GVC Holdings PLC (GMVHF) CEO Kenny Alexander on Q4 2019 Results - Earnings Call Transcript

GVC Holdings PLC (OTCPK:GMVHF) Q4 2019 Results Conference Call March 5, 2020 4:30 AM ET

Corporate Participants

Barry Gibson - Non-Executive Chairman

Kenny Alexander - CEO

Rob Wood - CFO

Shay Segev - COO

Conference Call Participants

Ted Nyhan - JP Morgan

Stuart Gordon - Berenberg

Richard Stuber - Numis

Gavin Kelleher - Goodbody

Ivor Jones - Peel Hunt

Ed Young - Morgan Stanley

Simon Davies - Deutsche

James Rowland Clark - Barclays

Barry Gibson

Good morning, everybody. It's a great pleasure for me to be introducing the GVC Results for the Financial Year Ending December 2019. As you all will realize, I only actually joined the Board back in November, so I can't take much credit for what's been going on. But I'm delighted to be here. 2019 was a very strong year for GVC in terms of its financial performance. It faced some headwinds and some changes, but it stood up to those challenges very well indeed, as it's continued to do over the years I've been following it.

What are we trying to do from a kind of a Board perspective? Well, we're certainly looking to make sure that we're best-in-class as far as corporate governance is concerned. You're all smile when you remember some of the issues that we faced last year. And you know we've had some opportunities to strengthen the board, not just with my own appointment, but some additional members have joined the Board, and we've got a very strong PLC Board now. It's well-represented in terms of its geographic diversity, but also its general diversity in its approach and some really skilled individuals.

We've redomiciled the company into the U.K. You will remember, of course, that we were Isle of Man domiciled, and I think coming along with being in those kinds of jurisdictions, some people would tend to think it's maybe not a very grown-up company. Well, it's a very grown-up company, and it does things in a very good way.

We've listened and acted on the remuneration issues that we faced and the criticisms we had at the Annual General Meeting last year. And we are quietly confident that when we go to the AGM at the end of April, we'll get the support that we think we deserve.

We are leading on the safer gambling strategy. We are the U.K.'s biggest gambling company. I think it's only right that we should take the leadership position in that. Those of you who saw what Kenny said at the House of Lords will know that we are being serious, and Kenny will talk some more about that as we go through the presentation this morning. But we want to become customer-focused, absolutely. We want to make sure that we help our customers who have problems, and there are very, very few of them. But we are going to take it very seriously indeed to make sure that we work closely with regulators and the rest of the industry to try and improve the experience of our customers.

Those of you who looked at my CV and background will see I've had a long exposure to the gaming industry in the U.K., sitting on the Board of William Hill for 8 to 9 years, sitting on the Board of Playtech, sitting on the Board of Bwin-PartyGaming before it was acquired by GVC 3 or 4 years ago. And I've always respected what GVC have been trying to do. As it came through the early stages of the online revolution in gaming, it's sought to get market diversity, and we've got the best exposure to different markets of any of the big gaming companies.

We're unique in having real strength in our brands, obviously, in the U.K. with Coral and with Ladbrokes. But when you look at Bwin and other brands we have around the world, we've got real strength. And that's great from a consumer point of view.

I was always very jealous when I was at Playtech of the market-leading technology that GVC were developing and implementing. They were big competitors to Playtech, and they've implemented that strategy extremely well. Most of all, like any business, it's about the excellence of our people. We've got great teams of people around the world who are determined to make this a really successful business going forward and one that could stand up to the challenges of regulation in the various markets that we're in and make sure that we get -- the customer is absolutely at the heart of what we do.

So just looking at the agenda. You'll be hearing from Kenny with an overview of the results, and then Rob will go into the detail of just how we shaped up in 2019 and give you some ideas about what we're thinking about for 2020 and beyond. Shay will then talk about integration and technology, in particularly how the Ladbrokes Coral acquisition is being completely merged on to our tech stack. Shay is also going to talk about the U.S. It's a market that we're all very excited. It's very competitive, but we think we can really bring some new thinking into that marketplace.

Then we're going to go back to Kenny for the operational update and summary, and then we'll open the session to Q&A. So thank you very much indeed.

Kenny Alexander

It's Kenny Alexander, I'm the CEO of GVC. So I'll go through the overview. Yes. 2019, as Barry pointed out, a very, very successful year. And I think to put it into context, this is a year where we have had the Triennial Review, implementation of the Triennial Review, should we say, in the U.K. retail estate.

We've also had all the digital business, all the migrations. Not all of them, but a good majority of the migrations and integrations and all the people piece that goes with integrating the Ladbrokes Coral business. So I think when you look at these results today or listen to them, et cetera, et cetera, you have to put it into context, this could have -- this could have been a very, very challenging year, but we have absolutely come through it with flying colors. And I think that illustrates the quality of the business and the people and the track record of GVC over a number of years, and I think you've got to put in context, these numbers and what could have been a very difficult year has actually been a fantastic year.

So we had a strong operational momentum and financial performance. The group underlying pro forma EBITDA was GBP 678 million pre-IFRS 16. That was GBP 50 million ahead of the original consensus, which we kicked off at the start of the year, and we had 3 upgrades during the year, which was very pleasing. In terms of the digital business, we have grown double-digit once again. And we've grown substantial double-digit in all of our main territories and continue to gain market share.

I mentioned at the start a little bit about the Triennial Review. We'll talk a bit more, but I think we've absolutely executed the closure of the shops very, very shrewdly. It was always going to be a little bit of a game of poker; who closes the shops faster, where you close them. And I think we have outwitted our opposition in that area. And we've come out of the Triennial Review integration with a retail state and a significantly better and more powerful position than certainly I had -- could have expected when we went into it. So we're pleased with that.

In terms of integrations, Shay will go through that in a bit more depth. We really are well on our way now with the migrations. I didn't shuck away from -- I've said to you that in many meetings and certainly have said it to there was obviously going to be some sort of migration risk. I'm pleased to say we've done the Carol and the Gala Bingo platform migration. And we have had absolutely 0 impact to customers. So that has gone -- could not have gone better. We'll have completed the migrations by the end of the year, and the synergies will flow thereafter.

The U.S. business is the platform the people are in place. The numbers are coming through, and we remain very bullish about that as well. Total dividend was 35.2p. That was up 10%, in line with previous guidance, and we remain committed to continue to grow the dividend by 10% per annum. As Barry pointed out, we have leaded the charge in terms of responsible gaming initiatives, and there's much more to come on that, and I will cover that after the presentation. And in terms of how we've kicked off 2020, the group NGR is up 5% in constant currency, obviously, and online NGR is, in fact, up 16%.

Results. Sports results have been favorable. But even if you had normalized sports results, we would still be comfortably double-digit NGR growth online, which, as we have said, is what we've consistently achieved and what we're obviously trying to achieve this year and ongoing. So that's the overview, and I'll hand you over to Rob.

Rob Wood

Good morning, everyone. So I have the pleasure of taking you through another set of strong financials from GVC, which saw us beat expectations on all key measures, and we delivered that 10% dividend growth as well. I'll also touch on some guidance, which shows how and why we're well placed for growth in the year ahead. So let's dive straight into the group P&L. The layout here is the same as our last couple of presentations. So I'll focus on pro forma pre-IFRS 16 numbers using the comments on the right-hand side.

Starting at the top with another strong NGR performance from the group. Online NGR up 14% in constant currency. Every single quarter of 2019 was up double digits in constant currency. And that's exactly the same as we achieved in 2018. And we've checked it, and it's also the same as we achieved in 2017 and 2016. So therefore, we've grown our online business by double digits in constant currency for at least 16 consecutive quarters. I bet there aren't many CFOs out there lucky enough to be able to say that. So the force is strong in our online business, and as you heard from Kenny just now, we've got off to a good start in 2020 as well.

U.K. retail NGR down 15% or 12% on a like-for-like basis, obviously, impacted by the Triennial Review. Those numbers materially better than most people, including ourselves, had expected. And it also means we almost certainly grew our market share in U.K. retail. European retail, well, that just keeps on growing every year, and 2019 was no different, posting NGR growth of 5% and in constant currency.

Jumping to EBITDA now. You see we ended the year at GBP 678 million. So that's at the top end of our twice upgraded EBITDA range. Net debt. We beat expectations on revenue, EBITDA and leverage. You might remember a year ago I said we'd end with net debt around 3x to leverage, and in the end the actual result is 2.7x. Yes. We did have a helping hand from FX late in the year after Boris won his majority. But even if you back that out, as it says there, leverage would have finished at 2.84x.

Lots of other numbers on the page, I'll just touch on dividends per share, 35.2p, which means we did deliver that double-digit dividend growth commitment we announced a year ago today. And as you just heard from Kenny, it's absolutely our intention to carry on doing so.

The next slide that looks at the shape of our EBITDA progression through the year. If I start on the left-hand side, that's 2018 EBITDA, you can see we absorbed 2 large hits during the year. Firstly, incremental taxation, online, GBP 52 million; European retail, GBP 5 million. It is what it is. And then, of course, the Triennial Review hitting U.K. retail for an estimated GBP 118 million. But then on to the positives, well, firstly, that U.K. retail number is GBP 30 million better than our original expectations. And then secondly, the growth engine online added GBP 88 million to our EBITDA year-on-year, GBP 88 million.

Big picture, our retail business are in quiet growth, it's online where the big growth is. As the 2 bullets at the top, say, if you back out those extra taxes and the Triennial Review, you can see the group grew at a healthy 14% and online smashed it with growth of 20%.

Let's take a closer look at that online growth now on the next slide. As you can see in the table, firstly, sports NGR, up 17% and gaming NGR up 13% in constant currency. So both sides in double-digit growth. And then just look at those growth rates in the top right in our largest territories: U.K., up 11%; Germany, up 15%; Australia, up 22% pro forma; Italy up 11%; Crystalbet in Georgia; and Brazil up hugely; partypoker 8% while the big competitor was down 4%. All areas growing faster than their markets, so all areas taking market share.

What else? Contribution margin, that finished just under 41%. So that's 1% better than our guidance. It is down year-on-year because primarily of those new taxes but also as we have the impact of improving our regulated mix. You'll see it later, but our mix of regulated and regulating revenue is now up to 94%, which is great, obviously, higher regulated mix equals higher quality of earnings, but it does come with a drag on contribution as well.

Lastly, EBITDA growth you -- I mentioned it already, but just to make sure everyone writes it down, if you back out the incremental taxes, that was up 20% for the year. I've added a bonus slide next, which takes a closer look at our online key metrics. Firstly, NGR at the top, talked about that already, up 14%. Looking forward, we continue to target double-digit growth in constant currency.

Next one, marketing rate, as in the cost of marketing divided by NGR. You can see that ended the year at 22%. That's a point better than guidance, helped by some early delivery of marketing synergies after we bought our online marketing teams together last summer, which was earlier than originally expected. Looking forward to 2020, we think that marketing rate will tick up a little bit to reflect it being a tournament year. But big picture, I still expect marketing rates to tick down over time.

Contribution margin, I've mentioned already that big guidance by 1 point, a big guidance by 1 point because marketing rates big guidance by 1 point. And looking forward, we're expecting contribution margins somewhere between 40% and 41%. So broadly flat year-on-year as the benefits of platform synergies gets offset by an extra quarter of RGD and also that continued mix impact as we look to grow our regulated mix, higher regulated mix, higher quality of earnings.

Fourth, operating cost inflation 2019, pretty straightforward, in line with guidance. In 2020, we're targeting low single-digit deflation as the benefit of synergies start to land.

And then lastly, on the super metric important for us, operating leverage, as in the rate at which we convert new NGR growth down into EBITDA. And on an underlying basis, that number should be mid-30s, you take our contribution margin of 40%, you knock off a bit, the OpEx inflation, you get mid-30s. You can see in 2019, it ended low at 14%. But if you back out those new taxes, it comes out at mid-30s, as you'd expect.

Now looking forward to 2020, it is hard to be precise. But if there are no major regulatory impacts in Germany or anywhere else, we're going to shoot for a number starting with a 4. So call it early 40s, like me. So lots of detail up there, but hopefully, well worth it, given online is now well over 70% of our EBITDA.

Okay. On to U.K. retail now. Like-for-like NGR, down 12%, materially ahead of expectations. And really, that boils down to 3 or 4 things. Firstly, the decline on the machines themselves was materially better than we expected. And credit to our retail team for getting this strategy absolutely right, prioritizing slots over roulettes.

Secondly, the substitution from machines onto sports has undoubtedly been stronger than we thought. And certainly true to say that's underpinned by strong growth in our SSBTs. SSBT stakes last year were up 46% year-on-year, 46%. This is retail. And there will be no letup in 2020 as we continue to invest, to grow our share of what's still around a GBP 2.4 billion market.

Third reason, we undoubtedly benefited from competitor closures. It's fair to say Christmas came early for many hundreds of our shops. And that benefit will flow through into 2020 as well.

And the fourth thing I'd like to say is to credit our shop teams. They've done brilliantly throughout this transition despite the risk to their own jobs. And as a thank you, we're giving them a one-off bonus of GBP 2.5 million, not each. That's to be shared amongst them, but it's very well-deserved and in these numbers already.

European retail, another year of steady growth at 5% in constant currency. Italy, the growth engine for European retail, that was up 9% in constant currency for the year. That's 5 points stronger than the Italian retail market. So again, GVC taking share in its core markets.

Our shops in Belgium would have posted growth as well. But in the end, they finished flat after that virtual disruption in Q4. Frustratingly with this segment that NGR growth of 5% didn't convert into EBITDA growth this year. 2 reasons for that. Firstly, those new taxes, the GBP 5 million I mentioned earlier. And then secondly, there are GBP 4 million of one-off costs going through this year, partly to do with virtual in Belgium and partly some restructuring costs in Italy as well. So when you think about 2020, you can assume those GBP 4 million of costs won't repeat. And you can assume we're shooting for NGR growth again.

Okay. Let's dive into the statutory income statement. Now quite a lot of numbers for me to pull out for you here. Starting with depreciation and amortization. That's up reasonably materially year-on-year. 3 main reasons for that as the comments say on the right-hand side, the last of which was unexpected. That relates to an early write-off of technology assets, where we're ahead of schedule on the integration. So it's things like [indiscernible] the development, which is now no longer in use following migration to GVC technology. Looking forward to 2020, I expect that number to be broadly flat year-on-year. And then it will start coming down much the same as CapEx.

Next line down, share of JV income. You can see that's flipped negative year-on-year. That's because that's where we post our share of ROAR losses in the U.S. And the number for 2019 was GBP 12 million. That's a little bit more than the low- to mid-single digits that we guided to a year ago today. No prizes for guessing why higher marketing costs in New Jersey.

Next number, finance cost. That looks very strange at plus GBP 16 million. That's because GBP 100 million of FX benefits has gone through there on translation of debt at year-end. Most importantly, if you look at the interest charge, you'll see GBP 69 million for the year, and pleasingly, that's over GBP 10 million better than our guidance, thanks to the refinancings that we did over the second half of the year.

Next up, separately disclosed items, and there are a couple of rather large numbers there to touch on for you. Firstly, amortization of acquired intangibles. There's no change there. We've spoken about those before. Secondly, impairment loss on goodwill. So let me give you the background to that. When GVC acquired Ladbrokes Coral, the goodwill arising gets allocated to each of the business units in accordance with their value at the time. Well, one of those business units, Australia, is now at lower value after things like point of consumption tax and product fees have come in at higher rates than expected. So we have to write that down. Worth noting that all the other Ladbrokes Coral business units are materially up in value. And the aggregate is up in value, but the accounting rules are, you write-down, you don't write-up. So we take one-time noncash impairment, doesn't impact the business. And obviously, Australia's numbers are already inherent in our 2019 EBITDA.

Moving on, there's a bucket of other separately disclosed items for GBP 89 million. They're broken out on the next page, I'll come back to those. Tax, another number looking strangely positive in the year, again, a number of one-off benefits flowing through there. There's key points to leave you with in the strapline at the top. Yes. We reported a statutory loss, profit before tax and separately disclosed items was GBP 536 million in the year, which is up 23%.

Okay. Let's have a look at those other separately disclosed items now totaling the GBP 89 million in the bottom left. And most of these numbers should make good sense. The cash numbers are either in line or ahead of our guidance, with 2 exceptions that I'll talk about. One is Greek tax and the other is contingent consideration.

So on Greek tax, the update for you today is positive in the long run, but it does come with a short-term cash impact. The positive is that a year ago I announced the provision for GBP 187 million to cover all 8 years and all associated costs. Well, the positive is, today, we revised down that number to GBP 166 million. So that's a GBP 21 million saving. And the driver for that is we've now agreed and paid for 3 of the 8 years, and on another 3 years, we've filed amended returns and we're paying against those. And the amounts across those 6 years are lower than previously expected hence we get the savings. The short-term cash impact, if you look in the top right, you can see we paid out GBP 38 million more during the year than first expected. That's to settle those extra years and lock in those savings.

Second number, contingent consideration. You can see that the earn-out provision went up by GBP 44 million in the year after another year of soaring growth from our Crystalbet business in Georgia. We're now 1 in Georgia, overtaking [indiscernible] a jar of that from [indiscernible]. And really interestingly, if you look at the total cost of acquisition of Crystalbet, even though the earn-out provision has gone up, it will be around 4x to 5x 2020 EBITDA. It's a good example of how GVC creates value through bolt-on M&A.

Next slide, cash flow statement. This should all make good sense. I don't need to pause for too long on this slide. I'll just touch on that strapline at the top. Strong free cash flow generation of GBP 395 million, which is up nearly GBP 100 million on the prior year.

Okay. 2 slides left for me. One on net debt and then some guidance. Net debt and leverage have both been a good news story for us. In 2019, ending the year at GBP 1.82 billion pre-IFRS 16 and 2.7x leverage. So our debt position is robust. We have long maturities as the chart shows. We have low-cost of debt, down to 3.5% now. We're sitting on over GBP 200 million of cash. Our leverage is sub-3x, and we'll continue to delever from here going forward.

Let me end with some guidance. Starting on the left-hand side with U.K. retail, aka, the home of upgrades. You can see the bottom row of the first table upgrades EBITDA due to early delivery of triennial mitigation. And really, that's about earlier competitor closures than planned and also some cost initiatives, which are landing earlier than anticipated. The key number for 2020 is a GBP 15 million upgrade.

Shop closures, our final number is 450. Over the last few weeks, we've closed 200 or so shops. If you add those to the 250 in the prior year, you get to 450, and that's it. So it's half the previous number. It's more jobs preserved. It's lower closure costs and now our internal triennial program comes to an end. The online targets in the bottom left, I've covered those already. So I'd jump to cash guidance in the top right. Now all those numbers should make good sense. Just on Greek tax, I think it's right to assume that we do complete all payments. So for the 6 correct years will be fully paid, and for the 2 erroneous years, will be fully overpaid. That then leaves us with a receivable of GBP 120 million. So across the 3 large tax positions, we'll have 2 receivables and 1 payable. Receivables, GBP 120 million from Greece, GBP 200 million HMRC and 1 payable of GBP 77 million to the Austrians, and we expect resolution on all 3 of those cases during this year.

So that's it for me. Another strong year of EBITDA performance from GVC, GBP 50 million ahead of expectations and delivering 10% dividend growth as well. Let me just leave you with 3 of my favorite stats on our online business, you'll like these as well. We're up to 16 consecutive quarters at least of double-digit constant currency growth. Two, we're up to 94% regulated or regulating. And third one, you haven't seen this yet, but it's good, 93% of our online revenue comes from countries where we're growing by more than 10%. 93% of our online revenue comes from territories where we're growing by more than 10%. So lots of reasons for us to be confident for the year ahead.

Over to Shay now on integration technology and then the U.S.

Shay Segev

Thank you, Rob. Hello, my name is Shay Segev, and I'm the Chief Operating Officer in GVC. In the next 10 minutes, I'm going to walk you through the progress we made in integration, technology and the U.S. business. There is quite a lot of details in the slides, so I'll try to give you my insight and later on there is a Q&A session as well.

So let's start with the integration. 2 years ago, GVC acquired Ladbrokes Coral and we become the largest operator. Still, 2 separate businesses. Since then, we consolidated every function of these 2 businesses: HR, finance, marketing, customer service, et cetera. As you can imagine, the biggest component of the integration was technology. It delivers most of the cost synergies but also unlock many of the benefits. I'm pleased to say today that we delivered most of the technology challenges, and we migrated 4 out of 5 brands. We're expected to migrate the last brand, Ladbrokes, in quarter 2 this year. And by that, we're done with the migration work. This will unlock most of the technology synergies.

Integration has been very good for us. In addition to that, as part of the overall integration process, we reviewed every element of the business. We looked what one brand is doing better than the other brand, and we implemented learning. As an example, we found out that bwin has a better tennis model than the Ladbrokes Coral brands, which provides more bidding opportunities. We took this model, and we plugged it in to the Ladbrokes and Coral brand, and we drive incremental revenues.

To summarize, integration is progressing well. We will deliver synergies as planned. And we unlock many of the business benefits.

We mentioned many times before the technology is the core competitive advantage and drive growth in GVC. We are the only operator who own the full technology stack, and this gives us some advantages. It gives us agility, economy of scale and also allow us to control our destiny. It's driving our business and focusing on growing our core, it allow us to enter the U.S., and it's supporting us to future M&A as well. Perhaps as important or even more important, the fact that we own the technology give us the insights to better understand our customer and ensure we are driving safe gambling. There are 2 more slides in deck at the end, which give more information about technology.

Let's move to U.S. One of the areas that I personally mostly excited about is the U.S. opportunity. I don't need to tell you how massive the U.S. opportunity is. You all know that. And this is why we founded a partnership with MGM. We established a joint venture. We incorporated a company called ROAR last year in 2019, and we already have 200 people working in Jersey office. We took some of the best talent within GVC, the best talent in MGM and, of course, new recruits as well and these people are now focusing to driving our U.S. business.

Last time when we updated you on the U.S., we just launched our sport in New Jersey. This was the early stages. Since then, we made impressive progress. We launched BetMGM, the brand into 4 additional states. We also signed 2 exclusive partnership with Yahoo! Sports and with Buffalo Wild Wings. We also ramped up our marketing, and we already see the benefits of this, of us gaining further market share.

It is my belief that ROAR and GVC are in the best position to lead the U.S. market. And why do I say that? Why do I say that ROAR is in the best position to lead the U.S. market? Because we have all the ingredients: we have market access; we have leading brands; we have proprietary technology that we own; and we have access to players.

Let's touch these components. So in terms of market access, as you can see, we already secured around 50% of the U.S. population in terms of fair market access. Moreover, by the end of this year, by the end of 2020, we will be live by at least 11 states with a BetMGM brand offering to 20% of the U.S. population. We're also monitoring very closely how the U.S. market are opening, and we are ready to capitalize as new markets are opening.

I mentioned before how important the technology is to our success. And you can see here, we provide the full technology solution to our U.S. business compared to others. This will drive a long term, better user experience, integrated user experience to our U.S. business and also better economics.

So talking about the U.S., I already told you that we have the market access, we have leading brands and we have technology that we own. What about players? So as you can expect, we're using classic digital marketing like everybody else. We believe that we are more efficient than others because we have the international marketing expertise that we bring. We also have the GVC marketing technology, and we keep improving the customer acquisition cost. And we see already these numbers are going down.

In addition to that, we signed 2 exclusive partnerships, one with Yahoo! Sports and another one with Buffalo Wild Wings. This gives us a reach to even larger population of people that we know like sports. Yahoo! Sports is a leading mobile sport app in the U.S. with more than 60 million active customers per month, which are now being marketed with the BetMGM brand. In addition to that, we are now integrating the Yahoo! Sport where customers with Yahoo! Sport account can place a bet directly with a BetMGM instead, which is allowed, of course.

Buffalo Wild Wings is a sport bar chain, with 1,200 sport bars in the U.S., which are now marketing as well the BetMGM brand. The one which is really a big opportunity for us, even biggest in terms of access to players, it's our partnership with MGM and leveraging their assets, both the properties and the large customer base they have through the M life program. MGM owns a loyalty score -- a loyalty scheme called M life, which is -- has million of registered customers. We've now integrated M life to our BetMGM app, which users who have M life account can place a bet with BetMGM. And the ROAR team can market to the M life customer base.

In addition to that, soon, we are going also to ensure that M life customers will also get points when they're betting on the BetMGM brand, which later on they can redeem it in MGM properties. MGM operates 9 properties in Las Vegas, which accounts to 50% -- almost 50% of all the rooms in Vegas. 3 weeks ago, we installed the GVC sport platform in these 9 properties. In addition, we rebranded all of these sports arenas in these properties to BetMGM. This means that 1 out of every 2 guests who are coming and staying in the Las Vegas strip will be marketed now with BetMGM. One of the key advantages of GVC and our experience, our proven experience, is with omnichannel. And one of the things that we've proven in the past is that when customers is coming in the U.K. to the Ladbrokes and Coral shop, then we offer them and we cross-sell them into the online channel. We apply this learning from the U.K. to the U.S. and soon customers will come -- guests -- will be the guest of the MGM will be incentivized to install the BetMGM app and place a bet when they are in Nevada. Later on, when they travel back to their home state, the app is still on the phone, and we can market to them, and they can continue to become all our customers, of course, assuming they're in state, which is allowed. So this is a very unique opportunity, which is leveraging both GVC experience, omnichannel and technology, and MGM Properties and the M life program.

To summarize, 2019 has been a foundation year for us in the U.S., where we've built all of the building blocks, and we're accelerating this into 2020. We expect to be live with at least 11 states with the BetMGM brand offering to at least 20% of the U.S. population. We have leading brand, unique technology, and we are expanding our market access. Our marketing become more and more efficient, and we have a huge opportunity to materialize both the partnership we made and the MGM assets. As we all know, the U.S. opportunity is still untapped, and this is our belief the GVC in whole is in the best position to lead the U.S. market.

I will call Kenny now. Thank you.

Kenny Alexander

Okay. Thanks, Shay. So in terms of strategic framework, our vision is very, very clear. It's to be the world's largest and most importantly the most responsible sports betting and gaming entertainment company. We believe that the key is scale and geographic diversification, which we have both in abundance. And at the core of everything we do is safer gambling. And if we deliver them both, then we should deliver significant shareholder value.

I think Shay just illustrated one of the key strategic advantages we have over all of our competitors is the fact that we own our propriety technology and we can use that technology to execute M&A successfully in terms of integrations, which we've proven this year, yet again, following the bwin integration, which went fantastically well, we've then done the Ladbrokes Coral integration, which has gone just as well as the bwin integration has done. That also -- that proprietary technology also means we've got very scalable online business model, which means as we grow the top line and as already said, we grew the top line faster than any of our competitors, that then should deliver a very scalable online digital business and through our significant amounts of cash as a result.

In terms of the strategic pillars, obviously, we have 4 main parts to business. In terms of digital, we have great brands. We have put a lot of brands spread right across the world. We've got obviously in the U.K., we've got Ladbrokes Coral, our main brand, obviously. And Europe is bwin, the second biggest brand in poker in terms of partypoker, we've got big brand in Italy, Eurobet, and we've also got the bwin brands. We've got lots of brands, great analytical tools and great people along with it to market it.

We've get a retail business both in terms of the U.K. and then Europe, both in terms of Italy and Ireland. And we use that retail estate also to drive our online business through our omnichannel. We've got U.S. JV with MGM, and the results are now coming through, and we're as bullish now about our prospects for the U.S. as we were when we signed the contract with MGM, nearly 18, 19 months ago.

In terms of M&A, we're always looking at M&A. It's fair to say we've done a lot of M&A over the last few years. We continue to look for opportunities. The rules of engagement for M&A, for ourselves are, we're looking for regulated markets, areas where we're nonexistent or possibly subscale, they'll get a high potential for growth and will not overpay, obviously. And we keep looking. And if we find the right opportunities, then we won't hesitate to take them on, but I think it's more likely to be small bolt-ons. But as I say, we'll look at anything. And if the right opportunities come up, then we'll look to exploit it.

In terms of safer gambling and ESG, our ambition is to the safest, the most trusted gambling sector operator in the world. In terms of being a responsible employer, we've done great strides in the last couple of years, particularly since we acquired Ladbrokes Coral, the HR function has done great things in terms of being a responsible employer. It's a second year of our 3-year diversity and inclusion plan. We've launched a multicultural work stream. We've introduced an employee Well-me program. And we've also targeted to reduce our carbon footprint by 15%.

In terms of working with our communities, we've also done quite a lot. We've continued our support of SportsAid, as our SportsAid function a couple of months ago and saw the results of the investment we've put in there to help young -- potential young athletes to get a funding to live their dreams, which has been very fulfilling and a great cause. We've donated our shirt sponsorship rights to Children with Cancer. We've got GVC Global Foundation and much, much else. And I challenge anyone to come into our organization and not be persuaded that we are a very responsible employer, and we're also very responsible in the communities where we operate.

We've taken decisive action to improve player protection. We've led the charge in terms of problem gambling, not just in the U.K., but also in many of our other markets. And safe gambling, responsible gambling, is at the core of everything we do in GVC. We have 7 principles for safer gambling. Some of them are understand -- understanding the problem or problem gambling, and that's illustrated with the fact that we've had a 5-year multimillion pound research project with Harvard. We're all about educating our stakeholders, and that's going to be illustrated by the rollout of our youth focused syllabus with GamCare and EPIC, we're advertising responsibly. We're helping people in need, and we've increased GVC funding for research, education and treatment tenfold to 1% of U.K. GGR by 2022 and some few other statistics that illustrate how serious we are taking responsible gaming.

We have nearly 200 rules in our business dedicated to responsible gaming. And in the U.K. alone, 50% of our customers last year used the responsible gaming tool, and 88% of our new customers used the responsible gaming tools. So I think those numbers illustrate how seriously we were taking it and how effective we are. And in 2019, over double the number of people use responsible gaming tools within the group compared to the previous year.

In terms of the regulatory update, I'll go through them one by one. Germany, sports betting licensing process is underway. We -- there is a lot of uncertainty -- remains a lot of uncertainty around Germany. There's always been uncertainty. But I do feel we're beginning to get reasonably close to a conclusion and a conclusion where we can say is going to be satisfactory for our bwin business. There's uncertainty around timing, the licensees, which we expect to be issued this year, probably in the next couple of months, will include proposals around restrictions and about their offerings. But we expect these to be relaxed by the regulator and individual licenses. And we do still expect to be able to offer gaming in some sort of capacity.

Obviously, the next Interstate Treaty is in 2021. Again, there will be further restrictions, and we believe it's going to be -- we're very confident it's going to be for betting and gaming. And as a result, we will still be able to offer some sort of gaming product to our bwin customers.

In terms of the U.K. market, obviously, there has been the ban on online credit cards effective from the 14th of April 2020. And obviously, there's going to be a review of the 2005 Gambling Act.

Brazil, we were optimistic the last time I stood up here about clarity about the Brazilian regulatory. I think there is going to be further delays to the Brazilian regulatory environment. That is not unusual. Every single time we've been really optimistic about Brazil, that does seem to be delayed, but we're -- I think it's still progressing, but it's not going to be in the sort of time scale that we had indicated previously. And in terms of the Netherlands, we expect it to regulate in the 1st July 2021, and we are adhering to the Dutch tolerance policy and fully confident of getting a license.

I'm going to tell you, and this is in general about our views on regulation. This industry, I've been in it for industry for about 20 years. And sometimes, it does feel like 100 years, but it is only 20 years. And it has always had regulatory headwinds and regulatory challenges. And as I stand today, undoubtedly it has, primarily U.K. and in Germany. But we are better placed than any of our competitors to take on these potential headwinds. And they are not fazing us and we're not fearful of the regulatory pressures that are coming.

We grew faster than any of our competitors. We are very much more diversified than our competitors. Yes. We're big in the U.K. Over 2/3 of NGR comes from elsewhere. If you grow as fast as we are, and Rob gave you a flavor for contribution margins and the scale of our digital business, if we grew double digit, which we have done 16 quarters in a row, and on an annualized basis, that's an incremental cash flow of close to GBP 100 million. So we're very diversified. We grew fast, with a very scalable business model, and we want regulation. We want clarity with regulation. And we believe we're going to get it. We always believe we can grow our competitors. We've got a very scalable business model. We're very diversified. We think we're going to get clarity in regulation in Germany. We're not particularly fearful as much as some about the U.K. regulatory environment. And as they say, it's a headwind. It's something that gets discussed a lot. But we think we can combat it, we can take it on, we can absorb any hits. And we look forward for clarity on regulation and sensible regulation as well that will not drive customers to the black market.

In terms of our diversification, I've just touched on it, 35% of our revenues come from the U.K., 15%, obviously, from Germany; Australia is up there at 12%; Italy 7%; Georgia came from nowhere to be 5, 3%; Brazil, 3%; Netherlands 3%. So yes, U.K. is the biggest market, but 2/3 of our business comes from elsewhere.

In terms of the next slide, sustainability of earnings. Rob has already mentioned some of these. 94% of our online NGR comes from either regulated or regulating territories. 80% comes with online market, it's growing [indiscernible] 5%. 93% where GVC has grown by greater than 10%, 98% where it's taxed by 15% or more and 81% where online penetration kind off less than 20%. So hopefully, this illustrates the sustainability of our earnings. And we're very much positioned in markets where there's high-growth and we would expect that growth to continue for the foreseeable future.

In terms of some of the operational updates, we've seen some Rob slide, he illustrated where we're growing. These are sort of our 5, 6 main markets. The U.K. last year grew by greater than 10%, 11%. Most of the growth came by the Ladbrokes brand, which performed very, very strongly. Foxy Bingo also grew quite significantly after we moved it onto a new platform. And the U.K. market, we expect our U.K. business to grow more than the market is growing, so we expect to continue to grab market share, and we continue to aim for double-digit growth.

In terms of Germany, we've had many, many years of fast growth in Germany, grew 15% in the last year. And we relaunched the bwin brands again, making the brand even more passionate and authentic and we're the 1 brand online in Germany, and that bwin brand in Germany we expect to go from strength to strength.

Australia is up 22%. Most of the growth came from our Neds business, which we acquired a couple of years ago or 18 months ago, I think. Remains a competitive market, implementation of point of consumption tax and tight and regulatory framework. Again, believe we're one of the fastest growth, if not the fastest-growing online business in Australia, and we're confident of continuing to grow faster than the market in Australia.

Italy, we've market position of 1, grew by 21%. Yes. There's advertising restrictions. I think this is an illustration of when there are advertising restrictions, if you do have a retail presence, which we obviously have a significant one with our Eurobet brand that helps to combat any sort of advertising restrictions that may appear online.

Georgia grew by that Ladbrokes Coral, grew 59% and is the 1 in the Georgian market. That's definitely been helped by using -- by putting some of our marketing capabilities into that business and obviously improving the product as well from the -- from -- which has obviously helped as well.

Poker -- partypoker continues to grow and grew 8%. And we expect that to continue to grow in the foreseeable future as well. So in all of our key markets, we are growing faster than the market and continue to grow our market share.

We talk a lot -- well, I talk a lot about growth. I think it's in the DNA of GVC as long -- along with our proprietary technology and our ability to integrate businesses and our other big, big asset is the fact that we grow our online business faster than anyone else, and we are able to do it even whilst we're integrating businesses. But I can talk and talk and talk, it's better just to put the numbers out there. And this table illustrates, and has already been mentioned, with 16 quarters of growth, this is annualized. This shows the year-on-year NGR growth and it's like-for-like pro forma, constant currency, so there's no fudging the numbers to make it look as we want to make it look, and this shows against 3 of our biggest competitors out there that we have outgrown them every single year for the last 3 years, and I don't expect anything to change in 2020. And this goes back to the whole issue about regulation. If you grow as fast as we are, and we've got a track record of doing it, I'm not fearful of any regulatory headwinds that may be coming in for the industry.

In terms of the U.K. retail, I remember when we bought Ladbrokes Coral. Some people did say, really? Do you really want U.K. retail? I had to say yes because it came with -- it came with the business. I was always confident about U.K. retail. I knew that the people within Ladbrokes Coral, very, very capable of running that business. And I always thought I did buy the whole omnichannel strategy as well. But since we've gotten the business for the last 2 years, one, it's much better run than even I had suspected. And the omnichannel piece of it is far more powerful than I even had anticipated when we acquired the business.

So for example, 15% of our Ladbrokes digital business comes from omni, people we've converted from the shops, 19% of Coral. And as those numbers aren't decreasing anyway, so we're getting the same amount of people converting from the shops onto our digital business as we had when this kicked off the omnichannel strategy. So that's a positive. I've already touched on it, we closed 450 shops. We expect to close about 2%, 3% per annum, which is just consistent the previous triennial. And this is a business that generates over GBP 100 million of free cash flow, continues to drive our digital business and gives us a presence, particularly in the U.K. and Italy, and the main streets, which is important for the brand. So I'm -- we're very pleased with that asset.

So in terms of the summary, we continue to lead the charge in safer gambling with a very good 2019. We're ahead of initial expectations, upgraded 3x, couldn't have gone better. The good momentum in retail and online, I think what's absolutely critical is that the migrations have gone much better than we had -- could have anticipated. If we got those and I repeatedly said it to Shay, do not early go with these migrations. If you pull the lever and we get it wrong, then the business in a very bad place, there's no going back, and I will undoubtedly fire you. And I am very pleased to say that Shay has delivered once again, migrations have gone. These are not straightforward, these migrations. And Shay and his rest of this technology team have nailed it. They nailed it at bwin, this was a much tougher migration, undoubtedly, Ladbrokes Coral. The U.K. is a much tougher market, if you get it wrong, then you will be punished. And we're not there completely. Everything we've done so far has been a complete success. And at the same time as doing these migrations, we've continued to redevelop with the product and the business has grown at the same time, ahead of the market, not just in the U.K., but in every one of our markets, and the whole team deserves enormous credit.

The U.S. is going from strength to strength. We remain as excited as we did when we signed the contract with MGM. We've got a pipeline of M&A, which we will consider, and if the right opportunities come along, we will execute it with a very good start to 2020. The results have been favorable. Even if they've been normalized, we would be still comfortably double digit. So we've got a very, very good track record and we are bullish and we've got every right to be bullish. We have great scale. We have great diversification, we have a great track record, organic, and we've got great track record of executing on M&A. And we welcome regulation. We welcome clarity and regulation, and we welcome sensible regulation, and we're very confident we're going to get it in our key markets. And responsible gaming is at the core of everything we do. We've been leading the charge. We will continue to lead the charge.

And on that note, I'm going to stop talking and go over to my chair and answer a few questions. Thank you very much.

Question-and-Answer Session

Q - Ted Nyhan

Ted Nyhan, JP Morgan. Just firstly, on German regulation, do you think that's the fourth Interstate Treaty will ultimately have restrictions on your offering table games? And the limits that are in the drops that people have seen of EUR 1 stake limits in slots, do you think that's likely? And on Brazil regulation, do you think the 3% turnover tax could lead to black market leakage, if it's implemented? And finally on M&A, if a larger opportunity came along, would you consider raising equity to do that?

Kenny Alexander

Okay. I'll take that one, actually. About Germany? Yes. What I would say about the German regulatory situation, this is no exaggeration, it almost changes day by day. I mean that is no exaggeration. There are developments around German regulation, day by day. Do I think Interstate Treaty will go in 2021? I think it's likely. I think it's likely. Do I think these stake limits that are being suggested around slots will be as low as they are? No. I don't. I think they will be eased. And I think these state limits will be higher than that. And in terms of table games, again, we are confident that we'll continue to be able to offer table games in 2021 as well. But I would say, I would love to be able to sit here, stand here, whatever, and give you clarity about Germany.

I talked to our Group Legal Counsel, who sort of manages this German regulatory situation and it does change, maybe not quite day by day, but week by week, it does change. There's a lot of uncertainty about timings. There's a lot of uncertainty about what the restrictions on the product. But I think we're heading in the right direction. I think we're definitely heading in the right direction. We're very confident we'll be able to continue to offer casino, and really in terms of our share price, German regulation is one of the [indiscernible] and what we just won. We're the biggest online. We've got a great brand there. I think we're going to get sensible regulation. I just want to get clarity now because I think it would definitely help our multiple, if you could finally bring this German regulatory uncertainty to conclusion.

On Brazil, the 3% tax. There may be some leakage to the black market. I mean one thing, obviously, we are -- we've been in that Brazilian market since 2010, I think we got into that market. And we are by far the most dominant player in Brazil, and we have invested, this is no secret, because we've repeatedly said it, we've invested a lot of money into that Brazilian market, over the last 10 years. And our brands are very, very well established. And I wish anyone luck and trying to come into the Brazilian market and take away our 1 position anytime soon. So again, in terms of regulation for the Brazilian market, we are very [indiscernible] to get clarity and get some -- and get a regulatory environment in place. We're the 1 player. Brazilian market has got huge potential, huge potential. Even the growth that we're getting is -- it could be significantly more because there are -- we can only really promote a lot is play-for-fun products, et cetera, et cetera. So if we could actually get proper regulation, and did proper advertising, we would definitely get more bang for our buck, for our marketing and definitely the business would kick on even more than it is at the moment.

On M&A, I think it's most likely we'll be doing bolt-ons. I mean there's not really that much out there significant to buy, really. I mean there's been so much consolidation. And we have been ourselves in flutter consolidated the market up. So if there was something out there and the numbers stacked up and it made sense, we'd be going and raise equity possibly, but I don't. It's -- it would really depend. It's not something that really we think about too much at the moment.

We do like to do some bolt-ons, smaller bolt-ons. I mean the best example of what M&A I really would like to do is repeat the Georgia acquisition in terms of there's a market we were in, we bought it and we retained the management. We restructured a deal to keep the management, not just till the earn-out but also post the earn-out. It has grown fantastically. We knew we could put our product in there, we grow even more and it's grown beyond our expectations. If we could find something like that, then we'll definitely pull the trigger on it.

Rob Wood

I'll just add on Brazil. We're still waiting for that one, the finance ministry aren't pushing for 3%. But if we do get a high turnover tax, we've got experience of passing that on to the customers as we do in other markets with high turnover tax.

Stuart Gordon

Stuart Gordon from Berenberg. A few questions. First one is just on M&A and the double-digit online growth, how confident are you in 2020 that absent any M&A, you'll still be able to deliver on that? Secondly, the credit card changes. Could you give us some color how you've thought about that in putting together your guidance thoughts for 2020? And finally, just a bit of housekeeping. I think there's some moving parts of divisionally in the guidance this year. I think some of the synergies have shifted into retail, also how online has perhaps moved due to the change in the regulatory mix. So if you could give a little bit more color on that, that'd be great.

Kenny Alexander

Okay. I'll take double digit and Rob can take the rest actually, if the rest remains. Sat with him in the last one. In terms of -- do I think we can get double-digit growth organically without M&A, subject to no regulatory clarities, whatever, yes, yes. Yes. Absolutely. I mean that's in our guidance. First couple of months, we've done 16%. And as I said, the results have been very good in terms of favorable, but even if you had normalized it, we would be comfortably ahead. And yes, we are -- we still are confident, and probably you can go on with the rest one.

Rob Wood

Yes. And I'd just answer that, that 2019 was up 14%. Yes. We did have Crystalbet and Neds washing through. But equally, we had Switzerland going the other way, no tournament. So confidence that we can carry on organically at double-digit growth. That almost talks to the credit cards' point as well. We haven't made a feature of that in our updates today because we're confident of the double-digit constant currency growth. If we weren't, then we might say something on credit cards, but that's what we do. We absorb these kind of hits and reasonably bullish that transfer to alternative payment methods will be a pretty high percent. If you look at the credit card deposits that we have, it's about 5% of the total. But If you look at those individuals, the vast majority of our debit cards registered as well. So that gives us some confidence.

On the mix point, clearly, U.K. retail did benefit from those competitor closures in Q3, Q4 last year, and that's flowing through. There are potentially a couple of other points. I think NGR is in a good place for online in terms of expectations, but I do wonder whether synergies are reflecting the fact that some synergies, some technology and trading synergies, they do benefit the retail estate on the basis of how we are apportioning cost. So there might be a little cost difference on synergies.

The point on regulated mix is an important one. So it's fantastic that we're up to 94% now, and I only see that going in one direction, but it is important to know when folks are looking at their models, they've asked NGL number might be in the right place, you do take a mix impact through your contribution margin. And it can be, and if you look at the Switzerland impact for instance, it's not immaterial. And perhaps that's -- might be something in numbers on mix, but NGR in a good place.

Richard Stuber

Richard Stuber from Numis. Three questions, please. The first one on the U.S. Obviously, slightly more bigger losses than you previously guided to? Is it purely, as you say, marketing expenses? Or was it that states are rolling out quicker so there's more investments in newer platforms and newer jurisdictions? And also, do you have a sort of market share target in mind, I guess, I'd say, for the back end of the year?

Second question is in terms of the sort of integration, the Ladbrokes integration happened in Q2. How big is that team? And are those people going to go back into the business? And can that help accelerate the underlying business as well?

And the third thing, just -- just in terms of the coronavirus in Italy, are you seeing any sort of impact over the last sort of -- over the last few weeks in terms of less traffic? And presumably, that's baked into your plans as well in terms of your guidance?

Kenny Alexander

Okay. I'll take corona. Shay can do the U.S. and integrations, and you can talk about the numbers a bit in U.S. as well as the losses. Anyway, corona has not really had any impact as of yet. There's been a few sport events canceled, some [indiscernible] were canceled. I think a few rugby are going to be canceled. Look, I'm not a medical expert, I can't -- if sport events do start to really get canceled en mass, then that's obviously going to have an impact. But I'm no medical expert, and I really don't know how it's going to play out. At the moment, no impact. If there was material abandonments of sporting events, then obviously, it's going to have some impact. I would point out, though, that [indiscernible] our online business, a large majority of actually is gaming. So the gaming side would be protected. But look, that's all I can say about corona. I don't know how it will play out. And if there are abandonments, then yes it will be affected, but I'm not going to predict what's happening.

Rob Wood

And just on Italy, in particular, yes, we do have a large retailer stake there, but we're fortunate in that it's southern biased in its location. So far, at least, no material impact being reported from the ground.

Should I touch on U.S. losses and then you can have some extra color. So yes, the delta between planned 2019 and actual 2019 really was all about New Jersey. The state launches that we've had since New Jersey have only come fairly recently. And that's really underpinning the expected loss in 2020. So we're still of the view that we've been so consistent with for some time that every time a large state opens, we do expect losses in year 1, broadly breakeven year 2 and into profitability thereafter. So when you look at the shape of 2020, we have got a lot of new states coming online, either over the last few weeks or imminently as well, and that's really underpinning the losses as we will invest what it takes to fulfill our ambition of being a leading brand.

Shay Segev

In terms of U.S. market share, I mean, we are bullish, still early stages. So it's very hard to put figures. As I presented, we have all of the building blocks. And if you look into New Jersey, I mean we're making good progress. I mean gaming, we're gaining -- the numbers are pretty much changing every month. You will see that we are already almost 20% on gaming or market share. I mean, sport, we just launched 6 months ago. We're pretty much up to almost 5% market share for sports. I mean I don't think New Jersey is a good representative of the rest of the U.S. We launched in Indiana, in West Virginia. This is just materializing now. Michigan is coming the next. Nevada, we just migrated the platform, as I mentioned. We think we're in a great position, both in Nevada and Michigan as both are very strong MGM states, and we come with the large assets there and where the brand can play a key part in the omnichannel strategy, as I mentioned.

And so overall, as I mentioned, we are very bullish about the U.S., I think it's very early to say numbers. We gave some numbers we mentioned last year. We want to be on sport 10% over the next 12 months in New Jersey specifically. I think we are progressing there. With 6 months, we have 5%, we're still grabbing a market share. It really depends how the competitive our spending. We are not doing insane stuff. We're making sure that our marketing spend is also efficient.

So this is the U.S. In terms of integration. The heavy lifting is done. It gives us a lot of -- again, you saw the growth, you saw the numbers. I mean a lot of it is a mix of great work has been done in the marketing team, of course, by applying some know-how and also unlocking a lot of opportunities. I gave 1 example with tennis, but there's many, many examples, for example, once we migrated the Coral brand just a few weeks ago into the GVC brand. We saw conversion is improving. When players make a registration to deposits, we saw a few points of improvement by better journey that the GVC platform is bringing. Another good example is the GVC platform is much more stable than the legacy platform that we had. More stable, mean more uptime, mean more betting opportunities, mean more money.

So all of these small things are coming together and with the great work from the marketing team and a great work for better products, superior products. I think overall, together, you see the double digit.

Rob Wood

And just that is definitely true that those teams that are working on migration can start focusing again on the product development roadmap. And of course, when you're on 1 platform, you start to get all these best of both synergies that we've talked about many times, build once, deploy multiple times, et cetera.

Gavin Kelleher

Gavin Kelleher from Goodbody. Just a few for me, please. Just in the U.K., is your exposure to VIPs reducing naturally in the business becoming more recreational? I just linked to that question, GBP 2 stake is obviously something that people mentioned as a potential area to tackle in the U.K. and online. I obviously know where your view on that is. But just from our perspective, has your exposure to GBP 2 staking or stakes above GBP 2 reduced naturally over the last 3 years, since everyone uses the Gambler where data is from January 2017. And has the GBP 2 stake reduced since then as a percentage of your U.K. business? Like how staking in gaming is down since then?

Kenny Alexander

Yes, it is down. And we are -- just general in the business, we are far less reliant on VIPs than we were 3, 4, 5 years ago, undoubtedly. If you go to the House of Lords, I think people look to this. I gave some stats. Some of our competitors gave some stats. I have to say there's a fair amount of apples and payers there. I was probably too truthful. I mean, it will be a definition of VIPs and then I could put another definition of IPs and -- VIPs and said it's only 2% of our deposits and some of that. So that was just -- I wouldn't use those numbers as a reference. Our business is far less VIP-reliant than it was a few years ago. And that will be a continuing trend ongoing. That will be a continuing trend ongoing, not just, I think, in the U.K. and in other markets as well.

Rob Wood

There is an important point when you see numbers like that, it makes the customer dependency look so adverse. But you sort of have to remember in our business, you get so many once-a-year customers, the grand national guys or the bonus abuse is that if you take out players who don't use you very much in less than 5% of the days in the year, you get an 80-20 rule, which for me is a fairly standard in business.

Gavin Kelleher

I'm sorry, just one follow-on. You hit on it there, Kenny, is the German business less VIP exposed than the U.K.? Is it more recreational?

Kenny Alexander

It's much more recreational. And if you then look at some of our other businesses, probably the most recreational businesses, Brazil and Georgia are very recreational businesses. Average stake in Brazil is very low. I don't tell you what it has been, I can tell you some material level.

Ivor Jones

Ivor Jones from Peel Hunt. Kenny, you were talking about M&A, maybe as a way of entering markets. Now that the Ladbrokes Coral is embedded in might we say that you're going to enter a new geographic market organically and just spend your way in and bring the brand into a route of entry?

Kenny Alexander

Yes. I mean we have thought about that in the past and toyed about the pluses and the negatives of just using the bwin brand or just any of our brands, quite frankly, and plug in into a new market. I think it makes more sense to go in there and acquire a brand, established business in a new territory that's already there, the brand is more established, there's local expertise there. And I think you'll see and various other examples in the industry over the last or many, many years that is better. I think it's much more better and more efficient use of our capital to go in there and acquire businesses and utilities by M&A than go in there, plug in there with a new brand, a new team and invest heavily. So in many territories where, obviously, strong brands is important, in many territories, there's a retail heritage. And acquiring retail, as we've demonstrated in lots of other countries, is a really good way of supporting online growth as well.

Ivor Jones

And kind of follow-on on market. My follow-on on market entry. In relation to Japan, if there were to be online betting or gaming is MGM already determined as the route into that? Or is that not part of your agreement?

Kenny Alexander

It's not. It's not guaranteed either way. But it's a very good likelihood, that's when we would go in with MGM, but I have to say it's not something we've particularly looked at or even discussed internally and [indiscernible] really even mentioned, quite frankly.

Ivor Jones

And last one, the Netherlands. Can you help me think through what the delta should be from your current restricted marketing ahead of regulation into, I guess, be useful to now your brand position and how you think for post regulation?

Rob Wood

I don't think we know exactly how the regulated market will play out. And as some people have tried to draw parallels with Sweden, for instance, I think there's too many differences to do so. Obviously, same as everybody would say being able to market directly to those customers is a real positive. But paying extra taxes and opening the market up might go a different way. So at the moment, I think we're pretty neutral on the impact of regulation other than necessity point. It's -- the slide that Kenny put up earlier, these 3 large territories, they're all on a path to regulation.

Kenny Alexander

The bwin brand is pretty strong. It's pretty strong in the Netherlands. Obviously, because it's so strong in Germany. They do pick up quite -- they've -- obviously, over the years, they picked up a lot of our advertising. So the bwin brand is pretty strong. So we look forward to regulation there. And I think that's a market we can -- once it regulates, we can invest properly, then we can definitely kick on in the Netherlands.

Ed Young

Ed Young from Morgan Stanley. My first question is on the U.K. Obviously, another year where you've grown market share, but some of the growth in the U.K. was from some of the improvements, I guess, you made that business since you took over. You mentioned Ladbrokes Casino in the past. So in terms of the market growth going forward, I appreciate the tournament here, but sort of seeing to the noise what's a sustainable level of growth you think in that U.K. market? Obviously, I know your overall online division is double digit, do you think double digit in the U.K. is feasible? Or reasonably, is it going to be sort of high single digit and maybe outgrowing the market?

Kenny Alexander

Look, I think that we shoot for double digit and for our whole online business of all the markets. Yes, I'm not going to -- I think the U.K. is going to be a tough, it's going to be tough. Do we think we can get it? Yes. Otherwise, we wouldn't see it. What is -- is that banker growth, a sustainable growth? So we say, yes, I mean, I think it's 6%, 7%, probably. But we're never going to satisfy ourselves with -- I don't know what the market's growing at, I think possibly 4%, 5%, if I remember that magnitude. We're never going to satisfy ourselves just with grown with the market in the U.K. or in any of our digital markets. So if you think the market's growing 5% that market, we will be soon for 10%. It's a tough ask. We think we can do it, and we're definitely shooting for it.

Rob Wood

And we have the opportunity to do things. We look at Ladbrokes, for instance, any kind of brand recognition or customer research, Ladbrokes is normally 1 as a result. But if you look at Ladbrokes as a mix of sports betting online, it's 6. Everybody else has the proportionate share relative to the prominence of brand, except Ladbrokes and that's opportunity for us.

Ed Young

Second one, maybe for Shay is on the access to customers in the U.S. You talked about Buffalo Wild Wings as well as Yahoo. Could you just give a bit more color, please, on what the ownership of those customers is? Is it just a marketing agreement where you can essentially get real estate on Yahoo, would you actually have a great degree of ownership? And just M life and Yahoo together, is there anything you've done in terms of piloting or anything at this point, we have an idea of propensity to bet or any other kind of economics around these potential customers that can give us a feel for the value of those very big active member numbers you said?

Shay Segev

So all of these 3 are -- again, it's quite early stages to put numbers into it, and I don't think it would be responsible to do that. We've been operating New Jersey pretty much for 6 months, launched a few weeks ago with Virginia, Indiana, et cetera. So we're just materializing all of these opportunities.

Yahoo, we launched -- it's a pretty much a media partnership, exclusive media partnership deal. Yahoo exclusively promote BetMGM brand. We did launch already with them. So if you go into Yahoo sport in New Jersey, so you will see the BetMGM. And we're going to strengthen this partnership with them to even to create a further integration, as I mentioned before, where if you have Yahoo sport account, you can just go directly to the BetMGM, place a bet and ideally even the next step use the Yahoo wallet as well. I mean all of this, of course, is subject to the regulator approving it, but this is part of the plans to try. And as more markets will open in all states, will open up, we see that volumes will increase there. We just migrate 3 weeks ago, as I mentioned, in Nevada to our own platform, also our on mobile as well. I mean we think Nevada is a state that we should be controlling with the MGM, state with 50% of the rooms there, as I mentioned. We're just ramping up marketing there as well. And we will implement in H2 the omnichannel, as I mentioned. So I mean, it's a huge opportunity to be responsible for us now to throw numbers. I do think we're planning later this year to put to frame a better figures to the U.S., and I think we keep very updated when we see how it's shaping in the next few months.

Ed Young

Great. And then my third question, maybe a bit more direct one on Germany. If the draft law does pass next week with the current terms, what would be the impact on your casino business if you had to apply the rules as they laid down and they weren't relaxed?

Kenny Alexander

If we had to shut down casino?

Ed Young

Now, it's on slots, EUR 1 5 second average spend, et cetera, et cetera, that had to be applied, what would be the impact in broad parameters? You said it's more recreation. I'd just be good to get a feel for what it might do like?

Kenny Alexander

You've got the figure?

Rob Wood

Yes, we -- because there's so much uncertainty, and there's no expectation that, that's the final result and it's next year, there are so many different ways that this could shape out. We don't have numbers on every possible scenario. What we'd rather do is talk about our targets on a status-quo basis. This is absolutely what we're shooting for. As and when there is some sort of clarity, whether it's the sports size or the gaming side, we'll update the market at that point.

Kenny Alexander

And the reason for that really is because I see it's -- it changes and changes so much. We've been reworking numbers almost on a weekly basis on the eventualities.

Simon Davies

Simon Davies from Deutsche. You said that M&A is back on the agenda. What kind of leverage levels would you be prepared to push back up to to fund deals? And secondly, in terms of current trading, obviously, gross win margin was a factor in there. Can you put some color behind where that is relative to last year?

Kenny Alexander

I don't think I said M&A was back on the agenda. I don't think it was ever off agenda. We've never stopped looking at M&A, quite frankly. We're always looking at it. So I wouldn't think -- I wouldn't -- I probably just think that we've just done the migrations or we're well on the way. And now we can start looking at M&A because, quite frankly, we've always been looking at stuff, we're very selective on leverage. Do you want to talk about leverage?

Rob Wood

I think that's same as I've said before, that 3x still feels like a threshold that we'd rather stay beneath.

Kenny Alexander

And the margins -- sports margins?

Simon Davies

Yes.

Kenny Alexander

Yes, I mean a few percentage points ahead of where you'd normally expect them to be. What we'd also see though is that there has been less recycling as a result because people are losing as well. So it's very difficult to say what would be the NGR growth in the first couple of months. If you normalize the sports results, probably about a little bit lower than where we are at the moment, but it would be significantly above 10%. And it's -- we're trading pretty well, but it's only 2 months, it's 2 months.

James Clark

James Rowland Clark from Barclays. You said earlier that you're confident you can absorb regulatory pressures across the group. So just in the hypothetical situation on the GBP 2 stake limit in the U.K., how would you absorb those pressures? And are those things you're looking at right now in the group?

Kenny Alexander

What was the GBP 2 limit -- there's GBP 2 limits on the U.K.?

James Clark

Exactly.

Kenny Alexander

I mean, what I mean by that is, if you -- the GBP 2 limit that was put in place in the U.K. would be -- that's not going to be a good day in the office for ourselves. It's not going to be a good day in the office for William Hill, and it's not going to be a good day in the office for anyone, quite frankly, Flutter, you name it, every operator in the U.K. My point is, though, I don't think it will be a GBP 2 stake limit, I genuinely don't think. I don't think there should be a GBP 2 stake limit for the reasons that I've -- not just I've said, but many other CEOs have said, it would drive business towards the black market.

My point is and I will put a figure out there where the hit would be. My point is, though that if you are growing as fast as we are, and as I said, the scale of our digital business. If you grow 10%, and you've got a 40% contribution margin, we can throw off about GBP 100 million of incremental cash as a result of growing by 10%. And GBP 2 would be a bad day in the office for ourselves, the bad day in the office for everyone else, but we are much, much better positioned to absorb these hits than any of our competitors, much, much better. Because one, we're much more diversified once we grow much, much quicker. And one, our -- not two, three, our business is far scalable than -- our business model is far scalable than most of our competitors, mainly because our marketing is very efficient, and we own all own proprietary technology.

So if it ever came, I don't think it will, I don't think it should come, but we would recover much, much quicker and absorb it much better than our competitors would.

I think that was done. So thanks all very much for attending, and have a nice day. Good luck. Cheers.