Yeah, and then I wanted to ask about CECL and, you know, with the reopening trade and retail kind of more normalized in Italy and elsewhere in, you know, in the world, You know, is most of the growth from here, say, you know, more online within Italy? Okay.

Look, in terms of the two points, first of all, on Australia, look, we have a very, very recreationally focused business in Australia with Sportsbet. So it's a great mass market product. And if you want to have a better understanding of the brand, I encourage you to look at the Capital Markets Day we did, which focused on some of the aspects of that during the COVID lockdown. Or even have a look at the YouTube channel at some of the creative that they do. They do a brilliant job of activating and bringing excitement to life. as they say in Australia. I think if you look at what's been driving the AMP growth, certainly there's a degree of reactivation from historical business. Every year, a new cohort of customers comes available to us because they come of age in Australia. And you know how important sport is to Australians and actually having a punt per day is a... is something which a lot of people do for fun and recreation. We're the mainstream brand in that market, and that's why we continue to grow our amps.

And I think that's supported by our innovative Vet with Mates product, which has been fantastic for recreational vetters, bringing in new recreational vetters. We've got more products and features coming on that in the near future, so watch this space on that.

In terms of C-SAL, if you look at the chart 36 in the presentation, you can see the very strong growth that is occurring in the online space. And as the brand that has significant retail presence, we're able to really participate and drive that off the back of things like the customers who are checking their lottery tickets every week, the million dollar reference. With advertising restrictions, it's very difficult for pure play digital brands to compete against this in the market. And so, look, online penetration is growing. It's growing strongly and we're capturing a significant share from it. So, look, we're really pleased with the trajectory that we're seeing in CESA.

And, you know, the application of the Flutter Edge in terms of, you know, getting our knowledge expertise both into the business but out of the business. We were asked the question on Duo and Tipster earlier. There's fantastic opportunities for us to really help drive growth in that market. We've got Ramp Live in CSAIL now. We've obviously got Cash Out, which came out very quickly with a lot of expertise from across the group earlier in late 22. So very excited about the opportunities there to help drive that online growth even faster in CSAIL.

Makes sense. Thank you. Thanks, Jay.

The next one is from Jordan Lender of JPM Securities. Please go ahead.

Great. Thanks. Can you talk about your penetration rates in your more mature sports betting markets in the U.S. and kind of what those growth curves look like? And then for my follow-up, kind of the touch on the Fox Bet comments you made, you know, breaking out the FanDuel business from the other investments in the U.S., The loss outside of FanDuel was to the tune of about $75 million during the year, which is a decent-sized loss. Maybe can you talk about how that non-FanDuel loss might look in 2023? Thank you.

In terms of penetration rates, you'll have seen that all of the states publish market share data. So on a state-by-state basis, we're continuing to perform very well, even in the states which launched very early days. And of course, we're performing very well in the states which have only just launched. If we look at our, you know, performance in states that, you know, we've been in some time, we're continuing to see good performance there. So we're still growing, you know, up 24% in staking in states that we launched in pre-2021 and revenue is up 42%. So, you know, the strong performance we're seeing in the US is not just being driven by, you know, recently launched states. So I think, you know, the product is, you know, the benefits we have are compounding, right? You know, we're continuing to see improvements in our In our revenue performance, we're seeing more efficient marketing acquisition, and we're able to reinvest that in having better products, better generosity, driving wallet share, driving further customer volumes, and really getting that flywheel powering.

In terms of the loss, you know, in terms of FoxBet, you know, obviously, as you said, you know, FoxBet plus PokerStars, we need to remember, is the bit we're talking about, the 3% of revenues and 30% of loss. Yeah, that $75 million, we'd expect between half and two-thirds of that to go away if FoxBet was no longer... The question is how much we want to invest in PokerStars and the fact that we've got shared liquidity across multiple states now. How much do we want to try and drive that growth and try and build that liquidity? So, again, we'll have an equation of how much do we invest to grow and build that liquidity pool versus how much do we decide? Well, it'll depend on the CAC to LTVs in those markets at that time, how aggressively or not we invest behind the PokerStars liquidity pool.

Great. Appreciate the questions. Thanks, Jordan.

The next one is from Kieran Joseph Gravel of Bank of America. Please go ahead.

Hey. Hey, morning. Firstly, just on the U.S., could you give a bit more color on the cost breakdowns? Clearly, marketing is being leveraged, and we'll probably see more of that next year as you go towards positive EBITDA. But I wanted to get a better sense of other impacts. It looks like it was up over 60% year-on-year. What's driving this increase and should we see significant leveraging of that as we move forward? And then the second question is around, it's sort of building around the AMP question that came up earlier. You've also spoken a lot about focusing on the recreational customer. I think some of your players are also targeting a similar cohort. Given there's a lot of focus on this, I mean, where are you winning your customers from? Is it from competition? Is it increase in proportional population betting overall? And I suppose this relates a bit more to the mature markets. Thank you.

Thanks. I'll take the cost question. Clearly, the business is scaling up in the U.S., as we build out a lot of the functions to get to that sort of sustainable level. We've got a range of different cost drivers in the business. We've got some cost basis which are relatively variable. And, you know, as we expand states, for instance, we'll take on compliance and legal teams to ensure that we're able to comply with all of those new rules and regulations around each of the individual states. So we will get variable costs. In those, we've got areas where we've got fixed costs, and that includes areas that, you know, sort of like finance and other areas like that. So, you know, the big increase that we've had year on year in terms of the cost basis is about two-thirds in terms of staff costs as we scale up. You know, there's actually within that we have the California lobbying costs, so there's some extra costs in the year. Those will obviously drop out as we go forward. But, you know, we feel as if we're getting the business more towards where we need it to be, and then we'll have scaling costs associated with certain functions. We're also clearly looking at where we can take – part of my new role as COO will be looking at where we can take learnings and ways of doing things across the group and drive some effectiveness and efficiency into operations across the group. And, you know, the U.S. are clearly focused on making sure they build their cost bases in a very effective way to be able to service the customers at the right cost base. So, yes.

And look, in terms of your question around amps, I think it's pretty straightforward for us really. We have been very focused on the recreational space for a long time. We've got products. which we think are very well suited to it and invest very heavily in them. If I look at the UK, for example, I'm really pleased with the way in which we've been able to use our new products, whether that's in gaming, in terms of things like this, the Wonder Wheel for Paddy Power, some of the changes we've made around BetBuilder for Skybet, bringing fantastic product innovation to the market. It helps us grow amps because people are really engaged with those exciting products we bring. And when I think about 2023, look, we definitely took share in Q4. You can see that with a very strong performance we had relative to the market. And I expect us to continue to take share in 2023 by growing the top line. The great products we have are translating to growth in amps. And other people in particular are catching up with some of the stuff we've done a long time ago on safer gambling. I think we're really seeing the benefits of our strategy come to that.

Perfect. Thank you.

The next one is from Daniel. Please go ahead.

Hey, good morning, everyone. So a couple on the U.S. First, Maryland and Ohio, you guys are quickly off to, you know, the 50% plus share there. One, I wanted to see what you kind of attribute that early success to. Are there changes in the market, changes in your launch strategy, and also, you know, just changes in the kind of competitive and promotional environment? And then also the second one, your hold benefit in the second half of the year, I think it was 8.5% net revenue margin, which compares to cost, you know, fixing change in prior years. I know that there was a little bit of, you know, favorable hold, but also your structural margins have improved. So I guess on a go-forward basis, kind of what – What's a good range to think about and how should we think about kind of the breakdown between what was favorable sport outcomes and what was a structural improvement in the second half? Thanks.

Daniel, I mean, when I look at the Maryland and Ohio, I'm very proud of what the team has done. I mean, terrific job. We get better and better with each state launch that comes along. Think about the Capital Markets Day and the stuff that Mike and the team talked to you about. We are shifting spend towards national advertising. That helps. We're getting more efficient around our advertising and effectiveness. But really, we're able to capitalize on our DFS space. So very high levels of penetration in Ohio, which has undoubtedly helped. our offers, our referrer friend, all the different components of the strategy, and as well as having the best product. So we're really pleased with the performance that we saw in those two states. Jonathan, do you want to talk about the margin?

Yeah, sure. I mean, year on year, when you look at the mixture of luck and promotional spend, those two things sort of net out. So most of the uplift year on year was actually improvements in structural margin. You know, we feel good about the the 12% number that we talked about for gross win at the equity capital market, say, and we're on a trajectory to move towards that. So, you know, we do expect further improvements in our gross win margins going forward as we get improved pricing accuracy and improved levels of parlays. So we're confident in the sort of medium-term target that we put out there.

Got it.

Thanks. Thanks, Daniel.

The next one is from Richard Stuber of Numis. Please go ahead.

Hi. Good morning. Two questions for me, please, one on safer gambling and one on Australia. In terms of safer gambling, I think in the presentation you said that 40% of customers use the tool. Could you spit out in terms of what percentage of customers use this tool in the U.K. and what use it in the U.S.? And the follow-up on the U.S. side, are you starting to see opposition to marketing and advertising in the U.S. or the comments? coming out of New York, sort of more of an outlier as opposed to a general nationwide consensus. And the second question is on Australia. I think you saw EBITDA margin fall by nearly 300 basis points because of the competition and the COVID reversal. Would you expect margins to return this year back towards previous levels, or do you think now this is the new norm? Thank you.

Look, I think if I look at the two markets you referenced, I'm really pleased with what we've done in the UK. We've directly invested over £65 million across the UK to support, promote and educate safer play and lots of proactive measures that we've implemented as part of our Play Well strategy. We've taken at least £150 million revenues out of the business. The stuff that we've done, the deposit limits of £500 for UK customers under 25, the £10 limits on slots, these things are not always included in some of the Playwell tools. So I think that the team are doing an excellent job and we've got safer gambling targets in the annual bonus schemes for all colleagues. which I think is really important. So I think that the UK team are doing a terrific job and we're definitely leading the race to the top. When you think about the fact that we set those play well targets for the group, as America, which is now our biggest division, is going to have to play its part and clearly to get to our 75% target, we're going to need the Americans to be at least at that level. There's loads we're doing now as well. We have been working very carefully with the leagues, the teams and media partners to develop codes of conduct. We've actually done some terrific work with them around advertising which we think will try and take some of the heat out of potential problems with advertising but we're obviously watching very carefully with the developments we see. Because it's America, we've got our Safer Gambling ambassadors, which are very important voices to get out there. My customers are not just hearing from us. We've actually managed to help lead the industry in the development of 12 common principles around Safer Gambling, leveraging some of our experiences in the UK and other markets. So there's a lot going on, but ultimately the States are going to play a very significant role.

Do you want to talk about Australia?

Yeah, sure, Richard. In terms of H2, we obviously, as you said, we're at 26% of the down margin. We'd expect that to improve probably around 3 percentage points year on year. We've got some non-recurring marketing of around 7 million in H2. We're obviously very aggressive in terms of generosity, and that obviously has an impact on cost of goods sold as well. We've got other areas we think we can make some efficiency. So we'd expect that to help offset some of that POC impact. So we'd expect to be in the sort of high 20s as a sort of rough guide for this year.

That's great. Thank you very much.

Thanks, Rishi.

The next one is from Andrew Tam of Redburn. Please go ahead. Hi, Andrew.

Hi there, sorry. I just wanted to follow up on what's happening in terms of the online space. Are you able to share anything in terms of, say, the margin differential between the retail business and the online segment and just in terms of that growth dynamic there?

Yeah, look, we know, Andrew, that when we have customers in online, particularly if they've migrated from retail, we see much higher levels of margin for them. And if you look at slide 37, you can see some of the the benefits we see from online. It operates at a higher online EBITDA margin, 40% as opposed to the retail EBITDA margin. Our retail business is slightly unusual because these are not all owned and operated stores and sometimes it's commissioned, so we see a slightly different fall through. But the online business that they're acquiring is much more EBITDA positive for us and we're We're not actually migrating customers from retail to online, so we're actually growing our penetration significantly online.

Yeah, and obviously with the marketing restrictions in Italy, we don't spend very much marketing, which obviously helps the lever of profitability in the online business.

Got it, got it. And just a second one, just in terms of the guide towards the high depreciation in 23, I think there's some comments around some offsets to that in terms of Can you just clarify just the size of what some of those offsets could be?

Sure. You'll need to look at your model and work out what you think the profitability is and then therefore work out what you think the offset is because the offset obviously carrying forward for the earlier question on NOLs. you need to work out what your taxable profit is and therefore what the tax benefit is from the carried forward losses, which are, as you'll recognize from our losses over the last few years, quite significant. So I'll leave you to have a look at that and maybe chat to the IR team is probably the best way to get through that. But obviously some of the depreciation increases about making sure we've got pro forma, making sure we get all that C-cell in. And remember, some of the C-cell is around the concessions. So, you know, you do get an uplift there from depreciation amortization around that. So, you know, I'll leave you to work through that with the team, but we feel pretty confident about the offset.

Got it. Okay. Appreciate that. Thank you.

Thank you. Look, I think that's the end of the questions this morning. Thank you very much to everybody who's dialed in. Particular thanks to Jonathan. This is the last time he'll be sat next to me, helping with the results. Don't look so happy for those of you who are dialed in and can't see. But Jonathan, thank you. I really appreciate everything you've done over all the years to help us and look forward to continuing to work with you to help deliver the Flutter Edge.

Indeed.

Thanks. Thank you all.