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 H1 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Mirko Senesi, Head of IR of Lottomatica. Please go ahead, sir.

Thanks, operator, and good morning to everyone. Welcome to Lottomatica Q2 2026 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.

Thanks, Mirko, and good morning to everybody. Let's go up Page 2 of the deck. Another very good quarter and another very good semester. We increased EBITDA 14% reported, 17% on a normalized basis in the quarter, which means 10% for the semester on a reported basis, recovering a chunk of the payout issue that the market had in Q1 and 20% increase on a normalized basis for the entire semester. Even better for the online, of course, which is growing 21% in the semester at a reported level and 24% for the quarter and 25% at a normalized level. So very strong results in terms of EBITDA. Even more so in terms of margins, which increased 2 points in the semester at group level from 37% to 39% and mainly driven by the increase -- consistent increase in the online profitability from 54% to 58%. Page #3 of the presentation, what are the drivers of this growth, the same which we've had in the last 10 years, basically. Strong market growth, 12% in overall online. June peaks at 19%. Of course, very strong iGaming performance, but also sports has been very strong on the bets because we -- the market has suffered in Q1 for the payout. We continue to increase market share when you look at the trend line, both on a year-to-year comparison and on a quarter-to-quarter comparison in iSports, iGaming and overall online. So let's draw -- let's try to draw a conclusion out of these strong results. A conclusion on the results. There is consistency of growth in adjusted EBITDA. We are on Page 4 of the presentation. We've been growing every -- I mean, quarter over the same quarter of the previous year, every single quarter in the last 10 years, of course, except during the COVID restrictions. So consistently looks like an appropriate word for this. Page #5, consistency again in results. We've consistently grown in margins. This company started a little more than 10 years ago with 12% margin. We have transformed this company in a 39% margin, mix efficiencies, all sort of levers that you can use in this type of cases. And of course, the online also has been a key driver, not only in terms of mix, but also in terms of internal efficiencies because the very first profitability of online was 21% back in 2017 and today is 58%. Also, when you look at the latest quarters, that you can see on the graph on the right, you can see that notwithstanding the fact that we have consolidated assets with a much lower -- structurally lower profitability like PWO, we've offset that. So we've been able to fully integrate these assets. This is the example of PWO, but there are others also within the business model of the group and consistently recover the profitability and bring that to the level of the group. So this was about consistency of results, which has been driven by the consistency of the drivers underlying these results. Page #6 the first driver and the most important of all, of course, is the market. The market -- the online market has been growing consistently in the last 10 years. And after COVID is pretty stable in the mid-double-digit range. At the same time, on a competitive basis, we've been increasing our market share. There have been periods where the market share has been growing faster, others where it has been growing slightly slower, but the trend line is very clear. In a mix of organic growth and M&A, we've gone from a marginal operator to the nominal to the largest operator in the market. This is also true, as you see in Page #7 in the latest quarters when you reduce the granularity and look at it on a month or quarterly basis, so on a smaller -- on a shorter period. You can see, of course, ups and downs, glitches, especially in sports, where you also have the payout, which is impacting the market share depending on the brand and on the business model, but the trend line is also very clear. Page #8, an update on PWO. It continues to go the direction we've mentioned in the previous quarter. Sport is not only recovered, but is above the previous levels before migration. And we're doing -- also, we're also -- we also continue to work on the iGaming. The important point is that we've been focusing on a proper balance between market share and growth and profitability. Market share has to be sustainable. We've cleaned up part of our customer base, limiting abuses, optimizing the bonuses, shutting down unprofitable bonuses campaigns. And that's why we basically doubled the company -- the brand is very healthy. Has done a good journey from the migration and it's doing double the EBITDA. That's pretty much the story. When we go to the other important trend of this last couple of years, Page #9, the consolidation of the tails, this continues. It continues on an organic basis, and it continues because we consolidate some of the smaller operators, but this happens also because we offer a very compelling environment for them to continue to grow as entrepreneurs more than they would do on a stand-alone basis. Last but not least, Page #10, the recap of how this all works. Now this is all about compounding returns. We have a yield of our free cash flow, which if you measure that basically from IPO to today, has been on average 8%. On top of this, the company has been growing. So the growth rate of this levered free cash flow has been in the same period, 26% CAG, talking about CAG. So basically, you get an excess of -- well in excess of 30% of total returns on average CAG in that 30%, sorry, in that period of time. How did we also use that 8%? We gave it back to our shareholders through distributions. Even more that then -- that 8%, you can see the example of the last year. On average, we have generated 8%, but we've given back in the last year more than 10% between dividends and buybacks because we could do more buyback because of the 26% growth, which gave us incremental leverage capacity. So strong compounding returns and use of the returns to provide enhanced distributions to our shareholders. Now I'll leave the floor to Laurence for the second part of the presentation. Thank you.

Thank you, Guglielmo. Moving on to Page 12, the group financial highlights. You can see on the left-hand side how revenues have grown plus 5% in the first half. And in Q2, on a reported basis, plus 6% and plus 8% on a normalized basis. On the right-hand side, you see how overall EBITDA has grown plus 10% in the first half, also taking into account -- on a reported basis, taking into account the impact of the sports payout. And in Q2, we've grown at plus 14% on a reported basis and plus 17% on a normalized basis with normalized payout. Also, looking at EBITDA margin, it has increased over at the group level by almost 2%, by 2 percentage points. And this has been driven by the online -- by mix effect, given online has -- at a higher margin has grown faster than the other 2 segments. It's the effect of the run rate synergies that we completed last year. And finally, also the effect of the cost efficiencies realized in the first half of this year. On Page 13, on the left-hand side, you'll see how online continues to remain our engine of growth with growth in revenues on a normalized basis of 17%. Sports game -- Sports Franchise continues to grow very nicely on a normalized basis of plus 9% and when you look at it on an adjusted EBITDA basis, you'll see that on a normalized basis, online has grown at plus 27% and Sports Franchise at plus 18%, while gaming has been broadly flat. In terms of margins, now online is now hovering at 58% in the first half, with Sports Franchise at around 25.5% and Gaming Franchise at 24%. Going on to Page 14. On the left-hand side, you can see the total amount of CapEx spent, both recurring and concession, amounting to EUR 80 million, broadly in line with what we spent last year, circa 7% of total revenues. And on the right-hand side, operating cash flow, which achieved a growth of plus 12%, slightly higher than EBITDA growth given the leverage effect on CapEx. If you look at Page 15, you can see the net leverage that has stayed broadly constant at 2.3 turns. And this is -- so when you go through the bridge, you start from EUR 2.051 billion of net financial debt as at 31st of March. You have the -- other than adjusted EBITDA, you have a positive effect of the net working capital then taxes paid of EUR 75 million. CapEx, which include also the one-off CapEx and growth CapEx of including also bolt-ons of EUR 16 million that amounted in total to EUR 57 million. Financial expenses and leases that include also the cost of refinancing that we've done in the second quarter a total of EUR 65 million. We've bought back EUR 58 million in shares and paid a dividend of EUR 101 million. And then other costs that primarily include the extraordinary items in relation to the closure of the Serbian branch as well as the bolt-on -- the minority acquisitions and puts that were exercised in the second quarter. This is in total to achieve a net financial debt of EUR 2.11 billion with taking into account the cash amount of EUR 366 million gets a net financial leverage of 2.3x, so in line with Q1. And with that, we've completed the presentation.

Would you like to begin the Q&A session? [Operator Instructions] The first question comes from Ed Young of Morgan Stanley.

I've got 3, if that's okay. The first is on the World Cup. You've not really isolated it during the presentation, but wonder if you could talk about the impact on the business and where it came versus your expectations for acquisition, player engagement and mix on the business. Second of all, in online, your GGR revenue conversion was noticeably strong in the quarter and perhaps a little bit counterintuitive given the World Cup I just mentioned. So can you talk perhaps a little bit about your promotional strategy and more broadly about the competitive intensity in the market that you're seeing? And then finally, online EBITDA margins obviously stepped up and you mentioned Serbia. You presented it today as this continuous long-term improvement in margins. So should we be thinking about this as a new normal level with scope to improve? Or is it something that could end up being lower in other quarters as you retain flexibility to invest in the business? Just trying to think about the operational gearing, how you think about the target for the -- in online.

Sure. Ed, I'll take this. On the World Cup, it's been in line -- ultimately in line with expectations. This was also included in the guidance that we've given in the -- for the full year. So we -- the numbers that we've done in the second quarter are pretty bang, I would say, pretty bang in line with what we expected. As we said also in other -- I think in other forms, it doesn't really move too much the needle at an EBITDA level. And it's anyway factored in the -- it was factored in the guidance range. Online GGR, I mean, in here, we've -- I think we also mentioned it on the slide with Planetwin. We've been -- we've continued to maintain good discipline in our promotional activity. So we are focused on, obviously, on growth, but also especially on profitable growth. And so this -- the results that you see reflect also this approach. Thirdly, I think on online margin, I'd say we are -- we've probably gone a little bit faster in terms of, in terms of margin growth than we originally anticipated. This is because a number of things happened in the meantime. We've made our structure more cost, let's say, more efficient. In terms of -- I think in terms of guidance, I'd say that probably mid-50s is probably won't hold. As we mentioned earlier, we'll be a notch above that. There may be quarters -- as you know, there is always some volatility due to payout. So there may be quarters we may be lower on EBITDA margins. But I think we are trending in a direction which is in line with what we're seeing now. So it is -- it reflects the, let's say, a rebased cost structure that is sustainable in the medium term.

Just to come back on the promotional intensity point, it was quite a big step-up sequentially. So I understand the commentary there is around profitable growth. But is that sort of ongoing mindset for here? Or is there other noise in the quarter that we should be aware of, whether it's tax mix or anything else that could have affected that number?

So when you talk about the numbers, which number are you referring to exactly, Ed?

Online GGR to revenue conversion.

Yes. No, no, no. It's -- we have had -- if you look at it, remember, in the -- we have been -- we had done also some also additional cleanups as we mentioned, from a -- so we are a bit more -- not a bit more, but we have always maintained discipline. We have had a number of cleanups as well during the quarter. So I don't necessarily think that we'll stay at these levels, but it is sort of an indication that we want to remain disciplined on all the promotional activity.

Maybe a quick comment, a quick additional integration to this. These big events are good acquisition tools, as we always said. But you have to distinguish between acquiring clients which are then there to stay and acquiring clients that disappear immediately after. You not necessarily want to deploy a lot of money on the second group, which is about discipline. So that's another point I'd like to stress.

The next question comes from Estelle Weingrod of JPMorgan.

I've got a couple of questions as well. The first one on online margins, just to come back to Ed's question. I mean what are the key drivers of further improvement from here? And how much of that is like structural cost efficiency versus operating gearing? And another one on the retail concession framework. Is it still the case that an agreement could happen in August? And if so, when do you see the earliest cash outflow, please?

So I can take the first. I mean, I think, Estelle, we've always been, as you know, a bit cautious always in guiding to further improvements. I think the levels which we are now is, let's say, level we're comfortable with going forward. But I would not bake in further margin improvements for the time being. Do we have operating leverage? Yes. Are there any further cost efficiencies potentially materializing in the future? Possibly. But if those were to materialize, we'll talk about them when we do them. But I think that we are, I would say, relatively comfortable with the levels we've achieved now.

Yes, Estelle on the retail concessions, look, it's very hard to say. The reality is that whether they -- whether you have an agreement or not, basically nothing changes. The outcome is exactly the same in the next 2 to 3 years, which I think answers to the second part of your questions because the reality is whether you don't have the framework, the agreement or you have it tomorrow morning, you will need, in any case, to have an extension of the current concessions for a couple of years, maybe 3 now, depending on how you want to phase it. But that's a bare minimum that you need to go from -- that you need to bridge from an agreement tomorrow morning and the awarding and so the payment of the of the next concessions. So long story short, whether you have that tomorrow or you don't have it, what happens in the next couple of years, 3 years probably is going to be exactly the same. Just think about the reform of the online. You had the law in March '24, and you got the concession in November '25. So for one product, pretty easy, straightforward like the online, it took 18 months. And these are 2, not to say 3 because you also have bingos there, complex tenders. And with the involvement of local regulation for the distribution, it's going to take much more than that. So one way or the other, what happens tomorrow and for the next 2 to 3 years before you get to the new concession is going to look exactly the same in the 2 scenarios.

The next question comes from Pravin Gondhale of Barclays.

Firstly, can you comment on current trading trends into July and whether the momentum has remained broadly consistent with Q2? And then secondly, on the sort of proportion of market share there, which is -- in online, which is up for grab, has there any sort of change in your views that what could ultimately come -- become available following the sort of concessions here given the intensity that you have seen in the World Cup and then the progress of BW market share wins here?

So Pravin, I think this current trading in July, there's -- obviously, the numbers haven't come out, but the trends continue to remain solid. So there's nothing to note there. So far, so good. On the market share, is your question is do we have -- I think from our perspective, the views in terms of what is up for grabs has not changed. So it remains consistent with what we said in the past. In addition to that, as Guglielmo pointed also earlier, we're focused on growth and especially profitable growth. So we will remain disciplined in how we continue to grow.

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

I have 2, please. Firstly, just with respect to the buyback, I saw in the bridge that the spend in the quarter was only about EUR 58 million down on the acceleration that we saw at the beginning of the year. I just wondered, given where the share price is and the leverage, what your considerations were with respect to the pace of execution of the capital return program? And secondly, just with respect to some of your recent small bolt-ons, eGaming and Sportbet, can you just remind us now where they sit within your statutory and adjusted revenues, EBITDA, net income?

Sure. I can take them both. On the buyback, the EUR 58 million is -- reflects the fact that we had to stop the buyback for, I think, around 3 weeks because we had to wait for the new -- for the new approval -- the approval from the EGM. So technically, in order to be able to extend the buyback beyond the original limit and to the new limit that we've approved in the latest EGM, you have to stop. So it's not a sort of conscious slowdown because we want to spend less. And this is a -- the buyback is executed based on an amount that we give to the bank and the bank does it autonomously. But we reiterate that we will -- that the same message we said in the previous results presentations, which is we are planning to buy back up to EUR 700 million this year and next year. From -- in terms of bolt-ons right now, so in the statutory accounts, you will not see anything other than an investment. So it's an equity investment. And -- but in the adjusted EBITDA, we've shown -- we've added the contribution of Sportbet today. And it's still -- I mean, it is immaterial to our numbers.