TIDMFLTR
RNS Number : 0764I
Flutter Entertainment PLC
10 August 2021
10 August 2021
Flutter Entertainment plc - 2021 Interim Results
Strong customer momentum driving growth; US profits expected in
2023
Flutter Entertainment plc (the "Group") announces interim
results for six months ended 30 June 2021.
Reported(1) Adjusted pro forma(2)
H1 H1 H1 H1
2021 2020 2021 2020 CC(3)
GBPm GBPm GBPm YoY GBPm GBPm YoY YoY
% % %
---------------------------- ------- ------ ----- ------ ------ ---- -----
Average monthly players(4)
('000s) 7,625 5,445 +40%
Group Revenue 3,053 1,536 +99% 3,053 2,389 +28% +30%
Adjusted(5) Group EBITDA(6)
excluding US 684 339 +101% 684 703 -3% -2%
Adjusted Group EBITDA 597 342 +75% 597 684 -13% -12%
Profit before tax 77 24 +221%
(Loss)/Earnings per share
(pence) (50.4)p 18.1p
Adjusted earnings per share
(pence) 171.1p 187.5p -9% 171.1p 286.3p -40%
Net Debt at period end(7) 2,682 2,899 -7%
Operational Highlights: all commentary on a pro forma basis
-- Group: Scale and quality of business enhanced with 30%
revenue growth driven by 40% increase in average monthly players
("AMPs")
-- US : FanDuel product underpins leadership position; 45%
online sportsbook market share(8) in Q2
- Revenue growth of 159% to GBP652m ($906m); over 2.2 million
customers acquired since sports betting launch at average CPA(9) of
$291
- Average return on investment in first year post customer acquisition of 1.2 times(9)
- Proprietary sports technology migration complete; product and
risk management advantages key to strong customer
acquisition/retention, also benefitting sports margin
- Flutter US expected to generate positive EBITDA in 2023, based
on our expectations of future state openings
-- Group ex-US: Excellent customer growth with AMPs +26% aided by more normal sporting calendar
- UK & Ireland AMPs +44%, with integration progressing well
- Australian AMPs +52% driven by very high customer retention rates
- International revenue decline less than anticipated with casino now largest product vertical
-- Safer gambling: Continued investment in resource and technology to optimise our controls
- Advanced development of Affordability Triple Step in UK&I, with next phase of rollout in H2
- Stepped up Group wide campaigns to promote safer gambling awareness and tools
Financial Highlights:
-- Reported revenue and Adjusted EBITDA growth of 99% and 75%
respectively benefitting from May 2020 combination with The Stars
Group ("TSG")
-- Reported profit before tax of GBP77m, including amortisation
charge of GBP276m for acquired intangibles
-- Pro forma revenue of GBP3.1bn, 30% higher than in H1 2020
-- Pro forma Adjusted EBITDA for Group ex-US 2% lower year-on-year to GBP684m
-- Higher US Adjusted EBITDA loss reflecting increased
investment, with 6 additional states live compared to H1 2020
-- Net debt reduced by 7%, equating to a leverage ratio of 2.3x
-- Debt refinance complete, increasing liquidity and reducing
future annual interest cost by circa GBP50m
-- Dividend policy to be kept under review with medium-term
leverage target of 1-2 times retained
Outlook:
-- The second half of the year has started well. Assuming an
uninterrupted sporting calendar for the remainder of the year and
normalised sports results, we anticipate the following:
- Group ex-US: Adjusted EBITDA of between GBP1,270m - GBP1,370m,
assuming our retail estates remain open throughout H2
- US: Net revenue of between GBP1.285bn and GBP1.425bn ($1.8bn -
$2.0bn) and Adjusted EBITDA loss of between GBP225m and GBP275m.
This assumes H2 online launches in both Arizona and Connecticut
Peter Jackson, Chief Executive, commented:
"The first half of 2021 exceeded our expectations as we made
substantial progress against our operational and strategic
objectives while maintaining excellent momentum in growing our
player base. Our global sports businesses benefitted from further
enhancements to our products and the return to more normalised
sporting calendars while we sustained our strong performance in
gaming despite the challenging comparatives set last year.
In the US, we remain the number 1 online sports betting operator
by some distance thanks to the quality of our products and the
extensive reach of the FanDuel brand. The customer economics we are
seeing in the US bode very well for the future, with early FanDuel
customers generating positive payback within the first 12 months of
acquisition. We remain absolutely focused on extending our sports
product advantages and replicating our market share success in
further states as they regulate. In gaming we see an opportunity to
grow our market share and look forward to further enhancing our
product offering in the coming months.
In the UK and Ireland, integration is progressing well with our
3 brands benefiting from shared learnings across product and
operations. In Australia, Sportsbet delivered a phenomenal H1
performance with high customer retention rates during a period of
reduced Covid disruption, suggesting that the business has
experienced a permanent step change in scale. In International,
which faced particularly challenging revenue comparatives following
the growth in poker last year, revenue declines were less
pronounced than anticipated as we continue to reposition and invest
in the business for long-term sustainable growth.
Taking a lead on safer gambling remains a key priority for the
Group as we continue investment across our brands and step up our
activity to promote safer gambling awareness and tools. In markets
where our campaigns are most advanced we are already seeing a
positive impact on customer engagement and usage of safer gambling
tools.
The second half of the year has started well and we look forward
to making further progress in the coming months."
Notes:
(1) Reported represents the IFRS reported statutory numbers.
Where amounts in the table have been normalised for separately
disclosed items (SDIs) they are labelled as Adjusted.
(2) Flutter's combination with TSG completed on 5 May 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in 2020. Junglee, which was
acquired in January 2021, has not been included on a pro forma
basis. See Appendix 3 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 2020 at
H1 2021 exchange rates (see Appendix 4). Growth rates in the
commentary are in local or constant currency.
(4) Average Monthly Players represent the average number of
players who have placed and/or wagered a stake and/or contributed
to rake or tournament fees during the month in the reporting
period. The AMP numbers do not include Junglee players in 2020 or
2021 to allow for better comparability of underlying player growth
for International and Group.
(5) The "Adjusted" measures include items that are separately
disclosed as they are: (i) not part of the usual business activity
of the Group (ii) items that are volatile in nature and (iii)
purchase price accounting amortization of acquired intangibles
(non-cash). Therefore, they have 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.
(7) Net debt is the principal amount of borrowings plus
associated accrued interest, minus cash & cash equivalents
plus/minus carrying value of debt related derivatives.
(8) Online sportsbook market share is the GGR market share of
FanDuel and FOX Bet for Q2 in the states in which FanDuel was live
based on published gaming regulator reports in those states. During
Q2 FanDuel was live in 10 states; Colorado (CO), Illinois (IL),
Indiana (IN), Iowa (IA), Michigan (MI), New Jersey (NJ),
Pennsylvania (PA), Tennessee (TN), Virginia (VA) and West Virginia
(WV). During Q2 FOX Bet was live in 4 states; CO, NJ, MI and
PA.
(9) CPA is cost per acquisition and represents the total media
and digital marketing spend per acquired customer including those
cross-sold from daily fantasy sports. The return on investment is
the average gross profit generated from those customers divided by
their average CPA. It includes all quarterly cohorts of FanDuel
sportsbook acquired between Q3 2018 through Q2 2020.
Analyst briefing:
The Group will host a questions and answers call for institutional
investors and analysts this morning at 9:30am (BST). Ahead of
that call, a presentation will be available on the Group's corporate
website ( www.flutter.com/investors ) from 7.00am. To dial into
the conference call, participants need to register here where
they will be provided with the dial in details to access the
call.
Contacts:
Investor Relations:
David Jennings, Group Director of
Investor Relations & FP&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, Group Director of Corporate
Affairs + 44 75 2111 4787
Lindsay Dunford, Group Head of Corporate
Affairs + 44 79 3197 2959
Billy Murphy, Drury Communications + 353 1 260 5000
James Murgatroyd, Finsbury + 44 20 7251 3801
-------------------------------------------------- --------------------
Business Review (1,2,3,4,5)
Flutter enjoyed a very strong first half of 2021 with excellent
revenue growth driven by increased average monthly players
("AMPs"). We have cemented our leading market share in each of our
core markets by continuing to make substantial customer-focused
investments in our products, brands and value propositions. In the
US, we have maintained our leadership position due to strong
execution and the quality of our product offering.
During H1, pro forma revenue increased by 30% to GBP3.1bn,
benefitting from the diversification of the Group on a product and
geographic basis. Pro forma Adjusted EBITDA declined by 12% to
GBP597m reflecting (i) increased investment in the US as we build
our leadership position, (ii) substantial investments in our
International division to position it for long-term success and
(iii) the previously highlighted one-off nature of some lockdown
related earnings in H1 2020. These were partially offset by a
strong increase in sports revenue following the return to a more
normalised sports calendar in Q2 2021. On a reported basis revenue
and Adjusted EBITDA grew 99% and 75% respectively, reflecting a
full six-month contribution from The Stars Group ("TSG") following
the completion of our combination on 5 May 2020.
The Group is continuing to improve the sustainability and
quality of its earnings through our focus on investment in
regulated/regulating markets. The proportion of our revenues coming
from regulated markets increased to 90% in H1, up 8 percentage
points in just 2 years. This reflects the strength of ongoing
performance in both our UK & Ireland and Australian divisions,
our rapid expansion in the US and the regulation of certain other
international markets over that time. At this point, no individual
unregulated market accounts for more than 1.5% of Group
revenue.
US deep dive: Achieving the "flywheel effect"
In the US, we generated over $900m in revenues in H1 and in Q2
we exceeded the half billion dollar mark in a single quarter for
the first time. As a result, the revenue gap between our US
business and its main competitors is continuing to widen,
compounding the scale advantage we enjoy today.
That scale advantage is an important element of our goal to
achieve a US flywheel effect which sees us use our scale to
accelerate the growth of our business. The more we grow our
customer base and revenues, the more we can invest in technology,
products, promotions and pricing, thereby further enhancing our
customer proposition. This in turn will help us to achieve better
customer acquisition and retention than our competitors, increasing
our scale and driving future growth.
Our success to date has been built upon two key competitive
advantages, namely the quality of our product and the reach of the
FanDuel brand.
1. FanDuel product
Technology
Technology is a key enabler of our success. We completed the
migration of the FanDuel sportsbook on to our own proprietary
sports betting platform in July (Flutter's Global Betting Platform)
with some states live since Q1. The new platform has increased the
speed, scalability and reliability of FanDuel's product, which had
already been consistently ranked #1 by independent third-parties.
When combined with the move to our own in-house account and wallet
during 2020, it means FanDuel now operates on largely proprietary
technology for sports.
Pricing and risk management
The Group's 20+ year heritage in pricing and risk management has
enabled us to develop products that provide us with a sustainable
competitive advantage:
-- Product range: Our proprietary models provide customers with
the broadest range of markets to bet on. For example, we offer over
twice the number of pre-game markets and over seven times the
number of in-play markets than the average of our nearest
competitors on the NBA
-- Our Same Game Parlay(TM) product: Originally developed
elsewhere in the Group, this product is proving to be very popular
with US customers; over 50% placed a Same Game Parlay bet during
the last NFL season and we were the only operator to offer this
product across NFL, NBA and MLB during H1
-- Higher structural margins: The combination of the two factors
above means that a higher proportion of our sportsbook stakes are
placed on parlay (accumulator) type bets. These bets are
structurally higher margin than single event wagers. Despite
offering what we believe to be the best value in the market, our
combination of pricing accuracy and advantageous product mix
enables us to achieve higher gross win margins. In Q2 for example
we generated gross win margins that were 300 basis points higher
than the market. We estimate that approximately half of this
benefit was derived from our sustainable product advantage. The
remainder was due to favourable sports results, the benefit of
which was compounded by our product mix
-- Risk management: Confidence in our pricing accuracy allows us
to take bigger bets from customers
We are continuing to maintain this product gap by iterating our
existing pricing models to improve the precision of our pricing as
well as also developing new models to cover more US sports. This
will increase the proportion of our handle that we price in-house
from 75% currently to circa 95% by the end of 2023.
We also improved FanDuel's gaming proposition during H1 with
additional features such as:
-- Our cross-product promotional platform to more effectively reward multi-product players
-- An upgraded customer interface, leveraging Group resource at
our Cluj technology hub in Romania
-- Over 100 new gaming titles added in the half
We recognise however that we have more to do in gaming and look
forward to expanding our portfolio of content further in the coming
months. We remain convinced that (i) quality of product and (ii)
having a deep understanding of what customers want are critical
determinants of long-term success in this industry and a key driver
of the high customer retention rates we are achieving today.
2. FanDuel brand
The FanDuel brand has benefited from over $1bn of marketing
investment to date, providing it with leading awareness across US
sports betting brands. The FanDuel daily fantasy sports ("DFS")
database has expanded to nearly 13 million players, from 7 million
in 2017, and continues to be the source of over 40% of all sports
betting customers acquired. In the first half of 2021 alone, we
spent an additional GBP225m on marketing. We have an extensive
media strategy that combines national partnerships with the NFL,
Turner Sports and CBS with key regional sports network ("RSN")
deals. In sportsbook states where we are live, this investment
across RSNs has delivered FanDuel 39% share of voice across local
sports networks, the key networks consumers use to watch their
local team games in the NBA, MLB and NHL.
We utilised to great effect the scale of our existing player
base to further grow our AMPs. When the effectiveness of our viral
marketing campaigns, such as "Spread the Love", is combined with
the quality of our product, it enables a compounding customer
referral effect, where we have more and more customers referring
FanDuel to their friends. This combination of customer referrals
and viral marketing has been identified as the source of 33% of our
sports betting customers.
Resultant market share
We have maintained our leadership position in the US online
market during H1.
-- Our overall online market share(6) in Q2 was 31%
-- Our sports betting share(6) in Q2 was 45%
-- Our online gaming share(6) in Q2 was 20%
Encouragingly we continue to lead in states at different stages
in their life cycle. We are the market leader in more mature states
like New Jersey and Pennsylvania but also lead in those states that
have gone live this year, namely Michigan and Virginia. We have
also bridged the gap in other states, such as Illinois and Indiana,
where we entered marginally later than our competitors, with our
product quality coming to the fore.
Customer economics update and medium-term outlook
With the benefit of 3 years' sports betting experience in the
US, a clearer picture is emerging of the returns dynamics for
FanDuel.
-- Scaled customer acquisition at low cost: more than 2.2
million sportsbook and gaming customers acquired to date at an
average cost per acquisition (CPA) of $291(7)
-- Year-one return: The average first year return on investment
for sportsbook and gaming customers is 1.2 times the average cost
to acquire those customers(7)
-- Year-two revenue: The average revenue generated from
customers in the second-year post acquisition is 11% higher than
the revenue they generate in year one(7)
We are continuing to grow our customer base rapidly. In the last
12 months to 30 June, FanDuel acquired 1.7 million new sportsbook
and gaming customers, equating to over three times the total
existing base acquired up to that point. Those existing players
generated a positive contribution of $190m in the last 12 months.
When combined with the $212m contribution from our daily fantasy
and horse racing businesses, the total contribution of our US
business pre-new player acquisition was $402m. This was an increase
of 138% on the prior comparable period. We were able to use this
positive contribution to fund new player acquisition of $311m.
As can be seen above, the existing base is providing us with the
firepower to invest further in customer acquisition as new states
launch, ensuring we keep the flywheel turning. As we consider the
medium-term outlook for our US business, we now believe that we
will reach the point in 2023 when the positive contribution from
customers acquired pre-2023 will more than offset the cost of
ongoing customer acquisition. We therefore expect that the US
division will generate positive EBITDA in 2023.
It is important to note that we are not setting a target date
for profitability - the date the business turns profitable remains
an output for us. We remain entirely focused on growing the
embedded value of the business by acquiring as many customers as we
can for as long as we can generate attractive returns on that
investment. It is important to note that our projection assumes
that none of California, Florida or Texas launch online sports
betting/gaming before 2024. Should one of these large states
regulate sooner, our level of investment in new player acquisition
would be higher and profitability could therefore be delayed. The
projection also assumes no major change to the regulatory/tax
landscape in current or prospective states.
Group ex-US: Structural trends playing to our strengths
Group ex-US delivered a strong performance in the first half of
2021 with AMPs up 26%, delivering pro forma revenue growth of 14%
year-on-year. Excellent revenue performance in UK and Ireland
(+30%) and Australia (+27%) more than offset a lower than
anticipated decline in International revenues (-11%). On a reported
basis revenue grew 90% (UK & Ireland 94%, Australia 68%,
International 104%).
Several important factors influenced the market in H1: (i)
sporting calendars normalised, particularly in the UK & Ireland
(ii) lockdowns continued, with retail and traditional entertainment
venues shut for an extended period during the half (iii) sports
results were beneficial which added approximately 1 percentage
point to ex-US win margins versus expectations and (iv) customers
continued to migrate online as we focused on retention of the
players acquired while retail was shut. Whilst it is too early to
say what the long-term impact of some of the more structural
changes will be, our performance in H1 and the trends we are seeing
in our business provide grounds for cautious optimism.
UK & Ireland
In the UK & Ireland, AMPs grew 44% in H1, helped by the
disrupted sports calendar in Q2 last year and the additional
benefit derived from the European football championships this year.
Gaming also performed well notwithstanding challenging Covid
related comparatives and the lower share of consumer spend that
these products usually generate during summer football
tournaments.
SkyBet, Paddy Power and Betfair continued to deliver a
differentiated proposition to recreational and more engaged
customers alike as our team pursued its 'complement and compete'
strategy. Good progress has been made on integration following the
merger, with "centres of excellence" created across key areas. This
has enabled the sharing of greater insights in areas like pricing
and risk management, leading to improvements in our product
offering across brands.
-- Supported by targeted marketing campaigns, the SkyBet in-play
experience has been enhanced while Paddy Power and Betfair are
benefitting from improved 'Bet Builder' products
-- The growth in popularity of these 'Bet Builder' products
benefits margins with some of the upside reinvested in enhanced
rewards to acquire and retain customers
-- Betfair also leveraged product improvements ahead of the
Euros, being the only operator to have cash out available 100% of
the time during the tournament
-- As a result, all brands achieved record high engagement
during the half with sports AMPs up 24% compared with 2019
Our gaming franchises benefited from improved in-house and
third-party content as well as the investments we made in our
proposition over the last 12 months. Leveraging the expertise of
the Sky Vegas team has helped with the successful launch of daily
engagement products such as 'Paddy's Wonder Wheel', 'Betfair's
Prize Pinball' and the launch of the enhanced Betfair gaming
experience, leading to improved customer engagement and retention
across our platforms with gaming AMPs 59% higher than the
comparable period in 2019.
In Retail our shops reopened during Q2, with June the first full
month of trading since September 2020. Revenue in the month was
approximately 80% of June 2019 levels, with a notable difference
between trading in our UK estate (where revenue was +7% versus
2019) and our Irish estate where revenues were running at 50% of
2019 levels, reflecting some operational restrictions and social
distancing measures that have remained in place. Our UK shops
benefitted from strong gaming performance and an earlier re-opening
than our Irish shops (mid-April as opposed to mid-May). We
continued to pay all staff costs throughout H1 without reliance on
any government support schemes available.
Australia
Australia was less impacted by Covid related interruptions in H1
than the UK & Ireland. Competitor retail outlets were open for
the majority of the half and therefore H1 trends may provide a good
indication of longer-term customer behaviour in the market.
The scale of our Australian online business has increased
significantly over the last two years with AMPs in H1 56% higher
than in H1 2019 on a pro forma basis. Retention rates exceeded our
expectations, most notably among customers identified as being
traditional retail customers. The proportion of staking from these
customers throughout H1 remained at the same elevated levels we
experienced during 2020. With added confidence in our ability to
retain these customers, we believe the events of the last 17 months
may represent a permanent step change in the scale of the Sportsbet
business.
We look forward to sharing more details and customer insight
with you at our upcoming Australian investor day on September
22nd.
International
The shape of our International division continues to evolve,
reflecting both changing market dynamics as well as the progress we
are making to improve the sustainability of the earnings base.
During H1 several key factors influenced performance:
-- The step up in investment we have made across brand, people,
product and technology to improve our customer proposition and
drive growth in direct casino acquisition
-- The impact of the compliance measures taken in 2020 following
the merger with TSG to improve the sustainability of future revenue
streams
-- Adverse regulatory changes introduced in Germany
-- The benefit of ongoing local lockdowns which continued to
stimulate online activity, albeit to a much lesser extent than in
H1 2020
In July, we built on this further by acquiring Singular, an
Eastern European sports betting and gaming platform which is
already fully integrated with our Adjarabet business, providing us
with greater optionality as we enter new markets.
The improvements we have been making have delivered some
important successes:
-- Our total gaming customers in H1 2021 equated to 91% of our
H1 2020 total, despite the unprecedented interest in poker last
year, particularly during the first lockdown
-- Casino revenue has exceeded poker revenues for the first time
in H1 (year-on-two-year casino revenues +49%). Our investment in
direct casino and proprietary content, as well as excellent casino
execution at Adjarabet and Betfair, has contributed to the change
in mix
-- Proprietary games developed by our in-house studios accounted
for 19% of PokerStars' casino gross gaming revenue in H1, making
in-house content the largest single supplier of slots content to
PokerStars Casino
We will continue to invest to further build on this momentum and
to leverage our scale position across our international
markets.
International regulatory changes represent both a challenge and
opportunity for the Group. In Germany we were disappointed with
confirmation of the new turnover tax on online poker and slots
products which came into effect on July 1. When considered in
conjunction with the product regulations announced late last year,
it is increasingly clear that generating a positive contribution in
Germany will now be challenging for all operators.
Elsewhere, Brazil, Canada and the Netherlands are all on a path
to regulation in the next 24 months which could lead to growth in
our addressable market. It may also mean however that the
contribution from these markets could decline in the short-term
with the introduction of taxes and/or other regulatory changes.
Longer-term we believe our scale and product advantages will
position us well to grow our share over time.
Safer gambling
Safer gambling remains a key priority for the Group. We continue
to invest in safer gambling resource and technology, upweighting
our dedicated teams and optimising our safer gambling controls.
In the UK & Ireland we have continued to refine our Triple
Step Affordability framework, which takes an individual risk-based
approach to financial vulnerability, in combination with a range of
other factors, to minimise the probability of harm. We believe this
framework strikes the right balance between protecting vulnerable
customers without impinging on the personal freedoms of the vast
majority of customers who enjoy a flutter. The next phase of the
roll out is expected in H2, having shared our approach with the UK
Government as part of our response to the Gambling Act review. We
are also engaging constructively in other areas of the Review, such
as backing calls from the Betting & Gaming Council ("BGC") to
include an Ombudsman in the Government's White Paper, expected
later this year.
In Ireland, where the legislative process is progressing, we
introduced a range of proactive measures including a ban on credit
card deposits and a pre-watershed whistle-to-whistle advertising
ban during live sporting events. We also committed 1% of NGR to
support the research, education and treatment of problem
gambling.
In the US, FanDuel became the first online operator in March to
partner with the American Gaming Association ("AGA") on its
responsible sports betting campaign, "Have a Game Plan". The Group
also announced a partnership with Gamban to provide blocking
software to self-excluded customers as part of its commitment to
building a comprehensive responsible gaming programme.
Across the Group, we have stepped up spending on the promotion
of safer gambling awareness and tools through a range of TV
campaigns, direct marketing and on-site visibility. We have seen an
increase in the use of deposit limits and other safer gambling
tools across all our brands in the UK and Ireland following
introduction of these measures. In Australia, Sportsbet launched
the "Take a sec before you bet" campaign at the end of July aimed
at highlighting the benefits of pre-emptive deposit limits, while
in the US FanDuel enhanced its customer experience on-site with
information on tools and safe play.
Capital structure and balance sheet update(8)
As at June 30th, the Group had gross debt of GBP3,316m and a net
debt position of GBP2,682m, representing a leverage ratio of 2.3x.
Post period end, the Group announced the sale of Oddschecker Global
Media for an initial GBP135m in cash, with the potential for this
to rise to GBP155m in time depending on the future performance of
the business.
In mid-July the Group announced completion of a debt refinancing
transaction that will reduce its effective cost of debt to 2.5%
(from circa 4.2% previously), leading to expected annualised
savings of approximately GBP50m based on current leverage levels.
The transaction also resulted in an increase in available liquidity
of circa GBP250m for general corporate purposes.
The Group remains committed to its medium-term leverage target
of 1-2 times and the Board will review the Group's dividend policy
once leverage returns to these levels.
Other updates
Following the December 2020 ruling of the Kentucky Supreme Court
in relation to a legacy case taken by the State against two TSG
Isle of Man companies, the Group intends to submit a petition to
the US Supreme Court to review the Kentucky judgement. Our petition
will be submitted this month and we expect that the US Supreme
Court will decide whether to take up the case during Q4 2021.
Separately, further to our statement on April 7 this year, the
Group confirms that it has entered into a legal arbitration process
with FOX Corporation with respect to its option to acquire an 18.6%
stake in FanDuel. An arbitrator has been appointed and the Group
intends to vigorously defend its position. A ruling in the
arbitration is not expected before 2022.
Operating and Financial Review (1-5, 9-12)
Pro forma review
Group
H1 H1 CC
2021 2020 Change Change
Pro forma GBPm GBPm % %
------- ------ ------- -------
Average monthly players
('000s) 7,625 5,445 +40%
Sports revenue 1,894 1,199 +58% +57%
Gaming revenue 1,159 1,190 -3% +1%
------- ------ ------- -------
Total revenue 3,053 2,389 +28% +30%
Cost of sales (1,109) (738) +50% +51%
Cost of sales as a %
of net revenue 36.3% 30.9% +540bps +510bps
Gross profit 1,944 1,650 +18% +20%
Sales and marketing (728) (426) +71% +77%
------- ------ ------- -------
Contribution 1,215 1,224 -1% +1%
Other operating costs (563) (475) +19% +20%
Corporate costs (55) (66) -16% -10%
Adjusted EBITDA(1,2) 597 684 -13% -12%
Adjusted EBITDA margin
% 19.6% 28.6% -910bps -930bps
Depreciation and amortisation (125) (117) +7% +8%
------- ------ ------- -------
Adjusted(1) operating
profit 472 567 -17% -16%
------- ------ ------- -------
Adjusted(1) basic earnings
per share 171.1p 286.3p -40%
Net debt at period end 2,682 2,899 -7%
------------------------------ ------- ------ ------- -------
Note: Flutter's combination with TSG completed on 5 May 2020.
The pro forma numbers presented show the Group's financials with
TSG included for a full 6-month period in both 2020 and 2021.
Junglee, which was acquired in January 2021, has been included on a
reported basis due to materiality.
Pro forma total revenue increased 30% to GBP3.1bn in the half,
driven by growth of 57% in sports and 1% in gaming, with AMPs 40%
higher at 7.6m. The growth in sports reflected excellent online
performance in the UK & Ireland, Australia and the US, where we
expanded our US sportsbook to 10 states (versus 4 for most of H1
2020). Sports revenue benefited from a more normal sporting
calendar in 2021, while favourable sports results versus
expectations contributed to an extra 120bps in win margin across
the Group.
While sports benefitted from easy comparatives, the opposite was
true of poker and casino where player engagement levels were
elevated during the first international lockdown period in H1
2020.
Cost of sales as a percentage of net revenue increased by 510
basis points to 36.3% due to a higher proportion of revenue coming
from the US which has higher direct costs. The changing product
revenue mix in International and the US has also driven up direct
costs in these divisions.
Merger related costs synergies in the half were GBP52m, with
GBP7m in cost of sales, GBP22m in sales and marketing and GBP23m in
other operating costs. We remain on track to deliver synergies of
GBP170m by 2023, in line with our previous guidance.
Sales and marketing increased by GBP302m to GBP728m, with
two-thirds of this increase attributable to the US division where
we continue to invest heavily in customer acquisition in both new
and existing states. The US expansion, including migration to the
Group sports betting platform, is also the material driver of the
20% increase in other operating costs.
Adjusted EBITDA declined 12% to GBP597m. Excluding the US,
Adjusted EBITDA was just 2% lower as the strong operating leverage
achieved in UK & Ireland Online and Australia supported
increased investment in our International division. Additionally,
US EBITDA losses widened by GBP67m, due to our significant
investment in scaling our rapidly expanding business.
The Group's adjusted effective tax rate in the period was 22.9%
(HY 2020: 9.3%), primarily driven by the changing mix of taxable
earnings across geographies. The full-year 2021 adjusted Group
ex-US effective tax rate is now expected to be between 17% and 19%
(FY2020: 10.4%) due to a growing share of profits coming from our
Australian and UK&I divisions.
Adjusted basic EPS reduced 115p to 171p reflecting the increased
US investment in the current period and our higher share count in
H1 2021. Our acquisition of an additional 37.2% stake in FanDuel
was mainly settled via the issuance of shares directly to Fastball
and through an equity raise.
Net debt as at 30 June 2021 of GBP2,682m was 7% or GBP217m lower
than the prior comparable period. This mainly reflects the net cash
generated by the operating activities of the business over the last
12 months less cash used to fund the additional interest acquired
in FanDuel in December 2020.
UK & Ireland
UK & Ireland Total UK & Ireland Online UK & Ireland Retail
---------------------
H1 H1 H1 H1 H1 H1
2021 2020 Change 2021 2020 Change 2021 2020 Change
Pro forma GBPm GBPm % GBPm GBPm % GBPm GBPm %
--------------------- ------ ----- ------- ------ ------ ------- ------- ------- ---------
Average monthly
players ('000s) 3,303 2,299 +44%
Sportsbook
stakes 6,091 3,614 +69% 5,885 3,231 +82% 207 383 -46%
Sportsbook
net revenue
margin 10.7% 12.8% -210bps 10.6% 12.6% -200bps 12.5% 14.6% -210bps
Sports revenue 738 525 +40% 712 470 +52% 26 56 -54%
Gaming revenue 397 350 +14% 382 327 +17% 16 23 -33%
------ ----- ------- ------ ------ ------- ------- ------- ---------
Total revenue 1,135 875 +30% 1,094 796 +37% 41 79 -47%
Cost of sales (342) (241) +42% (332) (224) +48% (10) (17) -43%
Cost of sales
as a % of net
revenue 30.1% 27.6% +250bps 30.4% 28.2% +220bps 23.4% 21.6% +180bps
------ ----- ------- ------ ------ ------- ------- ------- ---------
Gross profit 793 634 +25% 762 572 +33% 32 62 -49%
Sales and marketing (207) (168) +23% (204) (166) +23% (3) (3) -%
------ ----- ------- ------ ------ ------- ------- ------- ---------
Contribution 587 465 +26% 558 406 +37% 29 59 -51%
Other operating
costs (227) (215) +6% (160) (146) +9% (68) (69) -2%
------ ----- ------- ------ ------ ------- ------- ------- ---------
Adjusted EBITDA(1,2) 359 251 +43% 398 260 +53% (39) (10) +296%
Adjusted EBITDA
margin 31.6% 28.6% +300bps 36.4% 32.7% +370bps (93.6%) (12.4%) -8,120bps
Depreciation
and amortisation (63) (58) +8% (42) (36) +15% (21) (21) -3%
------ ----- ------- ------ ------ ------- ------- ------- ---------
Adjusted(1)
operating profit 297 193 +54% 356 224 +59% (59) (31) +91%
--------------------- ------ ----- ------- ------ ------ ------- ------- ------- ---------
The UK & Ireland division operates Paddy Power, Betfair and
Sky Betting & Gaming brands online, as well as retail
operations in the UK & Ireland.
Our UK & Ireland division delivered revenue growth of 30% to
GBP1.1bn and Adjusted EBITDA that was 43% higher than the prior
period. This performance was delivered despite our retail units
being closed for the entirety of Q1 and a proportion of Q2.
UK & Ireland Online
Revenue in UK & Ireland Online grew by 37% in H1 driven by
strong AMP growth of 44% (Q1: +23%, Q2 +70%). Sports AMPs were the
primary driver of this growth, reflecting softer comparatives in
the prior year. Compared with the equivalent period in 2019, AMPs
grew by 27% in H1.
Sports revenue grew 52% with sportsbook up 53% driven by staking
growth of 82%. While actual margins were 110bps ahead of
expectations in the half, they were down 200bps year-on-year to
10.6%. This was due to the fact that net revenue margins in H1 2020
were 390bps above expectations, reflecting particularly bookmaker
friendly results.
Structural margin enhancements through product improvements and
an increased demand from customers for higher margin products such
as 'Request a Bet' and 'Bet Builder' helped to partially offset the
year-on-year swing in results. Exchange and B2B revenue grew by 40%
in H1 reflecting the normalised sporting calendar compared with the
prior year.
Online gaming revenue grew 17%, despite the tougher
comparatives, with improved cross-sell volumes from a higher number
of sports AMPs and our enhanced product proposition helping to
improve engagement.
Cost of sales as a percentage of revenue increased by 220 basis
points to 30.4% reflecting (i) an increase in racing costs and
streaming fees and (ii) the impact of an uplift in generosity
provided to our customers which increases our effective tax
rate.
Sales and marketing grew 23% to GBP204m as marketing budgets
normalised following the cancellation of some sporting events in Q2
last year which had resulted in some savings. The increase also
reflected increased investment ahead of the Euro 2020 campaign.
Spend as a percentage of revenue declined by 210bps however,
primarily due to the increase in revenue.
Other operating costs were up 9% reflecting increased investment
in people, product and technology platforms. The uplift also
reflects additional spend on safer gambling research, education and
treatment programmes.
UK & Ireland Retail
Covid related shop closures continued to impact the financial
performance of our Retail business. Revenue declined by 47% in H1
with Retail incurring a GBP39m Adjusted EBITDA loss. Both of our
estates remained shut throughout Q1 with our UK retail shops
re-opening on 12 April and our Irish shops re-opening on 17 May.
Following re-opening, a variety of operational restrictions and
social distancing requirements remain in place.
Given the unusual operating environment, overall retail
performance has been in line with our expectations since
re-opening. June revenues equated to approximately 80% of June 2019
levels with the performance in our UK shops particularly
encouraging. June revenue in our UK estate was 7% ahead of June
2019 levels, helped by a strong gaming performance where revenues
were up 33% on the same month 2 years ago. In Ireland, performance
has reflected a more gradual re-opening of society with June
revenues running 50% below 2019 levels. We anticipate that this gap
will narrow in the coming months as further social restrictions are
lifted.
Other operating costs declined by 2%, despite the fact that we
continued to pay all our retail staff during the period of shop
closures.
Australia (4)
H1 H1 CC
2021 2020 Change Change
Pro forma GBPm GBPm % A$
----- ----- ------- -------
Average monthly players
('000s) 906 596 +52%
Sportsbook stakes 5,000 3,723 +34% +27%
Sportsbook net revenue
margin 11.7% 11.7% -bps -bps
Total revenue 585 435 +35% +27%
Cost of sales (275) (200) +38% +30%
Cost of sales as a
% of net revenue 47.0% 45.9% +110bps +100bps
----- ----- ------- -------
Gross profit 310 235 +32% +25%
Sales and marketing (59) (59) -1% -6%
----- ----- ------- -------
Contribution 252 176 +43% +35%
Other operating costs (51) (55) -7% -11%
----- ----- ------- -------
Adjusted EBITDA(1,2) 201 121 +66% +56%
Adjusted EBITDA margin 34.3% 27.9% +640bps +630bps
Depreciation and amortisation (13) (14) -9% -15%
----- ----- ------- -------
Adjusted(1) operating
profit 188 107 +76% +66%
------------------------------ ----- ----- ------- -------
Australia encompassed Sportsbet and BetEasy online brands,
migrating to a single brand, Sportsbet, in September 2020.
Sportsbet delivered an excellent financial performance in the
half with Adjusted EBITDA growth of 56% to GBP201m, driven by a
combination of 27% revenue growth and the realisation of merger
related cost synergies which reduced total operating costs by
8%.
Revenue growth was volume driven with AMPs up 52% (Q1 +43%; Q2
+61%) to 906,000 players. Sportsbet also benefited from a more
normalised sports calendar in Q2 following the deferral of local
and international sporting codes into Q3 and Q4 during 2020. The
business will face more challenging comparatives in H2 from the
condensed prior year sporting calendar.
Sportsbook stakes were 27% higher at GBP5bn. Sportsbook net
revenue margin was in line with the prior year at 11.7% with the
incremental generosity offered to retain customers offset by
favourable sports results and improvements in expected margin.
Favourable sports results in the period added 140 basis points to
actual margin.
Cost of sales as a percentage of net revenue increased to 47.0%
due to additional racing costs.
Sales and marketing as a percentage of net revenue declined 360
basis points in H1, significantly benefiting from the synergies
associated with the single brand strategy. We continue to invest
heavily in the Sportsbet brand, in tandem with personalised
generosity (which is captured within net revenue margin), to
maintain our expanded customer base and strong momentum. Other
operating costs declined 11% due to merger related synergies.
These cost efficiencies are providing excellent operating
leverage with Adjusted EBITDA as a % of net revenue expanding 630
basis points in the half to 34.3%.
International (4)
H1 H1 CC
2021 2020 Change Change
Pro forma GBPm GBPm % %
----- ----- --------- ---------
Average monthly players
('000s) 1,945 1,999 -3%
Sportsbook stakes 871 555 +57% +61%
Sportsbook net revenue
margin 9.1% 8.7% +40bps +40bps
Sports revenue 118 74 +59% +62%
Gaming revenue 562 727 -23% -19%
----- ----- --------- ---------
Total revenue 680 801 -15% -11%
Cost of sales (199) (181) +10% +14%
Cost of sales as a
% of net revenue 29.3% 22.6% +670bps +640bps
----- ----- --------- ---------
Gross profit 481 620 -22% -18%
Sales and marketing (171) (110) +55% +71%
----- ----- --------- ---------
Contribution 310 510 -39% -37%
Other operating costs (131) (113) +16% +16%
----- ----- --------- ---------
Adjusted EBITDA(1,2) 179 397 -55% -52%
Adjusted EBITDA margin 26.3% 49.5% -2,330bps -2,280bps
Depreciation and amortisation (25) (24) +4% +7%
----- ----- --------- ---------
Adjusted(1) operating
profit 154 373 -59% -56%
------------------------------ ----- ----- --------- ---------
International includes PokerStars, Adjarabet, Betfair and
Junglee brands which collectively offer online poker, casino,
sports betting and rummy products. Excludes PokerStars US business
and Betfair's UK & Ireland operations.
Revenue in our International division declined by 11% in H1 with
Adjusted EBITDA of GBP179m. AMPs were down 3% year-on-year (Q1:
+14%, Q2: -16%) but remain 17% above the equivalent period in 2019,
reflecting the progress made in enlarging our International
customer base.
The performance of the International division during the first
half reflected a number of key factors:
-- Challenging gaming comparatives; we previously disclosed that
H1 2020 PokerStars revenues were boosted by GBP205m due to the
first lockdown
-- The compliance changes we made following our merger with TSG,
along with adverse German regulatory developments, which we
previously said would reduce annual contribution by GBP115m on a
combined basis
-- Localised lockdowns continuing into 2021 which contributed to
higher gaming engagement in Q1, albeit not as pronounced as in
2020
-- An increase in the proportion of revenues coming from
regulated jurisdictions, with higher attributable direct costs and
taxes
-- Increased investment in line with our long-term strategy to
improve our customer proposition, resulting in an EBITDA margin of
26.3%
Gaming revenue declined by 19% with casino growing 5% and poker
declining by 34%. We estimate that approximately a quarter of the
GBP205m revenue benefit from last year was retained in H1 due to
ongoing lockdowns and player response to our promotional
investments.
Casino growth of 5% was driven by our continued investment in
direct casino acquisition in PokerStars, as well as enhanced
in-house and third-party casino content driving improved
cross-sell. Adjarabet and Betfair casino performed strongly during
the period.
Sports revenue grew by 62% with strong growth across all
sportsbooks, as stakes were 61% higher. Net revenue margin was
9.1%, 70bps ahead of expectations due to favourable sports results.
We chose to reinvest this in the form of increased promotional
generosity to customers. Overall margins increased by 40bps from
the prior year due to improved pricing and risk management
initiatives.
Cost of sales increased by 640bps to 29.3% due to (i) an ongoing
increase in the proportion of revenues coming from regulated
markets, (ii) an increase in the proportion of gaming revenues
coming from casino and (iii) an increase in payment processing
costs.
Sales and marketing as a percentage of revenue increased by 12
percentage points, primarily reflecting increased investment in the
PokerStars brand and investment in high growth regions such as
India and Latin America. We launched the "Epic Downtime" PokerStars
Casino campaign, further expanded our collaboration with Neymar
through our newly launched "I'm in" poker campaign and invested in
showcasing poker through live streaming platforms to drive
engagement. We also increased Betfair spend in LATAM ahead of the
Euros and Copa America, expanding investment in the largest free to
air TV provider in Brazil, further leveraging our long-term
partnerships with CONMEBOL and sponsorships of Copa Libertadores
and Copa Sudamerica.
Other operating costs increased by 16% as we invested in product
and technology, customer operations and improved our wider
operational capabilities to address the significant historic
underinvestment in the PokerStars business. This will ensure that
the business is on a stable footing for future growth.
US (4)
H1 H1 CC
2021 2020 Change Change
Pro forma GBPm GBPm % US$
------- ------ ------- -------
Average monthly players
('000s) 1,470 552 +166%
Sportsbook stakes 5,072 1,090 +365% +402%
Sportsbook net revenue
margin 6.2% 4.9% +130bps +130bps
Sports revenue 452 164 +175% +202%
Gaming revenue 200 113 +76% +95%
------- ------ ------- -------
Total revenue 652 278 +135% +159%
Cost of sales (293) (116) +152% +177%
Cost of sales as a
% of net revenue 44.9% 41.9% +300bps +300bps
------- ------ ------- -------
Gross profit 359 162 +122% +145%
Sales and marketing (292) (88) +230% +262%
------- ------ ------- -------
Contribution 67 73 -8% +2%
Other operating costs (154) (93) +66% +83%
------- ------ ------- -------
Adjusted EBITDA(1,2) (87) (19) +348% +376%
Adjusted EBITDA margin (13.3%) (6.9%) -630bps -610bps
Depreciation and amortisation (22) (18) +20% +33%
------- ------ ------- -------
Adjusted(1) operating
profit (108) (38) +189% +213%
------------------------------ ------- ------ ------- -------
The US division includes FanDuel, FOX Bet, TVG, PokerStars and
Stardust brands, offering regulated real money and free-to-play
sports betting, online gaming, daily fantasy sports and online
racing wagering products to customers in the US
Revenue grew 159% to GBP652m ($906m) in H1, with 93% of revenue
attributable to FanDuel Group, benefiting from:
-- Growth in AMPs of 166% to 1.5 million
-- Continued strong performance in existing sportsbook and gaming states
-- Successful state launches in Michigan (sportsbook and gaming) and Virginia (sportsbook)
-- A full six-month contribution from four 2020 state launches,
most of which occurred in H2 2020
-- A relatively uninterrupted US sporting calendar in Q2 versus the widespread deferrals in 2020
Sports revenue trebled to GBP452m, with growth of 540% in
sportsbook and 36% in other sports (DFS and TVG racing combined).
Sportsbook net revenue margin grew 130 basis points to 6.2% due to
an increase in our expected margin. Sports results were favourable
in the period though this was offset by an increase in customer
acquisition promotional activity.
Gaming net revenue increased 95% aided by the January launch in
Michigan and growth in existing casino states.
Cost of sales as a percentage of net revenue increased 300 basis
points to 44.9% reflecting the higher proportion of revenue coming
from higher cost sportsbook and gaming verticals.
Marketing costs increased 262% to GBP292m, equating to over 80%
of our entire 2020 spend of GBP348m. The increased spend has driven
customer acquisition five times higher in H1 versus the comparable
period benefitting from new state launches and continued high
levels of acquisition in existing states.
Other operating costs grew 83%, well below revenue growth, with
a doubling of our spend on product and technology as we build our
capabilities within what is a rapidly expanding business. Lobbying
costs associated with expansion of sports betting to new states are
also included within other operating costs.
The US division made an Adjusted EBITDA loss of GBP87m in the
half due to the significant investment in customer acquisition upon
launch in Michigan and Virginia.
Statutory review
Group
Separately Separately
disclosed disclosed
Adjusted items Reported Adjusted items Reported
H1 2021 H1 2021 H1 2021 H1 2020 H1 2020 H1 2020
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ---------- -------- -------- ---------- ----------
Sports revenue 1,894 1,894 924 924
Gaming revenue 1,159 1,159 598 14 612
-------- ---------- -------- -------- ---------- ----------
Total revenue 3,053 - 3,053 1,522 14 1,536
-------- ---------- -------- -------- ---------- ----------
Cost of sales (1,109) (13) (1,122) (496) (2) (498)
-------- ---------- -------- -------- ---------- ----------
Cost of sales as
a % of
net revenue 36.3% 36.8% 32.6% 32.4%
-------- ---------- -------- -------- ---------- ----------
Gross profit 1,944 (13) 1,931 1,026 12 1,038
-------- ---------- -------- -------- ---------- ----------
Operating costs (1,347) (22) (1,368) (685) (69) (754)
-------- ---------- -------- -------- ---------- ----------
EBITDA 597 (35) 562 342 (57) 285
-------- ---------- -------- -------- ---------- ----------
EBITDA margin % 19.6% 18.4% 22.4% 18.5%
-------- ---------- -------- -------- ---------- ----------
Depreciation and
amortisation (125) (276) (401) (89) (128) (217)
-------- ---------- -------- -------- ---------- ----------
Operating profit/
(loss) 472 (310) 162 253 (185) 68
-------- ---------- -------- -------- ---------- ----------
Net interest expense (74) (11) (85) (35) (9) (44)
-------- ---------- -------- -------- ---------- ----------
Profit/ (loss) before
tax 398 (321) 77 218 (194) 24
-------- ---------- -------- -------- ---------- ----------
Taxation (91) (72) (163) (29) 14 (15)
-------- ---------- -------- -------- ---------- ----------
Profit/ (loss) after
tax 306 (392) (86) 189 (180) 9
-------- ---------- -------- -------- ---------- ----------
Basic earnings/
(loss)
per share 171.1 p (50.4) p 187.5 p 18.1 p
Net current liabilities (327) (521)
-------- ---------- -------- -------- ---------- ----------
Net assets 10,724 10,996
------------------------ -------- ---------- -------- -------- ---------- ----------
The significant growth across all revenue and cost lines
reflects a full six-month contribution from TSG in 2021 following
the completion of our merger on 5 May 2020. Therefore, the 2020
comparative only includes a 56 day contribution from TSG. This
resulted in Group reported revenue growth of 99% to GBP3.1bn when
combined with the following factors:
-- Further expansion of our market leading US online business to
10 states in 2021 from 4 in 2020
-- A more normal sporting calendar in the half following widespread cancellations in Q2 2020
-- Strong underlying growth in our online UK & Ireland and Australia divisions
Reported EBITDA increased 98% to GBP562m driven by these
factors, partly offset by the increased investment we are making in
customer acquisition in the US. Group operating profit increased
139% to GBP162m, including a charge of GBP276m in non-cash
acquisition related intangibles.
The Group made a loss after tax of GBP86m for the period
following a GBP105m increase in the deferred tax liability on
separately identifiable acquisition related intangibles. This
charge resulted from the change in the UK's main corporate tax rate
from 19% to 25% applicable from 1 April 2023. See notes 5 of the
financial statements for more details. When combined with the
increased US losses, the Group had a basic loss per share of 50.4p
in the six months ended 30 June 2021 compared to basic earnings per
share of 18.1p in the corresponding period.
Net current liabilities reduced from GBP521m at 31 December 2020
to GBP327m at 30 June 2021 mainly due to the reclassification of
the Oddschecker Global Media assets from non-current to current as
a result of the announcement of the sale of this business post
period end and also the movement of the current cross-currency
interest swaps from being in a liability position at 31 December
2020 to being in an asset position at 30 June 2021.
Net assets reduced from GBP11.0bn to GBP10.7bn in the period
mainly due to the foreign currency translation impact of goodwill
and intangible assets.
Divisional performance
UK & Ireland Australia International US Group
H1 H1 H1 H1 H1 H1 H1 H1 H1 H1
2021 2020 Change 2021 2020 Change 2021 2020 Change 2021 2020 Change 2021 2020 Change
GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm %
-------------- ----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Sports revenue 738 357 +107% 585 348 +68% 118 56 +112% 452 163 +177% 1,894 924 +105%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Gaming revenue 397 228 +74% 562 277 +102% 200 93 +116% 1,159 598 +94%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Revenue before
SDIs 1,135 585 +94% 585 348 +68% 680 333 +104% 652 256 +155% 3,053 1,522 +101%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Cost of sales (342) (163) +110% (275) (148) +86% (199) (86) +133% (293) (99) +195% (1,109) (496) +124%
----- ----- ----- ----- ----- ----- ------- ----- ------- -----
Cost of sales
as a % of net
revenue 30.1% 27.9% +220bps 47.0% 42.6% +440bps 29.3% 25.7% +360bps 44.9% 38.8% +610bps 36.3% 32.6% +380bps
----- ----- ----- ----- ----- ----- ------- ----- ------- -----
Gross profit 793 422 +88% 310 200 +55% 481 248 +94% 359 157 +129% 1,944 1,026 +89%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Operating
costs (434) (290) +50% (109) (90) +21% (302) (115) +162% (446) (154) +189% (1,291) (649) +99%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Corporate
costs (55) (36) +54%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Adjusted
EBITDA(1) 359 133 +171% 201 110 +83% 179 133 +35% (87) 2 -3,849% 597 342 +75%
----- ----- ----- ----- ----- ----- ------- ----- ------- -----
Adjusted
EBITDA
margin 31.6% 22.7% +900bps 34.3% 31.6% +280bps 26.3% 39.8% -1,350bps (13.3%) 0.9% -1,420bps 19.6% 22.4% -290bps
----- ----- ----- ----- ----- ----- ------- ----- ------- -----
Depreciation
and
amortisation (63) (50) +26% (13) (12) +7% (25) (9) +192% (22) (16) +36% (125) (89) +41%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Operating
profit/(loss)
before SDIs 297 83 +257% 188 98 +92% 154 124 +24% (108) (14) +685% 472 253 +87%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Greece tax
expense (13) - +100% (13) - +100%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Amortisation
of
acquisition
related
intangibles (113) (51) +120% (11) (4) +141% (139) (56) +146% (13) (16) (15%) (276) (128) +116%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
VAT refund - 10 (100%) - 10 (100%)
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Operating
profit/(loss)
after
divisional
SDIs 184 42 +337% 177 93 +90% 2 68 (97%) (122) (30) +313% 184 135 +36%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Combination
fees and
associated
costs - (26) (100%)
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Restructuring
and
Integration
costs (22) (41) (47%)
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
Operating
profit/(loss) 162 68 +139%
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ----- --------- ------- ----- -------
UK & Ireland
Revenue growth was 94% in the UK and Ireland with sport +107%
and gaming +74%. The primary drivers of reported revenue growth
were (i) the acquisition of the SkyBet business as part of the
merger with TSG not fully reflected in the prior year which drove
both sports and gaming growth and (ii) the normalisation of the
sporting calendar in the current year when compared with the volume
of cancelled and deferred sports events from March 2020 due to
Covid. Adjusted EBITDA grew +171% reflecting the additional
contribution of SkyBet and strong operational leverage in the
division.
Australia
In Australia, revenue grew 68% to GBP585m reflecting a full
six-month contribution from BetEasy (TSG's Australian brand)
customers who migrated to Sportsbet following the integration of
the two brands in September 2020 and strong growth in the Sportsbet
customer base. The single brand strategy has resulted in
significant cost synergies with marketing and other operating costs
falling 720 basis points as a percentage of revenue to 18.7%. This
operating leverage benefit and top line growth saw Adjusted EBITDA
grow 83% to GBP201m.
International
Our International division delivered reported revenue growth of
104% with sport +112% and gaming +102%. The primary driver of
reported revenue growth within the International division was
similarly related to the merger with TSG and the addition of the
PokerStars brand to our international portfolio.
Adjusted EBITDA grew +35% reflecting the additional contribution
of PokerStars which more than offset the increase in investment we
have made in the brand post-merger.
US
Revenue grew 155% in the US during the half benefiting from:
-- Continued strong performance in existing sportsbook and gaming states.
-- Successful state launches in Michigan (sportsbook and gaming) and Virginia (sportsbook)
-- A full six-month contribution from four 2020 state launches,
most of which occurred in H2 2020
-- A relatively uninterrupted US sporting calendar in Q2 versus the widespread deferrals in 2020
Marketing costs increased 312% to GBP292m, reflecting the
launches in new states and the continued high levels of customer
acquisition we are seeing in existing states. The US division made
an Adjusted EBITDA loss of GBP87m in the half due to this
significant investment upon launch in Michigan and Virginia.
Separately disclosed items
H1 H1
2021 2020
GBPm GBPm
--------------------------------------- ----- -----
Amortisation of acquisition related
intangible assets (276) (128)
Combination fees and associated costs - (26)
Restructuring and integration costs (22) (41)
Greece tax expense (13) -
VAT refund - 10
--------------------------------------- ----- -----
Operating profit impact of separately
disclosed items (310) (185)
Financial income - 49
Financial expense (11) (59)
--------------------------------------- ----- -----
Profit before tax impact of separately
disclosed items (321) (194)
Tax (charge) / credit on separately
disclosed items (72) 14
--------------------------------------- ----- -----
Total separately disclosed items (392) (180)
--------------------------------------- ----- -----
Separately disclosed items do not relate to business as usual
activity of the Group, items that are volatile in nature or
non-cash purchase price accounting amortisation and therefore are
excluded from Adjusted profits.
Amortisation of acquisition related intangible assets increased
to GBP276m mainly due to the May 2020 combination with TSG,
resulting in a full six month charge in 2021.
Restructuring and integration costs primarily relate to the
integration with TSG.
The Greece tax expense relates to a historic case brought by the
Greek authorities against Paddy Power when it was operating under
an interim licence between 2012-14. The Group continues to appeal
this ruling but following the dismissal of the case by the Athens
Administrative Court of Appeal in June 2021, a once-off expense of
GBP13m has been recognized.
Financial expense relates to foreign exchange losses on the
Group's financing activities.
The increase in the UK's main corporation tax rate from 19% to
25% from 1 April 2023 (as outlined in note 7 of the financial
statements) has resulted in a GBP105m increase in the deferred tax
liability on separately identifiable acquisition related intangible
assets. This charge is partly offset by the tax credit associated
with other separately disclosed items.
Cash flow and financial position
H1 H1
2021 2020
Pro forma GBPm GBPm
------- ---------
Adjusted EBITDA 597 684
Capex (138) (118)
Working capital 18 105
Corporation tax (92) (63)
Lease liabilities paid (27) (24)
------- -------
Adjusted free cash flow 358 584
Cash flow from separately disclosed
items (24) (84)
------- -------
Free cash flow 333 500
Interest cost (70) (101)
Other borrowing costs (5) (22)
Settlement of swaps - (28)
Settlement of Kentucky Supersedeas
Bonds (71) -
Purchase of shares by the Employee
Benefit Trust ("EBT") (89) -
Acquisitions (51) -
Other (4) 5
------- -------
Net increase in cash before equity
raise and cash acquired in business
combination 43 356
Proceeds from equity raise - 806
Cash acquired in business combination 18 -
------- -------
Net increase in cash 61 1,162
------- -------
Net debt(8) at start of year (2,814) (3,827)
Foreign currency exchange translation 26 (253)
Change in fair value of hedging derivatives 45 19
Net debt(8) as at 30 June (2,682) (2,899)
-------------------------------------------- ------- -------
The Group had Adjusted free cash flow of GBP358m during H1, down
from GBP584m in the prior year primarily due to the effect of
lockdown related benefits on performance and working capital in H1
2020.
Capital expenditure of GBP138m, reflects increased investment in
product and technology capabilities across the Group, as well as
further expansion into the US. We also refurbished a number of
Flutter offices ahead of the anticipated "return to work" of
colleagues.
Corporate tax payments were higher than the prior period due to
the change in the geographic mix of profits during the first
half.
Working capital of GBP18m was favourably impacted by the
increase in size and scale of the Group. As expected however our
working capital benefit was lower than during H1 last year when we
benefitted from the deferral of certain payments. The performance
of our Australian and US horse racing businesses in particular last
year resulted in increased creditors, with the direct costs
associated with these revenues generally paid one quarter after the
revenue is generated.
Cash flow from SDIs principally relates to restructuring and
integration costs in relation to the combination with TSG.
Interest costs were GBP31m lower than in 2020 on a pro forma
basis due to the repayment of debt following the Group's equity
raise in May 2020 and the reduction in the weighted average cost of
debt following agreement of more favourable financing terms at that
time.
During the period the Group paid the Commonwealth of Kentucky
GBP71m, in line with the provision outstanding at 31 December
2020.
In the first half, an GBP89m share purchase was made by the
Employee Benefit Trust in respect of FanDuel employee share awards,
with further purchases of GBP92m expected in the second half. These
purchases relate to employee incentive schemes that were put in
place at the time of the original FanDuel acquisition to
incentivise value creation in FanDuel.
The GBP51m acquisition charge relates to the acquisition of
Junglee Games during the period.
As at 30 June 2021, the Group had net debt of GBP2,682m,
excluding customer balances, representing a leverage ratio of 2.3x
times(9) . The July 2021 refinancing resulted in an increase in pro
forma net debt to GBP2,721m with no material change to the Group
leverage ratio. The Group continues to hedge the impact of currency
fluctuations on its leverage ratio through cross currency swap
agreements. Changes in the fair value of these hedging derivatives
are reflected in net debt.
Foreign exchange
At current spot rates, the foreign exchange impact on H2 2021
Adjusted EBITDA versus H2 2020 is a circa GBP6m headwind.
Current trading/Outlook
The second half of the year has started well, albeit July is
traditionally a quieter period for many parts of our business
reflecting less busy sporting calendars. Assuming normalised net
revenue margins for the balance of the year and a regular sporting
calendar the Group anticipates:
-- Adjusted EBITDA for Group ex-US of between GBP1,270m -
GBP1,370m. This guidance reflects our confidence in the underlying
performance of both our UK & Ireland and Australian divisions,
with the expectation that our retail estates can remain open for
the remainder of the year
-- As previously flagged International EBITDA will be negatively
impacted in H2 2021 by between GBP15m and GBP25m due to the German
tax change that has come into effect on July 1. The business is
also less likely to benefit from some of the tailwinds it enjoyed
in H1 when player engagement remained at elevated levels in parts
of Europe as a result of the stay-at-home restrictions
-- In the US, we expect to generate revenue of between
GBP1.285bn - GBP1.425bn ($1.8bn - $2.0bn) and an Adjusted EBITDA
loss of between GBP225m - GBP275m. This assumes that we launch
online in both Arizona and Connecticut in H2
___________________________________________________________________________________
(1) The "Adjusted" measures that are separately disclosed as
they are: (i) not part of the usual business activity of the Group
(ii) items that are volatile in nature and (iii) purchase price
accounting amortization of acquired intangibles (non-cash).
Therefore, they have been reported as "separately disclosed items
(SDIs)" (see note 5 to the financial statements).
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure. This measure is
used internally to evaluate performance, to establish strategic
goals and to allocate resources. The directors also consider the
measure is 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. It is a non-GAAP financial measure
and is not prepared in accordance with IFRS and, as not uniformly
defined terms, it 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 5 May 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in 2020. Junglee, which was
acquired in January 2021, has not been included on a pro forma
basis. See Appendix 3 for a reconciliation of pro forma results to
statutory results.
(4) Growth rates in the commentary are in local or constant
currency(11) except reported numbers which are in nominal
currency.
(5) Average Monthly Players represent the average number of
players who have placed and/or wagered a stake and/or contributed
to rake or tournament fees during the month in the reporting
period. The AMP numbers do not include Junglee players in 2020 or
2021 to allow for better comparability of underlying player growth
for International and Group.
(6) Online sportsbook market share is the GGR market share of
FanDuel and FOX Bet for Q2 in the states in which FanDuel was live
based on published gaming regulator reports in those states. During
Q2 FanDuel was live in 10 states; Colorado (CO), Illinois (IL),
Indiana (IN), Iowa (IA), Michigan (MI), New Jersey (NJ),
Pennsylvania (PA), Tennessee (TN), Virginia (VA) and West Virginia
(WV). During Q2 FOX Bet was live in 4 states; CO, NJ, MI and PA.
Online gaming market share reflects the combined MI, NJ, PA and WV
market share of our gaming brands.
(7) CPA is cost per acquisition and represents the total media
and digital marketing spend per acquired customer including those
cross-sold from daily fantasy sports . The year-one return on
investment (ROI) is the average gross profit generated from
customers divided by their average CPA. The year-one ROI includes
all quarterly cohorts of FanDuel sportsbook and gaming customers
acquired who have four full quarters of actual activity (i.e.
customers acquired in Q3 2018 through Q2 2020). The revenue
generated in year two will include all quarterly cohorts of FanDuel
sportsbook and gaming customers acquired who have two full years of
actual activity (i.e. customers acquired in Q3 2018 through Q2
2019).
(8) The leverage ratio is calculated using pro forma Adjusted
EBITDA for the 12-month period to 30 June 2021.
(9) Net debt is the principal amount of borrowings plus
associated accrued interest, minus cash & cash equivalents
plus/minus carrying value of debt related derivatives.
(10) Reported represents the IFRS reported statutory numbers.
Where amounts have been normalised for SDIs they are labelled as
Adjusted.
(11) Constant currency ("cc") growth is calculated by
retranslating the non-sterling denominated component of H1 2020 at
H1 2021 exchange rates (see Appendix 4). Growth rates in the
commentary are in local or constant currency.
(12) Differences due to rounding unless otherwise stated.
Appendix 1: Divisional Key Performance Indicators H1 2021
Unaudited pro forma
UK & Ireland(3) Australia International US Group
CC(2) CC(2) CC(2) CC(2) CC(2)
H1 H1 % H1 H1 % H1 H1 % H1 H1 % H1 H1 %
GBPm pro
forma(1) 2021 2020 Change 2021 2020 Change 2021 2020 Change 2021 2020 Change 2021 2020 Change
----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ------ ------- ------- ----- -------
Average
monthly
players(3)
(000's) 3,303 2,299 +44% 906 596 +52% 1,945 1,999 -3% 1,470 552 +166% 7,625 5,445 +40%
Sportsbook
stakes 6,091 3,614 +68% 5,000 3,723 +27% 871 555 +61% 5,072 1,090 +402% 17,034 8,982 +87%
Sportsbook
net revenue
margin 10.7% 12.8% -210bps 11.7% 11.7% -bps 9.1% 8.7% +40bps 6.2% 4.9% +130bps 9.6% 11.1% -150bps
Sports
revenue 738 525 +40% 585 435 +27% 118 74 +62% 452 164 +202% 1,894 1,199 +57%
Gaming
revenue 397 350 +14% 562 727 -19% 200 113 +95% 1,159 1,190 +1%
------------- ----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ------ ------- ------- ----- -------
Total revenue 1,135 875 +30% 585 435 +27% 680 801 -11% 652 278 +159% 3,053 2,389 +30%
-------------
Cost of Sales (342) (241) +42% (275) (200) +30% (199) (181) +14% (293) (116) +177% (1,109) (738) +51%
-------------
Cost of sales
as %
of net
revenue 30.1% 27.6% +260bps 47.0% 45.9% +100bps 29.3% 22.6% +640bps 44.9% 41.9% +300bps 36.3% 30.9% +510bps
-------------
Gross Profit 793 634 +25% 310 235 +25% 481 620 -18% 359 162 +145% 1,944 1,650 +20%
-------------
Sales &
marketing (207) (168) +23% (59) (59) -6% (171) (110) +71% (292) (88) +262% (728) (426) +77%
------------- ----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ------ ------- ------- ----- -------
Contribution 587 465 +26% 252 176 +35% 310 510 -37% 67 73 +2% 1,215 1,224 +1%
-------------
Other
operating
costs (227) (215) +6% (51) (55) -11% (131) (113) +16% (154) (93) +83% (563) (475) +20%
-------------
Corporate
costs (55) (66) -10%
-------------
Adjusted
EBITDA 359 251 +42% 201 121 +56% 179 397 -52% (87) (19) +376% 597 684 -12%
-------------
Adjusted
EBITDA
margin 31.6% 28.6% +270bps 34.3% 27.9% +630bps 26.3% 49.5% -2,280bps (13.3%) (6.9%) -610bps 19.6% 28.6% -930bps
-------------
Depreciation
&
amortisation (63) (58) +9% (13) (14) -15% (25) (24) +7% (22) (18) +33% (125) (117) +8%
------------- ----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ------ ------- ------- ----- -------
Adjusted
operating
profit
/(loss) 297 193 +51% 188 107 +66% 154 373 -56% (108) (38) +213% 472 567 -16%
------------- ----- ----- ------- ----- ----- ------- ----- ----- --------- ------- ------ ------- ------- ----- -------
(1) Flutter's combination with TSG completed on 5 May 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in 2020. Junglee, which was
acquired in January 2021, has not been included on a pro forma
basis. See Appendix 3 for a reconciliation of pro forma results to
statutory results.
(2) Constant currency ("cc") growth is calculated by
retranslating the non-sterling denominated component of FY 2020 at
FY 2021 exchange rates (see Appendix 4). Growth rates in the
commentary are in local or constant currency.
(3) Average Monthly Players represent the average number of
players who have placed and/or wagered a stake and/or contributed
to rake or tournament fees during the month in the reporting
period. The AMP numbers do not include Junglee players in 2020 or
2021 to allow for better comparability of underlying player growth
for International and Group.
Appendix 2: Quarterly Divisional Key Performance Indicators
Unaudited pro forma
Quarter 2
UK & Ireland Australia International US Group
------------
Q2 Q2 CC(2) Q2 Q2 CC(2) Q2 Q2 CC(2) Q2 Q2 CC(2) Q2 Q2 CC(2)
2021 2020 % 2021 2020 % 2021 2020 % 2021 2020 % 2021 2020 %
Proforma(1) GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change
------------ ----- ----- ------- ----- ----- ------- ----- ----- ------- ----- ---- ------- ----- ----- -------
Average
monthly
players(3)
(000's) 3,440 2,027 +70% 982 611 +61% 1,863 2,223 -16% 1,292 395 +227% 7,578 5,256 +44%
Sportsbook
stakes 3,009 1,374 +120% 2,548 2,177 +13% 419 245 +79% 2,358 226 +1,074% 8,333 4,023 +105%
Sportsbook
net
revenue
margin 10.8% 12.6% -180bps 12.0% 12.6% -60bps 9.6% 7.0% +260bps 8.3% 6.2% +210bps 10.4% 11.9% -150bps
Sports
revenue 367 194 +89% 306 273 +8% 61 27 +132% 264 76 +289% 998 571 +75%
Gaming
revenue 201 192 +5% 268 430 -34% 101 70 +62% 570 692 -14%
----- ----- ------- ----- ----- ------- ----- ----- ------- ----- ---- ------- ----- ----- -------
Total
revenue 568 386 +47% 306 273 +8% 329 457 -24% 364 146 +181% 1,567 1,263 +27%
------------ ----- ----- ------- ----- ----- ------- ----- ----- ------- ----- ---- ------- ----- ----- -------
UK & Ireland Online UK & Ireland Retail
------------ --------------------- ---------------------
Q2 Q2 CC(2) Q2 Q2 CC(2)
2021 2020 % 2021 2020 %
Proforma(1) GBPm GBPm Change GBPm GBPm Change
------------ ----- ----- ------- ----- ----- -------
Average
monthly
players(3)
(000's) 3,440 2,027 +70%
Sportsbook
stakes 2,804 1,348 +109% 205 27 +677%
Sportsbook
net
revenue
margin 10.6% 12.6% -200bps 12.7% 14.6% -190bps
Sports
revenue 341 190 +80% 26 4 +576%
Gaming
revenue 185 187 -1% 16 4 +270%
----- ----- ------- ----- ----- -------
Total
revenue 526 378 +40% 42 8 +416%
------------ ----- ----- ------- ----- ----- -------
Quarter 1
UK & Ireland Australia International US Group
------------
Q1 Q1 CC(2) Q1 Q1 CC(2) Q1 Q1 CC(2) Q1 Q1 CC(2) Q1 Q1 CC(2)
2021 2020 % 2021 2020 % 2021 2020 % 2021 2020 % 2021 2020 %
Proforma(1) GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change GBPm GBPm Change
------------ ----- ----- ------- ------ ----- --------- ----- ----- ------- ----- ---- ------- ----- ----- -------
Average
monthly
players(3)
(000's) 3,167 2,571 +23% 831 581 +43% 2,027 1,774 +14% 1,648 710 +132% 7,672 5,635 +36%
Sportsbook
stakes 3,083 2,240 +37% 2,451 1,545 +46% 452 311 +47% 2,714 864 +235% 8,700 4,959 +72%
Sportsbook
net
revenue
margin 10.6% 13.0% -240bps 11.4% 10.4% +100bps 8.6% 10.1% -150bps 4.4% 4.6% -20bps 8.8% 10.5% -170bps
Sports
revenue 371 331 +12% 279 161 +59% 57 47 +22% 189 88 +130% 896 627 +41%
Gaming
revenue 196 158 +24% 294 297 +4% 99 43 +146% 589 498 +22%
----- ----- ------- ------ ----- --------- ----- ----- ------- ----- ---- ------- ----- ----- -------
Total
revenue 568 489 +16% 279 161 +59% 351 344 +7% 288 132 +135% 1,485 1,126 +33%
------------ ----- ----- ------- ------ ----- --------- ----- ----- ------- ----- ---- ------- ----- ----- -------
UK & Ireland Online UK & Ireland Retail
------------ --------------------- ------------------------
Q1 Q1 CC(2) Q1 Q1 CC(2)
2021 2020 % 2021 2020 %
Proforma(1) GBPm GBPm Change GBPm GBPm Change
------------ ----- ----- ------- ------ ----- ---------
Average
monthly
players(3)
(000's) 3,167 2,571 +23%
Sportsbook
stakes 3,081 1,883 +63% 2 356 -99%
Sportsbook
net
revenue
margin 10.6% 12.7% -210bps (5.7%) 14.6% -2,030bps
Sports
revenue 371 279 +33% - 52 -100%
Gaming
revenue 196 139 +41% - 19 -100%
----- ----- ------- ------ ----- ---------
Total
revenue 568 419 +35% - 71 -100%
------------ ----- ----- ------- ------ ----- ---------
(1) Flutter's combination with TSG completed on 5 May 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in 2020. Junglee, which was
acquired in January 2021, has not been included on a pro forma
basis. See Appendix 3 for a reconciliation of pro forma results to
statutory results.
(2) Constant currency ("cc") growth is calculated by
retranslating the non-sterling denominated component of FY 2020 at
FY 2021 exchange rates (see Appendix 4). Growth rates in the
commentary are in local or constant currency.
(3) Average Monthly Players represent the average number of
players who have placed and/or wagered a stake and/or contributed
to rake or tournament fees during the month in the reporting
period. The AMP numbers do not include Junglee players in 2020 or
2021 to allow for better comparability of underlying player growth
for International and Group.
Appendix 3: 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
difference between the statutory and pro forma results is inclusion
of the results of TSG in the period prior to completion as per the
table below. Junglee, which was acquired in January 2021, has been
included in reported figures but has not been included on a pro
forma basis.
Pro forma adjusted TSG results Separately disclosed Statutory results
results pre-merger completion* items
H1 H1 H1 H1 H1 H1 H1 H1
GBPm 2021 2020 2021 2020 2021 2020 2021 2020
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
Sports revenue 1,894 1,199 - 275 - - 1,894 924
Gaming revenue 1,159 1,190 - 592 - 14 1,159 612
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
Total revenue 3,053 2,389 - 866 - 14 3,053 1,536
--------------------
Cost of sales (1,109) (738) - (243) (13) (2) (1,122) (498)
Cost of sales
as a % of net
revenue 36.3% 30.9% 36.8% 32.4%
Gross profit 1,944 1,650 - 624 (13) 12 1,931 1,038
Sales and marketing (728) (426) - (139) - - (728) (287)
Contribution 1,215 1,224 - 484 (13) 12 1,202 752
Other operating
costs (563) (475) - (112) - - (563) (362)
Corporate costs (55) (66) - (30) (22) (69) (77) (105)
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
EBITDA 597 684 - 342 (35) (57) 562 284
--------------------
EBITDA margin 19.6% 28.6% 18.4% 18.5%
Depreciation
and amortisation (125) (117) - (28) (276) (128) (401) (217)
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
Operating profit 472 567 - 314 (310) (185) 162 68
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
Revenue by division
UK & Ireland 1,135 875 - 290 - 14 1,135 599
Australia 585 435 - 87 - - 585 348
International 680 801 - 468 - - 680 333
US 652 278 - 22 - - 652 256
Adjusted EBITDA
by division
UK & Ireland 359 251 - 118 - 10 359 143
Australia 201 121 - 11 - - 201 110
International 179 397 - 264 (13) - 166 133
US (87) (19) - (22) - - (87) 2
Corporate costs (55) (66) - (30) (22) (68) (77) (104)
-------------------- ----------- ------- ----------- ------------ ---------- ---------- ---------- -------
* 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 4: 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 2020 at H1 2021 exchange
rates as per the table below.
H1 H1
H1 H1 % 2020 2020 CC %
GBPm 2021 2020 Change FX impact CC Change
------------------------------ ------- ----- ------- --------- ----- -------
Sports revenue 1,894 1,199 +58% 10 1,209 +57%
Gaming revenue 1,159 1,190 -3% (48) 1,142 +1%
------- ----- ------- --------- ----- -------
Total revenue 3,053 2,389 +28% (37) 2,351 +30%
Cost of sales (1,109) (738) +50% 5 (733) +51%
Cost of sales as a
% of net revenue 36.3% 30.9% +540bps 31.2% +510bps
Gross profit 1,944 1,650 +18% (32) 1,618 +20%
Sales and marketing (728) (426) +71% 15 (411) +77%
Contribution 1,215 1,224 -1% (17) 1,207 +1%
Other operating costs (563) (475) +19% 7 (468) +20%
Corporate costs (55) (66) -16% 4 (62) -10%
------- ----- ------- --------- ----- -------
Adjusted EBITDA 597 684 -13% (6) 678 -12%
Adjusted EBITDA margin 19.6% 28.6% -910bps 28.8% -930bps
Depreciation and amortisation (125) (117) +7% 2 (115) +8%
------- ----- ------- --------- ----- -------
Adjusted operating
profit 472 567 -17% (5) 562 -16%
------- ----- ------- --------- ----- -------
Revenue by division
UK & Ireland 1,135 875 +30% 1 876 +30%
Australia 585 435 +35% 25 459 +27%
International 680 801 -15% (38) 764 -11%
US 652 278 +135% (26) 252 +159%
Adjusted EBITDA by
division
UK & Ireland 359 251 +43% 3 254 +42%
Australia 201 121 +66% 8 129 +56%
International 179 397 -55% (22) 375 -52%
US (87) (19) +348% 1 (18) +376%
Corporate costs (55) (66) -16% 4 (62) -10%
Appendix 5: 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 TSG results Adjustment Statutory
cash flow pre-merger to include cash flow
completion borrowings
H1 H1 H1 H1 H1 H1 H1 H1
GBPm 2021 2020 2021 2020 2021 2020 2021 2020
Adjusted EBITDA(1) 597 684 - 342 - - 597 342
Capex(2) (138) (118) - (33) - - (138) (85)
Working capital(3) 18 105 - (8) - - 18 114
Corporation tax (92) (63) - (3) - - (92) (60)
Lease liabilities
paid (27) (24) - (5) - - (27) (19)
Adjusted free cash
flow 358 584 - 293 - - 358 292
Cash flow from separately
disclosed items(4) (24) (84) - - - - (24) (84)
Free cash flow 333 500 - 293 - - 333 208
Interest cost(5) (70) (101) - (64) - - (70) (37)
Other borrowing costs(5) (5) (22) - - - - (5) (22)
Settlement of swaps - (28) - - - - - (28)
Settlement of Kentucky
Supersedeas Bonds (71) - - - - - (71) -
Purchase of shares
by the EBT (89) - - - - - (89) -
Acquisitions (51) - - - - - (51) -
Other(6) (4) 5 - 6 - - (4) (1)
Net increase in cash
before equity raise
and business combinations 43 356 - 235 - - 43 121
Proceeds from equity
raises - 806 - - - - - 806
Net amounts repaid
on borrowings(7) - - - - (13) (686) (13) (686)
Cash acquired in
business combinations 18 - - - - 445 18 445
Net increase / (decrease)
in cash 61 1,162 - 235 (13) (240) 48 686
Net (debt)/cash at
start of year(8) (2,814) (3,827) (3,328) (3,563) 89 372 603 108
Foreign currency
exchange translation 26 (253) - - (44) 245 (18) (8)
Change in fair value
of hedging derivatives 45 19 - - (45) (19) - -
Net debt as at 30
June(8) (2,682) (2,899) (3,328) (3,328) (12) 357 634 787
(1) Adjusted 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, lease incentive received and payment of contingent
deferred consideration
(3) Working capital includes (increase)/decrease in trade and
other receivables, increase in trade, other payables and
provisions, employee equity-settled share-based payments expense
before separately disclosed items, loss / (gain) on disposal of
assets and investments 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) Other includes proceeds from the issue of shares on exercise
of employee options, dividends paid to non-controlling interest,
release of cash from restricted cash, lease interest paid and
other
(7) Net amounts repaid on borrowings includes repayment of USD
and EUR First Lien Term Loan B and old GBP Term Loan 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
Designated Foreign Issuer Status
In connection with its acquisition of The Stars Group Inc. on 5
May, 2020, the Company became a "reporting issuer" under applicable
securities laws in each of the provinces and territories of Canada.
The Company also qualifies as a "designated foreign issuer", as
such term is defined in National Instrument 71-102 - Continuous
Disclosure and Other Exemptions Relating to Foreign Issuers of the
Canadian Securities Administrators. As such, the Company is not
subject to the same ongoing reporting requirements as most other
reporting issuers in Canada. Generally, the Company will be in
compliance with Canadian ongoing reporting and disclosure
requirements if it complies with the requirements of the UK
Financial Conduct Authority in its capacity as the competent
authority for the purposes of Part VI of the Financial Services and
Markets Act 2000 (United Kingdom), as amended from time to time,
and the applicable laws of England and Wales (the "UK Rules") and
files any documents required to be filed or furnished pursuant to
the UK Rules on its profile on the System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com maintained by the
Canadian Securities Administrators.
STATEMENT OF DIRECTORS RESPONSIBILITIES
For the half-year ended 30 June 2021
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007 ("Transparency Directive"), and the
Transparency Rules of the Central Bank of Ireland.
In preparing the condensed set of financial statements included
within the half-yearly financial report, the Directors are required
to:
-- prepare and present the condensed set of 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; the Transparency Directive
and the Transparency Rules of the Central Bank of Ireland;
-- ensure the condensed set of financial information has adequate disclosures;
-- select and apply appropriate accounting policies; and
-- make accounting estimates that are reasonable in the circumstances.
The Directors are responsible for designing, implementing and
maintaining such internal controls as they determine is necessary
to enable the preparation of the condensed set of financial
statements that is free from material misstatement whether due to
fraud or error.
We confirm that to the best of our knowledge:
1) the condensed set of consolidated financial statements in the
half-yearly financial report of Flutter Entertainment plc for the
six months ended 30 June 2021 ("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 EU, the
Transparency Directive and Transparency Rules of the Central Bank
of Ireland.
2) the interim financial information presented, as required by
the Transparency Directive, includes:
a) 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;
b) a description of the principal risks and uncertainties for
the remaining six months of the financial year;
c) 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
d) 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
Peter Jackson Jonathan Hill
Chief Executive Officer Chief Financial Officer
9 August 2021
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which are considered to
have a material impact on the Group's future performance and
strategic objectives are set out on the following pages. The
principal risks and uncertainties are consistent with those defined
in the Group's Annual Report & Accounts 2020, available at
www.flutter.com.
This is not intended to be an exhaustive and extensive analysis
of all risks which may affect the Group. Additional risks and
uncertainties currently deemed to be less material, or not
presently known to Management, may also have an adverse effect on
the performance and strategic objectives of the Group.
Changes to Legal, Regulatory and Licensing landscape
Why we need to manage How we manage and mitigate the risk
this
The risks relating
to the constantly changing * The Group has dedicated internal and external Legal,
and complex regulatory Regulatory and Compliance teams covering all regions
environments in which with responsibility for working with and advising
the Group and its brands Divisions on any upcoming regulatory changes and
operate, both in terms working with the business to set appropriate policies,
of multiple jurisdictions processes and controls to adapt and ensure
and evolving regulatory compliance.
landscapes, can make
it commercially challenging
for the Group to operate, * For material changes to regulations and legislations
or restrict its ability (e.g. the UK Gambling Act Review), dedicated project
to grow. teams are established to ensure a robust approach to
consultation processes.
* For material markets, the Group invests significantly
in external counsel advice to conduct ongoing
monitoring and to guide and support strategic
decision-making and planning associated with these
markets.
* The Group invests continuously in the flexibility and
scalability of our technology, which is key for
entering or remaining in markets and allows for
adaptability as market conditions change.
* The Group and its Divisions have dedicated Corporate
Affairs teams and hold membership of associations and
industry groups working with regulators and
governments to influence and drive proportionate,
transparent and reasonable regulation in all markets.
Cyber Resilience and Protection of Data
Why we need to manage How we manage and mitigate the risk
this
A resilient IT environment
is critical to the * The Group continues to invest significantly in cyber
protection of customer security resources and technologies and works with a
data and other sensitive variety of external security specialists to ensure
assets as well as the security arrangements and systems are appropriate for
provision of critical our evolving threat landscape and continue to follow
services during a cyber-attack. leading practice.
With the enlarged Flutter
Group this also increases
the impact and likelihood * Appointment of a Group Chief Information Security
of potential cyber-attack Officer to work with Group and Divisional security
vectors and data breaches. teams to devise and advance our strategy for cyber
security and enhance our control assurance
capabilities
* The Group has a number of data protection policies,
supported by an overarching Flutter data protection
policy, in place in order to protect the privacy
rights of individuals in accordance with the relevant
local data protection and privacy legislation,
including GDPR, which are monitored by the Legal and
Data Protection teams to ensure business awareness
and compliance with relevant laws and best practice.
* Annual information security and data protection
training is mandatory for employees, as well as
conducting regular training and awareness sessions
for key parts of the business which handle customer
and staff personal information.
Transformation
Why we need to manage How we manage and mitigate the risk
this
The Group continues
to progress through * Robust transformation programme ongoing, overseen by
transformation across a global governance structure, Accountable Executives
the organisation, Divisions and dedicated specialists, to progress the relevant
and brands including transformation work, organisational restructuring and
its structures, business technology projects to meet the needs of the enlarged
operations, culture Group.
and technology which
present both opportunities
and risks. * The Group has dedicated and experienced internal
resources, complemented with external advisors in
place to manage projects and programmes associated
with transformation, with direct reporting lines to
the Group's Executive Committee and Board.
* For our large cross Divisional programmes we have a
dedicated project governance team and framework which
offers direction, harnesses collective capabilities
and manages performance.
* The Group has robust structures and processes in
place to manage and deliver synergy targets as
committed to investors as part of the merger.
* The Group has put in place dedicated project teams
and workstreams to define the new Flutter culture and
talent strategy following the merger.
US Strategy
Why we need to manage How we manage and mitigate the risk
this
The successful execution
of the growth strategy * The Group continues to secure and maintain strong
for the US business commercial relationships with our market access
across its brands and partners and strategic media partners to secure
partnerships is critical. access to new markets and continued growth.
Ensuring the Group
continues to allocate
resources and capital * We continue to invest in people, product and brands
appropriately is key to acquire further market share and maintain agility,
to remaining competitive scalability and leading market position.
and pursuing our US
growth opportunities.
* In addition, the Group also has dedicated external
advisers, internal expertise and resources to support
with the assessment of the US competitive landscape
to take appropriate actions.
* We continue to further develop our in-house
technology stack, including the adoption of our
proprietary global betting platform for the provision
of sports betting, to continuously improve our
offering and meet evolving stakeholder needs.
* Our dedicated US Legal and Compliance teams work
closely with the business teams to monitor ongoing
compliance across multiple jurisdictions to
continuously improve our processes and controls to
ensure compliance with our federal and state
obligations.
People
Why we need to manage How we manage and mitigate the risk
this
The attraction and
retention of key senior * Dedicated workstreams have been put in place by the
management and Executive Group CPO function to align processes to identify
level employees during talent acquisition partners to support internal teams
a significant period to build a pipeline and attract the best talent for
of transformation and the Group going forward.
growth across the Group
is critical to achieving
our strategic objectives. * Through the Nomination and Remuneration Committee,
the Board reviews key positions (namely the Executive
Directors and senior management), succession plans
and the remuneration and incentives in place across
the Group.
* The Remuneration Committee also reviews the structure
in place for wider workforce with the objective to
incentivise and retain talent to support the delivery
of the Group's
long-term strategy.
* The Group launched our new vision, purpose and values,
in alignment with Divisional perspectives, and what
it means to work at Flutter, supported by playbooks,
talkshops and toolkits. Surveys continue to be
conducted to listen and learn from employees and
understand colleague engagement levels Group wide.
* The Group and Divisional CPO functions continue to
drive health and well-being initiatives as part of
the Group's response to Covid, in addition to a
dynamic Future Ways of Working approach which evolves
to feedback and circumstances, to ensure our people
are supported.
Ongoing Compliance of Legal, Regulatory and Licensing landscape
Why we need to manage How we manage and mitigate the risk
this
The interpretation
and ongoing compliance * For the jurisdictions in which we hold a licence,
with complex and multiple dedicated Divisional Compliance teams work closely
regulatory and legislative with the business teams to monitor ongoing compliance
requirements, applicable and continuously enhance our processes and controls
to the Group's activities to ensure compliance with regulatory frameworks and
in the markets in which licence requirements.
it operates is critical
to the sustainability
and reputation of our * Annual compliance training, including Anti-Bribery
business. and Corruption, Data Protection and Anti-Money
Laundering is mandatory for all staff, as well as
conducting regular training and awareness sessions
for key parts of the business that are potentially at
a higher risk of encountering scenarios presenting a
heightened compliance risk of to the Group.
* We have in place a number of Group-led overarching
policies and compliance programmes in order to govern
processes across Divisions and thereby ensuring
compliance with applicable laws and regulations.
* Management provides legal and regulatory updates
through established governance forums at both
Divisional and Group level Committees such as the
Board Audit Committee and the Board Risk Committee on
the application of various laws and regulations by
the relevant jurisdiction to ensure that they are
appropriately understood and managed.
Safer Gambling
Why we need to manage How we manage and mitigate the risk
this
Safer Gambling underpins
every element of the * Group Safer Gambling strategy is embedded into our
Group's strategy. We businesses from how we identify and interact with
want to demonstrate at-risk customers through to how we communicate to a
consistency and global broad group of stakeholders and how we encourage
alignment with our Safer Gambling tool usage.
Safer Gambling strategy
to protect our customers
who are at risk of * We leverage and share policies, processes and
the potential negative practices across the newly enlarged Group to enhance
effects of gambling the strategic approach to Safer Gambling and
and to ensure we grow demonstrate our serious commitment to ESG.
our business sustainably.
* A leading range of tools are provided on all our
brand sites to support customers in managing their
spend and play, and the Group and its brands are
continually working to improve and enhance our tools
and site content to enable us to identify and
interact with at-risk customers.
* The Group works closely with leading external third
parties to facilitate internal teams to enhance our
understanding, and capabilities in relation to
identification of problem gambling through the use of
artificial intelligence.
* The Group continues to invest significantly in
improvements for tackling the problem through
donations to research, treatment, education
initiatives, as well as through driving collaboration
across the industry with other operators, charities
and regulatory bodies.
Third Parties and Key Suppliers
Why we need to manage How we manage and mitigate the risk
this
Across our Divisions
and Group, we place * Strategic and critical suppliers are subject to
significant reliance regular business and quality reviews with dedicated
upon critical suppliers resources for ongoing relationship and performance
in technology, marketing, management.
sports content and
media which are fundamental
to our business and * The Group's Procurement function has developed and
product offerings. maintains a Critical Supplier Heatmap and established
The effective management processes to provide ongoing liaison with key
of critical third-party suppliers to respond to challenges posed by Covid and
relationships, performance ensure continuity of critical services.
and regulatory expectations
are key to the Group's
strategic objectives. * As part of our procurement processes, we employ
dedicated resources supplemented by subject matter
expertise within risk, compliance, legal and
technology, to protect and enhance value, demonstrate
our high standards of corporate integrity and
reinforce organisational resilience.
* Where possible, the Group limits reliance on a single
supplier to reduce potential single point of failure.
IT Resilience
Why we need to manage How we manage and mitigate the risk
this
Our business operations
and products have a * The Group continues to invest in our proprietary
critical dependency technology and resources to improve IT resilience,
on our in-house technology eliminate single points of failure and to drive
and its ability to better performance.
recover in timely manner
from severe disruption,
or from cyber related * The Group has established a standard scale to aid
incidents with minimal comparison of the IT Disaster Recovery resilience
impact on our customers. levels in each Division and to ensure adequate
improvement plans are developed and tracked to
mitigate any material risks.
* We have dedicated resources to develop, enhance and
test our Disaster Recovery capability for our key
products across all our brands of the Group.
* Globally, we have key metrics on critical systems and
platforms which are regularly monitored and reported
to identify any potential emerging issues on our
brands or customer facing technologies.
* We have defined formal incident management process in
place for identifying, escalating and resolving
issues and a post-incident process to ensure we
continuously improve our proprietary technology stack
and incident response processes.
Tax
Why we need to manage How we manage and mitigate the risk
this
Given the global nature
of our business and * The Group has dedicated internal and external Legal,
the changing tax landscape Compliance and Tax teams for all regions with
in relation to our responsibility for working with and advising
industry, we adopt Divisions on any upcoming changes and working with
a balanced approach the business to set appropriate policies, processes
in delivering value and controls to adapt and ensure compliance.
through commercially
aligned tax planning,
efficient structuring * The Group holds memberships in industry groups
of commercial activities working with regulators and governments in relation
and M&A, alongside to influencing and driving proportionate and
proactive management reasonable regulation and tax regimes.
of tax risk areas.
* The Group closely monitors changes in tax regulations
in the markets which we operate in allowing the Group
to assess, works in collaboration with Tax
authorities to adapt and take necessary actions where
appropriate, and we also periodically scan for
emerging threats and uncertainties on the horizon.
* The Group has dedicated qualified tax teams to manage
its tax affairs for all regions with responsibility
for advising senior leadership teams and business
units to set appropriate policies, operating
guidelines and controls.
* In addition, the Group uses external tax and legal
advisors for complex tax matters and to advise on
significant uncertainties where necessary.
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
For the six months ended 30 June 2021
For the six months ended For the six months ended
30 June 2021 30 June 2020
Before Separately Before Separately
separately disclosed separately disclosed
disclosed items disclosed items
items (Note 5) Total items (Note 5) Total
Unaudited Note GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 4 3,052.5 - 3,052.5 1,522.4 13.7 1,536.1
Cost of sales (1,109.0) (12.9) (1,121.9) (495.9) (2.0) (497.9)
Gross profit 1,943.5 (12.9) 1,930.6 1,026.5 11.7 1,038.2
Operating costs
excluding depreciation
and amortisation (1,346.5) (21.7) (1,368.2) (684.8) (68.9) (753.7)
EBITDA(1) 597.0 (34.6) 562.4 341.7 (57.2) 284.5
Depreciation
and amortisation (125.0) (275.5) (400.5) (88.9) (127.8) (216.7)
Operating profit 472.0 (310.1) 161.9 252.8 (185.0) 67.8
Financial income 6 - - - 0.4 49.2 49.6
Financial expense 6 (74.2) (10.7) (84.9) (34.9) (58.5) (93.4)
Profit before
tax 397.8 (320.8) 77.0 218.3 (194.3) 24.0
Tax (expense)
/ credit 7 (91.4) (71.6) (163.0) (29.1) 14.1 (15.0)
Profit / (loss)
for the period 306.4 (392.4) (86.0) 189.2 (180.2) 9.0
Attributable
to:
Equity holders
of the Company 300.9 (389.5) (88.6) 191.3 (172.8) 18.5
Non-controlling
interest 5.5 (2.9) 2.6 (2.1) (7.4) (9.5)
306.4 (392.4) (86.0) 189.2 (180.2) 9.0
Earnings per share
Basic 8 (GBP0.504) GBP0.181
Diluted 8 (GBP0.504) GBP0.179
EBITDA is defined as profit for the period before depreciation,
(1) 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.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE
INCOME
For the six months ended 30 June 2021
Six months Six months
ended ended
30 June 2021 30 June 2020
Unaudited GBPm GBPm
(Loss) / profit for the period (86.0) 9.0
Other comprehensive (loss) / income:
Items that are or may be reclassified
subsequently to profit or loss:
Effective portion of changes in fair
value of cash flow hedges (156.0) (88.2)
Fair value of cash flow hedges transferred
to the income statement 164.7 86.5
Foreign exchange (loss) / gain on translation
of the net assets of foreign currency
denominated entities, net of tax(1) (161.8) 174.7
Debt instruments at FVOCI (0.6) 0.1
Other comprehensive (loss) / income (153.7) 173.1
Total comprehensive (loss) / income
for the period (239.7) 182.1
Attributable to:
Equity holders of the Company (242.5) 181.0
Non-controlling interest 2.8 1.1
Total comprehensive (loss) / income
for the period (239.7) 182.1
(1) Foreign exchange loss on translation of the net assets of
foreign currency denominated entities is presented including an
income tax charge of GBP1.7m which relates to the tax effect on
foreign exchange activities with respect to the Group's hedging
activities. A corresponding tax credit of GBP1.7m 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 2021
30 June 2021 31 December
2020
Unaudited Audited
Note GBPm GBPm
Assets
Property, plant and equipment 380.1 361.9
Intangible assets 5,135.8 5,527.8
Goodwill 9 9,354.9 9,516.7
Deferred tax assets 2.1 7.4
Non-current tax receivable 27.6 15.3
Investments 11 3.7 3.0
Derivative financial assets 16 27.5 16.9
Financial assets - restricted
cash 7.9 6.9
Other receivables 11 59.3 75.2
Total non-current assets 14,998.9 15,531.1
Trade and other receivables 11 189.8 139.5
Derivative financial assets 16 20.0 -
Financial assets - restricted
cash 554.3 587.9
Cash and cash equivalents 623.1 603.4
Current investments at FVOCI -
customer deposits 78.8 82.8
Current tax receivable 46.6 47.5
Assets held for sale 12 124.1 -
Total current assets 1,636.7 1,461.1
Total assets 16,635.6 16,992.2
Equity
Issued share capital and share
premium 2,489.7 2,481.7
Merger Reserve 7,982.9 7,982.9
Treasury shares (40.7) (40.7)
Shares held by employee benefit
trust (94.8) (5.8)
Cash flow hedge reserve (1.6) (10.3)
Other reserves 9.9 152.3
Retained earnings 333.9 405.0
Total equity attributable to equity
holders of the parent 10,679.3 10,965.1
Non-controlling interest 44.7 30.8
Total equity 10,724.0 10,995.9
Liabilities
Trade and other payables 13 1,039.4 1,033.0
Customer balances 602.4 643.4
Derivative financial liabilities 16 148.2 150.9
Provisions 14 27.9 14.3
Current tax payable 45.5 41.0
Lease liability 50.1 48.3
Borrowings 15 49.8 50.8
Total current liabilities 1,963.3 1,981.7
Trade and other payables 13 2.8 14.6
Derivative financial liabilities 16 99.2 102.3
Provisions 14 72.5 145.0
Deferred tax liabilities 566.5 500.9
Non-current tax payable 15.1 18.0
Lease liability 159.6 145.7
Borrowings 15 3,032.6 3,088.1
Total non-current liabilities 3,948.3 4,014.6
Total liabilities 5,911.6 5,996.3
Total equity and liabilities 16,635.6 16,992.2
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
For the six months ended 30 June 2021
Six months Six months
ended ended
30 June 30 June
2021 2020
Unaudited GBPm GBPm
Note
Cash flows from operating activities
(Loss) / profit for the period (86.0) 9.0
Separately disclosed items 5 392.4 180.2
Tax expense before separately disclosed items 91.4 29.1
Financial income before separately disclosed
items - (0.4)
Financial expense before separately disclosed
items 74.2 34.9
Depreciation and amortisation before separately
disclosed items 125.0 88.9
Employee equity-settled share-based payments
expense before separately disclosed items 35.5 18.0
Foreign currency exchange (gain) / loss (11.8) 15.4
Gain on disposal of property, plant and equipment
and intangible assets - (0.2)
Cash from operations before changes in working
capital 620.7 374.9
(Increase) / decrease in trade and other
receivables (36.5) 5.8
Increase in trade, other payables and provisions 30.3 74.6
Cash generated from operations 614.5 455.3
Taxes paid (92.0) (60.0)
Cash generated from operations, net of taxes
paid 522.5 395.3
Combination fees, restructuring and integration
costs paid 5 (24.5) (83.9)
Amounts paid in respect of Kentucky Supersedeas
Bonds 14 (71.1) -
Net cash from operating activities 426.9 311.4
Cash Flows from investing activities:
Purchase of property, plant and equipment (33.4) (21.8)
Purchase of intangible assets (23.9) (21.5)
Capitalised internal development expenditure (66.4) (37.1)
Purchase of business 10 (51.5) -
Cash acquired on business combinations 10 17.8 445.2
Payment of contingent deferred consideration 10 (19.0) (4.6)
Change in restricted cash (2.1) -
Other (0.5) 0.6
Net cash (used in) / from investing activities (179.0) 360.8
Cash flows from financing activities:
Proceeds from the issuance of new shares
in respect of equity placement (net of issuance
costs) 17 - 806.3
Proceeds from the issue of shares on exercise
of employee options 8.0 8.9
Dividend paid to non-controlling interest 17 (5.1) (7.0)
Payment of lease liabilities (26.8) (18.9)
Payment of lease interest (3.9) (2.8)
Lease incentive received 4.8 -
Proceeds from GBP First Lien Term Loan A
and previous GBP Term Loan 15 - 950.0
Net amounts drawn down previous GBP Revolving
Credit facility - (117.2)
Repayment of USD & EUR First Lien Term Loan
B and old GBP Term Loan facility 15 (12.9) (1,513.5)
Amounts repaid on overdraft facility - (5.0)
Interest paid (70.0) (37.5)
Settlement of derivatives - (27.6)
Financing fees paid in respect of borrowing
facilities (4.6) (21.5)
Ordinary shares of the Company acquired by
the Employee Benefit Trust 17 (89.0) -
Net cash from (used in) / from financing
activities (199.5) 14.2
Net increase in cash and cash equivalents 48.4 686.4
Cash and cash equivalents at start of period 603.4 108.1
Foreign currency exchange loss on cash and
cash equivalents (18.1) (8.0)
Cash and cash equivalents at end of period 633.7 786.5
Presented on the Statement of Financial Position
within:
Cash and Cash equivalents 623.1 786.5
Assets held for sale 12 10.6 -
633.7 786.5
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2021
Total
Issued Shares equity
Number share held attributable
of capital by Cash Foreign to
ordinary and employee flow Fair exchange Share-based shareholders
shares share Merger Treasury benefit hedge value translation Other payment Retained of the Non-controlling Total
in issue premium reserve shares trust reserve reserve reserve reserves reserve earnings Company interest equity
Unaudited m GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2021 177.0 2,481.7 7,982.9 (40.7) (5.8) (10.3) (0.4) 49.6 2.3 100.8 405.0 10,965.1 30.8 10,995.9
Total comprehensive income / (loss)
for the year
(Loss) / profit
for
the period - - - - - - - - - - (88.6) (88.6) 2.6 (86.0)
Foreign exchange
translation - - - - - - - (160.3) - - - (160.3) 0.2 (160.1)
Tax charge on
foreign
exchange
hedging - - - - - - - (1.7) - - - (1.7) - (1.7)
Effective
portion
of changes in
fair
value of cash
flow
hedges - - - - - (156.0) - - - - - (156.0) - (156.0)
Fair value of
cash
flow hedges
transferred
to the income
statement - - - - - 164.7 - - - - - 164.7 - 164.7
Debt instruments
at
FVOCI - - - - - - (0.6) - - - - (0.6) - (0.6)
Total
comprehensive
income / (loss)
for
the period - - - - - 8.7 (0.6) (162.0) - - (88.6) (242.5) 2.8 (239.7)
Transactions with owners of the Company, recognised
directly in equity
Shares issued on
exercise
of employee
share
options (Note
17) 0.3 8.0 - - - - - - - - - 8.0 - 8.0
Business
combinations
(Note 10) - - - - - - - - - - - - 16.2 16.2
Ordinary shares
of
the Company
acquired
by the Employee
Benefit
Trust (Note 17) - - - - (89.0) - - - - - - (89.0) - (89.0)
Equity-settled
transactions
- expense
recorded
in the income
statement - - - - - - - - - 36.6 - 36.6 - 36.6
Tax on
share-based
payments - - - - - - - - - - 1.1 1.1 - 1.1
Transfer to
retained
earnings on
exercise
of share
options and
vesting of
share awards - - - - - - - - - (16.4) 16.4 - - -
Dividend paid to
non-controlling
interest (Note
17) - - - - - - - - - - - - (5.1) (5.1)
Total
contributions
by and
distributions
to owners of
the Company 0.3 8.0 - - (89.0) - - - - 20.2 17.5 (43.3) 11.1 (32.2)
Balance at 30
June
2021 177.3 2,489.7 7,982.9 (40.7) (94.8) (1.6) (1.0) (112.4) 2.3 121.0 333.9 10,679.3 44.7 10,724.0
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2020
Issued Shares Total equity
Number share held attributable
of capital by Cash Foreign to
ordinary and employee flow Fair exchange Share-based shareholders
shares share Merger Treasury benefit hedge value translation Other payment Retained of the Non-controlling Total
in issue premium reserve shares trust reserve reserve reserve reserves reserve earnings Company interest equity
Unaudited m GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2020 80.3 428.3 - (40.7) (6.1) 2.3 - (21.5) 2.3 80.6 3,539.5 3,984.7 204.9 4,189.6
Total comprehensive income
/ (loss) for the year
(Loss) / 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
statement - - - - - 86.5 - - - - - 86.5 - 86.5
Debt instruments
at FVOCI - - - - - - 0.1 - - - - 0.1 - 0.1
Total
comprehensive
income / (loss)
for
the period - - - - - (1.7) 0.1 164.1 - - 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 17) 8.0 812.6 - - - - - - - - (6.3) 806.3 - 806.3
Shares issued on
exercise of
employee
share options
(Note
17) 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 17) - - - - - - - - - - - - (7.0) (7.0)
Dividends to
shareholders 1.3 0.1 - - - - - - - - (0.1) - - -
Total
contributions
by and
distributions
to owners of the
Company 76.2 906.4 6,189.5 - 0.3 - - - - 16.8 66.6 7,179.6 (7.0) 7,172.6
Balance at 30
June
2020 156.5 1,334.7 6,189.5 (40.7) (5.8) 0.6 0.1 142.6 2.3 97.4 3,624.6 11,345.3 199.0 11,544.3
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 2021 comprise the Company and its subsidiaries
(together referred to as the "Group"). These 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.
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 2020, 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.
During the six months 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.
These Condensed Consolidated Interim Financial Statements were
approved for issue by the Board of Directors of Flutter
Entertainment plc on 9 August 2021.
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). The Condensed
Consolidated Interim Financial Statements are presented in pounds
sterling and are rounded to the nearest GBP0.1 million.
Going concern
The Group reported a loss after tax for the six months ended 30
June 2021 of GBP86m. This includes GBP276m of non-cash amortisation
of acquisition related intangible assets charged against profit in
the period. The net cash generated from operating activities during
the six month period ended 30 June 2021 was GBP427m. The balance
sheet at 30 June 2021 reported a net current liability position of
GBP327m.
The Directors have considered the available financial resources
which include, at 30 June 2021, GBP634m of cash and cash
equivalents and a GBP450m Revolving Credit Facility with undrawn
capacity of GBP435m. Also, as announced on 19 July 2021, the Group
raised $500m of incremental debt as part of a debt refinancing, of
which c.GBP250m is incremental liquidity. Whilst there are certain
loan repayments due within the next 12 months, of GBP50m, the
Group's lending facilities primarily fall due in 2025 as set out in
more detail in Note 15. As a consequence, the Directors believe
that the Group is well placed to manage its business risks
successfully. See 'Principal risks and uncertainties' in this
report for more detail.
The Group's forecasts to the period ending 31 December 2022 and
beyond indicate that it will continue to have significant financial
resources, continue to settle its debts as they fall due 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 interim
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 ongoing litigation
in the State of Kentucky (see Note 14), and enhanced regulation
have also been considered in respect of these forecasts. In the
event that it was necessary to draw down additional debt funding,
the Directors have a reasonable expectation that this could be
achieved within the confines of its existing debt facilities and
financial covenant requirements.
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 condensed consolidated
financial statements, and therefore they continue to adopt the
going concern basis in its consolidated financial statements.
2. Basis of preparation and accounting policies (continued)
New accounting policies
The financial information contained in these 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 2020, except as set out below.
Operating segment reporting
Operating segments are distinguishable components of the Group
that have been established based on the internal reports regularly
reviewed by the Group's Chief Operating Decision Maker (the Board
of Directors, "CODM") in order to assess each segment's performance
and to allocate resources to them. Geographical segments provide
services within a particular economic environment that are subject
to risks and rewards that are different from those components
operating in alternative economic environments. In 2021, as a
result of internal restructuring and integration initiatives, the
Group has determined its reportable segments to be UK&I,
Australia, International and US. These reportable segments reflect
the way financial information is reviewed by the Group's CODM.
The previous reportable segments, as disclosed in the Group's
2020 Annual report, of PPB, PokerStars and Sky Betting and Gaming
have been realigned to follow the Group's integrated operational
model and internal structure. The Group has restated the operating
segment information for the six months ended 30 June 2020
accordingly.
For further information on operating segments see Note 4.
Interest rate benchmark reform (IBOR Reform) - Phase two
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (the
Phase two amendments) were issued in August 2020 and were initially
adopted by the Group effective 1 January 2021.
The Group applied the Phase 2 amendments prospectively. However,
in accordance with the exceptions permitted in the Phase 2
amendments, the Group has elected not to restate the prior period
to reflect the application of these amendments, including not
providing additional disclosures for 2020. There is no impact on
opening equity balances as a result of retrospective
application.
In March 2021, the Financial Conduct Authority (FCA) announced
the timing of LIBOR cessation, with the publication of all non-USD
LIBOR rates ceasing on December 31, 2021. One and three month USD
LIBOR will continue to be published through June 30, 2023. There
are currently no stated plans in respect of the cessation of
EURIBOR. The Group has commenced its process to amend contractual
terms or implement appropriate fallback provisions in response to
IBOR reform and these arrangements will be completed in the second
half of 2021.
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.
Estimates and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Judgements
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements 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 2020
and are detailed below:
3. Judgements and estimates (continued)
Kentucky proceedings
In 2010, prior to the combination with The Stars Group ("TSG"),
the Commonwealth of Kentucky filed legal proceedings against
various operators including certain companies that later became
subsidiaries of TSG. The suit sought recovery of alleged losses
incurred by Kentucky residents playing real-money poker on the
PokerStars platform during a period between 2006 and 2011. The
gross gaming revenues that TSG generated in Kentucky on the
PokerStars platform during the relevant period were approximately
US$18m. In 2015, a Kentucky trial court judge entered judgement
against two TSG Isle of Man subsidiaries, Stars Interactive
Holdings (IOM) Ltd. ("SIHL") and Rational Entertainment Enterprises
Ltd. ("REEL") and awarded damages to the Commonwealth of Kentucky
of approximately US$870m plus post judgement interest.
In February 2016, in order to stay enforcement of the judgement
while the matter was appealed, SIHL and REEL posted supersedeas
bonds to the value of US$100m, on which the stay was conditioned.
In 2018, the ruling against SIHL and REEL was vacated in its
entirety by the Kentucky Court of Appeals.
Following an appeal by the Commonwealth of Kentucky, on 17
December 2020, the Kentucky Supreme Court reinstated the full 2015
award of damages, including post judgement interest, against SIHL
and REEL.
As at 31 December 2020, the Group recognised a provision of
US$100m (GBP73.3m) as part of the TSG combination fair value
acquisition accounting in respect of this litigation, which
reflected the value of the supersedeas bond in place since February
2016. No liability was previously recognised by either TSG or
Flutter prior to this judgement.
A rehearing petition was filed before the Kentucky Supreme Court
on 6 January 2021 and was subsequently denied on 25 March 2021. In
May 2021, following an April 2021 order by the Kentucky trial
court, the $100m (GBP71.1m) bonds were paid to the Commonwealth of
Kentucky, in line with the provision outstanding at 31 December
2020. The Commonwealth of Kentucky has commenced other action to
seek to enforce the judgement.
The Group is currently in the process of preparing a Petition
for Writ of Certiorari to be filed with the US Supreme Court,
seeking review of the judgement based on US Constitutional grounds,
including that the judgement violates due process and the
prohibition on excessive fines.
Based on the restrictions on the Commonwealth of Kentucky's
ability to enforce the judgement and any further pay-outs being
less than probable at 30 June 2021, the Group did not recognise any
additional provision with respect to this litigation as at 30 June
2021. This assessment relies on estimates and assumptions and
involves a series of judgements about future events which will be
reassessed in future periods if events or circumstances change.
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 - Commitments and
Contingencies for further detail.
FOX Corporation
As part of the Combination with TSG, the Group acquired certain
commercial agreements in place between TSG and FOX Corporation
("FOX") in relation to TSG's US business.
On 8 May 2019, TSG and FOX announced plans to launch FOX Bet,
the first-of-its kind national media and sports wagering
partnership in the United States and as such, entered into a
commercial agreement of up to 25 years. As part of the agreement,
FOX receive certain brand license, integration and affiliate fees.
In addition, TSG agreed to a minimum annual advertising commitment
on certain FOX media assets during the term of the commercial
agreement. Prior to the tenth anniversary of the commercial
agreement, and subject to certain conditions and applicable gaming
regulatory approvals, FOX has the right to acquire up to a 50%
equity stake in TSG's US business, which excludes FanDuel. In
accordance with IFRS 2 Share-based payments based on the judgement
of Management, this right granted to FOX is considered a
contingently cash-settled share-based payment because FOX, subject
to receiving regulatory approvals and meeting certain other
conditions, has discretion to exercise the right. During the six
months ended 30 June 2021, the Group recorded GBP4.7m to sales and
marketing expense in relation to the commercial agreement and at 30
June 2021 the total fair value liability due was GBP5.0m.
3. Judgements and estimates (continued)
Management has made certain judgements in the recognition and
measurement of liabilities in relation to this commercial agreement
and associated right of FOX to acquire equity, including its
judgement as to the probable method of settlement. The right has
been valued using a discounted cash flow model and as it represents
a contingent cash-settled share-based payment, will be recorded at
fair value at each reporting period.
As announced on 2 October 2019, in order to achieve economic
alignment of Flutter's and TSG's strategic third-party
relationships across their respective US businesses, concurrent
with the Combination with TSG, the Group entered into an
arrangement with FOX, pursuant to which FSG Services, a
wholly-owned subsidiary of FOX, had an option to acquire an 18.6%
equity interest in FanDuel Group at its market value in July 2021.
Under the terms of the agreement an arbitration mechanism was put
in place in the event of a disagreement between the two parties
relating to the option.
In April 2021, FOX filed an arbitration claim against the Group
with respect to its option to acquire an 18.6% equity interest in
FanDuel for the same price that the Group paid for the acquisition
of 37.2% of FanDuel from Fastball Holdings LLC in December 2020,
representing an GBP11.2 billion valuation for FanDuel. In the
Group's opinion this valuation would be materially favourable for
FOX compared to the fair market valuation as of July 2021. An
arbitrator has been appointed and the Group intends to vigorously
defend its position. A ruling in the arbitration is not expected
before 2022.
Estimates
Determining the fair value of some assets and liabilities
requires estimation of the effects of uncertain future events on
those assets and liabilities at the end of the reporting period.
The following discussion sets forth key sources of estimation
uncertainty at the end of the reporting period that management
believes have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
Measurement of the recoverable amounts of cash generating units
containing goodwill, indefinite life licences and 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 for the six months ended 30 June 2021 is
set out in the business review section of the interim results.
The retail cash generating units (CGUs) in the period were
impacted by the temporary suspension of the activities of its
shops, depending on local restrictions and social distancing rules.
Based on the significant headroom that existed in the 31 December
2020 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 indicators have arisen during the period to 30
June 2021.
Valuation of tax provisions and liabilities and associated
receivables
Taxation within the Group includes both Income Taxes and Gaming
Taxes. Judgement and estimation are 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 are
comprised of a number of individually 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 2021 is adequate and the tax receivables are recoverable
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 disputed legacy German tax assessments is
outlined in Note 11.
3. Judgements and estimates (continued)
Valuation of Embedded Derivative on Senior Notes
The Senior Notes (see 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
2.4% as at 30 June 2021 (31 December 2020 - 2.77%), 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 six month period ended 30 June 2021, no gain or
loss was recorded through financial income in relation to the
re-measurement of this Embedded Derivative (six months ended 30
June 2020 a gain of GBP29.9m). The Senior Notes were subsequently
repaid as part of the refinancing transaction on 21 July 2021 (see
note 21).
4. Operating segments
Reportable business segment information
As a result of internal restructuring and integration
initiatives, in 2021 the Group transitioned from the five segment
operating model reported in 2020, into a four segment operating
model. In 2021, the Group's four reportable segments are:
-- UK & Ireland;
-- Australia;
-- International; and
-- US
The reportable segments reflect the Group's current operating
model, following internal restructuring and integration initiatives
undertaken by the Group following the Combination with TSG, and 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 2020 to conform with the current year
presentation.
UK and Ireland:
The UK and Ireland ("UK&I") segment is comprised of the
operations of Sky Betting and Gaming, and Paddy Power and Betfair's
operations in the UK and Ireland. Revenues are earned from sports
betting (sportsbook and the exchange sports betting product) and
gaming services (games, casino, bingo and poker), as well as from
Oddschecker (odds comparison website). Services are provided
primarily via the internet but also through licenced bookmaking
shop estates. In July 2021, the Group announced the pending sale of
Oddschecker. For further details, see Note 12 and Note 21.
Australia
The Australia segment is comprised of the operations of the
Sportsbet brand and in 2020 included the former BetEasy brand which
was integrated into Sportsbet in the second half of 2020, and earns
its revenues from sports betting services provided to Australian
customers using primarily the internet, with a small proportion
using the public telephone system.
International
The International segment is comprised of PokerStars Casino,
PokerStars Sports, Betfair International, Adjarabet and Junglee
games. The International segment earns most of its revenues from
poker, casino and sports betting through various brands and mainly
via the internet.
US
The US segment is comprised of the FanDuel, TVG, FOX Bet,
Stardust and PokerStars brands operations in the U.S and 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
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 2020.
4. Operating segments (continued)
The Group does not allocate income tax expense or financing
income and expenses to reportable segments. Treasury management is
centralised for the UK&I, Australia, International 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 some
postponement and cancellation of sporting events across the world
has skewed results for the period and the comparative period.
Gaming and other revenue is not as dependent on the sporting
calendar.
Reportable business segment information for the six months ended
30 June 2021:
UK&I Australia International US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from external
customers 1,135.2 585.4 679.9 652.0 - 3,052.5
Cost of sales (341.8) (275.2) (199.3) (292.7) - (1,109.0)
Gross profit 793.4 310.2 480.6 359.3 - 1,943.5
Operating costs excluding
depreciation and amortisation (434.3) (109.3) (301.9) (445.8) (55.2) (1,346.5)
Adjusted EBITDA(1) 359.1 200.9 178.7 (86.5) (55.2) 597.0
Depreciation and amortisation (62.6) (13.1) (25.1) (21.9) (2.3) (125.0)
Reportable segment profit
/ (loss) before separately
disclosed items 296.5 187.8 153.6 (108.4) (57.5) 472.0
Greece tax expense - - (12.9) - - (12.9)
Amortisation of acquisition
related intangible assets
(Note 5) (112.8) (10.6) (138.8) (13.3) - (275.5)
Reportable segment profit
/ (loss) after amortisation
of acquisition related
intangibles 183.7 177.2 1.9 (121.7) (57.5) 183.6
Restructuring and Integration
costs(2) (21.7)
Operating profit 161.9
4. Operating segments (continued)
Reportable business segment information for the six months ended
30 June 2020(3) :
UK&I Australia International US Corporate Total
Restated GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from external
customers before VAT
refund 585.3 348.0 333.3 255.8 - 1,522.4
Cost of sales (163.1) (148.2) (85.4) (99.2) - (495.9)
Gross profit 422.2 199.8 247.9 156.6 - 1,026.5
Operating costs excluding
depreciation and amortisation (289.5) (90.0) (115.1) (154.3) (35.9) (684.8)
Adjusted EBITDA(1) 132.7 109.8 132.8 2.3 (35.9) 341.7
Depreciation and amortisation (49.7) (12.3) (8.6) (16.1) (2.2) (88.9)
Reportable segment profit
/ (loss) before separately
disclosed items 83.0 97.5 124.2 (13.8) (38.1) 252.8
Amortisation of acquisition
related intangible assets
(Note 5) (51.3) (4.4) (56.4) (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 42.0 93.1 67.8 (29.5) (38.1) 135.3
Combination fees and
associated costs(2) (26.3)
Restructuring and Integration
costs(2) (41.2)
Operating profit 67.8
(1) Adjusted EBITDA which is a non-GAAP measure in the above
segment note is defined as profit for the period before separately
disclosed items, 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.
(2) The Group does not allocate acquisition fees and
restructuring and integration costs to reportable segments.
(3) Reportable segment split was restated to conform with
current year presentation
Reconciliation of reportable segments to Group totals:
Six months ended Six months
ended
30 June 2021 30 June 2020
GBP GBP
Revenue
Total revenue from reportable segments,
being total Group revenue before VAT
refund 3,052.5 1,522.4
VAT refund - 13.7
Total revenue from reportable segments,
being total Group revenue 3,052.5 1,536.1
Profit and loss
Operating profit 161.9 67.8
Unallocated amounts:
Financial income - 49.6
Financial expense (84.9) (93.4)
Profit before tax 77.0 24.0
4. Operating segments (continued)
Disaggregation of revenue under IFRS 15:
Group revenue disaggregated by product line for the six months
ended 30 June 2021:
UK&I Australia International US Total
GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 737.9 585.4 118.1 452.5 1,893.9
Gaming revenue 397.3 - 561.8 199.5 1,158.6
Total Group
revenue 1,135.2 585.4 679.9 652.0 3,052.5
Group revenue after the VAT refund (Note 5) disaggregated by
product line for the six months ended 30 June 2020(3) :
UK&I Australia International US Total
GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 357.0 348.0 55.9 163.3 924.2
Gaming revenue(2) 242.0 - 277.4 92.5 611.9
Total Group
revenue 599.0 348.0 333.3 255.8 1,536.1
(1) Sports revenue comprises sportsbook, exchange sports
betting, daily fantasy sports and pari-mutuel betting.
(2) Gaming revenue includes Games, Poker, Casino and Bingo and
in UK&I includes the VAT refund (see Note 5).
(3) Reportable segment split was restated to conform with
current year presentation.
Geographical information:
Group revenue disaggregated by geographical market for the six
months ended 30 June 2021:
UK&I Australia International US Total
GBPm GBPm GBPm GBPm GBPm
UK 1,037.2 - 42.3 - 1,079.5
Ireland 90.9 - 3.9 - 94.8
Australia - 585.4 - - 585.4
US - - - 652.0 652.0
Rest of World(1) 7.1 - 633.7 - 640.8
Total Group revenue 1,135.2 585.4 679.9 652.0 3,052.5
(1) The Rest of World category includes multiple countries,
primarily in Europe, that individually represent 4% or less of
total Group revenue.
Group revenue after the VAT refund (Note 5) disaggregated by
geographical market for the six months ended 30 June 2020(2) :
UK&I Australia International US Total
GBPm GBPm GBPm GBPm GBPm
UK 519.3 - 28.8 - 548.1
Ireland 79.2 - 2.7 - 81.9
Australia - 348.0 - - 348.0
US - - - 255.8 255.8
Rest of World(1) 0.5 - 301.8 - 302.3
Total Group revenue 599.0 348.0 333.3 255.8 1,536.1
(1) The Rest of World category includes multiple countries,
primarily in Europe, that individually represent 3% or less of
total Group revenue.
(2) Reportable segment split was restated to conform with
current year presentation.
Revenues are attributable to geographical location on the basis
of the customers location.
5. Separately disclosed items
Six months Six months
ended ended
30 June 2021 30 June 2020
GBPm GBPm
Amortisation of acquisition related intangible
assets (275.5) (127.8)
Combination fees and associated costs - (26.3)
Restructuring and integration costs (21.7) (41.2)
Greece tax expense (12.9) -
VAT refund - 10.3
Operating profit impact of separately
disclosed items (310.1) (185.0)
Financial income - 49.2
Financial expense (10.7) (58.5)
Profit before tax impact of separately
disclosed items (320.8) (194.3)
Tax (charge) / credit on separately disclosed
items (71.6) 14.1
Total separately disclosed items (392.4) (180.2)
Attributable to:
Equity holders of the Company (389.5) (172.8)
Non-controlling interest (2.9) (7.4)
Total separately disclosed items (392.4) (180.2)
Amortisation of acquisition related intangible assets
Non-cash amortisation of GBP275.5m has been incurred in the
period (six months ended 30 June 2020: GBP127.8m) as a result of
intangible assets separately identified under IFRS 3 as a result of
the merger with Betfair in 2016, the acquisitions of FanDuel
Limited in 2018 and Adjarabet in 2019, the Combination with TSG in
2020 and the acquisition of Junglee in 2021.
Combination fees and associated costs
During the six months ended 30 June 2020, GBP26.3m of costs were
incurred directly as a result of the Combination with TSG. The
costs were included as separately disclosed items due to their
non-recurring, incremental nature. No such costs were incurred in
the six months ended 30 June 2021.
Restructuring and integration costs
During the six months ended 30 June 2021 costs of GBP21.7m (six
months ended 30 June 2020: GBP41.2m) relating to incremental,
one-off costs, were incurred by the Group as a result of
significant restructuring and integration initiatives following the
Combination with TSG.
Greece tax expense
In 2019, the Group was issued with a Greek tax assessment for
financial years 2012, 2013 and 2014, relating to paddypower.com's
Greek interim licence. This assessment concluded that the Group is
liable to pay EUR15.0m in taxes including penalties and interest.
This is substantially higher (by multiples) than the total
cumulative revenues ever generated by paddypower.com in Greece.
Pending the outcome of their appeal, in 2019 the Group paid the
total Greek tax assessment (including the penalties and interest)
of EUR15.0m.
In June 2021, the Athens Administrative Court of Appeal
dismissed the Group's judicial recourses. While the Group intends
to further appeal to the Greek Supreme Administrative Court, based
on the nature of the decision received and the points of law which
can be appealed, and in line with legal and tax advice it has
received, it has decided to recognise the amount of the Greek
assessment, of EUR15.0m (GBP12.9m) as an expense in profit or loss
during the six months ended 30 June 2021. The Group considers this
cost as a one-off cost and not as part of ongoing operations in the
current year.
5. Separately disclosed items (continued)
VAT refund
In May 2020, HMRC confirmed it would not appeal the ruling of
the Upper Tier Tribunal in the cases of Rank Group Plc and Done
Brothers (Cash Betting) Ltd (trading as Betfred) that VAT was
incorrectly applied to revenues earned from certain gaming machines
prior to 2013. Accordingly in the six month period ended 30 June
2020, it recognised income to the extent that the Group considered
it is virtually certain it would receive the refund, net of the
best estimate of associated third party costs expected to be
incurred as a result of the refund.
The refund of VAT due from HMRC of GBP13.7m has been booked as
revenue with associated third-party costs of GBP2.0m and GBP1.4m
recorded in the six month period ended 30 June 2020 in cost of
sales and operating expenses respectively.
Financial income
In the six month period ended 30 June 2020, a gain on
remeasurement of embedded derivatives of GBP36.9m and FX gains on
financial instruments associated with financing activities of
GBP12.3m were recognised. These gains were included as separately
disclosed items due to their volatile nature. No such gains were
recorded during the six months ended 30 June 2021. See also Note
6.
Financial expense
During the six months ended 30 June 2021, FX losses on financial
instruments associated with financing activities of GBP10.7m were
incurred.
In the six month period ended 30 June 2020, a loss on
remeasurement of the HRTV contingent consideration of GBP9.5m, FX
losses on the forward contract of GBP11.2m, a loss of GBP32.8m
relating to accelerated debt repayments and GBP5.0m relating to the
expensing of one-off financing related fees not eligible for
capitalisation were incurred. These losses were included as
separately disclosed items due to their volatility and/or
non-recurring nature. See also Note 6.
Combination fees and associated costs and restructuring and
integration costs are included in the Condensed Consolidated
Interim Income Statement within operating costs excluding
depreciation, amortisation and impairment. Amortisation of
acquisition related intangible assets is included within
depreciation and amortisation.
Tax (charge) / credit on separately disclosed items
This charge has arisen due to an increase of GBP104.6m in the
deferred tax liability on separately identifiable acquisition
related intangible assets as result of the increase in the UK's
main corporation tax rate from 19% to 25% from 1 April 2023 as
outlined in more detail in note 7. This tax charge has been
partially offset by the tax credit impact of the various other
separately disclosed items primarily deferred tax in respect of the
amortisation of acquisition related intangibles.
6. Financial income and expense
Recognised in profit or loss for the period:
Six months Six months
ended ended
30 June 2021 30 June 2020
GBPm GBPm
Financial income:
Gain on remeasurement of embedded derivatives
(see Note 5 and Note 16) - 36.9
Foreign exchange gain on financing instruments
associated with financing activities (Note
5) - 12.3
Movement in fair value of investment - 0.1
On financial assets at amortised cost
Interest income - 0.3
Total - 49.6
Financial expense:
Change in fair value of contingent consideration
(see Note 5) - 9.5
Foreign exchange loss on forward contract
associated with financing activities (see
Note 5) - 11.2
Foreign exchange loss on financing instruments
associated with financing activities (Note
5) 10.7 -
Accelerated accretion on debt repayments
(See Note 5 ) - 32.8
On financial liabilities at amortised cost
Interest on borrowings, bank guarantees
and bank facilities 62.4 28.4
Other interest 11.8 11.5
Total 84.9 93.4
Recognised in other comprehensive income / (loss):
Six months Six months
ended ended
30 June 2021 30 June 2020
GBPm GBPm
Recognised in other comprehensive income
/ (loss):
Effective portion of changes in fair value
of cash flow hedges (156.0) (88.2)
Fair value of cash flow hedges transferred
to income statement 164.7 86.5
Net change in fair value of cash flow hedge
reserve 8.7 (1.7)
Debt instruments at FVOCI (0.6) 0.1
Foreign exchange (loss) / gain on translation
of the net assets of foreign currency denominated
entities (161.8) 174.7
Total (153.7) 173.1
A charge of GBP3.4m was recorded in the income statement in
respect of ineffective cash flow hedges in the six months ended 30
June 2021 (six months ended 30 June 2020: nil).
7. Tax expense
Tax is accrued for the interim reporting period using
Management's best estimate of the weighted average tax rate that is
expected to be applicable to estimated total annual earnings which
may be adjusted for any significant non-recurring events. This
expected annual effective tax rate is applied to the taxable income
of the interim period.
The Group's adjusted effective tax rate before separately
disclosed items for the period was 22.9% (six months ended 30 June
2020: 13.3%), which compares to the standard Irish tax rate of
12.5%. A tax expense on separately disclosed items amounting to
GBP71.6m was recorded during the six months ended 30 June 2021 (six
months ended 30 June 2020: credit of GBP14.1m) (see Note 5).
7. Tax expense (continued)
The UK Budget 2021 announced on 3 March 2021 an increase in the
UK's main corporation tax rate from 19% to 25% from 1 April 2023.
This was enacted as part of Finance Bill 2021 on 10 June 2021. As
these changes were substantively enacted before the balance sheet
date, they have been reflected in the deferred tax balances within
these financial statements.
8. Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
data for its ordinary shares.
Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding during the
period. The weighted average number of shares has been adjusted for
amounts held as Treasury Shares and amounts held by the Paddy Power
Betfair plc Employee Benefit Trust ("EBT").
Diluted EPS is determined by adjusting the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares.
Adjusted EPS is determined by adjusting the profit attributable
to ordinary shareholders for the impact of separately disclosed
items.
The calculation of basic, diluted and adjusted EPS is as
follows:
Six months Six months
ended ended
30 June 2021 30 June 2020
Numerator in respect of basic and diluted
earnings per share (GBPm):
(Loss) /profit attributable to equity holders
of the Company (88.6) 18.5
Numerator in respect of adjusted earnings
per share (GBPm):
(Loss) / profit attributable to equity
holders of the Company (88.6) 18.5
Separately disclosed items (Note 5) 389.5 172.8
Profit for adjusted earnings per share
calculation 300.9 191.3
Weighted average number of ordinary shares
in issue during the period (in '000s)(1) 175,893 102,042
Basic earnings per share (GBP0.504) GBP0.181
Adjusted basic earnings per share GBP1.711 GBP1.875
Adjustments to derive denominator in respect
of diluted earnings per share (in '000s):
Weighted average number of ordinary shares
in issue during the period 175,893 102,042
Dilutive effect of share options and awards
on issue - 1,448
Adjusted weighted average number of ordinary
shares in issue during the period(1) 175,893 103,490
Diluted earnings per share (GBP0.504) GBP0.179
The average market value of the Company's shares of GBP144.90
(30 June 2020: GBP90.54) was used to calculate the dilutive effect
of share options based on the market value for the period that the
options were outstanding.
(1) Where any potential ordinary shares would have the effect of
decreasing a loss per share, they have not been treated as
dilutive. The number of options excluded from the diluted weighted
average number of ordinary shares calculation due to their effect
being anti-dilutive is 2,939,416 (30 June 2020: nil).
9. Goodwill
Following the Combination with the Stars Group in 2020, the
Group reorganised its business into four divisions, reporting
against these divisions from 2021. As part of this process the
Group reviewed the historical assessment of cash generating units
(CGUs) and the allocation of goodwill. The legacy Sky Betting &
Gaming CGU has been renamed to 'UK&I Online', and has been
allocated goodwill relating to the UK&I business under the
relative value approach from the legacy PPB Online CGU. The legacy
PokerStars CGU has been renamed to 'International' , and has been
allocated goodwill relating to the International business based on
the relative values of the PPB Online CGU to the extent that the
goodwill was not already separately identifiable. All other CGUs
were unchanged.
The opening goodwill balance has been restated for comparable
purposes. The following CGUs, being the lowest level of asset for
which there are separately identifiable cash flows, have the
following carrying amounts of goodwill:
UK&I Irish
Online UK Retail Retail International Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2021 5,845.5 18.9 20.7 2,560.9 507.7 563.0 9,516.7
Arising on acquisitions
during the period (Note
10) - - - 34.9 - - 34.9
Reclassification to
Held for Sale (Note
12) (78.0) - - - - - (78.0)
Foreign currency translation
adjustment - - - (90.0) (20.7) (8.0) (118.7)
Balance at 30 June
2021 5,767.5 18.9 20.7 2,505.8 487.0 555.0 9,354.9
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 CGUs with their recoverable amounts (being the higher of
value in use and fair value less costs to sell). The impact of
COVID-19 on the performance of the Group and its individual
business units was incorporated into the underlying assumptions
used in the annual impairment assessment. The retail cash
generating units (CGUs) were impacted due to the temporary
suspension of the activities of shops in 2021 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 2020
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 2021.
10. Business combinations
Six months ended 30 June 2021
Acquisition of Junglee Games
On 28 January 2021, the Group completed the acquisition of an
initial 50.1% stake in Junglee Games ('Junglee'), an Indian online
rummy operator, for US$69.5m (GBP50.7m), with US$63.5m (GBP46.4m)
paid in cash and the remainder recorded as deferred consideration.
On the same date the Group entered into call and put options which
would enable the Group to acquire an additional 7.2% stake in
Junglee in exchange for cash consideration. In June 2021, these
options were exercised and the Group acquired the additional 7.2%
stake in Junglee in exchange for cash consideration of US$8.1m
(GBP5.9m) with US$7.0m (GBP5.1m) paid in cash and the remainder
recorded as deferred consideration. This has been accounted under
the anticipated acquisition method, with the combined 57.3%
recognised as acquired from 28 January 2021.
Junglee is a top 3 player in the legal Indian online rummy
market. Based on its December 2020 run-rate, Junglee would generate
annualised gross revenue of circa GBP50m in a full year. The Group
sees good potential to further develop Junglee's product offering,
including its recently launched daily fantasy sports product,
leveraging the Group's capabilities in this area. The Group has put
in place arrangements, consisting of call and put options that
could see its ownership in the business increase to 100% in 2025.
The call/put option consideration can be settled, at the Group's
election, in cash or shares. As a consequence of both the put and
call options being only exercisable at fair value being the future
EBITDA and revenue multiple which are considered to be two key
inputs into valuing the option, it was determined that the fair
value of the put and call options was not material and was close to
nominal value.
10. Business combinations (continued)
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Included within the intangible assets were GBP41.6m of
separately identifiable intangibles comprising brand, technology
and customer relations acquired as part of the acquisition, with
the additional effect of a deferred tax liability of GBP10.5m
thereon. These intangible assets are being amortised over their
useful economic lives of up to ten years. The book value equated to
the fair value on the remaining assets and liabilities as all
amounts are expected to be received.
The main factors leading to the recognition of goodwill (none of
which is deductible for tax purposes) is growth by combining
Flutter's significant operating experience in other markets with
the local market knowledge and skills of the management team in
Junglee, driving revenue synergies over time. The goodwill has been
allocated to the existing International CGU and it has been deemed
that a separate CGU is not appropriate.
Since the date of acquisition to 30 June 2021, Junglee has
contributed GBP19.1m of revenue and GBP2.2m of a net loss after tax
to the results of the consolidated Group.
If the acquisition had occurred on 1 January 2021, Junglee's
contribution to revenue and net loss after tax would have been
GBP22.0m and GBP1.4m respectively for the six months ended 30 June
2021.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
Provisional fair
values as at
28 January 2021
GBPm
Assets
Property, plant and equipment 0.2
Intangible assets 41.6
Total non-current assets 41.8
Trade and other receivables 3.8
Cash and cash equivalents 17.8
Total current assets 21.6
Total assets 63.4
Liabilities
Trade and other payables 12.3
Current tax payable 2.7
Total current liabilities 15.0
Deferred tax liabilities 10.5
Total non-current liabilities 10.5
Total liabilities 25.5
Net assets acquired 37.9
Goodwill 34.9
Non-controlling interest measured at the fair
value of net assets identified (16.2)
Consideration 56.6
The consideration is analysed as:
Consideration satisfied by cash 46.4
Put option satisfied by cash 5.1
Deferred consideration 4.3
Put option deferred consideration 0.8
Consideration 56.6
10. Business combinations (continued)
The acquisition accounting remains provisional for one year from
the acquisition date and may change if new information is obtained
relating to conditions that existed at the acquisition date.
Six months ended 30 June 2020
Acquisition of The Stars Group Inc.
On 5 May 2020, Flutter completed an all share Combination with
The Stars Group Inc. (the "Combination") resulting in existing
Flutter shareholders owning 54.64% and the Stars Group Inc.
shareholders owning 45.36% of Flutter (the "Company", together with
its subsidiaries, the "Group"), on a fully diluted basis (excluding
any out of the money options). Post-Combination, the Company is the
ultimate parent of The Stars Group Inc. (TSG).
Under the terms of the Combination, holders of TSG shares
received 0.2253 ordinary shares with nominal value of EUR0.09 each
in the Company ("ordinary shares") in exchange for each outstanding
TSG share (the "Exchange Ratio"). Accordingly, the Company issued a
total of 65,316,588 ordinary shares in exchange for 289,909,400
shares in TSG. The fair value of the ordinary shares issued was
GBP94.84 per share at this date.
In addition: (i) each TSG Option outstanding at 5 May 2020,
under the TSG Share Plans was exchanged for an option to purchase
such number of New Flutter Shares calculated in accordance with the
Exchange Ratio; and (ii) each TSG restricted share unit ("RSU"),
TSG performance share unit ("PSU") and TSG deferred share unit
("DSU") outstanding at the Effective Time under the TSG Equity Plan
was amended so as to substitute for the TSG Shares, subject to such
equity awards, a number of Flutter Shares calculated in accordance
with the Exchange Ratio but subject to any adjustment required to
that award by the TSG Equity Plan or grant documentation as a
result of the Plan of Arrangement.
TSG is a global leader in the online and mobile gaming and
interactive entertainment industries, entertaining millions of
customers across its online real- and play-money poker, gaming and
betting product offerings. TSG offers these products directly or
indirectly under several ultimately owned or licensed gaming and
related consumer businesses and brands, including, among others,
PokerStars, PokerStars Casino, BetStars, Full Tilt, FOX Bet,
BetEasy, Sky Bet, Sky Vegas, Sky Casino, Sky Bingo, Sky Poker, and
Oddschecker, as well as live poker tour and events brands,
including the PokerStars Players No Limit Hold'em Championship,
European Poker Tour and Asia Pacific Poker Tour. TSG is one of the
world's most licensed online gaming operators with its subsidiaries
collectively holding licenses or approvals in 22 jurisdictions
throughout the world, including in Europe, Australia and the
Americas.
The main drivers for the Combination were to accelerate delivery
against each of the components of Flutter's four pillar strategy;
create a highly diversified business from a geographic, product and
brand perspective with an enhanced global platform; deliver
significant value for shareholders through the realisation of
material cost synergies such as procurement synergies, removal of
duplicate corporate and administrative costs and utilisation of
scale to create efficiencies; reinforce a robust financial profile
which will facilitate strategic flexibility as well as generate
sustainable long-term shareholder returns; and maintain a leading
role in the promotion of responsible gambling through an enlarged
global footprint.
Included within the intangible assets were GBP5,316.4m of
separately identifiable intangibles comprising brands, customer
relations and technology acquired as part of the combination, with
the additional effect of a deferred tax liability of GBP527m
thereon. These intangible assets are being amortised over their
useful economic lives of up to 20 years. Receivables acquired
amounted to GBP114.6m. The book value equated to the fair value as
all amounts are expected to be received. The main factors leading
to the recognition of goodwill (none of which is deductible for tax
purposes) is growth by combining business activities, a strong
workforce, leveraging existing products and synergy savings of the
merged operations. The goodwill associated with the PokerStars and
Sky Betting and Gaming businesses has been included in the
International and UK&I CGUs, respectively. The goodwill
associated with the Australia and US businesses has been allocated
to the respective existing Australia and US CGUs and it has been
deemed that separate CGUs are not appropriate.
10. Business combinations (continued)
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Fair values as
at
5 May 2020
GBPm
Assets
Property, plant and equipment 105.5
Intangible assets 5,316.4
Deferred tax asset 8.3
Non-current tax receivable 19.1
Derivative financial assets 79.2
Investments 4.0
Other receivables 26.2
Financial assets - restricted cash 8.9
Total non-current assets 5,567.6
Trade and other receivables 88.4
Current tax receivable 28.7
Financial assets - restricted cash 292.4
Current investments - customer deposits 89.7
Cash and cash equivalents 445.2
Total current assets 944.4
Total assets 6,512.0
Liabilities
Trade and other payables 498.8
Customer balances 376.7
Derivative financial liabilities 10.0
Provisions 1.4
Current tax payable 15.1
Lease liabilities 16.4
Borrowings 59.7
Total current liabilities 978.1
Trade and other payables 3.1
Derivative financial liabilities 56.9
Provisions 149.1
Non-current tax payable 22.3
Deferred tax liabilities 487.5
Lease liabilities 26.1
Borrowings 3,873.9
Total non-current liabilities 4,618.9
Total liabilities 5,597.0
Net assets acquired 915.0
Goodwill 5,337.6
Consideration 6,252.6
Consideration satisfied by:
Issue of 65,316,588 Flutter Entertainment plc ordinary
shares 6,194.6
Issue of replacement share options and awards 58.0
Consideration 6,252.6
10. Business combinations (continued)
Acquisition of additional shares of TSG Australia Pty Ltd
On 13 May 2020, the Group exercised its option to acquire the
remaining 20% of the outstanding share capital of TSG Australia Pty
Ltd (TSG Australia), bringing the Group's holding in TSG Australia
to 100%, up from the previous 80%. The acquisition was satisfied by
the issuance of 819,230 new ordinary shares of the Company,
settling a liability of A$151.4m (GBP79.7m)
Cash (outflows) / inflows from business combinations:
Six months ended Six months
ended
30 June 2021 30 June 2020
GBPm GBPm
Cash consideration paid for acquisitions
in the period (46.4) -
Cash consideration paid for put option
exercised in the period (5.1) -
Cash acquired from acquisitions in the
period 17.8 445.2
Cash consideration - acquisitions in
previous periods (19.0) (4.6)
As presented in the statement of cash
flows:
Purchase of business (51.5) -
Cash acquired on business combinations 17.8 445.2
Payment of contingent deferred consideration (19.0) (4.6)
11. Investments and trade and other receivables
Non-current assets
30 June 2021 31 December
2020
GBPm GBPm
Investments - FVTPL 3.7 3.0
Investments relate to a small number of individually immaterial
equity investments in various companies.
30 June 2021 31 December
2020
GBPm GBPm
Other receivables
Other receivables 12.8 13.0
Prepayments 16.0 16.7
Deferred financing costs on Revolving Credit
Facility (see Note 15) 4.2 4.6
Amounts paid in respect of legacy German
and Greek tax assessments 26.3 40.9
59.3 75.2
Other receivables
Other receivables are comprised primarily of deposits for
licences and property.
Deferred financing costs on Revolving Credit Facility
In May 2020, the Group entered into a new Revolving credit
facility agreement as part of its financing agreements. The Group
incurred GBP5.3m of transaction costs and fees relating to the
revolving credit facility, which have been capitalised and included
within non-current receivables, net of accretion, on the
consolidated statement of financial position. As at 30 June 2021 no
loan amount was drawn under the Revolving Credit Facility (31
December 2020: nil).
11. Investments and trade and other receivables (continued)
Amounts paid in respect of legacy German and Greek tax
assessments
On 13 February 2019, the Group provided an update on two
separate disputed legacy tax assessments. The first relates to the
Betfair Exchange in Germany, which operated there until November
2012, and the second relates to the paddypower.com business in
Greece.
The Hessen Fiscal Court provided the Group with its decision
relating to the Group's appeal of a 2012 German tax assessment
relating to the Betfair Exchange, which operated in Germany until
November 2012. The Fiscal Court found against the Group and deemed
that a tax liability of approximately EUR40m (GBP36m), being
EUR30.6m principal and EUR9.4m of accrued interest, is payable.
This represents a multiple of the revenues generated by the
Exchange during the assessment period.
Separately, the Group was issued with a Greek tax assessment for
financial years 2012, 2013 and 2014, relating to paddypower.com's
Greek interim licence. This assessment concluded that the Group is
liable to pay approximately EUR15.0m in taxes including penalties
and interest. This is substantially higher (by multiples) than the
total cumulative revenues ever generated by paddypower.com in
Greece. There is potential that the periods after 2014 could also
be subject to further challenge by the Greek tax authorities.
Pending the outcome of these appeals, in 2019 the Group paid the
total Greek tax assessment (including the penalties and interest)
of EUR15.0m and the EUR30.6m German tax assessment principal, with
the late payment interest to be paid when assessed.
In June 2021, the Athens Administrative Court of Appeal
dismissed the Group's judicial recourses. While the Group intends
to further appeal to the Greek Supreme Administrative Court, by
putting forth reasonable legal arguments, due to the
particularities of the relevant rules of procedure, it was decided
to recognise the amount of the Greek assessment. This has resulted
in an expense of EUR15.0m (GBP12.9m) being recorded in the period.
No notifications have as yet been received for later years and so
no provision has been made for potential further assessments.
No further decisions have been received in relation to the
German proceedings. The Group continues to strongly dispute the
basis of the German assessment, and in line with the legal and tax
advice it received, is confident in its grounds to successfully
appeal. The appeals process is ongoing and a date of 7 September
2021 has been set for a hearing in respect of this appeal.
Accordingly, the Group does not consider these amounts to represent
a liability for the Group and no provision has been made for
amounts assessed. This involves a series of judgements about future
events and ultimately the court judgements and therefore the
directors may need to re-assess the accounting treatment as matters
develop further.
Current assets
30 June 2021 31 December
2020
GBPm GBPm
Trade and other receivables
Trade receivables 23.0 11.9
Other receivables 40.2 28.5
Value-added tax and goods and services
tax 1.2 2.2
Prepayments 125.4 96.9
Total 189.8 139.5
12. Assets held for sale
On 12 July 2021 the Company announced that it reached an
agreement to sell all the shares of Oddschecker Global Media (OGM),
a fully owned subsidiary of the Company, to Bruin Capital, in
exchange for GBP135m in cash (subject to customary adjustments for
net cash and working capital) and a further deferred contingent
consideration of up to GBP20m. The transaction is expected to close
in the third quarter of 2021.
Consequently, the assets and liabilities of OGM, have been
reclassified as Held for Sale on the Group's consolidated balance
sheet as at 30 June 2021. Prior to reclassification, the
non-current assets were measured at the lower of their carrying
amount and FV less costs sell. No impairments were recognised on
initial classification as Held for Sale. The Assets and Liabilities
of OGM are included within the UK&I segment.
The net assets of OGM as at 30 June 2021 were comprised as
follows:
30 June 2021
GBPm
Property Plant and equipment 0.9
Intangible assets 48.1
Goodwill 78.0
Trade and other receivables 2.2
Cash and cash equivalents 10.6
Total Assets 139.8
Accounts payable and other liabilities (3.3)
Lease liabilities (0.8)
Deferred taxes (11.6)
Total liabilities (15.7)
Held for Sale 124.1
13. Trade and other payables
Current liabilities
31 December
30 June 2021 2020
GBPm GBPm
Trade and other payables
Trade payables 96.0 79.7
PAYE and social security 16.5 14.8
Value-added tax and goods and services
tax 13.5 10.7
Betting duty, data rights, and product
and racefield fees 196.5 208.0
Employee benefits 120.5 136.4
Contingent deferred consideration - business
combinations 26.9 25.3
Accruals and other liabilities 569.5 558.1
Total 1,039.4 1,033.0
Non-current liabilities
30 June 2021 31 December
2020
GBPm GBPm
Trade and other payables
Employee benefits 0.4 1.1
Contingent deferred consideration - business
combinations - 12.8
Accruals and other payables 2.4 0.7
Total 2.8 14.6
13. Trade and other payables (continued)
Contingent deferred consideration - business combinations
The Group's deferred consideration liabilities amounted to
GBP26.9m at 30 June 2021 (31 December 2020 - GBP38.1m) and relate
to the following:
-- GBP17.1m contingent and deferred consideration relating to
Betfair's historical acquisition of HRTV, a horse racing television
network based in the United States;
-- GBP4.7m deferred consideration in respect of Diamond Game
Enterprises, assumed as part of the Combination with TSG;
-- GBP5.1m relating to the acquisition of Junglee (see also note 10).
Amounts held in Trust
As at 30 June 2021, GBP369.2m (31 December 2020: GBP379.3m) was
held in trust in The Sporting Exchange (Clients) Limited on behalf
of the Group's customers and is equal to the amounts deposited into
customer accounts. Neither cash and cash equivalents or restricted
cash include these balances on the basis that they are held on
trust for customers and do not belong to and are not at the
disposal of the Group.
14. Provisions
Provisions balances at 30 June 2021 and 31 December 2020 and
movements in the six month period ended 30 June 2021 are outlined
below:
Employee
benefits
(long
service Onerous Gaming Other
leave) contracts tax Kentucky legal Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 31 December
2020 3.0 16.0 10.5 73.3 56.0 0.5 159.3
Additional provisions
recognised 0.4 0.2 0.5 - 9.5 8.7 19.3
Amounts used during
the year - (2.5) (0.1) (71.1) (0.6) 0.1 (74.2)
Amounts reclassified
to Held for Sale (Note
12) - (0.1) - - - - (0.1)
Foreign currency translation (0.1) (0.4) (0.2) (2.2) (1.0) - (3.9)
Balance at 30 June 2021 3.3 13.2 10.7 - 63.9 9.3 100.4
Included in:
Balance at 31 December
2020:
Current 1.6 9.9 2.7 - - 0.1 14.3
Non-current 1.4 6.1 7.8 73.3 56.0 0.4 145.0
Total 3.0 16.0 10.5 73.3 56.0 0.5 159.3
Balance at 30 June 2021:
Current 2.0 5.9 2.6 - 9.0 8.4 27.9
Non-current 1.3 7.3 8.1 - 54.9 0.9 72.5
Total 3.3 13.2 10.7 - 63.9 9.3 100.4
Kentucky proceedings - contingent liability
In 2010, prior to the combination with The Stars Group ("TSG"),
the Commonwealth of Kentucky filed legal proceedings against
various operators including certain companies that later became
subsidiaries of TSG. The suit sought recovery of alleged losses
incurred by Kentucky residents playing real-money poker on the
PokerStars platform during a period between 2006 and 2011. The
gross gaming revenues that TSG generated in Kentucky on the
PokerStars platform during the relevant period were approximately
US$18m. In 2015, a Kentucky trial court judge entered judgement
against two TSG Isle of Man subsidiaries, Stars Interactive
Holdings (IOM) Ltd ("SIHL") and Rational Entertainment Enterprises
Ltd ("REEL") and awarded damages to the Commonwealth of Kentucky of
approximately US$870m plus post judgement interest.
14. Provisions (continued)
In February 2016, in order to stay enforcement of the judgement
while the matter was appealed, SIHL and REEL posted supersedeas
bonds to the value of US$100m, on which the stay was conditioned.
In 2018, the ruling against SIHL and REEL was vacated in its
entirety by the Kentucky Court of Appeals.
Following an appeal by the Commonwealth of Kentucky, on 17
December 2020, the Kentucky Supreme Court reinstated the full 2015
award of damages, including post judgement interest, against SIHL
and REEL.
As at 31 December 2020, the Group recognised a provision of
US$100m (GBP73.3m) as part of the TSG combination fair value
acquisition accounting in respect of this litigation, which
reflected the value of the supersedeas bond in place since February
2016. No liability was previously recognised by either TSG or
Flutter prior to this judgement.
A rehearing petition was filed before the Kentucky Supreme Court
on 6 January 2021 and was subsequently denied on 25 March 2021. In
May 2021, following an April 2021 order by the Kentucky trial
court, the $100m (GBP71.1m) bonds were paid to the Commonwealth of
Kentucky, in line with the provision outstanding at 31 December
2020. The Commonwealth of Kentucky has commenced other action to
seek to enforce the judgement.
The Group is currently in the process of preparing a Petition
for Writ of Certiorari to be filed with the US Supreme Court,
seeking review of the judgement based on US Constitutional grounds,
including that the judgement violates due process and the
prohibition on excessive fines.
Based on the restrictions on the Commonwealth of Kentucky's
ability to enforce the judgement and any further pay-outs being
less than probable at 30 June 2021, the Group did not recognise any
additional provision with respect to this litigation as at 30 June
2021. This assessment relies on estimates and assumptions and
involves a series of judgements about future events which will be
reassessed in future periods if events or circumstances change.
Other legal
Other legal provisions generally consist of payments for various
future legal settlements where based on all available information,
Management believes it is probable that there will be a future
outflow. Further disclosure in respect of these provisions has not
been provided as such information would be expected to be
prejudicial to the Group's position in such matters.
15. Borrowings
The following is a summary of borrowings, including accrued
interest, outstanding as at 30 June 2021 and 31 December 2020:
30 June 2021 31 December 2020
Principal Carrying Principal
outstanding amount (including outstanding Carrying
Contractual balance accrued balance amount (including
interest in currency interest)(1) in currency accrued
rate of borrowing of borrowing interest)
Local Currency Local Currency
% (m) GBPm (m) GBPm
GBP First Lien Term
Loan A 1.80 GBP950.0 941.6 GBP950.0 940.4
USD First Lien Term
Loan B 3.65 $1,438.4 1,018.0 $1,456.3 1,042.9
EUR First Lien Term
Loan B 3.50 EUR507.2 430.1 EUR507.2 449.1
Senior Notes(2) 7.00 $1,000.0 692.7 $1,000.0 706.5
Total borrowings 3,082.4 3,138.9
Presented in:
Current portion 49.8 50.8
Non-current portion 3,032.6 3,088.1
Total borrowings 3,082.4 3,138.9
(1) The carrying amounts at 30 June 2021 includes accrued
interest of GBP23.9m (31 December 2020: GBP24.6m) presented within
the current portion of borrowings above.
(2) The carrying amounts at 30 June 2021 include an asset of
GBP96.6m (31 December 2020: an asset of GBP98.0m) relating to the
embedded derivatives on the Senior Notes. See below in this note
for further detail.
15. Borrowings (continued)
During the six months ended 30 June 2021, the Group incurred the
following interest on its then outstanding borrowings:
Effective
Interest Interest
rate(1) Interest(2) accretion Total interest
% GBPm GBPm GBPm
GBP First Lien Term Loan
A 2.08 8.5 1.6 10.1
USD First Lien Term Loan
B 4.43 18.4 2.6 21.0
EUR First Lien Term Loan
B 4.19 8.4 0.6 9.0
Senior Notes 5.70 27.1 (3.8) 23.3
62.4 1.0 63.4
(1) The effective interest rate calculation excludes the impact
of the Swap Agreements (as defined below).
(2) In addition to the amount included above, the Group incurred
GBP1.1m of interest expense relating to commitment, utilisation,
and fronting fees associated with its Revolving Credit Facility and
made payments of GBP4.6m to the lenders as a result of covenant
amendments.
The Group's change in borrowings from 31 December 2020 to 30
June 2021 was as follows:
Opening Principal Interest Closing
Balance Payments Accretion(1) FX Translation Balance
GBPm GBPm GBPm GBPm GBPm
GBP First Lien Term
Loan A 939.5 - 1.6 - 941.1
USD First Lien Term
Loan B 1,042.9 (12.9) 2.6 (14.6) 1,018.0
EUR First Lien Term
Loan B 449.1 - 0.6 (19.6) 430.1
Senior Notes 682.8 - (3.8) (9.7) 669.3
Total 3,114.3 (12.9) 1.0 (43.9) 3,058.5
Accrued Interest 24.6 23.9
Total borrowings 3,138.9 3,082.4
(1) Interest accretion represents interest expense calculated at
the effective interest rate less interest expense calculated at the
contractual interest rate and is recorded in financial expenses in
the consolidated income statement.
Revolving credit facility, first lien term loans and senior
notes
Each of the Group's facilities are discussed below.
TLA Agreement - GBP First Lien Term Loan A
The Group, along with its subsidiaries PPB Financing Unlimited
Company and PPB Treasury Unlimited Company as borrowers, has
entered into a Term Loan A and Revolving Credit Facility Agreement
(the "TLA Agreement") comprising a term loan and revolving credit
facility totalling GBP1.4 billion. The TLA Agreement described
above provides a term loan facility in an aggregate amount of
GBP950m priced at GBP-LIBOR plus 1.75% (the "GBP First Lien Term
Loan A"), with a maturity date of 5 May 2025 and a GBP-LIBOR floor
of 0%. There is no amortisation on the GBP First Lien Term Loan A
and the principal is due at maturity. The Group incurred GBP11.9m
of transaction costs and fees on initial recognition in 2020 which
have been capitalised against the principal of the debt and are
recorded as financial expense over the term of the debt using the
effective interest rate method.
15. Borrowings (continued)
TLA Agreement - Revolving Credit Facility
The TLA Agreement described above provides a multi-currency
revolving loan facility in an aggregate amount of GBP450 million
(the "Revolving Credit Facility"). Maturing on 5 May 2025, the
Revolving Credit Facility includes a margin of 1.75% over GBP-LIBOR
for borrowings with a 0% interest rate floor as well as a
utilisation fee ranging from 0.1% to 0.4% based on the proportion
of drawings to the total commitment. The commitment fee on the
Revolving Credit Facility is 35% of the margin and is payable in
respect of available but undrawn borrowings. The Revolving Credit
Facility is available for general corporate purposes including the
refinancing of existing borrowings. The Group incurred GBP5.3m of
transaction costs and fees in 2020 which have been capitalised and
are recorded as financial expense over the life of the facility
using the straight-line method. These capitalised costs have been
included within non-current receivables on the consolidated
statement of financial position. As at 30 June 2021 no loan amounts
were drawn under the Revolving Credit Facility. The Group has an
undrawn capacity of GBP435m on the Revolving Credit Facility with
GBP15m used for Group guarantees as of 30 June 2021.
The terms of the TLA Agreement limit the Group's ability to,
among other things, (i) incur additional debt, (ii) grant
additional liens on their assets and equity, (iii) distribute
equity interests and/or distribute any assets to third parties,
(iv) make certain loans or investments (including acquisitions),
(v) consolidate, merge, sell or otherwise dispose of all or
substantially all assets, (vi) pay dividends on or make
distributions in respect of capital stock or make restricted
payments, and (vii) modify the terms of certain debt or
organisational documents, in each case subject to certain permitted
exceptions.
Borrowings under the TLA Agreement are subject to the
satisfaction of customary conditions, including the absence of a
default and compliance with certain representations and warranties.
The TLA Agreement requires, subject to a testing threshold, that
the Company comply on a bi-annual basis with a maximum net total
leverage ratio of 5.1 to 1.0. On 29 June 2021, Lenders under the
TLA consented to waive any Default or Event of Default that may
arise by virtue of the Kentucky judgement, including any
enforcement steps or actions taken by the Commonwealth of Kentucky.
During the six months ended 30 June 2021, the Group is in
compliance with all covenants related to its TLA Agreement.
First Lien Term Loan B's
The Group holds a USD term loan with an outstanding principal
balance of $1,438.4m priced at USD-LIBOR plus 3.50% (the "USD First
Lien Term Loan B") and a EUR first lien term loan with an
outstanding principal balance of EUR507.2m priced at EURIBOR plus
3.75% (the "EUR First Lien Term Loan B" and, together with the USD
First Lien Term Loan, the "First Lien Term Loan B"), each with a
maturity date of 10 July 2025 and a LIBOR and EURIBOR floor, as
applicable, of 0%. The USD First Lien Term Loan requires scheduled
quarterly principal payments in amounts equal to 0.25% of the
initial aggregate principal amount of the USD First Lien Term Loan
B of US$3,575m, with the balance due at maturity. There is no
amortisation on the EUR First Lien Term Loan B and the principal is
due at maturity. GBP6.7m of transaction costs and fees relating to
these loans were capitalised on initial recognition and are
recorded as financial expense over the term of the debt using the
effective interest rate method.
The First Lien Term Loan B are governed by the "Syndicated
Facility Agreement". The Syndicated Facility Agreement limits Stars
Group Holdings B.V., as borrower, and its subsidiaries' ability to,
among other things, (i) incur additional debt, (ii) grant
additional liens on their assets and equity, (iii) distribute
equity interests and/or distribute any assets to third parties,
(iv) make certain loans or investments (including acquisitions),
(v) consolidate, merge, sell or otherwise dispose of all or
substantially all assets, (vi) pay dividends on or make
distributions in respect of capital stock or make restricted
payments, (vii) enter into certain transactions with affiliates,
(viii) change lines of business, and (ix) modify the terms of
certain debt or organisational documents, in each case subject to
certain permitted exceptions. The agreement also provides for
customary mandatory prepayments, including a customary excess cash
flow sweep if certain conditions are met.
On 20 April 2021 the Lenders of the First Lien Term Loan B
consented to waive any Default or Event of Default that may arise
by virtue of the Kentucky judgement, including any enforcement
steps or actions taken by the Commonwealth of Kentucky. During the
six months ended 30 June 2021, the Group is in compliance with all
covenants related to its First Lien Term Loan B.
Subsequent to the reporting date, on 21 July 2021 the Group
completed a debt re-financing transaction that involved a repricing
and upsizing of the Group's existing First Lien Term Loan B
facility. See Note 21 for further details of the re-financing
transaction.
15. Borrowings (continued)
Senior Notes
The Group are also the issuer of 7.00% Senior Notes due 2026
(the "Senior Notes") which were issued by Stars Group Holdings B.V.
and Stars Group (US) Co-Borrower, LLC (the "Issuers"), on 10 July
2018 at par in an aggregate principal amount of US$1 billion. The
Senior Notes original maturity date was on 15 July 2026 prior to
the refinancing transaction occurring as outlined below. Interest
on the Senior Notes is payable semi-annually on 15 January and 15
July of each year. Prior to 15 July 2021, the Issuers may redeem
some or all of the Senior Notes at a redemption price equal to 100%
of the principal amount of the Senior Notes, plus accrued and
unpaid interest, if any, to (but not including) the applicable
redemption date, plus an applicable "make-whole" premium. On or
after 15 July 2021, the Issuers may redeem some or all of the
Senior Notes at declining redemption prices as set forth in the
Indenture that governs the Senior Notes. This redemption option
represents an embedded derivative that required bifurcation from
the carrying value of the Senior Notes upon their recognition on 5
May 2020. The fair value of the redemption option as at 30 June
2021 was GBP96.6m.
The Senior Notes are guaranteed by each of the Group's
subsidiaries that guarantee the GBP First Lien Term Loan A, the
Revolving Credit Facility and the First Lien Term Loan B. The
Senior Notes are the Issuers' senior unsecured obligations and rank
pari-passu to all of the Issuers' existing and future senior
unsecured indebtedness. The Senior Notes include, among other terms
and conditions, limitations on the Group's ability to (i) create,
incur or allow certain liens; (ii) create, assume, incur or
guarantee additional indebtedness of certain of the Group's
subsidiaries; and (iii) consolidate or merge with, or convey,
transfer or lease all or substantially all of the Group's and their
subsidiaries' assets, to another person.
On 16 April 2021, the holders of the Senior Notes consented to
waive certain events of default under the Indenture governing the
Senior Notes that may arise as a result of the Kentucky litigation
or the Kentucky litigation related events. During the six months
ended 30 June 2021, the Group is in compliance with all covenants
related to its Senior Notes.
Subsequent to the reporting date, on 21 July 2021 the Group
completed a debt re-financing transaction that involved the
repayment of $1bn of 7% Senior Notes. See Note 21 for further
details of the re-financing transaction.
16. Derivatives
Derivatives and Hedge Accounting
The Group uses derivative financial instruments for risk
management and mitigation purposes. As such, any change in cash
flows associated with derivative instruments is expected to be
offset by changes in cash flows related to the hedged position. The
Group's derivatives are discussed below.
Swap agreements
The Group holds hedging instruments consisting of (i) USD-EUR
amortising cross-currency interest rate swap agreements (the "EUR
Cross-Currency Interest Rate Swaps") with a remaining notional
amount of EUR1.96 billion, which fix the USD to EUR exchange rate
at 1.167 and fix the Euro interest payments at an average interest
rate of 3.6% and (ii) EUR-GBP amortising cross-currency interest
rate swap agreements (the "GBP Cross-Currency Interest Rate Swaps")
with a remaining notional amount of GBP983m, which fix the EUR to
GBP exchange rate at 0.889 and fix the GBP interest payments at an
average interest rate of 5.4%. The EUR Cross-Currency Interest Rate
Swaps and GBP Cross-Currency Interest Rate Swaps are in a hedging
relationship with and have a profile that amortises in line with
the USD First Lien Term Loan B and are set to mature in July
2023.
The Group also holds USD-EUR cross-currency interest rate swap
agreements (the "Cross-Currency Swaps - Notes" and, collectively
with the EUR Cross-Currency Interest Rate Swaps, the GBP
Cross-Currency Interest Rate Swaps, and the Interest Rate Swap, the
"Swap Agreements") with a total notional amount of EUR927.1m, which
fix the USD to EUR exchange rate at 1.079 and fix the Euro interest
payments at an average interest rate of 6.16%. The cross-currency
interest rate swaps are in a hedging relationship with and have an
interest payment profile aligned with the Senior Notes and are set
to mature on 15 July 2021 as part of the debt refinancing discussed
below and in Note 21.
Subsequent to the reporting date, on 21 July 2021 the Group
completed a debt re-financing transaction that involved execution
of new swap arrangements relating to the Term Loan B facility and a
restructuring of the original EUR Cross-Currency Interest Rate
Swaps and GBP Cross-Currency Interest Rate Swaps to match the terms
of the repriced and restructured debt as part of the Group's
hedging strategy. See Note 21 for further details of the
re-financing transaction.
16. Derivatives (continued)
Embedded derivatives
See Note 15 for a discussion of the features embedded in the
Senior Notes that the Group bifurcated as it determined that the
features represented a derivative to be classified and recorded at
fair value through profit or loss.
The fair value of the redemption option at 30 June 2021 was an
asset of GBP96.6m (31 December 2020 - GBP98.0m) . The fair value of
this embedded derivative was determined using an interest rate
option pricing valuation model. The key assumptions include the
implied credit spread of 2.4% at 30 June 2021 (31 December 2020 -
2.77%). This embedded derivative is categorised as Level 3 within
the fair value hierarchy.
The Group did not account for the embedded derivative as a
qualifying hedge under IAS 39.
Sports betting open positions
Amounts received from customers on sportsbook events that have
not occurred by the balance sheet date are derivative financial
instruments and have been designated by the Group on initial
recognition as financial liabilities at fair value through profit
or loss.
The fair value of open sports bets at the half year has been
calculated using the latest available prices on relevant sporting
events. The carrying amount of the liabilities is not significantly
different from the amount that the Group is expected to pay out at
maturity of the financial instruments. Sports bets are non-interest
bearing. There is no interest rate or credit risk associated with
open sports bets.
It is primarily based on expectations as to the results of
sporting and other events on which bets are placed. Changes in
those expectations and ultimately the actual results when the
events occur will result in changes in fair value. There are no
reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology, although
final value will be determined by future sporting results.
The following table summarises the fair value of derivatives as
at 30 June 2021 and 31 December 2020:
30 June 2021 31 December 2020
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
Derivatives held for hedging
Derivatives designated as cash
flow hedges:
Cross currency interest rate
swaps - current - 92.1 - 86.6
Cross currency interest rate
swaps - non-current - 98.7 - 101.8
Total derivatives designated
as cash flow hedges - 190.8 - 188.4
Derivatives designated as net
investment hedges:
Cross currency interest rate
swaps - current 20.0 - - 14.8
Cross currency interest rate
swaps - non-current 27.5 - 16.9 -
Total derivatives designated
as net investment hedges 47.5 - 16.9 14.8
Total derivatives held for hedging 47.5 190.8 16.9 203.2
Derivatives held for risk management
and other purposes not designated
as hedges
Sports betting open positions-
current - 56.1 - 49.5
Sports betting open positions
- non-current - 0.5 - 0.5
Total derivatives held for risk
management and other purposes
not designated as hedges - 56.6 - 50.0
Derivatives included within Borrowings
Embedded derivatives 96.6 - 98.0 -
17. Share capital and reserves
Share capital
Transactions during the six months period ended 30 June
2021:
-- A total of 262,910 ordinary shares were issued as a result of
the exercise of employee share options, giving rise to share
capital and share premium of GBP8.0m;
During the six month period ended 30 June 2020, the Company
issued a total of 76,295,368 ordinary shares as follows:
-- In May 2020, 1,312,260 new ordinary shares were issued as
consideration for the 2019 final dividend
-- On 5 May 2020, the Company issued a total of 65,316,588
ordinary shares in exchange for 289,909,400 shares of TSG in
respect of the all share Combination with TSG resulting in Flutter
Entertainment plc shareholders owning 54.64% and the TSG
shareholders owning 45.36% of Flutter, on a fully diluted basis
(excluding any out of the money options). Under the terms of the
Combination, holders of TSG shares received 0.2253 ordinary shares
with nominal value of EUR0.09 each in the Company ("ordinary
shares") in exchange for each outstanding TSG share (the "Exchange
Ratio"). Post Combination, the Company is the ultimate parent of
The Stars Group Inc. This gave rise to a Merger Reserve under
Section 72 of the Companies Act 2014 of GBP6,189.5m (see also Note
10);
-- On 13 May 2020, 819,230 new Flutter ordinary shares were
issued as consideration for the acquisition of the remaining 20%
interest of TSG Australia Pty Ltd by Flutter. The value of shares
issued amounted to AUD$151.4m (GBP79.7m) (see also Note 10);
-- On 29 May 2020, the Company issued 8,045,995 new ordinary
shares at a price of 10,100 pence per share in respect of an equity
placement announced on 28 May 2020, raising gross proceeds of
GBP812.6m giving rise to share capital of GBP0.7m and a share
premium of GBP811.9m. The proceeds raised net of issuance costs
amounted to GBP806.3m with the issuance costs of GBP6.3m recognised
in retained earnings. The Placing Shares represent approximately
5.5% of the Company's issued share capital immediately prior to the
Placing (excluding treasury shares). The Placing Price represents a
discount of approximately 4.7% to the closing price on 28 May
2020;
-- A total of 801,295 ordinary shares were issued as a result of
the exercise of employee share options, giving rise to share
capital and share premium of GBP8.9m.
Equity Reserves
Equity reserves at 30 June 2021 include the following classes of
reserves:
Merger reserve
The Merger Reserve under Section 72 of the Companies Act 2014 of
GBP7,982.9m represents the premium over the par value of shares
issued as consideration for the Combination with TSG and as partial
consideration for the acquisition of a further 37.2% of FanDuel
Group.
Treasury shares
A total of 1,965,600 ordinary shares were held in treasury as of
30 June 2021 (31 December 2020: 1,965,600). All rights (including
voting rights and the right to receive dividends) in the shares
held in treasury are suspended until such time as the shares are
reissued. The Group's distributable reserves are restricted by the
value of the treasury shares, which amounted to GBP40.7m as of 30
June 2021 (31 December 2020: GBP40.7m). The cost of treasury shares
held by the Company at 30 June 2021 GBP4.2m was (31 December 2020:
GBP4.2m), with a further GBP36.5m of shares being held by the
Company's subsidiaries (31 December 2020: GBP36.5m).
Shares held by Employee benefit trust
At 30 June 2021, the Paddy Power Betfair plc Employee Benefit
Trust ("EBT") held 706,320 (31 December 2020: 67,320) of the
Company's own shares, which were acquired at a total cumulative
cost of GBP94.8m (31 December 2020: GBP5.8m), in respect of
potential future awards relating to the Group's employee share
plans. The purchase of shares of GBP89.0m during the six month
period ended 30 June 2021 relates to the expected part settlement
of share awards to FanDuel employees in the second half of 2021.
The Company's distributable reserves at 30 June 2021 are restricted
by this cost amount. During the six month period ended 30 June
2021, no shares were transferred from the EBT to the beneficiaries
of the EBT.
17. Share capital and reserves (continued)
Cash flow hedge reserve
The cash flow hedge reserve represents the effective portion of
the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that had not yet
occurred at that date.
Foreign exchange translation reserve
The foreign exchange translation reserve at 30 June 2021
amounted to a debit balance of GBP112.4m (31 December 2020: credit
balance of GBP49.6m) and arose from the retranslation of the
Group's net investment in primarily EUR, AUD and USD functional
currency companies. The movement in the foreign exchange
translation reserve for the six month period ended 30 June 2021,
reflects mainly the weakening of EUR and AUD against GBP in the
period.
Other reserves
Other reserves comprise undenominated capital. Undenominated
capital at 30 June 2021 of GBP2.3m (31 December 2020 of GBP2.3m)
relates to the nominal value of shares in the Company acquired by
the Company of GBP2.1m (31 December 2020: GBP2.1m) and subsequently
cancelled, and an amount of GBP0.2m (31 December 2020: GBP0.2m)
which arose on the redenomination of the ordinary share capital of
the Company at the time of conversion from Irish pounds to
Euro.
Share-based payment reserve
During the six months ended 30 June 2021, an amount of GBP36.6m
was expensed in the Consolidated Income Statement with respect to
Share based payments (six month period ended 30 June 2020:
GBP27.6m), an amount of GBP16.4m (six month period ended 30 June
2020: GBP69.4m) in respect of share options exercised during the
year was transferred from the share-based payment reserve to
retained earnings.
An amount of GBP0.5m of deferred tax relating primarily to the
Group's share-based payments was credited to retained earnings in
the six months ended 30 June 2021 (six month period ended 30 June
2020: charge of GBP1.2m). An amount of GBP0.6m of current tax
relating to the Group's share-based payments was credited to
retained earnings in six months ended 30 June 2021 (six month
period ended 30 June 2020: credit of GBP4.9m).
Non-controlling interest
During the six month period ended 30 June 2021, the Group paid
dividends totalling GBP5.1m to the non-controlling interest in
Adjarabet (six months ended 30 June 2020: GBP7.0m).
18. Fair values
Financial instruments carried at fair value
Fair value hierarchy
The table below analyses recurring fair value measurements for
financial assets and financial liabilities. These fair value
measurements are categorised into different levels in the fair
value hierarchy based on the inputs to the valuation method used.
The different levels are defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access at the
measurement date;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly; and
-- Level 3: unobservable inputs for the asset or liability.
30 June 2021
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Bonds - FVOCI 62.5 16.3 - 78.8
Investments - FVTPL - - 3.7 3.7
Derivatives - 47.5 96.6 144.1
Total financial assets 62.5 63.8 100.3 226.6
Derivative financial liabilities - (190.8) (56.6) (247.4)
Non-derivative financial liabilities - - (26.9) (26.9)
Total financial liabilities - (190.8) (83.5) (274.3)
18. Fair values (continued)
31 December 2020
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Bonds - FVOCI 26.3 56.5 - 82.8
Investments - FVTPL - - 3.0 3.0
Derivatives - 16.9 98.0 114.9
Total financial assets 26.3 73.4 101.0 200.7
Derivative financial liabilities - (203.2) (50.0) (253.2)
Non-derivative financial liabilities - - (38.1) (38.1)
Total financial liabilities - (203.2) (88.1) (291.3)
As part of its periodic review of fair values, the Group
recognises transfers, if any, between levels of the fair value
hierarchy at the end of the reporting period during which the
transfer occurred. There were no transfers between levels of the
fair value hierarchy during the periods ended 30 June 2021 or 31
December 2020.
Valuation of Level 2 financial instruments
Bonds - FVOCI
The Group has determined that the carrying value of the bonds
approximate their fair value which is determined by using
observable quoted prices or observable input parameters derived
from comparable bonds/markets. Although the Group has determined
that a number of the bonds fall within Level 1 of the fair value
hierarchy, there are a class of bonds which have been classified as
Level 2 due to the existence of relatively inactive trading markets
for those bonds.
Derivative Financial Instruments
Swap Agreements
The Group uses derivative financial instruments to manage its
interest rate and foreign currency risk. The valuation of these
instruments is determined using widely accepted valuation
techniques including discounted cash flow analysis of the expected
cash flows of each derivative. This analysis reflects the
contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, such as yield
curves, spot and forward FX rates.
To comply with the provisions of IFRS 13, Fair value
measurement, the Group incorporates credit valuation adjustments to
appropriately reflect both its own non-performance risk and the
applicable counterparty's non-performance risk in the fair value
measurements. In adjusting the fair value of its derivative
contracts for the effect of non-performance risk, the Group has
considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts
and guarantees.
Although the Group has determined that the majority of the
inputs used to value its derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated
with its derivatives utilise Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by
itself and its counterparties. At both 30 June 2021 and 31 December
2020, the Group assessed the significance of the impact of the
credit valuation adjustments on the overall valuation of its
derivative positions, with the exception of the Embedded Derivative
in connection with the Senior Notes, which is classified as Level
3, and determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a
result, the Group determined that its valuations of its derivatives
in their entirety are classified in Level 2 of the fair value
hierarchy.
Level 3 fair values
Derivatives (Level 3)
Some of the Group's financial assets and liabilities are
classified as Level 3 of the fair value hierarchy because the
respective fair value determinations use inputs that are not based
on observable market data. As at 31 December 2020, the valuation
techniques and key inputs used by the Group for each Level 3 asset
or liability were as follows:
18. Fair values (continued)
Embedded derivative redemption option in connection with the
Senior Notes issuance
The Group used an interest rate option pricing valuation model
to determine the fair value of the redemption option using an
implied credit spread of 2.4% at 30 June 2021 (31 December 2020 -
2.77%). A 10-basis point increase or decrease in the implied credit
spread would have a (GBP3.6m) or GBP3.6m impact on fair value (31
December 2020 - (GBP3.5m) or GBP3.9m), respectively. Changes in the
fair value of the embedded derivative redemption option are
recorded in financial income or expense in the consolidated income
statement.
Sports betting open positions (Level 3)
Derivative financial liabilities comprise sports betting open
positions. The fair value of open sports bets at the period end has
been calculated using the latest available prices on relevant
sporting events. Changes in the fair value of the unsettled bets
are recorded in revenue in the consolidated income statement.
It is primarily based on expectations as to the results of
sporting and other events on which bets are placed. Changes in
those expectations and ultimately the actual results when the
events occur will result in changes in fair value. There are no
reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology although
final value will be determined by future sporting results.
Non-derivative financial instruments (Level 3)
Investments
The Group valued its equity investments in private companies
with reference to earnings measures from similar businesses in the
same or similar industry and adjusts for any significant changes in
the earnings multiple and the valuation. A reasonable change in
assumptions would not have a material impact on fair value. Changes
in the fair value of equity in private companies are recorded in
financial income or financial expense in the consolidated income
statement.
Contingent deferred consideration (Level 3)
Non-derivative financial liabilities include contingent
consideration. The contingent consideration payable is primarily
determined with reference to forecast performance for the acquired
businesses during the relevant time periods and the amounts to be
paid in such scenarios. The fair value was estimated by assigning
probabilities to the potential payout scenarios. The significant
unobservable inputs are forecast performance for the acquired
businesses.
The fair value of contingent consideration is primarily
dependent on forecast performance for the acquired businesses in
excess of a predetermined base target. An increase and decrease of
10% in the excess over the predetermined base target during the
relevant time periods would increase and decrease the value of
contingent consideration at 30 June 2021 by GBP1.4m and GBP1.4m
respectively (31 December 2020: GBP3.2m and GBP3.2m)
FOX Corporation
As announced on 2 October 2019, in order to achieve economic
alignment of Flutter's and TSG's strategic third-party
relationships across their respective US businesses, the Group
entered into an arrangement with FOX, pursuant to which FSG
Services, a wholly-owned subsidiary of FOX had an option to acquire
an 18.6% equity interest in FanDuel Group at its market value in
July 2021. As a consequence of the option derivative being only
exercisable at fair value, it was determined that the fair value
was not material and was close to nominal value.
Non-controlling interest agreements
Adjarabet
As part of the acquisition of Adjarabet in 2019, a mechanism was
agreed, consisting of call and put options, which enables the Group
to acquire the remaining 49% after three years at a valuation
equivalent to 7 times the 2021 EBITDA. The call/put option
consideration can be settled, at the Group's election, in cash or
shares. As a consequence of both the put and call options being
only exercisable at fair value being the future EBITDA and earnings
multiple which are considered to be two key inputs into valuing the
option, it was determined that the fair value was not material and
was close to nominal value
Boyd
A mechanism has been agreed with Boyd, a non-controlling
interest in FanDuel Group, consisting of call and put options,
which enables the Group to acquire the remaining 5% at prevailing
market valuations in 2028. The call/put option consideration can be
settled, at the Group's election, in cash or shares. As a
consequence of both the put and call options being only exercisable
at fair value based on the market value of FanDuel at the date of
exercise of the options, it was determined that the fair value was
not material and was close to nominal value.
18. Fair values (continued)
Junglee
As part of the acquisition of Junglee, the Group has put in
place arrangements, consisting of call and put options that could
see its ownership in the business increase to 100% in 2025. The
call/put option consideration can be settled, at the Group's
election, in cash or shares. As a consequence of both the put and
call options being only exercisable at fair value being the future
EBITDA and revenue multiple which are considered to be two key
inputs into valuing the option, it was determined that the fair
value was not material and was close to nominal value.
19. Contingent liabilities and Kentucky proceedings
Contingent liabilitie s
The Group operates in an uncertain marketplace where many
governments are either introducing or contemplating new regulatory
or fiscal arrangements.
The Board monitors legal and regulatory developments and their
potential impact on the business, however given the lack of a
harmonised regulatory environment, the value and timing of any
obligations in this regard are subject to a high degree of
uncertainty and cannot always be reliably predicted. See Note 11
for details of legacy German and Greek tax assessments.
Prior to the Combination, the Board of TSG became aware of the
possibility of improper foreign payments by TSG or its subsidiaries
in certain jurisdictions outside of Canada and the United States
relating to its historical B2B business (which was never profitable
and effectively ceased operations in 2014). When this matter arose,
TSG contacted the relevant authorities in the United States and
Canada with respect to these matters and, following the
Combination, Flutter continues to cooperate with the United States
and Canada governmental authorities in respect of all inquiries
relating to such payments. Based on its review of these matters to
date, the Board of Flutter has not identified issues that it
believes would have a significant adverse effect on the Group's
financial position or business operations.
Kentucky proceedings
As disclosed in Note 14, as part of the TSG combination fair
value acquisition accounting and as at 31 December 2020, the Group
recognised a provision of US$100m (GBP73.3m), in respect of the
Kentucky proceedings, which reflected the value of the supersedeas
bond in place since February 2016. No liability was previously
recognised by either TSG or Flutter prior to this judgement.
A rehearing petition was filed before the Kentucky Supreme Court
on 6 January 2021 and was subsequently denied on 25 March 2021. In
May 2021, following an April 2021 order by the Kentucky trial
court, the $100m (GBP71.1m) bonds were paid to the Commonwealth of
Kentucky, in line with the provision outstanding at 31 December
2020. The Commonwealth of Kentucky has commenced other action to
seek to enforce the judgement.
The Group is currently in the process of preparing a Petition
for Writ of Certiorari to be filed with the US Supreme Court,
seeking review of the judgement based on US Constitutional grounds,
including that the judgement violates due process and the
prohibition on excessive fines.
Based on the restrictions on the Commonwealth of Kentucky's
ability to enforce the judgement and any further pay-outs being
less than probable at 30 June 2021, the Group did not recognise any
additional provision with respect to this litigation as at 30 June
2021. This assessment relies on estimates and assumptions and
involves a series of judgements about future events which will be
reassessed in future periods if events or circumstances change.
20. Related parties
There were no material transactions with related parties during
the six month period ended 30 June 2021, the six month period ended
30 June 2020 or the year ended 31 December 2020.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
21. Events after the reporting date
Sale of Oddschecker Global Media:
On 12 July 2021 the Company announced that it reached an
agreement to sell all the shares of Oddschecker Global Media (OGM),
a fully owned subsidiary of the Company, to Bruin Capital, in
exchange for GBP135m in cash (subject to customary adjustments for
net cash and working capital) and a further deferred contingent
consideration of up to GBP20m. The transaction is expected to close
in the third quarter of 2021. For further details refer to Note
12.
Refinancing of external debt and related derivatives:
In July 2021 the Group completed a debt re-financing transaction
that will reduce its effective cost of debt and provide it with
additional liquidity, enhancing the financial flexibility of the
Group.
The key components of the transaction that occurred were as
follows:
-- A repricing and upsizing of the Group's existing First Lien
Term Loan B facility by $1.5bn (GBP1.1bn).
-- The USD First Lien Term Loan B component of the facility is
repriced at LIBOR plus 2.25% and a 0% floor
-- The EUR First Lien Term Loan B component of the facility is
repriced at EURIBOR plus 2.50% and a 0% floor
-- The repayment of $1bn of 7% Senior Notes on 21 July.
-- Execution of new swap arrangements relating to the Term Loan
B facility and a restructuring of the original EUR Cross-Currency
Interest Rate Swaps and GBP Cross-Currency Interest Rate Swaps to
match the terms of the repriced and restructured debt.
-- A net increase in available liquidity of circa GBP250m for general corporate purposes.
The resultant pricing equates to 1.25% below existing margins
across both USD First Lien Term Loan B and EUR First Lien Term Loan
B. As a result of the transaction, we estimate that the Group's
weighted average cash cost of debt will fall from 4.2% (at 31
December 2020) to approximately 2.5%.
Acquisition of Singular
In July 2021, the Group entered into an agreement to acquire
Singular, an Eastern European sports betting and gaming platform,
already fully integrated with the existing Adjarabet business. The
acquisition will provide the Group with greater optionality as we
enter new markets. The transaction is expected to close in the
third quarter of 2021.
INDEPENT REVIEW REPORT TO FLUTTER ENTERTAINMENT PLC
Introduction
We have been engaged by Flutter Entertainment plc ('the
Company') to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June
2021 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 the related explanatory notes. Our review was
conducted having regard to the Financial Reporting Council's
International Standard on Review Engagements (UK and Ireland) 2410,
'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity'.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 30 June 2021 is
not prepared, 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 Transparency Rules of the
Central Bank of Ireland.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Transparency Directive and the Transparency Rules of the
Central Bank of Ireland.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for ensuring that the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review having regard to the Financial Reporting
Council's International Standard on Review Engagements (UK and
Ireland) 2410 Review of Interim Financial Information Performed by
the Independent Auditor of the Entity. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (Ireland) and consequently
does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
We read the other information contained in the half-yearly
financial report to identify material inconsistencies with the
information in the condensed set of financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent, the knowledge acquired by us
in the course of performing the review. If we become aware of any
apparent material misstatements or inconsistencies, we consider the
implications for our report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Transparency Directive and the Transparency
Rules of the Central Bank of Ireland. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
9 August 2021
KPMG
Chartered Accountants
1 Stokes Place
St. Stephen's Green
Dublin 2
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