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Flutter Entertainmnt (FLTR)

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Thursday 27 August, 2020

Flutter Entertainmnt

Half-year Report

RNS Number : 2604X
Flutter Entertainment PLC
27 August 2020
 

 

27 August 2020

Flutter Entertainment plc - 2020 Interim Results

Positive first half performance; Maintaining momentum as integration progresses

Flutter Entertainment plc (the "Group") announces interim results for the six months ended 30 June 2020.

 

Reported1

Pro forma2

£m

H1

H1

 

H1

H1

 

Constant Currency3

2020

2019

 

2020

2019

 

£m

£m

YoY %

£m

£m

YoY %

YoY %

 

 

 

 

 

 

 

 

Revenue4

1,522

1,020

+49%

2,389

1,975

+21%

+22%

 

 

 

 

 

 

 

 

Adjusted5 EBITDA6

342

216

+59%

684

523

+31%

+35%

 

 

 

 

 

 

 

 

Profit before tax

24

81

-70%

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share7

18.1p

96.2p

-81%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted5 earnings per share7

187.5p

145.5p

+29%

286.3p

183.3p

+56%

 

 

 

 

 

 

 

 

 

Net Debt

2,899

356

 

 

 

 

 

Operational highlights

· Combination with The Stars Group ("TSG") delivering enhanced diversification; evident in H1 performance

Integration under way with focus on maintaining business momentum

New organisational structure in place; Australian integration well advanced; global technology decisions progressing

· Group ex-US: Strong momentum through H1 against backdrop of Covid-19 disruption

Sports: Favourable results in Q1; strong performance in Q2 benefitting from continuation of horse racing in Australia

Gaming: Excellent performance with significant growth in our recreational customer base

· US: Sports and gaming market share leader in H18; 44% online sportsbook; 27% online gaming

Over 350,000 customers acquired in H1, primarily through FanDuel and TVG

Proprietary FanDuel account and wallet launched in all states

· Aligning regulatory approach across expanded Group; changes expected to cost Group circa £65m in contribution on an annualised basis

· Enhanced player protections during Covid-19 disruption

· Strong focus on employee wellbeing, without taking advantage of furlough schemes

· Investment opportunities identified for sustainable future growth across the Group

Financials 2,3,5,6

· Pro forma Group revenue growth of 22% in H1 (global online +29%); reported revenue increase of 49%

· Pro forma Adjusted EBITDA £684m, growth of 35%; reported Adjusted EBITDA £342m  

· Leverage9 was 2.3 times at end of H1, driven by the strong EBITDA growth and some working capital benefits that we expect to unwind in H2

· No interim dividend in 2020 as per previous guidance (2019 interim: 67 pence per share)

 

Outlook 2,5,6

· Encouraging trading H2 to date, benefitting from condensed football fixtures, favourable sports results and ongoing resilience of gaming

· The outlook remains highly uncertain, due to potential further Covid-19 related disruption and possible regulatory change across various markets

· Assuming normalised net revenue margins for balance of year, no material further disruption to sporting events and no further shutdown of retail operations, we anticipate that 2020 pro forma Adjusted EBITDA will be:

Between £1,175m and £1,325m for Group ex-US, reflecting an additional £50m marketing investment in H2 over H1 and enhanced RG/AML measures introduced in PokerStars

An EBITDA loss of £140-160m in the US, assuming online launches in Tennessee and Michigan in H2 and the continuation of mobile registration in Illinois for the full remainder of the half.

· Based on mid-range EBITDA outcome, leverage ratio9 expected to be circa 2.5-2.8 times at year-end

 

Peter Jackson, Chief Executive, commented:

"The first half of 2020 has been defined by the outbreak of the global Covid-19 pandemic. For Flutter, my primary concern has been to keep our colleagues and customers safe. I am proud of the support we have been able to provide to our employees during this challenging time and the additional safer gambling measures we have put in place to enhance player protection. The pandemic has been a highly unusual backdrop for completion of our combination with The Stars Group and I would like to take this opportunity to thank all of my colleagues across the enlarged Group for their hard work, commitment and resilience as we have combined to form one team.

 

The Group's first half financial performance exceeded expectations as we benefitted from geographic and product diversification. In the period prior to Covid-19 related disruption, our businesses performed well with strong customer growth and favourable sports results. In the period thereafter, the cancellation of sports and closure of our shops led to reduced sports revenues in the UK and Ireland. However, this was more than offset by an increase in the number of recreational customers playing our poker and gaming products globally, as people sought new forms of home entertainment. In Australia and the US, the continuation of horse racing meant that overall sports revenues grew in both regions.

 

While maintaining strong trading momentum, we have also made good progress since May on the integration with TSG. All four regional CEOs have been appointed and most key leadership roles have now been filled. Important decisions are progressing on our technology plans and we are aligning our regulatory and responsible gambling approach across the expanded Group. In Australia, integration is particularly well advanced and we will migrate BetEasy customers over to Sportsbet imminently. We plan to provide a more detailed strategic update, as well as a synergy update, at the time of our full year results in March 2021.

 

The second half has started well, with good sports betting performance following the return of major sport events, whilst gaming performance has remained resilient. Looking ahead, we have identified promising opportunities to increase investment across the Group and, while the outlook with respect to Covid-19 remains highly uncertain, the diversification of our Group means we approach the future with confidence."

 

 

 

 

 

 

 

 

 

 

Notes:

1 Reported represents the IAS 34 reported numbers.  Where amounts in the table have been normalised for SDIs they are labelled as adjusted.

2 Flutter's combination with TSG completed on May 5 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers include a 6-month contribution from Adjarabet in 2019 (completion date: Feb 1 2019). See Appendix 4 for a reconciliation of pro forma results to statutory results.

3 Constant currency ("cc") growth is calculated by retranslating the non-sterling denominated component of H1 2019 at H1 2020 exchange rates (see Appendix 5). Growth rates in the commentary are in local or constant currency except reported numbers which are in nominal currency.

4 Revenue excludes SDIs which relate to a £13.7m refund of VAT from the HMRC, based on the historic incorrect application of VAT to UK gaming machines.

5 The "Adjusted" measures exclude separately disclosed items that are not part of the usual business activity of the Group, and have therefore been reported as "separately disclosed items (SDIs)" (see note 5 to the financial statements).

6 EBITDA is profit before interest, tax, depreciation and amortisation expenses and is a non-GAAP measure post IFRS-16.

7 The 2019 earnings per share figures have been restated to incorporate the 1,312,260 new Flutter ordinary shares that were issued in May 2020 as payment of the 2019 final dividend. The weighted average number of shares in issue during the period was adjusted to include these bonus shares as if they were issued 1 January, 2019.

8 Market share refers to Flutter's total share of the online gross gaming revenue in the states where our sportsbook and gaming products were live online in H1. Sports betting: Colorado, Indiana, New Jersey, Pennsylvania and West Virginia. Gaming: New Jersey and Pennsylvania.

The leverage ratio is calculated using pro forma Adjusted EBITDA for the 12-month period to 30 June 2020.

10 Differences due to rounding unless otherwise stated

 

 

Analyst briefing:  

The Group will host a questions and answers call for institutional investors and analysts this morning at 9:30am (IST/BST). Ahead of that call, a presentation will be available on the Group's corporate website ( www.flutter.com ) from 8am. To dial into the conference call, participants need to register at https://cossprereg.btci.com/prereg/key.process?key=PU4DAXQJL where they will be provided with the dial in details they should dial.

A presentation replay facility will also be available later today on our corporate website: https://www.Flutter.com/investors .

 

 

Contacts:

Investor Relations:

 

David Jennings, Group Director of Investor Relations & F,P&A

+ 353 87 951 3560

Ciara O'Mullane, Investor Relations

+ 353 87 947 7862

Liam Kealy, Investor Relations

+ 353 87 665 2014

Press:

 

Fi Thorne, Corporate Affairs 

+ 44 75 2111 4787

Billy Murphy, Drury / Porter Novelli

+ 353 1 260 5000

James Murgatroyd, Finsbury

+ 44 20 7251 3801

 

Business Review 1,2,3,4

The first half of 2020 was a significant one for the Group with the completion of our merger with The Stars Group ("TSG"). The combination has increased our scale and enhanced the diversification of our revenue streams, both on a product and geographical basis.

In the face of the Covid-19 pandemic we have managed to run the business remotely across some of our busiest days while also making a great start in bringing our two businesses together. Feedback from colleagues with respect to our response to the Covid-19 crisis has been positive; employee surveys have revealed that our team felt that we introduced the right precautions to keep our colleagues and customers safe and that they were supportive of our decision not to take advantage of the various Government financial support schemes offered.

Against this challenging backdrop, we were very pleased with the performance of the Group. During the first half, our revenue increased by 22% to £2.4bn and Adjusted EBITDA by 35% to £684m on a pro forma basis. This performance reflected two very distinct periods.  Pre March 15 the Group delivered a strong performance, with pro forma revenues 26% higher year-on-year.  In the period thereafter (March 16 to June 30, "the disrupted period"), our poker and gaming offerings delivered substantial year-on-year growth, while the continuation of horse racing in both Australia and the US, coupled with a run of bookmaker friendly sports results, benefited our sportsbooks globally. Therefore notwithstanding the cancellation of many sports, our revenues grew 20% in the disrupted period. 

Combination with TSG

On May 5 2020, we completed our combination with TSG. In addition to the clear diversification benefits that the transaction brought, it enhanced the Group's brand portfolio, adding high quality consumer-facing names such as Sky Bet, Sky Vegas and PokerStars to the Flutter stable. It also strengthened the breadth of the Group's technology capabilities, with our task now to develop and expand our range of innovative products while delivering the best player protection framework to our customers. In the 3½ months since completion, we have made important decisions on how we will operate and run the business:

· Operating model and organisation design: Flutter will continue to operate a decentralised operating model, with a lean Group function supporting four regional teams. The four regions will be (i) UK and Ireland (which includes Sky Betting & Gaming ("SBG"), Paddy Power and Betfair UK&I operations), (ii) International (comprising PokerStars, Betfair International, Adjarabet and the Group's risk and trading B2B operations), (iii) Australia and (iv) US (FanDuel, FoxBet, TVG and PokerStars US operations). Our 4 divisional CEOs have all been appointed and most key leadership roles have been filled. We intend to report earnings on this revised 4 division basis from 2021 on.

· Technology: Protecting the momentum in each part of the business is of paramount importance and our approach to technology integration has been developed with this principle in mind. We have concluded that PPB's current online sports betting platform will become the Group's global sports betting platform. The roll out of this platform to FanDuel will commence later this year and we plan to deploy it to other parts of the Group over time.

· Improving the quality and sustainability of the business: We said at the time of the merger announcement that we would review the compliance standards and market exposures of the combined Group once the transaction was complete. Where standards differed from those of Flutter, we aimed to adopt the higher of the two. Our review has fallen into 2 broad categories;

(i)  the quality of TSG's safer gambling/anti money laundering (AML) procedures; and,

(ii)  the legal, regulatory and tax risk of each international market.

 

While we are yet to fully complete our review, we have identified areas where improvements need to be made. For example, in the area of safer gambling/AML procedures, we have put our enhanced checks in place. In addition, there were a small number of TSG jurisdictions that Flutter had previously determined it would not operate in and in such cases, we have now switched these markets off. We estimate that the combined impact of these measures will reduce contribution on an annualised basis by c.£65m.

· Australian integration well advanced: While pleased with the pace of Group-wide integration efforts, progress in Australia is most advanced at this point. Following a detailed review, our conclusion was that a single brand strategy would give us the best opportunity to maintain product leadership and current momentum and we have wasted no time in executing on our plan. BetEasy customers will be migrated across to Sportsbet imminently.

Across the remaining divisions, detailed reviews are well advanced to determine our brand, product and technology strategies. Once completed we will move swiftly to execute on our plans, just as we have in Australia. We intend to provide a further detailed update on these plans and synergies at our full year results in March.

First half review

On a combined basis, the pre-Covid-19 disrupted period started well with revenues up 26% on a pro forma basis, helped by bookmaker friendly sports results and ongoing gaming customer growth across our recreational brands. Growth was particularly strong at SBG, reflecting good underlying momentum and a significant variance in year-on-year net revenue margin. In the US, FanDuel launched its online casino in Pennsylvania in January as well as retail operations in Mississippi and Michigan.

From mid-March on, the impact of Covid-19 disruption was felt across our businesses in different ways. The widespread disruption to the sporting calendar materially impacted our sports and retail businesses. This was most acute in Europe where, in addition to all mainstream sports being postponed, UK and Irish horse racing was suspended for 2½ months. In Australia, and to a lesser degree the US, horse racing continued behind closed doors, experiencing a higher level of prominence on mainstream television in the absence of competing sports. This higher exposure, coupled with the closure of retail betting, led to an accelerated migration of customers from retail to online. It remains to be seen whether these customers will continue to bet online as retail outlets re-open.

In contrast to our sports betting operations, our poker and casino businesses experienced a major uplift in player numbers during this period as people sought new ways to entertain themselves while staying at home. PokerStars' average daily gaming customers increased 70% year-on-year in Q2, despite relatively low levels of marketing investment. This pattern was similar to that seen at PPB and SBG where average daily gaming actives were up 65% in Q2.

Customer activity has been encouraging since the resumption of sports. Sky Bet has seen sportsbook customer numbers return to normal levels, benefitting from the condensed UK football calendar. Paddy Power was the most downloaded betting app during Royal Ascot, having offered festival-like generosity to coincide with the resumption of racing. Encouragingly, despite the return of sports, overall gaming performance has remained resilient across our brands. In the US we retained our online sportsbook and gaming leadership position with a combined market share of 31%5 in H1. FanDuel online sportsbook now has over half a million customers and is operating across 6 states, following our launch in Colorado in May and Iowa in August.

This combination of volume-led gaming growth, stronger horse racing revenues in Australia and the US and the successful return of sports has resulted in Group revenue growth of 20% during the disrupted period.

Maintaining player engagement responsibly: A key focus for our teams throughout the period has been responsible engagement with customers, with an emphasis on providing entertainment experiences.

At PokerStars for example, our customer surveys highlighted that the number one reason customers signed up was to join friends and family playing online. Home games, where friends have the option of playing poker against each other for virtual chips (at no cost) proved particularly popular, with average daily players increasing more than 7-fold in Q2 versus the prior quarter. With very limited sporting events occurring in Q2, our sports-led brands designed innovative content to remain relevant to our customers. Examples included free-to-play daily fantasy contests on the Democratic Party's presidential debate, 'Darts from Home' on Paddy Power and Super 6 contests on the NFL Draft in April.

Safeguarding the wellbeing of our customers remains paramount and we were particularly conscious of our heightened responsibility while 'stay-at-home' restrictions were in place. We further increased our safer gambling measures with customer interactions two-thirds higher in Q2 versus Q1 for both PPB and Sportsbet. In SBG we sent deposit limit messaging to over 700,000 customers that were active with our brands in the early weeks of the pandemic. Across PPB and SBG, total combined UK revenue was down 13% in Q2. Meanwhile at PokerStars, customers on average spent around £10 per week in the first half of 2020, consistent with H1 2019.

Increasing investment as we target sustainable growth

At the time of our equity Placing in May, we outlined how we believed the evolving landscape could create additional investment opportunities for the Group, most notably in the US (where the prospects for accelerated online regulation were improving) and in other markets where we were seeing faster customer migration from retail to online. In addition, as we have reviewed the PokerStars business, we have identified further opportunities to invest in areas such as marketing, product and technology.

US: The US remains a key focus of investment for the Group. At our full year results in February, we outlined how we expected to offer FanDuel's online sportsbook to 21% of the US population in 2021 (across 9 legislated states). Since then legislation has also been passed in Virginia (c. 2.5% of US population), with planned referenda in Maryland and Louisiana in H2 to potentially approve sports betting there also. Our planned investment in Michigan and Illinois may now occur earlier than we previously anticipated. Michigan could possibly "go live" date in Q4 2020, subject to regulatory approvals. In Illinois, the requirement for in-property mobile account registration has been temporarily removed in response to the Covid-19 outbreak. It remains uncertain as to how long the easing of this restriction will remain in place. Along with new state launches, investment in technology has been a priority and we are pleased to now have our own proprietary account and wallet live across all states. We expect to begin migration of FanDuel's existing third-party online betting platform to in-house technology before the end of 2020.

Online migration: We have highlighted in the past the ongoing migration of customers from retail to online in our core markets. In the last two years alone, this has contributed to a circa 20% reduction in the number of betting shops in the UK. Research has shown that retail brands only retain 40-50% of their customers who migrate online6. A similar channel shift is evident in Australia, where retail accounted for 31% of sportsbook gross revenue in 2019, down from 44% in 2016. We believe that the current Covid-19 pandemic is accelerating these trends and therefore our goal remains to acquire as many migrating customers as we can, through ongoing investment in product and value. With approximately 88% of the global gambling market still estimated to be offline7, the future potential growth from this customer migration remains significant.

PokerStars: Prior to the combination with TSG, our hypothesis had been that PokerStars' historically high profit margins were driven, in part at least, by underinvestment. As we have sought to better understand the business post completion, we have identified 3 areas where we feel there may be opportunities to make additional investments:

· Marketing: Sales and marketing investment as a percentage of revenue was just 14% in 2019 compared with an industry average of around 25% while casino revenue growth in recent years has been a function entirely of cross-sell from poker, with negligible investment in direct casino acquisition.

· Promotional generosity: Customer generosity (free bets etc.) as a percentage of gross revenue has been reduced significantly at PokerStars over the last 5 years. This reduction has been deliberate, with specific initiatives undertaken to make sure that generosity was being directed towards customers who would enhance the overall health/liquidity of the poker ecosystem. While these measures have been effective, we know that we must get the balance right as we protect and develop our business for the long-run.

· Product, technology and customer experience: It is clear that the customer perception of the PokerStars product lags behind competitors in a number of jurisdictions and we have work to do to address this. We are looking at ways in which we may be able to accelerate development work on product and operational improvements to address these gaps and to build increased flexibility into the technology stack. In addition, much can be done to improve the sports betting offering within our newly formed International division and we will leverage the assets of the rest of the Group to accelerate this.

Finally, we continue to assess acquisition opportunities where we feel they will further enhance the growth profile and diversification of the Group. Given the strength of our presence in our core markets (e.g. UK, Ireland and Australia), it is more likely that such transactions will be pursued by our International division.

Capital structure and balance sheet

To better position the Group to take advantage of these investment opportunities, we took a number of steps during the first half to strengthen our balance sheet. In March, we were pleased to refinance Flutter's existing debt with well-priced facilities totalling £1.4bn. In response to the global pandemic, we paid our final 2019 dividend payment in the form of shares. Finally on May 28, we successfully raised £813m via an equity placing, with the funds used to repay existing debt.

Flutter debt is currently rated as investment grade by one rating agency. As we continue to execute on our financial goal to de-lever, we believe a clear path will emerge to further improve our rating. This should in turn provide us with the opportunity to refinance our remaining debt, thus further reducing finance costs for the Group. At 30 June 2020 the pro forma leverage8 of the Group was below our expectations at 2.3 times. Leverage at year-end is expected to be higher (at circa 2.5-2.8 times), reflecting additional US investment year on year, working capital movements and the other investment opportunities we have noted above. We are confident that the highly cash generative nature of the Group will bring us to our leverage target of 1-2 times over the medium-term. Once we have returned to within this range, we will re-examine the Group's dividend policy.
 

Operating and Financial Review1,2,3

Group4,9,10,11

 

Reported

Pro forma

 

H1

H1

 

H1

H1

 

CC12

 

2020

2019

Change

2020

2019

Change

Change

 

£m

£m

%

£m

£m

%

%

 

 

 

 

 

 

 

 

Sports revenue

924

794

+16%

1,199

1,117

+7%

+8%

Gaming revenue

598

225

+165%

1,190

858

+39%

+40%

Total revenue

1,522

1,020

+49%

2,389

1,975

+21%

+22%

 

 

 

 

 

 

 

 

Cost of sales

(496)

(301)

+65%

(738)

(566)

+30%

+32%

Cost of sales as a % of net revenue

32.6%

29.5%

+310bps

30.9%

28.7%

+230bps

+220bps

 

 

 

 

 

 

 

 

Gross profit

1,026

719

+43%

1,650

1,409

+17%

+18%

 

 

 

 

 

 

 

 

Sales and marketing

(287)

(214)

+34%

(426)

(389)

+9%

+10%

Contribution

740

505

+47%

1,224

1,020

+20%

+22%

 

 

 

 

 

 

 

 

Other operating costs

(360)

(263)

+37%

(473)

(435)

+9%

+9%

Corporate costs

(38)

(26)

+45%

(67)

(62)

+9%

+7%

 

 

 

 

 

 

 

 

Adjusted EBITDA1,2

342

216

+59%

684

523

+31%

+35%

Adjusted EBITDA margin

22.4%

21.1%

+130bps

28.6%

26.5%

+210bps

+260bps

 

 

 

 

 

 

 

 

Depreciation and amortisation

(89)

(69)

+29%

(117)

(103)

+14%

+14%

 

 

 

 

 

 

 

 

Adjusted1 operating profit

253

147

+73%

567

420

+35%

+40%

 

 

 

 

 

 

 

 

Adjusted net interest expense

(35)

(7)

+415%

 

 

 

 

Separately disclosed items

(194)

(59)

+230%

 

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

24

81

-70%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted1 earnings per share13

187.5p

145.5p

+29%

286.3

183.3p

+56%

 

 

 

 

 

 

 

 

 

Basic earnings per share13

18.1p

96.2p

-81%

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

-

67.0p

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt at period end14

£2,899m

£356m

 

 

 

 

 

Note: Flutter's combination with TSG completed on May 5 2020. Reported 2020 numbers reflect a full 6-month contribution from Flutter and a 56-day contribution from TSG. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers include a 6-month contribution from Adjarabet in 2019.

Reported revenue grew by 49% year-on-year in H1 2020 to £1,522m, following completion of the Group's combination with TSG. Reported Adjusted EBITDA increased by 59% to £342m. 

Reported profit before tax was £24m (H1 2019: £81m) after charging separately disclosed items ("SDIs") totalling £194m (H1 2019: £59m). The uplift in SDIs was driven by an increase in the amortisation of acquired intangibles, as well as costs associated with the merger.

Pro Forma

Total revenue increased by 22% in H1 to £2,389m with Adjusted EBITDA growth of 35% to £684m.

The first half performance reflects two distinct phases; the first (from January 1 to March 15) was characterised by a "normal" trading environment while the second phase (from March 16 to June 30) saw widespread disruption to global sporting events as a result of Covid-19. In the commentary that follows, we refer to the period from March 16 to June 30 as the "disrupted period".

Total Group sports revenue increased by 8% in H1 with growth of 43% pre-disruption and a decline of 11% in the disrupted period. Sports revenue grew by double digit percentages across every division in the pre-disrupted period, with the highest growth recorded at SBG due to a substantial improvement in net revenue margin year-on-year (+940bps). Overall Group net revenue margins increased by 330bps year-on-year in the pre-disrupted period, helped by favourable sports results.

During the disrupted period, sports revenue declined by 32% across our UK and Irish online facing businesses (PPB and SBG) while retail revenues were down 94%, reflecting the closure of our shops for approximately 2½ months. Elsewhere sports revenue performance was more robust with the continuation of racing in Australia leading to growth there of 57%. In the US the continuation of horseracing behind closed doors drove average daily actives growth of 79% for TVG in Q2.

Gaming revenue was 40% higher in H1, with the key driver being the uplift in recreational customer numbers across the Group's online poker and gaming platforms during the disrupted period. Pre-disruption, gaming growth had been +7% with increases in PPB, SBG and the US, partly offset by declines in TSG (poker-led) and Retail, where the business was still lapping the introduction of the £2 staking limit on FOBTs.

Cost of sales as a percentage of revenue increased by 220 basis points, driven by higher direct costs in the Group's US business and an additional quarter of higher remote gaming duty in the UK (from 15% to 21%).

Sales and marketing investment across the Group grew 10% with the increase almost entirely driven by the US. Excluding the US, sales and marketing grew 1%. Other operating costs increased by 9% in H1, reflecting continued investment in people and technology as the Group continues its international expansion.

This resulted in Adjusted EBITDA growth of 35% in H1.  The 'Adjusted' EBITDA measure is consistent with 'Underlying' EBITDA as per previous Flutter financial reports. This is solely a change in naming convention to reflect accounting best practice.

Our multi-year investment in online product and technology, combined with expansion in our US footprint, has resulted in an increase in depreciation and amortisation of 14% in the half.

As we flagged at the time of the merger announcement, there are certain costs (such as share based payments and recurring professional/legal fees) that TSG historically treated as separately disclosed items (SDIs) but which Flutter considers "business as usual" operating costs. Flutter intends to treat these costs as operating costs going forward. Had Flutter's accounting treatment been applied to TSG's 2019 reported earnings, TSG's full year EBITDA would have been £663m versus its previously reported figure of £724m, a reduction of £61m. A full reconciliation of previously reported financials to presented pro forma financials can be found in Appendix 3.

Net interest expense increased by £28m reflecting the additional debt taken on by the Group following the combination with TSG in May. Separately disclosed items primarily relate to the amortisation of acquired intangibles and transaction costs relating to the TSG merger. Further detail in relation to these costs is available in the section below on separately disclosed items.

The Group's adjusted pro forma effective tax rate was 9.3% (H1 2019: 13.4%) primarily driven by the mix of taxable earnings among and across geographies. 

 

PPB

 

PPB Total

PPB Online

PPB Retail

 

H1

H1

 

H1

H1

 

H1

H1

 

 

2020

2019

Change

2020

2019

Change

2020

2019

Change

Pro forma

£m

£m

%

£m

£m

%

£m

£m

%

 

 

 

 

 

 

 

 

 

 

Sportsbook stakes

2,222

3,594

-38%

1,839

2,688

-32%

383

907

-58%

Sportsbook net revenue margin

10.9%

8.9%

+200bps

10.2%

7.7%

+250bps

14.6%

12.5%

+210bps

 

 

 

 

 

 

 

 

 

 

Sports revenue

320

448

-29%

264

335

-21%

56

113

-51%

Gaming revenue

220

210

+5%

197

167

+18%

23

43

-46%

Total revenue

540

658

-18%

461

502

-8%

79

156

-50%

 

 

 

 

 

 

 

 

 

 

Cost of sales

(157)

(175)

-11%

(140)

(140)

+0%

(17)

(36)

-53%

Cost of sales as a % of net revenue

29.0%

26.7%

+230bps

30.3%

27.8%

+250bps

21.6%

23.0%

-140bps

 

 

 

 

 

 

 

 

 

 

Gross profit

383

483

-21%

321

362

-11%

62

120

-49%

 

 

 

 

 

 

 

 

 

 

Sales and marketing

(127)

(133)

-5%

(124)

(129)

-4%

(3)

(3)

-17%

Contribution

256

350

-27%

198

233

-15%

59

117

-50%

 

 

 

 

 

 

 

 

 

 

Other operating costs

(171)

(170)

+1%

(103)

(91)

+13%

(69)

(80)

-14%

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1,2

85

179

-53%

95

142

-33%

(10)

37

-126%

Adjusted EBITDA margin

15.7%

27.3%

-1,160bps

20.5%

28.4%

-780bps

-12.4%

23.7%

-3,610bps

 

 

 

 

 

 

 

 

 

 

Depreciation and amortisation

(47)

(45)

+6%

(26)

(24)

+9%

(21)

(21)

+2%

 

 

 

 

 

 

 

 

 

 

Adjusted1 operating profit

37

134

-72%

69

119

-42%

(31)

16

-295%

 

 

 

 

 

 

 

 

 

 

                

The PPB division operates the Paddy Power, Betfair and Adjarabet brands online, as well as retail operations in the UK and Ireland. 

Total revenue (online and retail combined) reduced 18% to £540m, leading to a 53% decline in Adjusted EBITDA.

Online

Total online net revenue declined 8% in H1 to £461m, with a 21% reduction in sports and 18% increase in gaming.

Sportsbook stakes reduced 32% due to Covid-19 disruption, partly offset by a 250 basis point increase in net revenue margin. The margin improvement reflected a 220 basis point benefit from favourable sports results and increased customer interest in less mainstream sports. Sportsbook revenue declined 9% in H1 as a result. Exchange and B2B revenue reduced 40% year-on-year given its higher correlation to the volume of sporting events. Sports revenue was 21% lower in H1, having been 19% higher in the pre-disrupted period.

Gaming revenue growth was driven by excellent customer growth. Average daily actives across our 3 brands grew 37%, helped by some substitution of sports betting spend to gaming. Customer growth also reflected our continued focus on acquiring recreational customers.

Cost of sales as a percentage of revenue increased 250 basis points, reflecting the full half impact of the increase in remote gaming duty in the UK in April 2019 and a greater share of revenues coming from gaming rather than sports. Sales and marketing costs were 4% lower year-on-year but increased as a percentage of revenue (26.9% versus 25.9% in H1 2019). Other operating costs increased 13% as a result of continued tech investment in personalisation and our overall gaming proposition. Online EBITDA declined 33% to £95m.

Retail

PPB Retail generated an EBITDA loss of £10m in H1, reflecting the closure of shops for around 2½ months. Performance prior to the closures was encouraging, with revenue growth of 13% in the pre-disrupted period. This was delivered despite the introduction of staking limits on UK gaming machines in April 2019. The strong performance also reflected favourable sports results and an ongoing benefit from competitor closures. Our shops re-opened by the end of June and we have been pleased with customer activity levels since. We remain confident that our estate can make further market share gains as competitors continue to reduce the size of their estates.

 

 

SBG9

 

H1

H1

 

 

2020

2019

Change

Pro forma

£m

£m

%

 

 

 

 

Sportsbook stakes

1,639

2,339

-30%

Sportsbook net revenue margin

14.8%

7.4%

+740bps

 

 

 

 

Sports revenue

253

185

+36%

Gaming revenue

186

146

+27%

Total revenue

439

331

+32%

 

 

 

 

Cost of sales

(119)

(91)

+30%

Cost of sales as a % of net revenue

27.0%

27.6%

-60bps

 

 

 

 

Gross profit

320

240

+33%

 

 

 

 

Sales and marketing

(70)

(73)

-4%

Contribution

250

167

+50%

 

 

 

 

Other operating costs

(66)

(56)

+17%

 

 

 

 

Adjusted EBITDA1,2

184

111

+66%

Adjusted EBITDA margin

41.9%

33.4%

+860bps

 

 

 

 

Depreciation and amortisation

(12)

(11)

+5%

 

 

 

 

Adjusted1 operating profit

172

99

+73%

 

 

 

 

SBG includes Sky Bet sportsbook and Sky Vegas gaming businesses as well as Oddschecker

SBG increased revenue by 32% in H1 to £439m, with strong growth across both sports and gaming.

Sports revenue grew 36% with Sky Bet's net revenue margin doubling year-on-year to 14.8%. This significant increase reflected a number of factors:

· Sports results were bookmaker friendly in H1, contributing to a 590 basis point improvement in net revenue margin. Sky Bet has a higher mix of UK football, where results were particularly favourable.

· Sky Bet's expected margin increased by approximately 100 basis points due to customers betting on less mainstream (higher margin) sports. This increase in expected margin was likely a temporary phenomenon, given the postponement of traditional sports during the second quarter.

· Reduced investment in promotional activity during the 2020 Cheltenham Festival compared to elevated levels in 2019.

While net revenue margins doubled, sportsbook stakes declined 30%. This was primarily due to the cancellation of sporting events - stakes declined 46% year-on-year in the disrupted period.

Gaming revenue increased 27% year-on-year, driven by excellent customer growth; average daily actives were up 59% versus the prior year. This growth highlights the recreational appeal of the Sky Vegas brand which was the UK's most downloaded casino app in the first half of the year. The app consistently outscores competitors on key metrics such as ease of use, trust and quality of products available.

While cost of sales grew broadly in line with revenue growth, sales and marketing declined 4% with deferral of some non-committed spend once sports events were cancelled. Other operating costs grew 17% reflecting the ongoing investment being made within the business.

Overall SBG benefitted from strong operating leverage with adjusted EBITDA growth of 66% to £184m.
 

PokerStars4,9

 

H1

H1

 

CC12

 

2020

2019

Change

Change

Pro forma

£m

£m

%

%

 

 

 

 

 

Sportsbook stakes

308

389

-21%

-19%

Sportsbook net revenue margin

8.6%

7.6%

+100bps

+100bps

 

 

 

 

 

Sports revenue

27

30

-10%

-9%

Gaming revenue

671

479

+40%

+43%

Total revenue

697

509

+37%

+40%

 

 

 

 

 

Cost of sales

(147)

(114)

+29%

+29%

Cost of sales as a % of net revenue

21.1%

22.3%

-120bps

-180bps

 

 

 

 

 

Gross profit

550

395

+39%

+43%

 

 

 

 

 

Sales and marketing

(82)

(74)

+10%

+10%

Contribution

469

321

+46%

+51%

 

 

 

 

 

Other operating costs

(89)

(84)

+6%

+6%

 

 

 

 

 

Adjusted EBITDA1,2

380

237

+60%

+67%

Adjusted EBITDA margin

54.5%

46.6%

+780bps

+900bps

 

 

 

 

 

Depreciation and amortisation

(23)

(18)

+29%

+29%

 

 

 

 

 

Adjusted1 operating profit

357

220

+63%

+70%

 

 

 

 

 

PokerStars includes the PokerStars, PokerStars Casino, PokerStars Sports and Full Tilt brands which collectively offer online poker, casino and sports betting products. Excludes PokerStars US business.

PokerStars increased revenue by 40% in H1 to £697m. Gaming grew 43%, with poker revenue growth of 38% and casino growth of 51%. 

In the pre-disrupted period, total gaming revenues declined 3%, with a continuation of the declining poker trend reported in the fourth quarter of 2019. Had the overall gaming trend continued for the entire first half, we estimate PokerStars' revenue would have been approximately £205m lower.

Post disruption, PokerStars experienced elevated customer numbers across both its poker and casino platforms as people sought alternative forms of home entertainment. In Q2, average daily customers increased by 70% leading to revenue growth of 75%.

While the absolute level of marketing spend increased by £8m year-on-year in H1, it reduced as a percentage of revenue from 14.9% to just 11.7%. This reflected good organic customer growth from mid-March despite low levels of marketing investment and highlights the resilience of the PokerStars brand. Other operating costs increased by 6%, primarily reflecting increased investment in product and technology. This was partially offset by cost saving initiatives rolled out in the second half of 2019. 

Adjusted EBITDA for the division was £380m, an increase of 67% on the prior year.

 

 

Australia4,9

 

H1

H1

 

CC

 

2020

2019

Change

Change

Pro forma

£m

£m

£

A$

 

 

 

 

 

Sportsbook stakes

3,723

3,312

+12%

+18%

Sportsbook net revenue margin

11.7%

9.5%

+220bps

+220bps

 

 

 

 

 

Revenue

435

314

+39%

+45%

 

 

 

 

 

Cost of sales

(200)

(140)

+43%

+50%

Cost of sales as a % of net revenue

45.9%

44.5%

+140bps

+150bps

 

 

 

 

 

Gross profit

235

174

+35%

+41%

 

 

 

 

 

Sales and marketing

(59)

(56)

+5%

+10%

Contribution

176

118

+49%

+56%

 

 

 

 

 

Other operating costs

(55)

(49)

+11%

+16%

 

 

 

 

 

Adjusted EBITDA1,2

121

69

+76%

+84%

Adjusted EBITDA margin

27.9%

21.9%

+600bps

+600bps

 

 

 

 

 

Depreciation and amortisation

(14)

(15)

-3%

+1%

 

 

 

 

 

Adjusted1 operating profit

107

54

+98%

+108%

 

 

 

 

 

The Australian division encompassed the Sportsbet and BetEasy online sports betting brands during H1.  

Pro forma net revenue in our Australian online business grew by 45% in H1 to £435m as it benefitted from the temporary closure of retail betting outlets nationwide in Q2.

While most major sports were postponed/cancelled from mid-March on, horse racing crucially continued behind closed doors, resulting in our combined Australian business experiencing growth in daily active racing customers of more than 30% in the half. The increased prominence of racing, coupled with the temporary closure of retail, led to an acceleration in the migration of retail customers online. As a result, pro forma Australian revenues grew 57% year on year during the disrupted period.

Overall stakes grew 18% in the half, notwithstanding a 220 basis point improvement in the sportsbook net revenue margin. There were a number of different factors that contributed to these increases:

· Results were favourable during H1 and we estimate this added 120 basis points to the net revenue margin.

· The increased prominence of racing, with more racing content being televised on primetime free-to-air television.  Racing is a structurally higher margin product than other sports.

· The addition of some traditional retail customers who tend to bet on higher margin racing products.

· Increased investment in Australian racing customer generosity in the half. This reduced net revenue margin by 110bps versus the prior year.

While sales and marketing costs increased 10% year-on-year, they reduced as a percentage of revenue by 430bps. Other operating costs increased £6m, reflecting ongoing investment in our platforms.

Adjusted EBITDA grew 84% to £121m in the half, reflecting excellent operational leverage.
 

US4,9

 

H1

H1

 

CC

 

2020

2019

Change

Change

Pro forma

£m

£m

£

US$

 

 

 

 

 

Sportsbook stakes

1,090

862

+26%

+23%

Sportsbook net revenue margin

4.9%

4.0%

+90bps

+90bps

 

 

 

 

 

Sports revenue

164

140

+18%

+14%

Gaming revenue

113

23

+394%

+380%

Total revenue

278

163

+71%

+66%

 

 

 

 

 

Cost of sales

(116)

(46)

+153%

+145%

Cost of sales as a % of net revenue

41.9%

28.3%

+1,360bps

+1,360bps

 

 

 

 

 

Gross profit

162

117

+38%

+34%

 

 

 

 

 

Sales and marketing

(88)

(53)

+67%

+63%

Contribution

73

64

+14%

+11%

 

 

 

 

 

Other operating costs

(92)

(75)

+23%

+19%

 

 

 

 

 

Adjusted EBITDA1,2

(19)

(11)

+69%

+68%

Adjusted EBITDA margin

-6.9%

-7.0%

+10bps

-10bps

 

 

 

 

 

Depreciation and amortisation

(18)

(11)

+61%

+57%

 

 

 

 

 

Adjusted1 operating profit

(38)

(23)

+65%

+62%

 

 

 

 

 

The US includes FanDuel, FoxBet, TVG, PokerStars and Betfair brands, offering regulated real money and free-to-play sports betting, online gaming, daily fantasy sports and online racing wagering products to customers across various states in the US

Revenue grew 66% in H1, benefitting from our diversified US product offering. We are the only operator offering sports betting, daily fantasy sports, casino, poker and horse racing wagering. The key drivers of our growth were: 

· Online sportsbook was live in 5 states compared with 2 the prior year (Pennsylvania, Indiana and Colorado launched since H1 2019) while we launched our online casino in Pennsylvania in January 2020.

· Strong growth in TVG thanks to the continuation of US horse racing, with racing enjoying greater prominence on mainstream television, leading to a year on year growth in average daily actives of 79% in Q2

· Substitution of spend from sports betting to gaming following widespread disruption to global sports

· In the first half alone, we added more than 350,000 customers across our US business  

Sportsbook stakes increased by 23% in the half with growth of 81% in Q1 partly offset by a 44% reduction in Q2. Net revenue margin increased by 90bps reflecting a combination of favourable sports results, an uplift from changes in sports mix and further enhancement of our risk and trading capabilities.

During Q2, when most US sports were postponed or cancelled, the combination of strong performance in our TVG horse racing business, coupled with better-than-anticipated sportsbook staking, meant that Q2 sports revenues still grew 4%. This was despite the decline in daily fantasy revenue which was particularly pronounced given its high correlation with the number of sporting events that take place.

Gaming revenue grew 380%, with continued strong growth in New Jersey boosted by the launch in Pennsylvania of the FanDuel Casino in January and PokerStars in November 2019. Q2 benefitted from substitution of customer activity to gaming, with revenues increasing more than fourfold. Cross-sell exceeded our expectations and direct gaming revenues more than doubled quarter on quarter, partly benefitting from redirection of marketing investment away from sports to gaming.

Cost of sales as a percentage of revenue increased materially year-on-year to 42%. Approximately half of the increase reflected changing product mix with daily fantasy sports revenues significantly reduced due to the cancellation of sports. DFS revenues have lower cost of sales associated with them. The remainder of the increase reflects changing state mix and some content cost appreciation.

Sales and Marketing grew in line with revenues. Other operating costs increased 19% in H1 as we continued to invest in our team and technology, with both the FanDuel and FoxBet online sportsbooks launching in Colorado in May. The US generated an Adjusted EBITDA loss of £19m in the half.

Separately disclosed items

 

H1

H1

 

2020

2019

 

£m

£m

 

 

 

Amortisation of acquisition related intangible assets

(128)

(59)

Transaction fees and associated costs

(26)

-

Restructuring and integration costs

(41)

-

VAT refund

10

-

Operating profit impact of separately disclosed items

(185)

(59)

 

 

 

Financial Income

49

-

Financial Expense

(59)

-

Profit before tax impact of separately disclosed items

(194)

(59)

 

 

 

Tax credit on separately disclosed items

14

9

Total separately disclosed items

(180)

(49)

 

 

 

Separately disclosed items do not relate to the usual business activity of the Group and therefore are excluded from adjusted1 profits.

During H1 2020, these costs included £128m of amortisation of acquired intangible assets recognised on accounting for the 2016 merger of Paddy Power and Betfair, the 2018 combination of the Group's US assets with FanDuel, the 2019 acquisition of Adjarabet and the 2020 combination with TSG.

The Group also incurred transaction fees and associated costs in relation to the combination of £26m, not including professional fees incurred by TSG prior to the date of completion. Restructuring and integration costs of £41m were also incurred by the Group relating to the realisation of synergies following completion.

During the period the Group received a VAT refund in respect of an historic claim for overpaid VAT in relation to retail gaming machines in the UK.

Financial income and expense items incurred reflect gains and/or losses on items relating to the Group's debt financing, principally related to embedded derivatives and foreign exchange. The expense line also includes a £9.5m loss arising from additional contingent consideration payable for HRTV, now part of TVG. For further details, see notes 5 and 6 of the financial statements.

Foreign Exchange

At current spot rates, the foreign exchange impact on H2 2020 EBITDA versus H2 2019 is a circa £9m headwind. 

 

 

Outlook

The second half of the year has started well, benefitting from condensed football fixtures, favourable sports results and the ongoing resilience of gaming. However the outlook remains highly uncertain, due to potential further Covid-19 related disruption and potential regulatory change in various markets. Assuming normalised net revenue margins for the remainder of the year, no material additional disruption to sporting events and no further shutdown of retail operations, we anticipate that 2020 pro forma Adjusted EBITDA will be:

· Between £1,175m and £1,325m for Group ex-US, reflecting an additional £50m marketing investment in H2 over H1 and the cost of the enhanced RG/AML measures introduced in PokerStars.

· An EBITDA loss of £140-160m in the US, assuming online launches in Tennessee and Michigan in H2 and the continuation of mobile registration in Illinois for the full remainder of the half.  Should mobile registration be restricted at some point, the loss will likely be closer to the £140m end of the range.

Based on a mid-range EBITDA outcome, the Group's leverage ratio8 is expected to be circa 2.5-2.8x at year-end, reflecting additional investment in H2. We are very pleased with the progress achieved in H1 and we are excited about the opportunities we see for the business in H2 and beyond.

 

 

 

Cash flow and financial position

 

H1 2020

Pro forma

£m

 

 

Adjusted EBITDA

684

Capex

(118)

Working capital

105

Corporation tax 

(63)

Adjusted free cash flow

608

 

 

Cash flow from separately disclosed items (SDI)

(84)

Free cash flow

524

 

 

Interest cost

(101)

Other borrowing costs

(22)

Settlement of swaps

(28)

Lease liabilities paid and other

(19)

Net increase in cash before equity raise

356

Proceeds from equity raise

806

Net increase in cash

1,162

 

 

Net (debt)/cash at start of year

(3,827)

Foreign currency exchange translation

(253)

Change in fair value of hedging derivatives

19

Net debt at 30 June 202014

(2,899)

 

 

The net increase in cash during the period primarily relates to strong free cash flow of £524m and the proceeds of the Group's equity raise on May 28.

Free cash flow reflects capital expenditure during H1 of £118m. This represents a pro forma increase of £12m compared with H1 2019 due to investment in Group-wide product and technology development as well as US expansion plans. Working capital during the half was positively affected by the strong performance of the Group and the associated timing of certain related costs. We anticipate that capex for the full year will be circa £250-270m while much of the working capital benefit is expected to unwind in the second half.  

Cash flow from SDIs principally relates to professional fees and integration costs in relation to the combination with TSG.

Interest costs were £12m lower on a pro forma basis due to debt repayments during the period as well as more favourable financing which came into effect at completion.

Net debt at the end of the period incorporates an adjustment for unhedged foreign currency fluctuations relating to TSG USD and Euro denominated debt prior to completion. At completion, the Group assumed certain cross currency swap agreements and entered a new cross currency swap agreement, as part of its strategy to hedge the impact of currency fluctuations on its leverage ratio. Changes in the fair value of these hedging derivatives are also reflected in net debt.

As at 30 June 2020, the Group had net debt of £2,899m, excluding customer balances, representing a leverage ratio of 2.3 times.

 

Dividend

In line with our announcement of March 27th this year, the Board has suspended the Group's dividend for the current financial year ending 31 December 2020 (2019 interim dividend 67p per share). The Board is committed to reviewing dividend policy once the Group returns to its medium-term leverage target of 1-2x.

______________________________________________________________________________________

1 The "Adjusted" measures exclude separately disclosed items, that are not part of the usual business activity of the Group, and have been therefore reported as "separately disclosed items" (see note 5 to the financial statements).

2 EBITDA is profit before interest, tax, depreciation and amortisation expenses and is a non-GAAP measure. The Group uses EBITDA, Adjusted EBITDA and Adjusted operating profit to comment on its financial performance. These measures are used internally to evaluate performance, to establish strategic goals and to allocate resources. The directors also consider that these are commonly reported and widely used by investors as an indicator of operating performance and ability to incur and service debt, and as a valuation metric. These are non-GAAP financial measures and are not prepared in accordance with IFRS and, as not uniformly defined terms, these may not be comparable with measures used by other companies to the extent they do not follow the same methodology used by the Group. Non-GAAP measures should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with IFRS. All of the adjustments shown have been taken from the financial statements.

3 Flutter's combination with TSG completed on May 5 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers include a 6-month contribution from Adjarabet in 2019 (completion date: Feb 1 2019). See Appendix 4 for a reconciliation of pro forma results to statutory results.

4 Growth rates in the commentary are in local or constant currency12 except reported numbers which are in nominal currency.

5 Market share refers to total FanDuel and FoxBet's share of the online gross gaming revenue for H1 2020 in the states in which FanDuel was live. Sports betting: Colorado, Indiana, New Jersey, Pennsylvania, West Virginia. iGaming: New Jersey and Pennsylvania.

6 Source: Populus research, n=4,996

7 Source: H2GC.

8 The leverage ratio is calculated using pro forma Adjusted EBITDA for the 12-month period to 30 June 2020.

9 A full reconciliation of previously reported financials to presented pro forma financials can be found in Appendix 3.

10 Reported revenue and cost of sales exclude SDIs which relate to a £13.7m refund of VAT from the HMRC, based on the historic incorrect application of VAT to UK gaming machines.

11 Reported represents the IAS 34 reported numbers.  Where amounts in the table have been normalised for SDIs they are labelled as adjusted.

12 Constant currency ("cc") growth throughout the Business Review and Operating & Financial Review is calculated by retranslating the non-sterling denominated component of H1 2019 at H1 2020 exchange rates (see Appendix 5).

13 The 2019 earnings per share figures have been restated to incorporate the 1,312,260 new Flutter ordinary shares that were issued in May 2020 as payment of the 2019 final dividend. The weighted average number of shares in issue during the period was adjusted to include these bonus shares as if they were issued 1 January, 2019.

14 Net debt at 30 June 2020 is the principal amount of borrowings plus associated accrued interest, minus cash & cash equivalents plus/minus carrying value of debt related derivatives. This comprised of gross cash excluding customer balances of £787m and borrowings of £3,685m at 30 June 2020 (see Appendix 6).

15 Differences due to rounding unless otherwise stated

 

 

 

 

 

 

Appendix 1: Divisional Key Performance Indicators

Half yearly

 

 

 

Pro forma basis1

 

£m

PPB

SBG

PokerStars

Australia

US

Group

 

 

H1
 2020

H1
2019

%
Change

H1
 2020

H1
2019

%
Change

H1
 2020

H1
2019

%
Change

CC2 % Change

H1
2020

H1
2019

%
Change

A$ % Change

H1
 2020

H1
2019

%
Change

US$ %
Change

H1
 2020

H1
2019

%
Change

CC2 % Change

 
 

Sportsbook stakes

2,222

3,594

-38%

1,639

2,339

-30%

308

389

-21%

-19%

3,723

3,312

+12%

+18%

1,090

862

+26%

+23%

8,982

10,497

-14%

-13%

 

Sportsbook net revenue margin

10.9%

8.9%

+200bps

14.8%

7.4%

+740bps

8.6%

7.6%

+100bps

+100bps

11.7%

9.5%

+220bps

+220bps

4.9%

4.0%

+90bps

+90bps

11.1%

8.3%

+280bps

+280bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports revenue

320

448

-29%

253

185

+36%

27

30

-10%

-9%

435

314

+39%

+45%

164

140

+18%

+14%

1,199

1,117

+7%

+8%

 

Gaming revenue

220

210

+5%

186

146

+27%

671

479

+40%

+43%

0

0

n/a

n/a

113

23

+394%

+380%

1,190

858

+39%

+40%

 

Total revenue

540

658

-18%

439

331

+32%

697

509

+37%

+40%

435

314

+39%

+45%

278

163

+71%

+66%

2,389

1,975

+21%

+22%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

(157)

(175)

-11%

(119)

(91)

+30%

(147)

(114)

+29%

+29%

(200)

(140)

+43%

+50%

(116)

(46)

+153%

+145%

(738)

(566)

+30%

+32%

 

Cost of sales as % of net revenue

29.0%

26.7%

+230bps

27.0%

27.6%

-60bps

21.1%

22.3%

-120bps

-180bps

45.9%

44.5%

+140bps

+150bps

41.9%

28.3%

+1360bps

+1360bps

30.9%

28.7%

+230bps

+220bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

383

483

-21%

320

240

+33%

550

395

+39%

+43%

235

174

+35%

+41%

162

117

+38%

+34%

1,650

1,409

+17%

+18%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales & marketing

(127)

(133)

-5%

(70)

(73)

-4%

(82)

(74)

+10%

+10%

(59)

(56)

+5%

+10%

(88)

(53)

+67%

+63%

(426)

(389)

+9%

+10%

 

Contribution

256

350

-27%

250

167

+50%

469

321

+46%

+51%

176

118

+49%

+56%

73

64

+14%

+11%

1,224

1,020

+20%

+22%

 

Other
Operating Costs

(171)

(170)

+1%

(66)

(56)

+17%

(89)

(84)

+6%

+6%

(55)

(49)

+11%

+16%

(92)

(75)

+23%

+19%

(473)

(435)

+9%

+9%

 

Corporate costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(67)

(62)

+9%

+7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

85

179

-53%

184

111

+66%

380

237

+60%

+67%

121

69

+76%

+84%

(19)

(11)

+69%

+68%

684

523

+31%

+35%

 

Adjusted EBITDA margin

15.7%

27.3%

-1,160bps

41.9%

33.4%

+860bps

54.5%

46.6%

+780bps

+900bps

27.9%

21.9%

+600bps

+600bps

-6.9%

-7.0%

+10bps

-10bps

28.6%

26.5%

+210bps

+260bps

 

Depreciation & amortisation

(47)

(45)

+6%

(12)

(11)

+5%

(23)

(18)

+29%

+29%

(14)

(15)

-3%

+1%

(18)

(11)

+61%

+57%

(117)

(103)

+14%

+14%

 

Adjusted operating profit / (loss)

37

134

-72%

172

99

+73%

357

220

+63%

+70%

107

54

+98%

+108%

(38)

(23)

+65%

+62%

567

420

+35%

+40%

 

 

 

1 Flutter's combination with TSG completed on May 5 2020. The pro forma numbers presented show Group financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers include a 6-month contribution from Adjarabet in 2019 (completion date: Feb 1 2019).

2 Constant currency ("cc") growth is calculated by retranslating non-sterling denominated component of H1 2019 at H1 2020 exchange rates (see Appendix 5)

3 For split of PPB between Online and Retail, please see the KPIs section of our investor relations website.

 

 

 

Appendix 2: Divisional Key Performance Indicators

Quarterly, unaudited

 

 

Pro forma basis1

 

£m

PPB

SBG

PokerStars

Australia

US

Group

 

 

Q1
2020

Q1
2019

%
Change

Q1
2020

Q1
2019

%
Change

Q1
2020

Q1
2019

%
Change

CC2 % Change

Q1
2020

Q1
2019

%
Change

A$ % Change

Q1
2020

Q1
2019

%
Change

US$ %
Change

Q1
2020

Q1
2019

%
Change

CC2 % Change

 
 

Sportsbook stakes

1,433

1,777

-19%

960

1,168

-18%

158

202

-22%

-20%

1,545

1,641

-6%

+0%

864

469

+84%

+81%

4,959

5,258

-6%

-4%

 

Sportsbook net revenue margin

11.3%

7.7%

+360bps

15.0%

5.0%

+1000bps

10.4%

7.6%

+280bps

+280bps

10.4%

9.0%

+140bps

+140bps

4.6%

3.9%

+70bps

+70bps

10.5%

7.2%

+330bps

+330bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports revenue

211

201

+5%

151

65

+131%

16

15

+7%

+9%

161

148

+9%

+16%

88

69

+28%

+25%

627

499

+26%

+28%

 

Gaming revenue

107

108

-1%

80

72

+11%

268

245

+10%

+11%

0

0

n/a

n/a 

43

11

+313%

+304%

498

435

+14%

+16%

 

Total revenue

318

310

+3%

231

137

+68%

284

260

+9%

+11%

161

148

+9%

+16%

132

79

+66%

+62%

1,126

934

+21%

+22%

 

 

 

 

 

 

Pro forma basis1

 

£m

PPB

SBG

PokerStars

Australia

US

Group

 

 

Q2
2020

Q2
2019

%
Change

Q2
2020

Q2
2019

%
Change

Q2
2020

Q2
2019

%
Change

CC2 % Change

Q2
2020

Q2
2019

%
Change

A$ % Change

Q2
2020

Q2
2019

%
Change

US$ %
Change

Q2
2020

Q2
2019

%
Change

CC2 % Change

 
 

Sportsbook stakes

789

1,817

-57%

680

1,171

-42%

151

187

-20%

-18%

2,177

1,671

+30%

+34%

226

393

-42%

-44%

4,023

5,239

-23%

-23%

 

Sportsbook net revenue margin

10.4%

10.0%

+40bps

14.5%

9.8%

+470bps

6.8%

7.7%

-90bps

-90bps

12.6%

9.9%

+270bps

+270bps

6.2%

4.2%

+200bps

+200bps

11.9%

9.4%

+250bps

+250bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports revenue

109

247

-56%

102

120

-15%

10

14

-29%

-29%

273

166

+65%

+70%

76

71

+7%

+4%

571

618

-8%

-7%

 

Gaming revenue

113

102

+11%

106

74

+43%

403

235

+72%

+75%

0

0

n/a

n/a 

70

12

+464%

+444%

692

423

+63%

+66%

 

Total revenue

222

348

-36%

208

194

+7%

413

249

+66%

+69%

273

166

+65%

+70%

146

84

+75%

+69%

1,263

1,041

+21%

+22%

 

 

 

 

 

1 Flutter's combination with TSG completed on May 5 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers include a 6-month contribution from Adjarabet in 2019 (completion date: Feb 1 2019). Further details on pro forma Q3 and Q4 2019 revenues are available on Flutter's website.

2 Constant currency ("cc") growth is calculated by retranslating non-sterling denominated component of H1 2019 at H1 2020 exchange rates (see Appendix 5)

3 For split of PPB between Online and Retail, please see the KPIs section of our investor relations website.

 

 

 

Appendix 3 (i): Reconciliation of previously reported TSG results to Flutter pro forma results

H1 2019, unaudited

TSG previously filed quarterly reported results in US$m. The table below shows how these previously reported TSG financials translate into the pro forma numbers in £m shown elsewhere in this document for H1 2019. Alongside the change in reporting currency, Flutter made a number of changes to align TSG reporting with its own accounting policies, with the summary movements outlined below.

 

 

 

TSG Reported (US $m)

Adjustments
(US $m)

Per Flutter policies (US $m)

Legacy TSG pro forma (£m)

 

Legacy Flutter pro forma* (£m)

Total Flutter pro forma (£m)

 

H1 2019

1

2

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

 

 

 

 N/A

PPB*

 658

 658

Cost of sales

 

 

 

 

 

(175)

(175)

Gross profit

 

 

 

 

 

 483

 483

Total operating costs

 

 

 

 

 

(303)

(303)

Adjusted EBITDA

 

 

 

 

 

 179

 179

 

 

 

 

 

 

 

 

 

 

 

UK

Total revenue

 432

-

(4)

 -

 428

 331

SBG

 N/A

 331

Cost of sales

(133)

-

 15

 -

(118)

(91)

(91)

Gross profit

 299

 -

 11

 -

 310

 240

 240

Total operating costs

(156)

-

(11)

(1)

(168)

(129)

(129)

Adjusted EBITDA

 143

 -

 -

(1)

 142

 111

 111

 

 

 

 

 

 

 

 

 

 

 

INTERNATIONAL

Total revenue

 662

(4)

 -

 -

 659

 509

POKERSTARS

 N/A

 509

Cost of sales

(153)

 3

 3

 -

(147)

(114)

(114)

Gross profit

 509

(1)

 3

 -

 512

 395

 395

Total operating costs

(207)

 8

(3)

(3)

(204)

(158)

(158)

Adjusted EBITDA

 303

 8

 -

(3)

 307

 237

 237

 

 

 

 

 

 

 

 

 

 

 

AUSTRALIA

Total revenue

 126

-

 12

 -

 138

 107

AUSTRALIA

 207

 314

Cost of sales

(51)

-

(22)

 -

(73)

(56)

(83)

(140)

Gross profit

 76

 -

(10)

 -

 65

 50

 124

 174

Total operating costs

(60)

-

 10

(2)

(52)

(40)

(65)

(105)

Adjusted EBITDA

 16

 -

 -

(2)

 13

 10

 58

 69

 

 

 

 

 

 

 

 

 

 

 

US

Total revenue

 N/A

 4

 -

 -

 4

 3

US

 160

 163

Cost of sales

(3)

 1

 -

(2)

(2)

(44)

(46)

Gross profit

 1

 1

 -

 2

 1

 116

 117

Total operating costs

(11)

(1)

(10)

(22)

(17)

(111)

(128)

Adjusted EBITDA

(10)

 -

(10)

(20)

(16)

 4

(11)

 

 

 

 

 

 

 

 

 

 

 

CORPORATE

Total revenue

(3)

 -

 3

 -

 -

 -

CORPORATE COSTS

 -

 -

Cost of sales

 -

 -

 -

 -

 -

 -

 -

 -

Gross profit

(3)

 -

 3

 -

 -

 -

 -

 -

Total operating costs

(27)

 2

(3)

(20)

(47)

(36)

(26)

(62)

Adjusted EBITDA

(30)

 2

 -

(20)

(47)

(36)

(26)

(62)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROUP

Total revenue

 1,218

 -

 11

 -

 1,229

 950

GROUP

 1,025

 1,975

Cost of sales

(337)

 -

(4)

 -

(341)

(263)

(303)

(566)

Gross profit

 881

 -

 7

 -

 888

 687

 722

 1,409

Total operating costs

(449)

 -

(7)

(37)

(493)

(380)

(506)

(886)

Adjusted EBITDA

 432

 -

 -

(37)

 395

 307

 216

 523

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

1.  TSG US financials: These were previously reported within TSG International and 'Corporate', they have now moved to Flutter's US division. This increases the profitability of International and increases the loss in the US. The net EBITDA impact of this change is nil.

2.  Accounting treatment adjustments - Reclassifications:

Revenue recognition: The most material change here is in Australia where TSG reported revenue excluding Goods and Services Tax ("GST"). Flutter includes GST within revenue with a corresponding deduction in the cost of sales line.

UK Intercompany transactions: Certain costs and revenues that had been removed at a consolidated Group level, via the corporate cost centre, are now consolidated within SBG per Flutter policies. Separately TSG previously recorded an 'Other income' line in each of its divisions, which has been reallocated to sports or gaming as appropriate. This is not visible in the table above.

Expense allocation: Reallocation of expenses between cost of sales and operating expenses, principally relating to treatment of affiliates, licensing, streaming, and other costs.

As with the US adjustment above, these are simply reclassifications with nil net impact on Adjusted EBITDA at a Group level.

3.  Accounting treatment adjustments - separately disclosed items:

Applying Flutter accounting policies in relation to separately disclosed items results in certain items previously added back to Adjusted EBITDA within TSG now being reported as ongoing expenses. These include share-based payments, non-recurring professional/legal fees and certain other costs. The application of Flutter policy to TSG 2019 reported earnings would have been -$37m at the EBITDA line in H1.

* Note PPB H1 2019 results are pro forma for Adjarabet, acquired in February 2019 as well as combining the legacy PPB Online and retail divisions.

 

Appendix 3 (ii): Reconciliation of previously reported TSG results to Flutter pro forma results

Financial Year 2019, unaudited

 

This reconciliation is as per above, but for the 2019 full calendar year. Please see notes above for further details.

 

 

 

TSG Reported (US$m)

Adjustments
(US$m)

Per Flutter policies (US$m)

Legacy TSG pro forma (£m)

 

Legacy Flutter pro forma* (£m)

Total Flutter pro forma (£m)

 

FY 2019

1

2

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

 

 

 

 N/A

PPB*

 1,323

 1,323

Cost of sales

 

 

 

 

 

(355)

(355)

Gross profit

 

 

 

 

 

 968

 968

Total operating costs

 

 

 

 

 

(578)

(578)

Adjusted EBITDA

 

 

 

 

 

 390

 390

 

 

 

 

 

 

 

 

 

 

 

UK

Total revenue

 947

-

(8)

 -

 939

 736

SBG

 N/A

 736

Cost of sales

(292)

-

 32

 -

(260)

(203)

(203)

Gross profit

 655

 -

 24

 -

 679

 533

 533

Total operating costs

(330)

-

(24)

(2)

(357)

(280)

(280)

Adjusted EBITDA

 325

 -

 -

(2)

 322

 253

 253

 

 

 

 

 

 

 

 

 

 

 

INTERNATIONAL

Total revenue

 1,312

(12)

 -

 -

 1,300

 1,018

POKERSTARS

 N/A

 1,018

Cost of sales

(297)

 12

 7

 -

(278)

(217)

(217)

Gross profit

 1,015

(0)

 7

 -

 1,022

 801

 801

Total operating costs

(410)

 37

(7)

(0)

(382)

(298)

(298)

Adjusted EBITDA

 605

 37

 -

(0)

 641

 503

 503

 

 

 

 

 

 

 

 

 

 

 

AUSTRALIA

Total revenue

 274

-

 25

 -

 300

 235

AUSTRALIA

 446

 681

Cost of sales

(104)

-

(45)

 -

(150)

(117)

(182)

(299)

Gross profit

 170

 -

(20)

 -

 150

 118

 264

 382

Total operating costs

(126)

-

 20

(1)

(107)

(84)

(137)

(221)

Adjusted EBITDA

 44

 -

 -

(1)

 43

 34

 127

 161

 

 

 

 

 

 

 

 

 

 

 

US

Total revenue

 N/A

 12

 -

 -

 12

 10

US

 376

 386

Cost of sales

(12)

 2

 -

(11)

(8)

(116)

(124)

Gross profit

 0

 2

 -

 2

 1

 261

 262

Total operating costs

(38)

(2)

(19)

(59)

(47)

(297)

(343)

Adjusted EBITDA

(38)

 -

(19)

(57)

(45)

(36)

(82)

 

 

 

 

 

 

 

 

 

 

 

CORPORATE

Total revenue

(5)

 -

 5

 -

 -

 -

CORPORATE COSTS

 -

 -

Cost of sales

 -

 -

 -

 -

 -

 -

 -

 -

Gross profit

(5)

 -

 5

 -

 -

 -

 -

 -

Total operating costs

(48)

 2

(5)

(55)

(106)

(82)

(55)

(137)

Adjusted EBITDA

(53)

 2

 -

(55)

(106)

(82)

(55)

(137)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROUP

Total revenue

 2,528

 -

 23

 -

 2,551

 1,999

GROUP

 2,145

 4,144

Cost of sales

(693)

 -

(5)

 -

(698)

(546)

(652)

(1,198)

Gross profit

 1,835

 -

 18

 -

 1,854

 1,453

 1,493

 2,946

Total operating costs

(914)

 -

(18)

(77)

(1,010)

(790)

(1,067)

(1,857)

Adjusted EBITDA

 921

 -

 -

(77)

 844

 663

 426

 1,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix 4: Reconciliation of pro forma results to Statutory results

The merger of Flutter and TSG completed on 5 May 2020, with the merger accounted for as an acquisition of TSG by Flutter on that date. The Statutory results reflect this accounting treatment. Pro forma results for the Group are prepared as if Flutter and TSG had always been merged and are included in these Interim Results, as they best represent the Group's underlying performance. The 2019 pro forma numbers also include a 6-month contribution from Adjarabet in 2019, completed on 1st Feb 2019.  The difference between the Statutory results and Pro forma results is the results of TSG and Adjarabet in the period prior to completion as per the table below.

 

Pro forma results

TSG & Adjarabet results pre-merger completion*

Statutory results

 

H1

H1

H1

H1

H1

H1

£m

2020

2019

2020

2019

2020

2019

 

 

 

 

 

 

 

Sports revenue

1,199

1,117

275

323

924

794

Gaming revenue

1,190

858

592

633

598

225

Total revenue

2,389

1,975

866

955

1,522

1,020

 

 

 

 

 

 

 

Cost of sales

(738)

(566)

(243)

(265)

(496)

(301)

Cost of sales as a % of net revenue

30.9%

28.7%

28.0%

27.8%

32.6%

29.5%

 

 

 

 

 

 

 

Gross profit

1,650

1,409

624

690

1,026

719

 

 

 

 

 

 

 

Sales and marketing

(426)

(389)

(139)

(175)

(287)

(214)

Contribution

1,224

1,020

484

515

740

505

 

 

 

 

 

 

 

Other operating costs

(473)

(435)

(113)

(172)

(360)

(263)

Corporate costs

(67)

(62)

(29)

(36)

(38)

(26)

 

 

 

 

 

 

 

Adjusted EBITDA1,2

684

523

342

307

342

216

Adjusted EBITDA margin

28.6%

26.5%

39.5%

32.2%

22.4%

21.1%

 

 

 

 

 

 

 

Depreciation and amortisation

(117)

(103)

(28)

(34)

(89)

(69)

 

 

 

 

 

 

 

Adjusted1 operating profit

567

420

314

273

253

147

 

 

 

 

 

 

 

Revenue by division

 

 

 

 

 

 

PPB

540

658

-

5

540

653

SBG

439

331

290

331

149

PokerStars

697

509

468

509

230

Australia

435

314

87

107

348

207

US

278

163

22

3

256

160

 

 

 

 

 

 

 

Adjusted EBITDA by division

 

 

 

 

 

 

PPB

85

179

-

1

85

179

SBG

184

111

117

111

67

PokerStars

380

237

264

237

116

Australia

121

69

11

10

110

58

US

(19)

(11)

(22)

(16)

2

4

Corporate costs

(67)

(62)

(29)

(36)

(38)

(26)

 

* Note the adjustments to reflect the exclusion of TSG results prior to the merger also include any transactions that are now deemed to be intercompany as a result of the merger. 

 

 

 

 

 

Appendix 5: Reconciliation of pro forma growth rates to pro forma constant currency growth rates

Constant currency ("cc") growth is calculated by retranslating non-sterling denominated component of H1 2019 at H1 2020 exchange rates as per the table below.

 

 

 

 

H1

H1

CC

 

H1

H1

%

2019

2019

%

£m, pro forma

2020

2019

Change

FX impact

CC

Change

 

 

 

 

 

 

 

Sports revenue

1,199

1,117

+7%

(10)

1,107

+8%

Gaming revenue

1,190

858

+39%

(11)

847

+40%

Total revenue

2,389

1,975

+21%

(21)

1,954

+22%

 

 

 

 

 

 

 

Cost of sales

(738)

(566)

+30%

5

(561)

+32%

Cost of sales as a % of net revenue

30.9%

28.7%

+230bps

 

28.7%

+220bps

 

 

 

 

 

 

 

Gross profit

1,650

1,409

+17%

(16)

1,394

+18%

 

 

 

 

 

 

 

Sales and marketing

(426)

(389)

+9%

1

(388)

+10%

Contribution

1,224

1,020

+20%

(14)

1,005

+22%

 

 

 

 

 

 

 

Other operating costs

(473)

(435)

+9%

1

(434)

+9%

Corporate costs

(67)

(62)

+9%

(1)

(63)

+7%

 

 

 

 

 

 

 

Adjusted EBITDA1,2

684

523

+31%

(15)

508

+35%

Adjusted EBITDA margin

28.6%

26.5%

+210bps

 

26.0%

+260bps

 

 

 

 

 

 

 

Depreciation and amortisation

(117)

(103)

+14%

0

(102)

+14%

 

 

 

 

 

 

 

Adjusted1 operating profit

567

420

+35%

(15)

406

+40%

 

 

 

 

 

 

 

Revenue by division

 

 

 

 

 

 

PPB

540

658

-18%

(2)

656

-18%

SBG

439

331

+32%

(0)

331

+32%

PokerStars

697

509

+37%

(9)

500

+40%

Australia

435

314

+39%

(14)

300

+45%

US

278

163

+71%

5

168

+66%

 

 

 

 

 

 

 

Adjusted EBITDA by division

 

 

 

 

 

 

PPB

85

179

-53%

(1)

179

-52%

SBG

184

111

+66%

0

111

+66%

PokerStars

380

237

+60%

(10)

227

+67%

Australia

121

69

+76%

(3)

66

+84%

US

(19)

(11)

+69%

(0)

(12)

+68%

Corporate costs

(67)

(62)

+9%

(1)

(63)

+7%

 

 

 

 

 

 

Appendix 6: Reconciliation of Pro forma cash flow to Reported statutory cash flow

In the Operating and Financial Review the cash flow has been presented on a pro forma net cash basis. The merger of Flutter and TSG completed on 5 May 2020, with the merger accounted for as an acquisition of TSG by Flutter on that date. The Statutory cash flow reflects this treatment while the Pro forma cash flow is prepared as if Flutter and TSG had always been merged. The difference between the net cash basis and the reported cash flow is the inclusion of borrowings to determine a net cash position.

 

Pro forma cash flow

TSG results pre-merger completion

Adjustment to include borrowings

Statutory cash flow

 

H1

H1

H1

H1

£m

2020

2020

2020

2020

 

 

 

 

 

Adjusted EBITDA

684

342

 

342

Capex

(118)

(33)

 

(85)

Working capital

105

(8)

 

114

Corporation tax

(63)

(3)

 

(60)

Adjusted free cash flow

608

298

 

311

Cash flow from separately disclosed items (SDI)

(84)

0

 

(84)

Free cash flow

524

298

 

227

Interest cost

(101)

(64)

 

(37)

Other borrowing costs

(22)

0

 

(22)

Settlement of swaps

(28)

0

 

(28)

Lease liabilities paid and other

(19)

1

 

(20)

Net increase in cash before equity raise

356

235

 

121

Proceeds from equity raise

806

 

 

806

Net amounts repaid on borrowings

 

 

(686)

(686)

Cash acquired in TSG

 

 

445

445

Net increase / (decrease) in cash

1,162

235

(240)

686

 

 

 

 

 

Net (debt)/cash at start of year

(3,827)

(3,563)

372

108

Foreign currency exchange translation

(253)

 

245

(8)

Change in fair value of hedging derivatives

19

 

(19)

 

Net debt at 30 June 2020

(2,899)

(3,328)

357

787

 

 

 

 

 

1Adjusted EBITDA includes the following line items in the statutory cash flow: Profit for the period, separately disclosed items, tax expense before separately disclosed items, financial income before separately disclosed items, financial expense before separately disclosed items and depreciation and amortisation before separately disclosed items.

2 Capex includes purchase of property, plant and equipment, purchase of intangible assets, capitalised internal development expenditure, payment of contingent deferred consideration and proceeds from the disposal of assets.

3 Working capital includes increase in trade and other receivables, increase / (decrease) in trade, other payables and provisions, employee equity-settled share-based payments expense before separately disclosed items, and foreign currency exchange loss / (gain). 

4 Cash flow from separately disclosed items relates to costs incurred as a result of the Combination with TSG.

5 Interest and other borrowing costs includes interest paid, interest received and fees in respect of borrowing facilities.

6 Lease liabilities paid and other includes payment of lease liabilities, proceeds from the issue of shares on exercise of employee options and dividends paid to non-controlling interest.

7 Net amounts repaid on borrowings includes proceeds from GBP First Lien Term Loan A, net amounts drawn down previous GBP revolving credit facility, repayment of USD First Lien Term Loan B and old GBP Term Loan facility and amounts repaid on overdraft facility

8 Net debt comprises principal outstanding balance of borrowings, accrued interest on those borrowings, cash and cash equivalents and derivatives held for hedging debt instruments.

 

 

STATEMENT OF DIRECTORS RESPONSIBILITES

For the six months ended 30 June 2020

 

The Directors are responsible for preparing this interim management report in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007 ("Transparency Directive"), and the related Transparency Rules of the Central Bank of Ireland.

 

In preparing the interim financial information, the Directors are required to:

 

· prepare and present the interim financial information in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007 ("Transparency Directive"), and the Transparency Rules of the Central Bank of Ireland;

· ensure the interim financial information has adequate disclosures;

· select and apply appropriate accounting policies; and

· make accounting estimates that are reasonable in the circumstances.

 

We confirm that to the best of our knowledge:

 

a)

the condensed set of financial statements in the half-yearly financial report of Flutter Entertainment plc ("the Company") for the six months ended 30 June 2020 ("the interim financial information") which comprises the Condensed Consolidated Interim Income Statement, the Condensed Consolidated Interim Statement of Other Comprehensive Income, the Condensed Consolidated Interim Statement of Financial Position, the Condensed Consolidated Interim Statement of Cash Flows, the Condensed Consolidated Interim Statement of Changes in Equity and related explanatory notes, have been presented and prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

 

b)

the interim financial information presented, as required by the Transparency (Directive 2004/109/EC) Regulations 2007, includes:

 

 

i)

an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements;

 

 

 

ii)

a description of the principal risks and uncertainties for the remaining six months of the financial year;

 

 

 

 

 

 

ii)

related parties' transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and

 

 

 

iv)

any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

 

 

 

 

 

On behalf of the Board of Directors

 

 

Peter Jackson

 Jonathan Hill

Chief Executive Officer

 Chief Financial Officer

26 August 2020

 

Understanding and managing our principal risks

 

A summary of the principal risks and uncertainties that are most relevant to the remainder of the current financial year is included below.  A number of the risks are trending upwards and the Group has identified a new risk related to the COVID-19 pandemic.  Across the world the pandemic has brought a significant increase in focus on risk management for all aspects of public, private and corporate life.  The Group implemented a structured business continuity program to manage the new risks recognised as the pandemic developed.  Operational redesigns were implemented with minimum disruption and the Group continued to serve customers within the guidelines set by local and regional policy makers.  The pandemic has identified increases in risks related to technology and third parties on which the Group relies.  Processes have been deployed to manage any new risks in these areas.  With the acquisition of the Stars Group, the Group has expanded its operational base significantly and recognises risks in relation to integrating businesses and standardising risk appetite over time across the newly enlarged Group.

 

Risk

Risk Definition

Risk Trend

Mitigation

COVID-19 Pandemic

The inability to adequately manage the impact of the COVID-19 pandemic, its implications on the Group's financial and strategic plans, the cancellation of live sporting events and subsequent impacts on business operations, as well as its short-term and long-term macroeconomic impacts.

New

 

§ Activated business continuity plans and governance with regular meetings to respond quickly to the emergence of the COVID-19 pandemic, protecting the health and wellbeing of employees in all locations in compliance with local government and health authorities' guidelines

§ Assessing risks heightened by COVID-19 on a periodic basis to ensure key strategic, operational, technology and regulatory risks continue to be managed and mitigated appropriately throughout the pandemic, supplemented by Group Internal Audit assurance.

§ Entered into new debt arrangements in 2020, contingent only on completion of the Combination, comprising a term loan and revolving credit facility totalling £1.4bn. These facilities were utilised for the refinancing of existing Flutter and TSG debt as well as providing the Group with ongoing financial flexibility.

§ Increased frequency of commercial forecasting and scenario cashflow modelling continue to be conducted to manage the uncertainty of our commercial related risks.

§ Monitoring of Government guidelines and regular communications to employees to ensure the correct measures are implemented throughout the business to reduce the impact of COVID-19 on the health and wellbeing of employees and customers.

Safer Gambling

 

Failure to operate in a responsible manner or to embed good practice and appropriate controls to meet safer gambling requirements and public expectations into processes and systems resulting in reputational damage, regulatory enforcement or poor customer outcomes. ​

Ü

 

§ Group Safer Gambling strategy is embedded into our businesses from how we identify and interact with at-risk customers through to how we communicate to a broad group of stakeholders and how we encourage safer gambling tool usage.

§ Providing a leading range of tools on our websites to support customers in managing their spend and play, and we are continually working to improve and enhance our tools and site content.

§ Refining of our safer gambling capabilities and our in house developed machine learning tools and models, such as the Customer Activity Awareness Program (CAAP), continuously to enable us to identify and interact with at-risk customers. The CAAP model monitors customer behaviours daily and assigns risk scores to each active customer.

§ Continuously investing in improvements at tackling the problem through donations to the research, treatment, education initiatives, and driving collaboration across the industry with other operators, charities and regulatory bodies. 

§ Since the recent business combination, implementing a Group strategic review to ensure we take the best policies and processes available across the newly enlarged Group and updated the strategic approach to Safer Gambling accordingly.

Business continuity planning

 

The risk of interruption to the Group's businesses due to disruptive incidents such as natural disaster or cyber-attack impacting the systems, processes, people or physical locations providing business-critical services; resulting in financial loss through an inability to provide reliable services. ​

Ý

§ Developed business continuity plans for all critical areas of the business. These are regularly reviewed together with IT Disaster Recovery capability and service level agreements with third parties.  Where possible, we have fail safe solutions and seek to limit single points of failure.

§ Established a Business Continuity Steering Committee to maintain an oversight of the management and improvement of the Business Continuity Plans.

§ Maintaining a BCP risk register for the tracking of progress on business continuity planning across the Group.

§ Collaborating business continuity plans across the group for risk mitigation as COVID-19 highlighted the need to better align this risk across all our locations.

Data Protection and Cyber Security

The risk that information belonging to the Group business or its customers is accessed or modified by unauthorised parties (internal or external), or system processing is disrupted or exploited by an attacker (internal or external) owing to a failure in service provision from a Group provider or external supplier resulting in reputational damage, regulatory enforcement or financial loss through manipulation of business process or temporary inability to provide services.

Ý

§ Aligning the framework for data protection and cyber security with the aim to protect the privacy rights of individuals in accordance with the relevant legislations and GDPR and align cyber control standards across the Group in managing the risks.

§ Implemented Technology and IT Security controls to restrict access to sensitive data and ensure individuals only have access to the data they require to do their job.

§ Completing annual mandatory employee training on data protection and information security and cyber awareness for all employees and additional regular training for key parts of the business where customer and staff personal information are handled.

§ Continuously investing in IT security resources and working with a variety of external security specialists to ensure security arrangements and systems are up-to-date with emerging threats.

Technology systems stability and availability, and disaster recovery

 

Reduced availability of our products arising from software, infrastructure and system issues resulting in a poor customer experience and may have an impact on customer loyalty affecting our ability to grow the business. Delays in restoring services following a major disruption could result in loss of customers and reputational damage.

Ý

§ Investing continuously in a cost-effective technology platform to ensure stability and availability, to eliminate single points of failure and improve performance.

§ Monitoring of key metrics to monitor key systems and platforms globally and identify potential emerging issues for all divisions.

§ Defined formal incident management process in place for identifying, escalating and resolving issues and a post-incident process to ensure that similar issues cannot happen again.

§ Investing continuously in developing and testing our disaster recovery capability for our key products across the Group. Where possible, we have failover solutions available and seek to limit single points of failure.

 

 

 

 

Regulation, licencing and regulatory compliance

 

Failure to meet new or existing licensing or legislative requirements due to poor management of the license application process, inadequate governance and ongoing monitoring, resulting in enforcement action, increased regulatory scrutiny and loss of license. ​

Ü

 

§ Dedicated internal and external Legal, Compliance and Tax teams for all regions with responsibility for advising business units on these matters and working with the business to set appropriate policies, processes and controls.

§ For the jurisdictions in which we hold a licence, the relevant Compliance teams perform ongoing monitoring of compliance with the regulatory framework and licence requirements.

§ Dedicated Regulatory Affairs and Compliance teams work with regulators and governments in relation to proportionate and reasonable regulation.

§ Reporting by Management periodically to the Board Risk Committees on the application of various laws and regulations by the relevant jurisdiction to ensure that they are appropriately understood and managed.

§ Report of the findings of their audit procedures by the Group's internal auditors to the Audit Committee on relevant compliance matters to ensure full oversight.

Key employees' recruitment and retention

 

Inability to recruit, retain and motivate existing talented and highly skilled employees due to inadequate recruitment process, remuneration and rewards packages, and lack of mentoring, training and advancement opportunities, leading to a lack of suitable people in key positions needed to keep growing and developing the business. ​

Ü

 

§ Reviewing of key positions and reward by the Board through the Nomination and Remuneration Committees. The Executive Directors, senior management and other key employees are part of medium- or long-term incentive plans, which reward performance and loyalty.

§ Active managing of succession planning by the HR function and the processes that are in place throughout the business to identify key roles and conduct regular appraisals, succession and talent reviews, engagement surveys as well as career development opportunities.

§ Reviewing of employee salaries, providing a comprehensive benefit package and eligibility to join (subject to local jurisdictional requirements) our all-employee save as you earn share scheme as an opportunity for them to participate in the Group's performance.

§ In respect of the impact of COVID-19 on employees, the Group has implemented an extensive range of measures to provide the safest working environment possible for our people and health and wellbeing initiatives. Where our UK and Ireland Retail business was closed during lockdown, employees were paid full salary without availing of any government financial supports.

 

Reliance on third parties and key supplier relationships

 

Failure in service provision by a third-party due to ineffective processes to select, contract and manage suppliers resulting in reputational damage, regulatory actions and financial loss. ​

Ý

§ Established a Supplier Relationship Management framework for the managing and performance of the efficiency and quality of third-party suppliers' performance.

§ Aligning a technology third party assurance framework for managing security risks introduced by third party to provide assurance.

§ Limiting reliance on a single supplier where possible to reduce potential single points of failure.

§ Reviewing of contracts and service level agreements with third parties on a regular basis to ensure adequate protection for the Group.

§ Carrying out follow up reviews of suppliers' ability to provide required services in light of COVID-19 and taking appropriate follow up action where required.

Integration and project change risk

 

Missed or inappropriate targets and/or poor integration post acquisition due to lack of defined end to end process and governance around M&A resulting in failed acquisitions causing financial loss and reputational damage. ​

Ý

§ Established the Flutter Transformation Management Office (TMO) with a robust framework to manage organisational changes from merger related objectives

§ Dedicated and experienced internal resources, complemented with external expertise, are put in place to manage projects and programmes associated with integrations, with direct reporting lines to the Group's Executive Committee and Board.

§ Dedicated business development, corporate finance and divisional management teams are in place to continually and proactively review potential acquisitions.

§ Assessing all potential acquisition targets to ensure their strategic fit with the business and their long-term viability to generate positive returns.

Market Restrictions

Restrictions on new or existing markets such as advertising bans or material taxation changes can impact growth plans.

Ü

 

§ Monitoring of potential changes in regulatory environments on an ongoing basis with a view to managing any changes appropriately and cost efficiently.

§ Continuously promoting transparent and effective regulations in all markets that create a level playing field.

§ Established a product prioritisation process to ensure any new regulations are complied with in a timely manner.

§ Investing continuously in the flexibility of our technology, which is key for entering or remaining in markets and allowing for adaptability as market conditions change.

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months ended 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

Note

Before

separately disclosed

items

Six months

ended

30 June 2020

(unaudited)

£m

Separately disclosed

items

(Note 5 )

Six months

ended

30 June 2020

(unaudited)

£m

 

 

 

Total

Six months

ended

30 June 2020

(unaudited)

£m

Before

separately disclosed

items

Six months

ended

30 June 2019

(unaudited)

£m

Separately disclosed

items

(Note 5)

Six months

ended

30 June 2019

(unaudited)

£m

 

 

 

Total

Six months

ended

30 June 2019

(unaudited)

£m

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

4

1,522.4

13.7

1,536.1

1,019.9

-

1,019.9

Cost of sales

 

(495.9)

(2.0)

(497.9)

(301.0)

-

(301.0)

Gross profit

 

1,026.5

11.7

1,038.2

718.9

-

718.9

 

 

 

 

 

 

 

 

Operating costs excluding depreciation and amortisation

 

 

(684.8)

 

(68.9)

 

(753.7)

 

(503.1)

 

-

 

(503.1)

EBITDA 1

 

341.7

(57.2)

284.5

215.8

-

215.8

 

 

 

 

 

 

 

 

Depreciation and amortisation

 

(88.9)

(127.8)

(216.7)

(69.3)

(58.8)

(128.1)

Operating profit

 

252.8

(185.0)

67.8

146.5

(58.8)

87.7

 

 

 

 

 

 

 

 

Financial income

6

0.4

49.2

49.6

0.4

-

0.4

Financial expense

6

(34.9)

(58.5)

(93.4)

(7.1)

-

(7.1)

Profit before tax

 

218.3

(194.3)

24.0

139.8

(58.8)

81.0

 

 

 

 

 

 

 

 

Tax (expense) / credit

7

(29.1)

14.1

(15.0)

(22.8)

9.4

(13.4)

Profit for the period

 

189.2

(180.2)

9.0

117.0

(49.4)

67.6

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the Company

 

191.3

(172.8)

18.5

116.3

(39.4)

76.9

Non-controlling interest

 

(2.1)

(7.4)

(9.5)

0.7

(10.0)

(9.3)

 

 

189.2

(180.2)

9.0

117.0

(49.4)

67.6

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

  Restated

(Note 8)

 

 

 

 

 

 

 

 

Basic

8

 

 

£0.181

 

 

£0.962

Diluted

8

 

 

£0.179

 

 

£0.959

 

1

EBITDA is defined as profit for the period before depreciation, amortisation and impairment, financial income, financial expense and tax expense / credit. It is considered by the Directors to be a key measure of the Group's financial performance.

 

 

 

 

CONDENSEDCONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020

 

 

 

 

 

 

 

Six months

ended

30 June 2020

(unaudited)

£m

Six months

ended

30 June 2019

 (unaudited)

£m

 

 

 

 

 

 

Profit for the period

 

9.0

67.6

 

 

 

 

 

 

Other comprehensive income  

 

 

 

 

Items that are or may be reclassified subsequently to profit or loss:

 

 

 

Effective portion of changes in fair value of cash flow hedges

 

(88.2)

-

 

Fair value of cash flow hedges transferred to the income statement

 

86.5

-

 

Foreign exchange gain on translation of the net assets of foreign currency denominated entities1

 

 

 

174.7

 

2.0

 

Debt instruments at FVOCI

 

0.1

-

 

Other comprehensive income

 

173.1

2.0

 

Total comprehensive income for the period

 

182.1

69.6

 

 

 

 

 

 

Attributable to:

 

 

 

 

Equity holders of the Company

 

181.0

78.4

 

Non-controlling interest

 

1.1

(8.8)

 

 

 

182.1

69.6

 

 

1 Foreign exchange gain on translation of the net assets of foreign currency denominated entities is presented including an income tax credit of £6.2m which relates to the tax effect on foreign exchange activities with respect to the Group's hedging activities. A corresponding tax charge of £6.2m in relation to the same is recognised in the Condensed Consolidated Income Statement such that there is no overall impact on the Condensed Consolidated Interim Statement of Financial position.

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

As at 30 June 2020

 

 

Note

30 June 2020

(unaudited)

£m

31 December 2019

(audited)

£m

 

Assets

 

 

 

 

Property, plant and equipment

 

385.6

298.2

 

Intangible assets

 

5,868.6

558.5

 

Goodwill

9

9,533.7

4,120.3

 

Deferred tax assets

 

17.0

11.9

 

Non-current tax receivable

 

13.5

-

 

Derivative financial assets

16

31.6

-

 

Investments

11

4.6

0.1

 

Other receivables

11

89.4

50.4

 

Financial assets - restricted cash

12

9.2

-

 

Total non-current assets

 

15,953.2

5,039.4

 

 

Trade and other receivables

 

11

 

164.3

 

64.6

 

Current tax receivable

 

11.5

-

 

Financial assets - restricted cash

12

477.0

189.1

 

Current investments - customer deposits

12

87.2

-

 

Cash and cash equivalents

12

786.5

108.1

 

Total current assets

 

1,526.5

361.8

 

 

Total assets

 

 

17,479.7

 

5,401.2

 

 

Equity

 

 

 

 

Issued share capital and share premium

 

1,334.7

428.3

 

Merger reserve

 

6,189.5

-

 

Treasury shares

 

(40.7)

(40.7)

 

Shares held by employee benefit trust

 

(5.8)

(6.1)

 

Other reserves

 

243.0

63.7

 

Retained earnings

 

3,624.6

3,539.5

 

Equity attributable to owners of the parent

 

11,345.3

3,984.7

 

Non-controlling interest

 

199.0

204.9

 

Total equity

 

11,544.3

4,189.6

 

 

Liabilities

 

 

 

 

Trade and other payables

13

858.6

369.6

 

Customer balances

542.0

179.2

 

Derivative financial liabilities

13

30.9

20.4

 

Provisions

 

5.4

2.9

 

Current tax payable

 

9.8

20.0

 

Lease liabilities

 

54.6

38.4

 

Borrowings

15

56.2

255.0

 

Total current liabilities

 

1,557.5

885.5

 

 

 

 

 

 

Trade and other payables

13

12.2

11.5

 

Derivative financial liabilities

13

41.4

0.7

 

Provisions

 

54.5

1.1

 

Deferred tax liabilities

 

544.3

65.0

 

Lease liabilities

 

156.5

132.1

 

Borrowings

15

3,569.0

115.7

 

Total non-current liabilities

 

4,377.9

326.1

 

Total liabilities

 

5,935.4

1,211.6

 

 

Total equity and liabilities

 

 

17,479.7

 

5,401.2

 

 

 

      
 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

 

 

 

 

 

  Note

Six months

ended

30 June 2020

(unaudited)

£m

Six months

ended

30 June 2019

(unaudited)

£m

Cash flows from operating activities

 

 

 

Profit for the period

 

9.0

67.6

Separately disclosed items

5

180.2

49.4

Tax expense before separately disclosed items

 

29.1

22.8

Financial income before separately disclosed items

 

(0.4)

(0.4)

Financial expense before separately disclosed items

 

34.9

7.1

Depreciation and amortisation before separately disclosed items

 

88.9

69.3

Employee equity-settled share-based payments expense before separately disclosed items

 

 

18.0

 

12.7

Foreign currency exchange loss

 

15.4

0.5

Gain on disposal of property, plant and equipment and intangible assets

 

(0.2)

-

Cash from operations before changes in working capital

 

374.9

229.0

Increase in trade and other receivables

 

5.8

(2.1)

Increase in trade, other payables and provisions

 

74.6

11.2

Cash generated from operations

 

455.3

238.1

Tax paid

 

(60.0)

(21.9)

Net cash from operating activities before combination fees and restructuring costs and legacy tax assessments

 

 

395.3

 

216.2

Combination fees, restructuring and integration costs paid

 

(83.9)

(1.8)

Amounts paid in respect of legacy Greek and German tax assessments

 

-

(39.6)

Net cash from operating activities

 

311.4

174.8

 

 

 

 

Purchase of property, plant and equipment

 

(21.8)

(9.9)

Purchase of intangible assets

 

(21.5)

(18.6)

Proceeds from disposal of assets

 

0.2

-

Proceeds from disposal of investment

 

-

2.3

Purchase of businesses

10

-

(102.0)

Capitalised internal development expenditure

 

(37.1)

(24.1)

Cash acquired from acquisitions

10

445.2

0.2

Payment of contingent deferred consideration

10

(4.6)

(2.8)

Interest received

 

0.4

0.4

Net cash from / (used in) investing activities

 

360.8

(154.5)

 

 

 

 

Proceeds from the issuance of new shares in respect of equity placement (net of issuance costs)

 

18

 

806.3

 

-

Proceeds from the issue of shares on exercise of employee options

 

8.9

0.3

Dividend paid to Non-controlling interest

18

(7.0)

-

Dividends paid

17

-

(104.0)

Payment of lease liabilities

 

(21.7)

(20.0)

Proceeds from GBP First Lien Term Loan A and previous GBP Term Loan

15

950.0

250.0

Net amounts drawn down previous GBP Revolving Credit facility

15

(117.2)

(76.2)

Repayment of USD & EUR First Lien Term Loan B and old GBP Term Loan facility

 

(1,513.5)

-

Amounts (repaid) / drawn down on overdraft facility

15

(5.0)

-

Interest paid

 

(37.5)

(3.4)

Settlement of derivatives

 

(27.6)

-

Financing fees paid in respect of borrowing facilities

 

(21.5)

(0.3)

Purchase of own shares including direct purchase costs

 

-

(86.8)

Net cash from / (used in) financing activities

 

14.2

(40.4)

Net increase / (decrease) in cash and cash equivalents

 

686.4

(20.1)

Cash and cash equivalents at start of period

 

108.1

123.7

Foreign currency exchange (loss) / gain on cash and cash equivalents

 

(8.0)

0.4

Cash and cash equivalents at end of period

12

786.5

104.0

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

 

 

Attributable to equity holders of the Company

 

 

 

 

 

 

 

(unaudited)

Number of

 ordinary

 shares in

 issu e

millions

Issued

 share

 capital and share premium

£m

 

 

 

 

Merger

 reserve

£m

 

 

Foreign

 exchange

translation

 reserve

£m

 

 

Cash flow hedge

 reserve

£m

 

 

 

Financial assets at FVOCI

£m

 

 

 

 

Other

 reserve

£m

 

 

 

 

Treasury

 shares

£m

 

Shares

 held by

 employee

 benefit

 trust

£m

 

 

Share-

based

 payment

 reserve

£m

 

 

 

 

Retained

 earnings

£m

 

 

 

 

Total

 equity

£m

 

 

 

Non-controlling interest

£m

 

 

 

 

Total

 equity

£m

 

Balance at 1 January 2020

 

80.3

 

428.3

 

-

 

(21.5)

 

2.3

 

-

 

2.3

 

(40.7)

 

(6.1)

 

80.6

 

3,539.5

 

3,984.7

 

204.9

 

4,189.6

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

-

-

-

18.5

18.5

(9.5)

9.0

Foreign exchange translation

-

-

-

157.9

-

-

-

-

-

-

-

157.9

10.6

168.5

Tax credit on foreign exchange hedging

-

-

-

6.2

-

-

-

-

-

-

-

6.2

-

6.2

Effective portion of changes in fair value of cash flow hedges

-

-

-

-

(88.2)

-

-

-

-

-

-

(88.2)

-

(88.2)

Fair value of cash flow hedges transferred to the income

-

-

-

-

86.5

0.1

-

-

-

-

-

86.6

-

86.6

Total comprehensive income for the period

-

-

-

164.1

(1.7)

0.1

-

-

-

-

18.5

181.0

1.1

182.1

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

 

 

 

Shares issued on equity placement  (net of issuance costs) (Note 18)

8.0

812.6

 

-

-

-

-

-

-

-

(6.3)

806.3

-

806.3

Shares issued on exercise of employee share options (Note 18)

0.8

8.9

-

-

-

-

-

-

-

-

-

8.9

-

8.9

Shares issued as consideration for the acquisition of TSG (Note 10)

65.3

5.1

  6,189.5

-

-

-

-

-

-

-

-

6,194.6

-

6,194.6

Issue of replacement options (Note 10)

-

-

-

-

-

-

-

-

-

58.8

-

58.8

-

58.8

Shares issued as consideration for acquisition of TSG Australia (Note 10)

 

0.8

 

79.7

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

79.7

 

-

 

79.7

Equity-settled transactions - expense

recorded in income statement

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

27.6

 

-

 

27.6

 

-

 

27.6

Equity-settled transactions - vestings

-

-

-

-

-

-

-

-

0.3

(0.2)

(0.1)

-

-

-

Tax on share-based payments

-

-

-

-

-

-

-

-

-

-

3.7

3.7

-

3.7

Transfer to retained earnings on exercise of share options and vesting of share awards

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(69.4)

 

69.4

 

-

 

-

 

-

Dividend paid to Non-controlling interest (Note 18)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(7.0)

 

(7.0)

Dividends to shareholders (Note 17)

1.3

0.1

-

-

-

-

-

-

-

-

(0.1)

-

-

-

Total contributions by and distributions to owners of the Company

 

76.3

 

906.4

 

6,189.5

 

-

 

-

 

-

 

-

 

-

 

0.3

 

16.8

 

66.6

 

7,179.6

 

(7.0)

 

7,172.6

 

Balance at 30 June 2020

 

156.6

 

1,334.7

 

6,189.5

 

142.6

 

0.6

 

0.1

 

2.3

 

(40.7)

 

(5.8)

 

97.4

 

3,624.6

 

11,345.3

 

199.0

 

11,544.3

                               

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2019

 

 

 

Attributable to equity holders of the Company

 

 

 

 

 

 

(unaudited)

 

Number of

 ordinary

 shares in

 issu e

millions

Issued

 share

 capital and share premium

£m

 

Foreign

 exchange

 translation

 reserve

£m

 

 

 

Other

 reserves

£m

 

 

 

Treasury

 shares

£m

Shares

 held by

 employee

 benefit

 trust

£m

 

Share-

based

 payment

 reserve

£m

 

 

 

Retained

 earnings

£m

 

 

 

Total

 equity

£m

 

 

Non-controlling interest

£m

 

 

 

Total

 equity

£m

 

Balance at 1 January 2019

 

81.4

 

424.8

 

4.1

 

2.2

 

(40.7)

 

(8.6)

 

86.1

 

3,530.1

 

3,998.0

 

213.3

 

4,211.3

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

76.9

76.9

(9.3)

67.6

Foreign exchange translation

-

-

1.5

-

-

-

-

-

1.5

0.5

2.0

Total comprehensive income for the period

-

-

1.5

-

-

-

-

76.9

78.4

(8.8)

69.6

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

 

 

Shares issued (Note 18)

0.1

0.3

-

-

-

-

-

-

0.3

-

0.3

Business combinations (Note 10)

-

-

-

-

-

-

-

-

-

31.6

31.6

Own shares acquired by the Group (Note 18)

 

(1.4)

 

(0.1)

 

-

 

0.1

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Equity-settled transactions - expense

recorded in income statement

 

-

 

-

 

-

 

-

 

-

 

-

 

12.7

 

-

 

12.7

 

-

 

12.7

Equity-settled transactions - vestings

-

-

-

-

-

0.2

(0.2)

-

-

-

-

Tax on share-based payments

-

-

-

-

-

-

-

(0.1)

(0.1)

-

(0.1)

Transfer to retained earnings on exercise of share options

 

-

 

-

 

-

 

-

 

-

 

-

 

(11.8)

 

11.8

 

-

 

-

 

-

Dividends to shareholders (Note 17)

-

-

-

-

-

-

-

(104.0)

(104.0)

-

(104.0)

Total contributions by and distributions to

owners of the Company

 

(1.3)

 

0.2

 

-

 

0.1

 

-

 

0.2

 

0.7

 

(92.3)

 

(91.1)

 

31.6

 

(59.5)

 

Balance at 30 June 2019

 

80.1

 

425.0

 

5.6

 

2.3

 

(40.7)

 

(8.4)

 

86.8

 

3,514.7

 

3,985.3

 

236.1

 

4,221.4

                           

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

1. General information

 

Flutter Entertainment plc (the "Company") is a company incorporated in the Republic of Ireland. The Condensed Consolidated Interim Financial Statements of the Company for the six months ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the "Group"). The Condensed Consolidated Interim Financial Statements are unaudited but have been reviewed by KPMG, the Group's auditor, whose report is set out on the last page of this document.

 

During the period ended 30 June 2020, the Company completed an all share Combination with The Stars Group Inc. (the "Combination") - see Note 10 for further information on the Combination. The results of The Stars Group Inc. ('TSG') prior to completion of the Combination are not included in these condensed consolidated interim financial statements.

 

The financial information presented herein does not comprise full statutory financial statements and therefore does not include all of the information required for full annual financial statements. Full statutory financial statements for the year ended 31 December 2019, prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU together with an unqualified audit report thereon under Section 391 of the Irish Companies Act 2014, will be annexed to the annual return and filed with the Registrar of Companies in Ireland.

 

The Condensed Consolidated Interim Financial Statements were approved for issue by the Board of Directors of Flutter Entertainment plc on 26 August 2020.

 

2. Basis of preparation and accounting policies

 

The Condensed Consolidated Interim Financial Statements have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Central Bank of Ireland and with IAS 34 'Interim Financial Reporting' as adopted by the EU. The Condensed Consolidated Interim Financial Statements are prepared on the historical cost basis except for derivative financial instruments (which include betting transactions), equity securities, certain financial assets which have been designated as FVOCI, contingent deferred consideration and share-based payments, all of which are stated at fair value (grant date fair value in the case of equity-settled share-based payments). 

 

Going concern

The Group has considerable financial resources which includes at 30 June 2020 £786.5m of cash and cash equivalents and a £450m Revolving Credit Facility with undrawn capacity of £375m (see Note 15) with borrowings due within the next 12 months of £56.2m. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.  See 'Understanding and Managing our Principal risks' in this report for more detail including those related to COVID-19.

 

The Group's forecasts for the year ending 31 December 2020 and beyond indicate that it will continue to have significant financial resources and operate well within its banking covenants as outlined in Note 15 for at least a period of 12 months from the date of these financial statements. Various downside scenarios over and above those already included in the base case model on the potential impact of further reductions to cashflows due to COVID-19 and Enhanced Regulation   have also been considered in respect of these forecasts.

 

Having given regard to the above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these interim financial statements, and therefore they continue to adopt the going concern basis in the consolidated financial statements.

 

New accounting policies

 

The financial information contained in the Condensed Consolidated Interim Financial Statements has been prepared in accordance with the accounting policies set out in the Group's last annual financial statements in respect of the year ended 31 December 2019, except as set out below.

 

The Group has introduced the below new accounting policies or expanded existing policies as a result of the Combination. These policies do not impact the Group's reported revenue, operating profit, or amounts reported in the statement of financial position in 2019.

 

2. Basis of preparation and accounting policies (continued)

 

Revenue

The services provided by the Group comprise sports betting (sportsbook, the exchange sports betting product, and pari-mutuel betting products), daily fantasy sports products, fixed odds games betting, online games and casino, peer-to-peer games including online bingo and online poker and business-to-business services. Revenue is stated exclusive of value-added tax.

 

The Group's betting and gaming activities are classified as derivative financial instruments, with the exception of the exchange sports betting product and pari-mutuel betting products on which commission income is earned, peer-to-peer games on which commission income and tournament fees are earned (including daily fantasy sports), and business-to-business services on which fees are earned.

 

Revenue from sportsbook betting activities represents the net gain or loss from betting activities in the period plus the gain or loss on the revaluation of open positions at period end and is stated net of the cost of customer promotions and bonuses incurred in the period. These derivatives are recognised initially at fair value and subsequently at fair value through profit or loss, within the revenue line as this represents the Group's principal activity. Customer promotions (including free bets) and bonuses are deducted from sportsbook betting revenue.

 

Revenue from the exchange sports betting product represents commission earned on betting activity and is recognised on the date the outcome for an event is settled.

 

Revenue from conversion margins is the revenue earned on the processing of real-money deposits and cash outs in specified currencies. Revenue from customer cross-currency deposits and withdrawals is recognised when the transaction is complete at a point in time. Revenue is recognised with reference to the underlying arrangement and agreement with the players and represents a single performance obligation and is recorded within the applicable line of operations.

 

Play-money gaming revenue - Customers can participate in online poker tournaments and social casino games using play-money, or virtual currency. Customers can purchase additional play-money chips online to participate in the poker tournaments and social casino games. The revenue is recognised at a point in time when the customer has purchased such chips as control has been transferred to the customer and no further performance obligations exist. Once a customer has purchased such chips, they are non-refundable and non-cancellable.

 

Other - The Group sponsors certain live poker tours and events, uses its industry expertise to provide consultancy and support services to the casinos that operate the events, and has marketing arrangements for branded poker rooms at various locations around the world. The Group also provides customers with access to odds comparisons, tips and other information to assist with betting, and provides other media and advertising services, and limited content development services with revenue generated by way of affiliate commissions, revenue share arrangements and advertising income as applicable. Revenue is recognised upon satisfying the applicable performance obligations, at a point in time or over time as applicable.

 

Revenue from Daily Fantasy Sports products represents entry fees less prizes paid and player acquisition and retention incentives. Prizes are generally paid in cash or an entry fee into specific contests or tournaments.

 

The Group earns service fees from offering fantasy sports contests ("Contests") and fantasy sports tournaments ("Tournaments") to users. Contests are generally completed in a single day or up to one week. Tournaments are generally completed in one week or up to several months over two to three rounds. For Contests, revenue is recognised when the contest is settled. For Tournaments, revenue is recognised over the period of the tournament as each round is completed and there is no longer a service obligation to each user that participated in the tournament. 

 

The Group offers various incentives to build loyalty, encourage and engage users on the platform, the costs of incentives are recorded as a reduction to the amount recognised as revenue for service fees. 

 

Revenue from sponsorships represents advertising campaigns for customers who become a presenting sponsor at events. Customers are generally billed prior to the campaign launch and revenue is earned over the period of the event.

 

 

 

 

2. Basis of preparation and accounting policies (continued)

 

Revenue from pari-mutuel betting products represents a percentage of stake and is recognised on settlement of the event, and is stated net of customer promotions and bonuses in the period.

 

Revenue from fixed odds games and the online casinos represents net winnings ("customer drop"), being amounts staked net of customer winnings, and is stated net of customer promotions and bonuses incurred in the period.

 

Revenue from peer-to-peer games represents commission income ("rake") and tournament fees earned from games completed by the period end, and is stated net of the cost of customer promotions and bonuses incurred in the period.

 

Revenue from business-to-business services represents fees charged for the services provided in the period.

 

Financial Assets

 

Recognition and Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not measured at FVTPL (as defined below), transaction costs that are directly attributable to the acquisition of the financial asset. The Group classifies financial assets into one of the following measurement categories:

 

· Those to be measured subsequently at fair value through profit or loss ("FVTPL");

· Those to be measured subsequently through other comprehensive income ("FVOCI"); or

· Those to be measured at amortised cost.

 

The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows. Except in very limited circumstances, the classification may not be changed subsequent to initial recognition. The Group only reclassifies debt instruments when its business model for managing those assets changes.

 

Debt instruments

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of that asset. There are three measurement categories into which the Group classifies its debt instruments:

 

· Amortised cost: debt instruments are measured at amortised cost if they are held within a business model with the objective of collecting the contractual cash flows and those cash flows solely represent payments of principal and interest. A gain or loss on a debt instrument that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the debt instrument is derecognised or impaired. Interest income from these debt instruments is recognised using the effective interest rate method. Cash, restricted cash and accounts receivable are classified as amortised cost.

 

· FVOCI: debt instruments are measured at FVOCI if they are held within a business model with the objective of either collecting the contractual cash flows or of selling the debt instrument, and those cash flows solely represent payments of principal and interest. Movements in the carrying amount are recorded in other comprehensive income, with impairment gains or losses, interest income and foreign exchange gains or losses recognised in profit or loss. When the debt instrument is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. Bonds recorded within current investments are classified as FVOCI.

 

· FVTPL: debt instruments that are not solely payments of principal and interest are classified and measured at FVTPL, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at FVOCI, as described above, debt instruments may be designated at FVTPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. A gain or loss on a debt instrument that is subsequently measured at FVTPL and is not part of a hedging relationship is recognised in profit or loss and presented in the consolidated income statement. The Group does not currently hold any financial assets at FVTPL.

 

 

 

 

 

2. Basis of preparation and accounting policies (continued)

 

Financial Liabilities

 

Recognition and measurement

Financial liabilities are classified, at initial recognition, as either financial liabilities at FVTPL or other financial liabilities.

 

•   FVTPL: Financial liabilities are classified as FVTPL if they are held for trading or are designated as FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise or the financial liability is managed and its performance is evaluated on a fair value basis. Any gains or losses arising on re-measurement are recognised in the consolidated income statement. Derivative instruments and certain other level 3 liabilities (See Note 16) are classified as FVTPL.

 

•   Other financial liabilities: Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest method calculates the amortised cost of a financial liability and allocates interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability (or a shorter period where appropriate) to the net carrying amount on initial recognition. Long-term debt is classified within other financial liabilities and is measured at amortised cost.

 

Debt modifications

The Group may pursue amendments to its credit agreements based on, among other things, prevailing market conditions. Such amendments, when completed, are considered by the Group to be debt modifications.

 

The accounting treatment of debt modifications depends upon whether the modified terms are substantially different than the previous terms. The terms of an amended debt agreement are considered substantially different when either: (i) the discounted present value of the cash flows under the new terms, discounted using the original effective interest rate, are at least ten percent different from the discounted present value of the remaining cash flows of the original debt or (ii) management determines that other changes to the terms of the amended agreement, such as a change in the environment in which a floating interest rate is determined, are substantially different. If the modification is considered to be substantially different, the transaction is accounted for as an extinguishment of the original debt instrument, which is derecognised and replaced by the amended debt instrument, with any unamortised costs or fees incurred on the original debt instrument recognised as part of the gain or loss on extinguishment. If the modification is not considered to be substantially different, an adjustment to the carrying amount of the original debt instrument is recorded, which is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate with the difference recognised in financial expense in the consolidated income statement.

 

Transaction costs

Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities that are classified as FVTPL) are added to or deducted from, as applicable, the fair value of the financial instrument on initial recognition. These costs are expensed to financial expenses in the consolidated income statement over the term of the related interest-bearing financial asset or financial liability using the effective interest method. When a debt facility is retired by the Group, any remaining balance of related debt transaction costs is expensed to financial expenses in the period that the debt facility is retired. Transaction costs related to financial instruments at FVTPL are expensed when incurred.

 

 

 

2. Basis of preparation and accounting policies (continued)

 

Derivatives

As permitted by IFRS 9, the Group continues to apply the hedge accounting requirements of IAS 39 rather than the requirements of IFRS 9 and complies with the annual hedge accounting disclosures as required by IFRS 7.

 

The Group uses derivative instruments for risk management purposes and does not use derivative instruments for speculative trading purposes (except for derivatives with respect to the Group's Sportsbook line of operations, which are transactions within the scope of IFRS 9 but reported as revenue as discussed above). All derivatives are recorded at fair value in the consolidated statements of financial position. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. For derivatives not designated as hedging instruments, the re-measurement of those derivatives each period is recognised in the consolidated income statement.

 

Derivatives may be embedded in other financial liabilities and non-financial instruments (i.e., the host instrument). Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative and the combined instrument (i.e., the embedded derivative plus the host instrument) is not held-for-trading or designated at fair value. These embedded derivatives are measured at fair value with subsequent changes recognised in the consolidated income statement.

 

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately under IFRS 9. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at FVTPL.

 

Hedge accounting

The Group designates certain derivatives as either:

•   hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or

•   hedges of a net investment in a foreign operation (net investment hedges).

 

At inception of the hedge relationship, the Group formally documents how the hedging relationship meets the hedge accounting criteria. It also records the economic relationship between the hedged item and the hedging instrument, including the nature of the risk, the risk management objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship at inception and on an ongoing basis.

 

Cash flow hedges

The Group uses derivatives for cash flow hedges. The effective portion of the change in fair value of the hedging instrument is recorded in other comprehensive income and accumulated in the cash flow hedging reserve, while the ineffective portion is recognised immediately in the consolidated income statement. Gains and losses on cash flow hedges accumulated in other comprehensive income (loss) are reclassified to the consolidated income statement in the same period the hedged item affects the consolidated income statement. If the forecast transaction is no longer expected to occur, the hedge no longer meets the criteria for hedge accounting, the hedging instrument expires or is sold, terminated or exercised, or the designation is revoked, the hedge accounting is discontinued prospectively.  If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to the consolidated income statement.

 

Net investment hedges

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging item relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated under the heading foreign exchange translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement. Gains and losses accumulated in other comprehensive income are reclassified to the consolidated income statement when the foreign operation is partially disposed of or sold.

 

 

 

2. Basis of preparation and accounting policies (continued)

 

Separately disclosed items

Separately disclosed items are those that in management's judgement need to be disclosed by virtue of their size, incidence or if not part of the Group's normal trading activities. The separate reporting of these items helps provide a better understanding of the Group's underlying performance.

 

Such items may include the amortisation of acquisition related intangibles, significant restructuring and integration costs, material fees in respect of acquisitions, significant impairment of property, plant and equipment and intangible assets and significant movement in the fair value of contingent consideration. Following the acquisition of the TSG, and the significant change in the Group's debt and derivatives portfolio, the Group also considers items such as the gain/loss on Embedded derivatives, the gain/loss on accelerated debt repayments, foreign exchange gain/losses on financial instruments associated with financing activities, forward contract gain/losses associated with financing and the write off and expensing of one-off fees that do not meet the criteria for capitalisation as items that should be separately disclosed.

 

In the majority of cases, it is the material impact that these items have on the financial statements that determines whether they should be separately disclosed. Materiality is determined by assessing whether disclosing such items separately would present a reader with a better understanding of the performance of the Group. If such items were deemed to be less than material, they would not be separately disclosed.

 

These items, usually due to their size and nature tend to be non-recurring items and would not arise on an annual basis. However, in other cases, items such as for example, the amortisation of acquisition related intangibles may occur over several years but are disclosed separately due to their finite life and the significantly changing amortisation profile of the assets in question in the related years. Other items such as the gain/loss on embedded derivatives and foreign exchange gains/losses associated with financing activities would also arise on a regular basis and are disclosed separately due to their volatile nature.

 

The separate disclosure of such items helps the reader better understand underlying business performance.

 

The tax related impact of such items is also disclosed separately.

 

Adoption of new and revised standards

 

In preparing these financial statements for the current period the Group has adopted the following amendments to IFRS: 

 

Amendments to existing standards

· Amendments to references to the Conceptual Framework in IFRS Standards 

· Definition of material (Amendments to IAS 1 and IAS 8)

 

 

None of the above had a significant impact on the financial statements.
 

 

3. Judgements and estimates

 

The preparation of interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements with the exception of the judgements in relation to the Embedded Derivative and the FOX equity option (which policies are outlined in further detail in Notes 2 and 3) in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2019 and are detailed below.

 

Valuation of tax provisions and liabilities and associated receivables

Taxation within the Group includes both Income Taxes and Gaming Taxes. Judgement and estimation is required to interpret international tax laws and the way these taxes interact within each jurisdiction, to identify and value provisions in relation to gaming and income taxes as applicable.  The liabilities for uncertain tax positions reflected

within current tax payable and provisions in the Consolidated Statement of Financial Position for the six months ended 30 June 2020 are comprised of a number of individual immaterial uncertain tax positions relating to the risks assessed in various jurisdictions by Management. Uncertainties have been measured using the best estimate of the likely outcome. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the income tax or gaming tax expense in the period in which such a determination is made. Management uses in-house tax experts, professional firms and previous experience when assessing tax risks and the Group believes that the accrual for all tax liabilities at 30 June

2020 is adequate for all uncertain tax positions based on its assessment of the range of factors outlined above. Further information in relation to the judgement relating to the disputed legacy German and Greek tax assessments is outlined in Note 11.

 

Acquisition accounting and value of acquired assets and liabilities

The acquisition method of accounting is used to account for all business combinations. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Judgement and estimation is required in particular in the identification and valuation of separable intangible assets and determining appropriate useful economic lives for these assets. If the purchase consideration exceeds the fair value of the net assets acquired then the difference is recognised as goodwill.

 

The Group has one year from the acquisition date to re-measure the fair values of the acquired assets and liabilities and the resulting goodwill if new information is obtained relating to conditions that existed at the acquisition date.

 

Acquisition related costs are expensed as incurred. The business combinations entered into during the period are disclosed in Note 10.

 

Measurement of the recoverable amounts of cash generating units containing goodwill and indefinite life licences and brands intangible assets

The Group reviews the carrying value of goodwill for impairment annually (or more frequently if there are indications that the value of goodwill may be impaired) by comparing the carrying values of these cash generating units with their recoverable amounts (being the higher of value in use and fair value less costs to sell).

The impairment review is performed on a "value-in-use" basis, which requires estimation of future net operating cash flows, the time period over which they will occur, an appropriate discount rate and an appropriate growth rate. Certain of these estimates and assumptions are subjective in nature.  

 

The impact of COVID-19 on the performance of the group and its individual business units is set out in the business review section of the H1 results announcement.  The retail cash generating units (CGUs) were impacted significantly due to the temporary suspension of the activities of shops for a period leading to shorter term impacts such as social distancing as well as longer term uncertainty in respect of customer behaviours.  Based on the significant headroom that existed in the 31 December 2019 impairment test, the strong performance of the shops for the period up to the date of suspension of activities, customer activity levels since the shops have reopened as well as opportunities to make further market share gains as competitors reduce the size of their respective estates, the Group is satisfied that no impairment has arisen during the period to 30 June 2020.
 

3. Judgements and estimates (continued)

 

For the Group's various Online CGUs which generate income from sportsbook the impact of COVID-19 has not been as significant due to greater substitution possibilities and they also benefit from the ongoing retail to online migration.  While no impairments have arisen in the Group's CGUs during the period to 30 June 2020, there is economic uncertainty in the global economy due to the ongoing COVID-19 global pandemic and this could be a potential future risk.

Lease term and judgement of whether the Group is reasonably certain to exercise extension options

Some property leases, particularly in our retail business contain extension and break options to provide operational flexibility. These options are held by the Group and not by the lessors. The Group assesses whether it is reasonably certain to exercise these options at lease commencement date. The Group is of the view that other than the underlying trading of the shop, there is no economic incentive to extend a particular lease. For example, the rents are at market rates, there are no significant leasehold improvements and there are no significant costs relating to exiting or relocating.

 

Contingent liabilities

The Group reviews its legal proceedings following developments in the same at each balance sheet date, considering, among other things: the nature of the litigation, claim or assessment; the legal processes and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought; the progress of the case (including progress after the date of the consolidated financial statements but before those statements are issued); the opinions or views of legal counsel and other advisors; experience of similar cases; and any decision of the Group's management as to how it will respond to the litigation, claim or assessment. The Group assesses the probability of an outflow of resources to settle the alleged obligation as well as if the outflow can be reliably measured. If these conditions are not met, no provision will be recorded and the relevant facts will be disclosed as a contingent liability. See Note 19 for further detail.

 

Valuation of Embedded Derivative on Senior Notes

The Senior Notes (as defined in Note 15) include certain embedded features allowing the Group to redeem the Senior Notes or allowing the holders to require a redemption of the Senior Notes. These features were bifurcated from the carrying value of the Senior Notes. Management used estimates, including an implied credit spread of 4.2% as at 30 June 2020 (5 May 2020 - 5.1%), in determining the fair value of the Embedded Derivative. The implied credit spread represents management's estimate of the Group's creditworthiness as implied by the market value of the Senior Notes. During the period ending 30 June 2020 a gain of £29.9 million was recorded through financial income in relation to the re-measurement of this Embedded Derivative.

 

FOX equity option

As part of the Combination, the Group acquired the following agreement in relation to TSG's US business.

 

On 8 May 2019, TSG and FOX Sports ("FOX Sports"), a unit of Fox Corporation, announced plans to launch FOX Bet, the first-of-its kind national media and sports wagering partnership in the United States and entered into a commercial agreement of up to 25 years. As part of the transaction, FOX Sports will receive certain brand license, integration and affiliate fees. In addition, during the term of the commercial agreement, TSG has agreed to a minimum annual advertising commitment on certain FOX media assets. Prior to the tenth anniversary of the commercial agreement, and subject to certain conditions and applicable gaming regulatory approvals, FOX Sports has the right to acquire up to a 50% equity stake in TSG's U.S. business. In accordance with IFRS 2, Share-based payment based on the judgment of management, this right granted to FOX Sports is considered a contingently cash-settled share-based payment because FOX Sports, subject to receiving regulatory approvals and meeting certain other conditions, has discretion to exercise the right. During the period ended 30 June 2020, the Group recorded £2.1m to sales and marketing expense in relation to the commercial agreement. 

 

Management has made certain judgments in the recognition and measurement of liabilities in relation to this commercial agreement and associated right of FOX Sports to acquire equity, including its judgment as to the probable method of settlement. The right has been valued using a discounted cash flow model and as it represents a contingently cash-settled share-based payment, will be recorded at fair value at each reporting period. 
 

4. Operating segments

 

Reportable business segment information

Subsequent to the Combination, the Group's reportable segments are as follows:

- PPB;

PokerStars;

Sky Betting and Gaming;

- Australia; and

- US.

 

The reportable segments reflect the way financial information is reviewed by the Group's Chief Operating Decision Maker (the Board of Directors, "CODM"). The Group has restated the operating segment information for the six months ended 30 June 2019 accordingly.

 

The previous reportable segments of PPB Online and PPB Retail have been aggregated in the PPB segment due to the similar products, markets and regulatory environment that both segments operate in.

 

The PPB segment derives its revenues primarily from sports betting (sportsbook and the exchange sports betting product) and gaming (games, casino, bingo and poker) services for the Paddy Power and Betfair brands and some business-to-business ("B2B") services globally. Services are delivered through the internet and through licenced bookmaking shop estates in the UK and Ireland with a small proportion delivered through the public telephony system.

 

The PokerStars segment derives its revenues primarily from Poker, Gaming and Sports betting for the Pokerstars, BetStars, Full Tilt and their related brands mainly via the internet.

 

The Sky Betting and Gaming segment derives its revenues primarily from sportsbook and gaming (games, casino, bingo and poker) for Sky Bet and its related brands via the internet as well as from Oddschecker, the UK's leading odds comparison website.

 

The Australia segment comprising the Sportsbet and BetEasy brands earns its revenues from sports betting services provided to Australian customers using primarily the internet with a small proportion using the public telephony system.

 

The US segment comprising the FanDuel, TVG, Betfair, Pokerstars and FoxBet brands earns its revenues from sports betting, daily fantasy sports and gaming services provided to US customers using primarily the internet with a proportion of US sports betting services also provided through a small number of retail outlets.

 

Corporate administrative costs (Board, Finance, Legal, Internal Audit, HR, Property and other central functions) cannot be readily allocated to individual operating segments and are not used by the CODM for making operating and resource allocation decisions. These are shown in the reconciliation of reportable segments to Group totals.

 

The accounting policies in respect of operating segments reporting are the same as those described in the basis of preparation and summary of significant accounting policies set out in the Company's last annual financial statements in respect of the year ended 31 December 2019.

 

The Group does not allocate income tax expense or interest to reportable segments. Treasury management is centralised for the PPB, PokerStars, Sky Betting and Gaming, Australia and US segments.

 

Assets and liabilities information is reported internally in total and not by reportable segment and, accordingly, no information is provided in this note on assets and liabilities split by reportable segment.

 

Seasonality

The Group's sportsbook revenue is driven by a combination of the timing of sporting and other events and the Group's results derived from those events. The COVID-19 pandemic that caused the postponement and cancellation of sporting events across the world has skewed results for the period.  Gaming and other revenue is not as dependent on the sporting calendar.
 

4. Operating segments (continued)

 

Reportable business segment information for the six months ended 30 June 2020:

 

 

 

PPB

 

PokerStars

Sky Betting and Gaming

 

Australia

 

US

 

Corporate

 

Total

 

£m

£m

£m

£m

£m

£m

£m

Revenue from external customers before VAT refund

540.1

229.7

148.8

348.0

255.8

-

1,522.4

Cost of sales

(156.8)

(51.3)

(40.4)

(148.2)

(99.2)

-

(495.9)

Gross profit

383.3

178.4

108.4

199.8

156.6

-

1,026.5

Operating costs excluding depreciation and amortisation

(298.3)

(62.4)

(41.9)

(90.0)

(154.3)

(37.9)

(684.8)

Adjusted EBITDA 1

85.0

116.0

66.5

109.8

2.3

(37.9)

341.7

Depreciation and amortisation

(47.5)

(7.1)

(3.7)

(12.3)

(16.1)

(2.2)

(88.9)

Reportable segment profit / (loss) before separately disclosed items

37.5

108.9

62.8

97.5

(13.8)

(40.1)

252.8

Amortisation of acquisition related intangible assets (Note 5)

(27.1)

(51.0)

(29.6)

(4.4)

(15.7)

-

(127.8)

VAT refund (Note 5)

10.3

-

-

-

 

-

10.3

Reportable segment profit / (loss) after amortisation of acquisition related intangibles and VAT refund

20.7

57.9

33.2

93.1

(29.5)

(40.1)

135.3

Combination fees and associated costs2

 

 

 

 

 

 

(26.3)

Restructuring and Integration costs2

 

 

 

 

 

 

(41.2)

Operating profit

 

 

 

 

 

 

67.8

 

Reportable business segment information for the six months ended 30 June 2019:

 

 

 

 

PPB