Flutter Entertainment PLC

LSE:FLTR

Earnings Call Analysis

Flutter Reports Strong US Earnings Growth

Flutter's H1 results revealed an impressive structural profit for its US business, FanDuel, reaching a $100 million adjusted EBITDA, outperforming August 2021 forecasts. This profitability was achieved six months ahead of expectations, largely fueled by FanDuel adding over 2 million new players, resulting in a 63% revenue spike and maintaining a dominant 47% online sportsbook market share. The company's margin in the period was a notable 12.2%, ahead of the expected 11.3%, showcasing structural margin improvements. Worldwide, pro forma revenue grew by 8% with an EBITDA increase of 4%. Flutter remains confident in their ongoing strategies for growth, especially with the second half of the year starting robustly, poised to capitalize on future opportunities.

Executive Summary

The company demonstrated resilience despite facing headwinds in various markets. Strategic initiatives and product enhancements have been central to maintaining market share and positioning the company for future growth.

Market Dynamics and Seasonality Effects

Seasonality impacts have been observed, with particular references to the quieter periods in the Italian business during summer and early year trends in Australia. The company is adept at reengaging customers post these seasonal troughs.

U.S. iGaming Performance

The company has seen a notable uptick in its iGaming market share mid-year, stabilizing in recent months. Efforts to achieve product leadership in iGaming are ongoing, with ambitions to leverage regulatory experience and brand capabilities to capture more market share.

Brand Strategy and Innovation

The company is open to running multiple brands and effectively using well-known names like PokerStars to capture diverse market segments. Innovations like daily free-to-play mechanics have been positively received and will likely contribute to future success.

Margin Performance and Market Pressures

Australia's margin contraction was noted, raising concerns about long-term sustainability. However, historical precedents suggest the possibility of renewed strength through market consolidation and strategic adjustments, underscoring the importance of scale.

U.K. Market Strength

In the U.K., product improvements and adaptations to regulatory changes have led to strong engagement, with a high retention rate post major events like the World Cup. Success has been attributed to product innovation and proactive accommodation of safe gambling practices.

Guidance and Forward-Looking Statements

The company's focus on product improvement and market expansion sets a positive tone for the future. Specific guidance on revenue growth or margin expectations would need to be addressed here, once exact figures from the transcript are available.

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, and welcome to the Flutter Entertainment Plc 2023 Interim Results Call. There will be a chance to ask questions later on. But first, I'd like to hand you over to Mr. Peter Jackson, CEO of Flutter. Please go ahead, sir.

[Peter Jackson, Chief Executive Officer]

Good morning, everyone, and thank you for joining Paul Tims and I for this call this morning. As noted in the presentation, which hopefully you have all had a chance to watch. Paul Tims is standing in for Paul Edgecliffe-Johnson, who's out of the office this week due to a family medical emergency. Before we go to questions [Technical Difficulty]

The first half marks a pivotal moment for Flutter. Our U.S. business is now structurally profitable with FanDuel delivering an H1 adjusted EBITDA of $100 million, including a Q2 EBITDA of $153 million. This has occurred six months earlier than we were forecasted when providing this guidance back in August 2021. And as I outlined then, our U.S. customer base is now at sufficient scale to more than offset the cost of future customer acquisition. This effect will continue to compound and drive significant profit growth, which in turn will transform the earnings profile and financial flexibility of the group.

FanDuel attracted over 2 million new players in the half, which drove revenue growth of 63%. We maintained our position as the number one online sportsbook operator with a 47% share of the market and grew our iGaming share to 23%. And outside of the U.S., pro forma revenue grew 8% and EBITDA was up 4%.

In U.K. and Ireland, we grew AMPs and revenue by 10% and 13%, respectively, as our recreationally focused brands took significant share due to product enhancements and new gaming content. In Australia, while we have successfully retained our COVID and large customer base, our expectations to market growth in H2 have moderated somewhat due to reduced spend up. International is also a growth inflection point, underpinned by the strong performance of our consolidated investment markets, which grew revenues by 19% and represents 77% of the divisional revenue.

The second half has started well, and we remain focused on delivering against our strategy and capitalizing on the significant opportunity ahead, both in the second half of the year and beyond.

And with that, I'd like to hand it over to George for questions, and I'll ask if you can limit it to two questions per person, please.

[Operator]

Thank you very much, sir. [Operator Instructions] Our first question is coming from Paul Ruddy of Davy. Please go ahead.

[Paul Ruddy, Davy]

Hey, good morning, Peter and Paul. Just two quick questions, if I may. The first one is just on the U.S. So H1 EBITDA came in at around $50 million or $79 million ex PokerStars and FOX. Just thinking through that looks along the way ahead of H1 consensus and just thinking through the midpoint of the guidance range, which looks to be in line with consensus expectations. Could you kind of give us some color on that kind of H2 outturn, what level of additional investments you might make? And is there anything we're thinking about -- we should think about in H2, which color is that number?

And the second one is just on Australia. So you've obviously reset the guidance down in Australia. Just wonder, could you give some context on what the underlying market declining just in Australia at the moment and what your expectations are for that for the rest of the year, i.e., and maybe some context on when you might think the Australian markets return to growth? Thanks.

[Peter Jackson, Chief Executive Officer]

Thanks, Paul. Look, in terms of the first question, I think it's important that we go back and remember the context a couple of years ago. When we first told people that with CBS business make we money this year. And the reason we saw that, because we knew that this year would be the tipping point where we’ll have more customers in the back book or sufficient customers in the back book to generate contribution to a couple of our fixed costs and the customers that we were going to be acquiring.

Now we've actually reached that milestone earlier, and we've reached that milestone earlier because the business is bigger than we anticipated it would be a couple of years ago. Look, I think the important thing for me is, in terms of the shape of the business, which I think is where you're getting to with the H1-H2. I'm not really focused on that. What I'm focused on is, if it transitioned and the pivotal moment this year as we become profitable. I'm thinking about the shape and the trajectory of momentum into next year.

If you think about the very material shift in earnings versus us making a loss last year, profit making this year. Of course, I get compounded next year, right, because we're going to have another huge set of customers that we've acquired this year that will make a positive contribution.

So we knew this year would be profitable. We've already reached that milestone. So the business is now structurally profitable to prove the model works. And so, we will continue to acquire and invest in acquiring as many customers as we possibly can do. Whilst ever they meet our CAC LTV hurdles. I mean I think we were very pleased with the acquisition in the first half, and we'll try and acquire as much business as we can do in the second half.

I think with regards to Australia, I think the context there is, we saw a very significant benefit going into COVID for the sports bet brand. We've got a customer base that's a 2.5 times the size of anyone else's. And we're a [indiscernible] to win in the market. There's been some reversion though as we saw in the U.K., we're now seeing in Australia. And that is impacting the business. Look, when we look to next year, I think we hope the business will get back to growth. But I think we have to acknowledge that going into the second half of this year, we're going to see some -- Paul, you'll give us some thoughts.

[Unknown Company Representative]

Yes. Our view of the market is, we can see the racing market down about 8% to 10% in Q2. Sports is ahead, we can see the market growing about 5%, and we're taking market share there. I think our view for sports bet for the rest of the year is revenue broadly flat and returning to growth next year.

[Paul Ruddy, Davy]

That’s really helpful. Thank you.

[Operator]

Thank you very much, sir. We'll now move to Ed Young, calling from MS. Please go ahead.

[Edward Young, Morgan Stanley]

Good morning. The first one on U.S. investment. I understand how you've laid out the ambition to invest more into growth, that's clear. But just in terms of that investment itself, I mean sales and marketing is coming in very nicely with the gearing in the business. So could you perhaps give us some color on how that is being spent. You mentioned, obviously, you're saying to capital LTV ratios. Are you spending on higher CAC because real TVs are higher? Is that why spending is higher? Are you finding more better channels to allocate it? Just be interested about if you could talk a little about the how as well as what you're doing.

And then the second one was on capital allocation. There wasn't a customary one to two times that you've spoken about previously. There's a lot of pink countries on Slide 36. So are you sort of broadly expressing that you might run leverage at a higher level than you've previously talked about getting to? And perhaps on that, could you reflect on the operational capacity of the business to absorb a big acquisition as well as your balance sheet capability to do it. Thank you.

[Peter Jackson, Chief Executive Officer]

Good morning, Ed. Thank you for the questions. Look, I mean, on the U.S., we're continuing to see good returns across the board. I think we've talked in the past about how delighted we were with the performance of this year's Super Bowl and actually the nature by which we acquire the customers leading up to [indiscernible] the quality of customers are much better. But just in general, in the first half, we've been really pleased with the performance across all channels. And look, our lifetime values have proved to be better than we had originally anticipated. And we think the quality of our products, the levels of retention the structural margin changes we're making, particularly through pricing accuracy and things like that have all contributed to give us higher LTVs. And we've got real confidence in that. So we're still sticking with our CAC LTV framework of 12 to 18 months. And as we mentioned in the Q1, we are coming well within that in terms of the new launch rate, for example, but we're very pleased with it.

With regard to the -- your second question, you're right, there are a lot of pink countries. And I think it's on that map. And it is an indication that there are a lot of opportunities for us to expand. I think we have to be thoughtful about what is the right level of leverage for us to carry as a business and there are factors in that, which we need to think about in terms of the earnings profile for this business now and also whether U.S. listing will change investors' views on any of those themes.

I think from a capacity perspective, we've been very pleased with our ability to integrate the assets that we've acquired to date. And look, whilst it's something we have to be thoughtful of I think our ability to make bolt-on acquisitions into our -- into the business, particularly across the International division, where we've got a real platform capability now, something that we're very comfortable with.

Paul, I don't know if you want to add any comments to that.

[Operator]

Does that answer your question, sir.

[Edward Young, Morgan Stanley]

That did. Thank you

[Operator]

Thank you very, sir. Our next question is comes from Clark Lampen calling from BTIG. Please go ahead. Your line is open.

[Clark Lampen, BTIG]

Hi. Thanks. Good morning, guys. Two questions, please. Peter, you've laid out some detail, I guess, in previous presentation decks and reports around performance and payback periods for newer FanDuel player cohort. I didn't see that this morning. You may have just sort of confirmed what I'm about to ask with the prior question, but would it be possible to update us on performance and whether you've seen any meaningful change in what was otherwise a pretty healthy trend.

The second question that I have is on U.S. product. You saw about a third of your NBA players engaging with shorter duration micros during the playoffs. Were those betting options driving incremental spend? Was that maybe more of a reallocation? And as we're approaching NFL season, is there any reason to think differently, I guess, about the opportunity with engagement or stand with football? Thank you.

[Peter Jackson, Chief Executive Officer]

Yes. [indiscernible] Thank you for getting up so early. So let me just take the second question quickly, and then Paul will talk to us about the performance piece. Clearly, there would have been some reallocation right? So when customers are picking up some of that newer products we made available with those products [indiscernible] NBA, we will have seen some substitution. I think the point we're making there was less around whether it’s incremental, it is just our ability to continue to innovate and drop new products into the market.

Yes. And the fact that we capture 50% more revenue than our competitors from the handle means that we've just got a bigger war chest to invest in product, marketing and generosity more generally. And so we're excited to see what we can do with the product. We're not -- we're a fast-moving target for people in terms of trying to replicate what we have. And I know the team have got some very exciting plans for the upcoming season, in fact, the years ahead.

Paul, do you want to talk about the performance.

[Unknown Company Representative]

Yes. The customer cohort analysis, which you're referring to, that's something we've used say, for the last six to 12 months to demonstrate our confidence in profitability, which we've now achieved. And you can see how we've laid out on Slide 11. And I think it's been pretty successful in demonstrating our confidence in profitability. It is very difficult then to take that forward and use that as a basis for modeling. And as you can see, if you listened to the presentation this morning, we transitioned from using customer cohorts to those state cohorts. I think that is a much better basis for modeling the business going forward, particularly if we think about the complexity of what does our business look like in 2024-2025.

In terms of any changes to underlying trends in that customer cohort, I mean there's a lot of moving parts in there, but now we're still seeing the very strong returns that we've seen for the last 12 months.

[Clark Lampen, BTIG]

Thanks, Paul.

[Operator]

Thanks, sir. We'll now move to Mr. David Brohan calling from Goodbody. Please go ahead.

[David Brohan, Goodbody]

Good morning, guys. Just two questions from me. Firstly, I wonder if you give an update on India and how the recent proposed tax changes factor into your long-term thinking in that market. And then just secondly, around -- I know the FOX Bet losses are going to ease off in the second half of the year. I wonder could you give a time line on when the PokerStars losses will reduce be it this year or next year? Thank you.

[Peter Jackson, Chief Executive Officer]

Good morning, David. Look, in terms of India, I think we've now I believe got clarity around the new basis for calculation of GST, which is effectively going to be on deposits, and we think it will be anticipated to be introduced from the first of October. But we've been very pleased with the performance of our business since we acquired it. Junglee is one of the fastest growing rummy [indiscernible] since we acquired it. I think [indiscernible] is up to 4 times since we made the acquisition. From our perspective, the tax basis change does impact the business, but what it effectively does is it means that there's a slug of sort of essentially sort of tax costs in the EBITDA -- in the revenue line, which means that the EBITDA profile is probably more similar to the U.S. business in the long run than would otherwise have been the case.

So look, we're still very excited about it. And I think it probably means a bit like the U.S., you'll need to have real scale to win in the Indian market. Paul, do you want to talk about the FOX Bet, please?

[Unknown Company Representative]

Yes. So we've talked previously about our 2022 losses for FOX Bet and PokerStars, $91 million. We'd expect to retain probably just under half of those losses going forward on the current run rate for the PokerStars business. In terms of what happens to those losses going forward? I mean we're setting up the business for the long term. We do expect the losses to reduce over time. It is a good brand for when the gaming TAM expands. Clearly dependent on the poker regulatory framework in the U.S., but we think there's definitely a very strong brand there that resonates that we can utilize going forward.

[David Brohan, Goodbody]

Perfect. Thanks, guys.

[Operator]

Thank you very much, sir. We now move to Ryan Sigdahl calling from Craig-Hallum Capital Group. Please go ahead. Your line is open.

[Ryan Sigdahl, Craig-Hallum]

Good. Thanks for taking my questions. Just want to start with FOX Bet quick question. I guess you have license in several states, New Jersey, Pennsylvania, Michigan, Colorado. Curious what your plans are to do with those, whether you're going to sell those or launch a different brand there. And then secondly, on FanDuel, the app consistently ranks at the top for virtually every category of testing you can imagine, which is kudos to you guys in the product. The one Bet365 is a reputation internationally now in the U.S. as well probably the fastest in-game bet settlements. How important is that in your mind when you think about kind of innovation and improvements going forward? Thanks.

[Peter Jackson, Chief Executive Officer]

Good morning, Ryan. Look, kudos to you for getting [indiscernible]. I appreciate it. Look, I'll take the questions. Look, with regards to FOXBet, look, we have a separate entity in the U.S. which operates what is effectively the PokerStars business in America. So that has its own market access partners, and we don't intend to make any changes as a consequence of the deal that we've done with FOX to close down FOXBet. So the PokerStars business will continue to exist in those entities in the U.S.

With regards to FanDuel, we've continued to invest and develop our products in a way that we think really resonates and works for the American audience. Ultimately, we have great products in all of our businesses, in all of our different markets around the world, but we give them the freedom to operate and develop whatever is required for a local audience. And that's what the FanDuel team has done so successfully over the years.

So if I look at the quality of product. We are very proud of the fact that we rank so highly speed and needs of use are crucial. And we continue to develop and innovate the product. We've got plans for the short term and plan for the long term clearly, I'm not going to disclose those today to competitors. But rest assured, we're investing very heavily in maintaining our product leadership in the market.

[Ryan Sigdahl, Craig-Hallum]

Thanks, Peter. Good luck, guys.

[Peter Jackson, Chief Executive Officer]

Thank you.

[Operator]

Thank you, sir. Our next question comes from Dan Politzer calling from Wells Fargo. Please go ahead, sir.

[Daniel Politzer, Wells Fargo]

Hi. Good morning everyone and thanks for taking my questions. First one, just one of your competitors in the U.S. last night announced a partnership with ESPN. I just wanted to get your sense of, one, did you look at that type of deal? And two, how you think about promotional expectations going into the third quarter? Does this change anything? And also, there's another big [indiscernible], so just that now you are thinking about this promotional season with NFL. And then the second question [Technical Difficulty] that was about 12%. I think there were some favorable sport outcomes in there. So what was that on a normalized or normalized basis, excluding those outcomes? And how do you think about this trending over time given -- it seems like you're bumping up against that 12% 2025 goal? Thanks.

[Peter Jackson, Chief Executive Officer]

Good morning, Dan. Another one who's up earlier, so I appreciate it. Look, the start of every football season and football, as you know, is always one which is we have a degree of trepidation for us because we just reactivate and reenergize our book of business. I mean, look, we've done this many times now, but still we always anticipate a highly competitive environment when we get -- when we see the season really start. And not this year will be no different. I think as you rightly point out, there are a few people who have stated that they intend to make a bit of a splash this year. We will stay focused on what we've always done, which is making sure we deliver our ability experience to our customers by having the best products and using us our fantastic of leading engaging brand.

You asked me whether we look at deals and transactions in the U.S. market and of course, we do, right? And I think we do the ones we want to do, and we leave others to do the ones that we don't want to do. And that's probably what I'd say about that particular one.

Paul, do you want to talk about the margin?

[Unknown Company Representative]

If I just -- yes, I cover the margin. So our actual gross margin in the period was 12.2%. And as you saw in the presentation, expected gross margin 11.3%. That does benefit from 170 basis points of structural margin improvement. That's again a combination of what we've seen over the last 12 months. So increased pricing accuracy, increased [indiscernible] penetration. We did talk about a target of 12% expected gross margin target by 2025. And I guess the question is how quickly are we getting there. We're making very good progress towards that 12%, clearly already at 11.3%. There are quite a few moving parts in there, though. So is it a question of do we go through the 12% potentially, but a lot to work [indiscernible] we're getting there quicker.

[Peter Jackson, Chief Executive Officer]

And then, Paul, I’d add. I mean I think the scale of our business in the U.S. now and the investments we're making in risk and trading, the amount of data that we see and our ability to sort of really focus on pricing accuracy, something which I think makes particularly difference, especially when people are thinking about some of that sort of this complex [indiscernible] bets, which I think that's one of things that's really helping support that structural margin and how sort of accelerate our part. Thank you, Dan.

[Operator]

Thank you, sir. We'll now move to Monique Pollard calling from Citi. Please go ahead.

[Monique Pollard, Citi]

Hi. Good morning, everyone. I just have a couple of questions on the U.S. from the slides that you gave where you're sharing sort of how we should think about modeling the cost items out to 2025. The first one is on the U.S. COGS. I just wanted to question again, whether the 47.5% to 52.5% revenue is a bit conservative, given obviously, New York relative exposure shrinks as new states launch. Is there some tax creep being assumed in there, which I guess might be reasonable given what we've seen in hires? And is there any fall in generosity of the proportion of GGR that's embedded in that guidance?

And then the second question on the U.S. expenses, on sales and marketing expense. Your 2023 to 2025 framework outlines that you're going to approach basically your 2030 target on EBITDA margin pretty quickly, maybe in by 2026. So just trying to understand what drives the material scaling of the marketing budget from here?

[Peter Jackson, Chief Executive Officer]

Good morning, Moni. Look, let me give you a sense of Sort of overall, so context as sort of shape around this offender come in on the specifics. Yes. I think when we look at the COGS, I think, we have to sort of acknowledge there's quite a lot of moving parts here around cost of data and rights, the tax changes, those kinds of things. And here, in fact, where we are today, this is our best view of what we think is going to happen. You're right to highlight the tax creeping higher. But look, we don't anticipate there being a wholesale shift in the tax burden. And I think you're right to highlight in New York, does someone get diluted.

I think when we think about generosity, the big driver for us is actually around a very focus and an increasing focus on personalized generosity. It's something we've done very successfully in the U.K. We've done it very successfully in Australia as well. It makes a really big difference and it's obviously a very large sort of cost item for us.

From a marketing perspective, we operate in a pretty saturated environment. And actually, it's quite hard to significantly scale that. So I think you do get some natural benefits. So look, I think what we're really showing here is the benefit of our scale, but Paul you can [indiscernible].

[Unknown Company Representative]

I think that's right. Just on the sales and marketing, you're right, Monique. We do at the scale that we have and quite simply, the new states are a smaller proportion of the overall revenue mix, which means that we do start to see that leverage come through pretty quickly on the sales and marketing line. We've said I mean the midpoint is 6 percentage points leverage benefit per year. That will be quicker in the first year and the second year through to 2025.

[Monique Pollard, Citi]

Thank you.

[Operator]

Our next question is coming from Alistair Johnson calling from BNP Pariba Exane. Please go ahead, sir.

[Alistair Johnson, BNP Pariba Exane]

Good morning, guys. I had a couple of questions on the same slide, actually. On the OpEx increases, it looks like you're expecting some quite material growth there. So just if you could provide color on what's driving that. And then secondly, within the OpEx number, how should we think about management incentives because I think on your guidance slide further in the deck, it looks like some of the cash costs are being adjusted out, but understanding that you historically have included management comp within your EBITDA numbers suggest if there's any change in the accounting. Thank you.

[Peter Jackson, Chief Executive Officer]

So I can very quickly deal with that second one. We -- unlike I think the way that some people account for these things, we fully account for all management incentive [Technical difficulty] included in that number.

Paul, I don't know whether you want to talk about the OpEx piece?

[Unknown Company Representative]

So on that slide, we talk about a 1 percentage point leverage benefit per year through our 2030 targets, which get us to OpEx of 10% revenues. So pretty much straight line. In terms of OpEx movements in the half, 45% that increase that demonstrates good leverage versus the revenue growth of 53%. So we still are in an investment phase. We do -- I mean, some share-based payments point, again, we do include share-based payments within our OpEx. And we've always been disciplined throughout the group on our OpEx spend, but the business is still growing quickly and we tend to deleverage.

[Alistair Johnson, BNP Pariba Exane]

Great. Thank you.

[Operator]

Thank you, sir. We'll now move to Richard Stuber calling from Numis. Please go ahead.

[Richard Stuber, Numis]

Good morning, both of you. Just one question from me. Your US actives.

[Operator]

Richard, your line is open.

[Richard Stuber, Numis]

Hello. Can you hear me?

[Peter Jackson, Chief Executive Officer]

Yes, we can hear you.

[Operator]

Richard, can you just check, your line is open from our side.

[Peter Jackson, Chief Executive Officer]

We can hear him.

[Operator]

Richard, [indiscernible] remove you from the queue. [Operator Instructions] We'll now move to James Rowland calling from Barclays. Please go ahead.

[James Rowland, Barclays]

Hi, there. Can you hear men.

[Peter Jackson, Chief Executive Officer]

Yes, we can hear you. Sorry. Richard, we will get you in back. I apologize.

[James Rowland, Barclays]

I’ve got couple of question. The first is just on the deferred tax asset that you've outlined in the modeling assumptions of $166 million. I wondered if you could give any color on how long it would take for that to unwind? And also, could I just check that the recognized deferred tax asset is the sort of extent of the U.S. losses built up so far? There wasn't any sort of off-balance sheet you haven't yet recognized for example.

And then on the U.S., we're seeing your closest and largest competitor taking a little bit of share in online sports betting. And I think you've slowed down a little bit on improved product and they're also talking about having the leading products going into the second half. I just wondered if you could give any color on whether you're seeing your customers spend change at all or whether you're aware of engagement metrics suggesting that they're playing on multiple or more products than they previously did. And I thought there a follow-up would be, given the intensity of competition on product or so it seems going into the second half. How does that make you feel about leaning into customer growth from here for new customer growth from here? Thank you.

[Peter Jackson, Chief Executive Officer]

James, let me take the second question first, and then Paul will talk to us about the deferred asset. I think when I look at our performance in Q2 with a 47% market share, I'm very, very pleased with that. I mean, yes, it is down a bit on the same period last year. But I think for context, we should remember that a number of operators were sort of pulling back from the market last year, but still 47% is a very, very strong performance. I think that the -- we should also recognize that people are making changes and improvements to their products, of course, they are. But we are a fast-moving target. We made 50% more revenue from every dollar of handle from our customers and our competitors do. And we're taking that money and we're investing it further product enhancements getting smarter around our application of generosity and in general, to boosting the business. And that means that our product, which is the best in the market today is a very fast-moving target people try and catch up with. We're not going to show on the call today that the plans that we have that we are -- we remain very paranoid around us a posture to maintain our product leadership but confident that we can do so at the same time.

[Unknown Company Representative]

On the deferred tax, so we'll recognize GBP166 million credit for U.S. deferred tax this year. In terms of how does that unwind, we can't comment on how that the mines because obviously, that relates directly to our U.S. profitability going forward. But I would say that we expect the group tax rate, so group ex U.S. and U.S. to be roughly in line with the current group ex U.S. tax rate going forward.

[James Rowland, Barclays]

Sorry, can I just follow up on the -- is there any change in your spending within your existing customer mix to suggest that they're using more products than they previously did?

[Peter Jackson, Chief Executive Officer]

No.

[James Rowland, Barclays]

Okay. Thank you.

[Operator]

Thank you very much, sir. We'll now go back to Mr. Richard Stuber. Please go ahead. Very sorry about earlier. Here we go.

[Richard Stuber, Numis]

Good morning, Pete and Paul. Just one question for me. On the U.S. actives volume we low from $2.5 million in the first quarter to $2.8 million in the second quarter. I was wondering how do you keep your so players engaged. Is it is that just more product or other sports? And do you think you'll ever be able to maintain and grow actives quarter-on-quarter like you do in the rest of the world? Or is it just the seasonality in the U.S. is too big from sporting events such as [indiscernible] March Madness?

[Peter Jackson, Chief Executive Officer]

Richard, you've answered your own question. I mean that's the nature in the years that we've been operating there. We've seen that there's seasonality in other parts of the work. Our Italian business is pretty quiet in August, right, in July and August. We see seasonality in Australia as well, particularly early on in the year. So it's not an aberration to find our segment situation in the U.S. And I think the team have got pretty accomplished at making sure that we can sort of reengage the customers who've been active on the platform as soon as things come back to life.

[Richard Stuber, Numis]

Okay. Great. Thanks. So you don't see that you can sort of try and cross-sell a product to infer that to those sort of sports betting customers during Q2. Do you think that's just the nature of the U.S.

[Peter Jackson, Chief Executive Officer]

Look, tennis and sports like that, which are popular year-round are always there for people to bet on. But just use a degree of seasonality, and we're comfortable with that.

[Richard Stuber, Numis]

Great. Thank you very much.

Thanks, Rich. And apologies for earlier.

[Operator]

Our next question is coming from Kiranjot Grewal calling from Bank of America. Please go ahead.

[Kiranjot Grewal, Bank of America]

So my first one on the US iGaming. I think on Slide 29, we can see that your iGaming market share ramped up quite a bit from mid-2022, but it's flatlined in recent months. Do you think there's more you can do to increase that share? Or do you think you're comfortable with where you've got to?

[Peter Jackson, Chief Executive Officer]

Do you have any other questions?

[Kiranjot Grewal, Bank of America]

The only other question I have is around the secondary list. I'm not sure how much you can actually say, but any implications to existing list and would you look to drop one of the listings to just maintain two?

[Peter Jackson, Chief Executive Officer]

Okay. So on the iGaming chain, we're ambitious, okay? And we knew last year when we had talked about on gaming that our product wasn't good enough. Look, we saw this as a sort of multiyear operation, and we started to address some of the things that were not in place, frankly, last year in having a dedicated team, brand content capabilities, et cetera. We did that, and we've seen -- we've been really pleased with the way in which the business has grown and taken share. We've got a bunch of improvements we've made this year, which we cover in the in the presentation, which we think will provide further support of the business. And we've got exciting plans into next year as well. So we think we'll get to product leadership in iGaming. And obviously, that will enable us to continue to take significant share both in the casino direct market as well as the cross-selling market.

Look, we are the world's biggest regulated online casino operator. So we now have to do this stuff. We just haven't always brought those capabilities into the U.S. market, but we've done that now, and that's why I think that share is stepping up. With regards to your question around sort of the U.S. this day, I mean, I think as we -- as you've mentioned in your question that we're working through the implications for our other listings on securing this U.S. listings a little what we're doing with the with SEC at the moment in terms of preparing our application to the FCC, which is ongoing, and we'll continue to work in the background on what the implications are for our other listings.

[Kiranjot Grewal, Bank of America]

Perfect. Thank you.

[Operator]

Thank you. Our next question is coming from Joe Stauff. Please go ahead, sir.

[Joseph Stauff, Susquehanna]

Good morning, Peter and Paul, I did want to follow up maybe on an additional question on Slide 29, just kind of talking about your USI gaming position. I wondered if you could maybe give us like a read on kind of your relative market share, say, the sports first casino customer versus, say, the online casino first customer? And then second question to that is with PokerStars essentially freed up in the U.S., I was wondering if you would use that possibly as a second brand.

[Peter Jackson, Chief Executive Officer]

Good morning, Joe and thank you for -- again for another one is getting up so early. In terms of iGaming, we've been really pleased with the market share growth taken, which has mainly actually been in the direct to casino market. So that's where we've seen the majority of our games. I think that's simply because we've been fixing some of the issues that we knew were there in the product, but also bringing some of the innovations to markets such as the sort of daily free-to-play mechanics that we've now been successful elsewhere.

In terms of how we will utilize the PokerStars brand, we now have clarity around the future of that and the ownership structure of it. We've had it in market a while. Clearly, it's been focused on we're primarily focused on first, and we're pleased with some of the performance we have. But we're not adverse to running multiple brands. And look, we will figure out how we utilize that in the most effective way moving forward.

[Joseph Stauff, Susquehanna]

Thanks, guys.

[Operator]

Thank you very much, sir. Our next question is coming from Joe Thomas from HSBC. Please go ahead.

[Joseph Thomas, HSBC]

Good morning, Peter. And good morning, Paul. A couple of questions, please. Firstly, Australia, margins, I think, down 950 basis points in the first half, down to recall about 25% or so. Can you just [indiscernible] [ 26.4 ] is looking at the slide, is that business long term impaired now? And if not, how do you expect to get back towards that sort of 30-plus percent level? That would be the first question, please. Second question really regards the U.K. obviously, a very good U.K. performance despite having removed some generosity around things like [indiscernible] guaranteed. Just wondering if you can give a bit more clarity about you think is driving that in particular? And is it sports or casino? Thanks.

[Peter Jackson, Chief Executive Officer]

Yes, Joe. Good morning. Apologies if that's impacted you in terms of the changes to the best of [indiscernible]. But look, I think from a U.K. perspective, we are very pleased with the product changes we made. The bet builders does have a profound impacts on customer engagement. We've been really pleased. I think as we mentioned in the presentation, 90% of customers who [indiscernible] the World Cup are still on the platform, which I think is a good testament to the product uplift we've made. And it's not just in Sports TV -- we've made a bunch of changes are in gaming as well, whether that's some of the Paddy Power branded slots and some of the live products we bought on stream for Vegas as well. we've also made a heap of changes to the way in which we tackle and present generosity to customers, which we think is really important. It's a very large cost item for us. And we know around the world, how important it is to drive the performance of the business. I think all of those product changes have helped getting ahead of the safe gambling staff in comparison with our capacities, I think, is also sort of in good stead as we've been able to sort of work out how to manage the business in this new environment and other people are having to sort of jam on the handbrake to [indiscernible].

So I think that's what's contributing to the performance. Look, the team in general, we've got our mojo back just enlighted what's happening from a U.K. perspective. Look, in Australia, and Paul will give you some more specific context. Yes, I think we need to remember, we've sat in a similar situation to the one that we saw in 2019 where there's a step-up in taxes at that point. But what we saw happen as a result of that was there's a bunch of generosity changes, there's some consolidation in the market and there was also a bunch of competitors not us, they made changes to their overrounds trying to protect their positions.

Ultimately, scale the most important attribute in the market. And we have, by far, the best position in the Australian market with Sportsbet, the market-leading brand and the size of the customer base.

[Joseph Thomas, HSBC]

That covers it very well.

[Peter Jackson, Chief Executive Officer]

George, I think that’s done for questions and answer. So thank you very much to everybody for participating.

[Operator]

Thank you so much, gentlemen. Ladies and gentlemen, that will conclude today's conference. We thank your attendance. You may now disconnect.