Good morning, welcome to the Flutter Entertainment Q1 results update. Peter Jackson, CEO, will host the call and is joined by CFO, Jonathan Hill. My name is Kathy, and I'm your event manager today. During the presentation, your lines will remain on listen only. If you require assistance at any time, please key star zero on your telephone and a coordinator will be happy to assist you. There will be a chance to ask questions later. This call is being recorded, but now I will hand over to Peter. Please go ahead, sir.
Good morning, everyone, and thank you all for joining us this morning. With me today is Jonathan, our CFO. I'm sure you all had a chance to read the Q1 trading update that we released this morning. I won't go through it in detail here, but I would just like to highlight a few key points. Firstly, it's easy to forget just how much has changed at Flutter since our Q1 report a year ago. This time last year, we were yet to complete our combination with The Stars Group and were in the midst of assessing what lockdown and the cancellation of global sport would mean for our business. Thankfully, one year on, the diversification benefits that our merger delivered are evident in the numbers we're reporting this morning.
Our business is continuing to perform very well, with total revenue growth in Q1 of 33% and online growth of 42%. This has been driven by 36% growth in average monthly players, or AMPs, with strong growth in our recreational customer base across all four divisions. In the U.K. and Ireland, we've continued to win share as more and more customers have migrated from retail to online. What's been particularly encouraging is how SBG and Paddy Power and Betfair are both performing well, with revenue growth of 35% and 36% respectively in Q1. We estimate that Flutter brands accounted for 56% of all Cheltenham customers this year, with Paddy Power the number 1 downloaded app during the week. It really was an Irish festival this year. In Australia, we grew our revenues by 59% and our AMPs by 43%.
We've been watching trends in this market closely as it emerges from COVID disruption, and I'm pleased to say that so far, customer numbers have remained at elevated levels. That said, while the economy is opening up in Australia, things are not fully back to normal just yet, so we'll continue to watch this closely. In international, we are continuing to evolve our customer proposition by increasing our levels of investments in generosity, and we are seeing some early signs of progress. Overall, revenue has increased 17% in the first two months of the year before we started to lap the challenging COVID comps. International in particular, faces more challenging comps throughout Q2, with additional headwinds of German turnover tax, which we believe will come into effect on July 1st.
As a reminder, we think that change will cost the group approximately GBP 20 million in EBITDA in the second half alone. In the U.S., we've maintained our number one position with a record quarter for revenue, AMPs, and customer acquisition. We generated revenue of almost $400 million, up 135% year-on-year in the first quarter alone, with 1.6 million average monthly players. We're pleased to launch in Michigan and Virginia during the quarter. Our performance in existing states remains very encouraging, with staking growth of 93% in Q1 and stable market share. ESG and safer gambling initiatives remain a key priority for the group across our markets, with new measures introduced, including our Gamban partnership in the U.S. and development of the planned Affordability Triple Step in the U.K. We are continuing to focus on new ways to ensure that our business is built on sustainable foundations.
We announced in March that we're giving consideration to a potential listing in the U.S. of a small part of FanDuel Group. While we continue to examine options for this exciting business, no decision has been made at this point, and you'll appreciate that we are unable to take detailed questions on this at this time or provide forward guidance. Of course, should we decide to proceed with the transaction, we'll lay out the rationale and details in full at that point. You will also have seen our announcement on April 7th with respect to an arbitration process between Flutter and Fox Corporation with respect to an option to acquire an 18.6% stake in FanDuel. That arbitration process is now underway, with the appointment of an arbitrator almost finalized. Given that this is now the subject of a legal arbitration, we won't be commenting further.
Our position on the matter remains unchanged. As we think about the rest of the year, we are conscious of the fact that parts of our business will now face steeper comparatives as we lap the benefits of stay-at-home restrictions in many parts of the world. However, with a normalized sporting calendar in place and good player momentum across our business, we look forward to the remainder of the year and beyond with confidence. With that, Jonathan and I will be happy to take any questions you may have. As always, in the interest of giving everyone an opportunity to ask their questions, can I request that you limit yourselves to two questions each in the first instance? If we have time at the end, we can then come back to follow-ups. With that, I'll hand the call back to Kathy to manage the Q&A session.
Thank you. Everyone, your question and answer session will now begin. If you wish to ask a question, please key star then one on your telephone. If you then decide to withdraw your question, simply key star two. All questions will be answered in the order received, and you'll be advised when to ask your question. All other lines will remain on listen only. Just to remind you, if you wish to ask a question, please key star then one on your telephone. The first question comes from Ed Young of MS.
Hi, Ed.
Morning. The first one was on Australia. I thought the comments there were interesting about Australia e ssentially being a bit of a lead indicator-
We've lost you, Ed.
We have now got Gavin Kelleher. Please go ahead, Gavin.
I think we'll have to come back to Ed-
Yeah, we'll come back to Ed.
...in a moment.
Okay.
Gavin?
Hi. Good morning. Yeah, I'm here. Morning, Jonathan. Morning, Peter.
Morning Gavin.
Just on the U.S., obviously huge customer acquisition in the quarter. I know you don't give EBITDA updates. Can you give any sort of indication on where your CPAs are tracking? Are they ahead, above, or in line with expectations in Q1? That's my first question. Then my second question is on the area of responsible gambling. You're doing an awful lot on that. You mentioned the Triple Step introduction of affordability in the U.K. Can you just give us a bit more insight on when that'll be introduced and how extensive that introduction will be this year? As well as that, I believe you're trialing some staking limits in Sky Bet in the U.K., when that happens and any sort of learnings to date if there have been trials.
Thanks, Gavin. Look, I think you're sort of definitely stretching the two questions with different parts there, but I'm happy to take those. Look, in the U.S., you're right, there was huge customer acquisition in Q1, and a lot of that was focused around the tremendous success we saw in the Super Bowl. Yeah, we're also very pleased with the acquisition that we've seen in the new states that we've entered, Michigan, Virginia. We were able to take advantage of the fact that in Illinois, remote sign up was available for a period of time. We've pushed really hard. We continue to be very pleased with the way we've been able to sort of cross-sell into our DFS base. We continue to believe that we have sort of industry-leading acquisition costs in the States.
The one thing I'd add just in looking at where we are in the States, particularly in these new states, is that because some of our acquisition costs come through in promotional mechanics, particularly around our very successful Super Bowl 55 to 1 offer, what you find is a suppression of GGR in those new states during that open period. Actually, when you look at those two new states, you should take a good look at handle rather than solely looking at GGR because you get a GGR suppression in those very early months, particularly around either the Super Bowl offer or the Spread the Love campaign, which we also do, which is a sort of viral way of driving odds up and giving value to customers.
Yeah. Look, in terms of the work that we're doing from a safer gambling perspective, look, this is a very important area of focus for us right across the organization. I remember on the call we did last time, we had a number of questions around what we're doing in the U.S., so we wanted just to showcase some of that in today's statement. Here in the U.K., we are continuing to race for the top, as we've said in the past. The Affordability Triple Step is part of that. Clearly, for those of you who aren't familiar with it's the third part of the Affordability Triple Step, which is effectively some of the spending backstops, which we've been introducing relatively recently into our brands in the U.K.
We're pleased with the impact that that's had and the engagement it's driving us with customers, and so we'll continue to do more of that and it provides us with good data and insights that we can use in our business to help sort of improve player protections and indeed share that data with the government as part of the review that they're doing into the Gambling Act. It's actually that decision to pursue the data and insights and share them with the government that's led us to undertake some of the staking limit trials with Sky Bet. We thought it was a good thing to get some data and insight out of it, so we're trialing it, and we will share that data with the government as appropriate.
That's great. Thanks, Peter. Thanks, Jonathan.
Thank you. The next question comes from [Kiran Grewal] .
Hi, guys. Just two questions from me. You've offered some really interesting insights to the FanDuel Group losses last year, which amount to about GBP 110 million. It looks like FOX Bet's running at a disproportionately high cost. Could you perhaps offer more color on when you believe the FanDuel Group could turn cash breakeven or positive? What is it about FOX Bet that's explaining these disproportionate losses? Are you cross-selling FanDuel customers into FOX Bet, yeah? Thank you.
Yeah. Thanks for this question, Kiran. The answer to the first question is not very precise. The answer is, it depends. It really is driven by the pace of state opening, and obviously we laid out in the prelims the contribution from those 2018 and 2019 cohorts that have come through and the positive contribution. Obviously what happens is every time we open a new state, clearly we make a loss as we invest in building the customer base. It's very difficult to say exactly how that legislative process is going to work across the U.S. and therefore how those loss-making state openings will impact the P&L and the cash flow.
It's a really tricky question and one that I think you'd probably have to take a view on the state openings, and particularly as you get the bigger states, those tend to have a bigger in-year divot, particularly when the states open in the August-September timeline in time for NFL, when obviously we spend all of the market money, we make all of the promotional generosity to drive customers into the franchise, and then obviously they return minimal or even negative net revenues during the financial year. It's a very tricky question to ask, but I think the thing I take most comfort in is the data that we shared with you at the prelims around that really positive contribution that we're driving from those older cohorts in New Jersey.
As we build up those older cohorts of profitable customers, it'll just be that balance in each year between the existing cohorts of existing customers and the balance, the proportion of those relative to how much we're driving new customer base into the business.
Yeah. I think to Jonathan's answer there helps provide some of the explanation as to what we're seeing in terms of the disparity between the performance between FanDuel and FOX Bet. The way I think about the FanDuel business is we're creating a tremendous of embedded value with the large number of the customers that we're putting into the business. The dynamics of the customer acquisitions, the LTVs are very, very positive, and we're really pleased with it. Of course, we increasingly get better and better operating leverage as we push more volume through the business. If I contrast that with FOX Bet, which is struggling, the product is not as good as FanDuel. Unfortunately, we're still having to use the legacy Stars Group sports betting platform, which is not as good as the capabilities that FanDuel have.
Customer acquisitions are lower, particularly on the sports side, and we don't get the same benefit of that sort of operating leverage. The fixed costs associated with the business, losses are higher, and it gives us some interesting visibility of what it's like for our other smaller competitors facing us down in the States. It's hard.
Yeah. The final point I'd add is we obviously have TVG and DFS within FanDuel, and they are very good positive contribution businesses and obviously covering a lot of fixed overheads, which you have in these businesses. A range of factors.
Super. Thank you very much.
Thank you. If you wish to ask a question, please key star then one on your telephone. The next question comes from Michael Mitchell of Davy.
Yes, good morning, Peter. Morning, Jonathan. Thanks for taking my questions too, if I could. First of all, international, you reference being pleased with acquisition and retention metrics, in the division. I wonder if you could provide a bit more color in terms of what you're seeing in response to some of your more recent promotional and brand initiatives. Then secondly, in the U.S., just interested in your comments around the expansion of the expected margin. Again, I wonder, could you shed more light on that, and your thoughts in terms of whether FanDuel could structure be more profitable business than some of the other operators in the market. Thank you.
Hi, Michael. From an international perspective, we have been pleased with the way in which we've been able to grow the casino business. We talked about wanting to invest behind that. We recently launched a new campaign, and we're pleased with the way that that's getting traction for us and we think continued growth in the casino business. I think we're also pleased with the way the poker business is performing. It's hard to disaggregate what's happening on an underlying basis with the sort of continued lockdowns that we face across particularly the European markets, which are so important for that business. We think that the investments we made in generosity, the investments we're making into sort of beginning to start to improve the product are all important steps to take in that business. Jonathan, I don't know if you have anything to add.
Yeah. I think some of the actual mechanics we're using, so if I just talk about a couple of those, we've obviously got the rakeback challenge in terms of poker, and we can measure the ROI on those very clearly and the returns to player and how that affects how much they engage with the platform. Very measurable in terms of how we invest. Obviously, we've got a bit of money that we're putting also into overlay in terms of tournaments. Again, we can measure that quite precisely in terms of returns. On the casino side, seven days of rewards, which is a really popular initiative in casino, which is driving activity and really driving customer engagement. Obviously, we've had the Million Dollar Race that we've really been pushing in casino. It's pretty new.
We've run another race at the end of March, and again, we're seeing really good engagement with that product. Obviously, some of the brand initiatives we've done, the Neymar, the Epic Downt ime, which is landing very well in terms of the casino product. Obviously the Neymar campaign, which is helping drive saliency of the brand and consideration of the brand. A lot of positive stuff in there, a lot of very good measurable stuff as well.
We hit an all-time high number in terms of the number of games or hands per player in March in the casino, which was great validation for all the work that the team are doing. In terms of the U.S., look, we are pleased with where we've seen the margins trend too. We talked a little bit about the benefits we're getting from Same Game Parlay, which is obviously quite a proprietary piece of technology that we have in-house and therefore we get all the benefits of, and even while some of our competitors are beginning to try and copy that product, they're using third parties, which means they don't get the same margin uplift. I think it's a good example of where having ownership of our own technology stack and ownership of risk and trading gives us real benefits in the business.
I think that when you compare the expected performance of our business in the future compared with a lot of other competitors who are more reliant on third parties, we ought to get some structural benefits as a consequence of the product mix in place after the Same Game Parlays, as well as the fact that we own risk and trading.
Clearly we're not taking an underlying different approach to the head-to-head over-rounds. In the market, we're keeping them where we set them to start with, pretty tight, in order to make sure that this is a pretty competitive market in the U.S. when it comes to over-rounds.
Super. Very clear. Thank you.
Thank you. The next question comes from Simon Davies of Deutsche Bank.
Good morning, guys. Two from me, please. Firstly, can you give a rough indication of what percentage of your international revenues now come from unregulated markets? Are there any plans to exit any more markets over the coming 12 months? Secondly, just on Canada, what are your expectations in terms of the opening up of the Canadian market, and how well-positioned do you think FanDuel will be for that?
What I can tell you is overall, our revenues, the split of overall group revenues from, if you went back to H1 2019, would have been 83% regulated. I think we're now at somewhere around or just above 90%. That comes from a mixture of factors, Simon. It comes from markets which have moved from unregulated to regulated. It comes from markets where we've chosen not to continue to operate. I would just make sure we all think about the fact that there's three types of markets in our view. There's regulated, there is unregulated untaxed. Then there is black, which is illegal markets. We do not operate in the third of those. There are markets in the second category where we're very comfortable operating. We don't immediately see that going to zero.
Your question about do we see turning any more markets off over the next 12 months, it's a very dynamic situation in terms of regulation across the world and the geographies that we operate in, and we will continue to analyze and make sure we understand exactly what's going on across the markets in which we operate and make decisions on a flexible and real-time basis.
Yeah, Simon, that 90% is going to grow in time, and you'll be aware that after the transaction with The Stars Group, we did a very detailed assessment of their business and there was quite a lot of business which we chose to switch off because it didn't meet with our, what I would describe as more progressive risk appetite. In terms of Canada, look, we're excited to see what happens in that market. Interestingly, the PokerStars brand has been advertised in Canada for more than 20 years, so it's an incredibly well-known brand in that market. Of course, FanDuel will get some bleed across as well because of the interest in the U.S. sports in that market as well.
Look, we think we've got some very good brands to target to that market, and hopefully we'll be able to achieve a podium position, if not a gold medal.
Thank you. The next question comes from Ed Young, MS.
Welcome back, Ed.
Thank you. Can you hear me now?
We can, yes.
Yeah.
Perfect. My first question was on Australia being a lead indicator for how markets might perform as lockdowns ramp down elsewhere in the world. I just wonder if there are any sort of KPIs you could share about retail-type customers you've acquired during the period, and retention or any other kind of indicators that would help read across. Obviously, we can see on a headline basis the revenue numbers still remain very strong. The second one is, I'm not sure which bit you'd like to answer. Maybe it's a straight no, which is fine, but on the U.S. side, obviously Fox is a partner, but I would say some of the process you mentioned, arbitration, is also a bit adversarial. I just wondered, could you just sort of help us understand if there is any risk that U.S. operations could be distracted by what is going on?
Are you sort of comfortable that they're all run sort of separately enough to avoid that risk going forward? Thanks.
Look, Ed, on Australia, you're right. I think it is a really good lead indicator for us in the rest of the world because a lot of the lockdown restrictions have been lifted, albeit there are still occasional snap lockdowns in the market. I think we're really pleased with the way that the business has retained a lot of the retail customers that we acquired last year. We think that we've retained most of the customers. When we look at the betting patterns and behaviors of some of those cohorts we acquired last year, they look very familiar to us as the type of retail punter and we seem to have kept them in the business, and we think that the quality of the products and the generosity we're giving them is what's helping us there. Look, we're very pleased.
You can see the AMPs data that we shared in Q1, to have that up 43%, I think it just shows how well the business is performing in Australia. Jonathan, I don't know whether you want to-
Yeah. The only thing I'd say is Australia is not back to the historic normal, and it's pretty early days since they've come out of sort of full lockdown in all territories. We'll continue to monitor this really closely because I don't think we've seen the full. We're certainly not back to normal, and until we get back to normal, we won't really see the patterns. Hopefully, a proportion of that wallet share from those who have migrated from retail to online, they'll keep with us, and we'll keep a share of that spend.
Look, your question about the U.S. Fox are a very important partner for us in the market. We do have those two businesses in the U.S., is the FanDuel business and then FOX Bet and of course, we know Fox have the right to come in and acquire half of FOX Bet. We've done an awful lot to support the FOX Bet business. When I look at the setup and the quality of the team and management that we have supporting that business, the focus that we're putting on it from a tech perspective, Lachlan's been tremendous in terms of chairing regular meetings to help boost and improve the performance of the Super 6 product and you've seen where that business has got to. We do think that they are important partners.
They're particularly focused obviously on growing the FOX Bet business and when we look at the amount of media spend that FanDuel has with Fox, it is small but there clearly could be opportunities for us to improve that in the future. We are going through this arbitration. One of the benefits ordinarily of arbitration is you can do it confidentially. It hadn't been our intention to discuss it. I think it is a pretty regular thing that occurs in the U.S. market and we understand that these mechanisms sometimes have to be used. We remain supportive of what we're doing with FOX Bet, but also really delighted with the way that FanDuel is performing and you've seen the disclosures in the release this morning of the two businesses that we effectively own in the U.S.
Just two points to add. One is we'd obviously, Peter's referenced the sports product in FOX Bet from the earlier question is quite challenging. It's obviously dependent on us swapping out the sports betting product for international. There's a sort of dependency and we're getting on with that but that, as you'll be aware, takes time. I think the second point to make is just while Fox is a very important partner of ours, it's not a huge component of the marketing spend of FanDuel and actually FanDuel's been pretty successful even before pre-merger and when Fox became a partner of the group. While we're highly supportive of the FOX Bet business and Fox as partners, FanDuel isn't overly reliant on that as a channel to market.
Okay. Thanks. Very useful on both. Thanks.
Thank you for your question. If you wish to ask a question, please key star then one on your telephone.
Have we got any more questions coming through? Should we take those?
We do have another question. It comes from the line of James Rowland Clark of Barclays.
Hi. Good morning, everyone. Just a couple of quick questions on the U.K. and Ireland. You talk in the release about the strength you saw in January and February before the COVID comps, but also in March as well. Just thinking about the trends you've seen since the partial reopening of pubs, restaurants and betting shops. It looks like online gambling deposits dipped initially quite a bit because everyone went to the pub or restaurants and has reverted back to levels seen before that. Is that something you would agree with? Secondly, you answered that question about Australia's activity kind of trending down recently, but not to pre-COVID levels quite yet. Do you think Australia is a genuine lead indicator for the U.K. and Europe? If not a perfect indicator, then why not? Thank you.
Look, James, I think it's not easy in Q1 and it's going to get even harder as we go into Q2 and Q3 to try and draw comparisons of what we're seeing in the market in comparison to last year. What we've actually started doing in the business is we've been looking at how we've been performing based on a two-year basis because there was just so much disruption happened in March. Look, we are very pleased with the way that the business in the U.K. has performed in Q1. We shared with you some of the stats that we saw from Cheltenham and actually if we look at things like the Grand National, the amounts that were staked and compare that with 2019, we believe that the market was well ahead. Look, I'm pleased with the way that the business is performing.
I think there is undoubtedly going to be some impact as a result of consumers being able to get out and about and that will have a knock-on impact on the business. We think we've got some very resilient brands with Paddy Power, Sky Bet and Betfair and of course, the PokerStars brand which focuses on casino as well in the U.K. I think whilst we might expect to see a reduction in the number of interactions with the customer on a weekly or monthly basis, it could be that people will just slightly moderate their behavior. We don't expect people to stop transacting with us altogether. I think when we look at what's going on in Australia, it isn't entirely back to normal there. Attendances at the AFL and NRL have been down significantly year-on-year.
Is that because people are nervous about getting on public transport? Is it because people would rather be seeing friends who they haven't seen all year? I don't know. I think Australia is definitely a leading indicator for us, but trying to apply too much read across into the U.K. is tough. The U.K. market is different and I think we've got to see how the economy performs. There's Brexit impacts are going to undoubtedly have a big impact on the economy and we don't even yet know how lockdown is going to open up. Are people going to be allowed to travel for holidays? There's a lot of stuff to work through.
Yeah, I would probably summarize Peter's final comment as while we're happy and pleased with where we've got to both at end of Q1 and more recently, there is a lot of uncertainty out there and while we're not being overly pessimistic about it, I think we just recognize there are a lot of moving parts and over the next three quarters.
That's very helpful. Thank you.
Okay. Thanks, James. Look, I think we'll draw to a conclusion there. Kathy, thank you very much. Thank you everyone for joining and listening this morning and we hope that at some point we'll be able to do some of these things in person soon. Take care.