Lottomatica Group S.p.A. (LTMC) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Lottomatica Group's First Full Year 2024 Results Conference Call. [Operator Instructions] I would like to turn the conference over to Mr. Mirko Senesi, Head of Investor Relations at Lottomatica. Please go ahead, sir.

Thanks, operator, and good morning, everyone. Welcome to Lottomatica Full Year 2024 Results Presentation. I'm here today with our CEO, Guglielmo Angelozzi; and our CFO, Laurence Van Lancker. Now the floor directly to Guglielmo for the presentation. Guglielmo, please.

Thank you, Mirko, and good morning, everybody. Very happy to host this conference and to start sharing the very good results of 2024. We are Page 2 of the presentation. EBITDA has grown more than 20%. We've beaten the guidance. Let me focus for a second on EBITDA, as Laurence will deep dive on all the other financial variables. We had an initial guidance of EUR 680 million to EUR 700 million, which we upgraded to EUR 700 million, EUR 730 million. And we've beaten that as we have achieved EUR 739 million, of course, with a normalized payout which means 24% increase compared to last year. If we go on the reported, because the payout has been pretty bad across the industry last year, then the actually is EUR 707 million which is, in any case, within the guidance range and which shows an increment compared to the same reported -- to the reported of last year, which is 22%. So one case of the other, the company is growing, whether you look at the normalized or at the reported also including the bad luck of the payout, we're growing well above 20%. Next page. Let's go straight into what's very important, so guidance 2025 and capital returns. So our guidance for the revenues for next year is EUR 2.320 billion and -- at minimum and EUR 2.370 billion for the revenues. For the EBITDA, we are in the range EUR 840 million to EUR 870 million. And CapEx, it's pretty much straightforward. It comes from pretty much what we have always said. You -- when you include PWO, the former SKS in the perimeter, you stand with roughly EUR 85 million, EUR 50 million recurring CapEx, then the concession CapEx is a matter of mathematics is EUR 105 million. But you have to consider that in there, you have EUR 22 million of a one-off payment for the online concession and a EUR 4 million one-off payment for the gaming machines. Laurence will dig into these and show you also and tell you also about the normalized numbers because, clearly, you have a big -- because of the way we pay the concession CapEx across the period. And then you have a carryover, which you already know about, EUR 27 million for the bolt-ons that we've already executed; EUR 28 million for Goldbet, which have been pushed to 2025; and additional EUR 11 million of remaining deferred considerations. So let's now go on capital returns. We proposed a dividend of EUR 0.30 per share, which means a total of EUR 75 million. This is in line, which -- with our dividend policy that we confirm. This is the first point on our financial discipline. We have a dividend policy, which is 30% of adjusted net profit, meaning net profit without extraordinary items and accounting only items like PPA. Financial discipline is also about where the leverage stands, and we confirm that we are fine with 2 -- between 2 and 2.5 net leverage. Then we want to add an additional point to financial discipline, and the point is very straightforward, we're not going to sit on cash. So since we generate a lot of cash, we pay the dividend, we stick to the leverage. And the excess cash available will be allocated, either to capital returns or to M&A, if there is accretive M&A available, depending on shareholder returns. We continue to look at M&A but, of course, in the meanwhile, we'll be also -- we'll make sure that the company doesn't sit on excess cash. In order to be able to execute and to stick this financial discipline, we need an additional tool, which is usually available in the tool set of pretty much every listed company, at least Italian listing company. And so we'll ask -- the Board has resolved to ask for an authorization to the AGM to buy back up to 10% of our share capital in the next 18 months, which is the maximum amount set by law. And so this will become a tool readily available to return capital to shareholders. Now with this said, let's go into business. First point, Page -- Slide #4 is how we are starting. We are starting the year with a great business momentum, which continues to be very positive. The strong -- the start of the year is very strong. The GGR February year-to-date is benefiting from solid volumes and also from a much better payout than last year and a payout which is also better than normalized. Laurence will explain you and will tell you all about the normalization of the payout. But what is pretty positive is that in the first 2 months, we have 72% year-on-year growth of the GGR for Online, 79% growth on the GGR for Sports Franchise and a low single digit, as we expected, minus 6% for the Gaming Franchise. So a very good start on the back of good volumes and good payouts, both compared to last year's and, in general, compared to the normalized levels, as you can appreciate from the graph on the right. Now let's -- the start of the year is very strong. Let's also talk about other levers, levers which tell you where the company is going on the short, but also in the medium and the long term, and let's focus on each of these items. The first point is that we believe online growth is here to stay. It's not just an occasional phenomenon. It's a long-term structural wind, which is mainly driven by channel shift. And our channel shift is a profitability booster for the operators, which are properly positioned with our portfolio as it significantly increases revenues and margins. We'll have a look at this. The second point is that the Italian market is clearly consolidating. The Italian omnichannel players within this consolidation trend are the clear winners, and they have a structural advantage. Now within this group of omnichannel players, we do have a sustainable competitive edge. We have gained a material market share over the past few years. And we also have some peculiar elements in our business model, especially in gaming, which is the largest chunk of the GGR in the Gaming business where we can particularly benefit from the channel switching to a Gaming, which, by the way, is the part of Online, which is growing faster, and it's also the least penetrated. Now this is the broad view. Now let's go item by item and look at the underlying analysis, which, from our point of view, proves this. On the first point, we are Page #6, now if we look at 2024 compared to 2023, the GGR of Online has grown 14%. Now sometimes, we get the question, is this because of the number of players increasing, the ARPU increasing. Actually, it's a very balanced growth. Half of the growth is coming from the increase of active players and the other half is coming from ARPU. Now the increase of active players is pretty straightforward. You have just 4.3 million online players in Italy compared to 20 million plus players of at least one game. So the penetration is still very low. And you have every year new customers, new customers in general, people who weren't playing at all before and they start from online. But also you have customers who were already playing retail, and they start to also play online, which they didn't know before. So this is what the 7% is made of. On the ARPU side, clearly, there is a part which is driven by GDP growth. And the other part, I would say, the majority is driven by a switch of customer spend from retail to online. So these 2 elements together generate the mid-double-digit GGR growth that we have guided for at the time of the IPO. And then the point is, is this occasional, is this for the medium, long term, let's go up Page #7. When you look at the Italian market, which is the graph on the left, in the last -- was that 2, 4, 6, 7 years, you see that the total market has been growing low single digit, 2%. You may say it's broadly growing in line with inflation, GDP, whatever. It's growing low single digit. Now when you get -- and you deep dive and you get into the penetration of online separately between iSports and iGaming, you discover that iSports -- and both sports and gaming online have benefited from every other country from lockdowns, clearly. But they've been growing that penetration. Now iSports penetration, which was 38% before COVID, has now grown to 55% and continues to grow, not super fast, but it grows consistently, not super fast because it's already decently penetrated. On the other side, iGaming was penetrated 8% before COVID. And today, it is up 26%, and it's been growing shy of 4 points of incidence of penetration per year. So low single-digit growth of the total market, but channel shifts with a strong focus on gaming retail to a gaming shift. Now where is this aiding to, this is Page #8. We usually consider U.K. as a benchmark for us. There are many similarities between the markets. And if you look at the penetration strength of the U.K., of course, they had lockdowns and there was a boost. We had locked down, and there was a boost, but penetration of online has grown steadily. And now is positioned around 60-something percent, 63% in the last few years. You can appreciate from the Italian curve, which is the blue one, that the Italian curve is not flat. The penetration curve in Italy is going up and it's going up roughly shy of 4 points -- 3, 4 points per year. Now you can make the math in different ways. You can assume that with the 2% of the total market, the penetration continues at this pace. And you will reach the U.K. in, say, 7, 8 years from now, and reverse engineer -- you reverse engineering -- reverse engineer the growth of the online, which will be in line with what we've seen in 2024 to '23 and '23 to '22. Or you can do the other way around. You can assume the growth of the online, take the 2% and see what's the penetration increase. You will get to the same penetration of the U.K. in the same 7, 8 years. So whatever you look at it, we can see that this as the benchmark, and we consider this to be a long-term trend for the next few years to come. So what's the implication of this on the economics of the companies who had repositioned their portfolio and adapted that to the new setup of the market in the last few years? Because this has been a strategy -- a vision and a strategy, which has taken years to be executed and brought to maturity to completely reshape, in our case, our portfolio and put it in the condition it is today to allow us to benefit from what's happening today. You see that at Page #9, this is the example of gaming because that's the most striking one. So this simply says that when you move GGR from gaming retail to iGaming, your -- our EBITDA would grow 2.6x, and the cash flow will grow even more because, clearly, online is less capital intense if non-retail. So good news for the revenues and for the EBITDA and for the cash flow. Now going for a second on Page #10. I mentioned before, what's the balance, the competitive balance within the online space. If you want to simplify and you divide the competition in 3 baskets, the top 3 omnichannel players than the pure online players, usually it's international pure online players, local ranges of pure international players and then the local players, you see that in the last few years, omnichannels, the 3 omnichannel players have been -- this is like-for-like. So you take the brands. You don't take companies. It's a like-for-like analysis. The omnichannel players have been winning. So they've grown 8 points in the period. The pure online players have lost 6 points. And the local players have defended better than the pure online players. But nevertheless, they've lost 2 points. Now of course, you have 3 omnichannel players, then you have 10 pure online operators, and then you have 65 small local players. There's a new framework coming in where more quality is required from the operators in the space. So we expect more consolidation to happen, especially in the area which -- in this gray area of the graph. And of course, we continue to see the omnichannel players as the winning group in this market. Now let's deep dive one step more, and let's go to Lottomatica within this group. Lottomatica, this is Page #11, outperformed the market 2x in 2024, exactly like it was in 2023. This is true by segment and it is true on the total online. But even more importantly, so Page #12, this is the comparison of Lottomatica market share like-for-like. This is all like-for-like, as if all brands were in portfolio as of January 1, 2022. We've been gaining share, vis-a-vis competition. 7 points of market share gains -- gained organically in 3 years. Basically, that is the size of a large operator in the Italian market, just to give you a sense of what this is about. So we are doing very well within the omnichannel group. And last but not least, as you've seen, the gaming to IGaming transition is a particularly important event, and we are Page 13. Well, I think it's important to compare the market shares in retail and online in gaming. When you look at that, you see that Lottomatica has the same market share in the 2 businesses, okay, on the -- it's the same product in the 2 businesses. Flutter is in a similar position. And the rest is unbalanced portfolios under this point of view. You have operators which are either very strong on retail or very strong on online, but not both. And even more importantly, 1/3 of the volumes in the Lottomatica retail footprint are on locations. That's only 10% of the total locations, but 1/3 of the value because our own venues tend to be much larger and more profitable than the rest. You can say that, on average, one of our locations would make EUR 50 million bet per year. The rest of our franchising would make EUR 4 million and the rest of the market will make EUR 3 million, which means that these locations are particularly strong in competing and being able to implement omnichannel strategies because they have the sites, they have the traffic and they have the positioning for doing that. So on the right part, we've discussed this many times, this is really the good balance between the market shares, between retail and online. And the quality of our retail is really an asset, an unparalleled asset in the market to give us an additional edge in this channel switch. With this, I leave the floor to Laurence. Please, Laurence.

Thank you, Guglielmo. So moving on to Page 15, we can see the group financial highlights. This is for the first time in our history we've exceeded EUR 2 billion of revenues, and that's what we've achieved in fiscal year 2024, marking a 24% growth versus the previous year. Q4 accelerated even further the revenue growth to plus 34%. When we look at it on an EBITDA basis, you can see that we've reached EUR 707 million of EBITDA, so plus 22% on a reported basis or 24% on a normalized payout basis. In Q4, we've achieved EUR 224 million of EBITDA, marking a plus 45% growth year-on-year. When you look at EBITDA margin for 2024, you'll see 35.3%. That takes into account the consolidation of PWO, which has lower margins than the Lottomatica ex PWO. Moving on to Page 16. And here, you can see that looking at the financial highlights by segment, you can see how the growth breaks down and how the Online continues to remain still the very strong growth driver of the group. Revenues are up 50% in Online, 25% in -- on a reported basis or 27% normalized for Gaming Franchise and plus 3% for Gaming Franchise. We're looking at the adjusted EBITDA. Here you could see for the -- again, also for the first time, we've exceeded the EUR 400 million mark of EBITDA in Online, achieving growth year-on-year of 40% in Online, at 12% on a reported basis for Sports Franchise or 20% on a normalized basis and then minus 2% for the Gaming Franchise business. Moving on to Page 17. This is something that we want to address the question on whether we have operating leverage in our business, especially in Online. On the left-hand side, you can see the progress of our EBITDA margins since 2019 when you exclude PWO, and you can see that as we've grown our business in Online, our margins have increased from 41% to close to 58%. Again, this does not include PWO. This is all driven by operating leverage and a realization of synergies. So when you look at PWO on the right-hand side, you can see that we will reach the full realization of synergies in 2026 to reach EUR 75 million, as we had guided to last year. And to date, we have seen EUR 15 million in our P&L in 2024. We expect to see EUR 32.5 million in 2025 and the full effect of the EUR 75 million and including also CapEx in 2026. So if you run the numbers and look at the blended margins, you will see that we will -- you end up roughly in the low 50s when you consolidate PWO in our numbers. That said, over time, and in the medium term, as we continue to grow the business, it is fair to say that we could -- that number can improve potentially going also to the mid-50s. When you move on to Page 18. Now previously, we gave the guidance separately for Lottomatica, excluding PWO, and PWO which you can see on the left-hand side of the graph. Going forward, now we're guiding to normalized level on a blended basis. In fact, as we're integrating PWO on our business and we use a common risk management platform to manage our entire business, we're guiding to a blended guidance of 80.5% in retail for the sports payout and 85.5% for retail -- and 85.5% for the sports payout and online. From a financial perspective, the answer fully aligned with the fiscal year 2024 normalized EBITDA. So if you were to apply the same -- you apply the blended payout levels in 2024, you get exactly the same number that we've shown in the first page. So using the -- looking at the blended payout evolution on the right-hand side, you'll see that the numbers are pretty much in line. So you have average over the last 12 months of 80.4% in retail and 85.3% in online. Move on to Page 19. Looking at the operating cash flows, so we start with CapEx. We've closed the year with EUR 87 million of recurring CapEx, so in line with the guidance that we've given -- that we gave last year. EUR 63 million of concession CapEx. As we had mentioned, we did not have any concession CapEx in Q4 2024. So everything was already recorded in the first 9 months. And overall, EUR 61 million of one-off CapEx, which include the POS carryover expenditure that CapEx that we had planned for 2023 that carried over in 2024 as per guidance. Integration CapEx of EUR 10 million, deferred purchase price payments of EUR 11 million that we had guided to. And then we have spent EUR 19 million of bolt-ons that we've carried out in 2024. If you look at the right-hand side, you can see the evolution of our operating cash flow. So where -- it's defined as EBITDA minus recurring and concession CapEx. And you've seen the improvement from EUR 470 million to EUR 557 million from '23 to '24. EUR 470 million for '23 includes EUR 45 million of concessions, which are a benefit from half a year of free game -- a few extension for the gaming machines that we had in 2023. If we were to adjust it for the same concession levels, the operating cash flow would have been EUR 452 million, which means our EBITDA would have be -- operating cash flow would have been EUR 100 million higher in 2024. We move on to Page 20. Net financial debt, you can see the various components as we always break it down for each quarter. So starting from September 30, '24, so the adjusted EBITDA of EUR 224 million, changing net working capital of EUR 13 million. Taxes paid, these are corporate taxes that we pay in the month of November for EUR 5 million. CapEx in the fourth quarter, which -- of EUR 43 million, which include EUR 20 million of recurring CapEx and EUR 23 million for -- of one-offs related to the POS project, the last tail of the EUR 20 million that we've described earlier. Integration CapEx of EUR 6 million; bolt-ons of EUR 8 million and deferred consideration of EUR 4 million. And there's no concession CapEx in that number. Financial expenses and leases of EUR 57 million and then other costs that include -- of EUR 37 million, which includes EUR 18 million of integration costs. This brings us to the total net financial debt of EUR 1.873 billion and the cash balance of EUR 173 million at the end of the year, which brings us to total leverage of 2.4x -- net financial leverage of 2.4 turns. So we have gone into the -- within our steady-state leverage below 2.5x. And I think with that, we've completed the presentation.

[Operator Instructions] The first question is from Ed Young, Morgan Stanley.

I've got 3 questions, if that's okay. The first one is on multichannel. So thanks for providing all the detail on the multichannel opportunity. I wondered if you could give us how much of your online gaming revenue or growth or market share, whichever is easiest, do you think is currently being derived from your retail gaming customers? The second is on the Dignity Decree. There's discussion about the removal or the modification of that as part of a wider debate around sponsorship and potentially marketing. Just wondered, Guglielmo, if you could give thoughts on the potential impact of that, specifically as it relates to the competitive outlook and your expectations, Laurence, for revenue growth and Online EBITDA margins if marketing rules were to change. And then finally, on capital allocation, appreciate your comments there around a buyback. Is there any signal there you're giving about the M&A environment, i.e., could you give us a bit of color on the target set and prices being looked for by sellers? And I wonder if you could also help us, if you have any ideological preference, let's call it, for more Italy M&A or looking outside into a new geography should you conduct some.

Thank you, Ed. I'll start, and Laurence, of course, chime in whenever. So on the multichannel, I'll tell you what is generated today by the specific model, which I mentioned, which is roughly 1% of market share is coming from there. So it's still at early stages, but it's sizable. This doesn't mean that our iGaming value share spend is not coming much more than that from omnichannel operations. It's just because you've had omnichannel in sports betting for many, many years, and those guys who come from there do play Sports, do play iGaming, they cross-sell from Sports and iGaming. So what I'm giving to you is the value of the specific new initiative, which is targeting specifically iGaming and specifically from gaming retail. But of course, the total share of iGaming GGR coming from the retail network is much more than that. But that's -- I'm mentioning to you that because that's we believe it's a very promising tool in our business model. So on the second point, removal of sponsorship marketing, a short answer, and then I'll elaborate a bit on that. Frankly speaking, we don't care. Frankly, speaking we don't care because if you look at what happens today in the market in an absolutely lawful way, because there are decisions which have been made where there is -- there are specific provisions under the law of things which are allowed, there are specific provisions under the authority, which regulates communication in Italy. So you can see a ton of activities, which are done. Of course, there is -- what is different from other markets is that there is no call to action. You walk -- switch on TV and have a call to action ads to comments on that. I don't think we'll ever see that, in any case. Regardless, the discussion that are on the table now because I don't think that's on the table at all. But second, probably as of today, that's not the wisest way to spend money on marketing. Compared to a few years ago, there are ways which are much more efficient and smart. There are better ways to spend your marketing money than doing that type of marketing activity. So long story short, if you won't -- it's to some extent already possible. And frankly speaking, we don't care. And it's not going to change much in our view. On capital allocation, if I got it right, and please correct me if I misunderstood the question, you said an update on M&A, right, what type of target, that type, is that correct?

Yes, that's right.

Yes. So look, we continue to look at M&A opportunities, which is -- we've never stopped. We continue to look at larger deals, more transformational deals, to look at good assets, which are smaller size. So would that preferably Italy or international? Well, if we find something which is -- which makes sense and is accretive in Italy, we'll, for sure, consider that. The main difference compared to previous acquisitions probably in Italy is that those previous acquisitions had a financial sense that were super accretive, and they still can be super accretive. And they also had the strategic sense. You've seen in one of the slides the fact that now we have the same share partially because of M&A and partially because of organic growth. And then we can -- we are able to exploit this channel transition. That was a strategic topic. Adding brands to complete the portfolio in our portfolio of brands was a strategic topic. Probably, today, you don't have that strategic nuance if you look at assets in Italy, but you may have as well opportunities because, clearly, there are still lots of value and synergies to be extracted by in-country consolidation. So the long story is we can consider them on the basis of the value creation, but we also look at promising, interesting, accretive international deals with a clear framework. Europe, B2C, no lotteries, regulated, and the strong point is we have to be able to give a price to the jurisdiction, and we have to be able to see how we adopt -- how we add value. Is that full tech? Is that through streamlining processes and costs that through purchasing volumes, scale? There has to be a clear investment case, which is on an asset-by-asset case. Then M&A is always in our art. It's in the DNA of the company. It's not at any cost, but we keep the pipeline active, for sure.

The next question is from Fabio Pavan, Mediobanca.

First one is on the capital returns. So my question is, provided no M&A deal will come in the next future, we may expect share buyback to start once the authorization will come from the AGM. Second question is about your plans for organic business in 2025. And if I'm not wrong, you were mentioning new services and products in your presentation. So any color on this would be welcome. And my third question is when looking at GGR growth for January and February, these trends are in line with your expectation or we can argue the start of the year has been beyond expectations.

Fabio, let me start from the last one. On the volumes side, they are in line with our expectation for the year. On the payout component, of course, that's volatile. So the only expectation that we have is medium term is on the normalized. What I can tell you is that since we -- the market was unlucky before, at certain point, you need to turn lucky. And so the total number was big because of a component, which is not predictable. So that's the point, volumes are strong and good and in line, and the payout has seen a reversal. And so it's a positive surprise. To some extent, you expect that surprise after having been unlucky or player friendly, as you want to put it, for some time. So that's the point. I'm not sure if you could repeat the second question on organic business because there was a bit of noise on the line.

Yes. Just wondering if there is any color you can give us on your potential plans for growing the organic business, some specific initiatives planned for this year. You were mentioning also some new services in your presentation.

Yes. Look, there's few projects which are meaningful under the point of view on which we have not provided. We're not providing targets, but I think it's a fair point where -- to share them under qualitative point of view to name the projects. For sure, the migration of the PWO, the former SKS is one key point because, let's remember, we've closed, we are extracting synergies, but the migration -- the complete migration still has to happen. So those customers and those shops will be moved by the summer into the group tech and product, which we'll announce, we believe, the business profile, the proposition to the customer, as simple as that. And so we expect that to generate a positive momentum. So that's the very big project. The second is that, as always, we have a very compelling product roadmap on top -- on to the group stock, which then the features which are developed then delivered to the brands, which is another thing. So we're not saying there, just what we have. We continue to have a very active and intense innovation pipeline on the product. Number three, and number four, we have the Totosì project, which is related to the new concession. For that, we'll have to wait the last quarter of the year as the new concession come into place. We are closing deals here and there. I think we closed one yesterday or something a couple of days ago. So we continue to do that. It's -- again, it's very hard to say how much that will be worth. But for sure, it's a plus. So it's something which will add. That's not a question, although we just don't know the amount. And last but not least, the question I've made, the omnichannel, we continue to focus on that. The market grows and, of course, the 1% that I mentioned, I also mentioned that a few months ago. It's a 1% or something which is larger. So it has grown materially. It will continue to grow as we roll it out, as we improve the product again. Again, that's not in the short term. It's not for the next quarter. It's more a long-term project, but that's another source of, we believe, a sustainable competitive advantage, which is hard to replicate. Capital returns, do you want to go, Laurence?

Fabio, so on capital returns, listen, this is a -- the share buyback is a tool that we did not have at our disposal today. So it was something we were missing. And therefore, we are requesting the authorization to have the tool on our disposal. And as we said, this is a -- it is a tool -- it is a form of return of capital, a way of enhancing shareholder value that competes also with M&A. And listen, once we get approval, if and when we get approval, clearly, if the conditions are attractive and together with the Board, we may decide to start.

The next question is from Estelle Weingrod, JPMorgan.

My first question on Q4 Online GGR, it was up 31%, and then NGR only up 20%. Just wanted to check what was happening because, Q1 and Q2 were a bit more in line. Q3 and Q4, less. Is that a reflection of increased promotional intensity or anything else? That's the first question. The second one on the current trading for the Gaming Franchise is a bit softer year-to-date, minus 6% year-on-year. Is there just for the switch to online? It's one thing, but minus 6% seems a bit worse. Can you just give us your take on this softer performance? And just the last one on the one-off payments sitting in your concession CapEx. Can you just explain the EUR 4 million one-off for the gaming machines and also the EUR 8 million for the -- for retail? Is it just an extension for the 2 years until we hear more about the new framework?

Estelle, so listen, online -- we need to go through in the same order as you asked the question. So on online GGR versus NGR, a part of it is a mix effect. And part of it is also a -- it's different promotional activity across the various brands. On the Gaming Franchise, looking at -- from the beginning of this year in relation to the question number 2, we -- this is a -- the minus 6% is a blend of what we see both in the VLTs, which are where we're seeing, let's say, minus 1%, minus 2% and then AWP is getting cannibalized at a faster rate than the VLTs. This is sort of in -- broadly in line, I would say, with our expectations for the year. Then point number three on the concession CapEx, the -- what we have is that there is a -- for the extension of 2 years, there is a one-off payment for the NOEs that relate to AWPs that amounts to EUR 8 million for the 2-year period, and we've been asked to pay it all upfront. And therefore, we say that EUR 8 million -- so the yearly cost is EUR 4 million because we're paying EUR 8 million all in 2025. We're saying that EUR 4 million is a one-off.

The next question is from Clark Lampen, BTIG.

I have 2, please. First one is sort of a higher-level question. Guglielmo, I wanted to see if it's possible to frame for us how much of the growth that we're seeing right now is from net new players in the market relative to sort of online migration or omnichannel play and amongst sort of those cohorts that are newer to market, out of their spending and engagement patterns differ specifically for the gaming market. And then second question is just a follow-up. As we think about bridging to your 2025 revenue guidance in the sort of low to mid-teens range, Laurence, I just want to make sure that I heard this sort of clearly. Are we expecting, I guess, let's call it, a mid-single-digit headwind or decline in revenue growth for the overall gaming business in -- or the retail gaming business in 2025? Is that accurate? Or are we just talking about the VLT slice?

Yes. So Clark, of course, these are -- on the first point, it's approximation coming from market research as clearly, retail players are not tracked. But from the data that we have, the 2 clusters are pretty balanced in a sense that new people at all who have never played and they start playing online and then people who play and transition from retail. In terms of behavior, there's 2 things to be said here, at least. One is the facility to adopt the online mobile experience, we don't see many differences between the 2 clusters and across ages. That's also very important. So when you look at elder people, in the older age groups, which come from retail and then they switch to online and you compare that to younger people who like sports and they start maybe playing online directly, they're not player of whatever else game, retail game, you can imagine of, the easiness of the adoption, how the customer experience flows, that's very similar because the customer experience is in reality very simple, straightforward, intuitive to the extent that, for example, when you look, for example, at sports, you wouldn't find a different incidence of -- was that the age group, I think it was up 45, 64 or something between online and retail, so same type of penetration between online and retail. So that's one point. So how do they engage? They engage in a very similar way. Then, of course, there is a difference because those guys come who are no new players, so they come from the retail and they start doing online. They tend to have a higher value, and they tend to have a higher loyalty, and you tend to have more touch points with them and more ways to communicate with them. So in some sense, they are very valuable clients. And you -- because of our model, you can compete very well with the share of wallet -- share of their wallet because these customers are -- they will see the same brand, both retail and online. There will be spending a little bit here and a little bit there. So they tend to be more sticky, more loyal. They tend to be older also, in general. So that probably is another reason why they have more disposable income. And also they are more valuable players. But that's the main difference in terms of consumer behavior. But in terms of adoption and flow of the customer experience, we noticed very little difference between the 2 groups.

Maybe, Clark, to your second question, let me make a quick prelude to the answer. So Gaming Franchise, we've seen a decline of 6% in the first 2 months. You have to always look at this business in conjunction with what's happening also on the iGaming side because if you look at the iGaming business, it has grown in excess of 20% in the first 2 months, right? So if it -- let's say, I'm not saying this is a perfectly holdable formula, but it sort of gives you a sense of the direction of travel of the business. So if you see more acceleration of the decline in Gaming Franchise, you'll see an acceleration in the -- in iGaming. So we've seen that over the past few months, which seems to hold pretty true. And the same happened also in January and February. If you look at the -- if you think about the business, just to -- maybe to recap where you see the more -- a higher impact on the GGR and -- but again, this is not surprising for us at the beginning of this year, and we expect the year to -- basically to continue broadly in -- along the same lines. The way to think about -- clearly, the decline in revenues may result in a lower -- in a faster decline on EBITDA depending on -- due to operating leverage. At the same time, if you look at the bolt-on activity that we've done, you broadly end up at similar EBITDA levels, okay? So the bolt-ons that -- the incremental bolt-ons that we have done, let's say, compensate for the decline in -- that we've seen in the business, if you just look at the Gaming Franchise part.

The next question is from Domenico Ghilotti, Equita.

I have 3 questions. The first, so just a follow-up on the guidance bridge. So if I understood properly, when I look at the 2025 EBITDA, I should assume that most of the profitability -- of the increase year-on-year is coming from online, including the synergies. And second on an update on the retail concession. I saw that there is a new proposal ongoing. And so if you can give us a comment on what is embedded and how do you see the proposal. And if you have any -- so if the chances have increased in terms of reaching an agreement for the retail concession. The third is a comment on the channel shift. So how is the government reacting to this channel shift? Because I understand that is favorable to you, but at the end is detrimental for the taxes that the government is collecting. So do you see -- or do you expect any kind of reaction from the government side?

Yes. Domenico, let me -- let's go in obviously order. Let me start from channel shift, retail concession. And then, Laurence, if you want to take the guidance bridge. So channel shift, well, first, there is a very specific provision on online that says that -- in the law that says that on top of the concession that tax rates are fixed for the 9 years, and that's a fact. Then you can have political discussion. There are -- but that's another fact, right? That's the point. The reason -- the more general statement I would make is that this is a macro trend. It's a macro trend, and a macro trend means that it happens. Whether you want it or not, it's happening because people is going there pretty much everywhere in the world, right? So you're not going to stop the ocean with -- it's simply happening, right? And it's not a closed system, as you would say, because there is another element, which is illegal -- well, illegal -- cross-border -- let's call them nicer, cross-border activities. So cross-border means out of concession. They paid 0 taxes. So the tax rate is quite convenient. And you have no anti-money laundering. You have nothing. You have -- it's there. You don't control. You don't -- and then the question is, if you have a macro trend, which is happening, it's happening, full stop. And it happens also in the countries where it is forbidden to play. So it happens. Germany is a wonderful example of what you can do in that case. So it's happening. And you have cross-border activities, which pay 0 tax, no anti-money laundering, no controls, nothing. And you already have tax rates, which are not 15%, right? Our tax rates -- they are better than retail. Just to make clear to everybody, they are not 12%, 15% that you can see in other countries. They are in the top end of the range of European tax rates in the sector. So if you put all this together and you want to act rationally, then you probably understand that the government so far has been acting quite rationally. That's my point of view. Now on retail concessions, yes, there is another proposal on the table. Yes, there's many -- there's a new one. There's -- they're all quite sensitive lately. They're well grounded, lots of thinking and analysis behind them. So I cannot say -- I mean, we -- there are very good ones, good ones in the sense that they address the topic not in a superficial manner. So potentially, there would be, I think, the conditions to have some sensitive solution emerge. It's a matter of political will between the state, the government and the regions. That's what it is, and that's unpredictable in the end. So it's hard to say. Frankly speaking, it's hard to say. What I can tell you is that the proposals that you see today on the table pretty much on both sides are very well designed and well thought and sensitive. Still, the extension is until the end of 2026. It's already March. And usually, it takes a lot time to go from an agreement to a decree to a tender to the execution of a tender. So -- but there is some progress. These things are either white or black. So it's very hard to estimate. But I take as a positive the fact that there is -- there are thoughts put in the process. There is quality thinking beyond the process.

If I may just on the first topic. So -- and given the macro trend, you don't expect a proposal that can be even lower in the payout for -- sorry, increasing the payout for the gaming machines in order to, say, transform the business or increase the cash needs of the business. You see -- you don't see this as a potential.

Look, I know there are -- there have been proposal by some parts of the sector. I would be -- that would be -- I don't know how to say. If I were in the decision-making process, which I'm not, of course, and that wouldn't seem to be the most obvious way to preserve taxes, let's put it this way, as you're basically playing -- placing a bet on elasticity of the players to price on a product where the problem of that product is not simply price. It's the width of the product, the innovation of the product. There's a ton of other differences between the product, which is just beyond price. Price is just one component. So to me, the other question would be we're putting money on the table, tax payers' money on the table to bet on elasticity, pure price elasticity, still, there is a huge product gap, which is a matter of fact because that's the macro trend. There is a huge product gap. It's like when you buy books in a library or in -- at Amazon, right? It's -- you can find anything and you can find a few hundred books in the other case. So you still have the fun of doing that in -- but -- so that wouldn't sound to me as the most -- the safest way under the budget way of thinking of the state. But you never know. You likely end up with a gap. I don't see many other different outcomes. But let's -- but everybody, the beauty of this -- every sector is that an employee is that you discuss options, and that's good. You should be discussing options in order to see how you can fix and do stuff. So the fact that there are discussions, I think, is just good. Then you have to make synthesis, I guess.

Domenico, so to go to your first question, yes, so most of the growth will come from online. Just one point to note that in Sports Franchise, you have some growth as well, but you've also had the reversal of the payout that we've had in -- the negative payout we've had in 2024. So it's -- which is not immaterial. So most of it comes from online, yes, but Sports Franchise also contributes to the growth of -- in 2025.

The next question is from Pravin Gondhale, Barclays.

Just quickly on the retail to online shift in iGaming, can you talk about the value per player, which is shifting from retail to online? Is it same and then growing in line with the same rate if the customer would have stayed in retail or at a faster rate eventually? Do you think that if, given the cross-selling opportunities in online, that cohort value will grow at a faster rate than it would have been in retail? And if there is any -- if that offers any upside to 2.6x EBITDA upside that you talked on Slide 9, if there is any further upside to that if the growth is higher?

Yes. Look, let me try to address this. This is a very good and complex question on -- with a couple of points here, which I think go to the essence of -- let's assume you have a player with a given portfolio in retail and then the player becomes omnichannel and starts to spend part of his money also online. Well, that player, the moment the player goes online tends to have more options. So cross-sell is readily available because it is just one tap away and because it's usually available cheaper. So you buy time cheaper. And you can entertain yourself more also, which is another good part of the experience. And of course, you can have cross-selling in retail, but it is slightly more complex. It's about logistics. It's about making sure that you have in the same location the different type of products, which is not always the same -- the case. Sometimes, you have them, but they're not fully configured because the primary activity of the location is maybe gaming or, in the other case, it's betting and you have a little bit of gaming machines strong somewhere there. It can be improved, yes. But -- so the real difference, there's a real difference, which is about convenience. And convenience, usually, when you like something drives an increase of spend, as simple as that. Convenience is I can find -- I can experiment another game, which I always would have liked to, but I have to do 600 meters away and go in another shop and so like the shop I always go to. But now I can do that, and I can experience pretty cheap because, actually, the product is cheaper. And also, I'm not constrained -- I have less time constraints simply because you missed the logistics part. And so what do we think about this? We think that there is a potential for having clients who, in the end, potentially, they can grow their ARPU. At the same time, we do not think these clients will totally switch to online. They will maintain a balance with the retail component if they come from retail because the part of the convenience is in having both channels, not in just switching away forgetting about retail and just going online. So that's the good part of the model, that's the good part. That's the value to the customer. It's given the optionality of providing not exactly a seamless experience, but as much as you can, given the regulation between the channels.

The next question is from Chiara Pampurini, Intermonte.

I got the first question on online. It accounted for 59% circa of the group's EBITDA in 2024, assuming 20%, 25% growth in line with last year in Online EBITDA, it will reach around 65% in 2026, cannibalizing Gaming retail, while Sports retail will remain quite stable. Does this assumption make sense for you? And another question. Before SKS acquisition, you guided for midterm Online EBITDA margin at 58%. Now obviously, with SKS integration, group Online margin is lower. What do you see now as a reasonable target, like 55% could make sense by 2026, 2027? And about SKS that impacted the lower margins, are you now seeing improvement in this brand marginality, as well, in which order?

Chiara, I'll take them in order. So as the -- obviously, as Online continues to grow faster than the other 2 segments, we'll continue to see an increase in the weight. Now I can't comment on '26 because we haven't given guidance on '26. But it is fair to assume that the mix will continue to shift more towards Online. So that makes sense. I think in terms of margins, so we withdrew the guidance when we -- the midterm guidance when we bought SKS, now PWO. So this is I would say that in terms of margins in Online, as we integrate PWO, we will see a period where we'll be in the low 50s and as we -- as the synergies continue to come in, there is scope to improve that further. I would say this is not -- please don't take this as a guidance, but it does make sense that as we continue to grow the business that the margins continue to increase. Probably, if one has to think about midterm, and I can't say whether it -- specifically whether it's 2 or 3 years, but it is fair to believe that this -- the Online business can be in the mid-50s.

The next question is from Benjamin Sandland-Taylor, Berenberg.

Just 3 from me. In terms of the online penetration, thanks for providing those different scenarios. And I was wondering where do you think iSports could get to in 5 years given it's around 55% already? And where do you expect iGaming to get to? And secondly, you mentioned the high quality of your retail network. Now given that minus 6% decline in the Gaming Franchise market, are you still seeing a healthy pipeline of potential bolt-ons that are also high quality? And then just the last one. In terms of the full year '23 results, you gave us some sensitivities on the Sports payout margin that had an impact on adjusted EBITDA. I was wondering if you could just possibly remind us of those figures.

Yes. Benjamin, I'll take the first 2. So iSports, iGaming, we think there's good reasons to assume that, in the end, they'll both go to the same level of penetration, which is around that 63%, 65% that we mentioned and that compares with the U.K. Because in the end, that is the client, and the client plays both games. It may start from one, but it goes to the other. And so it's just a sport has started its, let's call it, online career, it's line version before gaming. It has started in 2007. Gaming started in 2011. It started together with retail, while in retail, gaming retail started before online gaming. And also there were differences in the structure of the distribution such that in sports, there was more alignment in pushing from a multichannel offer under than there was in gaming. And that's why gaming is in -- half the penetration of sports. But structurally, in the medium term, there's no reason why they should be in a different place. So that's 65-something percent. Bolt-ons, yes, the quality of our network is by far the best, especially in gaming goes. On -- and do we think we'll continue to do bolt-ons? We'll continue to do some bolt-ons, probably more so -- even more selectively. We'll be very selective. We'll do that probably slightly more selectively because it's -- there is a lot of value in the right bolt-ons because, of course, you buy them at a good price and you pay them pretty quickly. At the same time, you can extract synergies, which can help you offset the macro trend. But especially, these are a pool if you choose the right ones for that omnichannel conversion, the channel switch. So if you look at them with a strategic view and with the opportunistic evaluation in the selection of what you're buying, this is still good business to do. You're not going to see EUR 50 million of bolt-ons in gaming value in doing that. And we'll continue to focus more and more on the highest quality ones.

And to answer your last question, we -- for the sensitivities, 1.1% payout in Online is EUR 18 million impact on EBITDA and 1 percentage impact payout in sports retail is EUR 15 million, 1-5, in -- to EBITDA. So clearly, the numbers are a little higher than what we saw in 2023 given the increase in the size of the business.

The next question is from Simon Davies, Deutsche Bank.

Three from me, please. Firstly, growth obviously accelerated through Q4 and into Q1, and that has coincided with the period of disruption at Snaitech ahead of the completion of that transaction. Do you think that is a coincidence? Or do you think we might see a step-up in competitive activity as and when the Snaitech deal goes through? Secondly, on share buybacks. Do you think we should expect you to use the full 10%? Or is that just providing flexibility in the event that there are no -- there's no M&A activities through the course of the year? And lastly, can you talk a bit about the pipeline for potential M&A? Is there much in the hopper in terms of bolt-on deals?

Yes. Simon, not sure we've seen any disruption in anywhere actually. They're in the process of running the companies separately. They'll do the deal. We haven't seen really any type of disruption. So no, no disruption. And on -- also because there was no reason to disrupt anything. They're not integrating. They have not closed. If in principle, you can see disruption after, not before. It's -- I'm not saying this is the case. I'm not saying at all this will be the case, by the way. I'm just saying that, that would be. So on share buyback, less than 10%, more than -- look, we have the tool, and that's the standard, 10%, 18 months. It's all about excess cash available and alternative opportunities and what's more value accretive. The way you can look at this is this keeps even more disciplined in allocation of capital to whatever, M&A, other forms, because we have something readily available to compare and potentially execute. I don't know if it's going to be 10%, less. Maybe you discover you need to ask for more, I don't know. It's -- it depends. It's a very simple -- it's -- you need the tool. That's it. You need the tool, and we're making a very clear statement saying that this tool will be there and will be used to compare alternative ways if they are available to allocate capital and that we are not sitting on cash. The rest will depend on what's the specific situation at the moment. Then on M&A, yes, we continue to look at it continuously. And pretty much, you have to differentiate bolt-ons. So the small bolt-ons that we do in Italy, there, the pipeline is as long as you want. The key point there is selection, as I mentioned in the previous question. The point for us is staying very focused on selecting what we really need, what can have a strategic value, what -- so it's about selection. It's not about the size of the pipeline. On other deals, bigger deals, bigger transactions, still bolt-ons but bigger transaction, then, of course, there are many out there in Europe, and we continue to monitor. There have been some which have come back and forth several times. It's not necessarily -- you have to have, as you know, in M&A, the right alignment of stars. The point is that we're not in a rush. We're not in a rush. We're in no way -- we are just getting the fever of putting flags here and there. We look at making things in a disciplined manner and looking at returns.

And the last question is from Andrea Bonfa, Banca Akros.

And I will try to be quick. On Page 8, I was wondering if you can comment what are your implicit assumption of cannibalization for the gaming machine in order to arrive at the 65%, 62% of penetration. And on Page 18 of your presentation, you mentioned of a blended payout for retail of 80.5%, which is slightly higher than the average of the 2 assets. I was wondering if that is, let's say, an investment that you are willing to do for your retail franchise. And then a small clarification -- two small clarifications. One, if I understood correctly that the 1 -- plus 1 -- minus 1% in payout for sports and e-gaming is plus EUR 15 million or minus EUR 15 million and plus EUR 8 million. Is that correct? And finally, your gaming EBITDA was down minus EUR 8 million in the last quarter, despite a flattish positive sales. So I was wondering if you can comment on that.

Yes. I'll just take the first one on the gaming. No, we haven't put the math on here on -- it's pretty easy to -- because the target of this exercise was showing the total case and the impact on the online. But of course, it's pretty straightforward. If you keep the 2% and you assume either simulation #1 or #2, 1 of the 2 is right. But it will end up pretty much in the same point. You will reverse engine the gaming part of the business for the market, clearly. So that's -- but it's not an exercise that we put here because the focus here was putting the focus on the online transition knowing that, in any case, the impact on revenues and EBITDA is by definition largely positive as it is in Slide 9. So by definition, when you move GGR from one to the other, you can end up with higher revenues and higher EBITDA. But no, we haven't put that, but it's -- just keep the 2% and then you -- either you use simulation 1 or 2 -- assumption 1 or 2 with -- you're going to end up with the -- but we don't have it here.

I think on the other point, Andrea, so the -- on the retail, it is 80.5%. So as you say, it's -- on a blended basis, it's 80.5% which is sort of higher than what we had for Lottomatica ex PWO. But also the -- please bear in mind that given the mix, online is at 85.5%, right? So it's lower than what we put for -- we had previously for Lottomatica excluding PWO. So on a combined basis, we -- this is the -- using a common risk management platform, this is what we think is the most appropriate on a blended basis. I think in terms of impact, maybe let me just spell out the numbers clearly, so 1 percentage point, plus or minus in sports retail, it is plus/minus EUR 15 million, 1-5, on EBITDA. And plus 1 minus -- plus/minus 1% in online sports, the impact is plus/minus EUR 18 million, so 1-8, on EBITDA, okay? But as you know, and we've talked about this a number of times, online is much more stable. You have much more stable margins and payout levels given the weight of online sort of live and the lower share of accumulators. With regards to Gaming Franchise, if you look at -- as your comment on the presumably, so I think it's on Q4 '24, but you were mentioning sort of decline in the margin, it's -- let me say that Q4 '23 was a high margin -- higher margin than usual in -- of 27%. And there are sort of different effects in play. But I would say that there is mainly 2. The first one is a phasing of costs in 2023. As you will see, you have lower -- you have -- the margins are -- that sort of costs where you have fewer costs in the fourth quarter 2023 and the reversal of a number of provisions that we had taken in the -- previously in the year, again, in 2023. And there's also the second effect, I'd say that when you do distribution and sourcing from -- which you can see from Q4 '23 to Q4 '24, you have this impact on accounting impact where your revenues grow as a result of the different accounting treatment of indirect gaming machines versus direct gaming machines, which inflates your revenues and, therefore, reduces your margins. So these are the 2 effects. But if you look at it on a combined -- on a yearly basis, so we've had a reduction in margin from 24.5% to 23.5%. And that, again, is a result of the overall sort of decline in terms of GGR of the business and in part an accounting effect due to the distribution and sourcing.

Okay. I think we are done with the questions. So thank you all for participating. And please, operator, we can close the call. Thank you.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.