Good morning, everyone, and thank you for joining us for our interim results presentation today. We have our Investor event later today. And so this morning, we'll focus on our performance in the first half of our financial year. I'll talk through a brief overview, then Rob will talk through the numbers in more detail, and then we'll have some time for questions on these results. Intain is a business with a unique leading platform and great momentum.
We have a business with a diversified revenue base and with almost all of our revenue now in regulated or regulating markets. We deliver the highest quality of earnings in the sector. Those factors have all contributed to a strong performance in our first half results, with NGR across the group up 11% In spite of the fluid COVID-nineteen backdrop, online revenues continue to be strong, helped by extended lockdowns, but also reflecting the strength of our position in our markets. If we strip out Germany as it goes through regulatory changes, online NGR was up 38% in constant currency. Double digit growth in online every quarter for the last 5.5 year It's a performance to be extremely proud of.
That is 20% CAGR quarterly over 3 years. I know we say it a lot, but there aren't many businesses of our scale that have such a strong track record. And as you will hear this afternoon, we have plenty of runway within our existing markets as well as new opportunities for further growth. Our shops in the UK started to open during the latter part of the first half of our financial year, and the early trends are encouraging, whereas our shops and outlets in Europe saw longer closures, only opening right at the end of the first half. BetMGM continues to grow from strength to strength, now firmly established as the number 2 operator in the exciting and growing U.
S. Sports betting and iGaming market. The Group's EBITDA in the first half of the year was GBP 401,000,000 contributing to the upgraded full year EBITDA range of GBP 850,000,000 to GBP 900,000,000 which we gave with our Q2 trading update. The middle of that range represented around a £50,000,000 upgrade to prior consensus. The acquisitions of Enlabs and Bet.
Pt completed at the start of the second quarter and have been performing extremely well. With the strong performance in Q2 online in addition to these acquisitions, we are currently expecting around 10% of online NGL growth in the full year, an upgrade to our expectations early in the year. Ralf will run through our financial performance in more detail as well as our investment in innovation and growth, alongside our new efficiency program, which will reduce underlying costs by £100,000,000 by 2023. Sustainability remains one of our core strategic pillars, and we continue to lead the industry on player protection and sustainability. Trials of our innovative ARP Player Protection Program continue and promise to bring in a new area of proactive protection.
During this half, we committed to be carbon net 0 by 2,035 based on science based targets, Well ahead of the target date of 2,050 set by the UN, our pitching in program continues to support grassroots sports and the next generation of athletes. A new cohort of young aspiring athletes have been welcomed into the Sport 8 program, And it has been exciting to see some of the alumina of this initiative perform so well at the Olympics. With so much more going on, our sustainability efforts are being recognized by our MSCI TI rating recently achieving a AA rating. And as most recent testament of the progress We have made in this important area, we are delighted to have been including in Bloomberg's 50 global leaders in ESG. Let's now have a look at some of our key businesses in a little more detail.
As demonstrated at the Capital Market Day BetMGM held in April. We have an extremely talented team in the United States. And combined with the assets from Intain and MGM results, We've built a powerful model for success. We are now firmly established as the number 2 operator in the market and remain the clear leader in iGaming across the U. S.
Our market share in the states in which we are active Across both sports betting and iGaming is 24% for the 3 months to June. And in the states where we Currently offering iGaming our shares 30% for the 3 months to June. NGI in the first half of the year was $357,000,000 and we can see that more than doubling for the year. This reinforces the targets we laid out in April: to deliver over $1,000,000,000 of NGL next year, Along with our long term market share expectations of 20% to 25% in a market worth US32 $1,000,000,000 Turning to the performance in some of our larger markets. In the UK, online NGR was up 31% across the first half.
All our brands performed strongly. Our Sports brands saw strong growth in FTDs and actives were 39% higher than last year. These reflect the repositioning of our brands to create wider appeal. And Dom Graunzel, our MD of UK Digital, We'll talk more about that this afternoon. Our gaming brands are also reaping the benefits of last year's migration to the Intain technology platform with FTDs up 42% and actives 35% higher versus 2019.
Retail in the UK opened in a phase program across the Q2. For the majority of our shops, Restrictions were only materially relaxed at the last few weeks of the first half of our financial year. However, while there is some elements of pent up demand, it's clear customers want to come back
to our
shops. Volumes are around 90% of where they were pre COVID. Dean Shannon and his team are doing a great job With Ladbrokes and nets in Australia, across the first half of the year, revenues were up 11% in constant currency. The patterns across the two quarters reflect the eased restrictions, but also the lapping of last year's comparative, which included Broad lockdowns. And horse racing in taints Australia's core market was pretty much the only sport running.
The reinvigoration of the business there continues at pace with strong margins, enabling marketing to be done from a much Stronger position. This has been reflected in their growth in Actors, which are up around 24% And customer acquisitions up 16% year on year, supported by the new advertisement campaign for that group's with Mark Wahlberg. In Italy, we continue to perform strongly. With the retail estate closed, The strength of the omnichannel approach was reinforced with the omnichannel operators being favored by customers. Our brands in Italy are seeing higher deposits and higher spend per active.
In both Italy and Belgium, Retail restrictions are only just lifting, so it's too early to call any clear trends. But assuming reopenings continue, we are confident that will get volumes back to around 90% of pre COVID level by the end of the year. In Germany, The much awaited introduction of regulation has, as we've said before, been impacting the market. We have seen the biggest impact on gaming with the lack of policing of the market creating an uneven playing field. However, indications are that this will improve and settle down over time, particularly with the introduction of the turnover tax on 1st July.
The more impactful sports betting conditions still have yet to come into effect, but we expect them to do so later this year. We remain positive on the long term prospects of the German market and expect to strengthen our position there even further while the new regulations bed in. Elsewhere across the group, we are encouraged to see the government in Brazil is steadily progressing towards regulation. Our sporting bed brand is the clear leader in the market, as evidenced by the very strong NGR growth of 100 53% in constant currency, seen during the first half and with ADTAS more than doubling year on year. This puts us in a great position for when the market regulates, which we currently expect to come into effect mid-twenty 22.
With operations in Colombia and opportunities elsewhere in the region, we see LatAm as an exciting market. CrystalBet grew by 52% in constant currency across the first half of the year and again confirmed its position As the leading operator in Georgia, Crystal Bet clearly demonstrates how Intain buys well, integrates well and creates real value for shareholders through M and A. This is being repeated with nLabs and bet. Pt. NLabs goes from strength to strength in its key markets of Latvia, Estonia and Lithuania, as well as providing the platform to grow our presence across the Baltics, Nordics and Eastern Europe.
Bet. Pt has had a good first half And we expect to migrate its operations onto the Intane tech platform later this year. The strength of our performance across the first half of our financial year reflects our diversified earnings base and our high quality revenue streams. We're winning in all major markets. We're winning in the United States And our acquisitions are performing strongly.
We have delivered a stellar track record of growth, And we have built a platform that provides a unique engine for further growth. I'll talk more about that this afternoon, But it's clear the Intain platform is built to deliver significant growth for our shareholders. We go into the second half with confidence. We are encouraged by the outlook for our core business and are well positioned for future opportunities. With that, I'll hand over to Rob.
Thanks, Jeta, and good morning, everyone. I have the pleasure of presenting another set of strong results from Maintain this morning. I'll be taking you through the highlights using summary slides. And as usual, So let's start with Slide 9, which sets out the key highlights of the half. Group NGR was up 11% versus the prior year, and not surprisingly, this was driven by our strong online performance.
Online NGR was up by 27% on a constant currency basis. And as Jette just said, if we strip out Germany, Our online NGR growth was up 38% in constant currency. That growth clearly reflects The very healthy underlying strength of our business, the momentum from 22 consecutive quarters And customer KPIs are strong too. Our growth was actives driven, not spend per head. We saw good retention An excellent new customer acquisition with FTDs up around 40% year on year in the half.
And we achieved that whilst improving marketing ROIs as well. These results are all testament to the power And robustness of our platform, and you'll be hearing more about that this afternoon. And when you combine the power of our platform with the form with the most diversified and regulated revenues in our sector, you can see how we deliver both high growth And highest quality of earnings. Moving across the page, Group EBITDA came in at £401,000,000 up 12% on last year. As we mentioned with our trading update in July, this was better than we expected at the start of the period, Principally due to extended lockdowns helping our online performance in Q2.
As you know, Our retail estate was closed or under restrictions for much of H1, but our shops are pretty much all open now. And so far, returning customer trends are encouraging with the UK currently ahead of Europe having reopened earlier.
In the US,
BetMGM continues to go from strength to strength, firmly establishing us as the number 2 operator. Our market share gains have come from both iGaming and Sports Betting, and Q2 NGR was ahead of Q1 Despite the seasonality in the quieter quarter, in total, h1ngr for BetMGM As a reminder, we said in April that together with MGM Resorts, we expect to invest around And those estimates continue to look about right. Given how well the business is performing, I'll repeat what I've said before. Investing in BetMGM will probably be the best investment we ever make. But as the business grows and invests in the future, Our share of losses for the half expanded to $78,000,000 And we've excluded that loss from both the operating profit And adjusted EPS figures here to give a clean number for comparatives.
Just on operating profit, That came in at £284,000,000 excluding the US, which was up 17% year on year. And our headline EPS figure is 31.7p per share, which is in line year on year Due to phasing of the tax charge impacting this half, we should normalize to the guided 16% effective tax rate for the full year. We continue to have a strong balance sheet to support our growth, with leverage now at 2.2 times. And we have great demand for our recent refinancing, which I'll come on to shortly. To finish this slide, I'll also introduce our new cost savings program, which we call Evolv.
This is the efficiency program we've hinted about on past calls. And in total, we're targeting £100,000,000 of annualized cash savings by 2023. Importantly, these savings will support our new innovation plans, which I'll come on to in a few moments. Turning now to EBITDA and slide 10, which shows the usual bridge walking from EBITDA in H1 last year on the left hand side To H1 EBITDA this year on the right. As I've mentioned, Group EBITDA was up 12% and online EBITDA Grew by 35 percent or by £127,000,000 to just shy of £500,000,000 Reflecting our strong organic results and also contributions from our acquisitions of nLabs and bet.pt, We talked about the impacts with our trading update in July.
That left Retail EBITDA for the half significantly down year on year And loss making at negative £63,000,000 And corporate costs were £13,000,000 higher than last year, Partly reflecting our increased commitment to responsible gambling. So overall, 12% growth for the group As excellent online growth of 35% was pulled back by retail closures, hopefully for the last time. Coming back to cash now, and like at our full year results, I've set out a simplified cash flow on Slide 11, Which reiterates our strong underlying cash flow conversion before BetMGM Investments. I highlighted in March 2021 would be a year of investment as we completed bet.pt, nLabs and the Crystal Bet earnouts As well as continuing to invest in BetMGM. But with strong EBITDA and free cash flow conversion at 49%, Leverage ended the half at a pleasing 2.2 times, which is down from 2.9 times 12 months ago.
Liquidity is strong too, with accessible cash of just under £400,000,000
And if
you add the undrawn RCF and additional funds raised later in July, available cash Is now well over £1,000,000,000 And that all means the Group still retains the flexibility To pursue our growth strategy, whilst also reaching our medium term leverage target of 1 to 2 times, and when appropriate, Resume returning capital to shareholders. Just on dividends, the Board are not proposing an interim dividend with these results, Recognizing that risks still remain, particularly around further lockdowns of our retail estates. However, We understand and appreciate the importance of dividends to our shareholders. And in our statement this morning, we said that assuming the world continues to open up, We expect to be in a position to recommence a dividend with our full year results in March next year. Now alongside our Q2 trading statement, we also announced updates to our debt arrangements.
The new 5 year revolving credit facility of £590,000,000 replaced a £535,000,000 RCF agreement, Which pleasingly attracted strong global demand. The new 1,125,000,000,000 Term Loan B Matures 3 years later in 2027. It delivers a 25 bps saving on the interest rate. And After refinancing the previous loan, it leaves us with an additional $351,000,000 to support corporate development And future growth opportunities. So together with this larger RCF, this refinancing Has provided us with extended maturities, increased liquidity and the lower rates of interest.
Moving on now, and this morning, we are announcing our plans for investment in innovation. Innovation It's important to ensure we remain ahead of consumer trends, deliver fresh and engaging products for our customers, and stay in front of the competition. Over the next 3 years, we will invest around an incremental £100,000,000 Investment will go towards Setting up an innovation lab, hiring innovation teams, and funding research and development into new products, consumer trends, new technologies, And you'll also hear from Jetta and Dom Grausil on how important innovation is for our customer offer, and in particular, As we grow into new interactive entertainment categories. We'll talk more about innovation spend with future results, but for now, I expect it to be split over both CapEx and EBITDA. And starting with our full year results in March, I expect we'll report this activity Under Renew Opportunities segment.
The key thing to note for now is that this investment will be more than funded By our new efficiency program, Evolv, which I'll move on to now. We've mentioned a couple of times before We've been working on a program of cost saving initiatives across the business. Some of these initiatives are built out of learnings from previous integrations, And look to harness the many and varied advantages of our technology. We expect to deliver Sustainable and recurring annual cash cost savings totaling around 100,000,000 By the end of 2023, the chart on this slide illustrates 3 things: The phasing of these savings as we build up to $100,000,000 the split between CapEx and EBITDA, which is broadly 25% CapEx, 75 percent EBITDA, and also how EBITDA breaks down between online and retail. And there's also an appendix slide with the numbers, so you don't have to get your rulers out on this chart.
And it breaks down EBITDA between OpEx and cost of sales too. To give you some flavor of where these cost savings are coming from, let me share a couple of examples. We're developing our own in house self-service betting terminals, and we expect to roll them out across the UK by 2023. We're in housing more content and we're leveraging our global scale to reduce third party costs and drive out efficiencies In our operating model. Now importantly, this program of efficiencies will pay for the innovation plan I outlined on the previous slide.
And if we assume our ongoing innovation investment settles at, say, dollars 25,000,000 per annum from 2023, We could have net savings of as much as 75,000,000 per annum flowing through to the bottom line. However, before banking that number, it's worth checking what levels of underlying OpEx inflation for online You currently reflect in your models. As we flag on this slide, we expect underlying online OpEx inflation So if in your models, you're currently growing our online cost base by a lower number than that, you'll probably find that some of the 75,000,000 is offset by BAU cost growth. And 2021 costs also step up as we absorb nlabs and bet.pt into our numbers. So I'll guide on that clearly on the next slide.
The key message to leave you with here Is that whilst the first 2 or 3 years of savings will be consumed by initial investment in innovation And the usual one time cost of delivering savings, we do expect ongoing sustainable cash savings, potentially As high as £75,000,000 per annum. The usual slide from me now on guidance before I sum up. Perhaps most importantly, in the top left of this slide, the uplift to EBITDA in Q2 from lockdown assisted online revenues meant that we were able, last month, to upgrade EBITDA expectations for the year to a range of £850,000,000 to £900,000,000 Which at the midpoint was around an increase of £50,000,000 versus consensus. Looking at online, I said last month that our revised NGR growth target for 2021 And that uplift is entirely driven by the Q2 outperformance. As a reminder, our expectations for H 2 are unchanged from earlier this year, and inevitably, our run of consecutive quarters of double digit growth will pause As we lap very tough comparatives, but our 2 year growth will continue to be strong.
I also said on the last call that I expect our Absolute marketing costs to be broadly unchanged from expectations earlier this year, but the increase in NGR expectation delivers a reduction in marketing rate to around 20% before it then goes back up next year to more like 21% again. Online contribution margin will benefit from both the lower marketing rates and evolve, Which should mean we end the year with an excellent contribution margin of around 42%, which is 1 to 2 percentage points higher Then our guidance in March. Online operating cost growth has now risen from March guidance of low to mid single digits inflation to low teens as we absorb nLabs and BetDocpt into the group And as a result of all that, online EBITDA margin expectations really pleasingly have nudged up to 29% to 30% For 2021, which is up from 28% in March. And that means we're now not far from achieving Our long term target of 30%. On to cash flow guidance on the right hand side, And the items here should all be familiar with no surprises in there.
I haven't yet included a placeholder for new acquisitions Because we'll talk more about that this afternoon. Just on net debt quickly, it's worth noting that our lease liabilities renew At a similar rate to lease payments, so effectively IFRS 16 debt remains broadly static rather than reducing In line with payments. And dividends, I've already covered those. So by way of summary, We've delivered another strong performance during the first half with excellent momentum in all major geographies by Germany, BetMGM firmly number 2 in the US and recent acquisitions trading ahead of expectations. The NTM platform continues to deliver resilience and high quality earnings growth.
We upgraded EBITDA expectations last month And we've announced today Project Evolve, which delivers savings net of reinvestment from 2023 onwards, And we remain as confident and as excited over Entain's longer term strategic opportunities, which you'll hear more about this afternoon. With that, I'll hand over now to Q and A. And I'd ask that you please focus your questions on our H1 results this morning. We'll have plenty of time for questions on strategy and growth opportunities with our investor event this afternoon.
Thank And we'll take our first question. It comes from Ed Yong of Morgan Stanley. Please go ahead.
Good morning. I've got 2, please. First of all, on Retail, you spoke about the U. K. Getting back to Pretty similar levels of footfall.
Obviously, Europe, a bit further behind because of the reopening later. Excluding Evolv, which I understand some of the savings will land there, How should we think about profitability of that business? It's obviously managed tight for cost. What should we think in terms of Revenue recovery and margin for H2, so I. E, what can that deliver for the full year number?
And the second one is on Germany. Obviously, it was down 34%, but within that, Sports was more than 50% up, which means I guess the casino revenues have been very severely impacted. Could you just let us know exactly what those what the gaming decline was in Germany? And more broadly, you spoke about potentially, yes, you spoke about the market becoming a bit more benign once the turnover tax comes in. I guess that's to do with enforcement.
Can you just give a bit of thought about how you see that changing? And then more broadly, what kind of access you expect to market? There was positive news From a few of the states recently, but there's been some negative news before that. So kind of proportion of the population do you think you can address? If you can just give us the sort of thought process over the next couple of years in Germany, that would be very helpful.
Thank you.
Thank you, and good morning, Ed. So on Retail, before I hand you over to Rob with a little bit more detail on profitability, Let me just reinforce what we have said before around our long term view on retail because I think it's important. So It remains an important market for our customers and we really do see it as part of the overall customer experience, an important part of the omnichannel journey for our customers. And also remember, it generates significant EBITDA and cash for the group. So for us, this is long term And we see it as part of our overall proposal and proposition for our customers.
And we are being encouraged by what we see After the opening from lockdown. So I think I'll hand you over to Rob on the details on profitability on retail for that. And then, Rob, you can start on Germany and I can take over from that.
Yes. Okay. Good morning, Ed. So retail, if we think about the Continental Europe retail separately to the U. K.
For a moment, so Italy, Belgium, they were in growth pre COVID. And once we get through this period where, as we've guided, we do Expect a step down of, say, around 10% versus pre COVID levels. We expect to resume growth. So a one time step backwards, But then back on to the path of growth, remembering that in Italy, for example, even if you just look at our online activity, Around 50% of the deposits and withdrawals for online take place through the shops. So there's lots of reasons to continue engaging With retail, and we do expect a return to growth.
In the U. K, the growth environment is better now that we have A real focus on slots through the terminals and also SSBTs. So we're still sort of quietly confident of a return to like for like growth In UK, but also worth remembering that you have, from an EBITDA perspective, you have this nice model Whereby as shops close, revenue gets redistributed on the high street, but all the cost comes out. So what that means is Whilst like for like revenues could tick down over time, actually, we expect to maintain EBITDA broadly at consistent levels Over the next period of time, which means that the cash coming out of the business is still healthy. And of course, it means we're still Supporting the online growth as well through omnichannel propositions.
On Germany, I'll make a couple of points and then hand back to you, Yes. So casino has been severely impacted, as we all know, somewhere around 70% to 80% down. That is all the while that there's no enforcement of non compliant operators and things like Gaming content suppliers and PSP suppliers are not differentiating yet between the compliant and the non compliant. So we do hope that There will be some recovery once more enforcement happens. But you also touched on another potential route to recovery Around things like table games potentially coming back, it's too early to say what percentage of the population that might look like, but I have seen Some suggestions that somewhere around 50% of the population could be viable to return.
So If it gives you a feel for it, I would go with 50% for now. Jette, back to you.
Yes. And maybe just comment on Germany. We remain positive, Of course, on Germany for the long term. I mean, typically, regulation and impacts are negative, short term And longer term will be positive winners and new conditions and taxes, while they might result in a smaller market and one that's more concentrated, We also expect it to be better policed and that is also what we talked about in the introduction. So we expect the strongest brands and the best operators
And we'll now take our next question. It comes from Michael Mitchell of Davy.
3, if I could. First of all, I was interested in your comments in terms
of how Actives growth in
the U. K. At 39% outpaced your revenue growth at 31%. Clearly, the shift towards recreational end of the Something that you and your peers have discussed for a while. But I wonder if you could just comment on how you expect U.
K. Online ARPU to trend going forward? Secondly, I wonder if you could shed some color on your growth in actives in Brazil. I think you said they were up more than 2x, obviously, very encouraging Given the outlook there for regulation, could you just comment again in terms of what's driving that and how that compares to your understanding of the underlying market? And then thirdly, just in terms of back to online, the EBITDA margin, as you said, Rob, very much now approaching, if not already at your 30% EBITDA Margin target before the net benefits of the fall are considered.
I wonder what you'd now view to be achievable kind of medium term margin target for that division. Thank you.
Thanks and good morning, Michael. Why don't we start off with Rob and Actis and EBITDA margin? And then if you hand back to me, I will talk a little bit about Brazil and what we have seen there.
Sure. Okay. So I think that the first question was focused on the U. So firstly, on U. K.
Growth, 31% combined, but sports brands ahead of that, near 40% and gaming brands Slower because, of course, gaming brands are lapping the Q2 spike that we saw. So when I say gaming brands, I mean Gala and Foxy In the main, in terms of actives versus ARPU, the trend very much is the focus On actives, that is the driver of growth at the moment. And as we become ever more recreational, Which is the big picture strategy here. We do expect Actors growth to be the driver of growth going forwards. That's logical as we become ever more mass market.
And you'll see with all the brand positioning Of Ladbrokes, for instance, we're very much targeting the mass market. So growth to be actives driven going forward, I think, is the short answer There. In terms of EBITDA margin, when we set that target, I think it was our Capital Markets Day in 2019, I didn't envisage us Getting to 30% as soon as 2021. Could we go beyond there? There is Potential.
I think the one thing that I would encourage folks to do is when they're looking at their models, I wouldn't play with contribution margin Too much. I think contribution margin will benefit from our marketing rate ticking down over time, Which I'm very confident will deliver. I've talked previously about something like half a turn per annum. We're very much seeing that and expect that to continue. But inevitably, there'll be some cost of sales increases, whether it's taxes, duties somewhere.
So keeping contribution margin broadly Flat would make sense to me, but can we deliver ever more EBITDA margin? Well, yes, we can because I would expect Contribution to growth to outstrip OpEx growth. We talked earlier in the presentation about OpEx Underlying growth of somewhere between mid to high single digits. Well, if we're targeting double digits At the NGR and the contribution level, then mathematically, that leads to further EBITDA growth as well. But too early to A number on what that might look like.
I'm sure we'll look at our medium- to long term targets again once we've hit that number. Back to Yietta on Brazil.
Yes. And I mean, you are absolutely right. The performance in Brazil is just outstanding. So we saw for the first half NGL growth of 153%. And actually, if you look at Q2, it was 2 45%.
So really picked up during Q2, and actives were doubling during H1. So really, really strong Results in Brazil. And I think we've said before that this is a market that we're really excited about. It's a market that could be worth around US1 dollars to US2 $1,000,000,000 within the next 2 or 3 years. And we still believe that The Brazilian federal authorities will regulate sports betting probably around mid next year.
So really excited about the Brazil. The underlying trends remains strong. We continue to invest in TV, both open TV or free TV versus paid TV. So we're looking forward to regulation there and extremely encouraged by the trends that we're seeing.
Thank you. Very helpful. Thanks a lot.
Thanks.
And we'll now take our next question. It comes from Ivor Jones of Peel Hunt.
Good morning. Can I ask three things? On Germany and Casino, since the start of this month, is it possible to offer slots? I can't work out the economics of the permitted margin and the duty unless you charge, I don't know, some sort of fee to players. That was the first thing.
Are there slots at the moment? Secondly, and again, I may have misunderstood, but why borrow in dollars when you're some time away from having U. S. Inflow or you just swap the dollars because they were cheap and it's part of normal treasury operations? And thirdly, and the way I have read this morning's announcement Is and I'm sure you don't intend this, the innovation doesn't pay off because there's CHF 100,000,000 of cost savings, of which we're taking CHF 25,000,000 of ongoing Innovation costs, but which if I carried on with that assumption would mean that the innovation is not an investment, it's just a cost.
Is it that the innovation is expected to pay off much later? So could you just talk about the expected payback on that square that circle? Thank you.
Thanks and good morning, Ivo. Let me start by the innovation and what we're doing there and then hand over to Rob for Germany and casino and what's going on, on slots as well as borrowing in U. S. Dollars. I mean, you should see our innovation as us Investing into future growth.
So we are investing both in terms of new technology, new products. We're also investing into R and D. So we are allocating $100,000,000 over the next 3 years really into future growth. And what we are saying is that the EVOLVE program is supporting that. So you shouldn't see it as a direct that we're leveraging all of our scale and efficiency program only to invest into innovation.
Innovation is really something we do to drive future growth going forward. Rob, over to you on Germany, casino slots And, U. S. Dollar boring?
Yes, sure. And perhaps if I could just touch on the residual innovation costs as well. So No, we'll talk more about it this afternoon, but part of what we're doing here, opening a new lab, hiring teams, forming new partnerships, That cost doesn't just disappear after 3 years. So we are assuming an ongoing cost. We really don't know yet What that ongoing cost will look like, but as I said in the presentation, let's assume it's somewhere around $25,000,000 And therefore, of the GBP 100,000,000 of annualized benefits, GBP 75,000,000 should drop to the bottom line.
And of that GBP 75,000,000, You'll find around if you work the maths through, you'll find around £60,000,000 just over £1,000,000 of that is EBITDA and the balance is CapEx, so material savings dropping through to the bottom line from 2023 onwards. On your other questions, Ivo, so Yes. Firstly, the U. S. Dollar loan, that's entirely swapped to euros, so it's economically beneficial to do that.
And as you say, our So hedging strategy, our focus is to match the revenues and the cash generated by the business with our liability And hence, that's why that's what took place on Germany. Yes, we are still able to offer slots Games, the because of the new tax, what it means is that high RTP gains, so games that pay out at a higher ratio, Have become unviable, and hence, we have a lot of our own in house games. We've been redeveloping those and selecting a portfolio of games which are a lower RTP. So to some degree, that will impact customer performance and NGR, but nonetheless, we think that's the best strategy And that's what we're doing. So we do still offer slots, but the mix or the blended RTP, if you like, is now lower than it was previously to make sure that they are
Thank you very much. Can I just come back on the innovation? I think what you're saying is that it is a necessary ongoing cost of the business within the general platform continues to grow, not going to deliver additional growth beyond what you were expecting.
No, I wouldn't say that. So I think what I really encourage you to do, Ivor, Just tune into this afternoon's presentation, and perhaps the answer to the question will become a little clearer there. What we'll essentially be saying is that we're yes, we target growth our existing markets, but we also target growth in new markets and new and interesting forms of interactive entertainment, And some of this innovation targets new opportunities. So the market size is going up. And therefore, this innovation, it's not just about continuing with the trajectory that we have now.
It's about accelerating the top Line. But you'll hear more about that this afternoon.
Yeah. And as Rob said, a number of the things that we'll be talking about this afternoon Is how we are going to drive growth from, let's say our 4th growth pillar, which is all about interactive entertainment. And to do that, we're investing Into some of the underlying technologies there. So for example, VR and AR, we're looking more into 5 gs and immersive experiences and so forth. So a number of the things that we'll be doing Through this investment through further investments into innovation is really to drive new products going forward.
That's very helpful. Good.
Thank you. Thanks.
Our next question comes from Kieranjot Grewal of Bank of America.
Good morning, guys. A couple of questions for me. Brazil, you've got an amazing performance. I'm just wondering what's happening with the competition in Brazil. I know they're sort of going through the legalization motion, so Wondering if that could step up.
Secondly, we saw a drop in by Golden Nugget a few days ago. You guys already have several brands active in the U. S. Just wondering how you're thinking about investing in some of the non bed MGM beds as well in the U. S.
And then in terms of the products you're looking to invest into in terms of your innovation plans, is that more slot games, live casino? Or Really, is it focused on brand new products, like maybe aimed at the esports market, etcetera? Thank you.
Thank you. Let me see if I can remember all of them when I get to the third one. Firstly, on Brazil, we've been in Brazil For some time, we have 2 brands there and including our Bwin brand. And as you know, we currently we cannot advertise real money betting and gaming. So we advertise featureplay and the brand there.
And post regulation, then we and everyone will be paying taxes there. But we do expect that our marketing costs will be much more efficient going forward after the market growth and assets regulated. So in terms of competition, we see ourselves in a very strong position, and we are really looking forward to the market regulating because it gives us more And we believe that we can be more efficient on our marketing costs going forward. Now then to U. S.
And investments and competitions. I mean, there is a lot of investments going on in the U. S. Markets And both in terms of some consolidation and so forth. And we are looking at a number of different partnerships there.
So whether we partner or whether we acquire, that's really something that we discuss ongoingly. But I mean, when it comes to specifically to our iGaming product, we are very confident in the product we have in the market. We are number 1 with a 30% share. So in terms of investing into Casino and iGaming specifically, we're doing that all the With our product innovation and don't feel there's anything specifically there that we need to add. But in general, we are looking at different partnerships.
We are constantly investing into our products and into our features there. And the last thing, I'm just about to say, you need To tune in this afternoon, because that's exactly what we are going to talk about this afternoon. And really what we are going to talk about is Types of interactive advertisement then align well with our core strategy. So you should think about it as us looking at our current business, our core business, which is Begging and NI gaming and thinking about what are the potential adjacent games areas that sit well with that business and how that will enable us You'll tune in this afternoon and then we'll talk a little bit more about that.
I just had a few more thoughts on the U. S. Question, if that's okay. So what we're seeing is operators trying to make sure that they have the brands to attack Both the sports betting and gaming side of the market. And clearly, as yet as talked about, we're already number 1 in iGaming and we have the Party Poker brand to support The MGM heritage.
I also want to say on the sports side, we're doing we're really pleased with our performance On sports betting, online sports betting as well. And I know our market share, our headline market share of 17% In Q2 on Sports is lower than iGaming at 30%. But firstly, that's massive progress. But secondly, It's also interesting if you get under the skin of the 17 and you look at market share on states where we were there at the starting line Versus states where we were late. And actually, if you allow yourself to just take out New Jersey, where we were late, In Pennsylvania, where we only launched around the turn of the year, that 17% goes up to 22%.
We're really pleased with where we are and the strength of the BetMGM brand as both a gaming proposition, but really also as a sports proposition. So therefore, We're comfortable with the complement of brands that we have at our disposal.
Perfect. Thank you very much.
Our next question comes from Simon Davies of Deutsche Bank.
Good morning. 3 from me, if I may. Firstly, with the refi, you now got, as you said, €1,200,000,000 of available cash. Can you talk a bit about the M and A pipeline in terms of what you're seeing out there? And what are you seeing in terms Pricing, given that we seem to be seeing increased interest from private equity in the industry.
2nd, can you talk a bit about your aspirations for Africa? In the statement, you talked about investments in a discrete platform for the African markets. What do you think in terms of the scale of the opportunity and where you might push there? And finally, on retail, can you give us a feel for the Timing in terms of the phasing in of your in house SSBTs. And is this all about cost savings?
Or do you see this as a revenue opportunity as well?
Okay. Good morning, Simon. I don't know if that was actually 4 questions, But let me touch upon Africa and maybe I'll say a few words around M and A and M and A pipeline and then hand over Rob for refi and So yes, you're right. On Africa, we've acquired a technology and product platform, which really allows us now To build out our product in Africa. And Africa is a little bit different because it's very mobile driven.
It's based on 2 gs and 3 So we're acquiring technology and platform that will enable us to fast build products that's relevant for that market. And then we are applying for licensing there and we're building the organization. And we'll look at and the different Countries as we go forward, we do expect to be interesting entering at least one market by the end of this year. So it's still early days for us, but now we have the technology and then we have the platform there. And as we've said before, I think back in November, Africa is a market that we are interested in and see some very strong trends there.
So that's on Africa. On M and A in general, I mean, we have a very strong pipeline. And in terms of countries, we're looking at the usual suspects, Which we mentioned also during Q2. So we're looking at building out in Central Eastern Europe potentially on the back Of our position there within LAPS, which gives us a strong position also into Russian speaking markets. We're looking, as I said, at The African, we're certainly also looking at opportunities in LatAm.
And this afternoon, you will also You're hearing us talking about potential opportunities in adjacent areas, which really gives us access to new audiences. I would say though that every time that we consider M and A and to your questions on price pressures, we are really disciplined and we are good at M and A. So we buy really smart. So I think the key thing for us here is looking at the market opportunity and then really looking at whether we find a good team or a good And when we can tick those two boxes, we then apply our financial discipline here. So our pipeline is not impacted on any pressures that we're seeing in the markets.
And with that, I will hand over to you, Rob, on refi and retail and the self-service betting terminals.
Thank you. Yes. So yes, so I think on the refi question was really around, so we've got this CHF 1,200,000,000, what are we going to do with it? So I think you've touched on that. Retail.
So I guess and SSBTs, the golden rule that we have as a group, whether online or retail, is The priority is always customers and revenue over cost. So the priority is revenue, not cost. So we wouldn't deploy new bedding terminals just because we would that was cheaper and we were saving third party costs. We do it because we think we can enhance both the top line as well as the cost base. We are in trials at the moment, so it's still early days.
We've got I think it's around 100 shots are trialing at the moment. That's moving to 200 soon. The intent on phasing is that Rollout would start most likely second half of next year. So therefore, 2023 is the 1st year of full benefit. But to be clear, the numbers are really predicated on the cost saving, but that's not the going in intent.
The going in intent is give a better customer experience as well as, of course, the cost savings. Just also on retail costs, it's worth Mentioning when you look at Evolv, there's the material amount of benefit coming through in 2021. A lot of that's because we've been going through a rightsizing of the central office base following the triennial review. And all those actions are actually complete now, and the benefits are flowing through in the numbers, Which is terrific. So that's another big driver of the Evolv savings into Retail.
Great. Thanks.
And our next question comes from Gavin Kelleher of Goodbody Capital Markets.
Hi. Good morning, Yed and good morning, Rob. Just a follow on on Retail for me. Obviously, you've given a lot of guidance and insight there to the cost savings. I just see in the slide, Slide 21, that the cost of sales savings are GBP17.5 million.
Is that all SSBTs? Are you doing anything else on content in shops that you're reducing around maybe pictures or anything like that? It's
SSBTs, yes.
Rob, Sorry, I interrupted you. Over to you.
Yes. No, no. It is almost all that. It's certainly the big number.
Perfect. And just on marketing, the kind of you've talked about a 50 basis points kind of saving or Kind of reduction in marketing as a percent of net revenue every year. Is that all efficiencies driving that, Rob, and just the scaling of the model? Or is there any assumption there around Regulatory changes making it more difficult to TV advertise or anything like that? Or is it all efficiencies?
It's both. It's both. So we have seen a tightening in regulation. We've seen it in Italy, Spain, and it is a general trend. We'll all wait and see how the U.
K. Government's review of the Gambling Act comes out, but it wouldn't Surprised if there's more tightening on marketing in the U. K. As well. So partly enforced, partly Efficiency in the sense of scale, but partly also efficiency in the sense of just Getting better and better returns on investment as we become ever stronger at performance marketing, digital marketing, And therefore, the mix sort of evolves more towards higher ROI marketing.
So my view is that we become ever more potent at it And we can leverage our scale as we have a lot of centralized Martech teams and marketing technology teams, performance marketing teams, And then add in the regulatory aspect as well. All that points towards a trend downwards. And we have seen that if you look at
our actuals and our
guidance now compared to our in our guidance now compared to our guidance a couple of years ago, you'll see that, that sort of 0.5. Per annum is broadly consistent with the run rate that we're on.
Perfect. Thanks, Neil, Rob. Very clear.
Okay. And our next question comes from James Rowan Clark of Barclays. Please go ahead.
Hi, morning, everyone. I've got 3 questions, please, 2 on the U. S. And 1 on retail. Firstly, on the U.
S, one of your key competitors in the sports betting U. S. Market was talking earlier about the Strength of their product offering and the volume of parlay bets that they offer driving the gross win Essentially well ahead of the market. Could you just talk about your product offering in the U. S.
On sports and whether you I think that gross margin deficit is something you can essentially catch up on and ultimately grow market share. Secondly, on the U. S, Could you comment a little bit about the advertising and bonusing environment that you're seeing at the moment ahead of the NFL season launch? Obviously, there's lots of Your peers that are looking to launch new products and platforms. And then finally, on Retail.
I think your Q2 trading update, you mentioned that volumes 10% of pre COVID levels at that point, and you're saying the same again today. So I just wondered what's missing in the last 5 weeks and whether there's Anything that you're whether you're essentially concerned that those volumes might never get back to pre COVID levels and how that makes you feel about the retail estate
Thank you, James. Let me start with the 2 U. S. Questions on sports Product advertising bonusing and Rob, then I'll hand over to you for retail. So I'm not going to speculate which Competitor you're referring to, but as Rob mentioned early on, I mean, we are seeing our sports product and that's actually since Q3, Q4 last year performing very strongly.
And in terms of the different in play bed products that we have, We have a number of them in the markets that we're offering to our customers. And some of them Different and commercially and so far we're seeing a lot of upticks around them. So we certainly believe that our products Including the in play bet products are competitive in the market and we're seeing strong demand for them. And also if you look at the numbers On our market share, in sports betting only states and especially the sports betting states that, we launched in recently. I mean, they are really some outstanding performances, for example, in Tennessee and Colorado.
So we remain very confident on our overall Sports product there and we see that reflected into our market shares. When it comes to the NFL, I mean, you are right that we are like anyone else looking forward to the NFL season starting here Next month. I mean, overall, if you look at Q1 and look at sorry, H1 and you look at the development from Q1 to Q2 in terms of bonusing, That was broadly flat on bonusing from our side. So we saw a quite healthy Promotion environment there as it was acquired sports season there. We're looking at a number of things Going into the NFL season there and have some interesting plans going forward.
But we will remain, as we always been, Super smart on how we spend our marketing money. But NFL is, of course, a big season for us. So that's certainly something where we are investing into taking market share there. Rob, I'll hand over to you on retail.
Thank you, Jeta. And if I could just add one more point, and I think that the same competitor So made this point as well. You have to look at CPAs in respect to player values. And inevitably, CPAs will go up During the NFL launch period, as every it becomes highly competitive, and of course, we're going to defend our patch as firmly as we can. But player values also go up.
If you look at the seasonality of value of new recruits, That period is when the highest player values come through as well. So it's all profitable investment, which is a key point to make. Right. On to retail. So
if I
think about UK separately to Europe in the UK, Q2, we said that we'd already reached our target, as you referred to, of being within 10%, and that's still the case today. So great, from a U. K. Perspective, we're there and we expect to stay there. European Retail, we're not there yet.
It did open later sort of progressively through June. The key thing to appreciate in European Retail, particularly Italy, football is a much higher Portion of the mix than in the UK. In the UK, you have things like horse racing and the FOB Ts, whereas Italy is very heavily football dominated. And we're in the off season right now and everyone's on holiday. So the key message for European Retail is we need to see how September trades.
And therefore, when we update our Q3s in early October, that will be a really good time to see how European Retail is doing. But no reason for us think that we won't still hit that target of getting to within 10% of pre COVID levels.
Okay. Can I just my question was really in reference to U? K. Retail. So I just wondered What it is that's missing to that 10% and how that makes you think about the U.
K. Retail estate specifically?
So given that 10% was our target and therefore, when we reevaluate strategy and look at all aspects of we want to do with the Retail business, none of that changes because we've hit the target. And of course, we're hopeful that we can Push on a little bit from where we are, but I think the key point for your question is that there's no change to strategy. Inevitably, as we talked about it earlier, the if you look at the whole U. K. Market, then shop numbers will you'd expect Ticked down over time, but then revenue redistributes, and costs come out.
So it's quite a healthy structure for the market. I'm not sure if that still hits your question or not, but I think the key message is we are where we thought we would be, potentially with an opportunity to improve a bit. And that, therefore, means that our strategy is fully still in place.
That's great. Thank you very
much. Okay.
It appears we have no further questions at this time. I'd like to Pass the call back to Jetta for any additional comments or closing remarks.
Okay. Thank you, operator, And thank you everyone for dialing in and listening in this morning. We will look forward Just speaking to you all again at 2 p. M. UK time for our investor event.
And as I said during some of the questions here, we will share more about So exciting growth opportunities for Intein going forward. And in the meanwhile, if you have Any other questions, do get in touch with David and the IR team. Thank you for today.