Playtech PLC
LSE:PTEC
Earnings Call Analysis
Q2-2023 Analysis
Playtech PLC
Playtech kicked off their H1 Interim Results Presentation with an air of confidence, highlighting a record adjusted EBITDA of €220 million - a notable 10% increase year-over-year. The company is cruising on robust momentum in its B2B division and seizing multiple growth opportunities, particularly in the booming Americas market. Themed around iconic partnerships, like that with Hard Rock Digital, and early triumphs with ventures such as Galera.bet, Playtech is staking its claim in the region with optimism for their medium-term outlook. Their SaaS business hums with over 50% growth, tracking towards an ambitious revenue target of €60 to €80 million. On the B2C side, their Snaitech unit is flourishing, leveraging a vast Italian retail footprint to fuel higher-margin online expansion. Playtech reassured investors of their trajectory toward previously set medium-term adjusted EBITDA targets for both B2B and B2C segments, cementing their strategic vision.
Playtech's H1 achievements were not confined to EBITDA performance; Group revenues saw an 8% uplift, reaching €860 million. Free cash flow also climbed by 8%, amassing to €149 million — a testament to the company's capacity to support both organic expansion and exploratory ventures. June 2023 saw Playtech playing the fields of financial strategy, issuing a €300 million bond to effectively manage maturing obligations and investment financing, notably for its stake in Hard Rock Digital. Their divisional breakdown revealed a 7% revenue rise in B2B driven by a strategic focus on high-growth markets, and a commendable 9% revenue spike in the B2C sector propelled by Snaitech's robust performance. Indicative of a healthy financial discipline, Playtech's net debt to LTM EBITDA stood at 0.6x, recognizing the organization's knack for maintaining financial agility and stability.
The financial prudence of Playtech extends to its balance sheet and capital allocation. Their proactive market maneuvers materialized in securing a €300 million bond at a favorable rate amidst a serene bond market window, recycling proceeds to extinguish imminent dues and fortify their capital structure. With two major bonds and a fully undrawn €277 million RCF, Playtech stands on solid ground. Despite this strength, they cautiously factor in future Snaitech concession payments estimated between €250 to €300 million. Emphasizing a disciplined leverage approach, the company targets net leverage of 1x to 2x adjusted EBITDA, prepared to overreach temporarily for the right opportunities, with a clear deleveraging trajectory.
Playtech's success recipe includes a laser focus on nascent markets alongside expansive endeavors in Live and SaaS segments resulting in impressive growth metrics. With an executional transformation program underway, they're aligning their costs to their revenue streams, aiming for a medium-term adjusted EBITDA target of €200 million to €250 million for the B2B segment. Their geographical diversification efforts over the past five years underscore their commitment to shed overreliance on certain markets, moving from Asia and the UK to capturing significant share across LatAm and a wider Europe. For the B2C division, the strategy orbits around leveraging Snaitech's physical network to nurture its online counterpart, complemented by efforts to restructure and scale HAPPYBET online. The company reasserts its B2C medium-term adjusted EBITDA target set a year ago, between €300 million and €350 million.
Closing the narrative on a note of strategy and forethought, Playtech showcases its refined focus on market maturity and strategic investments in regions on the brink of regulatory transformation. Eager to solidify its footing in various countries advancing towards regulated gambling landscapes, the company deploys its analytical prowess and capital muscle to tap into these burgeoning segments. By embracing such markets, Playtech fortifies its position as a harbinger of regulated online gaming, armed with a clear plan and the agility to adapt to a rapidly evolving industry.
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Good morning, everyone. It's good to see lots of familiar faces here today as well as some new ones. I'd like to thank you all for attending our H1 Interim Results Presentation, and welcome to those that are joining us online.
On to Slide 2. I'll begin by taking you through the highlights before handing over to Chris McGinnis, our Chief Financial Officer, who will take you through a review of the financials and the outlook. I'll then return to update you on how we are progressing against our strategic priorities.
Turning now to Slide 3. I'm pleased to report an excellent performance in the first half of the year. We delivered a record H1 adjusted EBITDA of €220 million, up 10% year-on-year. The B2B division is showing good momentum and is well positioned across multiple growth opportunities as we head into the back end of the year.
The Americas continues to deliver impressive growth led by strong performances from our structured agreements. The comprehensive agreement signed with the iconic brand Hard Rock Digital as well as encouraging early signs with Galera.bet and other new initiatives, means we are excited about our medium-term prospects in the region.
The Live division continues to deliver solid revenue growth as we capitalize on the public's growing appetite for this type of product and content. Increased investment in content, concepts and infrastructure should ensure that we are well positioned and well placed to continue growing our share of this exciting product vertical.
The SaaS business model, yet again saw excellent growth in the period, up more than 50%, and we are on track to deliver on our medium-term revenue target of €60 million to €80 million set in March earlier this year.
For B2C, the excellent Snaitech team continues to execute on their proven strategy. The first half saw growth across both the retail and online channels. The large retail footprint in Italy is an extremely important brand asset and is being leveraged to drive growth in the higher-margin online business.
We remain on track to execute on our medium-term strategic priorities and are pleased to reconfirm the medium-term adjusted EBITDA targets set for both the B2B and B2C divisions.
Looking ahead to the remainder of the year, the strong performance in the first half means we now expect to deliver full year 2023 adjusted EBITDA slightly ahead of current expectations.
I will now hand over to our CFO, Chris, who will take you through the financial performance and outlook.
Thanks, Mor. I'll start on Slide 5 with the financial highlights and what was a record H1 performance for Playtech. Group revenues grew 8% in the first half, reaching €860 million with an adjusted EBITDA of €220 million, representing growth of 10% versus the first half of 2022. Adjusted operating cash flow was up 7% to €233 million, while free cash flow increased 8% to €149 million. Together, this provides flexibility to fund both organic and inorganic growth opportunities going forward.
In June 2023, we strengthened our balance sheet by issuing a new €300 million bond, the proceeds that which we used to repay the remaining €200 million bond that was due to mature this October as well as the amount we had drawn on our RCF that we'd used to partly fund our investments in Hard Rock Digital earlier this year.
Moving on to Slide 6 and delving a little bit deeper into the divisional results. You can see that both the B2B and B2C divisions continued the strong performance so far this year. B2B revenues were up 7% with adjusted EBITDA seeing growth of 5% driven by a focus on high-growth markets led by the Americas, while we continue to invest in our strategic initiatives to drive our future growth most notably those in Live, the U.S. and structured agreements.
As I outlined at the full year 2022 results in March, I want to have a greater focus on free cash flow going forward at Playtech. I'm a big believer in measuring metrics that you want to improve, and we have started to see early signs of improvement in free cash flow generation with B2B free cash flow increasing 14% in the first half of this year compared to the first half of 2022.
Within B2C, revenues grew 9% in the first half, driven by an excellent performance from Snaitech across both their retail and online channels. Retail benefited from pent-up demand post the World Cup given the Italy's absence from the tournament, while online continues to see strong growth from the structural tailwinds as this market continues to shift towards online. B2C free cash flow remains strong, growing over 6% in the half.
On Slide 7, looking at our B2B division in a bit more detail. Total revenue was €335 million, representing growth of 5% in constant currency. The primary driver of this growth was our operations in regulated markets, which grew 11% in constant currency, with growth seen across all the regions. The Americas was a standout, growing 29% in constant currency. The strong performance in the Americas was again driven by Caliente in Mexico, which continues to perform very well. But there were increasing contributions from other markets, including Brazil, Colombia, the U.S. and Canada.
In Europe, there was good growth driven by strong performances in several countries, including Poland and Spain. This was partially offset by a normalization of revenues from the Netherlands. The U.K. business, which now represents less than 20% of overall B2B, had revenue growth of 2% in constant currency. Looking at the U.K., operators are at different stages of implementing measures in response to the white paper recommendations. I think this can be clearly seen in the recent results from the U.K. divisions of the major operators, and our results are a reflection of those as well.
Revenue from unregulated markets outside of Asia was down 14% in constant currency compared to the first half of 2022, with underlying growth in Brazil, more than offset by declines in South Africa and Canada. In Canada, Ontario transitioned to being regulated. And as a result, some revenue has shifted to the regulated segment. As regulation progresses in Canada going forward, we'll continue to add to the overall size of the North American market opportunity.
Turning to Slide 8. I'll talk you through the highlights from the B2C division. We saw another excellent performance from Snaitech, driven by both online and retail. We'll discuss this in more detail on the next slide.
Measures to improve HAPPYBET's performance are starting to take effect. While overall top line revenue numbers have declined slightly, this masks the underlying improvement we're seeing in the business. We've given some additional KPI disclosures for a HAPPYBET, which can be found in the appendix. And looking at these KPIs, you'll see that the online GGR saw growth of 15%, albeit from a small base.
On the retail side of HAPPYBET, we have taken action and rationalized the footprint in Germany and closed a number of unprofitable shops. As a result of this, the retail GGR did decline 5%. However, revenue per shop has actually increased more than 10% in the half.
Adjusted EBITDA losses narrowed year-on-year when excluding a €2 million settlement related to some historical litigation. So we are seeing underlying improvement in HAPPYBET overall.
Sun Bingo and Other B2C saw an improved performance as increased marketing spend at the end of 2022 around the World Cup, resulted in a higher revenue growth as we enter the first half of 2023, and this was at a higher contribution margin.
Turning to Slide 9. We'll look at the performance of Snaitech in a bit more detail. The strong performance within retail was driven by increased betting activity due to pent-up demand as a result of a pause in the Italian league in December and Italy's absence from the World Cup. There was also a benefit from increased marketing spend around the World Cup, the impact of which was felt at the start of 2023.
Gaming machines growth normalized post pandemic and saw a growth of 3%. This was driven by the VLT business in Italy.
The online segment again saw strong growth with both sports betting casino performing well. The underpenetration of this segment continues to be a structural tailwind for the business with Snaitech well placed to benefit given the strength of its brand, the continued improvements to apps and technology and a broadening of its content offering.
Free cash flow was up year-on-year, although it was impacted by concession payments made in the first half of the year, which didn't occur in the first half of 2022 as well as some additional planned CapEx expenditure in the first half.
Turning now to Slide 10. We will look at the net debt bridge. The company had strong cash generation in the first half of the year with adjusted operating cash flows of €233 million. We saw cash outflows due to investments of 134 million, with the largest being the USD 85 million investment we made into Hard Rock Digital. Even absorbing these businesses, net debt reduced to €248 million. And we have a net debt to LTM EBITDA of 0.6x. This gives Playtech flexibility around capital allocation going forward, and I'll discuss this in more detail on the next slide.
The balance sheet was also strengthened in the period. We took a decision to take advantage of a period of relative calm in the bond markets, and we successfully issued a new 5-year €300 million bond at a very attractive rate of 5.875%. The proceeds of this were used to repay post the period end, the remaining €200 million bond that was due to mature this October as well as the outstanding balance we had on our RCF, which we'd used to partially fund our investments in Hard Rock Digital.
On to Slide 11, I want to discuss our prudent approach to managing our balance sheet and capital allocation. Giving a snapshot of the current debt on the balance sheet, we now have 2 senior secured notes currently outstanding. The first is a €350 million bond at a rate of 4.25%, which is due to mature in March 2026. The second is the new 2028 bond of €300 million that I just discussed in the previous slide. And we also have our revolving credit facility for €277 million which is currently fully undrawn as of today.
Looking forward, we need to be mindful of this Snaitech concession payments, which we remain to expect to be in the region of €250 million to €300 million. And the expectation is this will cover a 9-year period with the base case being that the payment will take place in 2025.
Historically, Playtech has always demonstrated a disciplined approach to leverage. Our policy currently is a net leverage target of 1x to 2x adjusted EBITDA. In the event an ideal opportunity presented itself, we would be willing to exceed this given the strength of our core businesses and product offering. However, we'd want a very clear path to deleveraging going forward to get back to within this range.
Our priority for capital allocation remains on investing to take advantage of the significant growth opportunities we see both in B2B and B2C. Within B2B, the current super cycle as countries move towards regulation is likely to offer further opportunities to invest in strategic agreements and/or M&A. Within B2B, we want to be in a position to deploy capital to continue to support and back the excellent Snaitech management team.
On Slide 12, at my first results at the 2022 full year, in March, I outlined 3 immediate areas where I saw room for improvement. I believe we have made progress on each of these although still a lot more work to be done and more to come.
Firstly, I stated that I want to increase the focus on cash generation at Playtech. I started the process in March and gave additional disclosures on free cash flow and operating cash flows. And during this first half of the year, free cash flow generation has improved in B2B with an expectation of more improvement to come in the future.
Secondly, I said I thought that the B2B division was too complex. In the first half of the year, we launched a transformation program to ensure our resources are aligned to the appropriate segments and geographies. This will be a multiyear program, and we'll provide a more detailed update on this in an upcoming set of our results.
Finally, I outlined I don't want to provide additional disclosures to improve transparency. At the 2022 full year results, I gave additional KPIs for the Snaitech business. In this current presentation, I've extended this for HAPPYBET as well. And I also have given additional disclosures around our B2B cost base, which can be found in the appendix of this presentation.
I also want to give additional guidance on 2 further areas. Firstly, regarding CapEx. We expect CapEx for this year to come in, and this is including capitalized development to be in a range of €150 million to €160 million for the full year of 2023, including concession payments. This does imply a higher H2 level compared to the first half of the year. That's due to a €20 million payment for concessions in Italy, which is expected in H2, as well as the timing of certain CapEx expenditures in B2B, which will be more weighted towards the second half.
Secondly, we expect the effective P&L tax rate for the group to be circa 30% in the second half of the year, although our cash taxes will remain significantly lower than this.
Finally, moving on to Slide 13. Given the strong performance in the first half of 2023 and the trading to start the second half, we are now on track to deliver a full year 2022 adjusted EBITDA slightly ahead of current expectations. We can also reaffirm both the medium-term targets for B2B and B2C adjusted EBITDA that we have set out during the last 12 months.
Given the good start to the year, how well positioned Playtech is across various regions of verticals and our increasingly strong cash flow, the Board is very confident in Playtech's ability to execute on the growth opportunities across both our B2B and B2C divisions.
With that, I'll now hand back to Mor to update you on our strategic priorities.
Thanks, Chris. Moving on to Slide 15. I'd like to remind you about our medium-term strategic priorities for both the B2B and B2C divisions. Taken together, this will help to deliver revenue growth and expand margins, enabling us to reach the medium-term adjusted EBITDA targets we have set over the past year. Starting with B2B, we have 3 core objectives. Firstly, we want to be the partner of choice for newly regulating markets. Secondly, we strongly believe that the Live and SaaS segments represent a significant market opportunity.
While we have made good progress so far and invested significantly, we are focused on ensuring we remain well positioned to capitalize on the potential growth of these segments.
And finally, we are working hard to ensure that our resources across the B2B division are allocated to the B2B growth areas we have just discussed, resulting in a better alignment of costs and revenues.
Working towards achieving these objectives should enable us to deliver on our medium-term adjusted EBITDA target of €200 million to €250 million. For B2C, we want to leverage our retail presence in Italy to grow Snaitech's online business and continue our focus on HAPPYBET's turnaround by optimizing its retail footprint and growing the online segment. In Snaitech, we have a team of B2C experts, and we are considering targeted M&A to expand the business further.
We are reconfirming today the medium-term adjusted EBITDA target for the B2C division of €300 million to €350 million set 12 months ago. And we expect all of this to be underpinned by our sustainability framework, which we'll discuss in more detail later on.
On to Slide 16, which was first presented at the B2B Investor Day back in March. And I'd like to remind you how much the B2B division has diversified over the past 5 years. Starting with the geographies where we had presence back in 2017, we were over-reliant on Asia with nearly 50% of our revenues generated. Given it is high margin, the EBITDA contribution was even greater. We also generated a significant portion of our revenues in the U.K.
Looking to the past 12 months, that overreliance from the U.K. and Asia, which accounted for 70% of our revenues in 2017 has now reduced to just under 30%. In its place, we have significantly grown revenue in LatAm and Europe, excluding the U.K. This strong progress has been supported by regulation, strong partnerships and the best-in-class execution that Playtech's partners have come to expect.
We can also see greater diversification across product verticals. As can be seen in the chart on the right-hand side, we were very reliant on the Slots business. Fast forward to the last 12 months, and we have seen a material increase in the contribution from Live, the Platform business and Services segment. This has helped to shield Playtech from changes in market dynamics, such as growing competition in slots. We also created additional distribution channels based on best-in-class tech stacks to support our diversification efforts such as our SaaS platform.
On to Slide 17, where I will discuss the progress that we have made on our strategic priorities for the B2B division. Our aim is to be the partner of choice for newly regulating markets. We have comprehensive partnerships in place with several operators across some of the most exciting, fastest-growing newly regulating markets in the world. We want to capitalize on the opportunities in Live and SaaS, and we have made good progress on both.
In H1, we grew regulated revenues within Live by 24% year-on-year, while also rolling out new innovative content to our partners. On SaaS, we grew revenues by more than 50% in H1 and launched with more than 50 new brands taking the number of brands launched to more than 400 since 2019.
Finally, we have launched a transformation program covering the B2B division. The focus on this program is to ensure we have the right resources in the right areas to align with our strategic priorities, whilst ensuring we have an appropriate cost base.
Finally, we have been evaluating M&A options to ensure appropriate exposure to attractive segments both regionally and within product verticals.
On to Slide 18. This chart plots the maturity of different markets based on the time that has elapsed since the regulation of online. We have invested heavily to ensure we are in an advantageous position in multiple countries that are moving towards regulating gambling or have recently regulated the sector. This has already proved the successful strategy for Playtech, and we expect it to drive further growth over the medium term.
Aside from Caliente in Mexico, which has been a hugely successful partnership for both parties, we have signed multiple strategic agreements in Latin America, including in Colombia and Brazil, amongst others. We are also exploring opportunities in other territories such as Chile and Peru, which are both on the path towards regulating.
In North America, the Hard Rock Digital and NorthStar agreements mean we are very well positioned in the U.S. and Canada. In Europe, we were delighted to extend the contract with Totalizator in Poland for the IMS for multiple years following another competitive public tender. This is further evidence of the strength of Playtech's offering and positions us well in yet another fast-growing market. With exposure to a wide range of markets at different stages of maturity, we are well placed to benefit from the future growth of newly regulating markets as more established markets shows slower market growth.
On to Slide 19, where I will outline our continued progress in the U.S. In March, we signed a long-term strategic partnership with Hard Rock Digital, the exclusive global vehicle for online for Hard Rock International, the iconic global entertainment brand. Hard Rock Digital will combine the strength of this global brand with a proven management team, some of whom we at Playtech have known for many years and believe to be amongst the strongest in the online gambling industry. The deal will see Playtech supply its Live and casino products amongst others in North America. Outside of North America, these products will also be supplied in addition to the IMS and services, including marketing and operations.
As part of the agreement, Playtech has also invested $85 million in exchange for a low single-digit percentage minority equity ownership stake, the proceeds of which will be used to help fund Hard Rock Digital's continued global expansion. Some of you will have seen the recent Florida ruling on mobile sports betting. If upheld on appeal, this has the potential to further enhance our future prospects, given our equity investment in Hard Rock Digital, although we note that our sports product is not part of the agreement in Florida.
We continue to expand our presence in the U.S. with other partners too. 2022 saw us sign multiple deals with U.S. operators. 2023 is the year where we are focusing on launching with these brands. So far this year, we have launched with PokerStars in Michigan for both casino and Live. We have also launched with Rush Street Interactive's BetRivers brand in Michigan in addition to a Sugar House brand in New Jersey, both for casino. In addition, we expanded our partnership with BetMGM with the launch of Casino in Michigan while launching Live with betPARX in New Jersey and rolling out the IMS in both Ohio and Maryland, expanding our presence with betPARX to 5 states. In 2023, so far, Playtech has received licenses for Ohio, Maryland and West Virginia, taking the total number of U.S. states where Playtech has a license to 10.
Finally, we continue to roll out more and more content across the U.S. with 115 games now launched up from just over 80 at the end of 2022. These include Adventures Beyond Wonderland for Live Casino, Mega Fire Blaze Roulette, a Playtech Live Casino hit in a number of countries and the Buffalo Blitz Live slot game.
Turning to Slide 20 and moving on to other countries in the Americas outside the U.S. We have previously talked about how our success in this region is rooted in our structured agreements. The blueprint for the structured agreements is Caliente in Mexico, where both parties have achieved great success since the start of our partnership. We are extremely excited about the Brazilian market. Sports betting has now been regulated there, and we expect Brazil to be a significant high-growth market given the large population and love of sports.
Playtech is well positioned to benefit, given its exciting strategic agreement with Galera.bet, which migrated its sports product onto Playtech's platform at the end of H1 of this year. In addition, Playtech has been increasing its exposure to Brazil via other B2B partners, some of which are amongst the largest in the country.
Revenues from Wplay in Colombia have been on an upward trajectory since its migration to Playtech technology in late 2020. And we expect this business will be a significant contributor to our revenues going forward.
And finally, a few words on NorthStar, where we announced an expansion of our partnership in February. The latest agreement includes an equity investment and also expands the scope of Playtech's offering to include operational and marketing services in addition to the broad suite of products already launched.
Revenue from NorthStar grew considerably in the half, driven by a favorable regulatory environment and attractive market economics. Total player value is showing impressive momentum up over 50% in Q2 '23 versus Q1 '23, while ROI and cost per acquisition metrics are also trending favorably.
Given the strong market demand and dynamics and our expanded relationship, we are excited to see how this, a structured agreement develops as NorthStar accelerate its footprint across Ontario and other markets across Canada.
On Slide 21, we outlined the progress made in the Live segment so far this year. The Live business has performed well in the first half of the year with revenues growing healthy growth. In regulated markets where we are focusing our efforts, we have performed very well with revenues up 24% year-on-year. Adjusted EBITDA margins have remained high at 39% despite the increased investment we are making in this segment.
We have also expanded with several operators in H1, including PokerStars, and 888 in Michigan and betPARX in New Jersey as well as launching with new brands, including the DAZN Bet in Spain. We continue to invest in this business and expect to launch a third studio in the U.S. with Pennsylvania in addition to our existing Live studios in New Jersey and Michigan. Following the strong early performance of our studio in Lima, we are also planning a second studio in Peru in H2 to cater to the fast-growing Americas market.
Innovation is part of our DNA, and we continue to invest in new concepts and content to give operators a first-class range of products. In August 2023, Playtech announced the launch of Jumanji, The Bonus Level, a new game within Live that combines cutting-edge technology with the first-ever cinematic qualities of the famous movie.
In July 2023, Playtech also announced the launch of Big Bad Wolf, which combines the first true slot game with elements of a live experience from Quickspin Live, the RNG arm of our Live division. In the same month, Adventures Beyond Wonderland was launched in the New Jersey facility delivering the first true game show experience to the American market. The best-in-class content helps to drive cross-selling opportunities.
Turning to Slide 22. For those that are unfamiliar with our SaaS business, it was launched in 2019 for those operators that do not use the IMS but want access to our content in a plug-and-play type SaaS model. We have added over 400 brands since launching with more than 50 brands added in H1 and more in the pipeline to launch in H2. And if you look at the distribution of where these revenues are generated both by country and by brand, you will see that we have an extremely diverse range of customers for multiple countries across different products. This helps to further diversify our B2B revenues, makes us more resilient to any changes in the market or operating environment.
At the full year results in March, we set a medium-term revenue target of €60 million to €80 million. We are pleased to report we are firmly on track to deliver on this with SaaS revenues up more than 50% in H1 versus the same half last year, rising to €23 million. As the contribution margin is high on this type of business model, we expect to see a material contribution from the SaaS business to the B2B adjusted EBITDA in the medium term.
Moving to Slide 23, where we summarize the progress we have made on our medium-term strategic priorities for the B2C division. Snaitech's retail footprint is a significant advantage and we intend to leverage this presence in order to grow Snaitech's higher-margin online business. We are revamping the website, which is expected to launch in the coming months. We have also introduced a new loyalty program and are continuing to roll out new features and content within online. As previously touched on, we are committed to transforming HAPPYBET and optimizing it for online. The Snaitech management has several initiatives underway, and we are starting to see the benefits come through, although there is still more to come.
Finally, given the flexibility of our balance sheet and attractive opportunities we would consider targeted M&A to expand Snaitech. We have already executed against this objective with a small bolt-on acquisition of Giove for €6 million, which was completed in H1, and the pipeline of potential deals remains strong.
On to Slide 24, where we will outline the investment we are making in the online segment to ensure we make full use of our strong brand, built using our retail presence. We are in the middle of revamping the Snaitech website to significantly improve the customer experience supported by the latest technology. The beta version has just been launched with the full rollout expected later this year. This will help not only to improve user experience, but boost customer acquisition and create upselling opportunities. We are also renewing our technology infrastructure, allowing us to collect data from multiple sources in real time, ensuring scalability and improving customization.
And finally, we are broadening our content offering and tools and features. In H1, we added over 200 slot games to our online offering. In addition, we have rolled out a new loyalty program and added a feature that allows influencers to stream themselves and interact with their audience as they watch games thereby tapping into the social gaming brand.
Turning to Slide 25. I want to spend a moment on the progress made by the Snaitech management team in transforming HAPPYBET. The online strategy is focused on 3 areas and already showing early signs of success. Firstly, we are looking to optimize the entire bonus strategy, which has yielded strong results thus far. The bonus to GGR ratio has decreased by more than 40% in H1 versus the same period last year.
Secondly, by leveraging Snaitech's expertise in Italy, we are seeing improvements to payout ratios. Payout rates decreased by more than 400 basis points in Q2 versus Q1 of this year.
Thirdly, we are looking to optimize marketing spend to ensure we are being more efficient around where we allocate resources. As a result, cost per acquisition has declined by more than 10% versus last year.
On the retail side, we are also seeing good progress. Underperforming shops have been closed in Germany, which has resulted in GGR per retail shop in Germany being up by more than 10% in the first half of the year. In Austria, we have expanded the number of retail sites in the most profitable federal states of Tyrol and Vienna, which has resulted in revenues within the Austrian retail segment being up by over 40% versus the first half of last year.
There is still work to do, but we feel these early signs of improvement demonstrate that HAPPYBET is on the path to profitability in the coming years.
Now turning to Slide 26. At Playtech, we are committed to growing our business in a way that has a positive impact on our people, our communities and the environment and the industry. In 2020, we launched sustainable success, a 5-year sustainable and responsible business strategy. I'm pleased to tell you that the first half of 2023 continue to see significant progress across a number of key areas, most notably in safer gambling and climate change. As a business, the most impactful contribution that Playtech can make to the industry and in society is through the provision of technology to advance safer gambling and player protection. That's why in 2022, we integrated our industry-leading Playtech Protect tool into our IMS and continue to develop this offering further. In H1, we signed an additional 5 brands up for our BetBuddy tool, bringing the total number up to 15 in 8 jurisdictions.
We are equally mindful that urgent action is required to sustainability, reduce the impact of climate change. That's why we have set ourselves a target of reducing Scope 1 and 2 emissions by 40% by 2025. In H1, we secured inclusion in the FT Europe Climate Leaders listing published in April 2023.
Last but by no means least, it is easy to forget that the war in the Ukraine continues to rage on causing untold devastation. I would like to say a huge thank you to our colleagues who have devoted significant amounts of time and resources to maintain contact with those on the ground in the Ukraine and those who have been forced out of their homes.
And finally, on to Slide 27. In summary, we have started 2023 very well, delivering record half year results with adjusted EBITDA of €220 million. In B2B, we are well positioned for growth across several attractive markets. In the U.S. and Canada, we are excited about the Hard Rock Digital partnership as well as NorthStar in Canada. The regulatory environment remains very attractive, and the long-term market opportunity largely untapped.
In LatAm, we are excited about the opportunities in both Brazil and Colombia, and expect this to increase their contribution to the B2B business. We are also showing the seeds for further growth in the medium term by looking to enter new markets such as Peru and Chile. We have made significant investments in Live and SaaS, and we expect this to continue to deliver good growth in the coming years.
In the B2C division, we will focus on leveraging our valuable retail presence to drive growth in online. In HAPPYBET, we have seen early signs of improvement across both retail and online and we expect this to continue in H2 of this year and beyond. In addition, our pipeline for M&A is strong as we continue to evaluate M&A opportunities.
Over the previous 2 sets of results, we gave medium-term adjusted EBITDA targets, which we are confident in achieving. In the more immediate term, given the strong performance in H1, we are pleased to report that we are on track to be slightly ahead of our expectations.
Thank you for listening. Chris and I will now take any questions you may have.
We'll first take questions from the room, and then once we've exhausted those, we'll then move on to the conference call.
It's Roberta Ciaccia from Investec. I have actually 3 questions. The first 1 is on Asia. You said -- you showed in the slide that the reliance on Asian revenues on a 12-month basis is 10% of B2B sales. Can you tell us what's your view on how it will go for the rest of 2023 and going forward?
The second question is still on B2B. Any updates on the Caliente litigation?
And the third 1 is on B2C. You mentioned several times in the presentation M&A for Snaitech. I was wondering what kind of size of acquisitions you're looking for? And in case what geographical regions? That's all for me.
You want me to take it? I'll take it.
You start it.
Okay. So on Asia, obviously, we saw some decline in the first half. This is, we believe, temporary, given certain changes to market dynamics and certain changes to the approach of the government that forced operators to realign. However, we believe that actually this is only temporary and it will resume to more normalized levels in the second half and onwards. Obviously, it will not be immediate. However, having said that, I do believe that the rest of our business, given our focus, given the attractive growth opportunities that we have elsewhere, will grow by far faster than what we will find in Asia.
On Caliente, I will just say, obviously, it's a matter for the court, as you know, we have a disagreement in light of the strength, and I don't want anyone lose sight of the strength of the business that is not only the strength of the business, but also the trend and the fact that this business goes from strength to strength and continues to perform ahead of expectations. So we can't lose sight of that. And in light of that, we decided actually to go to the court to actually rule on a disagreement that we have to ensure that it is a third party rather than Playtech. Obviously, it's a matter for the court.
And once, obviously, there will be an update, we will be in a position to update our shareholders. And again, I will just summarize or just repeat that the business is performing strongly. And obviously, both parties are extremely happy about the performance of this business.
I'll take the third 1 on B2C M&A. I think we're looking at the Snaitech and the broader B2C business today. I think regionally, which is 1 part of your question, Roberta, I think the focus will be on regions that we're already operating in. So obviously, Italy, Germany or Austria, probably Italy first, but then Germany or Austria is also certainly a possibility.
On size, in Italy, I think everyone knows not necessarily that many assets out there. So I think bolt-on would probably be the more likely or the best way to describe any potential M&A in Italy.
And in other regions, perhaps a bit more flexibility. I think in Germany or Austria, that business can certainly do with more scale. But again, I think it -- and you're probably not talking about significant acquisitions, more just some probably bolt-ons as well just to give that business a bit more scale.
David Brohan here, Goodbody. I have 3 questions. Firstly, on the transformation program in B2B. Are you going to provide any guidance around the potential cost savings for the division? Or is it more a case of resources been reallocated to the best opportunities?
Secondly, could you give an update on what the pipeline looks like for the next 12 months in terms of getting licensed in the U.S. states above and beyond the 10 you already have?
And then finally, just on HAPPYBET, some very good progress there was evidenced by the KPIs. What kind of time line are you thinking in terms of getting that business to profitability?
So why don't I -- I'll take the transformation and HAPPYBET one, and Mor can do the U.S. On the transformation program, we'll certainly give you more detail on this going forward. I think the first point to make clear, cost efficiencies is not the #1 priority of the program. There will be an element of that without question. But it's about making sure -- I think the #1 priority is about making sure that Playtech has the right resources aligned to the right segments and right geographies for the next 5 to 10 years of its future. So we're -- we've got a multiyear transformation program that we've effectively just started in recent months. But that's the #1 goal is around sharing we're properly aligned for where we want this business to be in the future.
There will be some efficiencies that come with that, but that will more likely result in a reallocation and investment into other areas. But we will come back to you with much more detail on this as it continues to develop.
On HAPPYBET breakeven, we made some progress, but obviously, it's still some way to go. I think our plan at this point is to late 2024, early 2025 to reach breakeven. So that's a little bit of a ways yet, but we are on the -- heading in the right direction.
Yes. On the U.S., specifically in the States, obviously, we have a number of products that we offer in the U.S. It starts with the IMS. We just launched in Ohio and Maryland, the IMS together with betPARX. We have in some other states, say SSBTs and obviously, New Jersey, Michigan, Pennsylvania, we operate gaming or we supply our gaming products, Live and a Live Casino. The intention last year, it was 2 or 3 states. Now we have 10 states. The intention is obviously to apply in each and every state, to have presence in each and every state. Because I think that Playtech can and will bring a new fresh breadth to the market. I think that, obviously, the market is going -- there was a race to market share. Obviously, people are now more conscious about the marketing spend. People are more conscious about ROI.
If before people couldn't care less about player value, they said, "I don't care about player value only market share." Now people do care about player value retention. And Playtech, I think, is best positioned to provide them with the tools to maximize lifetime value, reduce churn rates. And this is why we prepare ourselves for a rollout across the U.S. Obviously, we also believe that game more states will regulate gaming, and we want to be and enjoy the first-to-market advantage when this will happen.
Ivor Jones from Peel Hunt. Could you talk about the run rate losses in the U.S. or U.S. losses in the first half, just so we can work out the delta if you get that business to breakeven?
And then you've talked a little bit about cash flow, Chris, but CapEx is up in the second half. You've talked about a need to catch up with CapEx in Snaitech with lots of development. Particularly on the Snaitech side, have we reached peak CapEx that now comes down after you've caught up on that tech debt or with all the investment in Live on the B2B side, does CapEx just keep growing? Is it becoming a more capital-intensive business?
Yes. Maybe on the second one. So I think on Snaitech CapEx, the biggest change -- the biggest driver is the concession payments. So there's -- between the sports betting and machines in 2023, there will be -- I mentioned €20 million in the second half, there were €6 million or €7 million in the first half as well. That goes up to €33 million in total next year in 2024. So the rest of CapEx will probably be -- that's Snaitech. There may be timing differences from 1 year to the next, but the remainder of the Snaitech CapEx should broadly be the same year-over-year.
There's some things like some years, they're going to refurbish their race track, which might be incremental or things like that. But otherwise, it should broadly be stable from 1 year to the next, but concessions will be the -- probably the biggest driver of Snaitech CapEx.
U.S. losses, it's currently double-digit millions on an annual basis, largely from absorbing the Live Casino facilities that are operational, and we're signing up customers, but the revenue is going to follow. So we're supporting the entire U.S. business at the moment from a cost perspective, the customers have signed and are being signed and are growing, but the revenue is sort of lagging the cost a little bit, but that's going to come. But that's on an annual basis, that's where we're at, at the moment in the U.S.
If I may, just to basically complete that, Ivor, I just thought about it to complete the answer on the U.S. and the states, right? Remember that we already secured a relationship with most operators. So we want to be in a position. I mean, we have a relationship with DraftKings, not yet in the U.S. but outside. We have a relationship with FanDuel. We have a relationship with Rush Street, not to mention betPARX, not to mention Hard Rock Digital, not to mention 888, and the list goes on. And so the intention of Playtech is to be ready in each and every market and be able to operate and be able to offer each and every one of its product verticals and infrastructure in each and every state.
Obviously, Playtech is a very unique company, not other -- no other company worldwide can supply what Playtech supplies, from infrastructure to each and every product vertical. Some are doing a great job in a certain vertical but miss the others. So Playtech has a complete set of solutions, products and best-in-class offerings and we want to be ready. So whenever and wherever an operator extends to a new state or would like to extend the reach together with Playtech in an existing state, Playtech will be ready, Playtech will be licensed and we will be able to go ahead and deploy our solutions. So this is why we are so conscious of the fact that it is important for us to continue adding more states in the coming months and years.
Richard Stuber from Numis. Just 1 question really on Brazil. You seem to be sort of very optimistic about that, and that could be the next sort of Mexico. But could you sort of -- could you give some sort of quantification in terms of how big that could be? How big is Galera.bet, for example, within that market? And because of your relationship with Galera.bet, does that stop you benefiting from other operators growing in Brazil? So just a bit more color of any opportunity there, please?
I'll take the last part, but maybe Mor would spend a lot of time.
You want to talk about the revenues of -- in Brazil in general?
Yes. It's -- I mean it's growing really solid, and that's more than just Galera.bet to the last point of your question, Rich. We have a number of customers in Brazil. That market has grown a lot in the last few years in anticipation of regulation, which we now have finally have more visibility on. So the revenue in Brazil has grown quite strongly. It's still in the unregulated categories that we report on the slide I showed earlier. I can give you some more color offline later around the magnitude of that. But the Brazil business is growing really well. And that's often what we see in end markets in anticipation of regulation. And I'm sure Mor will give you more color on Galera and the market there.
Yes. Just to highlight I asked Chris to answer the first part just to say the same. Just so you understand, for Live Brazil is the largest for Playtech. Brazil is already 1 of 5 largest contributors in terms of geographies to Playtech. Playtech already operates with some of the largest operators you can find in Brazil, supplying its Casino and Live Casino. It's a pure extension of our relationship outside of Brazil. Obviously, we have an exciting partnership with Galera. It's still very small. It's a new entrant to the market. It's a start-up business. But actually, it's 1 that in the last 18 months, has grown significantly, and we have big expectations from this business.
When you combine the B2B business that we have and Galera.bet in 1 of the fastest-growing and 1 of the most attractive countries worldwide because of the large population and the love of sports, specifically football, right? It's -- you have all the ingredients there to be excited about it, but also and not only get excited, but really focused on that. So we invest heavily into Brazil into solutions, specifically for the Brazilian market. And the Brazilian market, is somewhat different to what you find outside. Its characteristics is somewhat different, but it's definitely an exciting market.
Just to put it into perspective, so you understand the magnitude. Market estimates are that the market size today is $5 billion to $5.5 billion. We believe that actually, it's more like $8 billion to $10 billion already. There are -- the market is very, very fragmented. Obviously, ahead of regulation, a lot of operators focus on sports in anticipation for sports to be regulated. And this makes Brazil already the #2 country worldwide.
If people, if you only focus on market estimates of $5 million to $5.5 million, then obviously, it's third largest but relatively quickly, we will become #2. And this is why we are so excited. Now the market is fragmented, but from a supply perspective and the operators that operate there in terms of the opportunity for Playtech, it's not as competitive and not as complicated as the U.S. People talk about the U.S., but these are -- this is 30 states, in each and every one, you have different regulations, different regulator, different process you have to go through, a local license you need to obtain. And then you basically need to implement technical infrastructure in today, almost each and every state still, right?
So you can't really compare. Brazil is a 250-plus million population, one country, one language, one regulator and -- which makes it easier to basically establish our presence. And like I said, we are very, very excited not only about the market, but also the partners that we have. First and foremost, the B2B partners, but also Galera, which we are very, very excited about.
If there are no more questions in the room, can we move to the conference call, please?
[Operator Instructions]. Our first question comes from Ed Young from Morgan Stanley.
I've just got two small follow-ups left. First of all, on the Caliente core settlement, obviously, I don't expect you to preempt the decision as you spoke in your previous answer, but could you give us some idea of your expectation of timing? Is this something you expect this year? Could it be next year? Could it be the year after that? Any kind of clarification there would be useful.
And then second of all, again, I don't expect you to give the detail. I appreciate with the B2B transformation that I'll cover at a later date. But could you give us somewhat of your mindset around this? Is this about integrating businesses in a more complete way, is this about shared back end in services? Or are you also considering potentially certain non-core disposals or areas of that business that you don't need in the shape of the business of the group is going?
Yes, I may -- Maybe I'll take both of those. I think on the Caliente court case, I think the short answer is we don't know, it's out of our control. The expectation is 2024 before we likely get a ruling on that. Exactly when in 2024, we're not entirely clear, to be honest. So it's a bit out of our control, but it certainly won't be this year. And probably potentially well into 2024 before we get an answer.
Then on the transformation, I think all the points you raised that are valid. And I think the short answer is nothing is off the table. I think we're looking at everything we can do, whether that's being inefficient and deprioritizing certain areas and reallocating resources to other areas. Non-core disposals is not a priority of it, but we will look at every business unit we have. And if there are any of that we decide aren't strategic and aren't essential to where we feel Playtech is going, that is a possibility.
I don't want to create over -- create expectations around that. It's not necessarily a focus of the program, but it certainly -- we will be looking at the financial performance and strategic rationale for every business unit that we have. So I think it's going to encompass all of those things.
Our next question comes from Simon Davies from Deutsche Bank.
Can you hear me okay?
Yes.
Perfect. Just a few from me. Firstly, dividends. No reference in the discussion to dividends at all. You obviously used to be generous payer, nothing for the last 4 years. Leverage is now below 1x. When might you potentially relaunch dividends? Or is it no longer on the agenda?
Second, on Brazil, lots of upside there. When do you think iGaming could be legalized? And what percentage of the existing Brazilian business is iGaming related?
And lastly, on Caliente, you talked about strong performance. Can you give us some numbers on that in terms of growth rates or actual revenues delivered in the half?
Yes, I'll take a couple of those anyway. So on dividends, it's something as you'd expect us to do as a board, we evaluate and discuss on an ongoing basis. Currently, where we sit today, as we've said in the statement and the presentation, our focus is on organic and inorganic growth as a way to allocate our capital. But that being said, we will continue to evaluate shareholder return. So it's something we do on a regular basis, and we'll do ahead of our full year results as well. We'll continue to evaluate dividends or other potential returns. But as we sit here today, we see a lot of growth opportunities ahead. And I think that's our focus and preferred use of capital.
But again, if we do realize that we are underlevered compared to the target leverage ratio that I said, and -- we've been -- I think we've shown to be very prudent with M&A. We haven't done any sizable M&A in Snaitech that was over 5 years ago. So we aren't going to do M&A for the sake of it. We'll be very prudent and rational in how we approach it. And if nothing comes to fruition, then I think dividends will be strongly considered in the future, but it's not our -- necessarily our #1 focus today.
And the last one, I think you asked, Simon, around Caliente revenue. If you look, we disclosed Mexico revenue in our accounts, the vast majority of which comes from Caliente. So I think that was a pretty good picture of the Caliente revenue, but we can discuss that offline if you want more details.
And Mor, do you want to discuss iGaming in Brazil?
On Brazil, it's not yet clear when the regulations of iGaming will be introduced. Obviously, they are very focused on delivering the regulations, the sports betting regulation. It took them some time, but it appears as if now it has been approved, and it's now a more technical in nature until it will be -- until it will come into effect. We monitor closely. We are adding conversations. For us, obviously, it's still -- the majority is iGaming. It's not necessarily the case for other operators. But the market has been operating under the current framework for quite some time. We don't expect it to change materially in the near future at least and we continue to monitor the developments beyond sports betting in Brazil.
There is a big commitment by the operators to a lot of media companies. So it's to a lot of media companies, to a lot of football clubs. It's now the betting and gaming industry, albeit not yet fully regulated or under the local regulations yet, soon it will be the case, are truly committed and spend a lot of money and resources into Brazil, which is obviously a good sign. And this is why we believe that this is that over time, there is a real potential that they will consider iGaming as well. But currently, it's very focused on sports betting. Needless to say the Galera.bet is [indiscernible] both.
We currently have no further questions. So I would like to hand the call back to the room.
So if there are no more questions, I'd just like to thank you all for attending, and there's refreshments out in the atrium. Thank you.
Thank you very much. Thanks.
Thanks, everyone.