Earnings Transcript for GMVHY - Q4 Fiscal Year 2020

Jette Nygaard-Andersen: Good morning, everyone. Thank you for joining us, and welcome to our results presentation for the 2020 financial year. This morning, you will hear from both Rob and I. Rob will take you through the financial performance and some of the key operational highlights, and I will take you through some of my initial thoughts and our strategic priorities. And then we'll have time for Q&A. But let me start with a quick overview. Since taking on the role of CEO on 21st of January, I've been busy immersing myself in the business and getting to meet and know more of our people, operations and customers. Of course, as a Nonexec Director, I already know a fair bit about the business. But once you get inside, there's a whole new level of detail to get to grips with. There's so much to do in terms of clarifying and delivering on the great opportunities we have ahead of us. And I'll share my thoughts with you over the coming months. In terms of my initial impressions, we have a great strategy to win, and I'll talk a little more about that later. As a business, we are in an extremely fortunate position in that we have what is the industry's best technology platform, and it's all ours. That is a real competitive advantage. Not only does it give us agility and flexibility, but it enables us to react, evolve and develop to meet the needs of our customers. That's important for us and I want us to become a much more customer-centric business. By listening to our customers, analyzing the data and delivering what meets their need, be that today or tomorrow as new trends emerge, we can truly revolutionize betting and gaming entertainment on the global stage. And we can combine that with our approach to responsibility and player protection. I'll touch on it later, but we are opening up a whole new era of player protection through our ARC program. One thing that the last few weeks have really reinforced for me is the sheer depth and breadth of the talent at Entain. The way we dealt with the challenges last year, without missing a beat on our growth ambitions, clearly demonstrates the competitive advantage that we have through our people. Retaining, nurturing and adding to that team of people is a key reason why making Entain a great place to work is an important part of our sustainability charter. Entain is good at growth, and we have an enviable track record with a strong runway for further growth, not just through our existing markets, but also as we lift our heads and look beyond to evolving customer dynamics, new ecosystems and opportunities with new customers. So my initial impression really reinforced the significant opportunity we have to more than double the size of our business and deliver significant value for all our stakeholders. With that, I will hand over to Rob to take you through the financial performance.

Rob Wood: Thank you, Jette, and good morning, everyone. I'm going to cover off the financials slightly differently from previous presentations, so we can focus on the key numbers today. We've included the usual more detailed slides in the appendix for you to go through at your leisure. And of course, David and Divina, who joined us this week, and Jen will all be on hand to help with any questions. So when I look back across the year, I have to say the business performed exceptionally well, both operationally and financially. In March, there was a huge amount of uncertainty, but our teams dealt with the challenges. We improved the customer offer. We put increased levels of protection in place. We adapted our shops to make sure they were safe for customers and colleagues. And within days, we got our entire office-based workforce working from home effectively. And all in all, the business performed extremely well, and our results demonstrate that. We've emerged as a winner in online across all our markets as our diversified product range and proprietary tech stack delivered great entertainment for customers. And that meant that our Online NGR grew by 28% to £2.7 billion for the year. We've now delivered 20 consecutive quarters of double-digit online NGR growth and have taken share in our key markets. No doubt lockdowns and strong trading margins helped us in 2020. But if you look over the last 3 years, our Online NGR has now grown at a compound annual growth rate of 20%, and there aren't many businesses of scale growing their top line at that rate. I'm also delighted to report good EBITDA numbers, too. So despite our shops being closed for much of the year, we managed to grow EBITDA by 11% to £843 million, which is at the top end of our guided range. And that EBITDA growth demonstrates both the resilience and strength of our business and also the swift response from management to mitigate costs where possible. BetMGM is another highlight for the year, delivering exactly the kind of results and market share gains that we hoped it would do. Revenue for the year reached $178 million, which was well ahead of our guidance when we announced our second tranche of investment last July, and our share of losses were on guidance at £61 million. And you'll hear more on BetMGM later from Jette. Even after absorbing those BetMGM losses and the retail closures, our operating profit for the year was £530 million, which was up 2% year-on-year. So still in growth. On earnings per share, our headline EPS figure, which excludes U.S. losses, was 73.1p, which is up 10% on the prior year. And turning to cash for a moment. We generated another £513 million of underlying free cash flow in the year, which gives us the freedom to invest in growth opportunities, reduce leverage and return to dividends when the time is right. And just on dividends, you'll have seen by now that the Board are not proposing a final dividend for 2020. We will prefer to be prudent whilst our retail estates remain in lockdown. But as always, we fully appreciate the importance of dividends to our shareholders, and we will review that position with future results. Lastly, looking at leverage, we ended 2020 with leverage down at 2.1x. Now 2020 was a very positive year on lumpy cash flow items with the VAT refund, no dividends and no significant outgoings on M&A. So the big deleveraging achieved in 2020 that you see here and that year-end position of 2.1x are both materially ahead of expectations. And leverage is likely to go up a bit from here in 2021, before coming back down again thereafter. So most importantly, we've delivered strong financial results in 2020 and we have the balance sheet to invest in growth so that we keep delivering strong financial results for years to come. Turning now to EBITDA and a look at how we achieved the 11% growth year-on-year. And no surprise, the answer is Online. EBITDA in our Online business was up by 50% in 2020. That's an increase of £278 million to £804 million, and I'll talk more about how that was achieved in a moment. But going the other way, Retail was obviously impacted by forced closures. The decline you see here of £176 million can be entirely attributed to COVID, given we were otherwise expecting a little bit of growth. And whilst we don't expect to recover that lost Retail EBITDA in 2021, given Q1 of this year is in complete lockdown as well, we are confident of a strong recovery in Retail once shops are permitted to reopen through Q2. Let's now take a closer look at Online KPIs. The left-hand side of this slide looks at 2020 results and the right-hand side shows our thoughts on the outlook for 2021. So firstly, let me give a bit more color on that stellar NGR growth of 28%. Looking by geography, all of our major territories were in growth over the year, with particularly strong growth coming from Australia and Italy. From a product perspective, both sports and gaming grew very strongly. Gaming was marginally the better at 30%, with standout contributions from our U.K. bingo brands, so that's Gala and Foxy, at 40% growth; and partypoker, which grew by 50%. On the sports side, NGR growth was also very good at 26%, especially when you consider that a whole quarter, Q2, was negative at minus 6% as we lost so much mainstream sport through the quarter. I do need to call out sports margin as being exceptionally favorable at 12.7% for the year, which is up 1.6 percentage points, which is a very material increase indeed. And there are many different aspects that contributed towards that, including the general trend towards a more recreational customer base. But really, it comes down to 2 big drivers. One is favorable sporting results, so pure luck, and the other is the prevalence of more retail-type betting within online. So small stake, high-return type betting, which must largely be driven by retail lockdowns around the world. Looking forward now to 2021, and we continue to see growth, albeit low single digits as we absorb the regulatory changes in Germany. As I said on the 21st of January with our Q4 results, we get to low single digits based on continued double-digit underlying growth before Germany, and then Germany pulls us back. For now, we assume that cover impacts have broadly a wash for year-on-year growth because the Q1 tailwinds that we're enjoying right now will be offset by material headwinds in Q4 as we annualized the 41% growth from Q4 of 2020. And as we said in our release this morning, Q1 so far is traveling in line with expectations, which is very good growth, but then we're more bearish on the outlook from Q2 onwards as lockdowns come to an end and retail reopens. Plus that margin benefit from 2020 is expected to unwind, which will make the margin comparators very tough indeed. Okay. Marketing spend now. And the 2020 result was broadly in line with our original expectations for the year in absolute terms at around £560 million, as those savings from Q2 were reinvested over the second half of the year to maintain momentum. But as a percentage of NGR, the marketing rate was the right side of guidance, at 20.4%. But that's just because NGR was so strong. Looking ahead to 2021, we expect the percentage to be higher, somewhere around 21%, which pleasingly is down on our guidance from a year ago as we look to reduce our marketing rate over time. Contribution margin, that ended the year at 41.8%, which is comfortably ahead of our original guidance, thanks to the lower marketing rate, but partially then offset by adverse geographical mix, because Australia and Italy, for example, have lower than average GP margins. For 2021, we're expecting contribution margin to fall back to the 40% to 41% range due to both marketing rate and geographical mix, and also because our revenue is now almost entirely from domestically regulated or regulating markets, and the full impact of the Q4 market exits that we announced in November has not yet played through. For operating costs, we delivered the guided target of low single-digit deflation for 2020 as accelerated synergy delivery more than offset underlying inflation. And then looking forward, we expect low to mid-single-digit inflation as we continue to invest in key areas and synergy benefits near the end. In the meantime, we continue to work on cost and efficiency opportunities for 2022 onwards, and we'll update more on that later in the year. Lastly, on this slide, EBITDA margin and 2020 ended very strongly at 29%. But I would consider that to be artificially high, helped by that lower marketing rate. And so we expect it to drop to 28% in 2021, which still puts us firmly on course for the long-term target of 30% EBITDA margin, which I set during our Capital Markets Day back in 2019 when the margin was in the mid-20s. Let's move on to cash now. And I set out any simplified cash flow here, which shows that we generated strong underlying free cash flow at £513 million before BetMGM investment and leverage is now down to 2.1x. And so that means we have the flexibility to pursue all 4 tenets of our growth pillar and achieve our medium-term leverage target of 2x, and at the right time, return capital to shareholders as well. As you'll appreciate, M&A, by its very nature, comes in lumps, and 2021 will be a year of investment as we complete Bet.pt, we settle the earn-out on the excellent Crystalbet business, we continue to invest in BetMGM and we expect to complete on Enlabs, too. So whilst it's great that we generated positive net cash in 2020, as you see here, we will inevitably be negative in 2021 as we expand the business. And with that, let me update you now on where we are on M&A. And this slide shows on the left, the time line for the last 6 months of activity. And as you can see, there's a lot going on. In October, we announced the acquisition of Bet.pt in Portugal. We're still waiting on regulatory approval for that one, which should be due soon. In December, we were one of the first global operators to gain a license in Colombia, launching with the bwin brand. And we're well positioned for further expansion across Latin America. We're on track to complete Enlabs, hopefully, by the end of this month. We raised our offer on Monday of this week and secured further irrevocables after their Q4 results demonstrated great progress and reinforced the strategic rationale of the deal. We also confirm that we've submitted a nonbinding indicative offer for the wagering and media business of Tabcorp in Australia, and that process continues to be at a very early stage. So there isn't really anything to say yet, but we'll update you if there are developments in due course. Beyond that, we continue to look at a number of other opportunities to take us into the 50-or-so regulated markets where we don't currently have a presence, in particular across Central and Eastern Europe, Latin America and Africa. And we're also looking at opportunities to expand into new audiences as a core part of our growth strategy, and Jette will talk more about that shortly. Let me finish now with the usual slide on guidance. It should all be pretty clear, with nothing unexpected. Online guidance on the left is all as discussed earlier, and there's no change to our Retail expectations as we plan to get back to within 10% of where we were pre-COVID. On cash flow, there are a number of items here which should be familiar, but do please check, you have them in your models. A couple of things I will call out. On Austrian duty, whilst that case hasn't been heard yet, we made a payment on account of £69 million in 2020 to reduce the liability and stop interest accruing. And now the remaining liability as at the end of 2020, is £45 million. So reducing that liability to £45 million should be a positive to your models. But going the other way, because Bet.pt hasn't completed yet, that acquisition cost will hit our 2021 cash flow rather than 2020. And also, I mentioned it on our Q4 call on 21st of January, but do update your effective tax rate assumption to 16% excluding BetMGM, which has increased from 13% previously because of our geographic mix, as our businesses in Australia and Italy have essentially grown faster than others and they attract a higher rate of corporation tax. That's it from me. I'll hand you back to Jette.

Jette Nygaard-Andersen: Thank you, Rob. You're all familiar with this slide now. We have a winning strategy that sets us up well for success. As you know, I was involved in its creation while a nonexec, and I'm excited now to have the opportunity to deliver on it. Our purpose is clear

Operator: [Operator Instructions]. And our first question is from the line of Simon Davies at Deutsche Bank.

Simon Davies: Three from me. Firstly, on the U.S. You talked about particularly low CPAs in Michigan upon launch. Can you broaden out that comment in terms of what you're seeing in the direction of CPAs over the last couple of months? And also the level of cross-sell that you're seeing from M life and Yahoo!? Secondly, on Germany, you talked about a £15 million to £20 million hit from potential taxes. Can you talk about your view in terms of whether Germany is likely to launch regulation on time in July? And what are your assumptions now in terms of your activity in Germany post that? And lastly, can you flesh out your comments on current growth? You said you're seeing continuing strong momentum, can you perhaps put any numbers on that?

Jette Nygaard-Andersen: Yes, Simon. Why don't I take the first one around CPAs in the U.S., and I'll hand you over to Rob for your last two questions. I mean when it comes to the CPA, very much depends on, you could say, the state and the circumstances under which we are launching in the state. And here, for example, Michigan and Tennessee has really been, you could say, poster childs on how to do that. So there's a number of things that impacts the CPA. So whether we get live on day 1, the partners that we have in the state -- so for example in Tennessee, we partnered with the Titans, we had CRM in place and so forth. And also in those states, we did pre-registration. So when we're able to get into the markets in those way, we have a much better CPA than we do if we don't do it that way. So that's one thing. And then, of course, competition is also impacting the CPA. I would see -- what we see in general is that very early days going into the markets, the CPAs are typically a little bit lower and then they rise when more competition comes into the market, and then they sustain. So really, the go-to-market approach is really important for the CPAs overall. Then when it comes to the cross-sell, so MGM talked about that 17% of the customers that BetMGM is getting now is coming through the M life reward program. And as you know, today, every new customer, they get an M life account. So that's a strong number. We don't publish numbers on the Yahoo! share, but Yahoo! is the biggest affiliate partner for us. Rob, do you want to take Germany and growth?

Rob Wood: Absolutely. Simon, so Germany, new regime due to come in first of July, although we do think it will be a while beyond that before licenses are issued for gaming could even be into 2022. In terms of the impact, no real change from our Q4 results when I spoke a little bit about it on the 21st of January. We do see very material impacts to the gaming business. And a little bit adverse to the guidance that we gave, and we continue to believe that, that's because there hasn't been enough take-up of the new regime by operators. So too many operators not complying with the rules. But on the sports side, that's comfortably ahead. And therefore, in aggregate, still in line with guidance. And just on momentum and current trading, so there's no doubt we started the year very well. But we expected to. When I spoke on the 21st of January about an expectation of low single-digit Online NGR growth across the full year 2021, that was very much on the basis of a very strong Q1 as we continue the momentum from Q4. But then as retail reopens and lockdowns ease and the trading margin comparators become much tougher, we would expect Q2, Q3 to be much flatter in terms of year-on-year, and then no doubt, a tough Q4 as we annualize against the 41% that we saw last year. So we have started the year very well, but we expected to. And perhaps in terms of just giving a little bit more color, I'm just remembering, Adam Lewis, who runs our digital operation, giving you some really good insight on January numbers. It's not just that NGR is performing really well for online, it's also the customer KPIs that sit behind it. So firstly, actives was up very materially in January, up 30%, which is fantastic. So we've got far more customers year-on-year than we would otherwise have had. And those customers are depositing more per head, which is a really important metric. So deposits per head is up materially. And they're playing more frequently, so player days is up material as well. And all of that is contributing to the NGR growth. And then when you look at player acquisition, our FTDs are up very significantly year-on-year, and we're spending less to acquire them, so CPAs are down. So you can't really ask for a more healthy set of customer metrics for the online business at the start of this year.

Operator: Our next question is from the line of Gavin Kelleher, Goodbody Capital Markets.

Gavin Kelleher: Just a few from me. Just on your guidance slide and Online, does the contribution includes the inclusion of the new German taxes on poker and slots? That's my first one. And then my second one is on ARC. When this is introduced and fully ramped up in the summer, will there be a revenue impact on Online that we should be taking into account? Will it be a big revenue impact you're assuming? And then thirdly, just on your point there, Rob, about CPAs and Online that you just commented on coming down. What's driving that, if there's anything you can put your finger on?

Jette Nygaard-Andersen: Thank you, Gavin. I'll take the middle one first, and then we'll come back to Rob for guidance in German tax and CPAs and Online. So how you should really think about ARC is a revolutionizing way to think about player protection going forward. So what it really enables us to do is to, let's say, pull out a safety net from each individual customers, where we will be able to interact with the customers and intervene, if necessary, at a much earlier stage, and then have the customer or the player continuing to play at a sustainable level going forward. And we will start to trial this over the next couple of months, firstly, in U.K. So I would say, it's still early days and we don't expect to see any revenue impact from it in the near future. Should I hand over to you, Rob?

Rob Wood: Yes. So let me pick up the contribution margin question firstly. So 40% to 41% is the guided range. You'll have heard me say over the last couple of years that whilst that guidance, firstly, is exactly the same as it was at this time 12 months ago. And the reason is even though marketing rates will tick down over time, we have to expect some erosion in the gross profit margin because of tax rises as an example. And so therefore, yes, the answer to the question is that there's an anticipation of some tax rises, and Germany could be an example of that, albeit in response to COVID is another driver. Just on German tax, we don't know if that's coming in yet. So there's a degree of uncertainty around that. But as you alluded to, we've given a steer that, that could be a £15 million to £20 million type impact this year if it does come in. And then to your question on CPAs, it's not the marketing spend part of the equation. We're spending in pound note terms where we want to be spending, it's just that FTDs are so strong and clearly lockdown is helping that. If I look at FTDs in the U.K. were up about 80% in January. And Italy and Belgium, up over 70%. And clearly, we have the omnichannel benefit and the brand familiarity in those territories. But wherever you look, FTDs are up really strongly, and that's really what's keeping CPAs at very attractive levels.

Operator: A question now from Michael Mitchell at Davy.

Jette Nygaard-Andersen: Michael, we can't hear your question. I don't know if you're on mute or...

Michael Mitchell: Apologies, can you hear me now?

Jette Nygaard-Andersen: Yes. Go ahead.

Michael Mitchell: Three if I could. Firstly, on the U.S. and going back to the point or in the cross-sell from the M life program. Can you just talk a little bit about the kind of the funnel in which these customers are entering the BetMGM business? Is it right to assume that the majority of those are being acquired into online casino? And if so, how many of those customers then are being successfully cross-sold into sports? Or do you believe could be successfully cross-sold into sports? And second of all, if I could ask just in terms of U.S. actives, I wonder if can you provide some color in terms of your current kind of level of customer actives in the U.S. at the present time. And then thirdly, in terms of U.S. guidance for the current year and a little bit more color on 2020. Rob, I was interested in your comments that your revenue growth in the U.S. has exceeded expectations, but operating losses were in line. Why was that? I mean is marketing spend or efficiency coming in better than expected? And how do you think about that going forward into 2021? And really what guidance do you have in terms of total losses for the U.S. in the current year?

Jette Nygaard-Andersen: Yes. Thank you, Michael. Let me comment on the first two, and I'll hand you over to Rob. So your first question was around the cross-sell from M life and MGM. And as I said, 70% of the customers coming into BetMGM comes from either MGM or M life. So that's both through the omnichannel, the retail and then through the loyalty program here, and we're not breaking that down into which channels they come from. But I think what's really encouraging is that if you look at multiproduct play, that's well over 30% for customers playing both on casino and sport. And I think that really shows the strength of the model that we have in the U.S. with, what you say, the rollout being powered by our technology and our products. And then supported by the strong brand and the customer base of MGM. When it comes to active customers, we're not disclosing that at this point. But we will, in April, on the 21st of April, we're looking forward to share more about the BetMGM business and really have a deep dive there. Rob, do you want to take the last one about guidance?

Rob Wood: Yes, absolutely. So 2020, first of all -- so we spent over the second half of the year maybe a little bit more than was expected, but not materially so. And that was then compensated by higher revenue. And that's really why revenue outperformed but losses were in line. In terms of 2021, so too early for us to guide on the year, and you'll hear more about that on the 21st of April, as Jette just mentioned. But you don't have to be a rocket scientist to see that the run rates for revenue suggest that -- are more than doubling, which very much we remain on track for. When it comes to losses, it wouldn't surprise me if you see a similar pattern. Clearly, it's a big year of investments. We started the year live in 10 states and we hope to end the year live in 20 states. And as a consequence of that, the losses will certainly be significant in 2021. But more guidance to follow-on the 21st of April.

Operator: A question now from Kiranjot Grewal of the Bank of America.

Kiranjot Grewal: Just two questions from me. Firstly, could you potentially comment a little bit more on your tech stack in the U.S.? Where does the product quality sit today versus that being offered by you guys in the rest of the world in Europe? And how does your product there compare to your peers in the U.S.? And then secondly, could you maybe offer some more comments around the U.K. regulatory backdrop? There's a lot of talk also about the affordability measures, where does ARC sit within some of these measures being discussed? And you've grown a lot over the recent years, especially last year. So where does your U.K. exposure sit as well?

Jette Nygaard-Andersen: Yes, sure. I'll try to comment on the first two, and then maybe Rob will -- I'll hand over to Rob for the last one. In terms of the tech stack. So Entain's technology team is working directly with BetMGM. So we have a dedicated team sitting together with our other tech developers in India. And here, we are supporting with, you could say, with the tech stack, but certainly also with the product development and the different adjustments of features that you need every time you enter a state. So this is where you could say U.S. is different because every time you enter a new state, you need to adjust to the specific regulations and you have different product setups and so forth. And I think really the fast rollout of BetMGM and the fantastic momentum is really proof of how valuable that really is and how fast we are able to roll out into new states. And ongoingly, we are developing on our products. And I think there's been tremendous progress over -- yes, since we launched over the last year. When it comes to U.K. regulation and ARC in particular, I mean, we're taking the point of view that the -- listen, regulation is part of our industry, right? And we have good discussions with the government around this. I think the important thing here is that regulation needs to be balanced. So the times are passed when one model fits all was relevant. And this is really where ARC comes into play, because the more we develop these models, the better we're actually able to tailor your safety net specifically to you, which, by the end of the day, means that we can have a fully personalized approach to player protection. So that's why we're encouraged when the U.K. government is talking about they want to take an evidence-based approach here because that's really where our technology comes into place. That we can start in real-time predicting how you will develop as a player, and then we can reach out to you before we are seeing potential spikes in your game play. So that's really how we see ARC here, and we see it as a way of really revolutionizing the approach to player protection going forward. I hope that gives you a little bit of flavor. And then Rob, would you take the last one?

Rob Wood: Yes, I think that's a simple one. So U.K. remains around 35% of our Online mix, so if that gives some sense of exposure. It was around 35% in 2019 as well. Then the U.K. had a great year of growth at 28%, but that's the same number as the rest of the world. So 28%. So the mix remains 35% U.K.

Operator: Our next question is from the line of James Clark at Barclays.

James Clark: A few questions, please. Firstly, just on your Retail estate. You discussed the likelihood that Online will take share from Retail despite the sort of shift back of retailers locked down and retail reopens. Can you just discuss whether you foresee further retail closures in the future? I think normally, we're looking 100 shops per year closing. So maybe if you could expand on that a little bit. Secondly, on Online win margins. You mentioned, Rob, that they have been a touch higher due to the recreational mix, but not to greater factors that have driven the spike in 2020. So can you just give us a sense as to whether where margins are going to settle a little higher than history before coronavirus? And then finally, just on the U.S. Could you just talk about the relationship with MGM since the rejected bid? Clearly, BetMGM has seen very, very strong momentum in existing and new states. But what do you think about the right capital structure for the MGM in the medium to long term?

Jette Nygaard-Andersen: Yes. James, let me comment on the last one and then Rob will take you through the first two ones. Listen, so the process and the bid from MGM, that's really, let's call it, chairman to chairman and Board to Board discussion. So through that process, the operational relationship and partnership and working together, both between our team and MGM and as well with BetMGM and in the BetMGM Board, has really been ongoing as usual. And we have -- we are fully aligned on the prospects here. We are fully aligned on the opportunity for BetMGM between ourselves and MGM. And with the momentum that BetMGM has and the opportunities that exist in the U.S. markets for growth, listen, our eyes are focused on really helping and supporting BetMGM in getting the max out of these opportunities. Rob, should I hand over to you for Retail and Online win margins?

Rob Wood: Yes. So on Retail, you're quite right, where we look at somewhere around 100 million closures per annum in the U.K. off a starting point of 3,000 or so. So just gentle trimming each year. It wouldn't surprise me if we see 2 or 3 years' worth of closures come into 1 this year. So it wouldn't surprise me if closures are larger than 100 this year. But I have to say we were pretty optimistic back in Q2 of last year that when we reopened, the customers would go back to our shops. We believe there's a reason for retail to exist. Customers like that experience. They like the social side. The watching sport on a big screen and hanging out with mates. And we continue to believe that the majority of our customers will return. In the U.K., we got to within single digits of where we were pre-COVID last summer. And in Italy and Belgium, it was better still. So we're hopeful that we'll see most of our customers come back. And if that's the result, then, as I say, there might be more closures. There might be 2 or 3 years' worth of closures in 2021, but no sort of fundamental restructurings. We don't expect that at all. Online trading margins. So yes, 2020 was exceptionally high at 12.7%. The year before was 11.1%. We -- when you look at the drivers of that margin uplift, it is clear to me that most of that will unwind. And therefore, maybe not across the full year because, of course, Q1 has still benefited from that sort of retail type betting in the online environment. But if we look from sort of Q2 onwards, it's highly likely to be sub-12% would be my view. But I'd hope for better than 11.1% that we saw in 2019. As I said in the video earlier, we do have this general trend towards a more recreational customer base, and that tends to mean more multiple type betting, and therefore, higher-margin as a result. So somewhere between 11% and 12% would be my expectation once retail reopens and lockdowns ease.

Operator: Our next question is from Ed Young at Morgan Stanley.

Edward Young: My first question is on loyalty. So I thought the presentation you gave around that was very interesting. Can you help us think about what the trends are there? I guess product has been a big driver -- product improvement has been a big driver over the last few years. But it looks like the loyalty trends are sort of -- I can't quite work out the measurements of those lines, but sort of fairly consistent. Can you give us some idea about how player loyalty has trended? And I guess with marketing sort of trickling down, what percentage of marketing or overall generosity is directed towards current players staying loyal versus customer acquisition, sort of how do we think about that? The second is on the U.S. Very struck by the difference between sort of the fantastic position you've got in new states and the sort of slightly more difficult-to-move shares in the states which were open for a period of time before you entered or some of those early states. So again, how should we think about that? Is that really reflecting first-mover advantage? And does that maybe mean that your recent high shares are defensible? Or put another way, your 15% to 20% share target, is that likely to be led by some very high and some very low in the mix? Would you think it will even out over time? And the third bit of detail, I suppose. On Germany, you've talked around it a little bit today, but there have been 2 states, obviously, that have now declared that they're going to hand over to the monopoly for table games, about 20% of the population. Do you have any expectation for the kind of market access you're going to be able to achieve in Germany for online casino? And if the stops impact does come in and we do see some states that you're sort of locked down -- or put another way, what percentage of those states do you think need to be open for you to be able to get to that kind of back to where you were within 3 years sort of soft guide you've given on Germany?

Jette Nygaard-Andersen: Let me comment on the first two, and then I'll hand you back to Rob on Germany. I think the way to think about this slide, and it comes back to something that Rob spoke about earlier this morning about our CPAs, is really to show you that while we invest in customers the first year, we're actually very, very good at retaining customers going forward. And then obviously, it says something about the strength in our marketing model. And being an entertainment company, it's really about constantly engaging our customers and constantly, you could say, surprising them with new and exciting products. So that's really what we wanted to show on this slide that, yes, we bring customers in the first year, but they actually stay with us for quite a long. So it's okay to invest in them, bring them on board. I don't have any splits to share with you in what is really, you could say, brand marketing, what is direct acquisition cost and what is, you could say, retention costs for the customers. Because when we bring a customer onboard, we really think about them through their lifetime, so we look at it that way from a marketing perspective. When it comes to the U.S. states and then what I alluded to before, it's really that if you look to, for example, our approach to Tennessee and Colorado, which is some of our newest sports states -- sorry, online sports states; and also for Michigan, where we launched recently, where we both have casino and sport, I think what this shows you is that when we go to market this way, where we have the full rollout of CRM, we have the pre-registration, sometimes we have a free to play before launches when it comes to sport online. We have the right partners there. So for example, partnering with Titans in Tennessee. And then, of course, also adds to the picture if it's, let's say, a state where MGM has a strong presence. So we -- when we can get all these things mixed together in the optimal way, that really shows you the power of what BetMGM can do. And then I think also very encouraging is that, as you know, we came into Pennsylvania late. But if you look at the numbers, I mean, they're already quite encouraging. So I think we'll pick up there. But it does goes to show that the right go-to-market is really important. Rob, should I hand over to you for Germany?

Rob Wood: Please, yes. So the way we think about the recovery in Germany, I guess there are a couple of different aspects. One is the enforcement environment. So the one thing, of course, that we call for is level playing fields. And if you have that level playing field, then, of course, the stronger brands and those businesses with the best products and marketing capabilities will be the winners. So a level playing field is important. And if this new level of tax comes in on the gaming side on slots and poker, the positive of that, of course, is that you can expect the general authorities to take more action on those who are not complying and not licensed. And the smaller operators, obviously, will struggle to survive that sort of tax environment. So one aspect is just having a much larger share of the smaller pie. The other aspect, as you say, is where could growth come from versus where we are today. And access to online table games for casino is clearly a piece of that. We are in discussions with various land-based casinos and lotteries. We know there's appetite from their side to have an online offering. And we're in discussions with some states. There are some that have already declared their hand and that they are going to permit private online casino operators to enter the online table games market. I won't read the list out. I don't know if it's in the public domain or not, but there are some that have indicated that already. I don't have a percentage for you, though. I don't know at this stage whether it's half the country or higher or lower. But as you say, there are some that you can be pretty sure won't and there are some that we know will, and there are some in the middle ground that we continue to engage with. I hope that helps. But it's quite hard to be specific at this stage.

Operator: A question now from Joe Thomas at HSBC.

Jo Thomas: I just wanted to explore this responsible gambling angle a little bit further, please. So the ARC system that you've got launched, to what extent is that able to see sort of on a customer level and across the 2 brands that you've got in the U.K.? That would be one question. It's obviously no good stopping someone gambling irresponsibly on Coral, and then they're just going to bid on Ladbrokes. And I suppose related to that, could you also -- I'd just be interested to know to what extent there's any sort of coordination at an industry level. Because, again, it's no good stopping someone gambling irresponsibly and then -- to then go and do it at William Hill or Bet365 or somewhere else. So just be interested in any sort of color around that. And then, yes, I think you said in response to an earlier question that you weren't expecting it to have any impact on revenues in the near term. Could you just sort of flesh out why you wouldn't? Is it because it's sort of only in kind of a bit launch or something at the moment? Yes, if you could just answer those three, that would be great.

Jette Nygaard-Andersen: Sure. So when it comes to ARC, just to be clear here, this is not launched live in the market. So it's a little bit too early to talk in detail. We are rolling it out. We are focusing first on the U.K. And the way to think about it is that -- there's a couple of things here. Firstly, through partnership with science, we have been able to identify what we call more markers of protections, right? That means that we actually learn more and more about what is it that could be a way for a player into harm. So we have more markers of protection, which we can then start to model. Now the second thing we are working on is really using AI or machine learning in order for us to push, you could say, real-time discovery and being much more predictive. And that's why I came back to in terms of we can actually prevent spikes from happening. So spike could be one of the things that is a signal that you might be at risk of harm. So listen, early times, it's not launched yet. It will, however, be on both brands. So the customers are protected whichever brand they use. And we'll, of course, follow all guidelines on GDPR and U.K. GDPR that we should. But it should protect customers across our brands. The way I think about this is really it's a way for us and the industry to have a much more scientific and evidence-based approach to player protection. Because that's really what it's all about. And as I said earlier, we want to move away from this concept of one model fits all. So it's not necessarily the same safety that you have that I should have. And that's also why I said that we don't expect any impact on revenue. First of all, it's not launched yet. But the second thing is that our hope is, of course, that when we bring customers back from, you could say, the spikes, they are actually continuing to play on a sustainable level. So what you could imagine is that they become longer-term customers for us. So whether there will be any impact -- first of all, it's too early to say, but I think in my view, we will actually get much better quality of earning and we will get longer lifetime value from our customers. I hope that answered it.

Rob Wood: If I could just add, Joe, a little bit more color around the revenue impact. You might remember last November, we announced that as part of the sustainability charter, a £40 million impact, and half of that was to do with getting ourselves up to 99% regulated or regulating, and the other half was around RG-type activities such as this. So no incremental impact beyond the £20 million that we talked about last November.

Jo Thomas: And could you just -- well, just on the other point, which I realize is little bit vague. But we're hearing companies all introducing their own methodologies of targeting customers. It strikes me that while the approach is sensible, that you've got -- that there does need to be some sort of joined-up approach. Is there anything going on at an industry-wide level? And could we expect to see some sort of uniformity of approaches at some point?

Jette Nygaard-Andersen: So right now, we have, as you know, a body in the U.K. called BGC, where we are discussing these different types of approaches. As you know, we just had the consultation with BGC, and now we are giving input to the Gambling Act. So really what we are focusing here is on bringing that discussion into the industry, because I think it is really interesting if we can agree on, let's say, a more scientific and technology-powered approach to player protection going forward.

Rob Wood: Yes, I completely agree. And you like, the response to the affordability consultation, the 3-step plan that Flutter put forward, it's very much aligned to how we approach it as well. And I've talked about at the BGC, as you say, it needs to be an industry-wide approach. And we'll lead the way given we own our own technology and we have the ability to do things that others can't. But it does need to be an industry solution in due course, of course.

Operator: [Operator Instructions]. I'd now like to open up the line of Ivor Jones.

Ivor Jones: You talked about the revenue share online from the U.K. I wonder if you could continue and list them up, the revenue shares, from the other large online markets. It would be very helpful in trying to work out the quantum of regulatory risk. Secondly, following up on questions before on U.K. regulatory risk. What can you help us with in terms of helping us quantify that? Could you tell us the percentage of U.K. casino revenues from what you qualify as VIPs? Could you tell us the percentage of revenue coming from the customers who deposit more than £100 a month? Could you just think about what metrics you're prepared to share that would help us think about that? And then finally, what was the benefit to the group, please, of U.K. government furlough schemes and business rates relief? What are plans to pay it back or not pay it back? And is that a precondition of declaring a dividend?

Jette Nygaard-Andersen: This is an easy one for me because I think I'll hand you over to Rob for all your 3 questions.

Rob Wood: Okay. No worries. So in terms of geographic mix, firstly, the next biggest country, when I look at the numbers now for 2020, is Australia. So Australia, obviously, had a very good year as we know, jumped into second position. Germany is falling back, as you'd expect. So 13% for 2020. But it will certainly be single digits by the time we annualize the new regime. And Italy continues to be the fourth largest. And then -- and these are all Online-only figures. And then it goes into a longer tail with nothing bigger than -- rounding to 3%, nothing bigger than 3.5%.

Ivor Jones: Can I get the percentages, Rob?

Rob Wood: For which territories?

Ivor Jones: You said Australia and you said Germany 13%, and you said it's within 13 percentage for Australia.

Rob Wood: Sure. So Australia was 14% and Italy was 9%. And then the next biggest is the Netherlands just under 3.5% and then a long tail. And then -- no worries. No worries. In terms of helping thinking through the exposure within that, the U.K. is -- leans more towards gaming than sports, given we have bingo brands as well. But obviously, it depends which aspect that you want to look at. Slots then within that, for example, is a smaller mix, too. I think if you've got any specific questions, do feel free to send them in afterwards, Ivor. I mean perhaps the one thing I would say, though, is what's different about the U.K. business today, for instance, versus a couple of years ago is the approach to high value customers. And as you all know, we've unwound the sort of VIP schemes of old and we're down to -- I think we're -- it's a matter of low 100s of high-value customers in the U.K. and the contribution from these customers is relatively small. So that's sort of burrito effect that was quite extreme a few years ago has really unwound over the last few years, or at least trended in the right direction as a result of all the measures that have been put in place. And in particular, approach to VIP. So the recreational mix is growing. In terms of your other question on furlough, so the number for 2020 was £59 million. The rates number across the full year was early 20s. And in terms of approach, we continue to claim furlough for Q1 of this year, continue to believe it was a very positive scheme, enabled us to keep many, many thousands of people in employment that wouldn't otherwise have been the case. And we paid our colleagues at 100% throughout all of that period. As soon as we reopen, touch wood, scheduled for 12th of April, then of course the claims stop at that point. So that's the latest view on furlough.

Ivor Jones: Sorry, Rob. And is that a liability of the group that tends to pay back, having made a substantial profit? And is that a precondition of dividend? And was the £59 million a U.K. number only? Or did it capture equivalents in other countries?

Rob Wood: The £59 million is U.K. only. There's another £3 million -- £2 million to £3 million in the Republic of Ireland. And then that's it, there isn't quite the same equivalent elsewhere. And in Italy, for instance, it's a franchise model. So we don't employ the shop teams there. In terms of whether we would repay, it's something that's kept under review. Is it linked to dividends? Not at this stage.

Operator: A question now from Richard Stuber at Numis.

Richard Stuber: Just two questions from me, please. The first is your marketing sort of medium-term guidance. I think you said it will reduce over time. Could you give a percentage of what that may trend down to? And is that really a result of sort of enforced marketing restrictions? Or do you think economies of scale are -- which will bring it down? And the second question is on leverage. I think you said it will be up again this year. I was just wondering what your tolerance is and how high it can go up in the short term? And I'm thinking specifically with regards to a potential acquisition of our Tab business.

Jette Nygaard-Andersen: Rob, I'll hand them over to you on guidance and marketing and leverage comments.

Rob Wood: Yes, no problem. Yes, so on marketing rate, I remember saying a couple of years ago that big picture view is it should tick down by around 0.5% per annum over time, and that still feels broadly appropriate. And what are the drivers of that? You certainly hit on two of the biggest ones in terms of just pure scale. There's no need, when you're a group of our size, to grow your marketing spend at the same rate as your NGR growth. But then also restrictions is clearly an important point. We've seen the likes of Italy, for instance, go to a blanket ban, the whistle-to-whistle ban in the U.K., other restrictions in Spain, Belgium, et cetera. So that's a component. The last component, which is very material as well, is efficiency and effectiveness and potency with our marketing spend as we pivot more and more to digital marketing and those techniques become ever more sophisticated with higher ROIs as well. In terms of leverage, so difficult for us to guide on leverage at this stage. It depends what you assume for things like M&A and dividends, for instance. But almost certainly, it will go up. The likes of Enlabs, for instance, will add around 0.3. In terms of tolerance, I've talked quite a lot around 3x being a sort of artificial layer for us. So we wouldn't choose to go above 3x. And nonetheless, there was an instant path to coming back down again. So that continues to be our sort of upper comfort level. And in any case, the deleveraging from this year onwards, once we get past this year, is very strong. So that's something that we keep an eye on as well. But I think to answer your question directly, 3x is a bit of an artificial layer. And if M&A was going to take us beyond that, we might look at equity type solutions to ensure we stay below 3x.

Operator: So that concludes Q&A on today's call. I'd now like to pass back to Jette for any closing comments.

Jette Nygaard-Andersen: Thank you, operator. And thank you all for listening and thank you for your questions. So I'm looking forward to updating you. We have our Q1 on 15th of April, and we have BetMGM update on the 21st of April. So until then, keep safe. And hopefully, we'll be able to meet soon. Goodbye.