Thank you for standing by, and welcome to the PointsBet Holdings Limited FY 2023 financial results call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Good morning. Thank you for joining this call to present the PointsBet Holdings Limited full year 2023 results. This is Sam Swanell, Group CEO, and I'm joined today by our Group CFO, Andrew Mellor. Today, we will talk to our investor presentation, which was lodged with the ASX this morning, together with our full-year financial report. But before we begin, please note the safe harbor statement in the presentation, and that all figures are in Australian dollars unless otherwise stated. Turning to slide four. The key event during the year was the approval by shareholders on 30 June 2023 of the sale of the U.S. business to Fanatics Betting and Gaming, for a headline purchase price of $225 million.
Completion of the sale will take place over a multi-stage process, with the first stage being referred to as the initial completion, and the second stage being referred to as the subsequent completion. Previously announced, the board intends to distribute the net proceeds of the U.S. business, together with the majority of the company's corporate cash reserves, that will be surplus to the needs of the remaining business. This amount, approximately $1.39-$1.44 per share, will be distributed over two tranches, reflecting the closing mechanism of the U.S. business sale. A two tranche distribution of up to $458 million was approved by shareholders earlier this week at the general meeting, and the first capital return, approximately $1 per share, is expected to be paid in mid to late September.
I'll now give a brief update on the status of the U.S. business sale. Other completion prerequisites are tracking as planned, and we anticipate that initial completion will occur once initial completion has occurred. Upon initial completion, the company will receive $175 million, plus agreed adjustments, representing the initial installment of the headline purchase price of $225 million and will transfer ownership of the operations in those U.S. states in which regulatory approval has been obtained. Following execution of initial completion, the company will confirm the details regarding the specific timetable of the first capital return. The sale of the U.S. business to Fanatics marks the beginnings of an exciting new chapter for our company.
The new PointsBet 2.0 will build on our strong market position in Australia and Canada, driven by our in-house technology and led by our experienced PointsBet team, and deliver an expedited path to profitability. I'll expand on this a little later. Turning to slide five. I would now like to provide some comments on our commitment to responsible wagering. PointsBet endorses the principle of informed choice, which is aimed at empowering customers to make informed decisions and exercise choice regarding their gambling expenditure. PointsBet's commitment to responsible wagering is demonstrated through its collaborative engagement with gambling regulators and suite of responsible gambling tools and evolving range of customer protection initiatives. Customer protection is a core pillar of PointsBet's sustainability commitment. This is underpinned by contributing actively to regulatory reform to ensure they are effective and evidence-based.
We continue to focus on responsible wagering strategies tailored by dedicated staff in region. During the reporting period, our Australian team leaned into technology to create better outcomes for our customers by creating more effective in-app responsible wagering messages to drive awareness of the various tools that can help manage play. These messages are designed as intervention steps in circumstances where customers are identified as displaying behaviors which may be symptomatic of problem gambling. As we look towards our exit from the U.S. market later in FY 2024, our strategy will be to double down and reinforce existing regulatory relationships in Australia and Canada to influence a reform agenda that is effective, evidence-based, and meets the unique needs of customers in each jurisdiction within which we operate. In Australia, this work is already underway.
In FY 2023, we worked with governments and regulators to implement the last of the National Consumer Protection Framework measures, including mandatory transparent activity statements and, most recently, BetStop, the national self-exclusion register. We are also actively consulting with all stakeholders regarding the recommendations made by the House of Representatives Standing Committee on Social Policy and Legal Affairs, following its recent inquiry into online gambling. We welcome a robust reform agenda that both protects families and ensures the ongoing sustainability of the wagering sector in Australia. I'll now hand to Andy Mellor to review the FY 2023 group financial performance.
Thank you, Sam. Turning to slide seven. In accordance with the AASB accounting treatment, as a result of the sale of the U.S. business, as approved by shareholders on the 30th of June, the United States and European operations and employees, which form part of the Fanatics sale perimeter, have been reported as discontinued operations as at the 30 June 2023. All references to continuing operations include the remaining Australian, Canadian, and Indian operations and employees. As a result, the FY 2023 P&L is reported in three parts: Continuing operations, discontinuing operations, and the consolidated P&L. The FY 2022 P&L has also been restated to reflect the continuing operations and discontinuing operations to enable comparability. For the benefit of today's presentation, I will speak to continuing operations P&L. However, we have also included consolidated numbers in the presentation, where we believe it will aid any reader.
Now to the statutory segment results. The Australian trading business segment recorded net revenue of AUD 192.1 million, a decrease of 2% versus the PCP, and a statutory EBITDA profit of AUD 0.1 million in the reporting period, compared to the EBITDA profit of AUD 7.7 million in the PCP. The fall in EBITDA was mainly attributable to increased Point of Consumption Tax in Queensland and New South Wales, as well as slightly increased operating expenses. The FY 2023 marketing strategy was to front-end the marketing expense significantly into H1. The H1 marketing expense of AUD 45.3 million was reduced to AUD 15.7 million for H2. As a result, the H1 EBITDA loss was AUD 20.2 million, and then we delivered an H2 EBITDA profit of AUD 20.3 million.
In FY 2024, our marketing strategy will be more normalized in line with the seasonality of the sporting and racing calendar. The Australian marketing expense in FY 2024 will be reduced by 15%-20%, and we currently expect a significant amount of that saving to fall straight to the bottom line. While the business is expected to deliver net revenue growth in Australia for FY 2024. In Canada, we completed our first full year of operations in Ontario. Total net revenue came in at AUD 18.2 million, with iGaming net win of AUD 11.5 million, and sports book net win of AUD 6.8 million. The FY 2023 statutory EBITDA loss for Canada was AUD 35.8 million, and that is expected to be the maximum annual EBITDA loss for the Canadian trading segment. Let me explain further.
As in Australia, the Canadian business will reduce marketing expense by 15%-20% in FY 2024. We expect this saving to fall straight to the bottom line. With improved funnel efficiency, that is, from client registration to first-time bettor, together with the market-leading in-play experience and a continually improving iGaming product offering, we expect Canada's EBITDA loss in FY 2024 to be significantly lower than the FY 2023 loss. Importantly, as we mentioned at the June quarterly results, we expect the positive EBITDA for the Australian trading segment to significantly offset the EBITDA losses from the Canadian trading segment in FY 2024. Turning to the technology segment, on a statutory basis, EBITDA for the reporting period was a loss of AUD 8.4 million, compared to the PCP loss of AUD 3.3 million.
We expect the technology segment will be at or close to breakeven for FY 2024. Statutory EBITDA for the corporate segment for the reporting period was a loss of AUD 12.8 million, compared to a PCP loss of AUD 15 million. We expect the corporate segment EBITDA loss for FY 2024 to be 35%-45% lower than FY 2023. In conclusion, the total group statutory EBITDA loss for continuing operations was AUD 57 million. Please note there is a summary of our statutory results on slide 23, and a reconciliation of the normalized results to statutory on slide 24. Slide seven also details the additional cost below EBITDA, which leads to the full year statutory loss of AUD 107.9 million for the reporting period. Turning to slide eight, to review normalized continuing operations P&L.
Continuing operations reported net revenue of AUD 210.3 million, a growth of 7.6% versus the PCP. As we have previously guided, net revenue for continuing operations is expected to grow 10%-20% in FY 2024. Gross profit of AUD 105.7 million, represented growth of 5% over the PCP. Continuing operations gross profit margin for the reporting period was 50.2%, slightly lower than the gross profit margin of 51.4% we achieved for the PCP. FY 2024 gross profit margin is expected to be circa 50%. Sales and marketing expense was AUD 90.3 million for the reporting period, up 22% versus the PCP, with Australia accounting for AUD 61 million and Canada accounting for AUD 29.3 million, or CAD 26.4 million.
This marketing investment assisted the company, having 238,000 Cash Active clients in Australia and 30,400 Cash Active clients in Canada in the 12 months to the end of June. As we head into FY 2024, we identified some inefficient marketing spend in both Australia and Canada in FY 2023 that we won't repeat this coming financial year. As a result, both the Australian and Canadian FY 2024 marketing expense is expected to be 15%-20% lower than FY 2023. As we commented a month ago, we expect global Cash Actives for FY 2024 to exceed FY 2023. That is, the reduced marketing spend should not reduce client activity and client growth.
Continued operations employee benefits expense increased in the reporting period versus the PCP, mainly as a result of the Canadian employee benefits expense first full year of recognition. Product and technology expense increased versus FY 2022 as a result of Canada being operational for its first full year, and some global technology costs allocated to continuing operations. The normalized EBITDA loss for continuing operations was AUD 49 million for the reporting period. In conclusion, for continuing operations in FY 2024, we currently expect group revenue to grow by 10%-20%, gross profit margins of about 50%, group marketing expense to be 15%-20% lower, and normalized operating expenses, excluding marketing expense, are expected to be between AUD 60 million-AUD 70 million. The company expects EBITDA to be at or close to breakeven post the close of the Fanatics transaction. Turning to slide nine.
As regards the balance sheet, on 30 June 2023, the U.S. and European operations were deconsolidated as control over these operations were deemed to be lost and operations discontinued at the date of the shareholder approval. 30 June 2022 balance sheet remains unchanged. Slide nine details the major movements resulting from the deconsolidation. This includes an impairment charge of AUD 15.2 million being recognized in the period relating to the group's internally developed betting platform, which supported the U.S. business and which is now being classified as a discontinued operation. Although the group will continue to own the sports wagering iGaming technology platform, there are specific assets which were created and related to the U.S. business, which from an accounting perspective, it is not considered probable that future economic benefit will be attributable to these assets.
The group has net assets of AUD 501.5 million as of the 30th of June 2023. Turning to Slide 10. We have talked to our group consolidated cash flows and detailed these as part of our quarterly 4C reporting obligations. To summarize, net operating outflows, excluding movement in player cash accounts, was AUD 218.8 million, slightly higher than the AUD 212.8 million in the PCP. Net investing outflows was AUD 52.8 million, as the business continued to invest in the development of the betting platform. Net cash outflows, excluding movements in player cash accounts for FY 2023, was AUD 276.1 million. At the 30th of June 2023, the company held AUD 194.6 million in corporate cash.
However, once adjusted for U.S. business sale-related payments of $7.5 million that were paid in Q4, which will be reimbursed at the second close, adjusted corporate cash at 30 June 2023 was AUD 202.1 million. Lastly, on May 15, when we announced the sale of the U.S. business, the AUD/USD FX reference rate communicated was AUD 0.675 . Post the two sale completions, we will receive $225 million in total, and we have hedged the vast majority of the USD at an AUD/USD rate, slightly below AUD 0.675 . I'll now hand back to Sam to provide commentary on the operational performance.
Thanks, Andy. Turning to Slide 12. The continuing operations reported growth in key metrics for the reporting period. Total net win was +7% to AUD 230 million. Cash Actives, +9% to 269,000. We retained our number three ranking in the Eilers & Krejcik U.S. app rank testing for the fifth consecutive quarter. Again, showing the great customer experience delivered by our technology, which importantly, is retained by the continuing operations. Enhancements through Odds Factory of live betting products drove in-play mix of Canadian sports book handle to 63% in FY 2023, up from 53% in FY 2022. Turning to Slide 15. The Australian trading business ended the reporting period with net win of AUD 211.7 million, down 2% from the PCP.
Sports turnover increased by 47% compared to the PCP, offsetting declines in racing turnover. Continued focus on promotions efficiency led to the rate of promotions as a percentage of gross win, improving to 31.5%, compared to the 36.3% in the PCP. Net win growth from AFL and NRL combined was up 86%, and tennis and soccer combined was up 53%, both compared to the PCP. We continue to see strong, sustainable performance from our mass market clients, with net win from this cohort up 15% on the PCP. As Andy mentioned, we look forward to the Australian trading segment delivering a significant EBITDA in FY 2024. Turning to Slide 16. The Canadian business completed its first full year of operations in Ontario.
Sportsbook net win was AUD 6.8 million at a 3.5% net win margin. For iGaming, we delivered AUD 11.5 million in net win. For the full year, we delivered total net win of AUD 18.3 million. While the Ontario market is competitive, our Canadian business continues to perform well. The strength and quality of the customers that are making the choice to play on PointsBet demonstrates the effectiveness of our strategy. As we look ahead to FY 2024, we are looking forward to delivering revenue growth in Canada. We have a top-tier North American sports betting product, an exciting product roadmap, and we'll continue to invest in our product and app experience for both sportsbook and online casino.
The Canadian business provides shareholders continued exposure to the North American market through a jurisdiction that is more attractive than most U.S. states... with no partner fees and acceptable tax rate, and iGaming complementing sports betting for the entire market. We believe the early stage of the Canadian business complements our more mature Australian business, as well as providing an opportunity to leverage attractive features of our tech stack that aren't available in the Australian market, such as iGaming and online live betting. Forward to Canada growing revenues and significantly reducing its loss in FY 2024 on its way to EBITDA profitability in FY 2025. Turning to Slide 19. Before I pause for questions, I'd like to talk about the new PointsBet 2.0, and why we are so excited about our future in Australia and Canada.
Firstly, our proprietary tech stack is a global market leader, as validated by the sale of the platform to the Fanatics. While we have sold a copy of the technology to the Fanatics, importantly, we get to keep the technology. That means we can develop and exploit it in a manner that creates the most value for PointsBet shareholders. Secondly, we keep a copy of the Banach Odds Factory technology assets, which drives our market-leading in-play and same-game parlay products, and the cash out features used in all of our markets, but particularly powerful in the North American live betting market. Finally, we retain, as part of an appropriately sized team, the company's market-leading technologists, traders, and quants based in Australia, Canada, and India. It's very important for shareholders to understand how valuable the PointsBet technology has become.
It has been one of the critical features of the interest in our company by numerous groups, and it bodes well for the value and the future of the Australian and Canadian businesses. Our Australian operation has a strategically important place in the Australian wagering market. We intend to continue to grow our online share in this market from a current solid 5% position, with the benefit of a more focused approach from a people, tech, and product perspective. Turning to Slide 20. To reiterate our previous outlook commentary for continued operations, we expect revenue to grow, marketing expense to reduce, OpEx in the range of AUD 60 million-AUD 70 million, and EBITDA to be at breakeven or close to breakeven from April 2024. We continue to anticipate the group will deliver positive EBITDA in FY 2025.
Let me now open up for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you please, pick up the handset to ask your question. In the interest of time, we ask that you please limit to three questions per person. Your first question comes from Rohan Sundram, from MST Financial. Please go ahead.
Hi, team. I might start with a question for Sam. Sam, how are you thinking about the long-term growth and profitability of the Aussie and the Canada businesses? Just balancing out that Australia is ahead of Canada at the moment on profitability, but it would look as though Canada's got the stronger outlook. Do you think Canada could be bigger than Australia one day? Or how are you seeing them balancing?
Ontario, you know, is a circa CAD 2 billion market. You know, the online market in Australia is a circa AUD 5 billion net win market. So, you know, as we think about Ontario compared to Australia, you know, it, it doesn't have the same size of market just at the, just at the moment. We do expect the TAM in Canada to naturally increase. You know, we believe that there's good, a good chance that Alberta, as an example, gets added to the TAM, let's call it in the second half of calendar year 2024, and thus, you know, that CAD 2 billion market could, could become CAD 2.5 billion.
To be honest, we probably think that those market estimates for Canada, you know, are probably conservative, given that they do have online casino, live betting, you know, and the pre-match sports betting. So yeah, Canada's certainly got more, you know, natural growth because it's an earlier stage market. What's it got going for it? Well, the product mix, obviously, whereby, as I just said, you've got live betting on sport where, you know, we are one of the market leaders, and that's one of the reasons we're so keen on Canada. And you do have the online casino. So I think, yeah, Canada's obviously the extra growth part of the opportunity that PointsBet currently represents. But, you know, we think in Australia, the year that we had, clearly we grew our market share.
You know, we've now seen Sportsbet, TAB, and others report, let's call it FY 2023. So we know that even though this was a correction year for the online market following COVID, and we were down 2%, but we've grown our market share. So, you know, we certainly, for things that we can control, we're very confident about our ability to grow our market share. But we also do believe that having had that correction year, that the online market in Australia will get back to some modest growth driven by the continued strength of sports and, and hopefully racing can get back into positive territory.
Thanks, Sam. I'll jump off.
Thank you. Your next question comes from Phil Chippendale, from Ord Minnett. Please go ahead.
Oh, hi, Sam. Thanks for your time. Firstly, just in terms of the U.S. states, how many have you received approval for so far? And then, is there any sort of major conditions precedent to the first settlement, which is obviously due, in the next 24 hours?
Yeah, go Phil. Hope you're well. Yeah, look, we'll limit the statement to what we put out in the release and what I just referenced, which is everything's tracking according to plan. Yeah.
Okay, thanks. Why don't we switch to the residual business? And just on that marketing expense, you spoke about the seasonality being a little bit more normalized. Could you just give us a rough split, you know, a ratio between first half, second half for 2024?
Yeah. Hi, Phil, it's Andy. Thanks for the question. You know, I think we would still probably see a little bit more spent in H1 than H2, but certainly not to the extremes that we've attacked the market in the last two years.
Okay, thanks. Final one from me, just in terms of the active clients over FY 2024, presumably, Canada will be growing, given it's, you know, a much earlier stage market. Does that imply that the Australian business, you know, that you're sort of thinking about it being broadly flat over FY 2024?
No, I mean, we want to see Australia grow, but you're right. I mean, Canada's going to provide the bulk coming off that earlier stage starting point. You know, I'd make the point that part of what we see for PointsBet when we talk about revenue growth is not all just about acquisition. You know, it's also about share of wallet and getting greater play from our clients, you know, from other operators. But to answer the question, though, we want to see Australia growing its active clients, but yes, it won't be as strong as Canada.
Yeah. Thanks a lot for talking, mate.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Bradley Beckett from Credit Suisse. Please go ahead.
Good morning, Sam, Andy. Thanks for taking my question. Hoping you could add a bit of color around the cash active clients in Australia. It looks like about a 10% reduction in net win per average active over 2023, 2022. How much do you think that's attributable to sort of the softer VIP market versus consumer spending and, and content mix? Any color there would be appreciated.
Good day, Brad. Yeah, look, I think our revenue was largely flat, and our active clients was largely flat. So the average revenue per active, it would be largely flat, you know? So—but what I would say, and one of the key pieces of color that we have provided in, in talking about the fact that it's largely a flat number year-on-year is, is that the, the mix of clients underneath that has, has changed. You know, so we've seen, that recreational client mix, the mass market mix, actually grow 15%. That was the number that we, that we called out. So, you know, you can take it that, that, revenue that we've generated this year, while largely equal to last year, is sort of more spread.
Even though the averages come out about the same, there's certainly been growth in that mass market, and we've talked about some weakness around VIP. So we certainly believe that that revenue mix is far more sustainable, less, you know, less susceptible to any, you know, shocks from the VIP segment.
Okay. Thanks a lot for that. Maybe just one for Andy. In regards to the player account cash balances, it looks like about a 60% reduction. Is that from the discontinued operations or other sort of drivers at play there?
Yeah, that's, that's correct. That's from the discontinued operations.
Got it. Got it. All right. That, that's all from me. Thanks a lot for that.
Thanks, Brad.
Thanks.
Thank you. Your next question comes from Rohan Gallagher from Jarden Group. Please go ahead.
Good morning, Sam. Good morning, Andy. Good morning, everybody. Two questions, if I may. Andy, what is the sustainable sort of cash balance you would be looking for for PointsBet 2.0?
Yeah. Hi, Rohan. Thanks for the question. You know, I think the way that we think about the move forward is ensuring that the company has enough capital to fund both its working capital and its CapEx. And we haven't given any guidance as to what that number looks like, but the way that we think about it and have thought about it is that ensuring that we have that amount of capital to fund those two items is obviously crucial. If we sort of want to walk through, and it might be helpful just to walk through the waterfall of what is public. You know, we have an opening cash balance of AUD 202 million.
Proceeds from the sale will be circa AUD 333 million, which leaves us with AUD 535 million. You would need to make an assumption around the distribution, but let's say it's AUD 445 million. We've spoken to the fact that the funding for the U.S. from the 1st of July will be capped at approximately $21 million, so that is about AUD 31 million, and then you'd need to make an assumption around transaction costs. But if you say that's around AUD 20 million, that leaves the balance in the high 30s, and then there will be some funding requirement to remain company. We haven't spoken to that yet, but we certainly feel from a board of management perspective, that is about the right amount to move forward within PointsBet 2.0.
Super helpful. Thank you, sir. Second question, Sam and Andy, please weigh in. Obviously, the market getting confident with 2.0 is that the continued growth in Australia more than offsets the losses, albeit lower losses in Canada in the next 12-24 months. How does a potential entry into Alberta impact the shape of that pathway from EBITDA losses to EBITDA profitability in Canada over the next, you know, two years?
Yeah. Look, we don't see it as being material. So unlike the U.S., whereby, you know, each state really was like a brand-new country, which came with significant sort of infrastructure overheads, increased compliance costs, et cetera. So no, we believe that the synergy is far greater. We expect that some of our marketing spend that is non-performance marketing or non-targeted, well, it already bleeds into Alberta. And so you're gonna get the benefit of, let's call it that above-the-line marketing that bleeds into that jurisdiction anyway. So now you're gonna be able to monetize it. Yes, you would spend a little bit more on performance marketing, because you'd now be targeting the residents of Alberta, so your marketing would go up.
But really, apart from that increased marketing, we really don't see a lot of incremental cost.
Thanks, Sam. Thanks, Andy.
Thanks, Rohan.
Thank you. Your next question comes from Chris Savage, from Bell Potter Securities. Please go ahead.
Morning, guys. Just picking up on your comment, the clear path to secure a top four position in Australia. So correct me if I'm wrong, but you're five or equal five at the moment, with about 5%? So what sort of assumptions are behind that in terms of growth or what might happen above you, like with the Neds or Ladbrokes, for instance?
Yeah. Good day, Chris. Yeah, I think the way we look at the online market is, you know, Sportsbet, TAB, Entain, and bet365 are slightly above us. You know, bet365 are a private company, so they don't, you know, the numbers aren't as easily or readily available, but they produced some numbers a month or two ago that gave us an insight into, you know, into their Australian business. And, you know, we think that that's within touching distance of us being able to, on the back of, you know, our growth, outperforming theirs in the broader market, to, to go past them. So, you know, obviously it's a bit of a gap then up to the combined Entain business. But we, you know, as we flagged, we've outgrown the market this year.
With the extra focus that we are gonna bring back to the Australian business, you know, I think everyone could understand that, the U.S. has been somewhat, you know, all-encompassing, getting through this process and now getting through the sale process. I'm bringing that focus and that expertise purely to play on Australia and Canada. Combined with our, you know, already strong trajectory, you know, we're really confident in our ability to grow our market share in Australia.
Is there any update on the Betr sale process?
I don't know. I don't know.
You and me both. Thank you.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.