TIDMFLTR
RNS Number : 2712E
Flutter Entertainment PLC
27 February 2020
27 February 2020
Flutter Entertainment plc - 2019 Preliminary Results
Flutter online growth of 18%; FanDuel biggest US online
sportsbook and casino
Flutter Entertainment plc (the "Group") announces preliminary
results for the year ended 31 December 2019
2019 2018 YoY % Adjusted
GBPm GBPm for taxes
and regulatory
changes
(4) YoY%
------ ------ ------
Revenue 2,140 1,873 +14% +16%
Underlying Group EBITDA excluding
US (pre IFRS 16) (1,2) 426 465 -9% +19%
Underlying EBITDA (pre
IFRS 16) (1,2) 385 451 -15% +12%
Reported profit before
tax 136 219 -38%
Reported earnings per
share 183.2p 241.7p -24%
Underlying(1) earnings
per share 303.3p 379.3p -20%
Proposed full-year dividend
per share 200p 200p Flat
Net debt at year end 265 162
---------------------------------- ------ ------ ------ ---------------
Differences due to rounding
Financial and operational highlights (in constant currency(3)
):
-- Group: Underlying(1) EBITDA(2) of GBP426m (excluding US) and
GBP40m loss in the US, in line with guidance
- PPB Online: 6% revenue growth impacted by our enhanced
responsible gambling initiatives
- Australia: 14% revenue growth offsetting much of the material
tax increases
- US: #1 online sportsbook and #1 online casino; 44% online
share in states where FanDuel was live during 2019
- Group: Online revenue growth of 18% (2018: 11%), materially
offsetting year-on-year impact of GBP107m in incremental taxes and
regulatory changes
-- Proposed full year dividend maintained at 200p
-- Strong balance sheet with a leverage ratio of 0.7 times (31 December 2018: 0.4)
-- Enhancement of our in-house responsible gambling capabilities and interventions
Outlook and strategic update:
-- 2020 has begun strongly, with good customer and revenue momentum across all divisions
-- New UK credit card restrictions from April and further
responsible gambling/compliance improvements
-- Integration planning progressing well for our proposed combination with The Stars Group
- Working closely with relevant competition authorities globally
to obtain the necessary clearances
- Continue to expect transaction to close in Q2 or Q3 2020
Peter Jackson, Chief Executive, commented:
"2019 was a very significant year for Flutter, with further
successful expansion in the United States, enhancement of
responsible gambling initiatives within our business and the
announcement in October of our proposed merger with The Stars
Group. I am immensely proud of the Group's performance given the
complex regulatory environment. The entrepreneurial culture of our
business and the quality of our people are continuing to drive our
global expansion while providing our teams with the opportunities
they seek to develop their careers and gain new experiences.
Responsible gambling is a critical component of our strategy.
This is why we continue to raise our standards as a socially
progressive operator and to help to lead the industry in a race to
the top when it comes to responsible gambling practices. While
these changes are reducing our growth in the short- run , we know
that they are the right thing to do for our customers and for the
sustainability of our business and the industry in the
long-run.
In the US, FanDuel finished 2019 as the largest online
sportsbook and casino, less than 18 months after the launch of our
sports betting operations. Our online market share during 2019 of
44% in the states where we have gone live is testament to the
quality of our products, brand and team. We remain as confident as
ever in the size of the prize in the US and in our strategic
approach which positions us well for the future.
The new financial year is off to a strong start with good
momentum across all our brands. We are very excited about the
Group's prospects and in particular our proposed combination with
The Stars Group , which will help us to build a more diversified
global business ."
Notes:
(1) The "underlying" measures exclude separately disclosed
items, that are not part of the usual business activity of the
Group and have therefore been reported as "separately disclosed
items" (see note 4 and page 37 to the financial statements).
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure. EBITDA throughout
this Operating and Financial Review excludes the impact of IFRS 16.
See Appendix 5 for a reconciliation to IFRS 16 compliant
numbers.
(3) Constant currency ("cc") growth throughout the Operating
& Financial Review is calculated by retranslating non-sterling
denominated component of 2018 at 2019 exchange rates (see Appendix
4).
(4) The impact of tax and regulatory change is calculated by
adjusting the prior year comparative to reflect the same regulatory
and tax rules that exist in the current period. This includes the
impact of changes to Australian point of consumption taxes and
product fees, UK machine staking limits, UK online remote gaming
duty and Irish betting duty.
Analyst briefing:
The Group will host a presentation for institutional investors
and analysts this morning at 9:00am (GMT). The presentation will be
webcast live on the Group's corporate website (www.flutter.com) and
a conference call facility will also be available. To dial into the
conference call, participants should dial 0800 783 0906 or 01296
480 100 from the UK, (01) 2421074 from Ireland and +44 1296 480 100
from elsewhere.
The passcode is 238 428 79.
A replay facility will be available later today on our corporate
website: https://www.flutter.com/investors
Contacts:
Investor Relations:
David Jennings, Corporate Finance & Investor
Relations + 353 87 951 3560
Ciara O'Mullane, Investor Relations + 353 87 947 7862
Liam Kealy, Investor Relations + 353 87 665 2014
Press:
Fi Thorne, Corporate Affairs + 44 20 8834 6018
Billy Murphy, Drury / Porter Novelli + 353 1 260 5000
James Murgatroyd, Finsbury + 44 20 7251 3801
Business Review
Flutter grew revenues by 14% during 2019 to over GBP2 billion as
we took a leadership position in the US online sports betting and
gaming market, executed strongly in Australia and expanded our
European presence through the acquisition of Georgian market
leader, Adjarabet. Group underlying EBITDA(1,2) for the year was
GBP385m, down 15% on the prior year, reflecting incremental
tax/regulatory changes of GBP107m and our investment in the nascent
US market. Excluding the impact of the tax and regulatory changes,
underlying EBITDA(1,2) increased 12%.
The Group's four pillar strategy that we laid out last year
remains in place and good progress has been made against each
pillar during 2019. In our core markets we remain strongly
positioned. Internationally we have made progress in improving the
Betfair proposition and have added to our podium positions with the
acquisition of Adjarabet. In the US, our business goes from
strength to strength.
The external regulatory and tax backdrop
While executing on our strategy remains a key focus, it is
important that we reflect on the future direction of our business
and the sector more broadly. Our Group operates in a fast-paced,
highly competitive industry, that is governed by a multitude of
national regulatory and tax frameworks which are continuously
evolving. Regulatory change presents the Group with great
opportunities but also poses real potential challenges and risks.
To be well positioned to deal with such change, we believe that
global scale and diversification are key.
In 2019 we saw examples of both. The expansion of the regulated
sports betting market in the US continues apace, an opportunity
that we believe is transformational for the Group. In our core
markets of the UK, Ireland and Australia we also incurred
significant tax increases while our international operations
experienced several unexpected market closures in the first half of
the year. In addition, the introduction of a GBP2 staking limit on
UK gaming machines changed the unit economics for UK shop
operators, equating to an annualised profitability impact of GBP30m
for our retail estate.
As we look to the future, we believe that we have reached a
pivotal time when it comes to responsible gambling. To better
protect potentially vulnerable customers and to put our business on
a more sustainable footing, it is clear that we must do more in
this area both as an operator and as an industry.
As an operator...
During 2019 we improved two key aspects of our responsible
gambling program:
-- How we identify customers who need to be protected: we
improved our in-house technology by significantly increasing the
number of behaviours that we monitor to determine whether customers
are using our products responsibly.
-- How we interact with our customers: we more than trebled the
size of our responsible gambling team over the last 18 months,
investing in specialist training to ensure that our people are
interacting with our customers at an early stage. This positively
influences behaviours and aims to ensure that customers do not
spend more than they can afford on our products.
The results of these initiatives have been encouraging to date
with an 84% increase in customers choosing to set deposit limits
while delivering a 56% increase in real time contact with
customers.
Notwithstanding the progress made, we have more to do and we
must continuously seek to raise our standards when it comes to
responsible gambling and compliance procedures. For example, as
part of our ongoing review of business relationships, we have taken
the decision to stop taking business from a number of Exchange B2B
partners where we felt their compliance policies were no longer
sufficiently aligned with those of the Group. This decision is
likely to lead to a reduction in our Exchange revenues during
2020.
As an industry...
Collaboration between industry leaders is essential to put the
sector on a more sustainable footing. We must promote a mindset
that encourages a race to the top when it comes to responsible
gambling best practice.
During 2019, we worked with several leading operators in the UK
to introduce safer gambling commitments . To ensure that these
commitments are delivered with the transparency and authenticity
intended, the newly established Betting and Gaming Council will
regularly report publicly on the progress we are making against
them. Arising from these commitments, the industry is now working
alongside the Gambling Commission on three specific areas of focus.
These are:
-- VIP code: development of a code to ensure loyalty schemes do
not incentivise behaviour which puts customers at risk
-- Advertising technology: review of online advertising to
enhance protection of vulnerable people
-- Responsible game design: setting a framework to ensure
products and game design does not drive high risk behaviours
Future regulation
On January 14(th) , the UK Gambling Commission announced that it
would introduce a ban on gambling by credit card from 14(th) April
this year. In our submission to the UK Gambling Commission on
credit cards, we had acknowledged that there was a need for some
change in this area and we will be in a position to implement the
required changes on schedule. In addition, the UK Government has
announced that it will review the 2005 Gambling Act in the months
ahead and we are hopeful that the emphasis of future UK regulation
will be on player protection with a clear focus on affordability.
In Ireland, we remain supportive of the Government's work on the
Gambling Control Bill which seeks, among other things, to establish
a dedicated regulator for the gambling sector in Ireland.
PPB Online and Retail
Paddy Power enjoyed good momentum across all products during
2019. Leveraging our iconic brand we rolled out several attention
grabbing campaigns such as the Rhodri Giggs "Loyalty is dead" and
our "Don't think you're special" campaigns. Both drove good
customer acquisition and engagement with customer growth of 12%
during the year, excluding the World Cup. In addition, we improved
the Paddy Power product offering with 'ACCA insurance', leading the
market with this offering. This has contributed to Paddy Power
ranking best-in-class in the market when it comes to promotions. We
have also been pleased with how our PPB Retail business has
responded to the GBP2 staking limit on Fixed Odd Betting Terminals,
with signs that we are winning market share as competitors reduce
the size of their retail estates.
During 2019, Betfair was the business most impacted by
regulatory change and the initiatives we introduced to re-shape our
business. Positively we continue to invest in the brand and deliver
product enhancements. We launched our new Clive Owen Betfair brand
campaign which uses simple analogies to explain the concept of the
Betfair Exchange to new customers. The campaign has a greater focus
on digital channels to achieve greater marketing efficiency. Our
international business benefitted from a multitude of product
improvements including rolling out country specific pricing (CSP)
in Q1 and the addition of four new payment options and five new
currencies during the year. We have been pleased with the
underlying momentum within our international business, with
underlying Exchange customer growth of 23% during 2019 and an
uplift in contribution from both CSP and marketing efficiencies
achieved.
In line with our international strategy to secure podium
positions in new markets, we acquired a 51% stake in Adjarabet in
February, giving us a leadership position in another regulated
market. Integration has gone well with the business now able to
access the Group's sports betting expertise. Very strong organic
growth since acquisition has reinforced our view that local scale
and focus is vital to winning in international markets.
Australia
The Sportsbet team delivered a strong performance during 2019.
While substantial increases in taxes and product fees reduced gross
profit margins, most of this was recovered through strong top line
growth as a result of continued investment in product, value and
marketing. The business maintained operating cost discipline,
extending its strong track record of delivering operating
leverage.
We continued to pursue our 2018 strategy of prioritising
customer generosity with positive results. Sportsbet has been
recognised as having some of the best and most generous promotions
in the market. This drove customer growth of 9% during the year
(excluding the World Cup), while the number of online bettors using
Sportsbet as their main mobile account of choice remains almost
twice that of our nearest competitor.
The US
The growth opportunity in the US has continued to unfold quickly
during 2019. We have been encouraged by the pace of regulation to
date, with 14 individual states having now passed sports betting
legislation. These 14 states account for c.24% of the US population
and with more states expected to follow, we are now increasingly
confident that the total US addressable market for our products
could exceed $10bn.
To take advantage of this opportunity, we continue to believe
that certainty of market access in each state is key, ideally via
"first skin" access agreements. First skin refers to having the
right to use the first online/mobile licence that a land-based
partner is granted in a particular state. Some states have only
granted one skin per operator, for example Michigan, which is why
securing first skin access is a priority. We recently secured
additional first skin market access deals with The Cordish Company
in Maryland and Twin River in Colorado. We now have first skin
market access deals in 15 US states. Looking ahead, we believe that
the strength of our market share performance to date will make us
an attractive potential partner in further states.
During 2019, we successfully leveraged our key US assets to
acquire 285,000 additional sports betting customers, bringing our
total US sports-betting customer base to over 350,000. Those key
assets are:
-- A strong starting position with established businesses in the
US performing strongly, growing contribution and absorbing a
portion of the cost base.
-- A US database of 8.5 million customers, a rich source of
customer cross sell; 42% of our sports betting customers have come
from the Daily Fantasy Sports database to date and cross sell into
the New Jersey casino has accelerated significantly since we
embedded gaming content into our sports app. We rolled out our
online casino product in Pennsylvania in January 2020 and the early
trends to date have been very encouraging.
-- The FanDuel brand which resonates strongly, benefitting from
a marketing investment of $130m during 2019 alone and over $600m to
date. In the sportsbook markets in which we currently operate,
FanDuel has the highest unaided brand awareness and leadership in
Google search trends, highlighting how the brand has mass appeal
beyond its traditional DFS base. This has ultimately resulted in a
very attractive average customer acquisition cost(8) of less than
$250 since the sportsbook was launched.
-- A high quality and broad product range which we continue to
innovate. We were the first operator to offer same game parlay
betting and continue to be the only operator to offer it on NFL
games. In addition, the integration of our risk and trading
functions with our global business allows us to offer significantly
more betting markets than our competitors.
-- A team that has true scale; our US team now numbers over
1,000. This scale is unrivalled in the US online market. Over 70
experienced employees from Flutter's global team have joined our US
business over the last 18 months.
The combination of favourable customer acquisition economics and
our leading product offering means that we have experienced average
customer payback of less than 12 months in New Jersey, benefitting
from cross-sell to casino. Furthermore, we believe that the
standalone New Jersey sportsbook will be structurally contribution
positive in 2020.
In 2020, we expect to go live online in at least three
additional states (Colorado, Tennessee and Iowa) and we also plan
to progress our work on our proprietary technology stack, utilising
Group assets to ensure we have sufficient scale and flexibility to
deal with individual state requirements.
Balance sheet strength
The ongoing strength of the Group's balance sheet has meant that
we have been very well positioned to take advantage of market
opportunities as they arise. Following the acquisition of a 58%
stake in FanDuel during 2018, we announced the acquisition of a 51%
stake in Adjarabet in early 2019 and then the proposed
transformational combination with The Stars Group in October. Our
strong balance sheet has been a key enabler and an asset during the
negotiation of each deal.
With this in mind, the Group continues to target a medium-term
leverage range of between 1x and 2x net debt to EBITDA(2) . Over
the last 12 months the Group has progressed towards this leverage
target via (i) continued investment in growing our US business,
(ii) enhanced returns to shareholders and (iii) the acquisition of
the Adjarabet stake. As a result, at 31 December 2019 the Group had
net debt of GBP265m representing 0.7 times underlying EBITDA(1,2)
.
The proposed combination with The Stars Group will see the
Group's leverage ratio increase to c. 3.5 times proforma(4)
underlying EBITDA(1,2) post completion, above our target range. As
such, we are proposing maintaining our annual ordinary dividend at
200p per share until the Group's net debt to EBITDA(2) returns
below 2x.
Stars Group combination update
We have commenced our integration planning work ahead of our
proposed merger with The Stars Group and remain excited about the
opportunities that the deal will create for the Group. In
Australia, the Australian Competition and Consumer Commission has
confirmed that it has granted its informal approval. The proposed
transaction remains subject to approval by the Australian Foreign
Investment Review Board as well as further international regulatory
bodies in Australia.
We are continuing to work with the various competition
authorities elsewhere globally to obtain the necessary approvals
ahead of completion of the transaction. We still expect that the
completion date will be in either Q2 or Q3 2020.
Operating and Financial Review
Group Income Statement
2019 2019 2018 Change Proforma(4) Adjusted
CC(3) for tax
and regulatory
changes(7)
YoY
GBPm GBPm GBPm % Change
%
(pre (pre
IFRS IFRS
16) 16)
----------- ------ --------- ------- -----------
Sports revenue 1,667 1,667 1,474 +13% +10%
Gaming revenue 473 473 399 +19% +6%
----------- ------ --------- ------- ----------- ---------------
Total revenue 2,140 2,140 1,873 +14% +9% +16%
Cost of sales (650) (650) (470) +38% +32%
Cost of sales as a
% of net revenue 30.4% 30.4% 25.1% +530bps +540bps
Gross profit 1,490 1,490 1,403 +6% +1%
Sales and marketing (465) (465) (406) +15% +7%
Contribution 1,025 1,025 997 +3% -2%
Product and technology (166) (171) (144) +19% +9%
Operations (378) (409) (343) +19% +12%
Central costs (55) (60) (59) +1% +2%
----------- ------ --------- ------- ----------- ---------------
Other operating costs (599) (639) (546) +17% +10%
----------- ------ --------- ------- ----------- ---------------
Underlying EBITDA
(1,) (2) 425 385 451 -15% -17% +12%
Underlying EBITDA(1,2)
margin 19.9% 18.0% 24.1% -610bps -560bps
Depreciation and amortisation (145) (108) (90) +19% +16%
----------- ------ --------- ------- ----------- ---------------
Underlying (1) operating
profit 281 277 360 -23% -25%
----------- ---------------
Underlying(1) net
interest expense (14) (4) +294%
Separately disclosed
items (131) (138) -5%
----------- ------ --------- -------
Profit before tax 136 219 -38%
----------- ------ --------- -------
Underlying (1) earnings
per share 303p 379p -20%
Dividends per share 200p 200p
During 2019 Flutter expanded its presence in both the US and
Europe, with the roll-out of online sports betting in 3 additional
US states and the acquisition of Adjarabet, the market leader in
online gaming in Georgia. These developments, coupled with good
organic growth in our core operations, drove Group revenue growth
of 14% to GBP2.1 billion. On a proforma(4) , constant currency(3)
basis, Group revenue growth was 9%.
Cost of sales were adversely affected by the increased gaming
taxes in Ireland, the UK and Australia. The year-on-year impact of
these was GBP73m, and this was the primary driver of cost of sales
as a percentage of revenues increasing by 530bps to 30.4%.
Other operating costs increased by 17%, or 10% on a proforma(4)
constant currency(3) basis. The majority of this increase reflected
additional investment in the US with the equivalent organic growth
for the Group (excluding US) up 3% year-on-year.
Underlying EBITDA(1,2) declined 15% to GBP385m, partly
reflecting the ongoing investment in the US (an incremental
EBITDA(2) loss of GBP26m) as well as additional tax and regulatory
changes which cost the Group approximately GBP107m year-on-year.
Excluding these items, Group EBITDA(2) (excluding US) would have
been 19% higher.
Depreciation and amortisation increased by 19% reflecting our
ongoing investment in product and technology, with a major
proportion of this in the US. As a result of the factors above,
operating profit of GBP277m was 23% lower. Increased interest
expense during 2019 reflects in equal measure the increased average
gross debt during the year and the implementation of IFRS 16.
Separately disclosed items include the amortisation of acquisition
related intangible assets relating to the Paddy Power Betfair
merger and costs associated with the proposed combination with The
Stars Group.
The Group delivered a profit before tax of GBP136m (2018:
GBP219m) after separately disclosed items, which do not relate to
the usual business activity of the Group. Underlying(1) earnings
per share reduced by 20% to 303 pence.
PPB Online
Pre IFRS 16 2019 2018 Change
GBPm GBPm %
------------------------------ ---------------- ----- -------
Sportsbook stakes 5,184 5,453 -5%
Sportsbook net revenue
margin 8.1% 7.7% +40bps
Sports revenue 666 678 -2%
Gaming revenue 340 270 +26%
---------------- ----- -------
Total revenue 1,006 948 +6%
Cost of sales (283) (231) +23%
Cost of sales as a % of
net revenue 28.1% 24.4% +380bps
Gross profit 723 717 +1%
Sales and marketing (240) (242) -1%
---------------- ----- -------
Contribution 483 475 +2%
Product and technology (99) (95) +5%
Operations (76) (64) +20%
Other operating costs (176) (158) +11%
---------------- -----
Underlying EBITDA (1,2) 307 316 -3%
Underlying EBITDA (1,2)
margin 30.5% 33.4% -280bps
Depreciation and amortisation (45) (42) +8%
---------------- ----- -------
Underlying (1) operating
profit 263 275 -4%
Our online division includes the online brands of Paddy Power,
Betfair and Adjarabet along with a number of B2B partnerships.
PPB Online revenues grew by 6% to just over GBP1bn during 2019,
benefitting in part from the acquisition of Adjarabet. Revenues
were flat on a proforma basis. There were a number of significant
factors that drove this outcome, including:
-- Good underlying growth in daily active customers across our three brands of 8%
-- An improvement in expected net revenue margin across
sportsbook following the roll-out of country specific pricing
-- The impact of enhanced responsible gambling measures which
saw the Group materially reduce its revenues from high-value
customers
-- The impact of a series of unanticipated international market switch offs
At a brand level, good performance across Paddy Power and
Adjarabet was offset by the changes we are making at Betfair.
Looking at growth by product, sports revenues declined by 2% while
gaming revenues grew 26%. On a proforma(4) , constant currency
basis(3) , gaming revenues were up 7%.
Sportsbook revenue was flat and 6% higher excluding the impact
of the World Cup in 2018. Net revenue margin of 8.1% was 20bps
above expected margin. The combination of the introduction of
country specific pricing in Q1 (which had a material impact on low
value international staking), the ongoing refinement of our risk
management capabilities and changes in our customer bet mix led to
expected margin improving by 90 bps during the year. It should be
noted that the prior year had benefitted from favourable sports
results with actual margin 70bps higher than expected margin.
Exchange and B2B revenues were down 5% with market switch offs
having a material impact. Adjusting for switch offs and World Cup,
Exchange and B2B revenues were up 1%.
Gaming revenues grew 26%, reflecting the strong performance of
Adjarabet. Gaming momentum in Paddy Power also continued to be
strong with increased customer acquisition following the launch of
our "Don't think you're special" campaign. Combined gaming actives
across Paddy Power and Betfair were up 14% during the year. Our
increased focus on responsible gambling is building a more
sustainable revenue base, though this clearly reduces revenues in
the short term as higher value customers are replaced with lower
spending recreational customers.
Cost of sales were primarily adversely affected by the
year-on-year increase in Irish betting duty and UK remote gaming
duty, which cost an incremental GBP23m.
Sales and marketing costs reduced during 2019 due to World Cup
spend in the prior year. Other operating costs increased by 11%,
reflecting increased investment in product and technology during
the year and the addition of Adjarabet within the Online
division.
Underlying EBITDA (1,2) reduced by just 3% to GBP307m despite
the material tax and regulatory changes , equating to an EBITDA (2)
margin of 30.5% compared to 33.4% in the prior year.
Australia(6)
Pre IFRS 16 2019 2018 Change Change
GBPm GBPm % %
GBP A$
------ ------ --------
Sportsbook stakes 4,298 4,308 Flat +3%
Sportsbook net revenue
margin 10.4% 9.4% +100bps +100bps
Total revenue 446 403 +11% +14%
Cost of sales (182) (121) +50% +54%
Cost of sales as a
% of net revenue 40.7% 30.1% +1060bps +1070bps
Gross profit 264 282 -6% -3%
Sales and marketing (73) (82) -11% -9%
------ ------ -------- --------
Contribution 191 199 -4% -1%
Product and technology (21) (20) +5% +7%
Operations (45) (42) +7% +10%
Other operating costs (67) (62) +7% +9%
------ ------ --------
Underlying EBITDA
(1,2) 125 137 -9% -6%
Underlying EBITDA
(1,2) margin 28.0% 34.0% -600bps -590bps
Depreciation and amortisation (21) (18) +22% +25%
------ ------ -------- --------
Underlying (1) operating
profit 103 119 -13% -11%
Sportsbet performed very well during 2019 against the backdrop
of a step change in gaming taxes that saw cost of sales as a
percentage of revenue rise from 30.1% to 40.7%. In advance of this
change, the Group increased investment in customer generosity
during 2018 and this strategic decision, coupled with further
personalisation of the Sportsbet product offering, delivered
excellent customer and revenue growth during 2019. Sportsbet grew
its active customers by 9% (excluding World Cup) which in turn
helped to drive revenue growth of 14%.
Stakes increased by 3% year-on-year with less customer recycling
due to more bookmaker friendly results. Excluding the benefit of
the World Cup, stakes were up 5%. Expected margin increased by 90
bps year-on-year, reflecting further refinement of our risk and
trading capabilities as well as ongoing changes in product mix,
with customers favouring higher margin products such as same game
multis. Favourable sports results during 2019 resulted in a further
boost of 80 bps in margin though we responded to these results by
giving more back to customers via increased generosity, meaning
that the net increase in margin was 100 bps year-on-year.
While personalisation work led to other operating costs being 9%
higher during 2019, this was more than offset by savings at the
sales and marketing line where we shifted spend from traditional
channels to personalised digital channels. Examples of this type of
promotional spend during the year include our popular "Justice
Refund" campaign where we returned money to our customers through
free bets. Sales and marketing costs therefore reduced 9% compared
with 2018.
Underlying EBITDA(2) reduced by GBP12m to GBP125m, offsetting
much of the additional GBP50m in incremental taxes and product
fees. Adjusting for these additional costs, underlying EBITDA(2)
was 49% higher in constant currency terms.
US(6)
Reported Proforma(4) Basis
Pre IFRS 16 2019 2018 2019 2018 Change Change
GBPm GBPm GBPm GBPm % %
GBP US$
------------------------------ ------ ------ ------ ------ ------- -------
Sportsbook stakes 2,326 423 2,326 423 +450% +446%
Sportsbook net revenue
margin 4.4% 2.6% 4.4% 2.6% +180bps +180bps
Sports revenue 325 172 325 216 +51% +45%
Gaming revenue 51 20 51 20 +160% +149%
------ ------ ------ ------ ------- -------
Total revenue 376 191 376 236 +60% +54%
Cost of sales (116) (45) (116) (50) +132% +124%
Cost of sales as a
% of net revenue 30.8% 23.3% 30.8% 21.2% +960bps +960bps
Gross Profit 261 147 261 186 +40% +35%
Sales & marketing (145) (75) (145) (95) +53% +47%
------ ------ ------ ------ ------- -------
Contribution 115 72 115 91 +27% +22%
Product & technology (44) (23) (44) (32) +36% +30%
Operations (112) (63) (112) (73) +52% +47%
------ ------ ------ ------ ------- -------
( 156 ( 86 ( 156 ( 106 + 47 + 42
Other operating costs ) ) ) ) % %
------ ------ ------ ------ ------- -------
Underlying EBITDA
(1,2) (40) (14) (40) (15) n/a n/a
Underlying EBITDA
(1,2) margin -10.7% -7.6% -10.7% -6.3% -450bps -450bps
Depreciation and amortisation (20) (11) (20) (13) +61% +55%
------ ------ ------ ------ ------- -------
Underlying (1) operating
loss (60) (25) (60) (27) n/a n/a
------------------------------ ------ ------ ------ ------ ------- -------
Our US division is comprised of FanDuel, our US sportsbook and
daily fantasy sports (DFS) businesses; TVG our leading horseracing
TV and wagering network and our online casino brands in New
Jersey.
Our merger with FanDuel and the regulation of sports betting has
transformed the US division . 2019 saw us expand our online
sportsbook offering into 3 new states. The DFS database provided
42% of our sportsbook customers, while cross sell to casino drove a
149% increase in gaming revenue. Ongoing investment in customer
growth (350,000 sportsbook customers by year-end) resulted in an
underlying EBITDA(1,2) loss of GBP40m.
Sportsbook: The FanDuel sportsbook generated more than GBP100m
in sportsbook revenues during 2019 compared with GBP11m generated
in 2018. This equated to a combined online market share of 44% in
the 4 states in which FanDuel is live. By December 2019, FanDuel
had become the largest national sportsbook in the US. Net revenue
margin increased by 180 bps reflecting the benefits of a more
geographically diverse customer base and improvements in risk and
trading operations.
Casino: Our online casino materially benefited from sports
betting cross-sell. Growth accelerated once we embedded casino
content in the sports betting app in July and by December, 54% of
casino revenues were coming from sportsbook customers. This
resulted in Q4 gaming revenues trebling year on year, equating to a
19% share of the New Jersey casino market in Q4. This was 7% higher
than the comparable period in 2018.
TVG/DFS: Our established sports businesses of daily fantasy
sports and TVG grew proforma(4) revenue by 4%. On a combined basis,
these businesses delivered double digit contribution growth,
providing significant resources for investment in sportsbook
customer acquisition.
The proforma(4) , constant currency(3) sales and marketing cost
increase of 47% represents our investment in sportsbook customer
acquisition, supplementing our existing spend on established
products including daily fantasy sports. In tandem with driving
daily fantasy sports revenues, this spend allows us to acquire
potential future sports betting customers prior to a state
regulating sports betting. On a proforma(4) basis, contribution
increased from GBP91m in 2018 to GBP115m in 2019.
Excluding sales and marketing, other operating costs increased
by 42% in proforma(4) , constant currency(3) terms as we expanded
our operating capabilities, invested in product and technology, and
brought our US headcount to circa 1,000 employees.
PPB Retail
Pre IFRS 16 2019 2018 Change
GBPm GBPm %
------ ------
Sportsbook stakes 1,793 1,779 +1%
Sportsbook net revenue margin 12.8% 12.5% +30bps
Sports revenue 230 222 +4%
Machine gaming revenue 82 110 -25%
------ ------ -------
Total revenue 312 331 -6%
Cost of sales (70) (73) -5%
Cost of sales as a % of net
revenue 22.4% 22.1% +30bps
Gross profit 242 258 -6%
Sales and marketing (7) (7) +4%
Contribution 235 252 -7%
Product and technology (6) (6) +5%
Operations (175) (174) +1%
Other operating costs (182) (180) +1%
------ ------
Underlying EBITDA (1,2) 53 72 -26%
Underlying EBITDA (1,2)
margin 17.1% 21.6% -450bps
Depreciation and amortisation (22) (21) +4%
------ ------ -------
Underlying (1) operating
profit 32 51 -38%
------ ------ -------
Shops at year end 623 626 n/a
Our Retail division operates 623 Paddy Power betting shops
across the UK and Ireland.
In 2019 the introduction of a GBP2 staking limit on fixed odds
betting terminals led to a 34% decline in gaming revenues from the
1(st) of April 2019 (when the change came into effect). This
revenue trend has improved during the year as competitors have
reduced the size of their retail estates with gaming revenues 21%
lower in Q4.
Sportsbook revenue across the estate increased by 4%, with
stakes growth of 1% and a 30bps improvement in net revenue margin.
In UK retail, sportsbook staking was particularly strong in Q4 as
our shops benefitted from competitor closures. We have continued to
expand our offering in retail with the roll-out of our next
generation screens across the Irish estate, providing customers
with a more immersive betting experience.
The change in FOBT regulation, coupled with an increase in Irish
betting duty, cost the Group GBP34m in EBITDA(2) , resulting in a
26% reduction in underlying EBITDA(1,2) .
Taxation
Corporate income tax
The total effective tax rate for the Group after separately
disclosed items was 17.5% (2018: 17.4%). This was driven by an
increase in the Group's underlying(1) effective tax rate to 15.9%
(2018: 14.9%). The underlying(1) effective tax rate is materially
impacted by the geographic mix of profits within the Group and the
incremental US loss incurred during 2019 which is not recognised
for deferred tax purposes. Excluding the US, the effective tax rate
was 12.8% (2018: 13.7%).
Indirect tax updates - key markets
The following tax changes which impact the profitability of the
Group were implemented or announced during 2019:
1) UK
Following publication by the UK Government of its Review of
Gaming Machines and Social Responsibility Measures in May 2018 the
rate of remote gaming duty increased from 15% to 21% on 1 April
2019 (payable on gross online gaming revenues from UK
customers).
2) Ireland
From 1 January 2019, the betting duty payable by Irish customers
on sports betting stakes increased from 1% to 2% while the duty on
betting exchange revenues increased from 15% to 25%.
3) Australia
Throughout 2018, various state governments announced the
introduction of point of consumption taxes ('POC') and from 1
January 2019 these came into effect in New South Wales, Victoria,
Western Australia and Australian Capital Territory. The overall
impact of additional taxes in 2019 for the Group was an almost 11
percentage point increase in cost of sales as a % of net revenue in
Australia.
During 2019 Tasmania also announced a new POC which came into
effect on 1 January 2020.
4) Other regulated markets
The following tax increases were effective 1 January 2019 in
less material Flutter markets:
-- Online tax on sports betting in Italy increased from 22% to
24% and from 20% to 25% on online gaming
-- An online gambling tax of 18% was introduced in Sweden
-- Romania introduced a new 2% tax on deposits along with the
16% online revenue tax already payable
Separately disclosed items
2019 2018
GBPm GBPm
Amortisation of acquisition related intangible
assets (113) (101)
Transaction fees (18) -
Impairment of goodwill & intangible assets - (27)
Gain on contingent consideration - 11
Restructuring and strategic initiatives - (28)
Profit on sale of investment - 7
Total separately disclosed items (131) (138)
------ ------
Separately disclosed items do not relate to the usual business
activity of the Group and therefore are excluded from underlying(1)
profits.
During 2019, these included GBP113m of amortisation of acquired
intangible assets recognised on accounting for the 2016 merger of
Paddy Power and Betfair, the 2018 combination of the Group's US
assets with FanDuel and the 2019 acquisition of Adjarabet.
Transaction fees during 2019 relate to costs associated with the
proposed combination with The Stars Group.
Cash flow and financial position
As at 31 December 2019, the Group had net debt of GBP265m,
excluding customer balances.
Pre IFRS 16 adjustments 2019 2018
GBPm GBPm
-----
Underlying EBITDA (1,2) 385 451
Capex (136) (107)
Working capital 86 (38)
Corporation tax (41) (60)
----- -----
Underlying(1) free cash flow 295 247
Cash flow from separately
disclosed items (13) (1)
----- -----
Free cash flow 282 246
Dividends paid (156) (169)
Share buyback (87) (415)
Acquisitions (2019 Adjarabet;
2018 FanDuel) (102) (71)
Legacy Greek and German tax (40) -
Interest and other borrowing
costs (7) (4)
Net proceeds from issue of
shares 4 10
Other 3 -
----- -----
Net decrease in cash (104) (403)
Net (debt)/cash at start
of year (162) 244
Foreign currency exchange
translation 1 (2)
----- -----
Net debt at year end(5) (265) (162)
------------------------------ ----- -----
Net debt increased by GBP103m during 2019, with strong positive
cash flows from operations, primarily offset by enhanced
shareholder returns and the acquisition of Adjarabet.
The Group had GBP136m of capital expenditure during 2019 (2018:
GBP107m). The year-on-year increase reflects on-going product
development work in our online businesses and investment in
additional market access in the US.
Working capital during 2019 was positively affected by material
prepayments in relation to European marketing assets and US sports
betting assets (c. GBP30m) in 2018, the expansion of our US
business and the effect of incremental taxes that were introduced
or increased in 2019.
Corporation tax payments reduced during 2019 to GBP41m,
reflecting the timing of tax payments and the lower taxable profits
of the Group.
Cash flow from separately disclosed items relates to costs
associated with the proposed combination with The Stars Group.
During the year, GBP243m was returned to shareholders via
dividends and share buybacks.
Payment was made to the German and Greek tax authorities
relating to two contested legacy tax issues. The Group remains
confident of our grounds to appeal both of these cases.
At 27 February 2019 the Group had net debt of GBP265m,
equivalent to a leverage ratio of 0.7 times.
Dividend
The Board has proposed a final divided of 133p per share,
equating to a full year dividend for 2019 of 200p (2018: 200p). The
ex-dividend date will be 9 April 2020, the record date will be 14
April 2020 and payment will be on 22 May 2020.
Outlook
2020 has begun strongly, with good customer and revenue momentum
across all of our divisions.
Euro 2020 presents an excellent opportunity to engage with and
acquire customers across multiple markets and we therefore
anticipate that sales and marketing for PPB Online will be c. 25%
of net revenue in 2020 (2019: 23.9%). Offsetting the cost of this
marketing investment is our performance in retail gaming which is
running ahead of our initial expectations.
PPB Online will see a number of regulatory changes this year .
The annualised revenue impact of the recently announced restriction
on UK credit card deposits will be c.GBP20-25m. We estimate that
the decision to switch off a small number of B2B partners will
result in a reduction in Exchange revenues, equivalent to less than
1% of Group revenues in 2020.
In the US, FanDuel continues to enjoy very strong momentum. With
plans to launch and invest in our online sportsbook in at least 3
additional states in 2020 we currently expect the US EBITDA(2)
outcome for 2020 to be similar to 2019.
____________________________________________________________________________________
(1) The "underlying" measures exclude separately disclosed
items, that are not part of the usual business activity of the
Group and are also excluded when internally evaluating performance
and have been therefore reported as "separately disclosed items"
(see note 4 and page 37 to the financial statements).
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure. EBITDA throughout
this Operating and Financial Review excludes the impact of IFRS 16.
See Appendix 5 for a reconciliation to IFRS 16 compliant numbers.
It is defined as profit for the year before depreciation and
amortisation, financial income, financial expense and tax expense /
credit. The Group uses EBITDA, Underlying EBITDA and Underlying
operating profit to comment on its financial performance. These
measures are used internally to evaluate performance, to establish
strategic goals and to allocate resources. The directors also
consider that these are commonly reported and widely used by
investors as an indicator of operating performance and ability to
incur and service debt, and as a valuation metric. These are
non-GAAP financial measures and are not prepared in accordance with
IFRS and, as not uniformly defined terms, these may not be
comparable with measures used by other companies to the extent they
do not follow the same methodology used by the Group. Non-GAAP
measures should not be viewed in isolation, nor considered as a
substitute for measures reported in accordance with IFRS. All of
the adjustments shown have been taken from the financial
statements.
(3) Constant currency ("cc") growth throughout this Operating
and Financial Review is calculated by retranslating non-sterling
denominated component of 2018 at 2019 exchange rates (see Appendix
4).
(4) The Adjarabet and FanDuel transactions completed on 1
February 2019 and 10 July 2018 respectively. The 'Proforma' results
include the Adjarabet and FanDuel fantasy sports businesses as if
they had always been part of the Group, incorporating in addition
to the reported results, results from pre-acquisition periods in
2018 and 2019.
(5) Net debt at 31 December 2019 is comprised of gross cash
excluding customer balances of GBP108.1m and gross borrowings of
GBP367.3m. The comparative balance shown as at 31 December 2018 is
comprised of gross cash excluding customer balances of GBP123.7m
and borrowings of GBP285.4m (see Appendix 3).
(6) Growth rates in the commentary are in local currency.
(7) The impact of tax and regulatory change is calculated by
adjusting the prior year comparative to reflect the same regulatory
and tax rules that exist in the current period. This includes the
impact of changes to Australian point of consumption taxes and
product fees, UK machine staking limits, UK online remote gaming
duty and Irish betting duty.
(8) Average customer acquisition cost is the total sportsbook
media and digital marketing spend divided by the total number of
customers acquired.
Appendix 1: Divisional Key Performance Indicators
GBPm PPB Online Australia PPB Retail US Group
Pre IFRS 16 2019 2018 % 2019 2018 % A$ % 2019 2018 % 2019 2018 % US$ % 2019 2018 % CC(1) %
adjustments Change Change Change Change Change Change Change Change
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Sportsbook
stakes 5,184 5,453 -5% 4,298 4,308 Flat +3% 1,793 1,779 +1% 2,326 423 +450% +446% 13,601 11,962 +14% +15%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Sportsbook
net revenue
margin 8.1% 7.7% +40bps 10.4% 9.4% +100bps +100bps 12.8% 12.5% +30bps 4.4% 2.6% +180bps +180bps 8.8% 8.8% Flat Flat
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Sports
revenue 666 678 -2% 446 403 +11% +14% 230 222 +4% 325 172 +89% +83% 1,667 1,474 +13% +14%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Gaming
revenue 340 270 +26% - - - - 82 110 -25% 51 20 +160% +149% 473 399 +19% +18%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Total revenue 1,006 948 +6% 446 403 +11% +14% 312 331 -6% 376 191 +97% +90% 2,140 1,873 +14% +15%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Cost of sales (283) (231) +23% (182) (121) +50% +54% (70) (73) -5% (116) (45) +159% +151% (650) (470) +38% +39%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Cost of sales
as a % of
net revenue 28.1% 24.4% +380bps 40.7% 30.1% +1060bps +1070bps 22.4% 22.1% +30bps 30.8% 23.3% +750bps +740bps 30.4% 25.1% +530bps +530bps
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Gross Profit 723 717 +1% 264 282 -6% -3% 242 258 -6% 261 147 +77% +72% 1,490 1,403 +6% +6%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Sales &
marketing (240) (242) -1% (73) (82) -11% -9% (7) (7) +4% (145) (75) +93% +86% (465) (406) +15% +14%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Contribution 483 475 +2% 191 199 -4% -1% 235 252 -7% 115 72 +61% +57% 1,025 997 +3% +3%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Product &
technology (99) (95) +5% (21) (20) +5% +7% (6) (6) +5% (44) (23) +90% +83% (171) (144) +19% +19%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Operations (76) (64) +20% (45) (42) +7% +10% (175) (174) +1% (112) (63) +78% +73% (409) (343) +19% +19%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Unallocated
central
costs (60) (59) +1% +2%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Other ( ( ( ( (
operating 176 158 + 11 67 ( 62 +7 +9 156 86 + 81 + 76
costs ) ) % ) ) % % (182) (180) +1% ) ) % % ( 639 ) ( 546 ) + 17 % + 17 %
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Underlying
EBITDA 307 316 -3% 125 137 -9% -6% 53 72 -26% (40) (14) +178% +168% 385 451 -15% - 14 %
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Underlying
EBITDA
margin 30.5% 33.4% -280bps 28.0% 34.0% -600bps -590bps 17.1% 21.6% -450bps -10.7% -7.6% -310bps -310bps 18.0% 24.1% -610bps -600bps
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Depreciation
&
amortisation (45) (42) +8% (21) (18) +22% +25% (22) (21) +4% (20) (11) +92% +84% (108) (90) +19% +20%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Underlying
operating
profit 263 275 -4% 103 119 -13% -11% 32 51 -38% (60) (25) +142% +133% 277 360 -23% -22%
----- ----- ------- ----- ----- -------- -------- ----- ----- ------- ------ ----- ------- ------- ------- ------- ------- -------
Proforma Basis
----------------------------
GBPm US Group
--------------------------------- ------------------------------
Pre IFRS 16 adjustments 2019 2018 % US$ 2019 2018 % CC(1)
Change % Change Change %
Change
------ ----- ------- --------- ----- ----- ------- -------
Sports revenue 325 216 +51% +45% 1,667 1,525 +9% +10%
------ ----- ------- --------- ----- ----- ------- -------
Gaming revenue 51 20 +160% +149% 478 455 +5% +6%
------ ----- ------- --------- ----- ----- ------- -------
Total revenue 376 236 +60% +54% 2,145 1,980 +8% +9%
------ ----- ------- --------- ----- ----- ------- -------
Cost of sales (116) (50) +132% +124% (652) (497) +31% +32%
------ ----- ------- --------- ----- ----- ------- -------
Cost of sales as
a % of net revenue 30.8% 21.2% +960bps +960bps 30.4% 25.1% +530bps +540bps
------ ----- ------- --------- ----- ----- ------- -------
Gross Profit 261 186 +40% +35% 1,493 1,483 +1% +1%
------ ----- ------- --------- ----- ----- ------- -------
Sales & marketing (145) (95) +53% +47% (466) (433) +8% +7%
------ ----- ------- --------- ----- ----- ------- -------
Contribution 115 91 +27% +22% 1,027 1,050 -2% -2%
------ ----- ------- --------- ----- ----- ------- -------
Product & technology (44) (32) +36% +30% (171) (156) +9% +9%
------ ----- ------- --------- ----- ----- ------- -------
Operations (112) (73) +52% +47% (410) (365) +12% +12%
------ ----- ------- --------- ----- ----- ------- -------
Unallocated central
costs (60) (59) +1% +2%
------ ----- ------- --------- ----- ----- ------- -------
( ( +
Other operating 156 106 + 47 42
costs ) ) % % (641) (581) +10% +10%
------ ----- ------- --------- ----- ----- ------- -------
Underlying EBITDA (40) (15) n/a n/a 386 470 -18% -17%
------ ----- ------- --------- ----- ----- ------- -------
Underlying EBITDA
margin -10.7% -6.3% -450bps -450bps 18.0% 23.7% -570bps -560bps
------ ----- ------- --------- ----- ----- ------- -------
Depreciation & amortisation (20) (13) +61% +55% (108) (93) +16% +16%
------ ----- ------- --------- ----- ----- ------- -------
Underlying operating
profit (60) (27) n/a n/a 278 377 -26% -25%
------ ----- ------- --------- ----- ----- ------- -------
(1) Constant currency ("cc") growth is calculated by
retranslating non-sterling denominated component of 2018 at 2019
exchange rates (see Appendix 4).
Half-yearly and quarterly divisional key performance indicators
are available on
our corporate website: https://www.flutter.com/investors
Appendix 2: Reconciliation of reported revenue and underlying
EBITDA to proforma adjusted EBITDA
GBPm Revenue U nderlying EBITDA
Pre IFRS 16
CC
YoY YoY YoY CC YoY
2019 2018 % % 2019 2018 % %
--------- ---------- ------- --------- ----------- --------- ------ ------------
Reported 2,140 1,873 +14% +15% 385 451 -15% -14%
Inclusion of pre-acquisition
Adjarabet and
FanDuel results 5 107 1 19
--------- ---------- ------- --------- ----------- --------- ------ ------------
Proforma 2,145 1,980 +8% +9% 386 470 -18% -17%
----------------------------- --------- ---------- ------- --------- ----------- --------- ------ ------------
Appendix 3: Reconciliation of Presented cash flow to Reported
statutory cash flow
In the Operating and Financial Review the cash flow has been
presented on a net cash basis. The difference between this and the
reported statutory cash flow is the inclusion of borrowings to
determine a net cash position and the use of the underlying EBITDA
on a pre-IFRS 16 basis, as reconciled in the table below.
GBPm Presented Adjustment Reported
cash flow to include cash flow
(pre IFRS borrowings
16 adjustments) and IFRS
16
2019 2018 2019 2018 2019 2018
----- ----------- ------ ----- ----- -----------
Underlying EBITDA(1) 385 451 40 - 425 451
----- ----------- ------ ----- ----- -----------
Capex(2) (136) (107) - - (136) (107)
----- ----------- ------ ----- ----- -----------
Working capital(3) 86 (38) 1 - 87 (38)
----- ----------- ------ ----- ----- -----------
Corporation tax (41) (60) - - (41) (60)
----- ----------- ------ ----- ----- -----------
Underlying free cash flow 295 247 41 - 336 247
----- ----------- ------ ----- ----- -----------
Cash flow from separately disclosed
items(4) (13) (1) - - (13) (1)
----- ----------- ------ ----- ----- -----------
Free cash flow 282 246 41 - 323 246
----- ----------- ------ ----- ----- -----------
Dividends paid (156) (169) - - (156) (169)
----- ----------- ------ ----- ----- -----------
Share buyback (87) (415) - - (87) (415)
----- ----------- ------ ----- ----- -----------
Acquisitions (2019 Adjarabet;
2018 FanDuel) (102) (71) - - (102) (71)
----- ----------- ------ ----- ----- -----------
Legacy Greek and German tax (40) - - - (40) -
----- ----------- ------ ----- ----- -----------
Interest and other borrowing
costs(5) (7) (4) - - (7) (4)
----- ----------- ------ ----- ----- -----------
Net proceeds from issue of
new shares(6) 4 10 - - 4 10
----- ----------- ------ ----- ----- -----------
Other 3 - - - 3 -
----- ----------- ------ ----- ----- -----------
Lease liabilities paid - - (41) - (41) -
----- ----------- ------ ----- ----- -----------
Net amounts drawn down / (repaid)
on borrowings - - 88 223 88 223
----- ----------- ------ ----- ----- -----------
Net (decrease)/increase in
cash (104) (403) 88 223 (16) (180)
----- ----------- ------ ----- ----- -----------
Net cash at start of the year (162) 244 285 62 124 307
----- ----------- ------ ----- ----- -----------
Foreign currency exchange translation 1 (2) (1) (1) - (3)
----- ----------- ------ ----- ----- -----------
Net (debt)/cash at year end (265) (162) 373 285 108 124
----- ----------- ------ ----- ----- -----------
(1) Underlying EBITDA (pre IFRS 16) 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. EBITDA throughout
this Operating and Financial Review excludes the impact of IFRS 16.
See Appendix 5 for a reconciliation to IFRS 16 compliant
numbers.
(2) Capex includes purchase of property, plant and equipment,
purchase of intangible assets, purchase of businesses net of cash
acquired (excluding Adjarabet and FanDuel acquisitions shown
separately in presented cash flow), capitalised internal
development expenditure, payment of contingent deferred
consideration and loss on disposal of property, plant and equipment
and intangible assets.
(3) Working capital includes (increase) / decrease in trade and
other receivables, (decrease) / increase in trade, other payables
and provisions, employee equity-settled share based payments
expense before separately disclosed items, and foreign currency
exchange (gain)/loss.
(4) Cash flow from separately disclosed items includes
restructuring, transaction fees and strategic initiative costs
paid.
(5) Interest and other borrowing costs includes interest paid,
interest received and fees in respect of borrowings facility.
(6) Net proceeds from issue of new shares includes proceeds from
issue of new shares.
Appendix 4: Reconciliation of growth rates to constant currency
growth rates
Constant currency ("cc") growth is calculated by retranslating
non-sterling denominated component of 2018 at 2019 exchange rates
as per the table below.
GBPm 2019 2018 % 2018 2018 CC%
Pre IFRS 16 adjustments Change FX impact CC Change
Sports net revenue 1,667 1,474 +13% (7) 1,467 +14%
------------ ----- ------- ----------- ------ -------
Gaming net revenue 473 399 +19% 1 400 +18%
------------ ----- ------- ----------- ------ -------
Total net revenue 2,140 1,873 +14% (7) 1,867 +15%
------------ ----- ------- ----------- ------ -------
Cost of sales (650) (470) +38% 2 (467) +39%
------------ ----- ------- ----------- ------ -------
Gross Profit 1,490 1,403 +6% (4) 1,399 +6%
------------ ----- ------- ----------- ------ -------
Sales & marketing (465) (406) +15% - (407) +14%
------------ ----- ------- ----------- ------ -------
Product & technology (171) (144) +19% - (143) +19%
------------ ----- ------- ----------- ------ -------
Operations (409) (343) +19% 1 (343) +19%
------------ ----- ------- ----------- ------ -------
Unallocated central
costs (60) (59) +1% - (59) +2%
------------ ----- ------- ----------- ------ -------
Operating costs (1,105) (953) +16% 1 (951) +16%
------------ ----- ------- ----------- ------ -------
Underlying EBITDA 385 451 -15% (3) 448 -14%
------------ ----- ------- ----------- ------ -------
Depreciation & amortisation (108) (90) +19% - (90) +20%
------------ ----- ------- ----------- ------ -------
Underlying operating
profit 277 360 -23% (3) 357 -22%
------------ ----- ------- ----------- ------ -------
Revenue by division
------------ ----- ------- ----------- ------ -------
PPB Online 1,006 948 +6% (1) 947 +6%
------------ ----- ------- ----------- ------ -------
Australia 446 403 +11% (11) 392 +14%
------------ ----- ------- ----------- ------ -------
PPB Retail 312 331 -6% (1) 330 -6%
------------ ----- ------- ----------- ------ -------
US 376 191 +97% 6 198 +90%
------------ ----- ------- ----------- ------ -------
Underlying EBITDA
by division
------------ ----- ------- ----------- ------ -------
PPB Online 307 316 -3% 2 318 -3%
------------ ----- ------- ----------- ------ -------
Australia 125 137 -9% (4) 133 -6%
------------ ----- ------- ----------- ------ -------
PPB Retail 53 72 -26% - 71 -25%
------------ ----- ------- ----------- ------ -------
US (40) (14) +178% (1) (15) +168%
------------ ----- ------- ----------- ------ -------
Unallocated central
costs (60) (59) +1% - (59) +2%
------------ ----- ------- ----------- ------ -------
Appendix 5: Reconciliation of underlying EBITDA and EBIT to
reported statutory EBIT by division
From 1 January 2019, IFRS 16 - Leases replaced IAS 17 - Leases.
This means for leases previously classified as operating leases, a
right of use asset and associated lease liability will be
recognised going forward. The nature of the operating lease expense
also changes as IFRS 16 replaces the previous operating lease
expense with a depreciation charge on the asset and an interest
expense on the liability. As a Group we have adopted the modified
retrospective approach by not restating the comparative period.
Therefore, in the Operating and Financial Review, in order to
maintain comparability with the prior period, we have shown
underlying EBITDA on a consistent basis with the prior period, i.e.
on a pre-IFRS 16 basis with the relevant operating lease expense
included within EBITDA. The impact of IFRS 16 on Group profit
before tax was immaterial in the period.
GBPm PPB Online Australia PPB Retail US Group
Pre Pre Pre Pre Pre
IFRS Reported IFRS Reported IFRS Reported IFRS Reported IFRS Reported
16 IFRS 16 IFRS 16 IFRS 16 IFRS 16 IFRS
16 16 16 16 16
2019 adjust-ment 2019 2019 adjust-ment 2019 2019 adjust-ment 2019 2019 adjust-ment 2019 2019 adjust-ment 2019
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Total revenue 1,006 1,006 446 446 312 312 376 376 2,140 2,140
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Cost of sales (283) (283) (182) (182) (70) (70) (116) (116) (650) (650)
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Gross Profit 723 723 264 264 242 242 261 261 1,490 1,490
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Operating
costs (416) 5 (410) (140) 3 (137) (189) 23 (166) (301) 4 (297) (1,105) 40 (1,064)
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Underlying
EBITDA 307 5 313 125 3 127 53 23 76 (40) 4 (36) 385 40 425
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Depreciation
&
amortisation (45) (5) (50) (21) (2) (24) (22) (21) (43) (20) (4) (24) (108) (37) (145)
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Underlying
operating
profit 263 - 263 103 - 104 32 2 33 (60) 1 (60) 277 3 281
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Underlying
net
interest
expense (9) (5) (14)
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Separately
disclosed
items (131) - (131)
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
Profit before
tax 137 (1) 136
------ ------------ --------- ------ ------------ --------- ------ ------------ --------- ------ ------------ --------- -------- ------------ ---------
CONDENSED CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2019
Before Separately Before Separately
separately disclosed separately disclosed
disclosed items disclosed items
items (Note 4) 2019 Total items (Note 4) 2018 Total
2019 GBPm 2019 2018 GBPm 2018
Note GBPm GBPm GBPm GBPm
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Continuing
operations
Revenue 3 2,140.0 - 2,140.0 1,873.4 - 1,873.4
Cost of sales (650.2) - (650.2) (469.9) - (469.9)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Gross profit 1,489.8 - 1,489.8 1,403.5 - 1,403.5
Operating costs
excluding
depreciation,
amortisation
and impairment (1,064.4) (17.6) (1,082.0) (952.5) (28.0) (980.5)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
EBITDA (1) 425.4 (17.6) 407.8 451.0 (28.0) 423.0
Depreciation and
amortisation (144.8) (113.1) (257.9) (90.5) (100.7) (191.2)
Impairment - - - - (27.2) (27.2)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Operating profit 280.6 (130.7) 149.9 360.5 (155.9) 204.6
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Financial income 1.0 - 1.0 3.9 17.7 21.6
Financial
expense (15.2) - (15.2) (7.5) - (7.5)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Profit before
tax 266.4 (130.7) 135.7 356.9 (138.2) 218.7
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Tax (expense) /
credit 5 (42.4) 18.6 (23.8) (53.1) 15.1 (38.0)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Profit /
(loss) for the
year 224.0 (112.1) 111.9 303.8 (123.1) 180.7
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Attributable to:
Equity holders
of the Company 238.4 (94.4) 144.0 316.1 (114.7) 201.4
Non-controlling
interest (14.4) (17.7) (32.1) (12.3) (8.4) (20.7)
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
224.0 (112.1) 111.9 303.8 (123.1) 180.7
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
Earnings per
share
Basic 6 GBP1.832 GBP2.417
Diluted 6 GBP1.822 GBP2.404
----------------- ------- -------------- --------------- ------------ -------------- --------------- ----------
1 EBITDA is defined as profit for the year before depreciation,
amortisation and impairment, financial income, financial expense
and tax expense / credit. It is considered by the Directors
to be a key measure of the Group's financial performance. Note
as a result of the adoption of IFRS 16 Leases from 1 January
2019, under the modified retrospective approach, the rent expense
which in 2018 was reflected in operating costs excluding depreciation,
amortisation and impairment, is no longer recorded as an expense
in 2019 but is replaced by a depreciation charge and finance
expense which are recorded after EBITDA. There is no restatement
of comparative information. See Note 2 for further detail on
the impact of IFRS 16.
Notes 1 to 17 on pages 29 to 54 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOME
Year ended 31 December 2019
2019 2018
GBPm GBPm
---------------------------------------------------- --------- -------
Profit for the year 111.9 180.7
----------------------------------------------------- --------- -------
Other comprehensive income / (loss)
Items that are or may be reclassified subsequently
to profit or loss:
Effective portion of changes in fair 2.6 -
value of cash flow hedges
Fair value of foreign exchange cash
flow hedges transferred to income statement (0.3) -
Foreign exchange (loss) / gain on translation
of the net assets of foreign currency
denominated entities (33.1) 26.1
----------------------------------------------------- --------- -------
Other comprehensive income / (loss) (30.8) 26.1
----------------------------------------------------- --------- -------
Total comprehensive income for the
year 81.1 206.8
----------------------------------------------------- --------- -------
Attributable to:
Equity holders of the Company 120.7 219.3
Non-controlling interest (39.6) (12.5)
----------------------------------------------------- --------- -------
81.1 206.8
---------------------------------------------------- --------- -------
Notes 1 to 17 on pages 29 to 54 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
Note 31 December 31 December
2019 2018 (1)
GBPm GBPm
------------------------------------ ----- ------------ ------------
Assets
Property, plant and equipment 298.2 130.4
Intangible assets 558.5 578.1
Goodwill 7 4,120.3 4,075.3
Deferred tax assets 11.9 10.7
Investments 9 0.1 2.4
Other receivables 9 50.4 8.9
------------------------------------ ----- ------------ ------------
Total non-current assets 5,039.4 4,805.8
------------------------------------ ----- ------------ ------------
Trade and other receivables 9 64.6 81.8
Financial assets - restricted cash 10 189.1 167.2
Cash and cash equivalents 10 108.1 123.7
------------------------------------ ----- ------------ ------------
Total current assets 361.8 372.7
------------------------------------ ----- ------------ ------------
Total assets 5,401.2 5,178.5
------------------------------------ ----- ------------ ------------
Equity
Issued share capital and share
premium 428.3 424.8
Treasury shares 11 (40.7) (40.7)
Shares held by employee benefit
trust 11 (6.1) (8.6)
Other reserves 63.7 92.4
Retained earnings 3,539.5 3,530.1
------------------------------------ ----- ------------ ------------
Equity attributable to owners of
the parent 3,984.7 3,998.0
Non-controlling interest 204.9 213.3
Total equity 4,189.6 4,211.3
Liabilities
Trade and other payables 13 548.8 532.8
Derivative financial liabilities 13 20.4 20.1
Provisions 2.9 4.3
Current tax payable 20.0 20.8
Lease liabilities 14 38.4 -
Borrowings 14 255.0 0.4
------------------------------------ ----- ------------ ------------
Total current liabilities 885.5 578.4
------------------------------------ ----- ------------ ------------
Trade and other payables 13 11.5 26.2
Derivative financial liabilities 13 0.7 0.9
Provisions 1.1 1.3
Deferred tax liabilities 65.0 77.4
Lease liabilities 14 132.1 -
Borrowings 14 115.7 283.0
------------------------------------ ----- ------------ ------------
Total non-current liabilities 326.1 388.8
------------------------------------ ----- ------------ ------------
Total liabilities 1,211.6 967.2
------------------------------------ ----- ------------ ------------
Total equity and liabilities 5,401.2 5,178.5
------------------------------------ ----- ------------ ------------
1 The Group has initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated. See Note 2 for further
details.
Notes 1 to 17 on pages 29 to 54 form an integral part of these
condensed consolidated financial statements.
On behalf of the Board
Peter Jackson Jonathan Hill
Chief Executive Officer Chief Financial Officer
26 February 2020
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------------------------------------------------------------- ------- -------- --------
Cash flows from operating activities
Profit for the year 111.9 180.7
Separately disclosed items 4 112.1 123.1
Tax expense before separately disclosed items 42.4 53.1
Financial income (1.0) (3.9)
Financial expense 15.2 7.5
Depreciation and amortisation before separately disclosed items 144.6 90.8
Employee equity-settled share-based payments expense before separately disclosed items 17.1 18.9
Foreign currency exchange loss / (gain) 1.5 (2.0)
Loss / (profit) on disposal of property, plant and equipment and intangible assets 0.2 (0.3)
Cash from operations before changes in working capital 444.0 467.9
Decrease / (increase) in trade and other receivables 13.1 (30.2)
Increase / (decrease) in trade, other payables and provisions 56.1 (24.5)
--------------------------------------------------------------------------------------- ------- -------- --------
Cash generated from operations 513.2 413.2
Tax paid (41.3) (59.9)
--------------------------------------------------------------------------------------- ------- -------- --------
Net cash from operating activities before transactions fees, restructuring and
strategic initiatives
costs paid 471.9 353.3
Transaction fees paid (12.9) -
Restructuring and strategic initiative costs paid - (22.9)
Amounts paid in respect of legacy Greek and German tax assessments (39.6) -
--------------------------------------------------------------------------------------- ------- -------- --------
Net cash from operating activities 419.4 330.4
--------------------------------------------------------------------------------------- ------- -------- --------
Purchase of property, plant and equipment (44.0) (31.6)
Purchase of intangible assets (33.7) (38.5)
Proceeds from disposal of investment 2.3 21.9
Cash in acquired businesses 8 0.2 20.4
Purchase of businesses 8 (102.0) (12.8)
Capitalised internal development expenditure (53.1) (30.3)
Payment of contingent deferred consideration 8 (4.8) (6.1)
Proceeds from disposal of property, plant and equipment and intangible assets - 1.0
Interest received 0.9 1.7
Net cash used in investing activities (234.2) (74.3)
--------------------------------------------------------------------------------------- ------- -------- --------
Proceeds from the issue of new shares 3.6 2.3
Proceeds from the issue of shares to Non-controlling interest - 7.5
Dividends paid 12 (156.2) (169.0)
Payment of lease liabilities 14 (41.4) -
Net amounts drawn down on borrowing facilities 14 82.8 223.1
Repayment of FanDuel debt and debt like items 8 - (79.9)
Interest paid 14 (7.1) (3.1)
Fees in respect of borrowing facility 14 (0.8) (2.4)
Purchase of own shares including direct purchase costs 11 (86.8) (415.0)
Net cash used in financing activities (205.9) (436.5)
--------------------------------------------------------------------------------------- ------- -------- --------
Net decrease in cash and cash equivalents (20.7) (180.4)
Cash and cash equivalents at start of year 123.7 306.6
Foreign currency exchange gain / (loss) on cash and cash equivalents 0.1 (2.5)
--------------------------------------------------------------------------------------- ------- -------- --------
Net Cash and cash equivalents at end of year 103.1 123.7
--------------------------------------------------------------------------------------- ------- -------- --------
Bank overdraft 5.0 -
--------------------------------------------------------------------------------------- ------- -------- --------
Cash and cash equivalents at end of year 10 108.1 123.7
--------------------------------------------------------------------------------------- ------- -------- --------
Notes 1 to 17 on pages 29 to 54 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
Attributable to equity holders of the Company (see Note 11)
Issued
Number share
of capital Foreign Shares Share-
ordinary and exchange Cash held by based Non-controlling
shares share translation flow Other Treasury employee payment Retained Total interest Total
in premium reserve hedge reserves shares benefit reserve earnings equity GBPm equity
issu e GBPm GBPm reserve GBPm GBPm trust GBPm GBPm GBPm GBPm
millions GBPm GBPm
---------------- ---------- -------- ------------- --------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Balance at 1
January 2019 81.4 424.8 4.1 - 2.2 (40.7) (8.6) 86.1 3,530.1 3,998.0 213.3 4,211.3
Total comprehensive income
for the year
Profit for the
year - - - - - - - - 144.0 144.0 (32.1) 111.9
Foreign
exchange
translation - - (25.6) - - - - - - (25.6) (7.5) (33.1)
Net change in
fair value of
cash flow
hedge reserve - - - 2.3 - - - - - 2.3 - 2.3
Total
comprehensive
income /
(loss) for the
year - - (25.6) 2.3 - - - 144.0 120.7 (39.6) 81.1
---------- -------- ------------- --------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Transactions with owners of the
Company, recognised directly in
equity
Shares issued
(Note 11) 0.3 3.6 - - - - - - - 3.6 - 3.6
Business
combinations
(Note 8) - - - - - - - - - - 31.2 31.2
Own shares
acquired by
the Group
(Note 11) (1.4) (0.1) - - 0.1 - - - - - - -
Equity-settled
transactions -
expense
recorded in
income
statement - - - - - - - 17.1 - 17.1 - 17.1
Equity-settled
transactions -
vestings - - - - - - 2.5 (2.3) (0.2) - - -
Tax on
share-based
payments - - - - - - - - 1.5 1.5 - 1.5
Transfer to
retained
earnings on
exercise of
share options
(Note 11) - - - - - - - (20.3) 20.3 - - -
Dividends to
shareholders
(Note 12) - - - - - - - - (156.2) (156.2) - (156.2)
Total
contributions
by and
distributions
to owners of
the Company (1.1) 3.5 - - 0.1 - 2.5 (5.5) (134.6) (134.0) 31.2 (102.8)
---------------- ---------- -------- ------------- --------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Balance at 31
December 2019 80.3 428.3 (21.5) 2.3 2.3 (40.7) (6.1) 80.6 3,539.5 3,984.7 204.9 4,189.6
---------------- ---------- -------- ------------- --------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Attributable to equity holders of the Company (see Note 11)
Issued
Number share Foreign Shares Share-
of capital exchange held by based Non-controlling
ordinary and translation Other Treasury employee payment Retained Total interest Total
shares share reserve reserves shares benefit reserve earnings equity GBPm equity
in premium GBPm GBPm GBPm trust GBPm GBPm GBPm GBPm
issu e GBPm GBPm
millions
----------------- ---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Balance at 1
January 2018 86.5 423.0 (13.8) 15.4 (40.7) (15.6) 112.9 3,914.2 4,395.4 - 4,395.4
Adoption of IFRS
9 - - - (13.7) - - - 13.7 - - -
---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Opening balance
as restated 86.5 423.0 (13.8) 1.7 (40.7) (15.6) 112.9 3,927.9 4,395.4 - 4,395.4
---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Total comprehensive income
for the year
Profit for the
year - - - - - - - 201.4 201.4 (20.7) 180.7
Foreign exchange
translation - - 17.9 - - - - - 17.9 8.2 26.1
Total
comprehensive
income / (loss)
for the year - - 17.9 - - - - 201.4 219.3 (12.5) 206.8
---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Transactions with owners of the
Company, recognised directly in equity
Shares issued
(Note 11) 0.5 2.3 - - - - - - 2.3 - 2.3
Shares issued in
Non-controlling
interest 22.6 22.6 16.8 39.4
Business
combinations -
FanDuel (Note
8) - - - - - - - 8.9 8.9 209.0 217.9
Own shares
acquired by the
Group (Note 11) (5.6) (0.5) - 0.5 - - - (501.8) (501.8) - (501.8)
Equity-settled
transactions -
expense
recorded in
income
statement - - - - - - 20.4 - 20.4 - 20.4
Equity-settled
transactions -
vestings - - - - - 7.0 (6.7) 0.3 0.6 - 0.6
Tax on
share-based
payments - - - - - - - (0.7) (0.7) - (0.7)
Transfer to
retained
earnings on
exercise of
share options
(Note 11) - - - - - - (40.5) 40.5 - - -
Dividends to
shareholders
(Note 12) - - - - - - - (169.0) (169.0) - (169.0)
Total
contributions
by and
distributions
to
owners of the
Company (5.1) 1.8 - 0.5 - 7.0 (26.8) (599.2) (616.7) 225.8 (390.9)
----------------- ---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Balance at 31
December 2018 81.4 424.8 4.1 2.2 (40.7) (8.6) 86.1 3,530.1 3,998.0 213.3 4,211.3
----------------- ---------- -------- ------------- ---------- ---------- ---------- --------- ---------- ---------- ----------------- ----------
Notes 1 to 17 on pages 29 to 54 form an integral part of these
condensed consolidated financial statements .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Flutter Entertainment plc (the "Company") and its subsidiaries
(together referred to as the "Group") is a global sports betting
and gaming group, whose headquarters are in Dublin, Ireland. The
Group currently operates across four divisions; (i) PPB Online
which includes the online brands of Paddy Power, Betfair and
Adjarabet, the Paddy Power telephone sportsbook, as well as a
number of business-to-business partnerships; (ii) Australia,
consisting of Sportsbet, the market leader in the fast-growing
Australian online betting market; (iii) PPB Retail, which operates
over 620 Paddy Power betting shops across the UK and Ireland; and
(iv) US, which comprises FanDuel, a market leading operator in
daily fantasy sports and online and retail sportsbetting, TVG,
America's leading horseracing TV and betting network, the Betfair
New Jersey online casino and the Betfair New Jersey horseracing
betting exchange.
The Company is a public limited company incorporated and
domiciled in the Republic of Ireland and has its primary listing on
the London Stock Exchange and a secondary listing on the Irish
Stock Exchange.
The financial information presented herein does not comprise
full statutory financial statements and therefore does not include
all of the information required for full annual financial
statements. Full statutory financial statements for the year ended
31 December 2019, prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the European
Union ("EU") together with an unqualified audit report thereon
under Section 391 of the Companies Act 2014, will be annexed to the
annual return and filed with the Registrar of Companies.
The consolidated financial statements of the Group for the year
ended 31 December 2019 comprise the financial statements of the
Company and its subsidiary undertakings and were approved for issue
by the Board of Directors on 26 February 2020.
2. Basis of preparation and summary of significant accounting
policies
The condensed consolidated financial statements are prepared in
accordance with the Transparency (Directive 2004/109/EC)
Regulations 2007 and the Transparency Rules of the Republic of
Ireland's Financial Regulator. The condensed consolidated financial
statements are prepared on the historical cost basis except for
betting transactions (which are recorded as derivative financial
instruments), investments, contingent deferred consideration and
certain share-based payments, all of which are stated at fair value
(grant date fair value in the case of share-based payments). The
consolidated financial statements are presented in pounds sterling
and are rounded to the nearest million.
Further to IAS Regulation (EC1606/2002, 'Accounting standards
adopted for use in the EU'), EU law requires that the annual
consolidated financial statements of the Group be prepared in
accordance with International Financial Reporting Standards
("IFRS") adopted by the European Union ("EU"). The consolidated
financial statements have been prepared on the basis of IFRS
adopted by the EU and effective for accounting periods ending on or
after 1 January 2019.
The accounting policies applied in the preparation of these
consolidated financial statements have been applied consistently
during the year and prior year, except as highlighted below in
'Recent accounting pronouncements'.
Recent accounting pronouncements
The IASB have issued the following standards, policies,
interpretations and amendments which were effective for the Group
for the first time in the year ended 31 December 2019:
-- IFRS 16 Leases
-- IFRIC 23 Uncertainty over Income Tax Treatments
-- Amendments to IFRS 9 Prepayment Features with Negative Compensation
-- Amendments to IAS 28: Long-term interests in Associates and Joint Ventures
-- Annual improvements to IFRS Standards 2015-2018 Cycle
-- Amendments to IAS 19: Plan amendment, Curtailment or Settlement
The adoption of the above new standards and interpretations with
the exception of IFRS 16 did not have a significant impact on the
Group's consolidated financial statements.
The Group has adopted IFRS 16 Leases from 1 January 2019. IFRS
16 introduced a single on-balance sheet accounting model for
lessees. As a result, the Group as a lessee has recognised
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligations to make
lease payments.
2. Basis of preparation and summary of significant accounting
policies (continued)
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial recognition
is recognised in retained earnings at 1 January 2019. Accordingly,
the comparative information presented for 2018 has not been
restated - i.e. it is presented as reported under IAS 17 and
related interpretations. The details of the changes in accounting
policies are discussed below.
As a lessee
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of ownership
of the underlying asset. Under IFRS 16, the Group recognises right
of use assets and lease liabilities for most leases - i.e. these
leases are recorded on the statement of financial position.
However the Group has elected not to recognise the right-of-use
assets and lease liabilities for a small amount of leases of low
value assets (e.g office equipment). The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
The Group recognises a right of use asset and a lease liability
at the lease commencement date. The right of use asset is initially
measured at deemed cost comprising the amount of the initial
measurement of lease liability, any lease payments made at or
before the commencement date less any lease incentives received,
any initial direct costs, and restoration costs. It is subsequently
measured at cost less accumulated depreciation and impairment in
accordance with the Group's accounting policies. It is depreciated
over t he shorter of the lease term and the useful life of the
right-of-use asset, unless there is a transfer of ownership or
purchase option which is reasonably certain to be exercised at the
end of the lease term. If there is a transfer of ownership or
purchase option which is reasonably certain to be exercised at the
end of the lease term, the Group depreciates the right-of-use asset
over the useful life of the underlying asset.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate. To determine the incremental borrowing
rate, the Group, where possible, used recent third-party borrowings
as a benchmark to determine the borrowing rate that would be
attached to a secured borrowing having similar amount, economic
environment and duration as the individual lease.
Lease liabilities include the net present value of the following
lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable
-- variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date
-- amounts expected to be payable by the group under residual value guarantees
-- the exercise price of a purchase option if the group is
reasonably certain to exercise that option, and
-- payments of penalties for terminating the lease, if the lease
term reflects the group exercising that option
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by the lease payment
made. It is remeasured when there is a change in future lease
payments arising from a change in an index or a rate, a change in
the estimate of the amount expected to be payable under a residual
value guarantee, or as appropriate, changes in the assessment of
whether a purchase or extension option is reasonably certain to be
exercised or a termination option is reasonably certain not to be
exercised.
The Group has applied judgement to determine the lease term for
some lease contracts in which it is a lease that includes renewal
options. The assessment of whether the Group is reasonably certain
to exercise such options impacts the lease term, which
significantly affects the amount of lease liabilities and right of
use assets recognised.
Transition
Until 31 December 2018, leases of property, plant and equipment
where the group, as lessee, had substantially all the risks and
rewards of ownership were classified as finance leases. Finance
leases were capitalised at the lease's
2. Basis of preparation and summary of significant accounting
policies (continued)
inception at the fair value of the leased property or, if lower,
the present value of the minimum lease payments. The corresponding
rental obligations, net of finance charges, were included in other
short-term and long-term payables. Each lease payment was allocated
between the liability and finance cost. The finance cost was
charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period. The property, plant and equipment
acquired under finance leases was depreciated over the asset's
useful life, or over the shorter of the asset's useful life and the
lease term if there is no reasonable certainty that the group will
obtain ownership at the end of the lease term.
Leases in which a significant portion of the risks and rewards
of ownership were not transferred to the group as lessee were
classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) were
charged to profit or loss on a straight-line basis over the period
of the lease, unless another systematic basis was more
appropriate.
The Group leases various licenced betting and other offices
under operating lease agreements. The leases have varying terms,
escalation clauses and renewal rights. The leases have, on average,
approximately five years left to run (if the Group was to exercise
available break options), with a right of renewal after that date.
Lease rentals are typically reviewed every five years to reflect
market rental rates or changes in general inflation rates.
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments discounted at the Group's incremental
borrowing rate at 1 January 2019. Right of use assets are measured
at either:
- their carrying amounts as if IFRS 16 had been applied since
the commencement date, discounted using the leases incremental
borrowing rate at the date of initial application.
- an amount equal to the lease liability, adjusted by the amount
of any prepaid or accrued lease payments.
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17.
- Applied the exemption not to recognise right of use assets and
liabilities for leases with less than 12 months of lease term and
leases for which the underlying asset is of low value
- Relied on previous assessments on whether leases are onerous
as an alternative to performing an impairment review
- Applied portfolio level accounting for leases with similar characteristics
- Excluded initial direct costs from measuring the right of use
asset at the date of initial application
- Used hindsight when determining the lease term if the contract
contains options to extend or terminate the lease
As a lessor
The Group has a small number of properties that are sublet. The
accounting policies applicable to the Group as a lessor are not
different from those under IAS 17.
At inception, the Group determines whether each lease is a
finance lease or an operating lease, by reference to the transfer
of all risks and rewards in connection to ownership of the
underlying asset. In this case, the Group applies the derecognition
and impairment requirements in IFRS 9 to the net investment in the
lease.
When the Group is an intermediate lessor the sub leases are
classified with reference to the right of use asset arising from
the head lease, not with reference to the underlying asset.
Under operating leases, the Group recognises the income
generated by the lease on an accruals basis over the life of the
contract.
2. Basis of preparation and summary of significant accounting
policies (continued)
Impact on financial statements
Impact on transition
On transition to IFRS 16, the Group recognised additional right
of use assets and additional lease liabilities. The impact on
transition is summarised below.
1 January
2019
GBPm
--------------------------------------------------- ----------
Right of use assets 157.2
Provisions 1.2
Payables 7.6
Lease liabilities (162.3)
Trade and other receivables including prepayments (3.7)
--------------------------------------------------- ----------
As the Group measured the right of use assets at an amount equal
to the lease liabilities, no adjustment to retained earnings was
required.
The provisions derecognised referred to previously identified
onerous leases that under IAS 17 had required, in previous
accounting periods, the recognition of a provision which, under
IFRS 16, is incorporated in the overall lease liability.
When measuring lease liabilities for leases that were classified
as operating leases, the Group discounted lease payments using its
incremental borrowing rate at 1 January 2019. The weighted average
rate applied is 3%.
1 January
2019
GBPm
------------------------------------------------------------- ----------
Operating lease commitments at 31 December 2018 as
disclosed in the Group's consolidated financial statements 182.1
Less payments not to be included within lease liability (2.5)
Discounted using the incremental borrowing rate at
1 January 2019 (17.3)
------------------------------------------------------------- ----------
Lease liabilities recognised at 1 January 2019 162.3
------------------------------------------------------------- ----------
Impacts for the period
As a result of initially applying IFRS 16 in relation to the
leases that were previously classified as operating leases, the
Group recognised GBP166.0m of right of use assets and GBP170.5m of
lease liabilities as at 31 December 2019. See Note 14 and 15 (d)
for further details.
Also in relation to those leases under IFRS 16, the Group has
recognised depreciation and interest costs instead of operating
lease expense. During the year ended 31 December 2019, the Group
recognised GBP36.7m of depreciation charges and GBP5.0m of interest
costs from these leases.
Adopted IFRS not yet applied
The following IFRSs have been issued but have not been applied
in these financial statements. Their adoption is not expected to
have a material effect on the financial statements:
-- Amendments to references to the Conceptual Framework in IFRS
Standards (effective date 1 January 2020)
-- Definition of a business (Amendments to IFRS 3) (effective date 1 January 2020)
-- Definition of material (Amendments to IAS 1 and IAS 8) (effective date 1 January 2020)
-- IFRS 17 Insurance Contracts (effective date 1 January 2021)
-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
(effective date to be confirmed)
2. Basis of preparation and summary of significant accounting
policies (continued)
Basis of consolidation
The Group's financial statements consolidate the financial
statements of the Company and its subsidiary undertakings based on
accounts made up to the end of the financial year. A subsidiary is
an entity controlled by the Company. The Group controls an entity
when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the entity. Intra-group balances and
any unrealised gains and losses or income and expenses arising from
intra-group transactions are eliminated on consolidation except to
the extent that unrealised losses provide evidence of
impairment.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRSs
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.
3. Operating segments
The Group's reportable segments are businesses that are managed
separately, due to a combination of factors including method of
service delivery, geographical location and the different services
provided.
Reportable business segment information
The Group has determined that its operating segments are its
reportable segments. The Group's reportable segments are as
follows:
* PPB Online
* Australia
* PPB Retail
* US
The reportable segments reflect the way financial information is
reviewed by the Group's Chief Operating Decision Maker
("CODM").
The PPB Online segment derives its revenues primarily from
sports betting (sportsbook and the exchange sports betting product)
and / or gaming (games, casino, bingo and poker) services in all
business-to-customer ("B2C") geographies that the Group operates in
except the US and Australia, and business-to-business ("B2B")
services globally. Online services are delivered primarily through
the internet with a small proportion delivered through the public
telephony system.
The Australia segment earns its revenues from sports betting
services provided to Australian customers using primarily the
internet with a small proportion using the public telephony
system.
The PPB Retail segment derives its revenues from sports betting
and / or gaming machine services delivered through licenced
bookmaking shop estates in the UK and Ireland.
The US segment earns its revenues from sports betting, daily
fantasy sports and gaming services provided to US customers using
primarily the internet with a proportion of US sports betting
services also provided through a small number of retail
outlets.
Corporate administrative costs (Board, Finance, Legal, Internal
Audit, HR, Property and other central functions) cannot be readily
allocated to individual operating segments and are not used by the
CODM for making operating and resource allocation decisions. These
are shown in the reconciliation of reportable segments to Group
totals.
The Group does not allocate income tax expense or interest to
reportable segments. Treasury management is centralised for the PPB
Online, Australia, PPB Retail 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.
3. Operating segments (continued)
Reportable business segment information for the year ended 31
December 2019:
PPB Online Australia PPB Retail US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------- ------------ ------------- -------- ------------ ----------
Revenue from external
customers 1,006.2 445.8 311.7 376.3 - 2,140.0
Cost of sales (283.1) (181.5) (69.8) (115.8) - (650.2)
------------- ------------ ------------- -------- ------------ ----------
Gross profit 723.1 264.3 241.9 260.5 - 1,489.8
Operating costs excluding
depreciation, amortisation
and impairment (410.3) (136.8) (165.6) (296.7) (55.0) (1,064.4)
------------- ------------ ------------- -------- ------------ ----------
Underlying EBITDA (1) 312.8 127.5 76.3 (36.2) (55.0) 425.4
Depreciation and amortisation (49.9) (23.8) (43.0) (23.8) (4.3) (144.8)
------------------------------- ------------- ------------ ------------- -------- ------------ ----------
Reportable segment profit
/ (loss) before separately
disclosed items 262.9 103.7 33.3 (60.0) (59.3) 280.6
Amortisation of acquisition
related intangible assets
(Note 4) (77.2) - - (35.9) - (113.1)
Reportable segment profit
/ (loss) after amortisation
of acquisition related
intangible assets 185.7 103.7 33.3 (95.9) (59.3) 167.5
Transaction fees (2)
(Note 4) (17.6)
Operating profit 149.9
----------
Reportable business segment information for the year ended 31
December 2018:
PPB Online Australia PPB Retail US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------- ------------ ------------- -------- ------------ --------
Revenue from external
customers 947.6 402.9 331.5 191.4 - 1,873.4
Cost of sales (231.0) (121.2) (73.1) (44.6) - (469.9)
------------- ------------ ------------- -------- ------------ --------
Gross profit 716.6 281.7 258.4 146.8 - 1,403.5
Operating costs excluding
depreciation, amortisation
and impairment (400.5) (144.7) (186.8) (161.3) (59.2) (952.5)
------------- ------------ ------------- -------- ------------ --------
Underlying EBITDA (1) 316.1 137.0 71.6 (14.5) (59.2) 451.0
Depreciation and amortisation (41.6) (17.6) (20.8) (10.5) - (90.5)
------------------------------- ------------- ------------ ------------- -------- ------------ --------
Reportable segment profit
/ (loss) before separately
disclosed items 274.5 119.4 50.8 (25.0) (59.2) 360.5
Amortisation of acquisition
related intangible assets
(Note 4) (79.9) - - (20.8) - (100.7)
Impairment of goodwill
and intangible assets
(Note 4) - - - (27.2) - (27.2)
------------------------------- ------------- ------------ ------------- -------- ------------ --------
Reportable segment profit
/ (loss) after amortisation
of acquisition related
intangible assets and
impairment of goodwill
and intangible assets 194.6 119.4 50.8 (73.0) (59.2) 232.6
Restructuring and strategic
initiatives (2) (Note
4) (28.0)
Operating profit 204.6
--------
3. Operating segments (continued)
1 Underlying EBITDA 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. Note as a result of the adoption of IFRS 16 Leases from 1 January 2019,
under the modified retrospective approach, the rent expense which in 2018 was reflected in
operating costs excluding depreciation, amortisation and impairment, is no longer recorded
as an expense in 2019 but is replaced by a depreciation charge and finance expense which are
recorded after EBITDA. There is no restatement of comparative information. See Note 2 for
further detail on the impact of IFRS 16.
2 The Group does not allocate transaction fees and restructuring and strategic initiatives to
reportable segments.
Reconciliation of reportable segments to Group totals:
2019 2018
GBPm GBPm
Revenue
Total revenue from reportable segments,
being total Group revenue 2,140.0 1,873.4
Profit and loss
Operating profit 149.9 204.6
Unallocated amounts:
Financial income 1.0 21.6
Financial expense (15.2) (7.5)
Profit before tax 135.7 218.7
Disaggregation of revenue under IFRS 15
Group revenue disaggregated by product line for the year ended
31 December 2019:
PPB Online Australia PPB Retail US Total
GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 666.3 445.8 229.6 325.0 1,666.7
Gaming revenue 339.9 - 82.1 51.3 473.3
Total Group revenue 1,006.2 445.8 311.7 376.3 2,140.0
Group revenue disaggregated by product line for the year ended
31 December 2018:
PPB Online Australia PPB Retail US Total
GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 677.8 402.9 221.7 171.7 1,474.1
Gaming revenue 269.8 - 109.8 19.7 399.3
Total Group revenue 947.6 402.9 331.5 191.4 1,873.4
(1) Sports revenue comprises sportsbook, exchange sports
betting, daily fantasy sports and pari-mutuel betting.
Geographical segment information
The Group considers that its primary geographic segments are
'UK', 'Ireland', 'Australia', 'US' and 'Rest of World'. The UK
geographic segment consists of the UK Retail bookmaking business,
online and telephone sports betting from customers in the UK, and
online gaming from customers in the UK. The Ireland geographic
segment consists of the Irish Retail bookmaking business, online
and telephone sports betting from customers in Ireland, and online
gaming from customers in Ireland. The Australia geographic segment
consists of online and telephone sports betting from Australian
customers. The US geographic segment is comprised of online and
retail sports betting and online gaming from US customers. The Rest
of World geographic segment is comprised of online sports betting,
online gaming and B2B services provided to customers in geographies
other than the UK, Ireland, Australia and the US. Revenues from
customers outside the UK, Ireland, Australia and the US are not
considered sufficiently significant to warrant separate
reporting.
3. Operating segments (continued)
Group revenues disaggregated by geographical segment for the
year ended 31 December 2019:
PPB Online Australia PPB Retail US Total
GBPm GBPm GBPm GBPm GBPm
UK 671.1 - 173.6 - 844.7
Ireland 98.5 - 138.1 - 236.6
Australia - 445.8 - - 445.8
US - - - 376.3 376.3
Rest of World 236.6 - - - 236.6
Total Group revenue 1,006.2 445.8 311.7 376.3 2,140.0
Group revenues disaggregated by geographical segment for the
year ended 31 December 2018:
PPB Online Australia PPB Retail US Total
GBPm GBPm GBPm GBPm GBPm
UK 672.8 - 195.4 - 868.2
Ireland 103.2 - 136.1 - 239.3
Australia - 402.9 - - 402.9
US - - - 191.4 191.4
Rest of World 171.6 - - - 171.6
Total Group revenue 947.6 402.9 331.5 191.4 1,873.4
Revenues are attributed to geographical location on the basis of
the customer's location.
Non-current assets (excluding deferred tax asset balances) by
geographical segment are as follows:
31 December 31 December
2019 2018
GBPm GBPm
UK 3,771.2 3,761.6
Ireland 157.3 104.8
Australia 108.9 89.9
US 805.0 823.3
Rest of World 185.1 15.5
Total 5,027.5 4,795.1
4. Separately disclosed items
2019 2018
GBPm GBPm
--------
Amortisation of acquisition related
intangible assets (113.1) (100.7)
Transaction fees (17.6) -
Impairment of goodwill and intangible
assets - (27.2)
Gain on contingent consideration - 10.7
Restructuring and strategic initiatives - (28.0)
Profit on disposal of investment - 7.0
Operating profit impact of separately
disclosed items (130.7) (138.2)
Tax credit on separately disclosed items 18.6 15.1
Total separately disclosed items (112.1) (123.1)
Amortisation of acquisition related intangible assets
Non-cash amortisation of GBP113.1m has been incurred in the
period (2018: GBP100.7m) as a result of intangible assets
separately identified under IFRS 3 as a result of the Merger with
Betfair in 2016 and the acquisitions of FanDuel Limited in 2018 and
Adjarabet in 2019.
Transaction fees
In the year ended 31 December 2019, this relates to incremental
one-off transaction costs resulting from the proposed all- share
combination with The Stars Group Inc. See Note 17 for further
detail on this combination.
Impairment of goodwill and intangible assets
During the year ended 31 December 2018, non-cash impairments
amounting to GBP27.2m, primarily in relation to goodwill and
intangible assets associated with our US DRAFT business were
incurred (see Note 7). There were no such impairments in 2019.
Gain on contingent consideration
The movement in the value of contingent consideration during the
year ended 31 December 2018 relates to the contingent consideration
that the Group has deemed is no longer payable arising in respect
of the DRAFT acquisition. No such item was incurred in 2019.
Restructuring and strategic initiatives
The costs incurred during the year ended 31 December 2018 arose
from the combination of Betfair US with FanDuel Limited and
significant restructuring and strategic changes made following the
appointment of a new CEO.
Profit on disposal of investment
In February 2018, the Group disposed of its remaining 31.4%
non-controlling interest in LMAX Limited for cash consideration
amounting to GBP21.9m to the existing majority LMAX shareholders
generating a profit of GBP7.0m.
Transaction fees and Restructuring and strategic initiatives are
included in the consolidated income statement within operating
costs excluding depreciation, amortisation and impairment.
Amortisation of acquisition related intangible assets is included
within depreciation and amortisation and impairment of goodwill and
intangible assets is included within impairment. The profit on
disposal of investment and gain on contingent consideration are
included within financial income.
5. Tax expense
2019 2018
GBPm GBPm
Recognised in profit or loss:
Current tax charge 47.7 53.7
Prior year over provision (2.5) (4.0)
Total current tax 45.2 49.7
Deferred tax credit (20.5) (12.5)
Prior year (under)/over provision (0.9) 0.8
Decrease in net deferred tax liability (21.4) (11.7)
Total tax expense in income statement 23.8 38.0
The difference between the total tax expense shown above and the
amount calculated by applying the standard rate of corporation tax
to the profit before tax is as follows:
2019 2018
GBPm GBPm
Profit before tax 135.7 218.7
Tax on Group profit before tax
at the standard Irish corporation
tax rate of 12.5% 17.0 27.4
Depreciation on non-qualifying
property, plant and equipment 0.9 1.3
Effect of different statutory
tax rates in overseas jurisdictions (2.8) 4.7
Non-deductible expenses 1.6 7.0
Effect of changes in statutory
tax rates (0.1) (0.7)
Movement on deferred tax balances
not recognised 10.5 1.5
Over provision in prior year (3.3) (3.2)
Total tax expense 23.8 38.0
Total tax expense for 2019 includes a credit for separately
disclosed items amounting to GBP18.6m (2018: GBP15.1m) (see Note
4).
Tax rates
The Group's consolidated effective tax rate on profits including
separately disclosed items for 2019 is 17.5% (2018: 17.4%). The
separately disclosed items impacting the consolidated tax rate
include the unwind of deferred tax liabilities recognised in
respect of merger related intangibles and the acquisition of a
majority stake in Adjarabet as well as other deal related costs.
The tax effect of separately disclosed items in the current year
amounted to a tax credit of GBP18.6m (2018: GBP15.1m).
The Group's underlying effective tax rate of 15.9% (2018: 14.9%)
is materially impacted by the geographic mix of profits and
reflects a combination of higher and lower headline rates of tax in
the various jurisdictions in which the Group operates when compared
with the Irish standard rate of corporation tax of 12.5%.
The Group's underlying effective tax rate is also materially
impacted by the movement on deferred tax balances which remain
unrecognised due to the doubt over the future recoverability of
those assets, as well as the effect of expenses which are not
deductible for tax purposes.
No significant changes are expected to statutory tax rates other
than those announced and enacted at 31 December 2019; principally
the reduction in the headline rate of UK corporation tax to 17% in
April 2020.
The effect of the reduction in the UK headline rate of
corporation tax on recognised deferred tax balances in the UK is
reflected in the above tax reconciliation.
The future effective tax rate of the Group is principally
affected by the ongoing geographic mix of profits in accordance
with the OECD guidelines in relation to Base Erosion and Profit
Shifting.
6. 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 year. The weighted average number of shares
has been adjusted for amounts held as Treasury Shares and amounts
held by the Group's Employee Benefit Trust ("EBT").
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares.
The calculation of basic and diluted EPS is as follows:
2019 2018
Numerator in respect of basic and diluted
earnings per share (GBPm):
Profit attributable to equity holders
of the Company 144.0 201.4
Numerator in respect of adjusted earnings
per share (GBPm):
Profit attributable to equity holders
of the Company 144.0 201.4
Separately disclosed items 94.4 114.7
Profit for adjusted earnings per share
calculation 238.4 316.1
Weighted average number of ordinary shares
in issue during the year (in 000's) 78,589 83,340
Basic earnings per share GBP1.832 GBP2.417
Adjusted basic earnings per share GBP3.033 GBP3.793
Adjustments to derive denominator in respect of
diluted earnings per share
(in 000's):
Weighted average number of ordinary shares
in issue during the year 78,589 83,340
Dilutive effect of share options and
awards on issue 426 457
Adjusted weighted average number of ordinary
shares in issue during the year 79,015 83,797
Diluted earnings per share GBP1.822 GBP2.404
Adjusted diluted earnings per share GBP3.017 GBP3.772
---------- ----------
The average market value of the Company's shares of GBP68.25
(2018: GBP74.63) was used to calculate the dilutive effect of share
options based on the market value for the period that the options
were outstanding.
The number of options excluded from the diluted weighted average
number of ordinary shares calculation due to their effect being
anti-dilutive is 464,380 (2018: 447,540).
7. Goodwill
The following cash generating units ('CGU'), being the lowest
level of asset for which there are separately identifiable cash
flows, have the following carrying amounts of goodwill:
Irish
PPB Online Australia US UK Retail Retail Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2018 3,432.6 44.6 369.5 18.7 19.8 3,885.2
Impairment - - (26.5) - - (26.5)
Arising on acquisitions
during the year (Note
8) - - 191.3 0.2 0.9 192.4
Foreign currency translation
adjustment 0.1 (2.1) 26.2 - - 24.2
Balance at 31 December
2018 3,432.7 42.5 560.5 18.9 20.7 4,075.3
Arising on acquisitions
during the year (Note
8) 69.6 - - - - 69.6
Foreign currency translation
adjustment (5.9) (1.4) (17.3) - - (24.6)
Balance at 31 December
2019 3,496.4 41.1 543.2 18.9 20.7 4,120.3
The PPB Online segment goodwill amount arose from the
acquisition of CT Networks Limited ("Cayetano"), a games developer
based in the Isle of Man and Bulgaria, in 2011, the acquisition of
the Betfair online business (excluding operations in the US)
acquired as part of the all-share merger with Betfair Group plc in
2016 and on 1 February 2019, the acquisition of an initial 51%
controlling stake in Adjarabet, the market leader in online betting
and gaming in the regulated Georgian market (see Note 8).
The Australia segment goodwill amount arose from the acquisition
of an initial 51% interest in Sportsbet Pty Limited ("Sportsbet")
and the subsequent acquisition of International All Sports Limited
("IAS") by Sportsbet, both in 2009.
The US segment goodwill amount arose from the acquisition of the
US business acquired as part of the all-share merger with Betfair
Group plc in 2016 and the acquisition of FanDuel Limited a market
leading operator in the daily fantasy sports market in the United
States, in 2018 (see Note 8). Due to the decision to combine the
Group's US assets with FanDuel (see Note 8) and the impact of this
decision on the Group's existing US daily fantasy sports business,
the Group reviewed the carrying value of this business and
determined, that an impairment charge of GBP26.5m was required in
2018.
Goodwill in UK Retail arose from the acquisition of two London
bookmaking businesses in 2004, the acquisition of a retail
bookmaking company in Northern Ireland in 2008 and the acquisition
of a number of retail bookmaking shop properties since 2010.
Goodwill in Irish Retail arose from the amalgamation of three
bookmaking businesses to form Paddy Power plc in 1988 and the
acquisition of a number of retail bookmaking shop properties since
2007.
Impairment tests for cash generating units containing goodwill
and indefinite life intangible assets
In accordance with accounting requirements, the Group performs
an annual test for impairment of its cash generating units. The
most recent test was performed at 31 December 2019. Based on the
reviews as described above, with the exception of the impairment of
USD35.3m (GBP26.5m) in 2018 of the US DFS business acquired in 2017
and the IAS brand impairment of AUD6.9m initially provided for in
2011, no impairment has arisen.
8. Business combinations
Year ended 31 December 2019
Acquisition of Adjarabet
On 1 February 2019, the Group completed the acquisition of an
initial 51% controlling stake in Adjarabet, the market leader in
online betting and gaming in the regulated Georgian market. The
Group, through agreed option agreements, expects to acquire the
remaining 49% after three years.
8. Business combinations (continued)
In 2018, Adjarabet generated revenues (unaudited) of 215m
Georgian Lari (GEL) (GBP64m) and EBITDA (unaudited) of GEL68m
(GBP20m). The initial cash consideration being paid by the Group
for the 51% stake is GBP102m. A mechanism has also been 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 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.
Since the date of acquisition to 31 December 2019, the Adjarabet
business has contributed GBP74.7m of revenue and GBP21.0m of
operating profit. If the Adjarabet acquisition had occurred on 1
January 2019, their contribution to revenue and operating profit
would have been GBP79.6m and GBP21.7m respectively for the year
ended 31 December 2019.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Included within the intangible assets were GBP74.4m of
separately identifiable intangibles comprising brand and customer
relations acquired as part of the acquisition, with the additional
effect of a deferred tax liability of GBP11.1m thereon. These
intangible assets are being amortised over their useful economic
lives of up to ten years. Receivables acquired amounted to GBP1.2m.
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. The goodwill has been allocated to
the existing PPB Online CGU and it has been deemed that a separate
CGU is not appropriate.
Fair values
as at
1 February 2019
GBPm
-----------------
Assets
Property, plant and equipment 2.6
Intangible assets 75.6
-----------------
Total non-current assets 78.2
-----------------
Trade and other receivables 2.7
Financial assets - restricted cash 1.6
Cash and cash equivalents acquired 0.2
Total current assets 4.5
Total assets 82.7
-----------------
Liabilities
Trade and other payables 5.7
Customer balances 1.6
Total current liabilities 7.3
Trade and other payables 0.7
Deferred tax liabilities 11.1
Total non-current liabilities 11.8
Total liabilities 19.1
-----------------
Net assets acquired 63.6
Goodwill 69.6
Non-controlling interest measured
at the fair value of net assets
identified (31.2)
Consideration 102.0
The consideration is analysed as:
Consideration paid in cash 102.0
Consideration 102.0
8. Business combinations (continued)
Year ended 31 December 2018
Acquisition of FanDuel Limited
On 10 July 2018, the Group completed the combination of its US
business with FanDuel Limited, to create a new company called
FanDuel Group Inc.. Under the terms of the combination, the Group
contributed its existing US business and assets along with $145m
(GBP109.3m) of cash to FanDuel Group Inc. and also paid $15.5m
(GBP11.7m) to a small number of FanDuel Limited shareholders for
their shareholding, while FanDuel Limited contributed its entire
business to FanDuel Group Inc.. The cash contribution was used in
part to pay down existing FanDuel Limited debt and will also be
used to fund the working capital of FanDuel Group Inc.. The
combination resulted in the holders of Flutter Entertainment plc
shares owning 61% of FanDuel Group Inc., and the holders of FanDuel
Limited shares owning 39% of FanDuel Group Inc. call and put
options exist to acquire the shares of FanDuel Limited shareholders
at prevailing market valuations after three and five years. The
Group has the discretion as to whether these options are settled by
the issuance of Flutter Entertainment plc shares or via cash. 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.
In 2018, subsequent to the above transaction, Boyd Gaming
acquired 5% in FanDuel such that Flutter Entertainment plc now has
a 58% interest in FanDuel.
The consideration was GBP211.9m based on the value of the
Group's existing US business contributed to FanDuel Group Inc.,
cash consideration paid and the fair value of the cash contribution
payable by the Group to FanDuel.
FanDuel has over 40% market share of the US daily fantasy sports
market, with 7m registered customers across 40 states. In 2017, it
had revenue of $124m and 1.3m active customers. Headquartered in
New York, the business has built-up a leading US sports brand with
approximately $400m cumulative marketing spend to date supported by
innovative proprietary technology. The transaction strengthens the
Group's opportunity to target the prospective US sports betting
market through the addition of a strong brand, large existing
customer base and talented team.
Since the date of acquisition to 31 December 2018, the FanDuel
DFS business has contributed GBP57.3m of revenue.
If the FanDuel acquisition had occurred on 1 January 2018, then
their contribution to revenue would have been GBP101.5m for the
year ended 31 December 2018.
FanDuel's profit cannot be readily defined due to the
integration of the businesses post the acquisition. The proforma
profit for the combined US Group is disclosed on page 19 of the
preliminary statement. Acquisition related costs of GBP7.9m were
incurred in respect of this transaction and are disclosed within
restructuring and strategic initiatives in Note 4 of the
Consolidated Financial Statements.
8. 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 GBP171.2m of
separately identifiable intangibles comprising brands, customer
relations and technology acquired as part of the acquisition, with
the additional effect of a deferred tax liability of GBP35.9m
thereon. These intangible assets are being amortised over their
useful economic lives of up to ten years. Receivables acquired
amounted to GBP3.6m. 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
has been allocated to the existing US CGU and it has been deemed
that a separate CGU is not appropriate.
Fair values
as at
10 July
2018
GBPm
Assets
Property, plant and equipment 3.4
Intangible assets 178.1
Total non-current assets 181.5
Trade and other receivables 5.0
Financial assets - restricted cash 45.6
Cash and cash equivalents acquired 20.4
Total current assets 71.0
Total assets 252.5
Liabilities
Trade and other payables 54.1
Debt and debt like items acquired 79.9
Customer balances 44.3
Total current liabilities 178.3
Trade and other payables -
Deferred tax liabilities 35.9
Total non-current liabilities 35.9
Total liabilities 214.2
Net assets acquired 38.3
Goodwill 191.3
Non-controlling interest measured at the
fair value of net assets identified (17.7)
Consideration 211.9
The consideration is analysed as:
Betfair US shares transferred to Non-controlling
interest 157.5
Consideration paid in cash 11.7
Fair value of cash contribution allocated
to Non-controlling interest 42.7
Consideration 211.9
8. Business combinations (continued)
Shop property business acquisitions
In 2018, the Group, in the absence of available comparable sites
for organic shop openings, acquired a number of licenced bookmaking
businesses in the UK and Ireland.
Details of the net assets acquired and the goodwill arising on
these acquisitions under IFRS are as follows:
Fair values
31 December
2018
GBPm
Identifiable net assets acquired:
Property, plant and equipment 0.1
Goodwill arising on acquisition - UK Retail
and Irish Retail 1.1
Consideration 1.2
The consideration is analysed as:
Cash consideration 1.1
Contingent deferred consideration 0.1
Consideration 1.2
The principal factors contributing to the UK Retail and Irish
Retail goodwill balances are the well-established nature of the
acquired businesses within the locations in which they operate and
the potential synergies, rebranding opportunities and operational
efficiencies achievable for the acquired businesses within the
Group.
Information in respect of revenue, operating profit and cash
flows for the acquired businesses in the period from acquisition
and for the year ended 31 December 2018 has not been presented on
the basis of immateriality.
Contingent deferred consideration is payable to the vendors by
reference to the acquired businesses' performance against agreed
financial targets for the 12 months following the date of
acquisition.
Net cash outflow / (inflow) from purchase of businesses
31 December 31 December
2019 2018
GBPm GBPm
Cash consideration - acquisitions
in the year 102.0 12.8
Cash acquired - acquisitions in the
year (0.2) (20.4)
Repayment of FanDuel debt and debt
like items - 79.9
Cash consideration - acquisitions
in previous years 4.8 6.1
Total 106.6 78.4
Analysed for the purposes of the statement
of cash flows as:
Purchase of businesses 102.0 12.8
Cash acquired from acquisitions (0.2) (20.4)
Repayment of FanDuel debt and debt
like items - 79.9
Payment of contingent deferred consideration 4.8 6.1
Total 106.6 78.4
During 2019, the Group settled deferred consideration
liabilities of GBP4.5m (2018: GBP3.4m) in relation to Betfair's
historical acquisition of HRTV, a horseracing television network
based in the US and GBP0.3m relating to other prior year
acquisitions.
9. Investments and trade and other receivables
Non-current assets
31 December 31 December
2019 2018
GBPm GBPm
Investments 0.1 2.4
At 31 December 2018, the Group had a non-controlling interest in
Featurespace of 2.38% with a fair value of GBP2.3m. In 2019, the
Group disposed of its remaining 2.38% non-controlling interest in
Featurespace for cash consideration amounting to GBP2.3m.
31 December 31 December
2019 2018
GBPm GBPm
Other receivables
Prepayments 9.0 8.9
Finance lease receivable (see Note 15) 2.6 -
Amounts paid in respect of legacy German and
Greek tax assessments (Note A) 38.8 -
50.4 8.9
Current assets
31 December 31 December
2019 2018
GBPm GBPm
Trade and other receivables
Trade receivables - credit betting customers 0.4 1.7
Trade receivables - other sports betting counterparties 8.1 3.4
Trade receivables 8.5 5.1
Finance lease receivable (see Note 15) 0.4 -
Other receivables 8.0 6.9
Value-added tax and goods and services tax 1.9 2.1
Prepayments 45.8 67.7
Total 64.6 81.8
Trade and other receivables are non-interest bearing.
Note A
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) is payable
(including accrued interest). 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 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.
The Group strongly disputes the basis of these assessments, and
in line with the legal and tax advice we have received, is
confident in our grounds to successfully appeal them. The appeals
process has commenced in both cases. Accordingly, we do not
consider that these amounts represent liabilities for the Group and
no provision has been made for amounts assessed or potential
further assessments. 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. Pending the outcome of these appeals, we paid the
total Greek tax assessment (including the penalties and interest)
and the EUR30.6m German tax assessment during 2019, with the late
payment interest to be paid in due course.
10. Financial assets and cash and cash equivalents
31 December 31 December
2019 2018
GBPm GBPm
Current
Financial assets - restricted
cash 189.1 167.2
Cash and cash equivalents 108.1 123.7
Total 297.2 290.9
The above cash and cash equivalents figure reconciles to the
amount shown in the statement of cash flows at the end of the
financial year as follows:
31 December 31 December
2019 2018
GBPm GBPm
Cash and cash equivalents as above 108.1 123.7
Bank overdraft (5.0) -
Cash and cash equivalents per
cash flow 103.1 123.7
Financial assets
Included in financial assets - restricted cash at 31 December
2019 w ere either (1) restricted at that date, as they represented
customer funds balances securing player funds held by the Group or
(2) required to be held to guarantee third party letter of credit
facilities. These customer funds that are not held in trust are
matched by liabilities of equal value. The effective interest rate
on bank deposits at 31 December 2019 was 0.6% (2018: 2.28%); these
deposits have an average original maturity date of 1 day (2018: 1
day). The bank deposits also have an average maturity date of 1 day
from 31 December 2019 (2018: 1 day). The Directors believe that all
short term bank deposits can be withdrawn without significant
penalty.
Financial assets - restricted cash and cash and cash equivalents
are analysed by currency as follows:
31 December 31 December
2019 2018
GBPm GBPm
GBP 12.9 21.8
EUR 38.2 61.0
AUD 65.1 67.0
USD 154.0 134.3
Other 27.0 6.8
Total 297.2 290.9
As at 31 December 2019, GBP318.2m (31 December 2018: GBP368.4m)
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.
11. Share capital and reserves
The total authorised share capital of the Company comprises
150,000,000 ordinary shares of EUR0.09 each (2018: 150,000,000
ordinary shares of EUR0.09 each). All issued share capital is fully
paid. The holders of ordinary shares are entitled to vote at
general meetings of the Company on a one vote per share held basis.
Ordinary shareholders are also entitled to receive dividends as may
be declared by the Company from time to time.
The movement in the number of issued ordinary shares during the
year was as follows:
During the year ended 31 December 2019, 279,096 ordinary shares
(2018: 474,236) were issued as a result of the exercise of share
options under employee share schemes, giving rise to a share
premium of GBP3.6m (2018: GBP2.3m).
The GBP500m share buyback programme, which commenced on 29 May
2018 completed in February 2019. Under this programme, the Company
repurchased for cancellation 6,993,308 ordinary shares for a total
consideration of approximately GBP500m. This consisted of a GBP200m
share buyback programme announced on 29 May 2018 which was
completed in August 2018 and in August 2018, the Group commenced a
second buyback programme of GBP300m which was ongoing at 31
December 2018. Overall in 2018 cash payments of GBP413.7m had been
made in respect of the repurchases and a further GBP1.3m for other
transaction related costs were made. Between 31 December 2018 and 6
February 2019 further payments of GBP86.4m in respect of share
purchases and GBP0.4m for other transaction related costs were made
. The nominal value of the shares cancelled during the year ending
31 December 2019 was GBP0.1m.
A total of 1,965,600 ordinary shares were held in treasury as of
31 December 2019 (2018: 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 31 December
2019 (2018: GBP40.7m). The cost of treasury shares held by the
Company at 31 December 2019 was GBP4.2m (2018: GBP4.2m), with a
further GBP36.5m of shares being held by the Company's subsidiaries
(2018: GBP36.5m).
At 31 December 2019, the Paddy Power Betfair plc Employee
Benefit Trust ("EBT") held 70,397 (2018: 99,741) of the Company's
own shares, which were acquired at a total cost of GBP6.1m (2018:
GBP8.6m), in respect of potential future awards relating to the
Group's employee share plans. The Company's distributable reserves
at 31 December 2019 are restricted by this cost amount. In 2019,
29,344 shares with an original cost of GBP2.5m (2018: 101,232
shares with an original cost of GBP7.0m) were transferred from the
EBT to the beneficiaries of the EBT.
The foreign exchange translation reserve at 31 December 2019 had
a debit balance of GBP21.5m (2018: credit balance of GBP4.1m) and
arose from the retranslation of the Group's net investment in Euro,
AUD, USD and GEL functional currency entities. The movement in the
foreign exchange translation reserve for the year ending 31
December 2019 reflects mainly the weakening of USD and GEL against
GBP in the year.
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. Following the introduction of IFRS 16, the
Group has designated the Euro lease liability in its GBP functional
currency companies as a hedging instrument in a hedge of its highly
probable future Euro revenues. The fair value gain of GBP2.3m at 31
December 2019 (31 December 2018: nil) arises as the applicable EUR
- GBP forward exchange rates were favourable relative to the
position at the start of the year.
Other reserves comprise undenominated capital. Undenominated
capital at 31 December 2019 of GBP2.3m (2018: GBP2.2m) relates to
the nominal value of shares in the Company acquired by the Company
of GBP2.1m (2018: GBP2.0m) and subsequently cancelled and an amount
of GBP0.2m (2018: 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.
In 2019, an amount of GBP20.3m (2018: GBP40.5m) in respect of
share options exercised during the year was transferred from the
share-based payment reserve to retained earnings. An amount of
GBP1.1m of deferred tax relating primarily to the Group's
share-based payments was credited to retained earnings in 2019
(2018: charge of GBP3.6m). An amount of GBP0.4m of current tax
relating to the Group's share-based payments was credited to
retained earnings in 2019 (2018: GBP2.9m).
12. Dividends paid on ordinary shares
2019 2018
GBPm GBPm
Ordinary shares:
- final dividend of GBP1.33 per share for
the year ended 31 December 2018
(31 December 2017: GBP1.35) 104.0 114.0
- interim dividend of GBP0.67 per share for
the year ended 31 December 2019 (31 December
2018: GBP0.67) 52.2 55.0
Amounts recognised as distributions to equity
holders in the year 156.2 169.0
The Directors have proposed a final dividend of 133 pence per
share which will be paid on 22 May 2020 to shareholders on the
Company's register of members at the close of business on the
record date of 14 April 2020. This dividend, which amounts to
approximately GBP104m, has not been included as a liability at 31
December 2019.
13. Trade and other payables and derivative financial
liabilities
Current liabilities
31 December 31 December
2019 2018
GBPm GBPm
Trade and other payables
Trade payables 25.3 21.3
Customer balances 179.2 155.3
PAYE and social security 9.7 5.2
Value-added tax and goods and services
tax 3.0 0.9
Betting duty, data rights, and product
and racefield fees 60.1 39.5
Employee benefits 52.3 43.5
Liability to purchase own shares - 86.8
Contingent deferred consideration - business
combinations 7.4 4.8
Accruals and other liabilities 211.8 175.5
Total 548.8 532.8
Derivative financial liabilities
Sports betting open positions 20.4 20.1
Non-current liabilities
31 December 2019 31 December 2018
GBPm GBPm
Trade and other payables
Employee benefits 0.5 0.6
Contingent deferred consideration - business combinations 11.0 17.0
Accruals and other liabilities - 8.6
Total 11.5 26.2
Derivative financial liabilities
Sports betting open positions 0.7 0.9
The liability to purchase own shares at 31 December 2018 relates
to an obligation arising under a buyback agreement for the purchase
of the Company's own shares (see Note 11). The share buyback was
completed in full in 2019.
13. Trade and other payables and derivative financial
liabilities (continued)
Sports betting open positions
Amounts received from customers on sportsbook events that have
not occurred by the year end 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 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.
Contingent deferred consideration - business combinations
Included within non-current liabilities is contingent and
deferred consideration of GBP11.0m due to Betfair's historical
acquisition of HRTV, a horseracing television network based in the
United States. The amount payable at 31 December 2019 in respect of
the HRTV acquisition amounted to GBP18.3m, with GBP11.0m due after
one year from the reporting date.
14. Borrowings and Lease liabilities
Current liabilities
31 December 2019 31 December 2018
GBPm GBPm
Term Loan Facility 250.0 -
Overdraft facility 5.0 -
Accrued interest on borrowings 0.5 0.4
Less: expenses relating to term loan facility (0.5) -
255.0 0.4
Lease liabilities 38.4 -
Non-current liabilities
31 December 2019 31 December 2018
GBPm GBPm
Revolving credit facility 117.3 285.0
Less: expenses relating to revolving credit facility (1.6) (2.0)
115.7 283.0
Lease liabilities 132.1 -
In 2015, the Group secured a committed revolving credit bank
loan facility ("RCF") of EUR300m provided by a syndicate of banks
which was scheduled to expire in May 2020. In 2018, the RCF was
amended to an amount of GBP450m and was extended to expire in April
2023. In May 2019, the RCF was amended to update the financial
covenants and margin grid, as per those outlined below. In May
2019, the Group also secured a term loan facility of GBP250m
provided by a syndicate of banks. The term loan facility is for an
initial period of 18 months with an option to extend further by up
to 12 months.
At 31 December 2019, GBP79m and EUR45m of the RCF was drawn down
and GBP250m of the term loan facility was drawn down totalling to
GBP367.3m (31 December 2018: GBP285m)
Borrowings under the RCF and the term loan facility are
unsecured but are guaranteed by the Company and certain of its
operating subsidiaries. Borrowings under the RCF incur interest at
LIBOR (for borrowings denominated in pounds sterling) and EURIBOR
(for borrowings denominated in euro) plus a margin of between 1.10%
and 2.50%. A commitment fee, equivalent to 35% of the margin, is
payable in respect of available but undrawn borrowings. Borrowings
under the term loan facility incur interest at LIBOR plus a margin
of between 0.60% and 2.40%.
It is the Directors' opinion that due to the Group's bank
borrowings being subject to floating interest rates and the proven
cash generation capability of the Group, there is no significant
difference between the book value and fair value of the Group's
borrowings. Under the terms of both the RCF and term loan facility,
the Group is required to comply with the following financial
covenants on a semi-annual basis.
14. Borrowings and Lease liabilities (continued)
-- Net Leverage Ratio: Consolidated net borrowings shall not be
more than 3.5 times underlying consolidated EBITDA (with
acquisition spikes in the event of material acquisitions, to 4.0
times for a period of six months, stepping back to 3.75 times for
the subsequent six months, before returning to 3.5 times).
-- Interest Cover Ratio: Underlying consolidated EBITDA shall
not be less than 4.0 times net finance charges.
During the year ended 31 December 2019, all covenants have been
complied with.
In addition, at 31 December 2019 GBP5.0m of the Group's bank
overdraft facilities were utilised (31 December 2018: GBPNil).
Reconciliation of movements of liabilities to cash flows arising
from financing activities:
GBPm
Balance at 1 January 2019 283.4
IFRS 16 Lease liability at 1 January 2019 162.3
Adjusted Balance at 1 January 2019 445.7
Changes from financing cash flows
Amounts drawn on Revolving Credit Facility 393.8
Amounts drawn on Term Loan Facility 250.0
Amounts repaid on borrowing facility (561.0)
Fees in respect of borrowing facility (0.8)
Amounts drawn on overdraft facility 5.0
Lease liabilities paid (41.4)
Interest paid (7.1)
Total 38.5
Other changes
Lease liability change - Business Combinations 0.9
Lease liability change - remeasurement
of lease term 19.0
Lease liability change - Additions & Disposals 29.8
Interest on borrowings 7.2
Interest on leases 5.0
Unwinding of capitalised expenses relating
to revolving credit facility 0.7
Foreign exchange movements (5.6)
Total other changes 57.0
Balance at 31 December 2019 541.2
15. Commitments and contingencies
(a) Guarantees
The Company enters into financial guarantee contracts to
guarantee the indebtedness of other companies within the Group. The
Company considers these to be insurance arrangements and accounts
for them as such. The Company treats the guarantee contract as a
contingent liability until such time as it becomes probable that
the Company will be required to make a payment under the
guarantee.
The Group has uncommitted working capital overdraft facilities
of GBP19.3m (2018: GBP10.5m) with Allied Irish Banks p.l.c.. These
facilities are secured by a Letter of Guarantee from Flutter
Entertainment plc.
The Group has bank guarantees: (1) in favour of certain gaming
regulatory authorities to guarantee the payment of player funds,
player prizes, and certain taxes and fees due by a number of Group
companies; and (2) in respect of certain third party rental and
other property commitments, merchant facilities and third party
letter of credit facilities. The maximum amount of the guarantees
at 31 December 2019 was GBP12.5m (2018: GBP15.7m). No claims had
been made against the guarantees as of 31 December 2019 (2018:
GBPNil). The guarantees are secured by counter indemnities from
Flutter Entertainment plc and certain of its subsidiary companies.
The value of cash deposits over which the guaranteeing banks hold
security was GBP2.6m at 31 December 2019 (2018: GBP0.9m).
The Australian corporate sports bookmaking licences issued to
Sportsbet require those companies to hold sufficient cash funds to
cover monies owed to customers. At 31 December 2019, the total
value of relevant customer balances attributable to the Australia
business segment was GBP40.4m (AUD76.1m) (2018: GBP45.5m
(AUD82.5m)) and the combined cash and cash equivalent balances held
by Sportsbet at that date totalled GBP66.1m (AUD124.4m) (2018:
GBP65.6m (AUD119m)). In addition, the Group holds cash amounts
totalling GBP148.7m (2018: GBP121.7m) primarily in respect of
customer funds that are not held on trust in The Sporting Exchange
(Clients) Limited in accordance with local regulations. This
includes the requirements of various states in the United States
which requires fantasy contest operators to either segregate
customer funds or else maintain a reserve in the form of cash and
cash equivalents. Customer funds that are not held on trust are
matched by liabilities of an equal value.
As mentioned in Note 14, borrowings under the RCF and Term loan
are unsecured but are guaranteed by the Company and certain of its
operating subsidiaries.
(b) 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 9 for further detail in respect of legacy German and Greek tax
assessments.
15. Commitments and contingencies (continued)
(c) Capital commitments
Capital expenditure contracted for at the statement of financial
position date but not yet incurred was as follows:
31 December 31 December
2019 2018
GBPm GBPm
Property, plant and equipment 0.4 11.3
Intangible assets 0.7 9.8
Total 1.1 21.1
(d) Leases (See Note 2)
The Group leases various licenced betting and other offices
under lease agreements. The leases have varying terms, escalation
clauses and renewal rights. The leases have, on average,
approximately five years left to run (if the Group was to exercise
available break options), with a right of renewal after that date.
Lease rentals are typically reviewed every five years to reflect
market rental rates or changes in general inflation rates. Leases
for licenced betting and other offices are entered into as combined
leases of land and buildings. Since the title to the land does not
pass, the rent paid to the landlord of the building is increased to
market rent at regular intervals and the Group does not participate
in the residual value of the building, it was determined that
substantially all the risks and rewards of the offices are with the
landlord. As such, the Group had determined that the leases were
operating leases in accordance with IAS 17.
For the accounting treatment of such leases under IFRS 16 as
opposed to IAS 17, and for the adjustments required at transition
date, refer to the applicable accounting policy.
The Group has a small number of properties that are sublet.
Right of use assets
GBPm
Balance at 1 January 2019 157.2
Business combinations 0.9
Depreciation charge for the year (36.7)
Additions - IFRS 16 right-of-use asset 30.9
Remeasurement of lease term 19.0
Derecognition of right-of-use assets (3.8)
Foreign exchange translation (1.5)
Balance at 31 December 2019 166.0
Derecognition of right of use assets is as a result of entering
into a finance sub-lease and exiting early from an existing
lease.
Leases as lessee
Amounts recognised in profit or loss:
GBPm
2019 - Leases under IFRS 16
Depreciation 36.7
Interest on lease liabilities 5.0
Income from sub-leasing right of use
assets (1.2)
Expense relating to short- term lease 0.1
GBPm
2018 - Leases under IAS 17
Lease expense 39.1
Contingent rent expense 0.1
Sub-lease income (1.8)
15. Commitments and contingencies (continued)
Lease options (See Note 2)
Some property leases particularly in our retail business contain
extension and break options to provide operational flexibility.
These options are held by the Group and not by the lessors. The
Group assesses whether it is reasonably certain to exercise these
options at lease commencement date. When assessing these options at
the date of transition, the Group was mindful of the regulatory
changes in 2019 particularly in the UK and the impact it would have
on future shop profitability and whether it could state with
reasonable certainty that these options would be exercised. The
Group is of the view that other than the underlying trading of the
shop, there is no economic incentive to extend a particular lease.
For example, the rents are at market rates, there are no
significant leasehold improvements and there are no significant
costs relating to exiting or relocating.
During 2019, as these regulatory changes have been implemented
and the Group has obtained greater knowledge of the potential
impact on profitability, it has reassessed the likelihood of lease
terms being extended and revised its lease term assumptions.
The Group has estimated that the potential future lease payments
should it exercise all options or not exercise any break clauses
would result in an increase in the lease asset and liability of
GBP19m.
Leases as lessor
Finance lease
The Group has a small number of properties that are sublet. The
following table sets out a maturity analysis of lease receivables
showing the undiscounted lease payments to be received after the
reporting date. Under IAS 17, the Group did not have any finance
leases as a lessor.
31 December
2019
GBPm
Less than one year 0.8
Between two and five years 2.5
Total undiscounted lease receivable 3.3
Unearned finance income (0.3)
Net Investment in finance lease 3.0
Operating lease
The Group has a small number of properties that are sublet.
Sublease payments of GBP1.2m (2018: GBP2.2m) are expected to be
received during the year ended 31 December 2020.
16. Related parties
There were no transactions with related parties during the years
ended 31 December 2019 and 2018 that materially impacted the
financial position or performance of the Group
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
17. Events after the reporting date
Dividend
In respect of the current year, the Directors propose that a
final dividend of 133.0 pence per share will be paid to
shareholders on 22 May 2020. This dividend is subject to approval
by shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements. The proposed
dividend is payable to all shareholders on the register of members
on 14 April 2020. The total estimated dividend to be paid amounts
to GBP104m.
17. Events after the reporting date (continued)
Proposed combination with The Stars Group Inc
As announced on 2 October 2019, the Group and The Stars Group
Inc ("TSG") reached agreement on the terms of a recommended
all-share combination to be implemented through an acquisition of
TSG by Flutter pursuant to a plan of arrangement under the Business
Corporations Act (Ontario) (the "Combination").
Under the terms of the Combination, which is subject to the
approval of Flutter and TSG shareholders and various regulatory
approvals, TSG shareholders will be entitled to receive: 0.2253 new
Flutter ordinary shares in exchange for each TSG common share held
by them. Immediately following completion of the Combination,
Flutter shareholders would own approximately 54.64 per cent. and
TSG shareholders would own approximately 45.36 per cent. of the
share capital of Flutter (based on the fully diluted share capital
of Flutter and the fully diluted share capital of TSG excluding any
out of the money options, in each case, as at the date of the
announcement of the Combination). Subject to receipt of the
required regulatory and shareholder approvals, the Combination is
expected to complete in Q2 or Q3 2020.
The Combination will bring together two complementary businesses
(the "Combined Group") to create a global leader in sports betting
and gaming. The Combined Group will have a diverse portfolio of
leading brands and complementary best-in-class products with a
broad geographic reach. Flutter and TSG will each bring to the
Combined Group a proven track record in using product and brand
leadership to create low-cost customer acquisition channels, while
optimising value through product cross-sell. The Combined Group
will benefit from both an enhanced global platform and improved
reach within local markets. On a pro forma basis, the Combined
Group's annual revenue would have been GBP3.8bn in 2018, making it
the largest online betting and gaming operator globally.
The arrangement agreement entered into between the Group and TSG
in order to implement the Combination includes certain
circumstances in which the Group or TSG may terminate the
arrangement agreement, including circumstances in which a
termination payment of approximately GBP60 million will be payable
by either party.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TFMMTMTITTJM
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February 27, 2020 02:00 ET (07:00 GMT)
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