Entain plc

Good morning and welcome to everyone both online and here in the room. We at Intane have been going through a transformation and we felt that now was the right time to take you through how we can accelerate our operational performance from here. As such, we have a lot to share with you today, and I hope that when we have finished, you have four important factors clear. So firstly, that we have a highly attractive, diversified portfolio that is 100% regulated or regulating and can grow our online operations ahead of markets. Secondly, that we are navigating through a high volume of regulatory changes that are impacting our near-term performance, but that we have a clear path forward through creating a more predictable and sustainable business. And thirdly, that our strategy and capital allocation priorities are focused to drive organic growth and operational efficiencies to expand online EBITDA margins towards our long-term targets of 30% and deliver better returns for our shareholders. And finally, we are focusing our resources and making the changes needed to return to organic growth. With our tech and products a key part of our operational success, Sadie Bentz, our Chief Product and Technology Officer is here with us today to provide an insight into how we are and our products performing to support our growth. In a moment, Rob will take you through our Q3 performance. But before that, I'd like to hand over to our chairman, Barry Gibson, to talk about some of those regulatory headwinds, how they have shaped our strategy and delivery over the last few years, and how our governance is evolving. Barry, over to you.

Thank you, Jette. Good afternoon, everybody. It's just over three years ago that I became chairman, and one of the very first things that came across my desk was a request from HMRC to help with their investigation into some past events that had occurred in the company. I'm just going to start by talking about the Deferred Prosecution Agreement. It relates to a period 2011 to 2017. We sold the business in 2017. It's Turkey. As we announced earlier in the year, we're expecting to appear before the court and get approval in the fourth quarter. We're still on track to do that. And we've made a provision so far of £585 million, which we expect to find us paying over a four-year period. So a significant amount of money, but quite a period of time to pay. The deferred prosecution agreement kind of draws a line under it as far as Entain is concerned. However, we will still be cooperating with the CPS as they're looking into activities of certain individual suppliers and as we said before, former managers of the company. So there will still be headlines in the press as these things develop and go ahead. But as far as Entain is concerned, this should be effectively a line drawn under it. Although there will still be, because we want it to be, issues that we will be kind of working towards. We've been very clear for three years now that what we called originally our sunrise strategy was about kind of operating this business in a way that was much more sustainable. It was about being in regulated or regulating markets. It's something we, the board, wanted to do because we felt that The history of the company and the way the industry had grown up as online had developed around the world was not appropriate and we wanted to make sure that we would take leadership in the market and we felt it was the right thing to do for the company. So our ambition is to operate only in regulated markets. We've now exited over 140 markets. It's a big impact on our business and in the current year We would have made about £100 million more in EBITDA had we been still in those markets. But they were inappropriate, they were not correct, particularly from a regulatory standpoint in some of our overseas markets. US regulators in particular have very long reach in terms of what they consider when you're applying for a licence. And I know, having sat before a number of these regulators over the recent times, they are very interested in companies activities over and above what they do in the united states or in a particular state so it's a new norm that we will only be in regulated and regulated markets and that's what we think is the right thing for the business it's the right thing for our customers and it's the right thing in terms of maintaining our regulatory presence in these states that if we lost the license, it could effectively be very serious indeed for the company because it would have a knock-on effect elsewhere. We won't be doing that because we've been very straightforward and transparent. But we have lost £100 million because of the decisions we as a board took that started three years ago to take this stance and this approach. Moving on, if I may note, to the UK White Paper and regulation is different to the DPA. The DPA was about criminal investigations into activities of the company dating back many years. Regulation is about here and now, today. The UK White Paper is a very good example of how regulation is continuing to evolve and we welcome the White Paper. It's a positive step towards updating the old regulatory framework. Some of the provisions that are in there, for example, the 1% levy, we've been doing voluntarily for a number of years. It will be extended to all operators in the market. Importantly, it's about a clear focus on player protection. We have to recognize that there are certain players who get into difficulty, and we've got to make sure that we sit beside them and help them to avoid that becoming a problem. Problem gambling is not good for our business, it's not good for the industry and it's certainly not good for the players. We're working with the UK Gambling Commission to make sure that as the consultations are going on, we give them all the help we can to get the legislation right because good regulation is good for our business, it's good for players. It's very important to try and make sure it's applied properly. The black market is real and it's serious. We estimate that in Germany some 60% of gambling revenue is now being conducted through the black market. We know that in the UK, as of last week, there were over 150 illegal gambling sites available to people in the UK. We've been providing this data to the UK GC to make sure that they understand that regulation's got to be done properly and applied properly otherwise we run the risk of people migrating to black market operators who will offer little or no protection at all we and the industry do have to adapt and improve and we've got leadership in that section and we're very pleased to have done that it was the right thing to do for the business and very important to do it for our shareholders and talking of shareholders moving on to the um Third item I want to just update you on. We're in the middle of strengthening the board, making sure we've got the right skills and talents going forward on our board. So we've got four new non-executive appointments going to be made over the coming weeks and very short number of months. Amanda Brown, we announced on Tuesday, I think it was, is joining the board and she'll become chairman of the Remuneration Committee in due course. So she's joining the board from the 8th of November. We've got three further appointments in flight which are progressing quite well. We're looking globally for the right kind of talents that we want and we're very much looking for people who have got value creation in their background and certainly we want to make sure that people have got investor experience and kind of know what investors are looking for. So we want to make sure we get the balance of skills and talents around our board table in the right place. We're also introducing a capital allocation committee. We've not had one historically. The board generally has taken the overview of all capital investments, clearly. But I think it's right for the evolution. It's happening in a number of companies that a capital allocation committee looks at where capital is spent. I'm not talking about operational capital. Those things are taken up in the normal annual budgeting process but i am talking about making sure that we properly weigh up the opportunities we get faced with in terms of could be m a it could be about dividends or dividend policy it could be about share buybacks and so on so we want to make sure that we're looking at the investors viewpoint when it comes to what we should do with our capital we have many opportunities and it's important to make the point that we are going to continue to invest in growing the business there are lots of opportunities, BetMGM is one very good example that we should be looking at and if we need to continue to invest to grow our market share our presence in that market we will continue to do that. Management team are laser focused on delivering operational excellence. We recognize that there's been a lot of pressures on us in terms of regulation about the historic investigation. It's taken a lot of our brain power up to deal with those things. We've also been very focused on building technology for BetMGM. Sometimes at the expense of our core business because you know you're going to do so many things with a tech stack when you're going through. Management will be absolutely laser focused on delivering operational capability. Yetta's going to talk during her presentation about some changes we're making amongst our senior management group in order to give us more bandwidth or more bench strength to be able to do these roles in the way that we envisage them going forward. And with that, I think, Rob, I'm going to hand over to you.

Thank you, Barry. Hello, everybody. Thank you for joining us today. So today, I'll be sharing views on our more challenging Q3 period. But just before I do that, it's worth going up a level and looking at recent context. The chart on the left-hand side of this slide shows that group revenue has been growing strongly at 11% CAGR over the last four years and up 15% over the last two years. However, Growth in an important part of Entain has slowed lately. That's our organic online business. As the middle row of the table on the right hand side shows, pro forma growth, so that's excluding acquisitions, was mid single digit negative in 2022, and we now expect it to be negative again in 2023, this time low single digit negative. This is where we've seen some misses to guidance since Q2 last year. So why has our organic online business slowed? There are two parts to the answer. We need to look at both growth excluding regulatory impacts and then separately the impact of regulation. Firstly, growth excluding regulatory impacts. And as the top row shows, our growth has slowed from double digits previously to mid-single digits over the last two years. This is primarily driven by the slowdown in market growth. In fact, our mid single digit growth is exactly in line with our markets over 22 and 23. So market growth has cooled, likely due to COVID reversion and consumer impacts in some countries. Our ex-regulation growth has also slowed because we haven't seen our historical outperformance to markets whilst we've upgraded our tech platform and prioritized US product. And you'll hear more on that later. The second part to why organic online growth has slowed is because we've gone through significant regulatory transformation. As Barry highlighted, regulatory impacts from the last few years have been significant, amounting to approximately 500 million of annualized EBITDA. It's a big number and it's the aggregation of known impacts across Germany, the Netherlands, UK, Australia and market exits, all of which are broken out in the appendix to today's presentation. If we look back and include all those regulatory impacts, we get to a 9% headwind on 2022 revenue growth and we expect another mid-single-digit negative impact in 2023. So those are two clear reasons why our organic online business has slowed. On the plus side, as the bottom row of this table shows, when we include the benefits of recent acquisitions, online NGR growth should still grow double digits this year as we continue to gain scale. And of course, we're nearly through our regulatory transformation now, as 100% of our revenue is now regulated or regulating. So the key takeaway from this slide is that group-wide revenue growth continues strongly, but our organic online revenue has slowed, and hence organic online is the subject of our operational updates today. So that's the recent context. Now let's take a closer look at Q3. As a group, NGR growth in Q3 was up 10% in constant currency. Within that, BetMGM was up 15%, driven by a strong quarter for iGaming, with 22% same-state growth, keeping us firmly on track for the upper end of our $1.8 to $2 billion NGR target for the year. Retail was robust in Q3, with volumes in line with expectations, finishing the quarter with NGR plus 4% year-on-year, or minus 4% on a pro forma basis. To online now, where we ended the quarter with pro forma NGR growth at minus 6%, behind our expectation of low single digit positive. So why were we adrift in Q3? Let me answer using the same two parts. Firstly, the regulatory impacts row in the table was two to three percentage points worse than expectation at minus six. And secondly, you can see pro forma growth X regulation was only flat in Q3, so down on our mid-single digit positive run rate that we saw on the previous slide. Let me dig into each of those separately. Firstly, regulatory impacts. When we add up everything, so that's UK and Germany, but also ARK, for example, we see a six percentage point drag in Q3. Our expectation earlier in the summer was that we would have seen this reduced by now, but it hasn't. This is partly because prior measures are still having an impact as they catch either brand new customers or pre-existing customers who are spending more with us. And it's partly because of new measures. These include rolling out ARC into international territories and ongoing refinements in the UK, some of which have had a greater impact than expected. For example, the number of restricted customers in the UK saw a significant jump last summer, as expected, following new measures, but their numbers have continued to rise since then, so the impact hasn't peaked just yet. The second part is our growth excluding regulatory impacts fell to flat in Q3, so five percentage points or so adverse to our mid-single-digit expectation. Half of that, so two to three percentage points, was lady luck and adverse sports results, in particular on European football in September. The impact increased progressively through the month, peaking at three to four percentage points before the final weekend clawed some back and we ended up with a two to three percentage points impact on the quarter. The other half was volume driven and thus more of a watch out for us. Now, no single territory drove the adverse variants by itself, but notable call outs would be Australia and Italy. We don't consider that Q3 represents structural issues in either of those markets, but declining consumer sentiment in Australia, as reported by others, is likely to be having an impact. Plus, as we spoke about at the interims, we reduced our marketing spend in Australia significantly in H1 to mitigate against the impact of tax rises, and that will be having some impact on our top line. In Italy, our online business was under the market in Q3 as one of the market leaders took share at the expense of the rest. That said, we're holding market share across retail and online combined, which is important given Italy is set to be a strong growth market for many years to come. Brazil is also worth calling out because NGR continued to decline year on year in Q3. Yetta will speak about Brazil later and show that the green shoots of turnaround are coming through, but we're not back into growth just yet. So bringing it all together, our Q3 pro forma online misdo expectation was driven by three broadly equal pieces. One, adverse regulatory impacts. Two, adverse sports margin. And three, lower volumes in a few key markets. To finish on Q3, we did see a strong contribution from recent acquisitions as the last line of the table shows, which meant that our total online growth for Q3 at XUS was plus 11% in constant currency. Let me now touch on the XUS EBITDA outlook for 2023. With our Q3 statement a few weeks ago, we reiterated expectation of staying within our guided EBITDA range, because whilst we were seeing some softness in our pro forma online revenues, as just discussed, this is partly offset by positives elsewhere, in particular, robust trading in retail and cost efficiencies in unicorn and online, which you'll hear more about from Jetta shortly. However, Q4 has got off to a difficult start. Whilst our volumes in Q4 are absolutely in line with expectations, customer-friendly football results continued into October. In fact, over the last five years, we've only seen three loss-making weeks on football and two of those three weeks fell in October. We estimate that the EBITDA impact from adverse football results in October will be approximately £45 million and so clearly the outlook for the year is now lower. So what does this mean for 2024? Firstly, the adverse football results in September and more importantly October have no bearing on 2024 so there's no need to adjust numbers for that. Let's then think about pro forma online NGR growth, separating again regulatory impacts from underlying. On the first part, regulatory impacts, we expect a continuation broadly at current levels, so around mid-single digits, through H1 next year. Then as we get into H2, it should all roll off as we will have annualized the rollout of ARK to international markets, we'll have annualized the introduction of Lugas in Germany, and our models suggest that the year-on-year impact from restricted customers in the UK will be peaking. On the second part, underlying growth excluding regulation, we must assume some continuation of lower volumes into next year, in particular in Australia. Adding both those parts together, we expect to see pro forma online growth of low single digit negative in H1 And then as regulatory impacts recede, we expect to be back into growth in H2, exiting the year in line with our markets at around mid single digit positive. Averaged across the full year, that therefore equates to low single digit growth for 2024. Before I finish, we've looked at NGR growth in detail. Let's now remind ourselves of our actives growth, which is an important metric for understanding the underlying health of our online business. This chart shows we have nearly doubled our customer numbers in the last four to five years. And in Q3, as it says on the left-hand side, actives were up double digits again with 10% pro forma growth. So despite pro forma NGR being minus 6% in Q3, actives were plus 10%. Lastly from me, having focused on the top line so far, now let's have a look at our EBITDA progression over recent years. The takeaway here is that despite that 500 million of EBITDA impacts from changing regulation, we are still growing EBITDA, helped of course by acquisitions and by BetMGM approaching profitability. Jumping to the far right hand side of this page, despite the challenges in organic online this year, Group EBITDA is still expected to grow significantly in 2023 and we expect EBITDA to continue to grow into 2024. So in summary, we have built a scaled growth business with highly regulated and highly sustainable EBITDA. However, we recognize we have some challenges in our organic online business, and execution of our go-forward plan is now key. To take you through the plan, let me now hand over to Jetta. Thank you.