Flutter Entertainment PLC (FLUT) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Paddy Power Betfair Half Year Figures Results Update hosted by Peter Jackson, CEO of Betfair. My name is Deborah, and I'm your event manager. (Operator Instructions) I would just like to advise all parties that the conference is being recorded.

And now I'll hand over to Peter. Thank you, Peter. Please go ahead.

Thank you. Good morning, and welcome to the Paddy Power Betfair Interim 2018 Results Presentation. It's been a busy few months, since I was last talking to you, to the industry, an exciting time for Paddy Power Betfair. And yes, I just wanted to cover off briefly a summary at the start of the presentation. I'll hand over to Alex, who will take us through the financials, and I'll give you an update on our strategy in a moment. But I thought it would just be helpful to give you a brief summary up front.

We talked about the challenging quarter 1 performance we had when we gave you our update back in May. And I think it's been fair to say, and you've seen from our results we just put out, that we've had a decent second quarter trading performance. In fact, all divisions have contributed to our double-digit Q2 revenue growth.

We -- one of the things we did in March was we took the opportunity to share with you some of our strategic priorities for the business. And I think we made good progress on a number of these. Most particularly, I'd call out Paddy Power and gaming, which I think, if you look at Paddy Power, it feels like we've definitely got our mojo back in that business. And we delivered some very good gaming performance as well, which Alex will talk about.

There's been a lot of -- there's often a lot of regulatory changes in our sector, and there is one week in May, which I'm sure you'll all remember, the week commencing the 14th of May, when we got the resolution around FOBTs, PASPA. We had some news around point of consumption tax in Australia. I mean, if we look at the Australian situation and FOBTs here in the U.K., well, both those changes are going to present us with headwinds in the financial perspective. I think we're actually very well-placed to just capitalize on the opportunities when we look at our position relative to our competitors, and that's something that we will come on and talk about in a moment so make sure that we continue to invest in those areas.

And of course, in the U.S. market, we're very pleased to welcome FanDuel to the family. And we're very excited about the opportunities in America. I think it's a good opportunity though. When we present the results today, it is reflective of what a strong business we already have in America. It's not a startup there for us by any means, 600 people operating in our U.S. division with a very successful horseracing business. And of course, we now have our daily fantasy business.

But I'll now hand over to Alex, who'll take you through the financial and operational performance.

Thank you, Peter, and good morning. I'll go to the appropriate slide. Okay, here we go. So let me start with our group's financial highlights here on Slide 4. Please, if you're on the phone, go to Slide 4.

Revenues in the first half were up 7% in constant currency with flat revenues in Q1, offset by 13% growth in Q2. And I think what you'll hear throughout this whole presentation is this story of 2 quarters and the significant improvements there in the second quarter that Peter will highlight as well.

As we reported in May, Q1 revenue was affected by several factors, if you'll remember, including reduced recycling of winnings due to a sustained period of bookmaker-friendly results, high level of weather-related racing cancellations and adverse sporting results in Australia. And as Peter mentioned already, Q2 trading was good with all our 4 operating divisions contributing to the double-digit growth for the group.

The period did, of course, benefit from the World Cup, which represented approximately 3% of total H1 revenues. But Q2 trading was also good in the period prior to the tournament start, which started on June 14 with revenue up 9% prior to the tournament start.

Total operating costs in first half increased by 7% on constant currency basis. Within this, sales and marketing spend was up 14%, and other operating costs only increased by 1%. The increase in marketing spend was driven by post World Cup spending in June and increased investments we made in Europe and Australia, which we've highlighted previously for Australia and Europe as well as the World Cup (inaudible).

Excluding new betting taxes and levy changes and losses from DRAFT, which are all of these new things, EBITDA was up 6% in constant currency if you're looking at the business as -- on an ongoing basis. Again, there were differences between quarter 1 where EBITDA was flat and quarter 2, where it was up 13%. Again, the ideal -- the story of the 2 quarters really continues.

And finally, on this slide, you can see the net cash as of June 30 is GBP 148 million after returning approximately GBP 200 million to the shareholders via both dividends, final dividend of last year and the share buybacks. And we'll talk a little bit more about our continuing work in both of those areas.

Now as we go to slide on the EBITDA bridge, the slides are exactly the same as I try to do every single quarter for the last 6 years. So you should be able to easily follow the structure at least. On Slide 5, we have bridged the EBITDA, of course, from H1 2017 to H1 2018 to highlight some of the key items that affected the year-on-year profit. Firstly, of course, FX translation has an adverse impact of GBP 6 million on EBITDA. Most of it is coming from the Australian dollar conversion. So that's the number one item.

Secondly, revenue growth after the cost of sales was approximately GBP 40 million, as you could see here. And then some of you may have expected a -- some EBITDA contribution from the World Cup. The reality is the total contribution from the World Cup, EBITDA was about GBP 8 million, all of it in second half of the year. In the first half of the year, the revenue growth, which is about GBP 23 million or so from World Cup, was all offset by marketing costs. And obviously, the profitability came through in the second half. And I've shown it -- we have a table that showed that the tournament contributed GBP 45 million of revenue, and as I said, GBP 8 million of EBITDA, all the profit from July.

And finally, on the bridge is the cost growth. We have shown separately the impact of the GBP 3 million DRAFT start-up losses; increased year-on-year investment in marketing of GBP 23 million, again, significantly impacted by the World Cup and our Europe and Australia investment, which we talked about before; and the GBP 8 million impact of the new betting taxes and levies, which were announced last year and this is their impact clearly. And those of you who'll remember, it's the U.K. racing levies gaming point of consumption tax and the South Australian POC. Those are the 3 items that combine that make that GBP 8 million figure.

Now we'll just go quickly through the divisions. Starting, of course, with online, which included Paddy Power and Betfair brands as well as our B2B business.

Revenue in the first half was up 5% year-on-year. But within this growth, there was some important underlying trends. In sportsbook and gaming, there was good momentum across the half. And Peter already spoke about Paddy Power performance, which was very pleasing. In sportsbook, H1 revenue was up 12% in total with growth of 3% in Q1, accelerating to 15% growth in Q2 period prior to the World Cup and then 23% across Q2 when we include the World Cup. In gaming, which is nothing -- I've described it in our internal meetings as nothing less than a miracle. In gaming, the improved trading momentum was even more evident, with revenue returning to meaningful growth for the first time in over 2 years. Q1 revenue declined by 12%, as you remember, but as we reported in May, the decline was due to the weak performance in January, when Paddy Power customers were still on the legacy platform. Post platform migration, Q1 revenue growth was 4%. In Q2, this 4% growth accelerated to 11%. And then in the period prior to World Cup, it was 14% in Q2 in total. While the acceleration was most prominent in Paddy Power, we also improved growth at Betfair, which also saw increased cross-sell rate of sports, different sports.

Now on the exchange. While football commission on exchange also saw good momentum across the half, in fact, all the sports outside of racing saw good momentum on the exchange and growth. Overall, exchange revenue were down 4% in H1 due to the weakness in horseracing commission. And by the way, this weakness in horseracing, you will see, as I talked about retail operation as well, there is a general -- clearly, there's a general weakness in horseracing. But here in exchange, there is no question there was a weakness in H1 with 7% decline in Q1 and 1% decline in Q2 as that weakness persisted. While the weak horseracing performance in Q1 could largely be attributed to a high number of fixture cancellation, the fact this weakness continued in Q2 highlights the competitive challenges facing the racing commission from both low-margin sportsbook, who have been particularly aggressive in pricing in key racing, and from smaller exchange competitors.

So one of the things that I am now going to set up -- those of you who heard me many times, I used to talk about exchange, which is a mature business, growing about 2% to 3% medium term. For the rest of this year, I think the exchange growth rate will be slower than that 2% to 3% target. So just to be very clear. And by the way, well, horseracing makes up about 40%, as we've talked about, of the exchange volumes and revenues.

In terms of cost growth online, so similar trends to the overall group with the cost of sale growth affected by changes in U.K. racing levy and gaming point of consumption taxes. And operating cost growth was driven by sales and marketing, which was up 13.5% in the first half, as I've already discussed. The division's profit at GBP 142 million, were up 1% on a like-for-like basis, excluding FX and the tax changes.

Before moving away from online, I just wanted to cover stake in anticipation -- stakes in anticipation that -- of somebody asking me the question. As we have said to you many, many times before, we run our business to generate profitable revenue growth. The decrease in stakes in the first half were in part reflecting the reduced recycling of customer winning in Q1, was also driven by improved focus on marketing operations decisions, which drive revenue as opposed to volume. For example of this, including -- one of this is including reducing the level of duplicate accounts from Paddy Power customers, and that can create a reduced level of staking but a higher quality customer base and a higher rate of growth. Therefore, notwithstanding World Cup, we saw the reported stake decline by 5%. You've seen this. We don't view this decline of a -- as a structural negative in the business. A lot of it is effectively us doing the right thing by taking out the multiple accounts and taking out the nonprofitable customers. Although, obviously, some of the decline had to do with some of the horseracing performance that we've talked about before.

On to Australia. Turning to Australia. The Sportsbet revenue increased by 12% in local currency. We're continuing to increase the level of investment and promotional generosity in the half, and this accounted for most of the 80 basis points decrease in the sportsbook net revenue margin year-on-year. Our cost of sales were affected by the impact of the POC in South Australia and increased product fees. While they're predominantly -- while these are predominantly lapped as we enter the second half of the year, in recent months, there has been new additional headwind announced that will impact the cost of sales in H2 2018 by approximately GBP 6 million. And that is now part of our guidance when we get to that point really, and that relates to Queensland point of consumption tax, which will, I think, start in October and racing product fee changes -- some additional product fee changes, which will impact us going forward.

Where -- so we are supporting the increased promotional generosity with investment in marketing -- continue to support it, as Peter talked about last time we did the results and the time before this. And total operating costs were driven up 6%, driven by 14% increase in sales and marketing cost. Notwithstanding this investment, profit growth remained strong, with EBITDA up 18% or up 22%, excluding the impact of South Australia point of consumption tax. So if you can achieve those kinds of growth rates, you should continue to invest. It's the right thing to do, and it has an impact.

Turning to retail. Yes, turning now to Slide 8 and retail. Revenue was up 1% with 3% growth in our U.K. estate, offset by a 4% decline in revenue from our Irish estate in local currency. Again, the trend of horseracing is very evident here. We know that both our retailers over index to horseracing. Irish retail more -- even more over index to horseracing. So clearly, this has been affecting the business. Although, again, if you look at our performance versus some of our retail competitors, I think we've always talked about it. We were leaders in retail, and I think it's very clear with these numbers that we continue to be a leader in retail, which is a very, very, very tough market zone. And the like-for-like revenue was down 1% in constant currency, comprising 3% growth in the machine revenue, offset by 3% decline in sportsbook revenue, again, horseracing.

In the period, we opened 5 new shops and closed 2. And for the reference, we have repeated the previous guidance on the direct impact before mitigation of the GBP 2 FOBT staking limit announced by the government. This equates to 2% to 3% headwind to the group revenues.

U.S. I'm sorry, not the U.S. Just hold on. Let me go back for a minute, sorry. Okay. While this impact is, of course, much more material for the retail division, we do not anticipate it affecting our strategy, which is focused on being sports-led and offering customers the market-leading proposition with the best betting shops on the High Street. Therefore, notwithstanding the impending headwinds, we continue to invest at the market disruption if an opportunity to further extend our strong position relative to the -- to our competitors in U.K. retail. In the first half, such investment included the launch of third in-house TV channel, providing our shops with coverage of an extra 59 races per day and addition of the same gaming multiproduct onto our SSBT machines, which -- and that product has been very successful in online. And I think it has produced a great achievement, which together with the World Cup contributed to good growth in football staking on the sports betting machines.

Now we go to the U.S. I'm so in a hurry to get to the U.S. It's almost -- so Slide 9, obviously, turning to our U.S. division, which for the first half also included our existing business as the FanDuel transaction did -- well, we announced that they didn't complete until 10th of July, so no FanDuel in these numbers, right. Performance in the first half was very strong, with revenues in local currency up 21% and 22% growth in sports revenue and 18% growth in our Betfair Casino. Sports revenue was comprised of 17% growth in TVG, supplemented by DRAFT and Betfair horseracing exchange in New Jersey. Those are very small. It was clearly TVG that's the driver of performance.

The good performance at TVG was due to both to good market growth, with Justify Triple Crown bid increasing interest in horseracing and by market share gains, driven by continued investment in TVG's products and marketing. This included a new wagering app, and we've embedded streaming of TVG racing channel. Now it's part of the app.

Overall, the division contributed GBP 9 million of EBITDA in the first half, which was up 38% year-on-year, notwithstanding the additional GBP 3 million of start-up losses for DRAFT.

A few words on the cash flow, Slide 10. Starting with the working capital, which was adversely affected by a couple of things in the period, some -- from a couple of timing things in the period. Firstly, as I told you, full year in March -- at the full year results in March, the Q4 2017 working capital benefited from the timing of payments of approximately GBP 20 million, which reversed in Q1 of this year. Secondly, at 30th of June, we had a material prepayment related to a marketing asset, some of these related to World Cup spend. But we also made some material prepayments to assets relating to the new football season to avail of commercial terms. And quite frankly, we got a very significant discount, and it was a no-brainer for us to just prepay on some of these marketing contracts.

The positive cash flow from separately disclosed items in the period reflects the receipt of the disposal in February of our remaining stakes in LMAX for GBP 22 million. These assets were previously held as available-for-sale financial assets since Betfair ceased having strategic and operational involvement in 2013. And accordingly, no contribution from the business was included in group's income statement.

As I mentioned earlier, we returned GBP 201 million of cash to shareholders in the period, including GBP 114 million for 2017 final dividend and GBP 87 million in share buybacks, and that share buyback obviously continues. And we started the return of GBP 500 million to the shareholders in May with the initial GBP 200 million tranche. And this morning, we've announced that when this tranche completes later this month, we will immediately commence a program covering the remaining GBP 300 million. This tranche is expected to be completed over the next 6 months.

As we sit here today, the group has a net cash position of GBP 148 million as of June 30, 2018. After payments of completion of the FanDuel transaction, payments of interim dividend of circa GBP 55 million in September and the share buybacks, it is likely that we will move into a small net debt position sometimes around the year-end. If you remember, our medium-term guidance was about 1 to 2x EBITDA. We're nowhere near that number, clearly. So it will be a small net debt position, but nowhere near those numbers just yet.

Okay. And now for the final slide, we will move into a financial guidance for the rest of the year. And then I will pass it back to Peter for strategic update. So first, we expect the full year underlying EBITDA before impact of U.S. sports betting, very important, before impact of U.S. sports betting to be between GBP 460 million and GBP 480 million. Now the way I like to kind of explain this is as follows: If you look at our guidance previously, right, there has been 2 changes to that guidance. So in terms of the operation of the business, right, we've got the better performance on casino and a slightly worse performance on the exchange effectively offset each other. And so the impact, the net impact on the guidance are really 3 items: It's the new point of consumption tax in Australia and the new product fees, which is about GBP 6 million altogether, what -- this is new news since the last time we give the guidance, as well as the losses for FanDuel, which we have talked about as being immaterial. And they are immaterial. They're single digit. However, they are -- or high single digits, but in terms of the guidance, those are the 2 items that have impacted the guidance going from where we were before to where we are now.

Now in terms of -- so that's pretty much -- as I mentioned earlier, the FanDuel transaction completed on 10th of July and combined entities, known as the FanDuel Group, will be accounted for as a fully consolidated subsidiary with a minority interest recognized on both the income statement and in the balance sheet.

Overall, the division is expected to be loss-making in H2 2018. This is obviously FanDuel. Following the inclusion of both FanDuel, fantasy sports, those losses are more heavily weighted to H2, given the phasing of marketing and the beginning of an NFL season in the U.S. and also, due to the launch of our U.S. sports betting business.

We are not -- so we're looking at this guidance without sports betting, very important. But I would -- I do -- I would like to say a couple of things on -- and we won't be giving guidance on what those losses will be. We're working through it. I think, in the Q3, you will get a much better view in terms of how the business is performing. However, out there in the world, in -- I've heard the numbers, some of our competitors talking about spending GBP 50 million to GBP 60 million for this year on sports betting. With the addition of FanDuel, we've added 300 people to our strong group in the U.S. We have the infrastructure in the U.S. The additional money we're going to spend in the U.S. will be on marketing, right. That number will be significantly lower than these GBP 50 million to GBP 60 million of projections I have seen and have heard about and some of you have written about. So while we're not going to give you the number, I want you to be very -- I want to be very, very clear that the number will be significantly lower and anything like that, right. There's only a few states. Most of them will be retail. There's no way you could spend that kind of money, quite frankly. So from our perspective, we already have the infrastructure in place. So that's just an important point to be made.

And finally, this is Paul Rushton's really favorite thing for me to finish on is the effective tax rate, which we all, I know, waiting with bated breath to receive. And our effective tax rate is going to be between 13% to 15% for the full year, that's what we expect the percentage to be.

On that note, I want to thank you, and I'm going to hand it back to Peter.

Thanks, Alex. So in March, I outlined the key priorities I've set for the group. And on Slide 13, here, you can see a copy of the slide we used back then in that presentation. And our objective, when I talked you through these, was to make sure that we're positioned to be one of the long-term winners in our industry. And that's going to be achieved by leveraging, as a group, our competitive advantages and market positions, while capitalizing on opportunities as they come about from substantial legacy changes. And boy, did we get a lot of regulatory changes in the first half of the year.

And I think in the recent months, we have made substantial progress against these policies. And I'll walk you through that as we go to our businesses in Europe, Australia and the U.S.

Before we do that, let me briefly cover the capital structure. In March, we announced we're adopting a medium-term leverage target of 1 to 2x net debt to EBITDA to improve the efficiency of the balance sheet, whilst retaining strategic flexibility. And as Alex referenced earlier, as a step towards this, we've commenced share buybacks to return a take of GBP 500 million to shareholders that we envisaged being done by February -- by the end of February next year.

It continues to be our intention to move towards the leverage target. It is a medium-term leverage target, and that is going to involve a combination of the 3 things I talked about with you before: firstly, the continual sort of investment in our customer propositions within our existing markets where we're seeing new opportunities; secondly, strategic investments to capitalize on new growth opportunities; and finally, returns to shareholders. And actually, there's no reason why we can't do all 3. And actually, that's what we've been doing recently.

So let's start with Slide 14, which talks about Paddy Power and online in Europe really. And I think it's fair to say that over the last few years, Paddy Power's lost market share in the U.K. Remember me sharing with you the chart in March that outlined our performance. And returning the Paddy Power brand to growth has been the most important organic growth opportunity within our European business. This slide sets out the 4 main actions that we're taking to reinvigorate performance.

So from a product perspective, it's the key driver of customer stickiness and share of wallet. And it's been a key contributor to our historical success as a disruptive challenger brand. And with the platform integration behind us, it's really important that we now take the opportunities just to reestablish product leadership.

Betting is a very crowded marketplace. And actually, the Paddy Power brand has a very distinct personality, and there's not many other people who could hand their pieces of memorabilia to you like this and it'll be as recognizable as ours are. And for those of you on the phone, I'm referring to the Paddy Power Pants. Yes, we do have some great attributes associated with being fun and entertaining. And there -- if you think about the focus we will have for Paddy Power recreational -- for Paddy Power being on recreational customers, they're really, really important. We've got to make sure we continue to leverage that to increase our engagement with customers, improving acquisition and retention.

To go after the recreational market, I think it's also important you support that with the appropriate levels of marketing investment. And we did highlight earlier on this year that we're going to be increasing the amount of investments we put behind the Paddy Power brand. And finally, in our thinking, in conjunction with the product improvements, it's also really important to improve our share of wallet that we reward customers' loyalty and increase the investment we put in behind our retention initiatives.

And I think, whilst these are the important priorities for us to support Paddy Power over the long term and its continued success for the long term, I think they've also begun to have a meaningful impact on the performance of the business over the past few months. And I'll cover that on the next couple of slides.

So on Slide 15, there's a -- got a lot of content here, but I think it reflects the activities we've had going on across the business. And whilst it's still early days on our journey down our product road map, we are encouraged by the customer reaction to the enhancements we've made.

If I remind you, in January, when we migrated onto our new integrated platform, Paddy Power customers have benefited from a much-improved sports app. It's faster. It's easier to use, and it comes with a, for example, in a 50% faster load time. And navigation is much more straightforward on the product. We're also able to access some of our superior in-house algorithms, which has helped us improve things like our Cash Out offer. And actually, I think what's really important is that customers are beginning to notice these enhancements. And if you look at the charts on the top right, you can see the new app has driven significant improvements in approval ratings for both the app's speed and the overall user experience.

In gaming, Paddy Power customers have benefited from a significantly improved offering this year. The gaming app and desktop user interface has not had any material update in many years, and we've definitely improved the cross-sell experience within the sports app with a redesigned gaming lobby and faster navigation and load times. We've also enhanced the promotional functionality within gaming apps, having now pooled the jackpot across both Paddy Power and Betfair and showing prizes that are more attractive.

Now this improved product has driven a material uplift in usage of gaming by sports customers. You can see in the charts here that there's been a 3 percentage point increase to 28% of the -- in terms of the percentages of sports customers who also are playing gaming. And this has been an important factor in driving the uplift in gaming revenue growth as of recent months.

New features are, I think, a very important part of differentiating. Also, a recent example of this was the Same Game Multis product. It's the first material new product feature developed on our integrated sports -- integrated to a single platform. The feature allows customers to build cumulative bets, or as we all call them in America, parlays, with up to 20 legs on the same event. And it's been in use in Sportsbet since 2017, and we're able to leverage some of their sort of knowledge and capabilities in that market.

Because we've developed it on our integrated platform, we developed it once and were able to launch it simultaneously for both the Paddy Power and Betfair brands in all jurisdictions towards the end of the English Premier League season. Importantly, our in-house development model allows us to continue to iterate and enhance the features after being released to customers.

So we became the first bookmaker software in play markets for same-day multis when we released it in time for the Champions League Final. And actually, during the World Cup, we became the only bookmaker with Cash Outs on these bet types. And that requires quite a lot of complex integration back into your risk and trading capabilities to deliver that. And we saw good usage on both brands, 16% in active customers using the feature during the World Cup.

We turn to Slide 16, in which we highlight some of the Paddy Power brands and promotional activities from recent months. I mean clearly, the World Cup is a key period for engaging customers. The top of this page shows some of the key marketing activities, which ultimately led to Paddy Power dominating social media conversations around the tournament. And in fact, Paddy Power was the #1 brand cited in the U.K. in June. I think we were ultimately beaten by one of the tournament sponsors for the whole competition. But I think you can imagine the size of check that they wrote. And measure of the reach is also achieved -- sorry, measure of the reach that was achieved is also highlighted by the brand achieving #6 globally, despite Paddy Power only serving customers in the U.K. and Ireland.

I mean, for us, the really -- so common theme around the brand campaign was the link messaging to very sort of topical news content, but to do it in the sort of unique Paddy Power style, which resonates so strongly with our recreational sports fans. One favor from the World Cup -- and I don't know if any of you saw the ads with our alternative use of FIFA's new VAR system, which ran through the tournaments on both prime TV advertising and enhanced produced social content. The content-driven profile ran the course of the tournament with each hotly debated use of VAR during actual match, leading to material spikes in social media engagement. And my highlight was the continuation of Paddy Power's long-standing support of LGBT rights with our Rainbow Russians campaign, paying for every goal scored by Russia in the World Cup. I'm not sure anyone here anticipated us paying out on 13 goals, nor the fact that Russia would win their first game, 5-nil, but it definitely was for a worthy cause.

What's really important now with this sort of this marketing, is it is backed up by a very strong customer proposition. And not just on product, but also, as I said earlier, around value and promotion. And as highlighted on the bottom of this slide, we have increased our investments in promotions in the first half. We doubled the membership of the Paddy's Rewards scheme by using the qualification criteria, and we also launched the innovative Finders Keepers promotion, where around sort of key events, such as Cheltenham and Aintree Festival, we made GBP 10,000 cash drops into random customer accounts with a deadline of 1 hour for them to claim it. The success of this on Paddy Power actually meant that we subsequently used similar promotions as Sportsbet, TVG and more recently with FanDuel as well.

And this increased investment is resonating with customers. A third-party research has shown that Paddy Power's the top-ranked brand associated with best offers this year compared with fourth last year. In short, I'd say that Paddy Power is getting its mojo back.

The other priority we set in online was to accelerate international growth, and Slide 17 sets out the strategy we've been pursuing in these markets. And our approach depends on the regulatory profile in the market. While regulated markets provide certainty of participation, they often have significant taxes and local regulatory and technology costs. Therefore, substantial local scale and brand presence can often be essential to compete sustainably. This has benefited us in our key online markets, where we enjoy leading market positions. But in other regulated markets, where we do not currently have local scale, we are assessing opportunities to also achieve podium positions, either through organic growth with Betfair or by inorganic investment.

We do have a clear path to scale in some of the regulated markets that we operate in. For example, in Spain, we've seen a very strong growth on the back of improved localized products and increased marketing spend. And we're taking market share, with revenue growth of 60% in H1.

Regulatory changes also increased the attractiveness of this market with a recent reduction in online tax rate, which contrasts with Italy, where together with onerous tech requirements, recent regulatory developments provide additional challenges to achieving scale. In markets where the path to scale is more difficult, we're continuing to assess and to participate in these markets profitably.

Within unregulated markets, where profit margins may be higher due to local tax -- due to lower tax and regulatory costs, and participation to a dotcom global operating model, it is possible to operate in profitable niches without local scale. Indeed, Betfair operates profitably in many such markets. This model requires platform flexibility and efficiency, which our global scale and technology capabilities help achieve. We do see an opportunity to further minimize the cost of serving Betfair customers internationally and are making further platform investments to achieve this.

Unregulated markets, however, can present challenges. Most material, of course, is that regulatory changes can force market exits. But even without this, unregulated markets can also be more -- can be more exposed to operational challenges that can affect revenues.

Yes, and a good example of that is Brazil recently, where the most popular customer deposit method was withdrawn from the market. This method was previously used for the vast majority of customer deposits, and this withdrawal had a materially adverse impact on revenues in the country. Accordingly, we must remain mindful not to create any material concentration of revenues, which could affect the overall sustainability of our profits.

And turning now to Australia, where the importance of our podium position is becoming increasingly relevant, given the industry fiscal and regulatory headwinds. Page 18. In recent months, state governments have confirmed point of consumption tax rate as outlined on the map on Slide 18. Overall, the blended tax rate for us is approximately 11% of gross revenues or 13% of net revenue, which at our current revenue levels equates to about AUD 95 million or GBP 55 million. This is clearly a significant headwind, which as shown on the graph on the right-hand side of the slide, will materially impact our profit margins.

The overall tax and product fee take will now increase to 37% of revenues. But the strength of our brand and our scale, however, means that our margins will still be over 20%. Some of our key competitors are not as well positioned, particularly when you also factor in the other additional regulatory headwinds in effect or recently announced, many of which may either further erode margins or inhibit those looking to increase their presence of their less-established brands. Therefore, we see an opportunity to target further market share gains by increasing investments in marketing, product and our value proposition.

As illustrated on Slide 19, this investment is across many different areas. In 2017, we made a significant step-up in our promotional generosity. This year, we've continued to expand this investment. In the first half alone, we gave over AUD 40 million of extra value to Sportsbet customers through mechanics such as the extension of early payers offers in the World Cup and NBA and increasing the number of daily races featuring Money Back Specials.

Recent products investment have included the development of new desktop and mobile web apps, which launch in the coming weeks. As well as immediately enhancing the speed and functionality of the desktop and web apps, this further reduces our reliance on third-party components and will enable us to more efficiently release future product updates.

Finally, we're also supporting the promotional generosity by continuing to increase our marketing activity. As the chart shows on the bottom right of the page, Sportsbet enjoys the leading brand presence and awareness in the market and is well ahead of all the other online-only operators. This is a clear competitive advantage, particularly considering recent sector consolidation and regulatory changes. And we're continuing to invest in maintaining the brand's presence.

Now moving on to the U.S. where we've seen considerable change since March. And I want to start on Slide 20 by giving you a brief overview of fantasy sports. While we've been active in fantasy sports since May 2017, when we acquired the start-up-operated DRAFT, the addition of FanDuel last month now makes us a considerable player in this space. It is also worth highlighting that fantasy sports is a product that will continue to be an important feature of the U.S. market, particularly in states that may take time to regulate sports betting. Even in early mover states, such as New Jersey, we see it as an important component of our product suite and a source of customers for cross-selling.

Fantasy sports are online contests between customers, whereby participants construct a team of players and seek to win by scoring the highest total points based on their selected players' performances. These contests can be played over 1 day, weekly or season long. And the number of participants can be as few as 2 in a head-to-head contest or be in the hundreds of thousands.

For fantasy sport operators, such as FanDuel, hosts the content and generates revenues through a rate being the total participation entry fees less the prize pool paid. Now FanDuel is the #2 operator in the market, with over $1.2 billion of annual entry fees and over 40% market share. It has built up a substantial customer base, with a database of 7 million registered users and a nationwide footprint as illustrated on the map. The products and platform is proprietary, and its customers are mobile-centric and show a very high propensity to bet on sports.

Financially, in the last 12 months, the business generated $127 million of revenues and had operating losses of $23 million, reflecting continued investments in growing its customer base as well as significant legal and regulatory costs, as their products are legitimized in an increasing number of states.

And in the last 6 months, revenues grew by 4% year-on-year. Fantasy sports has an important role to play in the U.S., and we believe that FanDuel is well positioned to continue to grow.

We also believe the brand offers us an ideal route to market for sports betting, giving us the opportunity to achieve scale more quickly in the states where we can launch sports betting. Our U.S. strategy, where legislation permits, is to go after the B2C market opportunity under the FanDuel brand. We are confident that the FanDuel sportsbook can become a key player in many states.

To target the opportunity, we need states to legislate the sports betting and then we need to gain market access. In most cases, this is expected to require an agreement with an existing licensed gambling entity, such as a local casino or racetrack.

The process will vary on a state-by-state basis. And as shown on Slide 21, there is already substantial legislative momentum, with 4 states already allowing sports betting and a further 11 states where sports betting will be allowed by the end of 2019, including several where some form of sports betting legislation has already been passed.

To date, we have secured market access agreements that cover 15 states, representing approximately 36% of the total U.S. population. Importantly, this includes the key states expected to regulate for sports betting by the end of 2019, including New York, Illinois, Ohio and Pennsylvania. The list of states and market access partners are shown in the table. It's worth noting that of the 15 states, in 12 with our direct access agreements, we've got key strategic partners and are assured of market access if the state legislates, with the remaining 3 states giving us potential access via Boyd Gaming's agreement with MGM.

The first major state to introduce sports betting was New Jersey. And our market access partner in New Jersey is the Meadowlands racetrack, which is located 10 miles west of Manhattan and adjacent to the Met Life stadium, home to the New York Giants and New York Jets NFL teams.

On Slide 22, you can see some pictures of our sportsbook, which launched on the 14th of July and took $10 million of bets in the first 18 days of trading. In New Jersey, the regulations allow for mobile and online access, with no requirements for in-store sign-ups or deposits. And with an existing active online customer base of over 100,000 customers across our businesses, it is an ideal state for us to launch the FanDuel Sportsbook. We are on track to go live with our online service in the coming weeks for the forthcoming NFL season, with a tech solution that combines a third-party platform and wallet, with a bespoke front end and our proprietary risk and trading platform, which will allow us to offer an exclusive set of markets at launch. And I look forward to updating you on our progress at our Q3 trading update.

On Slide 23, we summarize why we believe we're well positioned to achieve scale quickly in the U.S. as the market develops.

We have established brands that's already strongly associated with sports. We have an extensive product suite. In addition to online and retail sports betting, we are the #2 daily fantasy operator, the #1 online horseracing wagering operator and have the #2 online casino brand in New Jersey.

Together, these products give us a truly nationwide set of customers in 45 states and an extensive distribution network via our 2 TV channels at TVG.

Operational expertise is, of course, a prerequisite for running a successful B2C sports operation and we have both local U.S.-based sports expertise and leading global capabilities.

To participate in sports betting, market access is essential and as discussed already, we have already secured key access agreements, and our scale and existing relationships position us well to secure further agreements. As I already covered, in regulated markets, I believe scale is essential for generating sustainable returns over the long term, and we are mindful of this in the U.S. market. While our existing assets give us a good launchpad for achieving scale, the group's strong balance sheet gives us substantial firepower and may prove to be an important competitive advantage.

We've made good progress on our strategic priorities in H1. The second half will focus on the following areas: Maintaining the positive momentum in Paddy Power through product marketing and retention, all in the unique tone of Paddy Power, which is now entering its 30th year. There are new opportunities to accelerate the Betfair brand in international markets. In Australia, our podium position will allow us to withstand the point of consumption tax increases through investing in product and customer generosity, we want to extend our market leadership. And our U.S. business is not a start-up. It's important that TVG continues to grow and allows us to leverage the TV network and earnings. We're also relying on the FanDuel fantasy as an important source of customers and revenues in states that haven't legislated. We have materially enhanced our position to address the sports betting opportunity with the addition of FanDuel and the key market access agreements, and we're excited to see our plans come to fruition.

And Alex and I would now like to invite questions. I think we'll focus on questions in the room first before we turn to the phone.

Ed Young from Morgan Stanley. I've got 3 questions, please. First of all, on gaming, obviously, a very good acceleration, you said a miraculous acceleration in Q2. You talked a lot about increasing the customer journey there and some of the platform changes, speed time, that kind of thing. Is there anything else you're planning to do in the second half? I mean, you tapped more content, more gamification. It's something that's been talked about before that could drive growth even higher from where you are now. The second question is on the exchange. You talked about the negative sort of side on horseracing, positive on football. Could you give us a bit more detail on what's going on there? Which customers are you losing? Is it [app] customers or is it more retail customers or what sort of pressure are you seeing in commissions? A bit more detail would be helpful. And third of all, you flagged and continue to flag the headwinds from Australia, GBP 55 million or so next year, obviously counting the World Cup. You've talked about positioning the group for long-term sustainable growth, but do you think looking towards next year, it might be another year where profit growth is difficult to come by? Or do you think that given the momentum, you might be able to do that next year?

So without giving all of our commercial secrets away around what we intend to do with gaming, we do have some further product enhancements that we plan to make. So if you look at the -- if you're a, I don't know if you're a Betfair customer or indeed, Paddy Power, if you look at it now, we've actually just updated the whole massive casino and arcade lobby, which is going to allow us to sort of personalize that for each of our individual customers. The full gaming suite is now available within the sportsbook at [Paddy] for Betfair customers. So I think we should expect to see improvements in our cross-sale performance. And we're not done yet, I mean, there's -- there's further things we would like to do down the track. From an exchange perspective, I think it's worth making the point that when we look at the performance of the business in the first half, the important thing for the exchange, when you have something like the World Cup, is actually, you really need lots of events to happen. The exchange is driven by the number of events. And actually, the number of matches that happen in the World Cup isn't that substantial. So whilst the World Cup is a big distraction for people, we definitely felt that, saw that across the whole horseracing piece. We don't always necessarily get the benefits back. I think in terms of the types of customers that we've been losing, Alex talked about the challenges we are seeing in horseracing on the exchange. I think the issue there is that we are facing some sportsbook competitors who are able to offer very, very low margins. We question how sustainable that is. And actually, for some punters, they probably can't get on the size of bets that they would like to. We've recently launched an initiative which will allow anyone to win up to GBP 500 on any of their bets on horseracing, which is something which I think is important. And we just need to see how -- I mean, some of the changes and initiatives we're trialing on the exchange works. So for example, we're rolling out now on our platform much better interoperability between the sportsbook and the exchange so that customers can toggle between the 2. And I think -- just with 1 click. And that's going to, those type of things are going to be important for us. Alex, do you want to talk about [the other thing] now?

Yes, just another thing on the exchange. I think one of the issues that we've highlighted before is that due to the closure a lot of markets internationally, we've lost some of the exchange and a lot of those people used to bet on horseracing, so we've lost some of that. So one of the things that we're doing on the exchange is looking at the international markets and technologically trying to make the exchange a more palatable product or differential pricing, better translation, languages, to get some of that international exchange. And the international growth that Peter was talking about on the last slide, as his, one of the targets, will take into consideration some of the technical work that's been done on the exchange, particularly to appeal to the international markets. On Australia, there is no way we are going to be -- I mean, if I understood your question, we will not be able to grow through the point of consumption tax.

Yes, as a group.

I do -- we will not be able to grow through the point of consumption tax as a group. I think we always said that those types of things, those massive, massive GBP 55 million type of things, what they effectively do is they reset our board. Now I think the business has a lot more operational leverage going forward, but when you have new investment in the U.S., or when you have new point of consumption tax, you have to expect that to have an impact. There is no -- I don't see any way -- I mean, yes, that we'll be able to grow through that.

It's Patrick Coffey from Barclays. Four questions, please. Just on FanDuel in H1, the revenue growth is 4%. That represents a bit of a slowdown from historic levels. So can you maybe just give us your views on the overall growth of daily fantasy sports and the relative importance of that versus the basically the access and the brand and the proprietary technology for the much bigger prize in the U.S.? And secondly, just on the investment in marketing. Is there any way you can help quantify how much more marketing dollars were spent on Paddy Power in H1 '18 versus H1 '17? I appreciate it's low comps, but is that something to do with (inaudible) have a lot more Paddy Power than historically or maybe just the mix of Paddy Power versus Betfair. Next question, just kind of related to Ed's question on gaming. You talked about the percentage of sports customers playing gaming going up to 28% from 25%. When you think about the kind of longer term, where do you think that could get to? Is it 30% or 40% or 50%, kind of in the longer term? And then finally, just on M&A, with your M&A strategy and your leverage targets, would you consider ever doing M&A in the U.K. and/or would you need to do further M&A in the U.S.?

Thanks, Patrick, so I'll answer your questions in the order you gave them to me. So from a FanDuel perspective, I think it's important to go back a little bit and just recognize the context that FanDuel had for the first half of the year. And there's 2 things I'd highlight. First of all, for the daily fantasy market, I mean, a huge market -- a huge part of it is actually the focus on the NFL season, which is not many weeks long. And last year, I think they had 4 -- I think 4 weeks before the NFL season started, they found out that the planned merger with DraftKings was called off. And so actually, the plans and preparation that FanDuel had done at the time to prepare for the NFL season was pretty poor because they hadn't expected to be operating as a stand-alone business at that stage. So I think they've executed, but not as well as they could have done. And that, I think, does impact the number of customers that they acquired and we see some of that flow through into the revenue performance in the first half of this year. In terms of what's going to happen on a sort of go-forward basis, with fantasy and how important is that going to be compared to sort of tech and market access, there are going to be a lot of states where sports betting isn't allowed and actually, we will continue to go to offer our TVG services and fantasy in those markets. But I think where sports betting is legalized, and here, we'll see this, we're tracking to see what happens in New Jersey, I do think we're going to end up with a different market construct in the U.S. market to the ones that we see in Europe or possibly in other markets around the world. I think there is going to be a bigger balance between some free-to-play games, fantasy and sports betting. And things will work in a different way to what we've seen elsewhere in the world. We think the fantasy stuff will continue to be important, even in states where sports betting is legalized. And of course, it will allow us to acquire customers in states in advance of it becoming legalized. And yes, I think having 100,000 customers in New Jersey is a very good starting point in terms of driving certain things instead of having to go in and sort of acquire them all one by one. In terms of the -- Alex, do you want to pick up the marketing investment?

Well, I mean, if you look at the results, the marketing investment in total was GBP 128 million online versus GBP 113 million H1 of last year. So it's a GBP 15 million increase. The only thing that I would say is that so overall, you're not talking about massive numbers, you're talking about massive shifts. Overall, I think what you could see and what I could see is that, I think it's a very dynamic thing. We put the money where it's working, and not where it's not. So for instance, if there is a -- if there is -- I could see, for instance, a situation for the second half of the year, where perhaps less spend in some of the international markets that have not shown a significant growth, and that is being transferred to the Paddy Power and Betfair brand where it is showing growth. In terms of splitting specifically Paddy Power and Betfair, we don't do that, but there could be those kinds of shifts.

I think the improvements we see in gaming cross-sell, together with some of the changes that we've made, have improved the performance of the Paddy Power sort of profitability. I think you've talked about some of the big changes made in over-rounds in that brand, for example. I think that is helping improve the overall profitability of some of those customers, which is going to give us more confidence, particularly the way that the marketing is working to sort of lean in and trying to grow the business. I think in terms of the long-term ambitions for the percentages of customers, sports customers are playing gaming, one way of boosting our percentage figures is to take a longer time frame because you always end up catching more customers, so it is -- you can sort of fudge those numbers. What I think we have achieved though here, we fixed a lot of things that were broken in the last few months. So we knew that some of the customer journeys weren't working effectively. We started addressing that. As I referenced with the new lobby, we're starting to see -- we're starting -- so sort of personalized content for our customers. Each should lead to a step up in performance. There's going to be, I think, an inevitable divergence between the performance of our brands because one is very focused on recreational customers and the other on core betters. So I think we will inevitably see some differences there. And then from an M&A perspective, we -- I'm not going to rule anything out at this stage. I think we are very, very disciplined. We looked at things very closely in Australia. We couldn't get to the prices that people paid there. And I think what we are very focused on is achieving these podium positions. I think in regulated markets, having the scale there is really important and I think we're beginning to see evidence of quite how important that is in places like Australia.

This is Richard Stuber from Numis. Just 2 questions, please. First of all, on the exchange, I presume that you're ruling out sort of changing any commission levels in order to sort of drive that growth and try and compete with the lower-margin sort of operators? If you can just sort of clarify that. And also, whether you think you'll get back to 3% growth next year? I know you're saying that you won't be in the second half of this year. And my second question is on DRAFT. Given FanDuel, can you tell me what your plans are with DRAFT? Are you rolling it into FanDuel? What sort of -- any sort of investment in that? Or basically, what are you doing with that brand? And my third question is just (inaudible) quarter. I know in the past, you've talked about country to country (inaudible) you gaining ground (inaudible).

On the exchange, we see continue to innovate and try things across our business and actually, we suspect that there are some customers in the exchange who are more price sensitive than others and want differential services. So we'll see whether in time we can create products that will work for them more appropriately. I think we'll have better visibility of how the exchange is performing in the second half of the year, when we're out of the soccer World Cup and we can still see a little bit more stability there, sort of horseracing and the fixtures, which will give us more confidence to make our forecast for next year, which we're not going to do right now. From a DRAFT perspective, I think you will see us growing the DRAFT product, which we like. I mean, I think it's a good, much more recreational type of product in the sort of fantasy arena than some of the FanDuel products. I think you'll see us move the DRAFT product within -- it will fit within the framework of our product suite in the U.S. and we'll want to migrate the customers over. And probably, possibly, even keep some of the sort of the DRAFT branding for the bespoke products that they have, and I think we have a good team with a lot of people who we can -- who can benefit from -- in our U.S. business, and indeed, in other parts of the group. But you better ask Paul questions about that afterwards, if you want, Richard. He'll be able to tell you.

And then I think we're very pleased with the performance of gaming that we saw in quarter 2. And as I said earlier to that, there's more to be done in gaming. And I think that's our focus at the -- at this time.

Gavin Kelleher from Goodbody. Just firstly, on the wagering trends in online and you've obviously kind of highlighted duration cancellations, which we all know about, and then the focus on more profitable customers. When did that action start and when should we be through all the kind of duplicate account issues, et cetera, et cetera, when we have a pure, kind of, underlying wagering trend, when will we see that? And then, secondly, would we be right in saying it was all cross-selling gaming, so there was no kind of gaming-only improvement with gaming-only customers? And then that's -- any way you can do better in the future? And just obviously, William Hill last week, talked about source of funds as a potential issue. And would we be right in thinking that, that's not an issue for you guys at all?

Okay. Thanks, Gavin. Well, in terms of the wagering trends, I mean, I think the new platform we put in place is, once and for all, removed the issue of duplicate accounts. That was something we did at the beginning of the year, but we tried to take steps to address it last year as well. There were also some streams of business that we switched off because we obviously have very large wagering figures attached to it. They were not going to make any revenues, and that's something which we did beginning of the year as well. So I think you should think about lapping it next year. The -- from a gaming perspective, I think a lot of the work we've been doing has been focused on trying to address the areas that we knew were broken within the sportsbook apps for both Paddy Power and Betfair. And if you look at the apps now and the way that the new -- if you've got one of the, if you're part of the segment who have exposure to the new lobby, you'll see how fantastic it is. If you haven't -- if you don't see it, I can show it on my phone afterwards. And that's going to -- that's definitely helping us, but undoubtedly also gives us sort of more conviction in terms of being able to acquire some of the service-style gaming customers as well. I think on to your final point around source of funds, I think we've always been pretty robust in terms of our sort of whole AML and KYC procedures. And sometimes, this is a sort of a moving piece with the Gambling Commission that changes, and when they may. But we have made some changes last year, they're already in this year's numbers. So this is not -- there are no actions that we're planning to take in the short term which would cause any further impacts.

Ivor Jones from Peel Hunt. On one slide, you said that you wanted podium positions in regulated markets online and you said that you might get there organically. Could there be a situation where you would spend heavily, potentially push a geography to losses in order to grow organically to a podium position? Are you hinting you would grow very aggressively in Italy, for example, organically to get to a podium position?

It's quite tough in Italy when you can't advertise to grow. But I think in markets -- there are some markets where we can see we've got very good growth rates. And we know that if we carry on doing what we're doing, we'll get, in time, we'll get to a podium position. And so in that situation, you probably don't need to look for other strategies.

That's organic. But you announced a step change marketing to get there.

Yes, I mean, if there are opportunities to acquire customers in a profitable way, and we can put more marketing in, we'll do that. We don't mind about sort of the optics of it in a sort of short time frame. If we don't believe that there's an organic route, then we would look and consider M&A.

Okay. And thinking about responsible gambling, you obviously haven't owned FanDuel for very long. But could you just talk about the concentration of revenue by customer within fantasy sports and whether, as you guys know the business better, you think there'll be some responsible gaming actions you need to take in that section of the business?

Look, I mean, we actually ran recently a responsible gambling advert in the U.S. market. And I don't think -- we don't know of anyone else who has ever done it before. And there is no Gambling Commission sort of pressure to, in the U.S. market, to do those types of things. So it was something we thought was the right thing to do to get the industry off on the right foot. I don't have the figures at hand in terms of the concentration of revenues by customer. I don't think there's any particular issues in the way that the product is constructed in the U.S. market that concerns us. Ask Paul afterwards and he can...

We have experience with the exchange. When you have because -- so we have experience with the type of constructs, working before, we've had no issues with responsible gambling, how we treat the customers and understand them.

And it's also just worth noting. We're not a start-up in the U.S. So we've got the casino in New Jersey. We know how to operate that, we're the second -- #2 sort of brand in that market. TVG is operating extensively across the U.S., and we have experience at operating that. We believe we do it in a very thoughtful way, which is one of the reasons we've been running some of these RG ads there.

In relation to the exchange, could you give us a bit of guidance about operating leverage in the exchange? I don't think I understand if you would spend more money on marketing, specifically on the exchange, because I think it's more profitable than the average within the business.

So Ivor, if you look at the advertising we were doing for Betfair around the World Cup, you would have seen it was focused on the exchange. It's the first time for a while we've done that. And actually, we changed some of our acquisition funnel so that customers can choose more easily between the exchange and the sportsbook. So yes, we're very comfortable spending money acquiring customers from the exchange, if it makes sense.

So if we look at exchange revenue falling, we'd expect some profit to fall in line with the average profitability of the group?

I mean, it depends on where it falls, right? I mean, there are -- obviously, unregulated markets are more profitable. It's very difficult to make that statement, right? The profitability of the exchange is very different than the U.K. than it is in other markets. So it's a very difficult thing to say.

Okay. And just last thing. On gaming, is your enthusiasm based on the percentage growth rate? Is that what you're guiding us to think is now sustainable, because I'm struggling -- the second quarter last year was a very easy base, when revenue fell, so it was relatively easy to grow at a high percentage rate against that. It's not such great growth against 2Q '16. So are you telling us you are going to achieve double-digit growth in gaming against tougher comps?

Ivor, we're thoughtful about our gaming performance. We're pleased with where we've seen the business get to. I think in particular, having fixed some of the issues that we knew about. It was frustrating we couldn't fix them whilst we were doing the integration, but we had to get that done first and that was the right thing to do. One of the reasons I shared with you the stats on our -- the number of sports customers who are playing gaming, it was because it's something when you take a long 6-month time frame like that, it removes a lot of those potential issues. And I think it shows that there is good momentum in that part of the business.

I think also, the current trading shows us that the momentum continues.

So it's the double-digit growth rate you're pointing to?

(inaudible) it shows that the momentum continues.

It's Joe Thomas from HSBC. You've pulled levers down a couple of times earlier on this year: Once for investments in Australia; once for additional investments in the U.K. I think they were GBP 10 million and GBP 20 million. How much of that was actually spent over the course of the first half and therefore are still to come through? And is that going to be a recurring investment each year? And second thing, just on the World Cup calculation that you did right at the outset, is that just a sort of substitution? Or is that just kind of a total amount of revenue from the World Cup less various costs?

Okay, Joe, in terms of the sort of 2 areas that we highlighted we want to invest in, one being the online business and the other being Australia. Look, I think we -- we're able to sit here today, and I think we're pleased with the performance we're seeing in Paddy Power. It was the right thing to do, to invest, to get behind that business, and we're seeing the momentum there. So I think that is something that we're pleased with. To the extent to which these things become recurring, we can look at this as a unit and acknowledge the customers we're acquiring. We know what the acquisition costs are, we know the revenues that they're generating from this. So that's how we'll make the decisions around those things. And that's particularly true in the international markets, where we have very good understanding and visibility of that. There's a limited amount of money spent on brand and much more spent on sort of acquisition. And we described earlier the dynamics as seen in 3 markets, being Spain, Italy and Brazil. And you can imagine how you'd want to be moving marketing spend around those things. I think in Australia, there is this -- there is a lot of disruption happening in the market. I mean, William Hill's old business there and CrownBet's old business, I think they're going to rebrand themselves BetEasy. That's going to cause disruption and I hope customers will choose to find a new betting partner. There's all sorts of changes that will come as a result of the point of consumption tax. Actually, I think it has been important to invest in customer generosity and when you look at the first half and the results we're seeing in Australia, I think it justifies the investments we're putting into it, as Alex said. At those growth rates, you want to keep backing them and that's what we're doing. In terms of the phasing of the spend, Alex?

I mean, it's really not -- I mean, the only thing we could say, we have never disclosed -- we are spending as per our plans is the only thing that I really can say. So there is no -- we planned it and it's going along. And I guess at the end of the year, we could update in terms of the actual spend, but there is...

In terms of your question about the sort of the World Cup sort of substitution effect, I mean, we've been looking at the trading performance recently and been comparing it with what happened with the Euros to try and understand the extent to which focus on a big soccer competition impacts other sports and things. And we're pleased with what we're seeing. At the moment, we're pleased with some of the market share figures we've taken out of the World Cup campaign, but it's quite hard to sort of understand exactly how much sort of substitution effect you get around some of that.

I mean, the figures we've given you is the World Cup betting, right? So it's pure World Cup betting. So that's what the GBP 45 million is what it represents. We don't try to figure out how much of it would be substitution or anything like that. That's how much was bet on the World Cup.

Are there any questions coming in on the phone?

(Operator Instructions) We do at the moment have one from Tal Grant, Crédit Suisse.

I just had a question, you talked about how important events are for the exchange. Just to give us an idea of the scale, could you please tell us how much was traded during the World Cup on the exchange? And maybe how much was traded on the Grand National as well? Second question I have is just the payments issue you brought up in Brazil, just when exactly did that start? You said it was the biggest payments supplier in Brazil that had the issue, right? And then final question is on Italy. Given the advertising restrictions there, is it a case of you either buy a retailer operator, using which you can convert customers online? Or do you exit Italy? Or how are you thinking about Italy?

Okay, Tal. I mean, we're not going to pull up the spreadsheet of how much money we have on the exchange in all of the different events. I mean, I can tell you that if you look at sort of staking levels, all sort of matched levels on the exchange, we saw GBP 36 billion matched in the first half this year, which is up 12% on last year. I think football volumes were up 20-plus percent, which we think is partially down to the World Cup. I was cheering Pleasant Company on in the Grand National and I was pretty irritated when that horse didn't win. But that's probably all I'll tell you about the Grand National. That was a expensive photo finish. In terms of Brazil, the -- I think the changes in the payments occurred in -- which is it, I mean, was it Q1, Alex? That or early Q2 this year. I mean, I'd have to come back to you with the precise date. I'm sorry I can't recall. And it seemed to have -- I mean, I think with regards to Italy, look, it is a regulated market. I think unless we can -- unless we are ready to find some profitable initiatives in regulated markets. We want to make sure that we can get onto the podium in those places and so -- and that probably does mean you either need to get there organically or through M&A. And I guess as a last resort, if you couldn't make any of those things happen, then you might choose to exit the market.

So the next question is from Alistair Ross from Investec.

I've got a lot of questions, so I'll take them one at a time, if that's okay. If I just look at your first comment in your statement, you talk about Q2 revenue being up 13% and then you talk about 9% growth ex the World Cup. If I then strip out the World Cup, I get negative growth of about 19%, if I look at it on a sort of linear basis for the sort of the 17 days ended 30th of June. I mean, maybe you can answer this question by giving me how current trading is doing ex the World Cup in Q3, but it seems to me like that is a huge decline in performance.

I've got to be honest with you, I don't understand the calculation. 9% growth is without the World Cup. So I don't -- yes, before the World Cup, I said before we started on June 14, it was 9%. So I'm sorry, I don't understand the question.

Alex, the way I'm thinking about it is, is you generated GBP 23 million in the first half from the World Cup. All of that would have been in Q2 '18. So for the last 17 days, you generated GBP 23 million in relation to the World Cup. If I look at growth on a linear basis, and I look at your 9% versus your 13%. So your 9% is pre and your 13% is the whole, and I strip out GBP 23 million for the last 17 days, I get implied revenue growth of negative 19%.

So Alistair, if you strip out the most significant event that is happening in those days, what you're seeing the rest of the business, there's some substitution going on, and I think that probably would be the case.

Absolutely. There's definitely an element of substitution. But I'm just concerned about the underlying business. And also, maybe you can answer the question by giving us current trading ex the World Cup in Q3.

It's in our statement already. We're not concerned about how it traded.

All right. In relation to Boyd, the Boyd access agreement, am I right in thinking that you only get market access where Boyd has 2 skins per license in a state?

No, we get a -- in a (inaudible) where Boyd gets a (inaudible), that's the way it works. There's a sort of cascade that happens, where Boyd and then (inaudible) have a typical relationship. So we'll get the first skin and Boyd gets the next skin, then -- so MGM could get a skin. And then MGM is going to get a skin and then it just sort of all works in reverse in some of the MGM locations. We expect in time, most of these states will be multi-skins, and so have -- we'd imagine we'd have access in all the states that Boyd operates in.

And then just in relation to the exchange, who do you think your main competitor is there? I mean, is it Smarkets, is it Matchbook? Who do you think is taking market share?

It's a very -- I mean, it's pretty simple for us on our kind of horseracing perspective, it's (inaudible) and if you look at our best price guarantees, and we have some levels of promotion and stuff that could (inaudible) to our margin in horseracing.

And then, just on -- I don't know, because the phone keeps on cutting out, in terms of overall profitability, maybe Alex, you were talking about Australia, but did you say overall profit in FY '19 was going to go backwards? Or were you talking about Australia specifically in relation to point of consumption tax?

What I said was the GBP 55 million point of consumption tax increase, right, it's not -- we're not going to just grow over that. In other words, continue to -- that's very, very significant, and we're not giving guidance for 2019. But it's an enormous number, right?

So are you...

I think [there are faulty] changes are coming in and there's a lot of sort of uncertainty. I mean, it could be that the government decides to give the industry more time than give themselves to deal with Brexit. Or maybe they'll decide to give us (inaudible) time, I don't know. It will have an impact, especially on 2019 as well. (inaudible) because they're not giving guidance on that.

So can I just clarify that you, Alex, you mean overall profitability? I'm not talking about the division of Australia.

Yes. I mean overall.

Okay. Because consensus has you guys GBP 25 million above FY '18 at the moment in terms of growth.

Yes. Look, I don't know what consensus has, but what I'm saying is that we won't be able to just grow over this and plus. I mean, this has a -- this will have a very material impact on the profitability of the business. It's a huge hill to climb.

Sports betting in the U.S. has potential for (inaudible) and other things we need to sort of watch here at this stage. That's why we're sort of not giving guidance for 2019.

Just in terms of your profitability in regard to the World Cup. I mean, revenue of GBP 45 million, profit of circa GBP 8 million. Do you think that the additional marketing spend there, you've reached a sort of a level of saturation? It feels to me like versus your peers, or versus your competitors, it feels to me like not all your marketing spend was -- had positive ROI.

Well, we're very happy with the performance of all of our brands across the world in the World Cup. I think in Australia, they had a very good tournament despite (inaudible) like one in the morning (inaudible) the sports betting, I think, performed very well and the (inaudible) last year we gave to customers worked well for us. I think Paddy Power, I mean, I said earlier, I think we've got our mojo back. I think it's in really good shape (inaudible) for the brand and we're very, very pleased with how it performed. (inaudible) in terms of, I answered Tal's question earlier and talked about some of the growth we're seeing on the exchange in soccer. So I think we wouldn't share your view around certain ROIs. And you can imagine how we're busting Alex's chart here, [target] our colleagues across the business about spending money on marketing. So we do stuff we think makes sense.

(Operator Instructions) This is now Monique Pollard from Citi.

Just a couple of questions from me. Just on the U.S. opportunity, maybe you can just give us some details. I see here that you already, you've only launched less than a month ago, and you've taken $10 million in wagering. And then mobile is due to launch before the start of the NFL season. When exactly do you think that will launch and what are you predicting at the moment in terms of how significant that could be for the market? And then also in the U.S., when you think about expansion beyond the states where you've got already access or access via Boyd or potentially indirect access via MGM, what would be your approach there to getting access as and when those states open up? And then finally, obviously, a little bit of talk in the presentation about the potential for gray markets and being sort of strategic about growth in those markets. Given you've now got your sort of pretty much fully integrated tech platform, how easy and quick is it for you to expand into these gray markets and what's the sort of cost associated?

Okay, thanks, Monique. So I mean, in terms of the U.S. market, we will give you more information in -- at Q3 around what we expect to happen. We're not going to make any predictions at the moment. And I'm not going to tell you when we're launching or what we expect to happen at this stage. However, I think we have, of course, an exciting opportunity. We have 100,000 customers that we can go after to try and cross-sell, which I think is pretty unique for us in the market. And there appears to be latent demand. And I've been to visit the store at the Meadowlands, and people are sort of coming in at 10:00 a.m. wondering who's open. And it's still open at 1, 2 in the morning. It's still different from the stores you see in the U.K. I mean, people are drinking there, and yes, it's a slightly different environment. In terms of some market access, well, I mean, on Page 21 of the presentation, we lay out the market access we've got, and it gives us access to 36% of the U.S. market. And I think that covers most of the states that we think are likely to pass legislation by the end of next year and indeed, some states we think could be coming down the track. We have got plans and ideas to how we target the rest of them, but there's plenty for us to go after on that (inaudible). And then in terms of our -- the sort of (inaudible) unregulated markets, I don't think we're changing anything necessarily from -- in terms of the customer we've had in the past. We are making some investments, and Alex mentioned this earlier, to improve the, our platform's ability to offer new payment types, different languages, localization, personalization, which is easier for us to roll that into additional markets and will allow us to offer better service to customers already in those markets. And that's something that will happen for -- for early next year.

And just one comment on the gaining access. I think one of the great assets that we have in the business is TVG, right? And TVG operates and works with horseracing tracks and owners of horseracing in many, many different states, right? So there is an opportunity, if the states regulate, and those guys get access. Mind you, we already have ready-made relationships with a lot of them, which is -- I think is a great asset.

I mean, it's quite possible that actually, some of the (inaudible) states already have licenses that we have on our (inaudible) themselves may allow us to access and provide (inaudible) to customers without needing any third party.

There is no further audios waiting. (Operator Instructions)

At the time, we're having a slight audio issue, so if you could, please shut the line down. So thank you very much, and we're happy to -- it's nice to see you all and do stay hanging around (inaudible).

Thank you.

And so there's one thing I do want to say, one formal thing. This is (inaudible) Alex, who's been a fantastic CFO for the business. We've done this for 6 years, we've been together. We're sorry to see you go, Alex. This the last -- the last time we'll have you up on the -- up here. So thank you for your (inaudible) for my time as CEO and I appreciated that enormously. I'd like to thank you very much. And lastly, wish you all the best in America. (inaudible) later, he'll be around and actually, he'll be the one responsible for the purse strings in America. So good luck, Paul, and...

(inaudible) to America, he's responsible for purse strings.

And thank you for your help. It was strange seeing a release without your name on it this morning.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining, and have a good day.