Entain PLC
LSE:ENT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
503.6
1 018.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches GBX.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Entain PLC
You don't have any saved screeners yet
Good morning and thank you for joining our interim results presentation today.
I'll start with a brief overview then spend some time giving details on our other exciting announcement this morning, namely our strategy for Central and Eastern Europe, including the acquisition of SuperSport. We can then return to our half year performance, with Rob talking through our numbers. Finally, I'll update you all on our strategic progress before we finish with questions.
A few weeks ago, we updated you on our trading in Q2 and the first half of the year. Today, I want to be clear with the message. Entain's first half performance was robust, as we successfully continued to deliver on our strategy. Our retail business performed strongly, as customers enjoyed the updates made to our machines and overall in-store experience. Our online performance was more mixed as we faced into various headwinds and particularly lapping tough COVID comparators. By putting the customer at the heart of our strategy, our decision-making and delivery, we are making great progress across our objectives. Our record levels of actives is testament to how our customers are responding as we deliver great products, with our leading brands attracting new and retaining existing customers, all whilst broadening our recreational audience.
Our strategic M&A continues, and this morning, we announced the creation of Entain CEE and the acquisition of SuperSport. This marks our first proper steps into Central and Eastern Europe and will enable us to drive our growth strategy across the region. You've heard us say before that Central and Eastern Europe is a strategic focus for us, being a highly attractive market with significant opportunities whilst also being aligned with our commitment to operating in fully regulated markets. In true Entain style, we are taking an innovative and unique approach to expansion in this market that will enable us to unlock the significant opportunity. Firstly, we're establishing Entain CEE to drive expansion there, partnering with EMMA Capital, a leading investment company with considerable expertise in the region. Entain CEE is owned 75% buy Entain and 25% by EMMA Capital. Secondly, Entain CEE will acquire SuperSport, the leading gaming and sportsbook operator in Croatia, currently owned by EMMA. SuperSport is a great business. It has 54% market share in the regulated Croatian market, with 85% of revenue coming from online; and it has delivered consistently strong financial performance. The transaction is expected to be mid- to single-digit earnings accretive in the first full year.
Entain CEE will be led by Radim Haluza, current CEO of SuperSport and a highly experienced and capable individual within the industry. In terms of the transaction structure itself, Entain CEE is acquiring 100% of SuperSport for an initial consideration of EUR 800 million, of which EUR 600 million is payable in cash by Entain on completion which is expected to take place in Q4. As you can see, CEE is a highly attractive growth market worth today around EUR 5 billion of gross gaming revenue and is expected to grow at over 10% per year through 2025.
The 10 major markets across CEE are dominated by local operators and is therefore a highly attractive consolidation opportunity for us. At the moment, we are being selective in terms of which markets in the region we are prioritizing based on various factors such as regulatory environment and addressable opportunity. Historically, international operators have had little success in driving consolidation in the CEE region. The sector is led by locally founded national players, few of which have succeeded in building a scale outside of their home country. International players have historically found it challenging to secure lasting market share across the region, as they have often lacked necessary local market knowledge, so we have created Entain CEE, which addresses many of these challenges and combines our global scale, access to capital and industry-leading capabilities together with the regional knowledge and connectivity of EMMA Capital, which I would add is key and overlaid with the expert regional operational knowledge of local acquisitions and their management teams, starting with SuperSport.
As I mentioned, Entain CEE will be led by Radim Haluza, current CEO of SuperSport. We have set out more details on the structure and governance in the appendix.
So to give you a bit more detail on SuperSport. It's a fantastic business. It's a leading player in the attractive Croatian market with a number of differentiating factors. It has a 54% market share in Croatia. With a broadly 50-50 split between betting and gaming, it has a good product diversification. It has more than 130,000 yearly unique active customers. Its website is amongst the top 20 most visited in Croatia, and it has a 70% brand awareness. Having originated out of retail and still retaining a shop network, SuperSport has transformed into a predominantly online operator with a proprietary technology and app offering supported by in-house infrastructure. As such, it has grown rapidly, with 85% of revenue online. It has a proven omnichannel approach that helps drive brand awareness and customer acquisitions.
As you can see, SuperSport has demonstrated consistently strong financial performance over the years with strong margins, delivering compound annual growth from 2016 to 2021 of 16.6% of -- for revenue and 20.8% for EBITDA, underpinned by healthy EBITDA margins. Going forward, we expect SuperSport to continue demonstrating resilient top line growth and margin progression. The transaction is expected to value SuperSport at EUR 920 million, which implies a 9.1x full year 2022 expected EBITDA multiple after synergies. For 75% of the economic rights in SuperSport, we are paying EUR 600 million in cash at completion. There are further potential payments to EMMA based on the performance of the business, as shown on this page, but the important thing to note is that the total consideration plus the enhanced dividends will imply a multiple of less than 10x SuperSport's last 12 months EBITDA.
We are intending to fund the transaction entirely through debt financing; and will raise approximately EUR 700 million of third-party debt financing, which will add 0.4x to our pro forma leverage. The transaction is expected to be mid-single-digit earnings accretive in its first full year of ownership, and we expect to complete in Q4 this year.
So to summarize this very exciting strategic opportunity. CEE offers an regulated market with strong growth prospects. We have created an innovative structure to unlock the potential in this region. That structure provides the regional expertise to grow and the local expertise to execute. SuperSport is the Croatian market leader with unrivaled brand recognition. It has a highly attractive financial profile with a proprietary in-house technology stack. This transaction fits firmly with our growth strategy by entering new regulated markets and broadening our geographic diversity.
With that, I will hand you over to Rob to go through our first half results in detail.
Thank you, Jette. And good morning, everyone.
Let me take a moment to say I'm delighted to have announced our latest acquisition this morning. We've been looking at the CEE market for a while now. And it's been a challenging region to break into, so establishing Entain CEE with EMMA Capital and the acquisition of SuperSport provides us an exciting strategic solution to unlock significant opportunities and value across the region.
Now on to the numbers, I'll take you through the financial highlights and then we'll end with some comments on guidance. As always, you'll find more detailed financials in the appendix to review at your leisure.
So kicking off, on this slide, we set out the key highlights of our group's robust performance during the first half. Group NGR was GBP 2.1 billion, up 18% on last year. And if we include our 50% share of BetMGM, that sees a total NGR of GBP 2.4 billion, up 22% year-on-year on a constant currency basis.
Retail's performance was excellent, of course benefiting from lapping H1 last year, when our estate was largely closed or under COVID restrictions, but it also benefited from our improved in-store experience which Jette will talk you through in a bit more detail shortly. Online NGR in H1 was down 7% primarily as a result of the tough COVID-boosted comparatives last year. What is pleasing about our online performance is that it continues to be actives-driven, with record levels up 57% versus H1 in 2019, demonstrating a greater mix of recreational customers. We are seeing strong reactivation of our existing player base as well as attracting new customers, with FTDs up 35% versus pre COVID. Online NGR has now grown at a 3-year CAGR of 13% in constant currency. And if we strip away the COVID impact on last year, online NGR growth for H1 would have been positive year-on-year, which given the other headwinds we faced into, including the temporary loss of the Netherlands, the benefit of the Euros last year, affordability measures in the U.K. and the consumer backdrop, that clearly shows that the underlying momentum and relative resilience in our online business is strong.
Moving across the page. Group EBITDA came in at GBP 471 million, up 17% year-on-year, with retail ahead and online behind. This growth in NGR and EBITDA reflects the underlying strength of the group that comes from the diversification of our geographic product and channel mix. BetMGM continues to perform very well with H1 NGR of $608 million, and we are firmly on track for NGR of at least $1.3 billion for the year. Our share of losses for the half were in line with expectations, as BetMGM continues to grow and invest in the future.
Moving on. Underlying cash flow was GBP 191 million in H1. And adjusted EPS comes in at 47.6p per share, up 50% year-on-year for the half. Following an active start to the year on M&A, net debt nudges up to GBP 2.2 billion with leverage of 2.3x at the half year. The Evolve cost savings program that we announced with our interims last year is on track to deliver GBP 100 million of cash savings in 2023. We've included a slide in the appendix as a reminder of the phasing as well as the split between EBITDA and CapEx.
And to finish the slide, dividends. You will have seen the Board's decision to reinstate the dividend with an updated policy. We restart with a dividend of GBP 100 million for 2022 financial year and plan to grow it progressively thereafter. I'll come back to that in a bit more detail shortly.
Here we set out the usual EBITDA bridge for H1 walking through the various moving components. For the first half, we posted group EBITDA growth of 17% versus the prior year. This year-on-year performance reflects a starkly different COVID impact by channel in the prior year but more importantly the benefit of diversity.
Starting with online. EBITDA at nearly GBP 385 million was down around GBP 111 million versus 2021, with [ our performance ] impacted by the headwinds I just mentioned, in particular COVID restrictions last year. Conversely, retail delivered EBITDA of GBP 141 million, which is up GBP 204 million year-on-year with shops fully operational this year. The performance has been helped by our best-in-class offer across both our gaming machines and self-service betting terminals. Like-for-like volumes in retail are back to pre-COVID levels and volumes in the U.K. and Italy are ahead.
Corporate costs during the half were up nearly GBP 9 million, which relates to our ongoing commitment to responsible gambling, player protection and ESG initiatives. And finally, to our new opportunities segment, which comprises innovation and Unikrn. With GBP 15 million invested in H1, we're on track with our full year guidance of GBP 50 million, which is weighted towards H2 primarily due to Unikrn launch timings. While this hits EBITDA as we invest, it is, of course, a driver of future value.
Moving on to cash flow. We continued to invest in our business, and in H1, we deployed GBP 293 million on M&A and BetMGM investment. As I mentioned, we ended H1 with net debt of just over GBP 2.2 billion and leverage at 2.3x. Liquidity also remained strong with GBP 386 million of accessible cash, which becomes over GBP 900 million when you add in our undrawn RCF. During the second half, we have the newly announced dividend payment, a GBP 100 million bond repayment as well as completion of the BetCity acquisition in Q4, all of which we have ample resources for. As Jette touched on, the SuperSport transaction has committed financing.
Assuming SuperSport also completes in Q4, pro forma leverage at the full year is expected to be a little under 3x. As a reminder: Our strong cash flow enables us to delever by around 0.5 turns per year, and so we continue to have a strong balance sheet to support our growth.
Now to a reminder of our capital allocation policy. We are a growth business. And given our growing profits and strong cash generation, we're in a great position to deliver that growth and manage our balance sheet and drive returns for shareholders. And so our capital allocation policy is clearly built around growth. I've outlined these priorities previously, so I won't go through them again this morning. The key update is our new dividend policy. The Board has been cognizant to balance the importance of dividends alongside our strategic growth agenda and ensure that any dividend policy is appropriate for a growth business like Entain, so we are implementing a progressive dividend policy, starting with a total dividend of GBP 100 million for the financial year to December 2022. The dividend will be paid in equal installments with the first half year and full year results, which means the interim dividend announced today will be 8.5p per share.
And finally, an update on guidance. And this slide focuses on the material changes to the guidance we comprehensively set out in March. You will have seen from this morning's statement that our expectation for 2022 group EBITDA is in the range of GBP 925 million to GBP 975 million, which is in line with updated consensus following our Q2 trading statement. And it represents year-on-year growth of 5% to 10%.
With our Q2s, we updated online NGR guidance to be flat year-on-year for 2022. And as you are looking at the shape of the halves, we expect H2 to be back into year-on-year growth and in line with H1 on a 3-year CAGR basis with double-digit growth. Similarly with retail, these comments are reminders of what we outlined in July. We expect H1's NGR performance to continue for H2, save for a normalization of strong sports margins in H1. However, EBITDA will be impacted by some additional energy costs and a full half impact of our increase in minimum colleague pay to GBP 10 per hour, so my steer here is to note retail's excellent H1 results, but don't just double the H1 EBITDA for the full year.
On the right-hand side of the slide, you can see we recovered during H1 GBP 160 million from the Greek authorities following a favorable court ruling last November that we reported on at year-end. Whilst the recovery was in line with expectations, the timing was unclear, and so this is a positive development, although we note the ruling in our favor has been appealed and a supreme court hearing is expected in 2024. Lastly, we now expect our underlying effective tax rate to be 18% for 2022, which is up from previous guidance of 15% following the Gibraltar government's decision to withdraw its super deduction for marketing for 2021 and 2022. So this one-off benefit has now been removed.
So in summary. Entain's H1 performance reflects the underlying strength of our business. The group's momentum continues to be strong, and our outlook for the balance of the year is unchanged.
With that, I'll hand you back to Jette.
Many thanks, Rob.
You've seen this slide before, but I think it's worth reiterating that our strategy is based around 2 key pillars of growth and sustainability. Entain is all about bringing moments of excitement into people's lives. By listening to our customers, better using data analytics and putting customers at the core of every decision, we will strengthen our business, make it more sustainable for the future, become more diversified as we open up new avenues of growth to ultimately create even more sustainable returns for our shareholders. I'm delighted to say that we've been making great progress on all fronts, creating new experiences for customers that are driving greater engagement and have seen us reach our highest-ever level of actives.
It is our unique Entain platform that not only underpins but also drives our customer-centric growth agenda. Our technology, talent, capabilities and expertise combine to deliver growth ahead of our markets, whilst our data insight, in-house studios, technical agility and leading martech all enable us to be increasingly customer centric. Simply, our platform is the enabler that will support our growth into the USD 160 billion-plus TAM opportunity I outlined this time last year. We are able to not only capture the in-built growth dynamics in our industry but also embrace the online growth from increasing digital adoption. As audiences seek differentiated and varied experiences, the breadth and depth of offering is ever more vital to customer engagement.
Our capabilities within our platform have enabled us to grow into new regulated markets, predominantly through an enviable track record of M&A delivery, with Entain being the consolidator of choice. The customer insight and analytics embedded in our platform not only underpins our focus today but enables visibility of new trends and emerging product verticals, all meaning we are best placed to capture valuable first-mover advantages.
I'm confident in saying that our operational capabilities and delivery are stronger than ever. I'm also excited by the strength of our leadership team and ambitions for the future. With our long runway for growth, we are looking forward to how we best align our structures and processes, ensuring we can best leverage our platform into the opportunities ahead. Here we have set out a reminder of what that opportunity looks like and the powerful drivers that will grow our addressable market to almost USD 170 billion. You may remember, last year, we said our markets today were worth around USD 40 million to USD 45 billion, including the United States. And given our M&A, the return of retail and the growth in the United States, we are already expanding that. Our core markets are expected to grow at a mid- to high single-digit CAGR into 2025. Plus, our new and growth markets are expected to grow at double-digit rates. Having increased the scale of opportunity in the United States to USD 37 billion earlier this year, we can see our markets being worth almost USD 170 billion, providing us with the opportunity to more than triple the size of our business.
One of our many advantages is the diversification of our business. This not only provides greater resilience and sustainability in our revenues but also provides exposure to higher-growth markets such as Brazil. Our scale now means that, including our share of BetMGM revenue, no more than 30% of our online NGR is exposed to any one market. As markets like Germany and Netherlands complete regulation and as we grow into new markets, this diversification will only increase.
I'm delighted to say that our strategy to broaden our appeal and attract a more recreational audience is delivering as we focus on providing great products and experiences for customers. That focus has also seen us hit record numbers of actives. For example, recreational customers are now over 90% of our mix in the U.K. We can use our data insights to provide this broader audience with more tailored offerings such as new and differentiated products, media, content and social interactions with friends. As the chart on the right shows, we see excellent retention amongst our customers. Our broader engagement improves our understanding of customer behaviors and thereby driving even better retention.
Let us now look at our strategy in action. Since our Capital Market Day last year, where we spoke about working to invigorate our brands, we've continued to build on the success of our Balloons, Drummers and Ladbroke it advertising campaigns. However, I also want to shine a spotlight on some of the more targeted and tailored marketing we are able to deliver. Our recent Gala land campaign is a great example of how we leverage our data and deep customer insight to engage with specific demographics and expand our recreational audiences. Working with over 160 million user profiles from more than 30 territories and over 250 years of brand history, we've been able to rethink how we view our customers based on shared values and needs as well as recognizing the opportunities for cross-segmental values. This has provided us with powerful tools for creating efficient and effective marketing campaigns, and the results are clear.
Our most recent Gala land campaign saw weekly search volumes for Gala Bingo jump 9% to its highest ever. Daily site visits were up 12%. Player volumes were up 16% and first-time deposits spiked 33%, so understanding our customers allow us to shape and position our brands around them. Doing this across more of our brands delivers a wider customer audience, all while driving efficient and sustainable marketing. This intelligent and powerful approach is becoming part of the Entain marketing playbook; and we have another exciting, innovative Ladbrokes campaign coming up shortly. This deeper understanding and insight allows us to know more of what our customers want from interactive experiences and expanded offerings; to seeking new, differentiated and engaging features that extend beyond traditional betting and gaming products. And we are responding, leveraging exclusivity through third-party providers as well as creative talents of our in-house studios to develop exciting, new game categories and engaging features.
For example, we reimagined one of our most popular games as a live game show, Well Well Well live. The customer response have been incredible with over 400,000 players since its launch in April and an average of 25 million bets each month. In fact, over [ 90% ] of our live casino players have tried it. And stickiness is over double the levels seen at other top-ranked games, with over 55% of players returning to play again. Last week, we launched Starzle, another example of an exciting game in the emerging live game show category. It's early days, but we are pleased by the reaction, so far, and look forward to seeing more of our customers engage with these new types of games. Meanwhile, our free-to-play products continue to prove extremely popular, with over 800,000 weekly players on our U.K. brands alone. And it's not just our existing customers that are enjoying our free-to-play products, with over 140,000 new players joining via free to play in the first half of 2022.
In April, we launched Mates Mode in Australia. This is a social feature that builds and delivers the community interaction our customers have told us they enjoy. Players can set up groups, recommend and follow each other's bets, [ back bets ] together and chat. It has been really well received, so far, with over 1/3 of bets being copied and shared by a group member. And we are seeing those customers engaging more with multis and combination products. Meanwhile, bwin has continued to build on the strength of social campaigns last year, which included live streams and game day treasury hunts. The social media-led predictor product has had over 700,000 unique players as fans interacted around the large European tournaments. The broadening of our engagement offer means not only do we retain customers within our own ecosystem but proves we provide an alternative form of entertainment our customers enjoy.
Our partnerships continue to provide a great platform to build customer engagement. McLaren is a perfect example of what we can do by working alongside partners with strong brands and shared values. It also unlocks access to exclusive content such as behind the scenes with the McLaren team and prices including backstage passes to Formula 1 races. Most recently, we launched the McLaren turbo series, which offers a supercharged poker experience and features Daniel Ricciardo. bwin continues its long-term partnerships with UEFA, the German FA and multiple Bundesliga clubs. I'm also extremely proud that bwin partners with the German women's football team. This relationship has been in place since the start of 2019, and it's gratifying to see women's football receive the attention it deserves. This is a perfect example of the kind of partnerships we identify and build as we expand our brand reach and depth into new audiences whilst supporting talented sportspeople and their teams.
We've also been busy building our content and media across our brands. ITV's Against the Odds series, produced in association with Coral, has had 3.9 million views with a social reach of over 15 million people. Developing the series alongside ITV's creative team has been a fantastic opportunity to shine the spotlight on the incredible stories behind those inspiring sportspeople.
Our business in Australia continues to lead on innovative and exclusive content. The in-house team now have produced almost 600 videos, watched by over 21 million people as well as seeing strong social engagement. We also recently announced our partnership with Australia's leading free-to-air broadcaster, Racing.com. Launched in July, these live racing channels on both Ladbrokes and Neds deliver an integrated experience for our customers. This further differentiates us, embedding us as the first choice for racing enthusiasts, with a compelling content and media offering driving brand awareness and engagement.
As demonstrated by the strong performance during the first half, UK Retail is another powerful example of how, by focusing on what engages our customers, improving the in-store digital offering and creating experiences that are second to none on the high street, we can drive performance. We started, as ever, with our customers. Having a large number of shops with a broad base provides valuable insight on what they want, and that is a better interactive experience, so we put more digital screens in our shop fronts that can flex between national campaigns or locally relevant activity and align better with online campaigns and offers. In our digital hubs, touchscreens display replace hardcopy fixture lists and ensure odds are real time, while monitors show live sporting action from around the globe as well as our Ladbrokes and Coral TV content.
We know customers came back to stores for the gaming machine experience that can't be easily replicated on a mobile phone. And this accounts for around 55% of our shop volumes. We have more of the best cabinets, making play more interactive and engaging. Over 60% of our gaming content is exclusively provided by third parties. When added to our own in-house games, this means we have the best and most differentiated offer in the high street. On the sports side, the more digital in-shop Betstation offering has been well received, as customers now have access to a wider variety of sports and offers. And we are also seeing a much broader demographic enjoying the in-store experience. This wider audience is driving some new and interesting trends: for example, more bidding on the Indian Premier League cricket, which was virtually unheard of in store a few years ago. And we are seeing an increasing number of sports customers expanding their interests into games like basketballs.
In absolute terms, our Betstation NGR is now over 1.5x bigger than in 2019. We continue to evolve the proposition; and are developing our own group Betstation software solution, which will be live in over 25% shops ahead of the football World Cup this year.
Now turning to BetMGM in North America. Adam and the team provided a comprehensive update in May, and the business very much remains on track with their long-term road map and path to profitability. In the 3 months to May, BetMGM had a market share of 23% across the state it's live in. That number excludes New York, as we have clearly articulated that, due to New York's tax rate, we are deliberately deprioritizing marketing spend there and focusing on other states with better returns. That said, even including New York, our share across our live markets is 21%, so still very much in line with our longer-term 20% to 25% share expectations.
During the first half, Entain enabled the launch of BetMGM in 4 new states as well as Ontario. In each market, BetMGM's flexible, innovative and unique commercial strategy and delivery model is all underpinned by the Entain business intelligence engine, which provides one of the widest customer access models coupled with best-in-class channel optimization. Recent exclusives with Carnival Corporation and a Wheel of Fortune branded gaming experience are illustrative of BetMGM's broader and differentiated strategy in attracting the right long-term customer base. As demonstrated by our approach to New York, our focus on return on our investment means we spend where we see the greater opportunity, delivering more customers at lower contribution costs and greater returns.
As with Entain's international business, also underpinning BetMGM's success is the quality of our products and offering. The U.S. portfolio contains over 1,000 games. And our exclusivity of in-house games delivers unrivaled products and experiences to customers across North America. This is evidenced by BetMGM's ongoing leadership in iGaming. And we continue to build our sports betting share with a number of new initiatives landing in the next few months. As mentioned in May, development includes an app redesign to optimize sports products and feature discovery, enhanced content display as well as greater personalization for a more tailored experience. These fantastic improvements are coming soon and are expected to be live ahead of the NFL season in September.
I think it's also worth revisiting the structural advantages and efficiencies that BetMGM are able to leverage due to both the joint venture parents. These provide embedded cost advantages in the range of 600 to 700 basic (sic) [ basis ] point margin benefit. They include such things as the scale and capability advantages for marketing, royalties and regulatory expertise from both parents, savings on market access fees and access to a well-known brand and associated customer base, but the biggest cost advantages come from the Entain platform with technology, in-house products, data analytics, BI and CRM expertise. These are significant and additional to the 600 to 700 basis point structural market benefit.
And last but not least before I summarize. Sustainability is the second of our twin strategic pillars and is at the heart of everything we do. We continue to lead our industry on responsibility and deliver further progress across our Sustainability Charter. This slide shows some of those achievements so far this year. ARC is being rolled out into international markets. And our responsible gaming efforts have been recognized in the U.K. and internationally with awards from GamCare and EGR.
Through the Entain Foundation, we continue our investment in our local communities. Just last week, we announced the latest extension to the Pitching In Trident League partnerships as well as the launch of our volunteer hub and expansion into international projects. Similarly, the Entain Foundation United States launched its first gamble responsible America (sic) [ Gamble Responsibly America ] app. This is the first of its kind; and has been widely endorsed, including by the American Gaming Association. Through partnerships with EPIC Risk Management and the Oakley foundation, the Entain Foundation U.S. has led education initiatives with U.S. colleges and professional sports organizations about responsible gambling practices.
We continue to strive to meet and exceed the highest standards in everything we do, and we are being recognized for it. I'm delighted to say that we have received Standard & Poor's award which recognizes our ESG leadership as well as inclusion in the global sustainability yearbook 2022. And in the U.S., SBC has named us the socially responsible operator of the year, 2 years running. You heard me say it before and I'll say it again: I firmly believe that the most sustainable business will be the most successful business in our industry. We understand and embrace the role we play in our society. And my team and I are committed to Entain's leadership across the sustainability agenda. We will be holding our second Entain Sustain event on 19th October, and I look forward to updating you on our progress and leadership in this important area.
So let me summarize a busy morning. We are making great progress on our strategy, advancing on numerous fronts. This is a key factor in driving our actives to record levels as we widen our customer base and engage with a broader recreational audience.
We continue to grow through M&A, with 5 transactions announced so far this year. Each and every 1 of them reflects our ability to focus on the right solution for each market. BetMGM continues to go from strength to strength. And we have further extended our industry leadership on the very important area of responsibility and sustainability, but if there is one thing I'd like to leave you with today, that is the underlying strength and momentum in our business. This and the diversification of our business, our strategy and the huge pool of talent we have with Entain means that we are confident that we can continue to deliver value for all our stakeholders.
This ends the formal part of the presentation, so thank you for listening. I'd now like to open up for your questions.
[Operator Instructions] Also, as a reminder, please remember to, before asking your question, announce your name and affiliation. We have one question on the line, and it comes from Ed Young from Morgan Stanley.
My first question is on online growth. You've given an unchanged outlook for the full year, which is flat online revenues. So up 7% in H2. And implicitly, therefore, you're saying there's no change to the 4 to 5 points of spend-per-head softness you saw in Q2, so can you just help us bridge that growth for H2? So how much of that is external? You've got BetCity, Netherlands, Germany. And how much is sort of organic turnaround, if you like? And so that in-line trading expectations, does that implicitly mean, I guess, that July and current trading is positive given you're looking for positive growth in H2? That's my first question.
Ed, let me just kick that off, and then I'll hand you to Rob. So as you say, our guidance is unchanged from 3 weeks ago in July. And we've communicated guidance in line with what we are comfortable with. And that also means that we are not seeing any change to player behavior since July and hence the guidance unchanged. So we always remain vigilant when we look at our numbers, but we also see that our diversity, whether it's in product [ and ] geographies, provides good resilience into our business. So we're continuing to basically execute on our plans here while we preserve all optionality into 2022 and further into 2023. So with that, let me hand you over to Rob to give you a little bit more detail on the in trade -- in-line trading, excuse me. Rob?
Sure, and in particular how we return to growth in the second half. So clearly part of the story is about what happened in the prior year as well as what's happening this year. To give some comfort, if you look at the absolute NGR that was delivered in Q2: That's ahead of both Q3 and Q4 last year, so just on a run rate basis, there's a return to growth. And clearly we're building off record actives in Q2, as we've already reported. Then there are some additional drivers of why the second half should be stronger than the first half. For example, we assume a return to the Netherlands later this year. And of course, from a year-on-year basis, the lack of Netherlands falls out of Q4 when you're looking at the comps. We do have a full half of Sports Interaction, so there's a little bit of inorganic, if you like. And then we have a World Cup later this year, which whilst it's pretty substitutional for some of our territories that would otherwise be in normal full flight season, it is incremental for territories like Brazil given the timing falls in normal off season. So there are a number of catalysts for why H2 should be stronger in absolute terms. And then in particular, year-on-year, you've got things like Netherlands and lapping COVID which is a big part of the story as well. Hopefully, that's clear.
Yes, that is good. It sounds like, therefore, July would have been up if you say Q2 was above Q3 last year. The second question I have was about recreational players. There's a very interesting chart on Slide 24 about talking to get to 90% of NGR for U.K. brands [ delivered from ] recreational customers. Obviously recreational base is an important theme in the sector. Everyone defines it slightly differently. The footnote says recreation and low-spend/frequency customers. I just wondered if you could help us define. What do you mean by recreational customers? And could you perhaps give some color on where recreational players are in markets outside the U.K. given you mentioned there, Jette, that you're moving ARC from -- yes, from just the U.K., into your international markets as well?
Yes, sure, Ed. And let me take that. So when we look at recreational players -- and let me just take a step back. This has been a key strategic focus for us for the last 1.5 to 2 years. And that's really why we put the slide out there, because you can see we've made tremendous progress in increasing our recreational base and therefore also their contribution to NGR, which is important because it provides for a healthier NGR going forward. Now when we think about recreational players, I mean, obviously the level of spend goes into that, but we look at more things than that. So we look at their price sensitivity. We look at which type of entertainment they enjoy, their favorite sports, their favorite teams. We look at which products they use. So do they lend themselves more to in play, accumulators, multi bets? And then we add different sustainability factors and broader customer base things into that, so it's really quite complicated for us. And we try to do a very, very detailed segmentation both using all the data that we have and all the data analytics and BI capabilities that we have, but it's also a -- it's a very deliberate effort from our side.
So when you look at our marketing strategies in the U.K. but also into Australia and into further Europe, we're really focused on driving, you could say, this type of audience. So through [ more low-risk ] promotions designed to appeal to recreational audience; expanding free to play, which I talked about in the presentation a little bit earlier. We work with gamification elements. So I think, last year, we talked about our five-a-side gamified products, which gamify is a complex multi-bet offering; live casino. We've launched a new games category in live game shows. And I could go on and on but just to tell you that it's more than just a specific spend level. It's really a thorough segmentation that goes into how we define a recreational audience.
And I think, if I could just jump in, that I'm just going to add for you, Ed, the way to think about that chart is it's the inverse of the top end. So that's what's not in there. So therefore, now 90% of revenues is coming from customers who were not classified as the high spenders.
Okay, so it's obviously more than a spend-per-head metric there. On the European point, I wasn't quite clear. Are you saying that it's already somewhere on that range? Are you saying your ex U.K. business is at the level the U.K. was 2 years ago? Or is that already at the level it is now? I'm just trying to understand where it is on that journey, if you could sort of roughly help me quantify, that would be useful.
Yes. So U.K. is the most advanced, if you like, in terms of driving recreational audiences, but it's something that we do in all countries. It's a strategic priority for us, so in all countries, we work to increase the recreational spend. And the curve might look a little bit different in other countries, but what you see here is the U.K. chart where we've worked with this very focused. And you mentioned also ARC, which is also part of that whole strategy in order to make a much more dynamic approach to player safety.
And my final question was on Entain CEE and SuperSport. You spoke a fair bit about SuperSport in terms of the leadership, the technology. Perhaps a bit more brief on EMMA Capital. I wonder if you could a bit expand on that; and maybe, I guess, PPF relatedly, in terms of what they bring to the party. And then implicitly, is -- this setup of a structure, is it implicitly saying this is where you'll preferentially invest with the remaining leverage headroom that you have? Or is it -- because you're suggesting that there's more deals to come for the vehicle. Or is it still completely even handed and it could be that you do deals elsewhere and nothing else goes into CEE?
Sure, good question. So as you say, we've set up Entain CEE together with EMMA Capital which is one of the region's preeminent investment firms. And they have a significant gaming experience as well. So they've made investments in the past into casino Austria (sic) [ Casinos Austria ], into LOTTOITALIA. And you probably also know about their investments into SAZKA. And I will just add to that, that is an important part of our strategy here. As someone who has prior experience working with businesses across the -- I know the importance of exactly that local knowledge, customer understanding, expertise and network. This might be true around the world, but I found it to be very important in CEE. So that is a partnership that we are looking forward to. Now in terms of our M&A and focus for CEE, you're absolutely right that, when it comes to M&A and acquisitions in CEE, this is the vehicle that we expect will drive that expansion. And we see a fantastic opportunity also to consolidate across that region both, of course, with the expertise of Radim, who will lead this venture, but also with EMMA Capital and the network that they also might have. You mentioned PPF and so forth, but that doesn't, of course, preclude us from doing M&A outside of CEE. But when it comes to CEE, this is the vehicle from which we will drive acquisitions going forward. Should we hand back to the operator?
Jack, have we got any further questions, please?
We have a further question from Kiranjot Grewal at Bank of America. Just working on opening the lines. Please bear with us.
[Technical Difficulty]
2 seconds. I'll just move you back into the host area.
I think [indiscernible] call, another way of doing some Q&A shortly.
I will try and host this Q&A. [Operator Instructions] We will -- we are recording it, as we just heard. And we will put the recording together with the presentation and transcribe it as well, as usual, all together. And I have one, the first question. Monique [ raised those finger first ].
Wonderful. So 3 questions from me, if I can, but the first is just about your UK Online performance. So you said UK Online revenue growth minus 15% in the first half. That compares to U.K. data I am seeing from the Gambling Commission, down 23%. And your actives also, better actives growth of 7% versus U.K. industry data [ out for ]. So just wondering who you think you're taking share from in that U.K. market.
[ Rich ], should we start with that? And also I apologize from my side. This is why we talk about our 99.99% uptime all the time [indiscernible]. Anyway, we'll get back [ into the mode here ]. Thank you for your question. Let me just take that. Yes, it's a good point and it does suggest that we are taking share. We saw that in the U.K. through 2021 when we got the [indiscernible] numbers. In terms of who we are taking share from, we're waiting to see what some of our competitors come out with this week, but when I look across 2021 and Q1, we could see that we were taking share against some of our bigger competitors. So let's see. And we expect that to continue, but we'll see when the numbers come out.
Okay, excellent. And then second question was on the U.S. and whether you can comment at all on how you intend to crystallize value in that U.S. joint venture. I just think, particularly relevant at the moment given the comments from MGM last week that they're very interested in the JV, but they can't buy what's not for sale.
Yes. And I think we've talked about that before. So right now we are all focused on delivering on our plans here. There are enormous opportunities that can go forward. We are, of course, waiting now for Kansas and Massachusetts. More importantly, we are also waiting to see what happens in California. So right now, together with our partners MGM, we're really focused on delivering on the strategy. And we confirm that we are still on track to be EBITDA profitable during next year and deliver the $1.3 billion or more than $1.3 billion in NGR this year. So where we sit, listen. The partnership is going really well. I heard what Bill said last week, and that's really a question for him, but we are really satisfied with the partnership. It's working really well. There are enormous benefits from what we bring to the joint venture, so we will continue to execute on the plans. And as long as we align on the strategy there, I think that's proving to be quite successful.
Okay, perfect. And then the final question, also on the U.S., just on the JV losses. What I'm having difficulty is with tying up. So you said GBP 109 million of JV losses in the first half. When MGM reported last week, if I combine their 1Q and 2Q, their share of the JV losses, it comes to $163 million. I just I'm just trying to bridge that gap. I'm not quite understanding it.
Yes. I'll make a general comment and then hand you over to Rob because I think there are some differences in terms of how they report this, but just to confirm overall: What we've said is that we've committed funding this year around $450 million. So we expects that losses for the full year will be in that range, and that means $225 million for each of us for the full year. So that's really what we have. Rob, I don't know if you have any insights into how MGM is reporting their numbers.
Yes, I do. Thanks for the question, Monique. It's actually quite straightforward. When MGM publish their numbers, there's a 1-month lag, so what they describe as Q2 actually is 3 months ending May, whereas by the time we publish our numbers, we are able to do the full quarter's worth. So there's a month timing difference. Other than that, the numbers are the same.
Next question comes from Richard Stuber.
Just 3 for me. First one, on BetMGM. Do you have any sort of comments on how Ontario is progressing? Are you finding it -- is it like another U.S. state opening, or is it slightly different given the market which has been there previously? The second question I had was just on the new opportunities. And I was wondering if you can discuss a little a bit more about the launch of the esports [ and ] Unikrn. What will we see in the second half? And when will it start generating meaningful revenue?
And the final question I've got, on Entain CEE. It sounds like other markets outside of Croatia will be M&A led rather than organic entry, so just to confirm: Is that correct? And more generally, do you see those markets as markets only really viable for local brands?
Thank you. I'll take them in a different order so I can hand over to Rob in the end for details on how -- what we are expecting to see from new opportunities, but let me kick off with BetMGM and Ontario. So listen. We've had a great start there. We launched in April. BetMGM is performing well and we're on track on our expectations. Actives are good, customer conversion, good retention. I would say this: It's not like another U.S. state, so the market is very, very different. It comes from a history where you've had international operators operating there for a long time. It's extremely competitive. I think we've seen around 30 operators that have now gotten a license there, and there are many, many more that are applying for licensing. So it's there is quite a bit of competitive pressure, but the good thing is that we have both sports betting there and also gaming. So we're also seeing good cross-sell, which is great as we go forward. And momentum is building nicely. And we don't have any numbers out yet, but we are expecting that we are probably in the high single digits, somewhere, and growing. So more to come but very competitive environment. And we've secured a number of partnerships there, so that's also reassuring.
When it comes to [ M&M ] in CEE, yes. So just to be clear: When it goes to CEE and the setup that we have there and the venture that we have there, we are seeing this as an opportunity for us, going forward, to consolidate within the region. And I mentioned this in the presentation this morning. It's really interesting, when you look at the region, that there is actually none of the multinationals or international operators that have any success in taking meaningful share in that region. And that is because you see strong local brands. And actually very few of those local brands cross borders, so also the local operators have had a difficulty in actually expanding. So we look at a number of opportunities and, to your point, around acquiring local brands in some of these other markets. And now we'll wait for this transaction to close, probably in Q4, and then we'll look more into that. So that was on CEE. And then let me kick off on the opportunities in Unikrn, specifically on the commercial side. And then if I can hand over to you, Rob, to talk a little bit about when we expect to see revenues there. So Unikrn and our esports venture, we spent the last year in basically building the product and the platform and making sure we implemented all the compliance. And we are now looking at launching during Q4, probably towards the end of the year, which is really exciting. So the short answer is we're not expecting any revenues to come in this year, but Rob, do you want to comment a little bit more on our new opportunity area?
Sure. I'll add a couple more bits of detail for you. So just firstly, a reminder that the GBP 50 million annualized investment guidance is split roughly half and half between innovation and Unikrn. It is H2 weighted. And the biggest driver for that is, as Jette has just talked about, planning to launch later this year and therefore the marketing investment that goes around it. So I wouldn't change the full year guidance, but the phasing is H2 weighted. And then just to the other question, might it be material in 2023? I don't think we expect it to be. I think, as you will know, this is a very nascent market but one that we're super excited about. So I wouldn't adjust your numbers for 2023 to include this, but we will update as we go and we progress and launch into new territories during next year.
Next questions come from Joe Stauff.
I guess I had 2 questions really on customer engagement, right? I guess, first, within the U.K., just wondered where, say, average spending levels were, say, at this point, especially as you compare that to what you've seen or what you saw in 2019 levels. Obviously you have a much larger user base, but I was wondering where that customer engagement was in the U.K. Then second to that is your kind of global portfolio. I'm wondering if that level of customer engagement that you've seen, say, in a core market like the U.K. -- it might be different, say, in other countries. It's more of an economic question and that's why I asked that.
Yes. Joe, you must have been up early if you went through the full presentation as well. Rob, do you want to start off on this question and then maybe come back to me? And I can add a little bit of flavor of some of the things that we are doing across our countries.
Sure. Joe, I can have a go. So in terms of customer engagement, yes, actives up very significantly and certainly versus 2019 pre COVID. If you've had a chance to look at the presentation yet, you may not, you'll see that in the U.K. the spend levels, so spend per head, are lower because we've gone on a journey to focus on a more recreational audience. And now as the presentation showed, around 90% of our revenue is coming from recreational or low-spending customers. Average stake size is now down to GBP 7 in the U.K. and of which we win, say, 12% on average. So low spend, generally speaking. In terms of economic comparisons to other territories, it's a mixed bag. There are some parts of Europe where we are seeing some indications of pressure on the consumer, but generally speaking, our numbers are still strong everywhere you go, if you allow yourself to back out the headwinds, things like lapping COVID in the prior year, which obviously in many of our territories where there's strong retail presence that's a significant impact on the online numbers. But as we progress through the year, that should unwind. Does that hit the spot for you, Joe?
Yes, yes. That makes a lot more sense. No, I appreciate that, okay.
Maybe I can just add a comment. One of the reasons why we spent some time this morning talking about many of the activities that we have in both the U.K. but certainly also in countries like Australia, in Europe and in Italy is because this is part of our strategy to basically increase the recreational base to have much more healthy NGR and NGR contribution going forward. So as we are addressing a more recreational base, we're also making a lot of efforts in making sure that we then increase the engagement; so to put it in black and white, to make sure that they spend more time with us. And they -- and we'll also get a bit larger share of their wallet when they're with us. And that's why you're seeing us launch all these things around Mates Mode, community betting, live channels. It's all efforts to make sure that we engage them; same thing with free-to-play bets where we have enormous conversion rate, which is a way for us to bring a new audience that are more recreational into the funnel and keep them engaged and then also convert them into real-money gaming.
Next question, from Michael Mitchell.
Three, if I could. First, just on guidance. And Rob, I think I heard you correctly when you said the guidance slide sets out the -- only the major changes, so I just wanted to confirm. Should we still be thinking about a 27% to 28% EBITDA margin for online this year as per the March slide? And then question two and three, on SuperSport, if I could. Firstly, on the EBITDA margin, Jette, I think in your scripted remarks you talked about the potential for further progression in the margin. I'm just interested in terms of how it generates such a high margin and how you think it can improve from here. And then thirdly -- and Jette, maybe you just answered or you just alluded to this in a previous answer, but clearly the market share is very strong in Croatia. I just wonder. Is there scope for SuperSport to move beyond Croatia? Perhaps not on the basis of your comments about the importance of local heroes, but maybe you can just talk about top line growth prospects for SuperSport given its very strong share to date.
Thanks. Michael, let me start off with SuperSport. And then I can hand over to Rob and talk a little bit more about the guidance. So SuperSport is a very strong business in the region. If you go into a pub or a cafe, you will see the staff there wearing SuperSport t-shirts. So they come with a very, very strong brand awareness; and I mentioned a couple of other commercial points in the call this morning. They have a 54% market share. And they also just recently closed the partnership or the sponsorship with the Croatian Football Federation for 2022 [ and ] 2026. And anyone that follows Croatian football will know that actually sometimes that football team does really well, so there's a lot of strong things here. I think, when we look across the region, we do expect to see growth rates there around 10%. Probably that will be a little bit lower. That will be a little bit lower when you look to SuperSport and the Croatian market, but we're still expecting them to grow as they've done through the previous year. And when it comes to the margin, well, it basically goes to both the strength of their product but also the strengths to their brands in Croatia. And there are really no one that's really -- that's competing with them at that level within Croatia. Then that's just your last question. When it comes to rolling out across CEE, we will look at it at a case-by-case basis. A lot of it, I assume, will be driven by M&A and looking for the strongest local brands, but there might be opportunities to roll out SuperSport into surrounding countries as well. But that's something we will sit down with Radim when we close. Rob, guidance?
Sure. So when we think about online margins and, sort of jumping to the bottom, EBITDA margin, you really need to think about the component parts above it, so gross profit margin, marketing spends, giving you contribution margin, so let me just talk through each of those and then we'll conclude on EBITDA margin. The killer margin for me is contribution margin, and you'll see that H1 came in almost on the range that we guided. We guided 40% to 41% and I think it came in at 39.9%, so just at that bottom end of the range, meaning that we've been able to manage the marketing spend accordingly. Now when you look above contribution margin, at gross profit margin and marketing rate, the single biggest difference between our -- where we thought we would be in our guidance versus what we're reporting in H1 and indeed expect for the full year is geographic mix. So you'll have heard us talking about how Brazil has performed strongly. Italy has performed strongly. Australia has performed strongly. I should say Brazil is up year-on-year but adverse to our expectation. You'll remember we talked about increased competition in Brazil. So Australia, strongly; Italy, strongly; and Brazil below expectations. If you then think what that means from a gross profit perspective on margins, obviously Australia is a lower-converting country, as is Italy, because we have franchisee costs, whereas Brazil is higher. So that's adverse, but then when you think about marketing spend, Italy is lower spend because there's a marketing ban. Australia is lower spend, as it -- as the market has adapted to the higher product fees and point-of-consumption tax, whereas Brazil is higher.
So you've really just got an inverse going on there, so the key point is that contribution margin is in line, give or take, with guidance just at the bottom end of that 40% to 41% range. What does that mean for EBITDA margin? Well, unless we go after the cost base in the same proportion, then there will be an impact on the EBITDA margin. And that's what we will see. So the EBITDA margin was 26% in the first half, and I think that's a safe assumption for the full year too. So in other words, movement in EBITDA margin is caused by movement in NGR right at the top of the P&L, not the contribution margin. And OpEx spend is in line with guidance. Hence, there's compression on EBITDA margin as a result of NGR movement. Hopefully, that makes sense.
Next question comes from Ivor Jones.
Back to CEE. Does Entain control it? So if it executes M&A through the CEE business and EMMA doesn't follow along, does EMMA just get diluted? And secondly, does cash get trapped in CEE until -- [ unless and until ] Entain owns 100%? And then back to the margin point in that business, the 5 million of OpEx synergies that you're talking about. I think you said that it would stay on its own tech. Will it eventually move to the in-house platform? And what would be the upside from doing that?
And then just moving away from CEE, I'm trying to understand what RG measures have been taken in the U.K. that are driving revenue and relate them to the moving target of what might be in the white paper. So could you just talk about in the U.K. what you've done in relation to state limits and maybe where affordability checks land and maybe around advertising? So we get some idea of, if we ever see a white paper, how far down that road you already are.
Great. Ivor, I'll try to remember everything. We'll do it like this: We'll start with SuperSport. I'll talk about the structure and the governance as well as the margin and synergies. Rob, if you can talk about cash. And then I'll go back to U.K. and RG. You asked whether we control the venture, and yes, we do. We have 75%. There is a Board of 5 Board members where Entain appoints the 5 Board members. And of course, we will discuss here M&A. And of course, if EMMA decides not to follow, then they will get diluted, to your point, but that's really not where we are. We've had really good discussions with them leading into making this acquisition and talking about -- can we mute? Hang on a second. Can we mute? Thanks.
So Ivor, back to your question. Yes, we have control. And EMMA can, of course, make their decisions, but that's really not where we are. We've had multiple discussions around strategy and potential targets going forward, so we look forward to continue to discussing that. Just jumping to margins and synergies: You're right. SuperSport has their own technology. It's a really strong technology platform, so whether we at some point would migrate them to Entain platform, that's not something that we have to do now. So we will cross that bridge when we come there. So the 5 million you see in synergies fully [ floating ] through in 2024 on the cost synergies, that's really more towards buying power and potentially helping with adding our games and so forth from third parties. Now what we do expect going forward is, of course, that there could be more M&A synergies coming in as we form Entain CEE across the region, but that's not something that we put in there for now, of course. Rob, do you just want to talk about cash?
Yes, yes. That's a very straightforward one. So no trapped cash. The intention is to dividend out proceeds to the shareholders in accordance with the ratio. And then as and when further opportunities to invest either organically or M&A -- the parents would make that decision and invest accordingly.
[ Good ] And let's go back to the U.K. and RG and [ GAR ] and affordability. So when it comes to affordability measures that we've put in place, I think I've talked about it a couple of times. This is something that we work with over the last 1.5 years. And our strategy around this is really to implement ARC, which is a personalized protection. So we have more than 3x as many behavioral markers as anyone else. We're the only operator that is capturing the real-time data. Our self certification and the questionnaire are immediately, so they are real time instead of you have to wait for an agent to call you the next day. And the reason I mentioned this is that the whole philosophy behind that is to slow down play so we don't lose the customer.
And then to your point around staking limits. That's the same philosophy we have around staking limits. So we have personalized protection in place, which means that we are implementing dynamic staking limits so they are basically adjusted to what kind of risk play you have. And that's what we believe is a much more superior solution to managing this. And we also have things like control tools where you as a player can set your own max staking limits. So we've taken a different approach to this, which means that our staking limits basically adjust to the player. And I think we've said many times that we think this is the right solution going forward.
Now in terms of where this all lands, Ivor, I think we've tried to guess around this so many times, so we'll wait and see where the [ GAR ] comes out, but I do think that, with everything that we've implemented through the last [ 1 and 1.1 years ] and -- sorry, 1 year to 1.5 years, we're well prepared from what comes from the [ GAR ]. But in terms of the details there, we will just have to see where this lands when we finally get it out there. I hope that gives you a little bit more color.
That's great.
And so we get a new [ leaguer and get the bar ] out soon. Thanks, Ivor. And then we'll move on to Simon Davies.
This is where you say, "You're on mute," [ though ].
No, I've just asked him to unmute. Simon, are you there?
Okay.
Yes. Can you hear me?
Yes, Simon.
Sorry. I thought that was happening automatically, but yes, first question was just on the SuperSport option structure. You talk about options kicking in after 3 years to buy out the minority. How does that work? And would you view that as a negative outcome, i.e., evidence that the strategy would not be working? Second point was on the 2020 decline in revenues and EBITDA at SuperSport. Is that entirely COVID related and therefore retail oriented? And what is the exit EBITDA margin for SuperSport, i.e., the current run rate?
And the last one was just on live casino. You talk about a number of successful new product initiatives in live. Are you signaling that this is becoming a more strategically important product vertical? And do you have any view in terms of the potential for launching an in-house live casino capability?
Good questions, Simon. Thank you for those. Why don't I start talking about our new initiatives and products within live game shows? And then Rob, if I can hand over to you for the option structure and the question around 2020 decline. So we are -- we've launched a new live game show category. And the 2 games that I talked about this morning are both bespoke to Entain, which means that they are exclusive. So Well Well Well live, that's our own IP and it's our own IP in perpetuity, which is based on a popular slots game that we had. And the same goes for Starzle, which is also bespoke and has a multiyear facility. So it plays into our strategy which is around having exclusive content and having an exclusive content differentiation strategy. Now when it comes to this specific category, it's a category that we've seen drive maybe not a new audience but a more recreational audience. And it's extremely popular. So without revealing anything, I can also say we have a couple of more games that are in development and which will also be bespoke for us going forward. We're always looking at whether this is something we should build in house or work with third parties and this is something we'll evaluate. I mean we should always focus, I -- in my opinion, on where we make the most difference. So we'll learn as we go and then we'll see whether this is something that we are going to take in house at some point or start developing. That could be an opportunity for us, for sure. I hope that's helpful on the live game show side. Let's move on to option structure, Rob, and 2020 decline.
Sure. Thank you. Yes, I'll take them. So this is a standard approach in these kind of situations. We as Entain wanted to make sure that we had a path to full ownership. And equally, in EMMA's shoes, they wanted to make sure they had a path to exit like any private equity firm would, so hence the arrangement that we've come up with, a very straightforward arrangement. Effectively either side can decide to enact Entain buying the remaining 25%. And the price effectively is done at prevailing value at the time, so no pre-agreed price or formula. There will be a fair value assessment at the time. And then should I move on to the question about EBITDA? So yes, the dip in 2020 was COVID. So they have, I think it's, 324 shops plus SSBTs in other locations as well. And clearly, during lockdowns, that took a step backwards but, as you can see from the chart in the presentation, strong recovery since then and well ahead of pre-COVID levels. And EBITDA margin expectations continue to be in the low 50s, which is clearly very strong.
Next, we'll go to Kiranjot Grewal.
Just a few from me. Firstly, on M&A, do you think there's any additional M&A likely this year given where leverage will be post this SuperSport transaction? Also wanting to hear a bit more about the diversity of your geographies. We touched on it in the presentation. Could you offer some more color where the U.K. now sits in terms of your online -- or in terms of share given especially the pullback seen in H1? And then lastly, more on Brazil. Where are we with regulations? And I think at Q2 you said there was a step-up in competition. Has that held up since then?
Yes. Should I start off from the back then and, first, to talk about Brazil? So I think we talked about this in July as well. We have seen a step-up in competition in Brazil ahead of regulation happening. And that's also why you see that we have extremely strong growth there, but as Rob has talked to, it is a little bit lower than expected due to this competition. And I mean our team on the ground estimate that there is currently 2,000 operator sites now live. And many of them are just very small, mostly local, rather than they're not seeing any new international players coming in. And most likely, they will not get licensed, but it does create some competitive pressure right now. But we have the #1 brand in the market. And there is a significant first-mover advantage here around our brand awareness [ and our proven ] team on the ground and so forth, so we remain super excited about Brazil. So that's around Brazil. Around geography, let me just take that. I think there was 2 questions in your question, so I'll try to answer. Otherwise, let me know if I'm not hitting on them.
So in terms of the geographical diversification, U.K. NGR -- UK Online NGR, excuse me, now sits on 29% of our NGR, which is great to see. So we've increased our diversification, so we don't really have dependence on one country going forward. So that was one side. I think you also asked about market share. So we don't have any Q2 market shares, but the last time we looked at -- or we had data from our market shares about end of Q1, it was around 17%, as I recall. Rob, I'll hand over to you around leverage [ and ] M&A, capital allocation.
Sure. So yes, as you heard from the presentation this morning, once we include BetCity and SuperSport, which we expect to complete in Q4, we do expect year-end leverage on a pro forma basis to be a little under 3x. And then naturally we continue our deleveraging journey from there. In terms of what does that mean for future M&A, well, I mean, there's a difference between announcing M&A and completing M&A. So any M&A of scale, you would have thought, even if we announced another one tomorrow, which we won't be doing, [ that it was unlikely ] to complete this year. And therefore, you have time for the balance sheet to improve from where it's likely to be at the end of this year. So [ ensure ] no impact on our appetite for M&A. We absolutely continue to explore multiple opportunities, and there are plenty [ high as a pipeline ] at the moment.
Our next question comes from [ Gemma Permalu ].
Apologies if I missed it. I just wanted to make sure. So for the SuperSport's acquisition, you're using about EUR 600 million of cash and you've got another EUR 200 million to go. And then you have the shorter-dated maturity of around like 500 million. Can you remind us how much ideally -- how much cash ideally you'd like to keep on your balance sheet? And then secondly, any indication whether you'd be looking at the bonds market or maybe the loans market [ for the refi ]?
Thank you. Rob, can I hand both of those questions to you?
You may, of course. So firstly, to be super clear: The SuperSport acquisition is fully debt financed, so no impact on liquidity. I think the numbers you read out weren't quite right. And the confusion is probably the split between the 75% that we are accountable for and the 25% that EMMA Capital are accountable for. EUR 600 million is our share of the initial EUR 800 million. And then we expect a further EUR 120 million to be due in spring next year, of which our share is EUR 90 million. So hopefully, that clears that up, but do feel free to send in questions afterwards. And then in terms of the questions around cash on balance sheet, look. We have a number that we manage to internally, but clearly you'd expect it to be meaningful. And as we go through thinking about refinancing existing term loans, we'll have a look at liquidity projections as we go. In terms of how we will refinance term loans; and indeed the 500 million of bonds which you mentioned, the bulk of which mature in just over a year's time, yes, we'll be looking at both the bonds and the loans market, I'm sure, and more to come on this over the next 3 to 6 months.
And our next question comes from Joe Thomas.
I hope you can hear me. Again, the usual 3 questions, please. The first one is returning to the point on recreational customers, which you first started addressing, [ assuming ], a couple of hours ago. I was just wondering. Now you're up to 90%. I mean how we should think about how those recreational customers behave differently to the customer base that you had historically. I mean in terms of both sensitivity to the wider economy and exposure to sort of result swings. So that will be one question. Second thing, you talked about cost inflation in UK Retail. As well, in your presentation you said [ double the H1 EBITDA ] because of that. I just wonder if there are any other signs of cost inflation elsewhere and -- developers, et cetera and -- that are perhaps higher or lower than you might have expected.
And then the final one is returning to the point on the Gambling Act and ARC and how they might interact. Could you foresee a situation where you might relax some of the ARC initiatives in time if you are permitted to under the terms of whatever eventually does, hopefully, emerge from the Gambling Act.
Thank you, Joe. I'll kick it off with the recreational; and then hand back to you, Rob, for the inflation question. So interestingly, the question is around recreational. We do a lot of work here, so we have a full team that is sitting all day and analyzing the behavior of our different segmentations. And overall I think the key thing here is this is a more entertainment-related segment, so they lend themselves to products in sports betting like in play, multis or accumulators, which is a good thing because that typically implies a higher margin. They're typically less price sensitive, so they are not price hunters. And they also adjust -- sorry. They also react well to our different types of promotion activities and bonuses; and also free-to-play, which is obviously a really effective funnel for us to acquire a customer from and cross-sell to them. So when it comes to their -- whether they are more sensitive to any economic pressures, it's -- listen. I don't think so because the average bet size is around GBP 10. So if you would have economic pressures, I think the first things to go are probably the more expensive things. So that's typically what we've seen, when we've had some times with economic downturn, early on. I think the key point here is that, when we look at the situation we're in now, we're also coming out from a long COVID period where people were stuck inside. And we're in the middle of the summer and there's not so much sports going on, so it's a little difficult to talk about how they're reacting in the current economic situations, but overall fundamentally it's strategic [ strides ] for us. It's typically higher-margin customers. And it's much more healthy contribution to the NGR, which is why we are so focused on it.
And then to a related point around ARC and RG because obviously that also sits closely to our focus on the recreational base here. And you asked whether we would consider relaxing some of the ARC initiatives if we were permitted to. So first and foremost, we are licensed operator, so we're in close dialogue with the GC and listen to them and in dialogue with them on what it is that they are suggesting, but the good thing around ARC is that it is a personalized approach. And that's the whole philosophy here. So we're not rolling out initiatives or restrictions or limits to customers that don't need them, yes. And that's why we are so excited about ARC. Then that's why we think it's superior, that ideally you're only targeting the very small percent of your customers that has a risk behavior. And therefore, you wouldn't need to relax some of the initiatives here. So right now we are rolling out according to our plans when it comes to the U.K. and also internationally. I hope that gives a little bit of flavor. Rob?
Shall I take the question on inflation?
Yes, yes, please.
So as you point out, retail clearly has some areas of challenge. Energy and wages will be the main ones. We've called [ that out ] for you already. Outside of retail, clearly the bulk of our costs is technology related. Now the good news is we're largely in house, as you know, so you have more control. You're not exposed to third parties in the same way. Where we do have third-party arrangements with things like data providers, streaming deals and so on, they tend to be long term in nature and very often linked to revenue share and therefore have -- shield it from inflation from that perspective. The big costs where clearly there is an exposure is wages, our people. And you mentioned developers and so on. And it is a highly competitive job market out there, so that's where I expect where we will feel some pressure, will be wage inflation, both retail and outside of retail.
Many thanks, Joe, yes. And we have our last question, last, not least, James Rowland Clark.
My first is just on BetMGM. We've heard you and MGM talk a lot about the merits that you each bring to that JV. Clearly, at the moment, the market isn't really valuing the long-term cash generation of BetMGM. And we've also heard MGM say there's more than one way to skin a cat. And they want greater ownership of BetMGM, so I just wondered how you plan to generate or realize tangible value from your U.S. business in the near term. And then secondly, on Australia, you spoke a lot about the products improvements you've seen there is driving customer growth and structurally higher win margins. With tax increases coming, which way do you plan to lean in terms of thinking of this as an opportunity to sort of grow customers, as peers pull back on marketing? Or would you prefer to sort of roll back the marketing to retain profitability?
And then thirdly, just on BetMGM. The operating loss in the second quarter was 142 million. What was that in Q1, please? And then also just how you're thinking about that loss trending in Q3 and Q4 given, I'm assuming, EBITDA loss at -- guidance is unchanged for the full year.
Good. James, let me kick it off with BetMGM and our partnership there, yes. And maybe, Rob, I can hand over to you around where we are on the losses. And then also you can take the Australian question and the tax situation there. So when it comes to BetMGM, we are still very early in the journey of what's going to happen in the states here. And there are some significant benefits of the joint venture that brings to BetMGM, not least the cost advantages and the structural market -- margin advantages that we've talked about. And therefore, when we look at our strategy right now and what we are focused on, it is really around making sure that we make the most of that opportunity. We get into new states. We continue to advance our products. And then we've confirmed our target to become profitable next year. And from there on, there are different opportunities, of course, to also look at how we get value out of BetMGM going forward and into our books, but in general, listen. We are aligned on our strategy here and that's really what we are focused on here. And when it comes to how you skin the cat, I don't know. It's probably a question for Bill to clarify what [ he ] meant with that last week. So listen. The partnership is working really well. And we have our plan and we are focusing on executing on that. Sorry. I'm not being more precise than that. Rob, over to you on the losses and then Australia.
Okay. Thank you. Let me start with the losses. So if we look at H1, BetMGM's losses were $287 million, yes. And if we, if you think about the full year guidance that we gave previously and was reinforced by the BetMGM team in May, that implies another $150 million or so, give and take. And we're comfortable with that step down. Actually Bill and Jonathan talked about it on their call. Remember that H1 [ includes 4 ] state launches, and Ontario as well in the second half of the year. It's somewhat different, and of course, the revenue growth continues to be very strong. They're still posting sort of 40-odd-percent same-state revenue growth through that business, so we are comfortable that we will still hit guidance for the full year for BetMGM losses. And then in terms of Australia, everything is about the customer, first and foremost. If you think about it, everything that the team are doing over there, it's all about listening to customers and delivering what they want to drive the most engaging experience, many examples of which Jette has already provided this morning.
So we're not going to, in response to, [ call it ], consumption tax go up -- going up, impact the customer experience, but will there be opportunity to look at marketing spend? Well, typically, collectively in this kind of situation, an industry will move together to adjust what it's willing to pay for customers given that the unit economics have taken a hit. Therefore, CPAs go down, but as long as the market moves in unison, your share of voice doesn't go down. And therefore, we'll be keeping an eye on how the market progresses, but there will be opportunities in marketing, for sure. And there's a bunch of other stuff that we can do; for example, the way that you steer customers to certain products, what you promote through your various promotion mechanics or things like the next race, next betting opportunity, [ carousel ]. You can direct people to the types of products and states which are the most efficient from our perspective, so there will still be mitigation. The team think we can mitigate, give or take, half of the incremental costs but critically doing it without impacting the customer.
That's great -- sorry. Can I just follow up on Jette's answer? So you -- to summarize your answer, are you saying that you have to be -- or you wouldn't aim to be profitable before you would look at value-generating options for Entain and BetMGM?
Yes. So there is really no reason for us to look at other options at the moment, as we're both aligned on the strategy. And I think that -- or I know that MGM also confirmed that on the call, so it's really, for us, around executing on the opportunities that we have right now. And that is what we've confirmed both on the top line side and then becoming profitable next year, so we have our eye on our ball here; and then hopefully, also advancing into new states. So never say never, but it's not on the agenda. We focus on executing on our plans.
All right, I'm afraid we'll have to end it there. Thank you very much, everyone, for your patience this morning and connecting. We'll have a joined-up replay and transcript on the website as soon as we can, but I'll hand you back to Jette for some final comments.
Okay, thank you. And yes, thank you to all of you for your long time today. And again many apologies for the technical issues. They will be fixed for Q3.
But just to sum up. Our group performance, as you heard this morning, continues to demonstrate that customers are choosing to play with us, yes. And our customer focus, our diversification and proven ability to grow both organically and through M&A sees us really well positioned to deliver on our strategic opportunities both for the rest of 2022 and beyond that.
So with that, I would like to end the call today, but if you have any other questions, do get in touch with David and the IR team.
Thank you for now, and goodbye.