ENT Q2-2023 Earnings Call

J

Jette Nygaard-Andersen

Chief Executive Officer

Good morning, and thank you for joining us today for our Interim Results Presentation. I'll start with a brief overview, touching on the headlines for the half year. Rob will take you through the numbers and guidance and I'll then provide a broader business update focusing on our key objectives to drive shareholder value. However, before we get to our agenda let me introduce our chairman Barry Gibson to say a few words regarding our progress in resolving the HMRC investigation into the legacy issues dating back to pre-2017 that we also announced this morning.

So good morning, Barry over to you.

B

Barry Gibson

Chairman

Thank you, Jette. Good morning and I too would like to welcome you to our half one results presentation. And to reflect on a positive set of results, we saw clear delivery against our strategic growth ambitions. Alongside our results today, we've provided an update in respect of the HMRC investigation into our former Turkish facing online betting and gaming business, which we disposed of back in 2017. Whilst negotiations with the CPS remain ongoing, we believe that they've progressed to the point, where we're likely to be able to agree a resolution to the investigation, subject to court approval.

We've therefore announced today that we've made a provision of £585 million against a potential settlement, which will be payable over a four-year period. We're very pleased indeed we're making good progress towards drawing a line under this historical issue, which relates to a business that was sold by a former management team of the group nearly six years ago.

The Entain of today bears no resemblance to the GVC of yesterday, which had a different management team, a different strategy and to be blunt different standards. Over the last few years, we've taken very deliberate steps to drive a complete transformation to become a best-in-class responsible operator with outstanding corporate governance. Every aspect of our business model, strategy and culture has been reviewed, analyzed and changed. We've also completely overhauled the Board and the leadership team. And I'm not very confident in saying, that the culture of the two businesses is worlds apart. And Entain today is a very different business.

I'm pleased that the CPS has recognized our extensive cooperation, which I think is a reflection of who we are today rather than the culture of old. We now have a very straightforward approach when choosing where in the world we operate. All of our revenue is from regulated or regulated markets. And we're proud to be the only global operator that can make that 100% claim.

If a market isn't showing signs of having a clear road to regulation then we leave. It's as simple as that. More broadly, our philosophy is that the most sustainable business in our industry will be the most successful business in our industry. That drives everything from our long-term growth plans to the way we aim to treat all of our stakeholders from customers, shareholders, regulators, business partners and of course, our colleagues and the way we reward them.

None of this is to say that we're complacent, there's still a huge amount more for us to do, not least in capturing the substantial growth opportunities that we see in front of us. These are exciting times for our industry as the worlds of entertainment, Media and Gaming converge. So in many ways, we're only just getting started.

We're pleased that we're making good progress to move on from this matter and focus entirely on Entain's future rather than concerning ourselves with legacy issues. I'm sure you can appreciate that there's a limit to what more I can say on the details of the process itself. But I will stay on the line and if there are any questions on this issue at the end of the presentation, I will try and help.

And with that I'll hand back to Jette.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you. We made a strong start to the year, continuing to deliver strategically, operationally and sustainably, which I am pleased to report is evidenced in our financial performance. Our group NGR including our share of BetMGM was up 16%, while online NGR on a proforma basis was up 1% versus last year. If we exclude the known regulatory headwinds in the UK and Germany, proforma online NGR was up 6%. This is important, as it shows that our core underlying business remains healthy and the strength of our customer proposition continues to deliver robust top line growth.

Within online, we saw strong performance in particular in Italy by SuperSport in Croatia, Enlabs in the Baltics, Crystalbet in Georgia, and of course, by BetMGM in the US. We are pleased to see that regulation has now been passed in Brazil that should allow for licensed operators to commence early next year subject to a pathway to be proposed by the legislators. And while Latin America has experienced intense competition ahead of regulation, we are now starting to see the benefits of improvements we have made there including our 365Scores acquisition, supporting a good performance as we start the second half. So we are well placed to drive further growth in a newly regulated markets.

Retail continues to perform impressively, as our market-winning strategies continue to drive share gains. Reported EBITDA for the group for the first half came in at t £499 million, up 6% year-on-year with underlying EBITDA up 8%, a good performance and in line with full year expectation of £1 billion to £1.05 billion for total group EBITDA.

What I think best underlines our operational performance is the continued strong growth in online Actives again reaching a new record high up 23% versus last year. This is the clearest metric which demonstrates our sustainable growth and I'll talk more about that later. And as you saw BetMGM also achieved profitability for the second quarter and is on track for sustainable profitability from the second half onwards an important milestone.

Finally, we have expanded our presence in Central Eastern Europe with the acquisition of STS as well as making some exciting acquisitions to enhance customer engagement and accelerate our capabilities particularly for BetMGM.

With that, over to you Rob.

R

Rob Wood

Thank you, Jette and good morning, everyone. As always I will run through the financial highlights of today's interim results. Given the transactions executed so far this year, I will also outline our M&A track record as well as touch briefly on the strategic rationale and expected value accretion for our most recent deals. I'll then wrap up with commentary on our FY 2023 guidance.

As I talked through revenue numbers growth will be in constant currency and pro forma numbers adjust for SuperSport and BetCity, which both had a material positive impact on the half. As always, we have provided more detailed financials in the appendix.

So kicking off with key financials for the first half. The group delivered another strong performance. Total group NGR including our 50% share of BetMGM was up 16% year-on-year. And ex-US NGR was up 11% to £2.4 billion. On a pro forma basis ex-US NGR was plus 3%.

Breaking that down into our key divisions, online NGR was up 12% year-on-year or plus 1% on a pro forma basis, which was broadly in line with expectations as we phased into known regulatory headwinds. I'll talk through the key moving parts of this online performance in a couple of slides time. But I wanted to reinforce that our online growth continues to be high quality with record NGR driven by record Actives and our broadening recreational payer base.

Online Actives were up 23%. And while that includes acquisitions Actives were still up 15% on an organic basis. Retail continues to perform strongly with NGR up 11% or 8% on a pro forma basis.

Moving along the top-line of this slide as Jette has mentioned group EBITDA came out at £499 million for the half up 6% versus last year with both online and retail ahead. We reported BetMGM's H1 results a couple of weeks ago with NGR of $944 million. This was up 55% year-on-year and we are firmly on track for FY 2023 NGR to be at the upper end of the $1.8 billion to $2 billion guided range.

In Q2 BetMGM also achieved its first EBITDA positive quarter which is an important affirmation of our business model delivering profitability through cohort build and maturity. BetMGM remains on track to be EBITDA positive in the second half of the year. And based on current state opening expectations be self-sustaining thereafter.

Our adjusted EPS was £21.6 this is down year-on-year principally due to higher interest costs. Excluding rising interest rates EPS would have been broadly flat year-on-year helped by the reduced losses in BetMGM.

Underlying cash flow generated was £319 million. Net debt at the half year is of course just a snapshot and this is flattered by cash received from the equity placing, whilst the related acquisitions are still to complete in H2. If we adjust out the equity raise and pro forma EBITDA only for completed acquisitions the leverage would have been 3.1 time at the half year.

And finally to dividends. In line with our progressive dividend policy, the Board have confirmed the interim dividend per share will increase by 5% to 8.9 pence. This would give rise to a total full year dividend for the financial year 2023 of £113 million including the increase in shares from the equity placing.

Now turning to our EBITDA bridge, which walks through the moving parts of our 6% EBITDA growth for the group. You'll see here we have separated out the impact of around £45 million for the known regulatory headwinds that we faced during the half. Excluding regulation online EBITDA was up £76 million of which £32 million pro forma growth and the contribution from M&A was £44 million. This 8% proforma EBITDA growth excluding regulation reflects the underlying performance in online in the half.

Retail performed well, delivering £151 million of EBITDA in H1. The year-on-year increase of £10 million reflects strength in our organic retail business plus the contribution from acquisitions of £5 million.

Remember watch out here that I flagged before please don't take H1 retail EBITDA and double it to get to the full year. H1 performance includes the usual half-on-half seasonality as well as a stronger than normal wind margin this year and in Italy outperformance, which we don't expect to repeat in H2.

Lastly, on the bridge, corporate costs were up £12 million, reflecting the group's growing scale and ongoing RG and ESG-related investments.

I'll now give a little more color on the various parts of our online performance during H1. Including our 50% of BetMGM's digital revenues, total online NGR grew by 17%. Excluding the US, it was 12% in H1 and on a proforma basis growth was 1%, reflecting known regulatory headwinds in the UK and Germany.

In the UK, as we exited the half we started to annualize the more significant affordability measures and therefore the drag on growth will start to recede. Whilst in Germany, the lack of effective regulatory oversight means the market remains increasingly challenging for compliant licensed operators like us, particularly following implementation of stricter deposit limits.

So, adjusting for these headwinds, underlying proforma NGR growth was 6%, which together with our Active growth of 15% proforma, demonstrates the underlying health of our customer base, our business, and our growth.

I set out here our key geographies and their performance, which hopefully provides you with greater color as to the various moving parts in our blended online number. UK NGR was down 2% year-on-year. However, adjusting for affordability measures this performance is approximately 7% growth. What reinforces that 7% growth is our underlying actives were up 22% year-on-year, demonstrating the effectiveness of our broader engagement strategies, driving a more recreational customer base. Put simply, more and more customers in the UK continue to play with us.

In Germany, the uneven playing field on regulatory limits has also driven NGR declines we spend per head down materially as higher-value customers continue to move to non-compliant operators but Actives remain relatively flat.

Our performance in Australia is as expected with H1 NGR of minus 2% against tough 2022 comparatives. TAB New Zealand now adds an exciting new market to our Australian business and we look forward to growing across the region in the years ahead.

Italy is growing well in a strong market with NGR up 12% during the half. We continue to see the benefits of our omnichannel offering and online Actives were up 17% in the half.

In Brazil, the H1 performance reflects the first competitive markets ahead of regulation. NGR was lower than expected down 14% year-on-year. However, Actives continue to grow as we build our sustainable player base of recreational customers ahead of a license regime. And the acquisition of 365Scores is supporting an expected return to growth in the second half of the year.

Entain CEE continues to perform very strongly with SuperSport maintaining its market lead in Croatia with NGR up 31% on a proforma basis for H1. Soon STS will be a powerful addition to Entain CEE delivering further strong growth in the region.

BetCity in the Netherlands is performing in line with our expectations. NGR is down year-on-year, reflecting reentry of the market leader but it's still holding on to market share in the high teens.

Finally, Enlabs and Crystalbet in Georgia both continued to grow high single-digits during H1 with our brands performing well and leading in their markets.

Now, moving on to Actives and you'll have heard from Jette previously about our impressive Actives growth over the past few years, which reflects our deliberate pivot towards a broader more diversified and recreational customer base with Actives up 20% on a compound basis over the last three years.

I now want to spend some time looking at how that Actives growth translates into NGR, both historically and more recently. The table looks at correlation between actives and NGR growth for our large UK brands. Over the longer term and we use a six-year CAGR here, the two metrics are closely linked. Actives grew 11% and that translated into NGR growth at 8%. However, you can clearly see the dislocation over the past two years as Actives grew 8% a year, but NGR was down 8%. This shows the impact of both a strategic shift to more recreational customers, but also the effect of very significant regulatory changes, particularly around affordability.

Importantly, as the effects of that shift and adversary out, we expect to see NGR growth effectively catch up with the underlying growth in Actives as it has done in the past. Supporting this assertion, the chart on the right-hand side of the slide shows the proportion of our UK brands NGR which comes from recreational and low-spend customers rising from around 60% in early 2020 to over 95% this July. This not only shows the success we've achieved in ensuring the [Technical Difficulty] business, but also that this shift to a recreational player base is reaching its conclusion now and should therefore have less impact on spend per head going forward. Therefore, our underlying growth is sustainable and high quality underpinned by a growing recreational customer base.

Moving on to cash flow. And as always, there is a more detailed cash flow in the appendix. Underlying free cash flow remains strong in H1 coming in at £319 million. We continue to invest in our growth strategy. And in the first half we invested £686 million across both M&A and BetMGM. During the period, we raised £500 million in debt facilities to support repayment of the £400 million outstanding Ladbrokes bonds and we raised £600 million in equity to support the acquisition of STS and Angstrom both of which are expected to complete in the coming months.

As a result, net debt at the half year was just under £2.6 billion. But as I said in my introduction, adjusting for the timing of the equity raise our pro forma leverage on 12 months trailing EBITDA was 3.1x at the half year. Available cash adjusted for committed acquisition spend in H2 is over £600 million from which we expect to start payments against the HMRC settlement on a monthly basis later this year subject to approval by the courts. As ever, we remain disciplined in relation to capital allocation and with strong underlying cash generation, we have a secure and flexible balance sheet to support both the execution of our strategic agenda and delivering returns for shareholders through a progressive dividend, whilst also absorbing potential DPA settlement payments.

Moving on to M&A. I want to remind people why the transactions we deliver are so compelling from both a financial and strategic point of view. The right-hand side of this slide is a reminder of strategic rationale outlining our notable acquisitions since 2018 which align directly with our M&A strategy. The chart on the left shows the compelling financial rationale. You have heard me say before on average, we've doubled the value of our acquisitions in just three years of ownership. This graph illustrates the cumulative price paid and the value created, either based on actual year three results or were relevant based on the latest year three forecasts. Compared to March, it now includes SuperSport and BetCity.

We've also set out in more detail in the appendix a breakdown of value creation for each deal. Like any portfolio of acquisitions, some outperform others. But in aggregate, we see increased value on acquisition of around 1.9x which reflects a healthy return on investment on any measure. This multiplier of value on acquisitions is achieved through a combination of being very selective in origination processes, thorough due diligence, being highly disciplined, but competitive on price, while also being able to deliver superior EBITDA growth through cost and revenue synergies, as we leverage our scale, platform and capabilities.

We have an excellent track record of value creation through M&A and we will continue to be strategic and selective on further opportunities albeit at a slower pace than the last couple of years.

Let me also take this opportunity to remind you on the compelling rationale for our most recent acquisitions. Let's start with TAB New Zealand. TAB New Zealand selected Entain for a 25-year strategic partnership providing unique and exclusive access to the New Zealand sports betting market. The market is regulated. It has forecasted 15% CAGR growth over the next five years with further potential boost from legislation to geoblock the circa 30% of the market which is currently being lost to offshore operators.

TAB New Zealand is well-established, but New Zealand wagering per capita is relatively low. We're really excited to combine our expertise and capabilities to reinvigorate the brand and improve the offer to customers. This is a transformational opportunity to unlock the potential of this attractive market. The first 12 to 18 months will be a period of investment, including an expected launch of a complementary digital-only sister brand next year.

STS now, and STS is the leading sports betting operation in Poland and is exactly the reason we created the Entain CEE structure, building on the acquisition of SuperSport the CEE roll-up strategy with EMMA Capital sees us also secured the number one position in Poland, which is a high-growth market in the largest economy in the region.

Not included in any of our value accretion calculations was the more medium-term opportunity for the Polish online casino market to liberalize, which would be ideally positioned and add further significant value to our investment. We expect this acquisition to complete this quarter and to be earnings accretive in its first full year of ownership.

Shifting to 365scores. This acquisition is a little different as it aligns with a number of our growth pillars, deepening our presence, broadening our offer and expanding recreational audiences. 365scores is the leading live scores app globally with over 18 million monthly active users. This deal expands our audience and customer reach. It adds content to our offer and it supports our growth in particular in Brazil.

Importantly, it also gives us proprietary data, enabling an improved understanding of user preferences, behaviors and trends to enhance our existing offerings and improve 365scores own product development, customer acquisition and unit economics. 365scores is profitable on a standalone basis while also being synergistic with our Entain business.

Our expected EBITDA for 2025 implies a multiple of less than five times purchase price before any synergies. And with 365scores bringing unique capabilities to our portfolio and is probably one of our most attractive acquisitions to date.

And most recently Angstrom Sports, which you'll hear more on from Jette shortly. So just one quick point from me, Angstrom will make us the only US operator with an end-to-end in-house solution for US sports betting. It will enhance our customer experience and increase our win margin, thereby, improving unit economics and ultimately profitability in the largest regulated market in the world.

And finally our usual slide on guidance. Material changes to March are highlighted in bold pink, and I will talk to the changes now rather than running through everything on the slide. As announced in this morning's statement, we expect 2023 group EBITDA to be in the range of £1billion to £1.50 billion. This is in line with consensus, which now includes STS and Angstrom acquisitions.

For online, there is no change to our low to mid proforma revenue guidance. However, when reflecting all acquisitions announced so including STS and Angstrom, we now expect reported online NGR to grow by mid-teens percent. This, of course, flows through to operating cost guidance, moving to a high teens year-on-year increase on a reported basis. There's no change to our 26% EBITDA margin for the full year. You'll note H1's margin is slightly lower, reflecting our usual seasonality of marketing spend, which is weighted more towards the first half.

For retail, we previously flagged the exceptional inflationary cost headwinds in particular from wages and energy in the UK, which we are currently on track to largely offset through better than expected organic performance and acquisitions.

A new addition to this slide is how we will be accounting for TAB New Zealand. The business will be consolidated as with prior acquisitions, but future profit share payments will be treated as contingent consideration and so will not be deducted from EBITDA. The future value of payments is recorded as a liability with an equivalent intangible assets, which will therefore amortize over the 25 years of the agreement.

To help you update your models, please refer to more information in the appendix. The various cash flow items for M&A will be in line with expectations. You'll note a slight increase in CapEx, reflecting both M&A and ongoing investment in the business. Expected interest costs on debt are increasing to approximately £225 million, reflecting higher market rates for floating debt and recent refinancings. I covered dividends already and you heard separately from Barry this morning regarding the new accounting provision for the expected DPA settlement.

So in summary from me, we are delivering organically and are driving incremental value through our newly acquired businesses, as well as our investment in BetMGM. Our balance sheet is strong and secure, supporting our ongoing delivery investment in the business, as well as returns for shareholders.

With that, I'll hand back to Jette.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you, Rob. As I mentioned earlier, I'll spend a few minutes providing an update on how we are positioning Entain to deliver long-term growth and value for our shareholders. Firstly, how our operational focus delivers long-term sustainable organic growth, including how we are improving our capabilities and processes to ensure we remain at the forefront of our industry. This will deliver better operational leverage, in turn driving higher margins, cash flow generation and shareholder value creation.

Secondly, how we are well positioned to capitalize on the huge opportunity in the US, particularly given the operational and product improvements, we are delivering, as well as how Angstrom will accelerate this. Finally, I'll also touch on capital allocation. After a busy period of strategic M&A, which has seen us take advantage of attractive and value-creating opportunities to drive diversification and consolidation, we expect a slower pace of activity ahead.

While we always look for strategic M&A opportunities, we remain disciplined and selective. We are focusing on investing in our business to integrate operations, drive operational performance and top line organic growth. We have a clear operational focus on organic growth and ensuring that this organic growth is sustainable over the longer term. Key to that is broadening our appeal to a wider, more recreational customer base, through broader customer acquisition, superior engagement and higher retention.

As you know, we are leaders in terms of data and analytics, with over 180 million customer profiles and over 400 terabytes of data, we not only acquire customers more efficiently, but we are able to identify their preferences, giving them a more personalized experience and driving increased engagement and retention. Our in-house game production is a cornerstone for our organic growth, as we provide customers with wide variety of choice and games exclusive to us.

Using our data analytics, we also focus our game development, where the highest ROI can be achieved. We also use this analysis when working with third-party suppliers to secure exclusivity of the best products and office. In this context, the acquisition of Armstrong brings another capability in-house. In this case, simulation, risk analysis and pricing around more complex products, such as parlay and in-play products, which are more recreational customer type products.

We also continue to deepen our engagement by giving customers unique experiences that drive loyalty. For example, the chance to part own a raise force through the Coral Racing Club which now has 123,000 members. A similar club has now been launched by Ladbrokes in Australia, with both horses and greyhounds and we are receiving great feedback so far.

Another great example is our recently launched Ladbrokes Live initiative, which provides access to concert tickets, boxes at the 02 and other experiences around music events. Both initiatives drive engagement and loyalty with a broader customer audience, as well as firmly reinforcing the entertainment nature of our brands and who we are as a business.

Our addition of 365Scores is a reason significant strategic move into driving broader customer engagement. 365Scores is a world-leading sports app, not just steps and scores app, but sports app. It has over 18 million subscribers, the number one sports app in Brazil, number three across LATAM and top five globally. These initiatives among others support ongoing growth in actives, particularly for more recreational customers.

As Rob showed, almost 95% of our customers in the UK now are recreational. As we transition our customer base to be more and more recreational, spend per head reflects that and hence NGR growth will lack slightly during transition. However, as we work through this transition, top line growth will increasingly align with active growth. As we look ahead, our markets excluding the US are set to grow around 6% to 8% compound over the next five years.

Now, that is obviously a mix with larger markets like the UK set to grow at middle single digits and newer markets such as LATAM, as mid to high teens' growth. Our acquisition of two of the leading players in Central, Eastern Europe have unlocked access to a highly attractive US$8.6 billion market with a compound growth rate of over 10% over the next few years.

We're also delighted to have won the agreement to partner exclusively with TAB New Zealand for the next 25 years where the overall New Zealand market totals NZD 600 million and is expected to grow 35% over the next five years. And of course, the US is expected to continue to grow at double-digit rates for many years to come. This strong growth across all our markets is driven by a number of factors, including offline to online migration, continued online market growth, increasing engagement across a broader customer base as well as steady convergence of gaming and entertainment.

So hopefully, it is clear that through our strategy and the capabilities of our platform we can grow our top line across our markets by high single digit to double-digit compound over the years ahead.

Sustainability of earnings also comes through responsibility, which in turn feeds into higher quality of earnings. We made further progress in rolling ARC out into more of our markets. And in the UK, we've now seen over 7.5 million interactions so far with impressive statistics and better player protection.

For example, 41% of medium to high-risk customers move to low or no risk following an intervention with 95% remaining at deescalated level and over 90% of high-risk customers sit gambling controls following an intervention. Through ARC, we provide a safe and enjoyable environment for our customers, as well as a healthier and more sustainable and growing revenue base.

An important part of our approach to regulation is working closely with regulators. We must understand, they are focused, whilst also helping them understand the benefits of well-structured supervised regulated markets.

Our approach of being the only global operator, exclusively in regulated and regulating markets implementing ARC and driving a more recreational customer base are not just the right things to do as a responsible operator. But they also diversify our revenues, as well as mitigate the impact of regulatory changes such as affordability and player protection measures that we see increasingly being implemented across our markets.

Having a more sustainable business ensures higher quality earnings, which is good for all our stakeholders from protecting customers to shareholder value. We have a number of top line drivers both market drivers as well as internal drivers in our control. We are also focusing on how thanks to our operating model and scale, we can drive operational leverage that supports growth in profitability and in cash generation.

We're leaning into all of the levers across the Entain platform to drive margin expansion going forward. For example, platform integration agile structures, improved processes and ways of working, we continue to invest in our technology to ensure it remains state-of-the-art fit and ready for the exciting future for our business and our customers. We have over 4,000 technologies around the world working on our technology and our new core teams will further enhance our capabilities.

To give you an example of how we can unlock further benefits is that, over time we'll integrate more of our businesses on to our platform. And as we do so, we can unlock mid-single-digit percentage of margin improvements on the NGR related to each business.

Following years of rapid growth and M&A, we've reviewed our structures and processes end-to-end. By adjusting our operating model, we will be able to work faster, make our business stronger and unlock efficiencies both operationally and financially. Plus, we have further opportunity for greater operational leverage as we continue to integrate our operations across our acquired businesses as just mentioned. This structure sees us operate around regions with the operating model defined by businesses that are currently on the Entain tech stack, and those that are yet to be but used their own in-house advanced technology.

As an example, our largest segment on Entain technology includes the UK, Ireland, Western Europe and Canada. These markets benefit from more efficient centralized operational capabilities such as marketing, data and analytics, amongst other areas, enabling us to maximize ROI across our markets.

Another example is Central Eastern Europe. Through Entain CEE, we are pursuing a roll-up strategy in the region that will benefit from independent in-house technology. And as a joint venture, it has its own operational capabilities focused on the CEE markets, and will drive operational efficiencies into the region.

We have very clear priorities for our tech and operations, and they currently prioritize our development and delivery in the US alongside other specific capabilities for organic growth in other markets.

As we have mentioned before, where acquired businesses have their own advanced in-house technology, we plan to migrate these onto our platform over time in a non-disruptive manner. This operating model enables us to leverage core platform capabilities while strengthening our local go-to-market expertise.

The improvements we are making to our capabilities, the efficiencies from an improved operational structure and our ongoing improvements in our technology that we can leverage across more of our businesses over time provide us with a number of internal improvement opportunities, which will enable us to improve our velocity in technology and development and support margin expansion. The US is a top focus market and a key operational priority for us.

As you heard from BetMGM, two weeks ago, we remain on target in the US. We are firmly established as a top three operator, with an 18% share in a US$ 37 billion potential total addressable market that increasingly looks like, it will be dominated by three top players.

We remain firm leaders in iGaming, with 27% market share in the markets where we operate. Across the US, we have one of the broadest market accesses reaching approximately 48% of the adult population. In the first half of the year, BetMGM delivered revenues of US$ 944 million, up 55% year-on-year as well as a significant milestone of profitability in the second quarter.

We are firmly on track, to be at the upper end of our previously guided full year NGR target of US$ 1.8 billion to US$ 2.0 billion, and to be EBITDA positive in the second half and financially self-sustaining thereafter, based on current state rollouts.

Going forward, we see a lot of upside as BetMGM will deliver superior profitability thanks to the structural cost advantages from the parent relationships. Compared to other operators, BetMGM enjoys customer acquisition and retention cost advantages through MGM Resorts international brand, and Entain technology and analytics capabilities.

Furthermore, BetMGM benefits from lower revenue share and royalties thanks to MGM Resorts International Market Access and Entain in-house games library and studios. Last and probably the most material contribution, is that BetMGM is powered by the Entain platform enabling superior delivery coupled, with material software cost savings.

Our cohort of retained customers drives positive contribution in excess of the acquisition cost of new customers, and natural benefit of being a scaled operator and a key step in delivering sustainable profitability. In fact, all cohorts from 2022 and earlier are contribution positive. Our bonus optimization program is delivering a cleaner revenue base, with much stronger GGR to NGR conversion metrics.

Also, we've seen sports margin improved 300 basis points year-on-year and improved quality of customer spend, with revenue per player up 65% for those acquired in 2021. With more efficient revenue from retained customers, we will be able to focus more of our spend on acquisitions rather than retention to drive market share. This have -- we've had two important product focus areas, single account single wallet and acceleration of online sports betting products such as parlay and in-game parlay products. We're making good progress on single account, single wallet being rolled out.

Having rolled out six further states last week, we now have single account single wallet in 14 states and we expect to have all states live excluding, Nevada and Kentucky, in time for the NFL season. This means, that we can unlock the omnichannel opportunity in particular for customers traveling intrastate, to visit MGM Resorts properties an important, significant and unique customer acquisition funnel for BetMGM.

Angstrom will accelerate our delivery of a full in-house capability for parlay products. Let me speak, a bit more, to our acquisition of Angstrom. This is a highly strategic move in accelerating our US strategy and we are excited to be bringing key capabilities in-house making us the only operator with full end-to-end capabilities for risk analysis and pricing, across all forms of US sports betting products.

It also accelerates our ability to offer more tailored and personalized products for customers, while optimizing margins through risk management and pricing. We're already working with the team ahead of completing the acquisition, to accelerate the rollout of new products in the US and we believe it will become a key differentiator for us.

With this in-house analytics and pricing, coupled with single account single wallet, we are ideally positioned to drive BetMGM forward and deliver on our target market share of 20% to 25%.

In the U.S., we are building a business with industry-leading and differentiated capabilities, which will enable us to drive market shares by leveraging fully in-house capabilities across product offerings, including end-to-end analysis, risk and pricing capabilities. Improved use of data and analytics driving customer engagement and bonusing, omni-channel offering with differentiated personalization, and best-in-class game development capabilities combined with the largest jackpots.

We are highly cash generative, which will only increase as BetMGM delivers sustainable profitability and return cash. We carefully evaluate the best deployment of capital and continue to remain flexible and disciplined in its allocation with a single-minded goal of creating long-term value for shareholders. Firstly, we ensure that we continue to deliver organic growth through ongoing investment in our platform and customer propositions to drive top line growth, and synergies across the business.

We have and will continue to invest to support accelerating growth and profitability in the U.S. However, we expect capital to flow back from BetMGM, as it becomes financially self-sustaining and gross profitability. Over recent years, our industry has seen enormous change to consolidation. We have taken advantage of attractive and value-accretive opportunities to position us as a leading global player both in terms of new market entry as more markets regulate, but also through opportunities that have deepened our presence to deliver leading positions in our existing markets.

Our acquisitions are performing well. We have demonstrated our ability to drive significant value through M&A on average doubling their value by year free of full ownership and we are confident that we'll continue to do so.

Over the near term, we are focused on deriving value from our acquisitions and delivering organic growth. We'll continue to explore strategic acquisition opportunities. And having had a busy period of M&A, we expect a relatively slower piece going forward.

Finally, with regards to capital returns, we are committed to our progressive dividend policies that we announced last year and have increased the interim dividend per share by 5%. As we continue to deliver our strategy, we remain disciplined in optimizing our capital allocation to drive shareholder value.

So to sum up, our growth strategy is focused on two key areas. A priority to deliver sustainable organic growth by focusing on our operations and ongoing development optimization of our platform to ensure we remain the go-to player in our markets, while delivering operational leverage, margin improvements and strong cash flows and a focus on capitalizing on our huge growth opportunity in the U.S. through operational and product improvements. With this strategy and a capital allocation framework, which is aligned with these areas of focus, we are confident that we can deliver sustained value for our shareholders.

With that, I would like to open the call for questions.

Operator

Thank you. [Operator Instructions] Our first question today comes from Ed Young from Morgan Stanley. Ed, please go ahead. Your line is open.

E

Ed Young

Morgan Stanley

Hi. Good morning. I've got three questions, if that's okay. The first one is on the performance in online. Q2 saw a deceleration on an underlying basis. I was wondering if you could perhaps comment a little bit on what got tougher quarter-on-quarter? And perhaps more importantly looking forward, can you highlight the key timings where you are lapping issues or areas you touched on Brazil in both your commentary where you're seeing underlying improvement as you sort of close the gap as you say between Actives and revenue growth or put another way close the gap between the adjusted or underlying figures you're presenting and what we might see in the reported numbers?

J

Jette Nygaard-Andersen

Chief Executive Officer

Good morning, Ed. Should we start by the underlying online? And then I can touch upon Brazil. Rob, do you want to kick off?

R

Rob Wood

Yes. Let me do that. Good morning, Ed. So, firstly, Q2 was very similar to Q1. Q1 proforma was plus 1%. Q2 was plus 2, rounds to plus 1% for the half. In terms of how the second half, we would expect to be more favorable. Key drivers you really touched on it the regulatory impacts that we're seeing receiving.

So in particular, in the UK, as we've talked about previously, we made some pretty significant changes last summer. We therefore annualizing against those. Now, although, I have cautioned before, it's not an immediate movement in the numbers because of the lag effect in things like deposit limits. So we expect that to gradually ease through the second half of the year.

Germany, it's a slightly different situation there. On the one hand, we have just lapped the introduction of sports limits from last summer, but we have now implemented cross-operator limit. So there's continued drag. But nonetheless, we would hope that the second half of the year will be less of a decline than the first half of the year. So, some regulatory aspects there.

I'll leave Brazil to Jette in a moment. Netherlands is another area of course, where we knew that we would see some decline as the market leader we entered the market last summer. So we would expect to see that decline receive over the second half of the year as well. And then there's Brazil. So Jette, do you want to touch on Brazil?

J

Jette Nygaard-Andersen

Chief Executive Officer

Yes. Let me touch on Brazil. So, lots going on in Brazil. As I'm sure you've seen Lula refined, not refined but we signed the legislation or the bill going in here in July. So we are waiting for that. It becomes effective immediately but it needs to be approved by Congress within the 120 days. So, still very much optimistic in terms of Brazil coming online beginning of next year.

Now, what we've done and what you see in the trading numbers is access continue to grow. However, we reset our marketing approach during H1 really with a focus on improving ROI and also, a more sustainable customer base. But that curve should now start to turn in H2, not least with the integration that we are doing with 365Scores, which is going really well which means that we're able to customize our offering based on the data there.

But as you know, Latin America has experienced intense competition and there's a lot of noise in the market still. But we do expect that the second half of the year the curve should turn for us. And then we are ready for the market going live hopefully beginning of next year.

E

Ed Young

Morgan Stanley

Very helpful. The second was on the US. You clearly very positive about Angstrom and it looks like a single app single wallet is very much on track for the NFL season. You see yet getting back into the 20%, 25% market share target range. When you think about bridging that, what are the most important drivers? And perhaps as part of that you could comment on what's the time line for Angstrom, in terms of completion integration and potentially getting in sort of material improvements to the product that you outlined during the presentation?

J

Jette Nygaard-Andersen

Chief Executive Officer

Yes. Let me talk a little bit about that. So in terms of market share overall our market share is 18%, if you exclude New York, where we've taken a deliberate different approach. On iGaming alone, it's 27% and that remain stable over the month. So from these 18%, we feel that there's a clear path to hit our 20% to 25% ambition for market share. And a lot of that has to do with improving our US sports product.

So you mentioned Angstrom, we're really excited about our integration with Angstrom, which we'll close later this year. So we already started working together with Angstrom. We're launching our first products together this week, so a new player props. For the NFL season kick-off, we have significantly improved our hope bidding journeys and we've also introduced initial single game parlay product -- sorry single game parlay plus product, not with Angstrom though.

And then, we are going to launch NFL player and driver props with Angstrom S NFL goes along. But really what we are looking at is us having an in-house full STP experience by Super Bowl March Madness next year fully launched. But we're not waiting for that. We'll continue to launch both new markets new products during the NFL season but the full experience should be was Super Bowl March Madness.

And why is this so important? Well, Angstrom approach to forecasting and pricing is basically going to allow us to produce a broader and more exciting product for the customer. So the approach to pricing will allow us to redefine both in place but also single game parlay. And we believe that we'll be able to become a market leader in this area.

So Angstrom is unique in terms of its predicting capabilities. The simulation is based on play-by-play level, so not should we generating sport betting markets and pricing based on historic data. And that will basically mean that we have a unique simulation-based pricing model, which will enable us to innovate ongoingly going forward. So it's not only about Super Bowl and March Madness, but it's also our capability going forward.

And then of course, we'll be the only global operator to have all these pricing capabilities in-house. And that's what I said in my presentation that I believe that's going to be a key differentiator. So a lot to do with Angstrom, but in general improving our sports product that we believe will drive market share and see us into that 2025 range. Single account, single wallet is also important. I think the team talked about that we've now launched in 14 states. We have another six, seven states coming later this month. So we should be ready for the kickoff of the NFL season.

Nevada is going to come a little bit later but that's not due to the launch that's due to regulatory approval. And that means that for example for Kentucky, which albeit being a small state, but it's surrounded by states that already have launched will be able to lean into single or top single wallet, which basically means that the customer will have a seamless one account wallet, each individual player across states. So they can cross the border, use one single looking, consolidate their wallets and balances and obtain their status and register in one state use the product in less in other states. And this is the functionality that we haven't had and our competitors have due to their fantasy background.

Plus it's bringing her in functionalities basically needs when we have to market and to one time for a new customer. So a lot of upside, really excited about it and we believe that this will change the curve for our sports market share going forward. Back to you Ed.

E

Ed Young

Morgan Stanley

Very useful color. Thank you. That’s great. Appreciate that color. The final one is on your capital allocation M&A slide in the appendix. Of those 11 deals, it looks like only two of them are sort of based on actual rest of sort of based on forecast, I think if that's right. I guess my question more broadly was if you look at the spread across those there are a few in there where the value is sort of small and even negative in one example. And then there's obviously, a load where it's very, very positive. Amongst those at the lower end, what's been the driver behind that? Is that been regulated disruption? Is that where you've acquired more than the 10 times that you're using in your sort of gross up, or are there any other kind of lessons that you've learned from those examples that you've then been able to apply to current and future acquisitions? Thanks.

J

Jette Nygaard-Andersen

Chief Executive Officer

Yes. That's a really good question. And you – you hit on the main reason. So very often it's related to regulation – so regulation coming later than we assumed when we did the acquisition. And that's very much what drives the valuation or the lower valuation. But there are also operational things that obviously that we learned from time to time. And a key part of that is that when we go forward we always make sure that we look for a very strong management team.

No surprise there but that's absolutely key and also the technology because it gives us time, if the timetable changes around regulations for example that if they are already on a very strong technology platform, preferably in-house, we don't need to migrate them as soon as we would otherwise have done. So those are some of the lessons, but very often unfortunately it relates to regulation hasn't come through or change in regulation.

E

Ed Young

Morgan Stanley

Okay. Thank you.

Operator

Thank you. Our next question is from Kiranjot Grewal from Bank of America. Kiranjot, please go ahead. Your line is open.

K

Kiranjot Grewal

Bank of America

Hey, good morning, guys. Just a couple from me. It's good to hear that you're refocusing on organic growth. As part of that would you consider entering new markets organically as well? So I'm really thinking about whether it'd be possible to leverage some of your strong businesses already developed in Eastern Europe, Brazil to move into adjacent markets, or are you going to be focusing simply on your existing markets?

Also I think in the US, we've got the single wallet, single account coming ahead of NFL. Earlier this year that was a bit of a headwind, the lack of that and also you tweaked your bonusing as we enter into H2. Do you think you might step up on investment for customer capture? And any thoughts on the competitive backdrop in the US? We've of course heard about new entrants coming into the market this week. Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you, Kiranjot. Good morning. Let me take down those two. So organic growth and new markets yes, we are doing this organically from time to time. So for example Colombia is an example of that. What I would say is that if it's new markets opening up with a very attractive growth prospects, very often the fastest way into the market not least because we prefer to have a podium position as we talk about so much because this is a scale game. Very often the fastest way in is to acquire one of the top brands is when it comes with a strong team and a strong platform.

So [Technical Difficulty] but for CEE as well, I know the team there also evaluating what the opportunities are to roll out existing brands into new markets. It's really a case-by-case basis but we do want to if we can possibly get a podium position and that's sometimes just the easiest way to do it through M&A.

In terms of the U.S. and let me take bonusing first. So there's no doubt, that the single account, single wallet and getting single-game parlay products and in-game play products or in-game products into the market is something that the team has been looking forward to.

But I would say that, the bonusing strategy that we've done about is a deliberate move and it's working out really well for us. But in any case, the team has full authority to look at state-by-state basis and look at the strategy around CRM and marketing that makes sense for the market.

And if we're having the new products in the markets that they think there is -- they want to treat they go-to-market approach I'm sure they will do that. So it's not fed in stone, but we are really happy with the results we have seen around our bonusing strategy.

And then in terms of new competitors coming into the market, yeah, I think if you allude to the news from yesterday I would just repeat what I've said before it really looked -- and I said in my presentation as well.

The market is becoming more and more consolidated. The top three players now have 79% market share. And it's been sitting around that level for several years now. So it's becoming more and more difficult at this point to build a meaningful market share at least if you want to build a sustainable business with the profits in a market where scales matter.

And no one has really successfully been breaking into even the plus 10% market share from behind. And the reason for that, in my mind is, that we're seeing more and more that it's all about technology and products. And having an organization and experience and muscle to continue to invest in and improve your technology and product capabilities.

So while it's exciting what's going on, this is not going to change the trajectory for BetMGM. We remain confident. And we're really focused on, our new products coming into markets as well as continuing to invest in to our iGaming products.

K

Kiranjot Grewal

Bank of America

Amazing. Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thanks Kiranjot.

Operator

Thank you. Our next question is from James Rowland Clark from Barclays. Please go ahead. Your line is open.

J

James Rowland Clark

Barclays

Hi. Good morning everyone. My first question is on, Angstrom. I wondered if you would be willing to put some numbers behind the trajectory of sports win margin improvement that you would expect for BetMGM driven by bringing Angstrom's and technology capabilities in-house. Also a follow-up on Angstrom, is it relevant to any non-US markets? Is there anything you can learn from it and apply to the rest of your Entain online group?

And my second question is on online share gains. So you outlined that in Australia you are taking share in the first half but I don't see much reference to share gains or losses in other divisions or other geographies. So I wondered if you wouldn't mind walking us through, what you're seeing in some of the rest of your core markets there.

And then, third and final question is on, the regulatory drag. So you outlined the EBITDA drag is £45 million in the first half for the online division. I know you talked around the lapping certain regulatory measures in the second half for the growth profile. But in terms of EBITDA what's the regulatory drag we should expect in online for the second half please? Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Sure. Hi. Good morning, James. Let me talk about Angstrom. And I'll hand you over to Rob for market shares outside of Australia as well as regulatory drag going forward. So on Angstrom, I mean, there is no doubt that part of the advantages that we are seeing with bringing Angstrom in-house is that of margin improvement.

We haven't set out in a specific target. So far, our margins right now I think the last numbers were just around or just below 9%. So we should be able to improve that for sure. But we haven't really set out the targets. We just started working together but we already see the opportunities here. So that is a key benefit for us.

And for sure we are going to also leverage Angstrom's capabilities and expertise outside of the US. But for now the key focus is for obvious reasons the US. So we're really leaning into to focusing the team on the US and we have sat down with the BetMGM team.

So we together have a very detailed pipeline on what it is that we want to achieve with our eye on specifically Super Bowl and March Madness next year. But there will be more to do over the next 12 to 24 months going forward. But the focus right now is fully on US. Rob, can I hand over to you to go through market share and the regulatory drag going forward, please?

R

Rob Wood

Absolutely. Good morning, James. So let's go through some of the larger territories one-by-one. So we see in the UK, comparatives are quite challenging at the moment given different timings and strength of implementation of affordability measures in particular as we all know.

So it's hard to judge right now, but we are as confident as we can be that, we've implemented a stricter regime as is possible. And therefore, once we get through into 2024 we'll have a better idea of how market share has moved over the last couple of years.

But our actives growth suggests to us that on an underlying basis, we are continuing to gain share. Australia, we've had a very good in fact a couple of years of market share gains. I would say across H1 much more neutral at NGR level, slightly different strategy from different operators there. You'll have seen yesterday, sports bet really leaning into the challenge from Bet [ph] for instance and investing more in marketing year-on-year whereas we have consciously reflected point of consumption tax going -- coming in and pull back on marketing, but nonetheless revenue numbers broadly similar, but a more favorable contribution performance from ourselves.

Italy online Eurobet was flat in online across the half up in retail in terms of market share gains but pretty much flat online. Where else do we have data. Those are the main ones I would say. Netherlands, when we acquired BetCity, it was just over 20% market share. On last measure we think it's high-teens. So two of therefore only and lost a few points of share following the reentry of Unibet which was fully anticipated and reflected in the deal structure. I'm pretty pleased with that performance. Other territories of course it's a bit more patchy in terms of market share data.

In terms of regulatory impact H1 into H2, I do expect that the three drivers that make up that 45 million drag in H1 should all recede in the second half of the year but I don't expect them all to go away. So we spoke about UK affordability starting to ease in the second half of the year. Germany I mentioned that, whilst we now have annualized against the introduction of sports deposit limits, we are still having an impact from cross-operator limits on sports and gaming. So that will continue, but hopefully to a lower degree. And of course, once enforcement comes then really we'll start to see the benefit of an even playing field and therefore our active performance which is flat and at the very least be reflective of where we go from there. And then the last component is, the increase in point-of-consumption tax in Australia. We have annualized against some of that increase now, but Queensland I think it was -- was late in 2022. So there is further positive [ph] increase to come in the second half of the year but not as much as the first half.

J

James Rowland Clark

Barclays

Thank you. That's very helpful.

Operator

Our next question is from Monique Pollard from Citi. Monique, please go ahead. Your line is open.

M

Monique Pollard

Citi

Hi. Good morning, everyone. Just a couple of questions from me if I can both centered around the US. Firstly, just on the US iGaming market share. Obviously, a lot of talk about how Angstrom is going to help you with pricing win margin parlay products. But on iGaming, what more can be done to enhance your position there as we're seeing material market share gains in iGaming from drafting and hand drawn? If you could just talk to some product advancements you might have coming over the next few quarters?

And then secondly on Angstrom, I guess, we know from clusters that their sort of 2025 target on gross win margin is 12%. It seems they can get there quicker. Jette, you mentioned your numbers are around 9%. Is it reasonable to model you guessing given you're going to have best-in-class product to a 12% gross win margin by the end of 1Q next year? And then on that win margin point, I guess, when we're thinking about how the margin will flow through whether that flows through or whether that's reinvested in whole or in part to generosity how should we think about you keeping that benefit versus reinvesting it into generosity?

J

Jette Nygaard-Andersen

Chief Executive Officer

Very good, and good morning, Monique. So on the iGaming, let me start with that. Yes, we know that, we have competition, but we never focus on one competitor. And when I look at the numbers for our iGaming market share, I took comfort in the fact that, it's actually been pretty stable the last many months where we are seeing more competition come into the market. And we are surely not standing still. You've seen that, we've launched a number of new products whether it's games exclusive games, or the big new lotteries that we are launching.

And then I would also say that BetMGM is constantly benefiting from what Entain is doing. So Entain, now have 10,860 games on our platform that BetMGM can pick from. We had 5,760 game releases just in the first half of the year. So just tells you a little bit about the iGaming operations that we have within Entain that BetMGM, of course will benefit from. And then we are doing a number of innovative things in terms of new games -- live games in casino leveraging the omnichannel opportunity there. So market share is stable. We are not standing still but we are not focused on any competitor here.

In terms of Angstrom and win margins, listen we are as hopefully you can hear from my introduction of Angstrom, we're really ambitious when it comes to Angstrom and what it can do for our US business and really excited about it. But it's going to take some time. So I'm not going to give you a prediction for Q1 next year.

But yes, as I said to an earlier question win margin and expansion of wind margin is of course part of the benefits that we expect to see from Angstrom. And remember, the product that Angstrom will help us bring to market is also going to help us lean even more into an recreational audience.

And whether the team wants to reinvest that into customer acquisition I'm sure they will do that to the best of the, let's say, what the models tell them to do. We are really confident in our model and where the team sees us having opportunity to lean into that and reinvest into acquisition and we have new states coming up of course small state, but Kentucky is coming live later this year they will do that. We set that that we really want to take opportunity of that Day one launch when we have it. So up to the team they will leverage the CRM and the predictive models that they have but that was certainly an opportunity.

M

Monique Pollard

Citi

Understood. Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thanks, Monique.

Operator

Thank you. Our next question is from Simon Davies from Deutsche Bank. Simon, please go ahead. Your line is open.

S

Simon Davies

Deutsche Bank

Yes. Good morning. Three from me please. Firstly, on Brazil. What are your expectations in terms of iGaming in the aftermath of betting regulation? Do you think it's going to legalize in due course? I know you're going to have to pull out of your iGaming product for a period after the launch of legal betting.

Secondly, any signs of an impact of consumer weakness in the UK? And how confident are you that the reductions in spend per customer down to the recreational shift in the business as opposed to a slightly gloomier macro backdrop?

And lastly, just on the HMRC agreement that £85 million figure is that the actual amount you expect to pay, or is that discounted back in terms of the full year payment period?

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you, Simon. Good morning to you as well. Why don't we start with your HMRC question and then we can return to interims? And let me just say upfront. As you know this relates to previous management team and before my time. And I just want to stress that we need a very different business today. And as you can probably appreciate there is very little that we can add to what we've said publicly at this stage. But I know that Barry is on the line. And Barry do you want to add or make any additional comments to Simon's questions, which related to the 585 and whether that was the actual number?

B

Barry Gibson

Chairman

The actual number is made of two or three elements. There are costs involved and the actual time – there is [indiscernible] regulatory settlement is not defined. It's a regulatory settlement. And effectively the NPV of that with the four-year period 585 we think covers all of those costs.

S

Simon Davies

Deutsche Bank

So on an actual as opposed to an adjusted basis?

B

Barry Gibson

Chairman

It's taking the present value because we're going to take the full year period to pay the whole thing.

S

Simon Davies

Deutsche Bank

Right. Okay.

R

Rob Wood

Perhaps I could just build on that Simon. And obviously, I've done the accounting for it. That number also represents the expected settlement. But to Barry's point there are some extra costs that we expect to also endure and really that offsets the discounting effects that you would get with the provision. So think of 585 as the number.

S

Simon Davies

Deutsche Bank

Yes. Okay. Perfect.

B

Barry Gibson

Chairman

And of course it's just important to remind everyone that this is still subject to the court process which we anticipate will be completed during the middle period of October, but it's very well advanced and that's why we're now in a position to be able to make this provision in the way we have done.

J

Jette Nygaard-Andersen

Chief Executive Officer

Good. Thank you Barry. Moving back to the interims. Your question Simon around Brazil and iGaming. So while we are progressing towards the licensed sports betting we've seen we are still awaiting clarity regarding the regulation of iGaming. So the iGaming bill was actually approved, but by the lower Congress last year if you remember and it still hasn't moved to the Senate. So this really remains a 2024 regulation story.

In terms of whether we would have to stop offering products in the markets we will really have to wait and see what is decided in the end. But you could say there is a risk of that that we're waiting to see how it all falls out. And just to remind you Entain as an operator in the market we had a somewhat lower gaming mix versus the peers. But it's turned off, of course, there will be an impact. But we're following this closely and we don't know yet how it will fall out. In terms of…

S

Simon Davies

Deutsche Bank

And roughly, what is the split between betting and gaming in Brazil?

J

Jette Nygaard-Andersen

Chief Executive Officer

Approximately three-fourth sports betting, and one-fourth 25%, 70%-30% one-fourth.

S

Simon Davies

Deutsche Bank

Got it. Thank you very much.

J

Jette Nygaard-Andersen

Chief Executive Officer

Consumer weaknesses in the U.K., I mean, you heard us talk a lot about more actives. It's really impressive growth in actives. And with the affordability and the change to our base being more and more recreational, as I said in the presentation, 95% of NGR now comes from recreational low spenders. That is the driver behind spent per head.

None of our markets are calling out anything around consumer weaknesses. So we're quite confident that it's the move in our base as well as, of course, the affordability impact from measures that we put in place mostly over last year, but we continue to put measures in place there. So, nothing really to call out otherwise.

S

Simon Davies

Deutsche Bank

Great. Thank you very much.

J

Jette Nygaard-Andersen

Chief Executive Officer

Anything else, Simon? Good. Thank you.

Operator

Thank you. Our next question is from Estelle Weingrod from JPMorgan. Estelle, please go ahead. Your line is open.

E

Estelle Weingrod

JPMorgan

Hi. Good morning. I have three questions. The first question is also on the 585 million provision. I just wanted to understand how this is typically determined? I mean, I understand this is a result of some negotiation and there is perhaps no straightforward answer. But is it like a calculation based on the profits made in the years the 2017? I mean any color here would be helpful as initial expectations were for a lower amount.

Second question is on online margins. You mentioned during the call that you were still looking to achieve a 26% mark for the full year. I just wanted to understand what you budgeted here for the Netherlands. I think you initially budgeted some reinvestments there following the license potentially being issued ahead of H2. Can you just give us an update?

And the third question, it's a very basic question, just on the single wallet as for BetMGM. I may understand this is going to be rolled out fully by the beginning of the football season next Nevada. How do we make sure this is working in line with expectations? I mean, basically how do we measure the success of the rollout? Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Hi. Good morning, Estelle. Let's deal with the HMRC question again. I suspect this will be a little bit of a double show again with Barry and Rob. But Barry, let's start with you if you have any comments.

B

Barry Gibson

Chairman

Hi. Thanks. It seems a large figure, because it with a long period of time from a business that made a lot of profit during that period. That's why the number ends up being so large. It's really important not to recognize that the discussions have been held in a very constructive and open and straightforward way. We have been given full credit we like by the CPS for the way that we've handled all of these discussions and negotiations.

It's a complex formula. More of it will become apparent when it comes out in the mid-October period, because eventually there will be a statement of fact, which will be laid before a court and they will become effectively public. But fundamentally, the reason the number is so large, it's about a large business for a long period of time.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you, Barry. Rob, anything to add in terms of the provision and payment itself and how it splits?

R

Rob Wood

No. But should I touch on online EBITDA margin? And the question of the impact on the Netherlands.

J

Jette Nygaard-Andersen

Chief Executive Officer

Okay. Yes. And I can take the single account single wallet.

R

Rob Wood

Okay. Great. So we did have in our initial guidance for March an assumption around reentry into the Netherlands that would have had a small positive impact on NGR and a small negative impact on EBITDA margin, which I think is the point that you're alluding to.

Clearly, if that's less likely to happen now. Nonetheless, we're sticking to guidance. And that positive impact on EBITDA margin has largely been offset by territory mix. So for example, our Italy business has outperformed that expectation. That's typically a little lower margin, whereas conversely Brazil is high margin and underperforming. So, really there's moving parts as always, but we're happy to reiterate the 26% guidance for the full year.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you, Rob. And let me touch on single account single wallet. I think you have really two questions in there. So the first is how will we make sure it works. And obviously, we're testing this. So we're doing this in batches. So, hopefully actually the technical functionality will work on the first three batches of the launches have gone really well and we now have the fourth one.

I just wanted to mention one thing. You said all states will be rolled out ahead of NFL. That's correct. But as I said, we do need regulatory approval in Nevada, which is obviously one of the largest state when it comes to the opportunity for Single Account Single Wallet, with people traveling to Las Vegas so that will come later, as we await regulatory approval there.

And thinking about whether it has the impact that we expect, but we will definitely track that. But I also think of this as something that our main competitors in the market have had. And therefore, it's really important for us that we now get this functionality, due to the fantasy background pandu and draftings [ph] already had their players in a single database where we were state-based. So, that's the big upside here for us for the customers, but also the upside in terms of CRM functionality going forward and not having to bonus, new customers several times. So really excited about it and the launches and the rollout is going really well.

E

Estelle Weingrod

JPMorgan

Okay. Thank you very much.

Operator

Thank you. Our next question is from David Brohan from Goodbody. David, please go ahead. Your line is open.

D

David Brohan

Goodbody

Good morning, guys. Just two questions, for me. Firstly, one of your peers talked yesterday about weakness in the Australian market and particularly on the racing side. Just wondering are you seeing a similar trend? And how should we think about top line growth in Australia in the second half of the year? And then secondly, just on the Netherlands. Just wondering, if you have an active growth number for the Netherlands just to help us frame the impact from the market leader reentering there alongside the growth number, which you are the norm which you've raised disclosed? Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Good morning, David. Let me kick off with Australia, and then ask Rob to talk about the Netherlands. So nothing specific to call out on racing in Australia. I mean from our side, our Australian business has seen extremely strong growth for many, many quarters and we are lapping very strong growth rates in the first half of 2022 which was 20%. But looking at the market as such, we do expect it to have been down probably more than 5%, but nothing specifically to call out on racing from our side in the market. And we are continuing to invest into product innovation and partnerships, with racing where we have a really strong relationship in that market. And of course, leaning into New Zealand which is another strong racing markets. Rob, Netherlands comments.

R

Rob Wood

Yes. Very strong actives growth, in the first half of the year. I know, we haven't published a number, but very strongly double digits. So again, pleased with how that business is performing and the minus eight is really just a reflection of the anticipated re-entry. So, comfortable that we're performing where we hope to be with that business.

D

David Brohan

Goodbody

Perfect. Thanks, both.

Operator

Thank you. Our last question today is from Richard Stuber from Numis. Richard, please go ahead. Your line is open.

R

Richard Stuber

Numis

Hi, good morning. Just two questions, from me. Firstly, on the US, the Single Account Single Wallet. Could you say what uplift you've seen in the markets that you rolled it out so far, either in terms of spend per head or increased cross-sell from pools to casino? And to the second question on the US, when would you expect to receive your first dividend to be paid out from BetMGM? And what would you expect the dividend policy to be? And then the final question is, just on the HMRC settlement, I think you said it's going to be over the next four years. Just to confirm will it be to equal month of installments over the period? And is your current expectation those installments will start this November? Thank you.

J

Jette Nygaard-Andersen

Chief Executive Officer

Hi, Richard. Good morning. Should I follow my procedure and start with the HMRC question. So, this is really about the monthly installments. Rob, is that the one you want to take or Barry do you want to…

R

Rob Wood

Yes, I'm happy to take that.

J

Jette Nygaard-Andersen

Chief Executive Officer

Yes. Okay. Let's take Rob.

R

Rob Wood

Yes, we do expect monthly equal monthly repayments over a four-year period whether or not the first one lands in this calendar year or not we'll wait and see. But for modeling purposes, it's probably easier to assume it starts in January 2024.

J

Jette Nygaard-Andersen

Chief Executive Officer

On Single Account Single Wallet, it is a little bit too early, to report on what we've seen in correct and cross. Remember these rollouts have happened over literally in the last couple of months, and the summer period as you know, is low season when it comes to that. And I would also say, where we will see the first big results will be new states coming on, which will be really interesting. And now Kentucky is a small state, but it is borders with I think four or five states that already have had sports betting launched. And then of course, when we start having the visitors that goes to Nevada and we have them in the database. But just being live in a few states for one or two months. It's too early to talk about what we are seeing. Dividends, Rob maybe that's one for you as well. Few, words.

R

Rob Wood

Yes. Happy to say, a few words. So I think the first thing to say is that, we don't expect to make any further investments after the final $50 million in the second half of this year, between the parents that is. Whether or not dividends will be returned to parents, that's not something that we've landed on yet. We'll review as a BetMGM Board the forecast, later this year. And I would anticipate that at the Capital Markets Day, which is planned for around the turn of the year for BetMGM. We'll share more color on what 2024 looks like, and indeed what that might look like in terms of returns to dividends. I can't confirm that they will be tax-free, for Entain when they come through. But on precise timing and quantum, is still to be determined.

R

Richard Stuber

Numis

That’s great. Thank you very much.

Operator

Thank you. This is all the questions, we have today. So, I'd like to hand back to the management team for any closing remarks.

J

Jette Nygaard-Andersen

Chief Executive Officer

Thank you very much, Daisy. So to everyone, thank you for listening in today. And as always, we look forward to seeing as many of you on the road in the coming weeks. And of course, if you have any other questions in the meantime, please do get in touch with David and the IR team. But thank you, and goodbye for now.

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Entain PLC
LSE:ENT

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Entain PLC LSE:ENT

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Entain PLC
LSE:ENT

Q2-2023 Analysis
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2023-Q2