Cirsa Enterprises, S.A. (CIRSA) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the combination of Lottomatica and Cirsa, creating a global game in Champion conference call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Mirko Senesi, Head of IR at Lottomatica. Please go ahead, sir.

Thanks, operator, and good morning, everyone, and thank you for joining us for the announcement. I will hand now the floor to Guglielmo directly to kick off the call.

Thank you, Mirko, and good morning to everybody. I'm Guglielmo Angelozzi, I'm CEO of Lottomatica since 2014 and Chairman since last year. Laurence Van Lancker, CFO since 2021 and Deputy CEO since '25.

Hi. This is Antonio [ Stan, ] an engineer like my 2 colleagues here. I joined Cirsa in 2008, and I was appointed CEO in 2022.

Okay. So let's start from Page #4 of the deck. Very happy to announce this transaction to you today through an usher combination with -- of Cirsa into Lottomatica. We are creating a global champion in gaming of circa EUR 2 billion of adjusted EBITDA. As a result of the combination, Lottomatica proposed combination, Lottomatica shareholder will own 67.5% and Cirsa shareholders will own 32.5% of the combined entity, of which Blackstone will own 24%. Cirsa shareholders are going to receive an extraordinary dividend equal to EUR 262 million, which equals to EUR 1.56 per share prior to the merger completion. And immediately after the merger completion, the combined company will return capital to shareholders equal to EUR 744 million. This will happen in the form of a partial voluntary tender offer and/or extraordinary dividend. We estimate a total run rate cost synergies of EUR 150 million to be achieved in 3 years. And the net leverage will be slightly above our financial policy at 2.7 at completion, but with very clear path to the leverage within the leverage policy of 2.5. The buyback will continue before completion. And after we complete the transaction, the Board of Directors has already resolved to propose to the relevant AGMs plans to return a total of EUR 4 billion to shareholders over the next 3 years, which, of course, includes the previous buyback and EUR 744 million return post-merger completion. The key management of the combined company will be myself, Laurence Van Lancker and Antonio, who just spoke and Antonio [indiscernible], who is the CFO of Cirsa. In terms of Board of Directors, we will have the addition of 2 directors nominated by Blackstone. So the Board goes from 11 to 13. Page #5, a glance to the 2 companies as they are today. Lottomatica, as you know, is #1 operator in Italy. We address a EUR 60 billion market. This year, we gave a guidance of EUR 940 million to EUR 980 million of EBITDA, then refining the guidance to go to drive -- to guide towards the upper part, the high end of the range. Our business mix is shy of 80% online sports and 21% distributed gaming, 100% in Italy. Antonio, you want to spend a couple of words on Cirsa?

Yes, Guglielmo. Well, in our case, beyond Italy, we operate in Spain plus 9 additional markets with significant growth potential, holding leading positions in 8 of these geographies. And for 2026, as we have done in the past 20 years, we remain confident in delivering EBITDA towards the upper end of our EUR 800 million to EUR 820 million guidance range with a strong cash conversion as in the case of Lottomatica. The group also benefits from an attractive diversification across these 11 countries where Spain accounts for half of the pie and 3 different business verticals.

Thank you, Antonio. Let's go to Page #6 of the deck. What is the investment proposition? It's unchanged compared to the stand-alone Lottomatica proposition growth continues to be what we had with Lottomatica stand-alone. As if you have a look at revenue growth of Lottomatica from H1 '24 to H1 '26, that's pretty much in line with Cirsa, 13% versus 11%. We have high cash flow generation in both cases, 80% plus in the case of Lottomatica, 70% plus in the case of Cirsa. And so Lottomatica on a stand-alone basis has been using this and the growth of the cash flow, of course, to provide compelling shareholders returns. We have given back to our shareholders 11% of the market cap since June 2025. And the stock has been growing in terms of price. So what this tells us is that the combined entity will be able to deliver the same type of growth, the same type of cash flow generation. And therefore, we will continue, as I mentioned a few minutes ago, with the same capital returns. So the transaction is clearly accretive, and Laurence will comment on this under any possible metric. It provides great strategic return to build for the future of the company in the medium to long term. But at the same time, it doesn't change anything in the proposition of growth and returns that we've been delivering to our shareholders so far. So going more in details on the merits of the transaction on Page #7. Why are we doing this deal? Because we create a much larger company, a global champion with EUR 2 billion of EBITDA because the combined entity will be 80% plus in the leader in 2 of what can be considered among the best markets around the world, gaming markets around the world, Italy and Spain. And we will also have leadership positions in other high-growth markets because we have synergies, easy synergies, cost synergies of cash synergies of EUR 150 million per year. Because this way, we can accelerate Cirsa online growth, both organically and inorganically in new markets leveraging on the capabilities of Lottomatica. This is a tremendous opportunity for the future for the combined entity. Also, this comes with a low-risk proposition as we put together 2 management teams and 2 companies, which have been very well managed, have consistently delivered over the last 10 years. So there's very limited risk associated to this transaction. And the -- as I mentioned, the combined entity will be able to deliver the same rate of growth and the same rate of shareholder distribution, but with a larger pro forma free float and liquidity.

Guglielmo, if I may, just to complement what you said, this is a fantastic combination, 2 great companies with great assets and a shared track record of profitable growth. We have market-leading positions across our global footprint, but with still significant further upside. and we'll be able to leverage both companies' capabilities to further accelerate our growth, particularly in the online segment and as Laurence will explain later. Finally, from a capital market standpoint, especially for Fortisa shareholders, our shareholders will benefit from a step change in scale and liquidity that we could not deliver on a stand-alone basis, whilst also retaining the listing of the Spanish stock exchanges alongside Euronext in Milan.

Thank you, Antonio. Let's go to the next page, Page #8 of the deck. We're putting together Lottomatica and Cirsa, we create the second largest listed gaming and sports betting operator globally. This is not clearly the reason why we do it. The reasons have been explained before. But at the same time, it's -- the global reach and the larger shoulders are -- and the scale will provide a significant benefit. Page #9 is particularly interesting. So you can see the 2 main markets, Italy and Spain, which will account for 80% of the total EBITDA. We are #1 in each of these 2 markets, which are among the best globally. And these 2 markets have been growing and will continue to grow very nicely on online, Spain even more than Italy. And then you have the rest of the world, which is a portfolio of 8 markets in 7 of which is 20% of the total, we will be having leadership position, which adds additional EUR 11 billion of total addressable market, but especially where online is growing -- has been growing and will continue to grow 30% per year. So we expand the total addressable market. 80% is Italy and Spain, the best markets, great opportunity in the online and leadership positions in the markets where we operate. We go to the next page of the presentation, which is Page #10. As you can appreciate in the combined entity, said already Italy and Spain, 80%. 97% of EBITDA comes from #1 market positions and online sports will be roughly half of our business. And then we will have the other 2 quarters will be casinos and distributed gaming.

Yes, Guglielmo. To add an additional point here, our casino business is a growing segment with high margin, high cash conversion and based on high-quality properties, which are visited today by millions of local customers every year. Apart from the business being extremely interesting by itself, we think that this is a great platform also to be leveraged for the online business through the omnichannel model we both operate. And the combination of our companies will certainly help accelerate that plan.

Thank you, Antonio. Let's go to Page #11, which is a focus on the synergies. The number we put is not particularly I would say, demanding. It's OpEx savings on the usual things that we've dealt with many times before. It's about procurement. It's about technology cost. It's about all the sports betting trading and risk management, shared services, G&A, and this easily adds up to EUR 101 million. Then we will have other cash synergies if you assume that we can bring the financing cost in line with the Lottomatica financing cost of additional EUR 40 million. So you get to EUR 150 million run rate synergies, basically 4% of the combined operating cost base. So as I said, not particularly demanding given the track record that we have. And this is, again, it's the usual things that we've been doing at length in other deals that we will do together with Antonio and his team. And it doesn't include a single euro coming from the online opportunity, which is also one of the key points of this deal, and it's very material. And reasons for this, you can find at Page #12. So let's go to the bottom of it. How do you do online? You have a core technology. You have a CRM and digital infrastructure also empowered by AI. You need to have a strong product portfolio. And we've learned that in order to compete properly in online, you need to be able to play a pure online -- to use a pure online model, but also to have omnichannel capability in several markets. So we used to be in a relatively poor situation in 2017 as Lottomatica because our technology was relying upon a very fragmented stack with no group-wide infrastructure, lots of third party. We basically had no control on the technology. There was no -- on the data, on the CRM, no unified data layer, no particularly advanced CRM, one fits-all marketing approach. The product portfolio was very thin and totally reliant upon third-party content. And we had very limited, I would say, digital integration and basically online and retail were running as totally separate channel with the exception of the sports betting part. Today, we have full control on our tech stack. It's unified, it's state-of-the-art. And it's a key resource of the group. It's a key asset of the group. On top of this, we have another layer of technology, which is done by the Lottomatica core platform and the AI platform, which is called LAMP, whereby you can add all the digital marketing capabilities and you can deliver a superior marketing performance as shown as simply by, for example, one of the many KPIs is the increase of the retention rate from a few years ago to today. The offer depth is enormous compared to a few years ago. Just to mention one, 10x increase in terms of sport markets that we offer per match. And together, we can operate a pure online model, for example, with BetFlag or very strong omnichannel proposition, both in sports betting and in gaming. And we've gone from 200,000 customers to 2.2 million today, which is pretty significant. Where does Cirsa stand today? It is present in attractive markets, and they have very good talented local expertise with perfect knowledge of the market and of the consumers. But the technology is still fragmented. There's lots of third-party components, especially in sports. There is also a significant runway from growth in online casino. And also the customer base that they have is an incredible platform to work on for the future. Now I'll leave the floor to Laurence to continue with the rest of the presentation.

Thank you, Guglielmo. We're on to Page 13. So this slide illustrates the upside visually. If you see on the left-hand side, our online share of EBITDA went from single digit to around 2/3 of the total EBITDA. So this is a result of strong organic growth as well as the acquisitions that we've carried out throughout the years. And on the right-hand side, you can see how the margins have improved significantly as we gain scale. And this is exactly sort of where Cirsa is standing today. It's where we were several years ago. We believe and we strongly believe that we can deploy the same proven playbook to accelerate Cirsa's online and omnichannel strategy, which will be able to unlock the superior customer economics, which would then, of course, be -- see reflected in the financial performance and the expected financial performance. This is for us really attractive opportunity for the combined group to grasp. We go on to Page 14. So this chart is quite self-telling. So simply put, both companies are already very well run. These are great businesses with very consistent performance and with a relentless focus on execution. And this shows also that we have both grown adjusted EBITDA consistently quarter-over-quarter over the previous year, except for -- during the COVID restrictions, growth has been there unabated for the last 10 years. And this also means that we can focus on how we can accelerate the combined strategy and shareholder value creation.

I think a point here, Laurence, I think this is really a testament on what these 2 management teams have been doing in our case, for almost 20 years delivering quarter-on-quarter growth. And I am convinced that the [indiscernible] Group will continue to do going forward. Here, one personal note that I would like to mention. I would like to especially thank [indiscernible], who has led Cirsa since 2006. He gave me also the opportunity to lead the company in 2022 and has been fully supportive throughout this transaction. And I wanted to take the chance to express my thanks to him.

Thanks, Antonio. So moving on to Page 15. Here, we can see how the combined entity has very attractive financial attributes. So we have EUR 2 billion of pro forma EBITDA growing at 10% to 11% on a 2026 basis with sector-leading margins of in excess of 40%. The transaction is also highly accretive on both earnings and cash flow per share. This is double digit on double digit. That provides a clear value creation opportunity for our shareholders. Most importantly, so part of the formula that has -- that is part of our investment thesis is that we will continue to preserve the capital allocation flexibility on shareholder distributions that we've been doing so far. And this includes a EUR 744 million post-completion capital return, and we will maintain our dividend policy of 30% of adjusted net profit, and we will continue our buyback program. So to give you -- to put this into numbers, so the Board contemplates to return up to EUR 4 billion of capital over the next 3 years post closing, subject to the relevant approvals. Moving on to Page 16. So when we bring everything together, this combination continues our compounding profitable growth story. So it is highly cash generative. It is highly accretive on a double digit on both earnings and cash flow. It preserves our capital allocation flexibility to keep delivering attractive returns and increases scale and liquidity for all shareholders. Again, as Guglielmo said a number of times during this presentation, this story -- this acquisition is consistent with our story of growth and capital. It's just at larger scale and more diversified. Moving on to Page 17. This slide recaps the key terms of the transaction that we discussed earlier with a little bit more detail. The only thing I would note is that the combined group here is expected to remain listed on both the Euronext Milan as well as the Spanish Stock Exchanges. Page 18. So we talk about timing. So the expectation is that we will have EGMs that will be convened in Q4 of this year. And we anticipate that the final regulatory clearances will be in the first quarter of 2027, and the transaction completion is expected in Q2 2027. The Lottomatica shares will also be dual listed, as I said earlier, in Spain at this time. And the post-closing capital return is expected to fall in Q2 2027 or as soon as practical thereafter. And with this, we conclude the presentation.

So would you like to begin the Q&A session?

Yes, operator, yes, we can open up for Q&A. Thank you.

[Operator Instructions] The first question comes from Ben Shelley of UBS.

I've got -- I'll stick with 3 questions. I guess my first question is, -- many investors were attracted to Lottomatica's straightforward Italian market leadership position. Why is broadening the investment story beyond Italy the right strategic decision at this stage? And then my next question is why Cirsa? Why was Cirsa the right strategic choice versus other consolidation opportunities within European gaming? And then my last question is around the technology and operating models. A significant part of the strategic rationale appears to be centered on Lottomatica's technology capabilities. Can you elaborate on the key differences between the 2 technology stacks today and where you see the biggest opportunities to create value?

Yes. Thanks, Ben. I'll -- Guglielmo, I'll take this one. Look, the simplicity of the story of Lottomatica is clear. It's -- but the beauty of the story was also the growth and the capital returns. Now if you think several years forward, we built the company for also the next 5 to 10 years. This is not an acquisition, and we don't think it's even in contrast with the current model. This was -- when you think about all the things out there, the only possible way, it's not obvious, but it's the only -- when you dig into it, it's the only possible way to confirm the short and midterm value of the model of Lottomatica. We basically had the same growth of the combined entity, and we'll continue to give the same, if not slightly more capital returns to investors given the combined cash flows and to put on top of that, the benefits that an M&A can bring without the risks and without disrupting the original model of Lottomatica. Basically, very limited risks because these 2 companies that you've seen have been managed super well in the last 10 years and more. So there's no turnaround to be made. There's nothing like that to be made. And you have new markets. Spain is a fantastic market. It's -- the online is lagging behind Italy. It's a wonderful opportunity. It's fragmented. Cirsa is the leader there, has all the knowledge and the assets, plus you have the other opportunities out there. So this way, you get the perfect combination of the values of the Lottomatica model, growth. And by the way, Cirsa growth has been very stable and very predictable across the years. So it's not something like you see assets out there that sometimes grow, then they slow down then it's very good markets, very good regulation and very stable and predictable growth. So you get the same stable and predictable growth. and you get the capital returns, you get no risk, no additional risk and you get the benefits of the new markets and the online opportunities on top of the synergies, which are also pretty significant out there. So that's why this makes a lot of sense to us. So we don't think it adds -- I mean, simplicity is one point, but then you should look at the risk. It doesn't add anything to the -- anything negative to the risk. The risk profile according to us stays the same, 80% is from some of the 2 best markets that you have around there, plus you have the other opportunities. And you don't change the model of Lottomatica of growth and capital returns. You just make it larger and more sustainable. Going to the question of the online and the technology, this is a key part. It's not priced in because we didn't put a number there. We just put OpEx. But clearly, it's a key part of the strategic rationale. What's the difference between the 2 tech stack? It's pretty straightforward. We do have a tech stack as automatic. It's been built in the last many years. We started from a third-party patchwork of tools, player account management, betting engine. It was all external. But today, we have a really top-tier internal tech stack, which is not only the platform, but it's also the layer above that, which is key in competing today in a digital business. And Cirsa has a strong knowledge and a strong presence in those markets. but doesn't have its own internal tech stack. It uses third parties and different third parties depending on the market. So here comes another big opportunity. Now I don't want to dig into that, but I think it's apparent where the opportunity is.

The next question is from Charlie Muir-Sands of BNP Paribas.

You've given quite a helpful presentation with respect to where you see Cirsa today with its online business in terms of share and margin versus where Lottomatica's journey has gone to. But I just wondered if you could reflect on what you see from a front-end proposition perspective? What does Cirsa have today versus what you could bring to it with your systems? And how would you compare Cirsa with its main competition in the Spanish market today? Is it where it is because of the market or because of its relative proposition? And then the second slightly broader question is I appreciate you've emphasized you see relatively low risks around this deal. But just in terms of the key risks that you're considering, can you sort of outline what they are and what your mitigation plans are in place? I mean, I know you're retaining senior management, for example, but any other examples of things that you've ensured you have to lower the risk of this deal?

Yes. I'll -- look, in terms of front end and capability proposition to the customer and the online capability to compete, I would say Cirsa, let's take Spain, Cirsa has incredible knowledge of the market, the consumers in general, also of the business. Clearly, Cirsa is competing with guys also in Spain with thinking about sports, for example, a very good product, an international product, which has been proven in many markets. And some of these guys, we've seen also in Italy, and we've done pretty well compared to them, both in terms of product, tech and digital marketing. So I don't want to make -- I don't want to mention names, but I don't want to go market by market. But if you start with the most relevant one, which is Spain, you will see exactly that. You will see a company with a huge understanding of the market on the consumers, with an incredible retail platform, which can be leveraged for the online. But at the same time, competitors -- some competitors who are big guys international with a deep expertise in the 2 main verticals that is to say sports betting and iGaming. And I think with our technology and product, we are one notch ahead in terms of that, and we can compete. So if you put these 2 things together, their incredible presence and know-how and knowledge of the market and the consumer and retail assets for the omnichannel and are strong, very strong technology and product assets, which are competing and are winning the competition with those competitors in the same competitors in Italy, I think we can do very well. Going about the risk, I don't make a comment. I don't know if Laurence wants to add something, also Antonio. On the senior management, I think -- I mean -- but Antonio can comment himself. I think we -- they are all very enthusiastic about the deal. This can help them also accelerate within the combined entity, the development of the business and tackle these opportunities together. We will be on the same long-term plan, which will have the automatic structure, so stock option, pure focus on the value creation on the stock price appreciation of the combined entity. But I'll leave it to Antonio, I guess, the top management, you tell us how it is.

On our side, we see this as a great opportunity because as Guglielmo said, there is no overlap between the companies, almost no overlap. So we just see creating one of the biggest groups in the world in gaming terms. And we'll be sharing the long-term plan that Lottomatica has, which is very attractive. So I mean, the risk is minor, and we feel very well protected and joining this long-term plan will be a plus to our people.

Thank you. Antonio, I don't know, Laurence, if you have additional comment on the risks.