Entain Plc (ENT) Earnings Call Transcript

Good morning, and welcome to Entain's 2026 Interim Results Presentation. And I'm delighted to be speaking to you again and sharing another strong set of Entain results. It's been a busy first half with lots of progress across the business. So I will begin with an overview of our first half, touching on the highlights of our performance and strategic progress delivered so far this year. I will then hand over to our CFO, Mike Snape, who will provide greater detail on our financial performance and outlook for 2026. Next, you will hear from our Chief Commercial Officer, Andy Hicks and Curry Sloan, who both will discuss how Entain is winning in the market and driving growth across the group. Mike will then return to outline the actions we're taking to support this growth to accelerate operational excellence and deliver shareholder value. And finally, I will conclude with a few closing remarks before we open to take your questions. So turning to the headlines. Entain has delivered a strong first half performance. Our underlying momentum has continued with both online and retail performing ahead of expectations. And this now marks online's ninth consecutive quarter of growth, and that's despite tough prior year comparatives. The U.K., Spain, Canada and Australia and New Zealand were particular highlights, each continuing to deliver double-digit growth. Our focused execution and strengthening operations are enhancing both our product and player experiences across the group. The business also performed well during the recent World Cup, a key customer acquisition opportunity for us, and I'm delighted that our first-time deposits were double those seen in the previous World Cup. Alongside this strong performance, we're also continuing to make good strategic progress, getting sharper and fitter to enable us to digest tax headwinds, whilst also becoming more agile in an increasingly better connected global business. So we're improving the way that we work and leveraging our scale more effectively. This delivers increasing benefits for our customers, colleagues and cost base. Our optimization initiatives are well underway, and our dynamic yet disciplined approach ensures flexibility to invest where we see the best returns. Similarly, this disciplined focus supported our decision to launch our phased exit of Entain CEE. The initial 20% divestment for EUR 425 million represents an important step in unlocking value created within our portfolio. So in summary, we are making strong progress and continue to see good momentum across our business. As a result, we remain confident with our guidance for online growth and group EBITDA in financial year 2026. Supported by our confidence in our growth trajectory and continuing operational efficiencies, we remain well-positioned to deliver GBP 500 million of adjusted cash flow by 2028 and to create long-term value for shareholders. So on that note, let me now hand over to Mike on the H1 financials and trading performance in more detail.

Thank you, Stella. Good morning, everybody. I'm delighted to be presenting my first interim set of results for Entain. As you've already heard, we've had a strong start to 2026. So let's begin with the key financial highlights. As a reminder, growth rates I'll refer to are in constant currency unless stated otherwise. Our reported numbers now exclude CEE since we announced our 20% divestment and planned exit, and though we have included figures including it for clarity as we transition. So I'm pleased with our strong start to 2026 and the growth we delivered in half 1. On a continuing basis, group NGR was up 5%, with both online and retail performing ahead of expectations. Online was up 7%, with strong volume growth of 9%. Sports margins normalizing during Q2 following the player-friendly results in Q1 in April. Our iGaming momentum continued and Sports also performed well with strong player engagement across our portfolio during the World Cup. Group EBITDA came in at GBP 479 million, including GBP 7 million of parent fees from BetMGM. On a reported basis, this was down 2% versus last year, as anticipated given the increased U.K. gaming tax, but ahead of expectations given our stronger growth than planned in H1 with our mitigating actions on track. EPS, excluding CEE, was 20.3p, with lower EBITDA having a small impact, but largely due to lower JV income from BetMGM as well as our ETR increasing. Adjusted cash flow was GBP 43 million, up GBP 38 million year-on-year despite the lower EBITDA due to lower CapEx and interest costs, more on that shortly, as well as lower separately disclosed items due to the phasing of our transformation program. Net debt remained broadly stable at GBP 3.6 billion, ahead of the receipt from our announced 20% sale of CEE. We reported leverage flat at 3.1x, whilst leverage including the DPA slightly improved to 3.3x given our ongoing payments. Finally, we've declared an interim dividend of 10.3p per share, an increase of 5%, which is consistent with prior years. In terms of segmental performance, with the move of CEE to discontinued operations, we'll continue to report U.K. and Ireland online, International Online and Group retail. Let's start with the U.K. and Ireland. Our biggest online market delivered yet another knockout performance this half as we continue to enhance our proposition. We're continuing to take market share with NGR and volume growth both up 13%, and that's double-digit growth from both Gaming and Sports. We're particularly pleased that our momentum accelerated through the half despite lapping strong prior year comparators and adjusting to the higher tax environment and mitigation plans required. This growth is being driven by the ongoing operational improvements, enhancing our product proposition and player experience alongside continuing optimization of bonusing. These combined are driving stronger engagement and retention and more profitable growth. Alongside Gaming's 13% growth, sportsbook was up 11%, benefiting from an upgrade in Bet Builder and a good World Cup. Overall, the U.K. business is in great shape. Profits have inevitably been impacted by the U.K. tax increase, but we are executing well. We remain highly disciplined and our cost mitigations are firmly on track for offsetting the 25% guided to you for this year. Moving to International Online. We have many success stories, but also had some challenges, reinforcing the benefits of a diversified portfolio. Overall NGR grew 4% with strong volume growth of 7%, but against tough margin comparatives from last year as well as customer-friendly results this year, particularly in February and April. Encouragingly, growth improved through Q2 as normalizing sports margins supported double-digit growth in May and June on a reported basis. In terms of winning markets, Australia was a clear standout performer, up 13%, reflecting the successful reinvigoration of the business with refreshed brands and improved propositions supporting stronger customer engagement and market share gains. Spain, New Zealand and Canada were also all up double-digit. More on this later from Andy and Curry. As I mentioned, sports margin was a drag, and this was most pronounced in Brazil and Italy. In Italy, our continued double-digit gaming growth partially offset this, and we're confident we'll see a stronger second half. In Brazil, we're facing an intense and challenging regulatory and competitive environment, and we're taking a highly disciplined approach to investment with a clear focus on returns rather than growth for growth's sake. Although overall growth rates were disappointing, that approach has seen us hold market share. And our player metrics improved through Q2 with H1 sports wages up 10%, supporting by sporting bet brand strength and targeted marketing campaigns. We've included the CEE segment here for completeness. However, it is now reported as a discontinued operation. Online was up 7%, including a strong rebound to 16% in Q2 as Croatia and Poland benefited from a stronger-than-expected volume and margin uplift during the World Cup. SuperSport and STS remain #1 in their markets, and the business is well placed to grow under EMMA Capital's leadership and continue to contribute to our cash flow for as long as we retain our remaining stake in the business. Finishing on retail to complete the picture. The business continues to perform strongly with half 1 up 1%, which was better than planned. Our U.K. estate remains the best on the high street. NGR was up 3% on a like-for-like basis, and we continue to grow our leadership market share. This is underpinned by our strong brands, leading in-shop cabinets and experiences as well as our strength in multichannel proposition. In Italy, the volume-driven growth in retail gives us real confidence in our future potential in this attractive market as we continue to revitalize our Eurobet brand. Moving on to EBITDA for continued operations. EBITDA, including BetMGM parent fee, came in at GBP 479 million, down year-on-year as anticipated, but ahead of expectations. FX rates did give us a GBP 16 million tailwind. However, the increase in U.K. tax from 21% to 40% in April was a GBP 56 million negative impact to EBITDA in the half. Our strong online performance still added GBP 22 million despite a GBP 32 million year-on-year increase in half 1 marketing due to World Cup phasing and targeted investments where we see strong returns. This was also net of GBP 18 million BAU tax increases across our other international markets. Retail added GBP 7 million year-on-year, whilst corporate costs were up GBP 5 million due to phasing. The resilience of our EBITDA demonstrates our structural benefits of a globally scaled and diverse portfolio. Actions we are taking to mitigate 25% of increase in the U.K. tax this year are firmly on track. Mitigation efforts aside across the group, there is far more we can do on our cost base to improve operational leverage. Let's talk about cash flow. Growth is only valuable if it converts to cash. We see a significant opportunity to step up our cash conversion and target the levers directly within our control, driving down complexity, eliminating cost inefficiencies and demanding strict returns-based hurdles on every pound we spend. On CapEx, our lower half 1 spend is not just phasing. It reflects a permanent returns-led approach to how we allocate capital, allowing us to tighten our FY '26 CapEx guidance today. Separately disclosable items were GBP 21 million favorable year-on-year relating to restructuring timing. We do expect this to reverse in half 2 as we progress with our transformation and optimize our cost base as we look ahead to 2027 and beyond. In total for half 1, our adjusted cash flow improved to GBP 77 million, which included the net cash flow from our current 67.5% share of CEE. As well as adjusted cash flow, you will see this table highlights underlying operating cash flow, the continuing consolidated earnings after CapEx, lease payments and TAB NZ revenue share. I believe this metric gives a clearer, simpler view of how our actions are improving Entain's cash conversion. And as such, going forward, I will talk to this more. Alongside cash conversion, reducing leverage and improving balance sheet flexibility, are critical priorities. Our net debt for half 1 was GBP 3.6 billion, which sees us maintain a broadly stable position despite the increase in U.K. taxes, supported by our cash flow improvements. Our reported leverage also remained broadly stable at 3.1x or 3.3x including the DPA. However, we are laser-focused on our plans to reduce this. As evidenced by our plan to exit Entain CEE, alongside that disciplined approach to investments, we are now taking more decisive corporate actions to improve balance sheet flexibility, both to de-lever and to unlock the potential to return capital to shareholders. And finally, on to our guidance for this year. Despite the step-up impact of the U.K. tax increase, where we'll see the full 6 months in H2 and the challenges in Brazil, I'm pleased to confirm our previous guidance adjusted for CEE. Having delivered 7% constant currency growth in half 1 and with half 2 starting well, we're confident to reiterate our expectation of this year's online NGR growth, growing 5% to 7% on a constant currency basis. Our Online margin guidance of 21% to 22% is unchanged, and we remain comfortable with EBITDA consensus. We're also maintaining our guidance on adjusted cash flow, including the remaining 47.5% of CEE, targeting GBP 500 million by 2028, including the contribution from BetMGM despite the recent change to their medium-term outlook. Finally, on net debt, we expect to end the year below 2025 levels, supported by the proceeds from the 20% CEE stake sale, which remains on track to complete in Q4. Now to add some flavor to the numbers, let's hear from Andy and Curry on how we're executing to drive profitable growth and why Entain can win not only in each market, but also as a group.

Let's start with the U.K., Entain's largest business, which with digital and retail combined, generates approximately 40% of the group's revenue. And I'm delighted that both channels are performing strongly and continue to gain market share. Our digital mix illustrates Entain's strong gaming heritage whilst also highlighting the opportunity we have ahead of us in sports. Now Gaming represents approximately 75% of the U.K. digital revenue, and we are performing really well. Our coin economy strategy is resonating strongly with customers, driving improved engagement, loyalty and value. And in sportsbook, we've improved our Bet Builder proposition. We've redesigned the Ladbrokes app, resulting in a step change in customer experience and usability. Now whilst our digital business continues to outperform and take market share in the U.K., we remain highly disciplined in our approach to profitability, which is particularly important as our sector digests the increased U.K. gambling taxes. Our AI-supported bonus optimization reflects this, ensuring our customer generosity is deployed more effectively. All of this helps us generate stronger returns. Retail has outperformed the wider market now for 8 consecutive quarters. We have the strongest gaming proposition on the high street, the best cabinets, the best content and afford the customers the very best value. On Sports, our proprietary Betstation product continues to exceed expectations and now accounts for over 50% of total Sports NGR. In addition, we strengthened our multichannel proposition, offering an increasingly seamless experience between retail and digital. Looking ahead, I remain highly confident in the prospects for the U.K. business. Turning to Australia. This is a high-quality business undergoing significant transformation in an established and attractive market with the resulting outperformance and recent market share gains, clear evidence that the actions we're taking there are working. We have a renewed proposition, broadening our appeal beyond racing, improving our relevance to sports fans, enhancing our Bet Builder and upgrading our native app experience, and our customers are really responding well. The team has successfully applied a similar playbook in New Zealand, where our partnership with TAB continues to go from strength-to-strength. With more clearly defined positioning, Betcha as a brand is delivering strong double-digit growth, whilst also complementing TAB's established racing heritage. Now looking ahead, the prospects of regulation of the online casino market presents a unique and sizable opportunity. I am encouraged by the momentum we are building in many of our most important markets. Where we are already market leader, we are extending our advantage. Where we're not yet winning, we are bringing renewed energy, sharper focus and clear plans to improve our position.

Across Americas and Southern Europe, Entain operates in some of the largest and fastest-growing regulated markets, including Brazil, Italy, Canada and Spain. The opportunity across our markets is significant and we have a clear formula to capture it, building distinctive data-led local brands powered by Entain's global technology insights and scale. Spain shows what that can unlock. Two years ago, bwin was well known, but losing relevance. We reinvigorated this iconic brand. We sharpened our content strategy, our rewards experience, transforming the customer journey. The result, over the past 2 years, we've improved our brand presence fourfold, doubled annual player acquisition and gained market share with strong double-digit revenue growth. We have a proven successful playbook, which we are scaling across our markets. In Canada, our data highlighted a clear opportunity to diversify sports interaction beyond its hockey-first legacy by securing marquee partnerships across the Premier League, Champions League and Tennis Grand Slams. We are expanding our reach and relevance across customer segments, which generate the greatest returns. This momentum continues into 2026, delivering double-digit revenue growth in the first half. Our returns-focused analytical approach to marketing and bonus optimization means we win by leveraging data, not by outspending the competition. In Brazil, while new entrants spend aggressively, we are combining high-resonance creatives with comprehensive diagnostics to inform our assets and channel mix. This delivers a more dynamic, more accountable investment approach, focusing on returns and not simply share of voice. Italy is another key market where we're deploying this shared playbook. We are revitalizing Eurobet, spearheaded by our multiyear AS Roma sponsorship, the first step in a broader omnichannel transformation to reinforce our position, and we are excited about the opportunities in this attractive market. Importantly, across Entain's diverse portfolio, we can dynamically flex investment to prioritize different channels and assets where we're seeing the best returns, ensuring we get the best bang for our buck. Similarly, we continue to develop share and scale capabilities to better reward and engage with players across our portfolio. Our successful new loyalty program piloted in Canada was then launched in Brazil during Q2 before the World Cup and is showing tremendous traction. Our dynamic Generative AI video platform creates real-time, moment-specific creative, delivering more relevant content at lower cost with faster test and learn cycles. On bonusing, we're producing predictive churn models for automated ROI-led optimization, which means we are delivering the right offer at the right generosity to the right players, which is incredibly powerful. And our launch of Always On Acca Insurance is just another of the many ways we continue to give back to our players. These are just a few examples of our successful formula, localized expertise backed by global scale and supercharged by disciplined data-driven execution.

You've heard from Andy and Curry about how we're strengthening our local brands through better use of data, AI and shared capabilities. That's helping us improve the customer experience whilst also unlocking efficiencies and future opportunities. Entain is becoming an increasingly better connected global business. Strengthening and building those connections means ideas and expertise move faster and further. When something is successful in one market, it can be easily rolled out across many more. This creates a powerful multiplier effect as we continue to execute more efficiently. And the World Cup is a really good example. Ahead of the tournament, we expanded our Bet Builder features across multiple markets. With our widest ever offering, the percentage share of Bet Builder stakes during the World Cup has more than doubled those previously seen. We've also built on the success of Sportingbot in Brazil, adding more sports and starting to introduce our AI-powered personal betting assistant across many more markets, a social media initiative developed by our team in Belgium, is now being used across multiple markets. Better sharing of assets and content has removed duplication whilst also improving efficiency. Entain's power as a group is just as important in gaming. Our scale and leading positions helps us secure exclusive content. Combined with insights gained from millions of customer interactions, we can offer a more relevant, more engaging experience. Similarly, with marketing, we have continued to focus on centralizing data-driven performance marketing, directing investment to customers and markets that generate the best returns. Strong local brands, shared capability, scaled execution, that's where the power of Entain as a group really comes into its own. This is why we can win.

Thanks, Stella. As you just heard, across the group, we're improving our ways of working, making our business stronger, sharper and more efficient. Scale alone will not win in this industry. What wins is operating leverage, aggressive cost optimization, relentless margin expansion and strict capital discipline. Our mandates are non-negotiable: lower our costs; maximize free cash flow; rapidly de-leverage; and extract maximum value from our portfolio. At the full year in March, we were clear that optimization is a key focus for us, and our initiatives are well underway. Optimizing our cost base is the first stage. Our group-wide initiatives will deliver GBP 100 million in net annualized run rate savings by the end of 2027 to offset at least 50% of the EBITDA impact from the U.K. tax increase. These initiatives fall broadly into 3 groups: cost of sales; marketing and operating costs; the largest bucket of opportunity. The lion's share of savings will come through EBITDA, but we do expect additional CapEx benefits from our product and tech initiatives to also benefit cash flow. Many of these initiatives have already begun, including our recent decision to remove 500 roles. And as you heard from me earlier, actions already taken enable us to reduce our CapEx guidance for this year. This isn't defensive cost cutting or a reduction in investment. It's capital reallocation. We're freeing up cash to reallocate exclusively into high-returning growth opportunities. Finally, I want to be very clear on our capital allocation framework. Our objective is to maximize value for our shareholders by delivering against our three strategic priorities. Our decision to pursue a phased CEE exit rather than take on significantly more debt to acquire the remaining stake is a clear example of decisive action and how we're putting shareholders first. Reducing debt remains a priority. Bringing reported leverage below 3x will strengthen the balance sheet and increase our financial flexibility. As that leverage reduces and cash generation improves, we will continue with a progressive approach to shareholder returns with our full exit of CEE providing an opportunity to return capital to shareholders in an efficient manner. As I touched on earlier, I believe there is so much more that Entain can do to accelerate this journey, and we have a significant transformation ahead. We've already made a strong start, and I look forward to updating you with further detail as we progress. And with that, I'll hand back to Stella to wrap up.

Thank you, Mike. So to wrap up, our strong first half performance shows continued momentum and clear strategic progress. We are becoming a stronger, sharper, more efficient and better connected business. Our globally scaled and diverse portfolio operates in an industry with attractive structural dynamics, and this underpins the resilience and sustainability of our earnings. I am confident in our continued strategic focus on cash generation and disciplined capital allocation, which will see Entain well-positioned to unlock value with a clear pathway for shareholder returns. Thank you for your time this morning, and I would now like to open to your questions.

[Operator Instructions] Our first question comes from Ricardo Chinchilla from Deutsche Bank.

You reiterated the GBP 500 million adjusted EBITDA -- adjusted cash flow target by 2028 despite the planned exit from CEE and a more cautious BetMGM midterm outlook. Can you bridge the key contributors from 2026 expected cash flow to the 2028 target?

I'll let the IR team pick up with you on the detail. But I think the main point is that the disposal that we've announced of CEE is broadly cash neutral when you factor in reduced interest and so on. The move out of BetMGM's medium-term outlook, we still think that we can get to the GBP 500 million. We're very confident in our ability to generate cash.

Your next question? I think you've got a second one. So, you have a...

In Brazil, you have... [Technical Difficulty]

Sorry, we can't hear you, I'm afraid. Is it worth just putting that call on hold and coming back to it?

Sorry.

Oh, you're there. Okay. You could carry on. No.

In Brazil, you have [Technical Difficulty] pursuing market share at any cost. What market share have you...[Technical Difficulty]

Okay. We can't really hear you, but I think...

Would you need to increase your investment?

Okay. So we didn't quite get your question, but we have maintained market share in Brazil. But as I think we all know, Brazil is a complicated market going through the teething problems of regulation that is quite fluid and quite challenging. But we are -- and I'll let Mike talk to it in a second. We're taking a disciplined approach to profitability, but we are putting in significant improvements into player journeys. And we will see how that goes in the future. But we are being responsible in the way that we build our business there. But on the upside, I think there's a few things that we can say. We've got a great sponsorship with Palmeiras. We've got sponsorship with Vasco. We are doing things for player enjoyments like, for example, loyalty programs. So we'll see how they pan out while still taking a responsible approach. Mike?

Well, I think discipline is the right word. So unlike some others in that market, we're not chasing growth for growth's sake. We still make profit contribution in Brazil, we always keep it that way. And despite the fact that we've really managed investment tightly, we're really pleased that we managed to maintain market share. Lots of opportunity in the second half for a recovery in Brazil, but it remains a really difficult environment, both from a competitive point of view, where people are throwing a lot of money at the problem, perhaps without a focus on returns like us, but also that regulatory environment which is still very unpredictable. We've got the election in October, so we think there'll be some more noise around them. But until then, we're going to keep doing what we're doing, which is really, really disciplined focus. And as Stella said, really proud of the brand there.

Our next question comes from Ed Young from Morgan Stanley.

Two questions, please. First is on cash. Your commentary there on what you highlighted as a significant opportunity is obviously very welcome. Can you help us understand a bit more the balance of internal action across OpEx and CapEx and also your posture, how you think about additional actions on the portfolio to bring down leverage? And then my second question, can we talk about the 5% to 7% online growth guidance, particularly as it pertains to international into next year? Obviously, you've flagged Australia and New Zealand in particular as having strong momentum. And on the other hand, the Austrian government has submitted its reforms to the EU. It's under 3-month standstill. And under those rules, [indiscernible] going to be frozen out of the market for a minimum 9 months. So do you anticipate significant interventions on that during the TRIS procedure? Is it shortening? And if not, we combine it with the Spain cross-operating limits next year. I guess the punchline is, do you think international can still deliver in the 5% to 7% range for growth next year?

Thanks, Ed. I think I'll take the second question, and Mike will take the first question on cash. So I think if you look at our portfolio, we have made significant progress in terms of the growth that we are getting across the portfolio. So if you take Australia, we're in healthy double-digit growth because of changes that we've made to the way that we operate. So we think that is sustainable based on good inputs, focusing on more broad sports, less exclusive focus on racing, for example, streamlining the way that we operate to focus in on the things that really move the dial. If you go to New Zealand, which is in double-digit growth at the moment, it's very exciting that we're going to get the casino regulation start at the beginning of 2027, which is a new opportunity for us. In places like Canada, we're in double-digit growth. Yes, we're in great growth in Spain, and there are the cross limits coming in, but we have great momentum there. We've got a great brand with bwin. And so we think that the inputs are going to continue to generate market share growth. You talked about Austria. So long-term, I think Austria is an opportunity for us because we've been playing there all the way through. We've been paying our player claims, and we have a strong brand. Now yes, there may be a little bit of a hiccup in terms of time line of when people might have to have some hiatus. But it's got to take it into context of the scale of Austria versus the scale of some of our other businesses. So when you actually put it into the aggregate, I think that in combination with some of the improvements we're making in terms of the product and the features, which are starting to hit the market now. And I think you can see that we've made some really good strides with our Bet Builder product, for example, coming out of the World Cup. There are some real momentum points that we've got that give us the confidence to those growth rates. So definitely we're committed to those. Moving to cash?

Yes. On cash, I mean, obviously, the best way for us to generate cash is to grow, and we think we've got a really good model to do that. But there's also a huge cost optimization opportunity. You've already seen in the first half, we announced 500 roles out of the business. That's not cost cutting. That's changing our model, and we're going to continue to do that. We see a big opportunity to optimize our model, drive synergies across the portfolio, remove duplication, simplify. And then in terms of CapEx, we've already revised our guidance for this year in a very short space of time. That's not a reduction in investment. That's actually changing the way that we invest. So if you think about a huge component of our capital expenditure is on technology, AI offers the opportunity to do that in a much more cost-efficient way and faster importantly. And we think that all those things together mean that we can -- we commit to that GBP 500 million target.

And the only thing I would add to that is that on marketing, the point on AI is very relevant. As we go forward, the percentage of money we spend on non-working marketing dollars versus working marketing dollars is definitely shifting. What customers want is entertaining communications that are fast and relevant, and AI is a brilliant facilitator of that. And that's actually some of the upside that we're starting to see in places like Australia, where they're fully integrated into doing that. And that's obviously a large line of our discretionary expenditure. So getting more value from that as well.

One small follow-up before I jump back in the queue. But on the posture towards further portfolio action, can you just give any broad view on that?

We're very firmly focused on shareholder value and unlocking value from the portfolio. So we're very happy with the businesses that we have, and we can grow those businesses and they can generate money for us, but we're not beholden to the shape and size of it as it is.

And I think that's actually consistent with what we've been saying for the last year or so anyway. We always said that if there's an opportunity to add value, then we would look at it seriously. But there's no fire sales taking place here. We have really good value businesses that we continue to invest and grow in. But CEE deal is a good example of adding value.

Our next question comes from Ben Shelley from UBS.