Entain Plc (ENT) Earnings Call Transcript & Summary

Good day, and welcome to the Entain Full Year Results 2021 Conference Call. At this time, I'd like to turn the conference over to Jette Nygaard-Andersen. Please go ahead.

Good morning, everyone, and thank you for joining our full year 2021 results presentation. I'll start with a short summary. Rob will take you through the numbers and guidance, and I'll then give you an update on how we are delivering against our growth and sustainability strategy before going to Q&A. Entain is a growth business. We have been delivering consecutive double-digit online growth for the last 9 years. In 2021, our online NGR grew by 13%, and that has driven a 2-year compound annual growth rate of 20%, both in constant currency. This growth is profitable. Our EBITDA of approximately GBP 882 million was towards the top end of our recent guidance, up 5% year-on-year. In the U.S., we are delivering on our strategy of creating a leading betting and gaming operator with 2021 revenues up 5x and a market share of 23%. BetMGM has firmly established its position as #2 operator, delivering share in line with our 20% to 25% ambition and is ready to challenge for #1 position in the markets in which we operate. Our growth across the rest of the world continues as we execute on our highly successful M&A agenda. In 2021, we completed 4 acquisitions and have made a good start to 2022 with 3 transactions already, including deepening our presence in Canada through Avid Gaming. In 2021, our acquisitions and organic market entries added 3% to our online NGR in the year. At our Capital Market Day in August, we talked about how we are able to respond to evolving customer behaviors, wants and needs. We've made great strides laying many of the foundations for future growth. I'll talk more later about how we are building engaging content, exclusive products and adding richer media to drive customer engagement. UNIKRN is getting ready to launch its first product later this year, and our Innovate lab will be opening shortly in London. Sustainability sits firmly alongside growth as one of our strategic pillars, and we've continued our unwavering focus on being the most sustainable business in our industry. We shared many of our actions and targets at our Entain Sustain event in November, and we look forward to updating you again at this year's Entain Sustain event in the second half. Our progress and trials continue to go extremely well as we develop our groundbreaking approach to player protection. So 2021 was both a busy and successful year for Entain as well as being my first year as CEO. We are a very successful business. And as we continue to grow, we are evolving our operational structures, processes and capabilities around the Entain platform that will see us drive an even better customer experience and ensure that we are able to deliver on the significant growth opportunities open to us. As we do that, I am confident that we will deliver on our ambition to at least triple the size of our business and continue to be a very successful and growing business for many years to come. I'll now hand you over to Rob to take you through the details of our performance.

So let's start with Slide 7. We delivered another strong performance during 2021, which demonstrates once again the powerful growth dynamics of our platform and our business as a whole. The ongoing momentum in online throughout the year drove group NGR up 8% versus 2020, which is in constant currency, like all revenue numbers will be as I run through the slides. Online NGR was up by 13%, with H2 coming in ahead of expectations. This consistency of performance is underpinned by our businesses' geographic diversity, providing an in-built hedge against local regulatory, economic and other effects. Over the full year, all of our major territories saw double-digit growth with the exception of Germany and the Netherlands where new regulatory regimes are coming into force. Stripping out Germany and Netherlands sees our online NGR growth up to 21% or up 17% if you exclude acquisitions as well. This strong performance in online also underpinned our solid EBITDA numbers this year. Despite our shops being closed or restricted for much of the year, we delivered group EBITDA of GBP 882 million, up 5% on the prior year or up 7% on a constant currency basis, demonstrating the strength and sustainability of our business model. GBP 882 million was towards the top end of our recent guidance and also the top end of our GBP 850 million to GBP 900 million guidance from the interims despite the disruption that followed in the Netherlands in Q4. BetMGM is another highlight of the year. As you heard from Adam and Gary in January, BetMGM NGR for the year was GBP 850 million, which is a 5x increase year-on-year and ahead of both guidance and consensus. BetMGM is firmly established as the #2 operator with a 23% market share in Q4 in the markets where it operates. Moving to EPS and adjusted EPS. Pre-BetMGM was 81.1p, up 11% year-on-year, so growing faster than EBITDA, benefiting from operating leverage further down the P&L. Turning to cash for a moment. Entain is a highly cash-generative business we generated GBP 537 million in underlying free cash flow in the year, enabling us to invest in our growth opportunities, which includes M&A transactions as well as investment in BetMGM, whilst also strengthening our balance sheet. We ended the year with net debt at a little over GBP 2 billion, leaving leverage at 2.4x. And to finish this slide, we are making good progress against the cost savings program that we laid out with our interims in August. And we're on track for GBP 100 million of annualized savings by 2023. So in summary, we've delivered strong financial results and our cash generation and balance sheet flexibility has enabled us to invest in growth opportunities to support our growth strategy. On Slide 8, I set out our EBITDA bridge, which walks through the components of our 5% growth for the year. Our online business saw EBITDA up 12% during the year, reflecting both underlying organic revenue growth as well as strong performances from our acquisitions, which provided an uplift of around 3% in the year. Retail continued to be impacted by the enforced shop closures and various COVID-19 restrictions. However, as we've mentioned before, we were really encouraged by the recovery in retail activity as restrictions eased and customers return to the high street and our shops. Very pleasingly, retail EBITDA in H2 finished marginally ahead of H2 2019 pre-COVID. However, that strong performance through the second half wasn't enough to offset COVID-driven losses in the first half. And so the resulting EBITDA was GBP 31 million lower year-on-year. As we highlighted with our Q4 update in January, our retail business exited 2021 with like-for-like revenues within just 5% of pre-COVID levels in the U.K. and Italy. So assuming there aren't further restrictions, we remain confident in the long-term prospects for retail. During the year, we invested GBP 9 million into our segment called New Opportunities, which currently comprises of eSports and innovation, and corporate costs were up GBP 26 million year-over-year, predominantly reflecting a step-up in our commitment to responsible gambling, player protection and other ESG initiatives. And we don't expect to see a similar step-up in 2022. So let's dig a little more into the online KPIs and what sits behind that 13% NGR growth for the year. Our online growth was global, coming from all of our major territories other than Netherlands and Germany with particularly strong performances from Australia, Brazil, Italy and the Baltics. From a product perspective, both sports and gaming performed very well, although the year-on-year figures are, of course, somewhat distorted by the COVID impact on comparators. Having been up 30% in 2020, gaming was up 6% during 2021. So encouragingly, still in positive year-on-year growth, and that's a 2-year CAGR of 17%. On the sports side, NGR growth was 22% during the year, which reflects both the normalization of sports fixtures over the year as well as demonstrating the work we've done in brand repositioning, alongside providing better and more engaging content and other improvements to our offering and experiences. And as we saw last year, 2021 also benefited from favorable results and retail-type betting activity online. So full year margin again came in at a high 12.7%, well ahead of our normalized levels of an 11% to 12% range. On a 2-year CAGR basis, sports betting is up 24%. And so total NGR was up a very pleasing 20% on a 2-year CAGR basis. Looking to 2022, we haven't changed our view on any of our major markets, including the U.K., and we see it as a tale of 2 halves. We continue to expect NGR growth for the year as a whole with improving growth as the year progresses. We expect H1 to be slightly negative as it phases into tough comparatives from last year, particularly in Q1. But in the second half, we should see a return to normal double-digit growth. Across the year, that puts us at around mid to high single-digit growth. Our marketing rate at 18.8% was 1 percentage point lower than guided at the interims due to NGR outperformance as well as mix impacts. For 2022, we expect the marketing rate to return to a normalized level of around 21%, which pleasingly represents a steady reduction versus a few years ago, benefiting from increasing scale as we continue to grow, ever more potent marketing techniques and also advertising restrictions in some territories. Contribution margin ended the year at 42.2%, in line with our interims guidance as the lower marketing rate was offset by a lower gross profit margin due to geographic mix and disruption in the Netherlands in the final quarter. For 2022, we expect contribution to return in line with our normalized 40% to 41% range. As we highlighted at the interims, OpEx inflation for our online business was going to be into the teens in 2021, reflecting our growth investment in the business and acquisitions. For 2022, excluding any M&A, we expect our online business to see continued mid to high single-digit inflation. And finally, EBITDA margin was in line with our guided range. Medium term, we continue to expect our EBITDA margin to trend towards 30%, but 2022 will see a lower margin than 2021 as regulation brings new taxes and the marketing rate goes back up, as I just mentioned. Moving on to the cash flow now. As I highlighted at the start of this year, 2021 was a year of investments, with GBP 675 million deployed across M&A and BetMGM. Before this investment, our underlying free cash flow conversion remained strong again at 61% of EBITDA. We closed the year with net debt at just over GBP 2 billion and leverage at 2.4x, which was up year-on-year as a result of M&A. As a reminder, excluding M&A, our growth and cash profile means we rapidly delever by around 0.5 point per annum. Liquidity also remains strong with accessible cash of over GBP 400 million at year-end, and this becomes over GBP 900 million when you add in our undrawn RCF that we refinanced during the year. On this next slide, I wanted to clarify how we think about M&A in the context of our strategic growth ambitions. M&A is a key part of our business model. We continue to have a full pipeline of opportunities, which vary in size, region, product or capability, and we look for transactions that can support our growth in 3 ways: firstly, access to one or more of the 50 or so regulated markets that we are not in today, such as the acquisitions of Enlabs and Bet.pt; secondly, to deepen our presence in one of our existing markets to help us deliver market leadership. A good example here is the acquisition of the Sports Interactive brand that is part of Avid Gaming in Canada; and finally, to enable us to expand into new interactive entertainment experiences, and the obvious example here is the expertise and capabilities that UNIKRN brings, which will enable us to grow into the eSports market and skill-based wagering. 2021 was a busy year for M&A, and we've also completed 3 transactions already in 2022, including the acquisition of Klondike to strengthen our position in Latvia and Totolotek which takes us into Poland. Underpinning M&A is, of course, our capital allocation policy, which is a question we are often asked. So I thought it would be helpful to reiterate our priorities today. We are a growth business. Given our growing profitability and strong cash generation, we're in a great position to support that growth and manage our balance sheet and drive returns for shareholders. And so our capital allocation policy is clearly built around that. Firstly, we invest in the core business to drive organic growth, be that CapEx to support our technology platform or keeping our offering fresh and relevant for customers through innovation and product development. And included in this, of course, is investing in BetMGM. Secondly, we invest in further growth through M&A, which I've already touched upon. Thirdly, maintaining a strong balance sheet that enables us to continue to invest in growth. Our medium-term leverage target is 2x or less. And as I just mentioned, our business model allows us to delever by around 0.5 turn per annum naturally before M&A. Of course, we look at financing for M&A on merits, but we are happy to take leverage up to around 3x to support M&A before we would look at other forms of financing. And finally, we will return capital to shareholders through a dividend. As you will have seen this morning, the Board are not proposing a final dividend for 2021. As the statement says, the Board is cognizant of balancing the importance of dividends alongside balance sheet flexibility to enable M&A and investment opportunities, which drive our growth strategy. We discussed the timing of a return to dividends regularly in the Board, and also what level would be appropriate to return that for a growth business like Entain. It's therefore unlikely that we return the same payout levels as previously, but it will be appropriate and sustainable for a growth business that we are today. We'll update you again with future results. The usual slide from me now on guidance to end with. The online guidance, I've covered off through the earlier slide. For retail, following the strong recovery post reopening last year, we expect EBITDA levels in 2022 to broadly reflect twice what we delivered in the second half of 2021, albeit lowered to reflect an exceptional cost commitment to pay all of our U.K. shop colleagues no less than GBP 10 per hour from April. The new opportunities guidance here is a repeat of previous guidance. Turning to the cash flow items. Underlying CapEx is expected to be broadly consistent with 2021. New opportunities CapEx totals GBP 30 million, so that's GBP 25 million innovation, as we've previously guided to and an additional GBP 5 million for UNIKRN. The GBP 200 million here for acquisitions is mostly Avid Gaming, and the balance is Klondike, Totolotek and some final payables from historic acquisitions. Interest costs are expected to be 3.6%, which is very slightly up year-on-year, and you're familiar with the IFRS 16 lease payments by now. In the other section, dividends and efficiency savings we've covered. On tax, we're expecting an effective tax rate for 2022 of 15%, with 2023 then reflecting the expected adoption of the global tax reform framework. And finally, a quick comment on Greek tax. We recently heard that we were successful in our case with the Greek tax authorities relating to the 2010 and 2011 Greek tax assessment. This means we're due around EUR 220 million. However, the Greek tax authorities have appealed the ruling. It's therefore uncertain when or even if we will receive the monies and the appeal is not expected to be heard in the near future. So from a guidance perspective, it will be safer to not include this EUR 220 million in your models until we have further clarity. And hence, it's not included yet on this guidance slide. With that, I'll hand back to Jette.

Thank you, Rob. Just as a reminder, our purpose is to bring moments of excitement into people's lives. And therefore, ultimately, we are an entertainment company, which means that we must provide customers with a great experience that is relevant to and anticipates their needs while providing a safe and trusted experience. As I said in my introductory comments, Entain is a growth business. But we also know that the most sustainable business will be the most successful business in our industry. So we deliver on our purpose through our well-established growth and sustainability strategy. We can do this through the Entain platform, which you have heard us talk about many times before. It comprises not just our industry-leading technology and enviable scale benefits, but all the other capabilities that combine to create a significant competitive advantage for us. These include our incredible pool of talent, our data analytics, our leading digital marketing capabilities, our ability to drive value through accretive M&A and so on. This platform enables us not only to deliver a great customer experience but also evolve, adapt and flex as we grow as regulations inevitably change and certainly as customer behaviors and preferences change. At our capital markets update in August, I not only set out the USD 160 billion TAM potential we can look to, but also explain how we can widen our appeal to a broader customer base, provide richer, more engaging content, expand our product verticals and drive engagement. By doing this and by being even more focused on our customers, we can lean into powerful flywheel effects that increase our audience, increase customer loyalty and reduce our acquisition costs. While it's only a few months since that Capital Market Day, I wanted to talk through some of the things we're already doing and how we are driving the customer experience forward. We have done a significant amount of work to understand the demographics of our customers and of our potential customers, looking at what drives their behaviors, what their likes and dislikes are and what we can do to deepen our engagement with them. For example, the emergence of digital dads who grew up with some of the first computer games and are now the pioneers of the new ecosystems we see emerging as well as being engaged real sports fans. This helps us in focusing on how our brands position themselves, how we use our deep lake of data and how we serve them up with relevant products and offers to them either on a segmental or personalized basis. We have a number of leading brands across our markets that have significant brand recognition. And during the year, we evolved our marketing to not only differentiate it from our competition, but also to broaden our appeal to our customer demographics, but also to a more recreational customer base. In the U.K., you've seen us start to reposition the Ladbrokes brand with our balloon and dramas efforts. These efforts based around the theme of we-play-together, lean into that broader mass market appeal as well as the idea of collective experience aligned with the general social media trend that we see across all customer segments. The sound track from the subways and indie band was the initial step into creating Ladbrokes AMPLIFY, which supports up-and-coming independent bands whilst also enabling us to provide access to concerts and music venues for customers. This creates a whole experience around the brand that brings customers in for broader experience, in this case, around music. This brand repositioning is one of the factors that has helped drive the actives into a more recreational customer base, which is up by 56% from 2019 in our U.K. sports brands. With Cheltenham next week, you will see us start to position more around the sports fans and particularly horse racing. Our intelligent data-driven engagement through recommendation based on learned experience is still relatively early stage, but results so far have been very positive with up to 75% more engagement from customers. What's worth noting about these actions on this slide is that we start to move to a more direct consumer engagement model that reduces the reliance on third parties and affiliation engines. Our free in-house studios enable us to deliver innovative and exclusive games and content, which we can leverage across all our brands globally. We have over 550 in-house games with 100 games launched last year. BetMGM not only benefits from this large portfolio of games, but also from bespoke products including the incredible popular MGM brand millions with another exclusive MGM branded product coming shortly. These are part of what has given us a competitive edge in the U.S., integrating the brand with a product that's both fresh and high quality. In fact, over 70% of our customers in the U.S. engaged with our exclusive products and 5 of BetMGM's top 10 trials were developed in-house. Having these development capabilities in our own studios gives us greater flexibility and control over our development pipeline. We can also better align products and features with our own customer insights to drive further engagement. As an example, our free-to-play games in the U.K. have seen a 70% cross-sell with these games with our traditional betting and gaming products. This makes customer acquisition costs virtually free while also increasing loyalty. Benefits for the customer equals benefits for us. Given the significant competitive advantage these bring, this is clearly an area of strategic focus going forward, and we'll invest more in our in-house production going forward. We have also started to develop products for the emerging ecosystem around video gaming. Under Justin Dellario, UNIKRN has been developing products around skill-based wagering which we'll be launching later this year. We think this market has the potential to be huge as the hyper trend of increased engagement with and through video gaming evolves through generational shifts. We'll be the only global operator in this market bringing the benefits of first mover advantage as well as for shaping the opportunity for years to come. Our Innovation Lab innovate will be the center of our development of new products, experience and services that leverage AI and VR. We'll be trialing VR Arcades on the High Street later this year and look forward to updating you on their progress. So keeping product fresh and relevant for customers, innovating to create new moments of excitement and providing products and experiences that customers can't get anywhere else drives loyalty and player value. We are broadening our appeal and deepening our engagement with customers. Our interesting and engaging video content focused around sport is gaining fantastic traction with customers. I mentioned Amplify earlier as part of the brand refresh of Ladbrokes. This is engaging customers around a unique music experience, and it's getting a great response from customers. We also talked about the brilliant videos Ladbrokes in Australia produced around horse racing. In the U.K. Coral's partnership with ITV has launched the fourth in the series around inspiring stories in sports. Each of these against the arts episodes was viewed by an average of 800,000 people as well as reaching over 5 million on social channels. Our fifth installment features Desert Orchid which we will air on the eve of the Cheltenham Festival in a couple of weeks. Over the year, we have also developed products that connect customers through social engagement such as in-game chat for Ladbrokes, and bwin is streaming [indiscernible] day football in conjunction with [indiscernible], which has seen our Instagram followers jump by 40%. Partnerships provide fantastic opportunities to connect with customers across different ecosystems and fan bases. Our McLaren partnership with Party is the first such partnership. Not only do we get our brand on one of the leading manufacturers of iconic cars, but we provide our customers with unique access to behind-the-scenes content connecting the experiences with our Formula 1-related products. However, best-in-class experience and service is not just about the offering. We continually improve how we serve our customers to reduce friction, improve usability and effectively make the experience of being an Entain customer as seamless as possible. Because we have such a breadth and depth in our operational and technology teams, we have thousands of technicians as well as teams across our customer experience, data analysis and so on, all dedicated to improving the customer experience. And we can share these developments and learnings across all our brands. For example, simplifying the customer journey by reducing the number of process steps for our customers and using AI to do analysis in the background to speed up checks and improve the efficiency on our onboarding process. Using root cause analysis, we remove friction points, reduce frustration and aim to eliminate reasons for customers to have to contact us. You've heard us say before that in the U.K., every Saturday, we process 7x more transactions than Amazon on a Black Friday. And every minute, we generate 70,000 trading events. So by simply reducing reasons for customers to contact us, we can reduce cost on a relative basis. That frees up both capital as well as capacity that can be better deployed elsewhere to drive growth. In the last year, we reduced contacts per user by 34%, whilst our actives grew by 25%. That's a win-win for Entain and customers. As Adam Greenback talked about on the conference call on the 19th of January, our launch in New York broke all sorts of records for the business. Our platform flawlessly supported more transactions and first-time deposits than any previous live launch. Despite the record-breaking volumes, we answered all chats and calls within an average of 29 seconds. This is standout performance in the market. Trust is the cornerstone of any customer relationship. And for our industry, that extends beyond data security, ease of use and so on. It encompasses player safety. This is one of the reasons we are developing ARC to provide an ever-present safety net where our customers feel protected. We continue to make great progress with ARC with both the real-time customer interaction trials and the international rollout well underway. Our initial trials have been very encouraging with results showing a risk assessment accuracy of over 80%, a 120% uplift in the use of safer gambling tools by those most at risk and a 30% overall reduction in customers increasing their risk levels. All these capabilities and focus on the customer underpins our success in the U.S. In the last 3 years, we've grown rapidly in the U.S. to deliver a market share of 23% in our markets in the final quarter of 2021, in line with our long-term objective of 20% to 25%. We continue to lead in iGaming, but we've also seen great momentum and success on the sports side too. In fact, looking at market share on a rolling 6-month basis to smooth out seasonality, you can see that we are clearly ready to challenge for the #1 position across sports betting and gaming in the markets where we operate. Where we bring the capabilities of our industry-leading platform together with a day 1 launch, we really demonstrate the strength of our proposition. This approach differentiates us from the pack. While others aggressively try and spend their way into this market, they lose sight of what is important for customers. They focus on short-term acquisition rather than establishing a successful long-term relationship as we do. Our disciplined returns-driven and customer-centered approach means that we anticipate BetMGM reaching positive EBITDA in 2023. So in summary, we've had a successful year delivering strong results, building on our successful track record. At the same time, we have started to lay out the foundation for our success for many years to come. Our strategic intent and ambition is clear. as we deliver into the significant TAM opportunity we have ahead of us that enables us to at least triple the size of our business. Our Entain platform is our competitive advantage and enable us to grow into TAM across regulated and regulating markets. It empowers us to evolve into changing consumer behaviors, which helps future-proof our business and drive small sustainable revenues. But it also taps into the powerful flywheel effects that broadens our customer appeal, drives cross-sell and loyalty and reduces acquisition cost. As Entain grows into this opportunity, we are building the right operational structures, processes and capabilities around the Entain platform to ensure our continued success for many years to come. And we will, of course, continue to lead across ESG and player safety. Let me just finish by thanking all my colleagues across the business. They are the core part of the Entain platform that enables us to keep delivering great performances. And the resilience and attitude they have shown in navigating the challenges of the last couple of years demonstrates the high quality of talent we have across Entain so a huge thank you to them. With that, I'll hand over now to Q&A.

[Operator Instructions] We will go to our first question today from Ed Young from Morgan Stanley.

I've got 3, if that's okay. The first is on the U.K. You took share in that market, clearly. Can you just talk a little bit about the sustainability of that growth? What's driving it? And are you happy that you're doing as much more than others in terms of your safer gambling with obviously regulation on the horizon? The second is there's clearly opportunities in new markets. You mentioned sports interaction in Canada. Obviously, Brazil is going well. But for both of those and perhaps also for Germany where you do get a license back in gaming, can you just talk about whether we should expect some sort of investment J-curve there? Or you think you'll be able to sort of grow from current levels in terms of profitability? And the third question is on the U.S. There was some press overnight around Yahoo potentially being spun out into a betting company. Can you just talk about your breadth of cost of acquisition across BetMGM? And if you can, any detail around your contract length or contract terms for the Yahoo Sports side of things?

Thank you for your questions. So why don't I start from the back and talk a little bit about U.S., in general, about new markets and then hand you over to Rob to talk about U.K. and our growth there. So just starting with the U.S., and we talked about this many times before. We have a wide range of partners there. So we partner with affiliates. We partner with media. We partner with leagues, and we partner with clubs and especially in the United States, sorry, in New York. You've seen us doing some partnerships there with Madison Square Gardens and a couple of the cuts there. So that's basically part of the portfolio and what we continue to do. So when it comes to the news overnight around Yahoo, well, listen, this is, I think, pretty much old news. So Yahoo is a value partner for us. It's an affiliate partner. And we have a multiyear agreement in place with them. I'm not going to go into any detail there. So Yahoo is one of the routes that we have to market as part of the affiliate partner and we continue to work with them there. When it comes to new markets -- so listen, it will be a little bit of both. So for example, in Canada, you saw us do the acquisition of Avid. We also have Party and bwin there. So as we've said before, we will also apply for a license in Ontario for party and we continue to invest into that market, which is a significant market. which we're really excited about. Same thing in Brazil. We have sporting bet there, which is a strong brand. So when that market opens up through regulation later this year, as far as we see we're obviously going to continue to invest into that brand there when we can actually do investment into marketing. So you'll see us do a little bit of both. You also saw us last year -- sorry, this year, dual roll up into Enlabs with Klondike. So we basically assess the opportunities as we go along and whether it makes sense to do organic or inorganic. So investing into the markets or doing roll-ups or doing larger acquisitions to enter into a market. And to your final question, Rob, can I hand over to you?

Absolutely. So a question about the U.K. performance, the drivers of that in particular. So look, we are pleased with our numbers in U.K. online. That's for sure. Momentum has been good through the year, and that good momentum has carried on into the start of this year. We saw market share gains throughout last year, and they did accelerate into the latter part of the year. Are we doing the same degree of measures as others from a player protection perspective? Absolutely. We work closely with the Gambling Commission as do others, constantly refining our approaches as do others. And so where has that acceleration in market share come from? I think it's down to the very good work that our teams are doing with the U.K. You heard Jette talk earlier about some of the initiatives, the real focus on recreational actives growth products like 5-A-Side. It's a great recreational bet, free-to-play content. You heard Jette talk about Ladbrokes Amplify and the drama ads in the balloon ads. This is all trying to drive a more recreational audience. I'm pleased to see that active numbers are still up for both Ladbrokes and Coral in Q1 despite, of course, lapping against the COVID boosted numbers from the prior year. So we are very pleased with our U.K. performance and all pretty much as expected. I would just add 1 more build on Jette's comments. You asked about a J-curve in Canada, in particular. And I think it's worth focusing on Canada in 2 halves. So we do expect different trends and different shapes of curves, if you like, in Ontario versus non-Ontario, and the strategy is different in each. And it's worth saying that outside of Ontario, that's where the majority of revenues are and this feels like an acquisition, like many others, outside of Ontario. So real focus on revenue synergies as we help support product and capabilities. within Ontario. Inevitably, there'll be some investment. I wouldn't expect the J curve to be as steep as when a U.S. state launches, for instance, for sports interaction, because it's an established brand, a strong brand, and it has an existing customer base. But there will be more investment into Canada that would ordinarily be the case as a result of Ontario licensing for sure.

We'll now go to our next question from Monique Pollard from Citi.

Three questions as well from me, if I can. The first one, just following up on the U.K. online performance. Obviously, you've delivered double-digit growth in that market in 2021. I was just wondering whether you could comment on whether you have seen any breakdown in the relationship between customer-friendly results and recycling in 2021. The second question I had was on Brazil. Clearly, a really exciting market. You're saying that you're expecting sports to regulate this year, gaming next year. If you could just give some details on sort of what helped you to achieve that kind of phenomenal 111% constant currency revenue growth in 2021? That would be really helpful. And then finally, just on Georgia, given your #1 position in that market by a crystal bet, just hoping you could give us some guidance on what the overall group impact would be of the potential regulatory changes that are being discussed there?

Monique, so may I suggest, Rob, you continue with U.K. and also Georgia, and then I can come back and talk a little bit about Brazil.

Happy to. Monique, so a question in the U.K. around recycling and have we seen different trends. And no, I wouldn't say we have. Well documented that margins were weak in the U.K., very much football driven and very much AC-driven and recycling is always low on football multiples. So I wouldn't suggest that we've seen any difference in trends versus what we would ordinarily expect in that situation. Georgia, I think I was asked about this in the January call. So the impact of the new gaming tax we estimated around GBP 10 million EBITDA per annum. There are some further restrictions around age and marketing, probably more neutral, particularly as we have a market-leading brand. As you've touched upon. So I would stick with GBP 10 million per annum, albeit there's then an offset through corporation tax. So an impact to EBITDA, but on a net cash basis, it's pretty neutral.

And should I comment on -- let me continue and comment on Brazil. So Sportingbet continues to perform really strongly in Brazil and really strengthening their #1 position, which is, of course, pleasing as we look towards regulation. And we've seen really strong momentum in the brand, partly also helped by Copa America which helped drive awareness. And that's also important as all as arriving in the market, and we are benefiting from that. So that puts us in a really great position that we look to regulation. And the first thing is, as you said, of course, regulations on sports, which we look towards the second half of the year before the World Cup.

Great. Sorry, just following up quickly on Brazil. Could you see further growth in 2022 despite a really tough comp, obviously, of 2021?

So I think one of the main things in the market regulating is that we'll be able to do marketing. We can't do that today. So that's, of course, one of the big opportunities for us. So it's a really interesting market. for us. And there's clearly a demand for a large variety of products in the market. And then the Brazilians are Avid sports fans. So just by the fact that the market is opening up, we have the strongest brand in the market, and we will then be able to leverage our partnerships with the different broadcasters and media in the country even further is a really strong opportunity for us.

Our next question comes from Gavin Kelleher from Goodbody.

Just a few for me. Just maybe I might have missed this, but Rob, one for Rob on the guidance on online. The mid to high single-digit growth this year in online revenues, can you just tell us how much of that is the 3 acquisitions? What percentage points they are adding? And then on the area of responsible gambling, I think you mentioned that there's been a 120% increase in people using problem gambling tools or player protection tools. Can you just give us an idea of what percentage of the database in the U.K. is using those tools? And then the final question I have, just following on from my first question, Holland and Germany, what do you expect from them this year in terms of return to growth or kind of return to revenue in Holland and which time of the year at this stage?

Rob, let me start by handing over to you on the guidance, on online and Netherlands and Germany, and then I can come back and talk about responsible gambling and on.

Gavin, yes. Let me say a few words. So acquisitions with 2 components so far. One would be the annualization of 2021 acquisitions, and there's probably 1 point, maybe a little more to go from that given Enlabs and Bet.pt were both around end of March last year. And then the latest material acquisition, Avid, and that's probably adding a little over 1 point as well. So somewhere between 2 and 3 would be my best guess against that. In terms of Netherlands expectations, Germany expectations. So Netherlands, no particular update versus our Q4s in January. The application is in -- we hope to get our license around the middle of the year and are planning as such. And then we'll really have to wait and see how the performance goes from there. It might depend on a few things, which operators are getting licensed and in what order and so on. And when it comes to Germany, so German sports had a great year in 2021. Clearly, gaming, very different as we adopted the new regime. As we look forward in Germany, and sort of mixed developments on the regulatory front, one positive is that the new regulator nationwide in [indiscernible] has said that they will look to start enforcement from 1st of July this year. So that will be a positive for us. Otherwise, in terms of regulating of table games, that's probably less optimistic than where we were previously. Previously, we hope that we might get access to around half of the population. It feels like it will be more like quarter now with NorthWestern Bavaria being the one that's most likely to offer licenses, and that's around 1/4 of the country. Does that help, Gav?

That does help.

Good. And let me just round it up by adding a little bit more comments on ARC as you referred to. So I said in my introductory comments, I gave a couple of steps. So our initial trials are extremely encouraging. And we -- as you said, we're showing risk assessment actually of over 80% and 120% uplift in those that use the safer gambling tools and then a 30% overall reduction in customers increasing -- reduction in customers that has increased their risk levels. And right now, it's rolled out to all our U.K. brands. So that's really the most important thing that we make sure that it's available for all customers and then we drive the use of it. And next step for us is now rolling it out to our European brands and next rollout is, I think, taking place now or over the next couple of months.

We will now go to our next question from Kiranjot Grewal from Bank of America.

Just 2 from me. Firstly, we've seen some of your U.S. competitors signal plans to reduce marketing spend. Is this a surprise for you? And does this give you more or less confidence on your 2023 positive EBITDA guide? And then secondly, I think a lot of us are still focused on the U.K. gamma review that's upcoming work. You've spoken about online slot limits and those have been analyzed. The deposit limits, then limits are a little bit trickier to get a handle on. Are you able to comment on how your customer exposure might have changed in the U.K. over the last few years, potentially proportion of high rollers, VIPs versus recreational?

So let me start off with your question on U.S. So listen, I think in general, we've said from our side all along that we are rational players in the market. And when it comes to 2021 levels in general in the market on bonusing and promos, both when it comes to customer acquisition and retention for that matter, they have been quite high. But I think that environment is not really a surprise given the TAM opportunity and NFL and we have New York come up here in January. So we were anticipating that pickup, and it was factored into our go-to-market approach. Now what we've said from our side, we'll continue to be a rational player here. So we continue to focus on acquisition efficiency and ROI. We are in the U.S. market to build a sustainable business and make a profit. So it's all building to our model. And our expectation is that we will see the average or the blended CPAs tick down. But listen, you will have these swings and seasonalities, so we have March Madness coming up, but everything is pretty baked into our models and underpinning what we have assumed there. When it comes to U.K. regulation and the review, I don't have anything new to say. We are still awaiting the white paper. We expect it to come in Q2. There has been some delays, as we all know, but we are expecting it to come, and that means that any resulting impact of that will always be later in the year. And we are supportive of that. We are looking forward to get that review. But before it lands, we don't really want to speculate on how it will play out. So we'll wait and see, and we'll take it when it comes, hopefully, later in this quarter -- sorry, next quarter.

We'll go to our next question now from Joe Thomas from HSBC.

Just a couple of questions left on my side. Firstly, just on a point of detail. The -- in the past, you've quantified what the responsible gambling measures would cost you. And I just wondered if there was any update on that, if they are being tightened further? And what sort of a drag that's likely to have on this year's numbers? And then secondly, you've not really talked much about Australia today. I was just wondering if you could give some detail there, given that simply comps are pretty challenging. And I think there was a bit of luck in Australia last year. So how are you seeing Australia trending in 2022, please?

Thank you, Joe. Let me start by talking about impact of responsible gaming. And Rob, I'll hand over to you for Australia. So listen, when we set out our new sustainability charter back in November 2021, we talked about an impact for -- sorry, in 2020, we talked about an impact in 2021 of around GBP 20 million. And since then, everything that we've done, we really incorporate that into our models. So when we look to 2022, all the things that we have implemented through 2021, we baked that into our numbers going forward. So we put it into our forecast. And now the next thing is, of course, the Gambling Act review. But as I just said in the earlier question, we're not guessing on what will be in the Gambling Act review. Rob, Australia?

Yes, let me talk about Australia, where momentum is really strong. I'm delighted with the performance of Australia. It really shows that the reinvigoration of the business that Dean and Locklin and the team over there are delivering around brand repositioning, refreshing advertising, the product development, personalization, lots of really interesting and innovative stuff coming out of Australia. And it's bearing fruit in the numbers. So the second half of the year, easily the fastest-growing operator gaining share and momentum is carried on into the start of this year as well. So despite the tough comparatives that you alluded to, we're into double-digit territory year-to-date for NGR growth.

Can I just come back, I guess, on the point about responsible gambling that -- so I take it the GBP 20 million hasn't moved subsequent to that guidance being put out. I just want to confirm that I understood that correctly. And just sort of relating to that, is that because -- what is driving what here? Are you sort of budgeting for GBP 20 million and you are setting responsible gambling measures to hit that GBP 20 million? Or are you -- or is the EUR 20 million in output of the responsible gambling measures kind of conceptually?

No. So we comment this differently. So when we set out the sustainability charter in November 2020, we look forward to the year 2021 and forecasted that the impact of those measures at that time would be around GBP 20 million into 2021. Now as we learned through the year 2021, every time we put something in place, we basically update our models. We look at what is the impact here, how can we mitigate this. And that's basically then built into every single forecast we do going forward. So I'm not saying it's GBP 20 million for this year. I'm basically saying we look at this every single month, and then we update our models. We look at how we can mitigate any impact there is, and then we go from there.

We'll now go to our next question from Simon Davies from Deutsche Bank.

Two from me, please. Firstly, on the U.K., you talked a lot about your shift towards a recreational player base. What are you seeing in terms of the high-value player base? Possibly, we're talking about halving contribution numbers over the last 2 years. Are you seeing a similar experience? And secondly, you talked of success in AI-driven personalized marketing and how that should reduce your reliance on affiliate networks going forward. How material do you think that could be? I mean, do you have a sort of potential impact in long-term marketing spend as a percentage of revenues?

Rob, do you want to talk about player base? And then I can talk a little bit about marketing and how we look at that?

Yes, I can. Simon, so we don't have any KPIs to give out, but I can certainly talk about the trend and the trend, as you well know, is ever more recreational. And that's partly very deliberate in terms of our customer proposition, our brand proposition products and promotions, et cetera. And it's partly also a reflection of the ongoing measures. And so the trend is clear, quite whether we've got exactly the same trends as flatter or not, we'd have to have a look at that.

And just on the marketing. So what I talked about in my introduction about the personalized marketing going forward is really exciting, but it's also still early days for us as we implement this. So I'd say in general, we are seeing our marketing spend as a percentage of NGR ticking down over time, and that's a consequence of you say, efficiencies and scale and so forth. So this is really the next step for us. We haven't set a target on it or we don't have a number on it what we expect it will gain. But it's, of course, both about marketing efficiency, but it's also about a very experience for the customer as we market towards them. So the general trend, we talked about that before. We see the same thing, and this is something that we're just starting to work on now, and we will follow up on our later calls.

We have time now for our final question from James Rowland Clark from Barclays.

Just on the 2 small acquisitions that you've done in Latvia and Poland. I wondered if you could shed a little bit of light on the size of those acquisitions in terms of the multiple you paid and also the EBITDA tailwind that they offer through the year. I know you've already mentioned NGR tailwind as well. Secondly, on Lithuania, I'm under the impression that there are potential tax changes there, and that's a market that Enlabs operates in. So is there any light you can shed on the headwind for that in 2022. That would also be very helpful. And then finally, on New York, there's -- it looks like iGaming has been added to the legislative bill for this year. Any comments that you might have on that would be helpful. And also the tax rate proposed is considerably lower than the sports betting tax rate. So I wondered if you had any thoughts on the outlook for tax in New York in future, I mean the draft, you've mentioned, was being looked at. So any comments there would be great.

Thanks, James. Let me start with the last one, which is a quick one, and then I'll hand you over to Rob for the 2 other questions. So yes, that's true. There's news out that there's a potential tax coming up on iGaming in New York. Listen, it's not something that we see happening in this cycle. But of course, it's directionally positive. So we'll see where that goes, but not something that we're looking at right now. And then I think, in general, in terms of New York tax and what will happen there, so I think what will happen is, of course, that over time, States look at the neighboring States and between each other they'll figure out what is the best model going forward. So I'm sure that there will be some adjustments over time in terms of tax, but we don't have anything on New York tax and how that will move for now, so we'll just have to see. Rob, over to you, if there's anything you want to add on the 2 acquisitions in Poland and Latvia and then Lithuanian tax?

I will do. I can certainly do the first part of that. I'm not familiar with any change in tax regime in Lithuania, so I'll have to pass on that one, James. In terms of the 2 acquisitions that we mentioned, they're both very small. So I wouldn't be changing your numbers for them. Klondike is a roll-up in Latvia. It has around 8% of the online market share. So it's materially complementary to our existing offer in Enlabs, but we're talking likely single-digit millions of revenue and obviously reflected in the acquisition cost as well. And then Poland, this is more of a license acquisition that will ever be followed by organic entry of bwin into that market. So again, not expecting any material impact on 2022 numbers. But clearly, we hope to build a material presence in that market over the coming years.

We'll now go to our next question from Richard Stuber from Numis.

Two for me, please, one on the U.S. and one in the U.K. On the U.S., I still -- I see that you're still sort of aiming for the 30% to 35% long-term EBITDA margin. Clearly, this is going to be a blend across all the different states. So could you just give an indication how -- what do you think the range would be on a state by -- on different states because, obviously, New York is going to be quite more considerably lower than potentially New Jersey. And the second question is, I know you've asked a lot about the U.K. gambling review. But are you seeing any consensus appearing across operators for a stake or deposit limits? And anything in terms of sort of collaboration with other operators on that would be very helpful.

Thank you for your questions, Richard. Let me start with the U.S. So that's right. First of all, we reiterated that we anticipate BetMGM to reach positive EBITDA in 2023. And we also confirmed our range on the margin of 30% to 35%. So listen, this is, of course, a moving target as states come online all the time. And we have positive contribution rate in several states already. So New Jersey delivered a strong positive contribution in the full year of 2021. Michigan, which is a really strong state for us and continues to be, from start-up to positive contribution within the month of 2021. We also were pleased with the progress in Arizona, which is on fast track for contribution positive. So what we've said in general is that we see sports states reaching contribution positive in 12 to 24 months and iGaming states in 10 to 14 months. So obviously, the more states that legalizes with iGaming, the faster you will see the contribution rates going to positive. And then we're also saying when it comes to EBITDA and pay back that sports stakes, so we are in general seeing -- looking at a 3-year payback time for sports states and 2 years for iGaming and those assumptions still hold when we look at our numbers. When it comes to U.K. and the Gambling Act review, I mean, we are -- we have an industry body where we work together and we discuss these things. And that's a body that we used to also address the gambling commission and the GCMS and so forth. So that's really helpful, and this is where we try to bring forward to different proposals and so forth. And then, of course, we ourselves are also spending a lot of time, as I've talked to in the future in just discussing, you could say, our technology, our technology solution and also the impact on the results that we're seeing from the measures that we are putting in place. So I think that was the question, right? We are seeing some trends in terms of what's being put in place, and I think some of the things we put in place, affordability takes affordability limits and so forth. That's also something you've seen other operators pick up. But to your question, in general, we have a body where we discuss these things and discuss them with the GCMS and the Gambling Commission.

We have a question now from Ivor Jones from Peel Hunt.

I wonder if you could talk a bit about retail. Firstly, short term, secondly, long term. 2019 retail was about GBP 200 million of IAS 17 EBITDA. How much of the CapEx is going to go into retail? So I can think about cash flow. And the 2019 number only had a partial year of GBP 2 stake limits. So are we heading back to GBP 200 million? What do you think about in terms of cash flow? And then in terms of innovation, you're obviously focused on the much bigger online business. But you talked a bit in the statement about Omnia and BetStation and you mentioned VR Arcade. So are those just things that hold retail steady? Or is there innovation coming in 4,000-plus shops that actually could deliver some growth in that business? So I'd just be interested to hear you talk about cash flow shorter term and then the potential longer term.

Thanks, Ivor. Good questions. Let me hand you over to Rob. Rob, do you want to talk about retail for both questions?

I can certainly do my best. So retail, I think I mentioned in the introductory comments, really astounded at how good EBITDA was in the second half of 2021, actually coming in slightly ahead of 2019 pre-COVID. And if you take the EBITDA that we delivered in the second half of the year, you annualize that and then adjust for things like the initiative to move all U.K.-based colleagues on to a minimum of GBP 10 an hour you're probably coming out somewhere around the GBP 250 million mark for retail EBITDA going forward, which is a fantastic number and there might be a little bit of pressure on that. H2 was good for a number of reasons, but that's the right ballpark. In terms of CapEx...

Well that GBP 250 million is in new money, isn't that, for IFRS 16?

That is new money, yes. But obviously, the comparison to pre-COVID is...

Minus GBP 70 million of leases?

Correct.

Sorry, minus GBP 70 million for leases?

Correct. And then from a CapEx perspective, I would say retail is around GBP 50 million to GBP 60 million out of the guided number. So you can see still materially cash generative as a business in its own right. And of course, none of those numbers, EBITDA or cash in any way and capture the contribution than it makes towards our online platforms in those territories. So -- and it's still a strategically significant and profitable asset for us. In terms of innovation, there are effects of the agenda, which are omnichannel focused. And you'll have heard that we've converted a couple of former shops into VR labs so that we can bring these experiences to retail customers as well. And then, of course, there's the ongoing investment into digitalization of the retail estate and we're spending tens of millions every year on things like the new till systems, new in-house SSBTs, the digital marketing screens, upgrading gantries, pricing screens and so on as we try and bring the online experience closer to shop colleagues to really reinforce the omni proposition. So we are pleased with retail, and it's made a good start to the year as well, even though we lost Belgium shops up until the 27th of January I think it was when they reopened numbers are still the right side of expectations year-to-date. So all things strong for the -- on the retail front.

The shops, I guess, are mostly too small to be VR arcades in a significant way. Would you spend money on repositioning to bigger premises? Is that part of the plan?

At this stage, no. But it's very much an experimental phase, I would say. So we'll keep it under review and look forward to seeing the results of the early stages.

This will conclude today's question-and-answer session. I'd now like to turn the conference back over to Jette Nygaard-Andersen for any additional or closing remarks.

Thank you very much, operator. So if I may wrap up, Entain is a growth business. And as you heard today, we are excited about the significant opportunities we have ahead of us as we deliver on our sustainability and growth strategy. Our Q1 update is scheduled for the 7th of April. But for now, thank you very much for joining us this morning, and thank you for your questions.