TIDMFLTR
RNS Number : 2604X
Flutter Entertainment PLC
27 August 2020
27 August 2020
Flutter Entertainment plc - 2020 Interim Results
Positive first half performance; Maintaining momentum as
integration progresses
Flutter Entertainment plc (the "Group") announces interim
results for the six months ended 30 June 2020.
Reported(1) Pro forma(2)
GBPm H1 H1 H1 H1 Constant
Currency(3)
----------------------
2020 2019 2020 2019
----------------------
GBPm GBPm YoY % GBPm GBPm YoY % YoY %
---------------------- ------ ------ ----- ------ ------ ----- ------------
Revenue(4) 1,522 1,020 +49% 2,389 1,975 +21% +22%
Adjusted(5) EBITDA(6) 342 216 +59% 684 523 +31% +35%
Profit before tax 24 81 -70%
Earnings per share(7) 18.1p 96.2p -81%
Adjusted (5) earnings
per share(7) 187.5p 145.5p +29% 286.3p 183.3p +56%
Net Debt 2,899 356
---------------------- ------ ------ ----- ------ ------ ----- ------------
Operational highlights
-- Combination with The Stars Group ("TSG") delivering enhanced
diversification; evident in H1 performance
- Integration under way with focus on maintaining business
momentum
- New organisational structure in place; Australian integration
well advanced; global technology decisions progressing
-- Group ex-US: Strong momentum through H1 against backdrop of Covid-19 disruption
- Sports: Favourable results in Q1; strong performance in Q2
benefitting from continuation of horse racing in Australia
- Gaming: Excellent performance with significant growth in our
recreational customer base
-- US: Sports and gaming market share leader in H1(8) ; 44% online sportsbook; 27% online gaming
- Over 350,000 customers acquired in H1, primarily through
FanDuel and TVG
- Proprietary FanDuel account and wallet launched in all
states
-- Aligning regulatory approach across expanded Group; changes
expected to cost Group circa GBP65m in contribution on an
annualised basis
-- Enhanced player protections during Covid-19 disruption
-- Strong focus on employee wellbeing, without taking advantage of furlough schemes
-- Investment opportunities identified for sustainable future growth across the Group
Financials (2,3,5,6)
-- Pro forma Group revenue growth of 22% in H1 (global online
+29%); reported revenue increase of 49%
-- Pro forma Adjusted EBITDA GBP684m, growth of 35%; reported Adjusted EBITDA GBP342m
-- Leverage(9) was 2.3 times at end of H1, driven by the strong
EBITDA growth and some working capital benefits that we expect to
unwind in H2
-- No interim dividend in 2020 as per previous guidance (2019 interim: 67 pence per share)
Outlook (2,5,6)
-- Encouraging trading H2 to date, benefitting from condensed
football fixtures, favourable sports results and ongoing resilience
of gaming
-- The outlook remains highly uncertain, due to potential
further Covid-19 related disruption and possible regulatory change
across various markets
-- Assuming normalised net revenue margins for balance of year,
no material further disruption to sporting events and no further
shutdown of retail operations, we anticipate that 2020 pro forma
Adjusted EBITDA will be:
- Between GBP1,175m and GBP1,325m for Group ex-US, reflecting an
additional GBP50m marketing investment in H2 over H1 and enhanced
RG/AML measures introduced in PokerStars
- An EBITDA loss of GBP140-160m in the US, assuming online
launches in Tennessee and Michigan in H2 and the continuation of
mobile registration in Illinois for the full remainder of the
half.
-- Based on mid-range EBITDA outcome, leverage ratio(9) expected
to be circa 2.5-2.8 times at year-end
Peter Jackson, Chief Executive, commented:
"The first half of 2020 has been defined by the outbreak of the
global Covid-19 pandemic. For Flutter, my primary concern has been
to keep our colleagues and customers safe. I am proud of the
support we have been able to provide to our employees during this
challenging time and the additional safer gambling measures we have
put in place to enhance player protection. The pandemic has been a
highly unusual backdrop for completion of our combination with The
Stars Group and I would like to take this opportunity to thank all
of my colleagues across the enlarged Group for their hard work,
commitment and resilience as we have combined to form one team.
The Group's first half financial performance exceeded
expectations as we benefitted from geographic and product
diversification. In the period prior to Covid-19 related
disruption, our businesses performed well with strong customer
growth and favourable sports results. In the period thereafter, the
cancellation of sports and closure of our shops led to reduced
sports revenues in the UK and Ireland. However, this was more than
offset by an increase in the number of recreational customers
playing our poker and gaming products globally, as people sought
new forms of home entertainment. In Australia and the US, the
continuation of horse racing meant that overall sports revenues
grew in both regions.
While maintaining strong trading momentum, we have also made
good progress since May on the integration with TSG. All four
regional CEOs have been appointed and most key leadership roles
have now been filled. Important decisions are progressing on our
technology plans and we are aligning our regulatory and responsible
gambling approach across the expanded Group. In Australia,
integration is particularly well advanced and we will migrate
BetEasy customers over to Sportsbet imminently. We plan to provide
a more detailed strategic update, as well as a synergy update, at
the time of our full year results in March 2021.
The second half has started well, with good sports betting
performance following the return of major sport events, whilst
gaming performance has remained resilient. Looking ahead, we have
identified promising opportunities to increase investment across
the Group and, while the outlook with respect to Covid-19 remains
highly uncertain, the diversification of our Group means we
approach the future with confidence."
Notes:
(1) Reported represents the IAS 34 reported numbers. Where
amounts in the table have been normalised for SDIs they are
labelled as adjusted.
(2) Flutter's combination with TSG completed on May 5 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in both 2019 and 2020. The pro
forma numbers include a 6-month contribution from Adjarabet in 2019
(completion date: Feb 1 2019). See Appendix 4 for a reconciliation
of pro forma results to statutory results.
(3) Constant currency ("cc") growth is calculated by
retranslating the non-sterling denominated component of H1 2019 at
H1 2020 exchange rates (see Appendix 5). Growth rates in the
commentary are in local or constant currency except reported
numbers which are in nominal currency.
(4) Revenue excludes SDIs which relate to a GBP13.7m refund of
VAT from the HMRC, based on the historic incorrect application of
VAT to UK gaming machines.
(5) The "Adjusted" measures exclude separately disclosed items
that are not part of the usual business activity of the Group, and
have therefore been reported as "separately disclosed items (SDIs)"
(see note 5 to the financial statements).
(6) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure post IFRS-16.
(7) The 2019 earnings per share figures have been restated to
incorporate the 1,312,260 new Flutter ordinary shares that were
issued in May 2020 as payment of the 2019 final dividend. The
weighted average number of shares in issue during the period was
adjusted to include these bonus shares as if they were issued 1
January, 2019.
(8) Market share refers to Flutter's total share of the online
gross gaming revenue in the states where our sportsbook and gaming
products were live online in H1. Sports betting: Colorado, Indiana,
New Jersey, Pennsylvania and West Virginia. Gaming: New Jersey and
Pennsylvania.
The leverage ratio is calculated using pro forma Adjusted EBITDA
for the 12-month period to 30 June 2020.
(10) Differences due to rounding unless otherwise stated
Analyst briefing:
The Group will host a questions and answers call for
institutional investors and analysts this morning at 9:30am
(IST/BST). Ahead of that call, a presentation will be available on
the Group's corporate website ( www.flutter.com ) from 8am. To dial
into the conference call, participants need to register at
https://cossprereg.btci.com/prereg/key.process?key=PU4DAXQJL where
they will be provided with the dial in details they should
dial.
A presentation replay facility will also be available later
today on our corporate website: https://www.Flutter.com/investors
.
Contacts:
Investor Relations:
David Jennings, Group Director of Investor
Relations & F,P&A + 353 87 951 3560
Ciara O'Mullane, Investor Relations + 353 87 947 7862
Liam Kealy, Investor Relations + 353 87 665 2014
Press:
Fi Thorne, Corporate Affairs + 44 75 2111 4787
Billy Murphy, Drury / Porter Novelli + 353 1 260 5000
James Murgatroyd, Finsbury + 44 20 7251 3801
Business Review (1,2,3,4)
The first half of 2020 was a significant one for the Group with
the completion of our merger with The Stars Group ("TSG"). The
combination has increased our scale and enhanced the
diversification of our revenue streams, both on a product and
geographical basis.
In the face of the Covid-19 pandemic we have managed to run the
business remotely across some of our busiest days while also making
a great start in bringing our two businesses together. Feedback
from colleagues with respect to our response to the Covid-19 crisis
has been positive; employee surveys have revealed that our team
felt that we introduced the right precautions to keep our
colleagues and customers safe and that they were supportive of our
decision not to take advantage of the various Government financial
support schemes offered.
Against this challenging backdrop, we were very pleased with the
performance of the Group. During the first half, our revenue
increased by 22% to GBP2.4bn and Adjusted EBITDA by 35% to GBP684m
on a pro forma basis. This performance reflected two very distinct
periods. Pre March 15 the Group delivered a strong performance,
with pro forma revenues 26% higher year-on-year. In the period
thereafter (March 16 to June 30, "the disrupted period"), our poker
and gaming offerings delivered substantial year-on-year growth,
while the continuation of horse racing in both Australia and the
US, coupled with a run of bookmaker friendly sports results,
benefited our sportsbooks globally. Therefore notwithstanding the
cancellation of many sports, our revenues grew 20% in the disrupted
period.
Combination with TSG
On May 5 2020, we completed our combination with TSG. In
addition to the clear diversification benefits that the transaction
brought, it enhanced the Group's brand portfolio, adding high
quality consumer-facing names such as Sky Bet, Sky Vegas and
PokerStars to the Flutter stable. It also strengthened the breadth
of the Group's technology capabilities, with our task now to
develop and expand our range of innovative products while
delivering the best player protection framework to our customers.
In the 3 1/2 months since completion, we have made important
decisions on how we will operate and run the business:
-- Operating model and organisation design: Flutter will
continue to operate a decentralised operating model, with a lean
Group function supporting four regional teams. The four regions
will be (i) UK and Ireland (which includes Sky Betting & Gaming
("SBG"), Paddy Power and Betfair UK&I operations), (ii)
International (comprising PokerStars, Betfair International,
Adjarabet and the Group's risk and trading B2B operations), (iii)
Australia and (iv) US (FanDuel, FoxBet, TVG and PokerStars US
operations). Our 4 divisional CEOs have all been appointed and most
key leadership roles have been filled. We intend to report earnings
on this revised 4 division basis from 2021 on.
-- Technology: Protecting the momentum in each part of the
business is of paramount importance and our approach to technology
integration has been developed with this principle in mind. We have
concluded that PPB's current online sports betting platform will
become the Group's global sports betting platform. The roll out of
this platform to FanDuel will commence later this year and we plan
to deploy it to other parts of the Group over time.
-- Improving the quality and sustainability of the business: We
said at the time of the merger announcement that we would review
the compliance standards and market exposures of the combined Group
once the transaction was complete. Where standards differed from
those of Flutter, we aimed to adopt the higher of the two. Our
review has fallen into 2 broad categories;
(i) the quality of TSG's safer gambling/anti money laundering (AML) procedures; and,
(ii) the legal, regulatory and tax risk of each international market.
While we are yet to fully complete our review, we have
identified areas where improvements need to be made. For example,
in the area of safer gambling/AML procedures, we have put our
enhanced checks in place. In addition, there were a small number of
TSG jurisdictions that Flutter had previously determined it would
not operate in and in such cases, we have now switched these
markets off. We estimate that the combined impact of these measures
will reduce contribution on an annualised basis by c.GBP65m.
-- Australian integration well advanced: While pleased with the
pace of Group-wide integration efforts, progress in Australia is
most advanced at this point. Following a detailed review, our
conclusion was that a single brand strategy would give us the best
opportunity to maintain product leadership and current momentum and
we have wasted no time in executing on our plan. BetEasy customers
will be migrated across to Sportsbet imminently.
Across the remaining divisions, detailed reviews are well
advanced to determine our brand, product and technology strategies.
Once completed we will move swiftly to execute on our plans, just
as we have in Australia. We intend to provide a further detailed
update on these plans and synergies at our full year results in
March.
First half review
On a combined basis, the pre-Covid-19 disrupted period started
well with revenues up 26% on a pro forma basis, helped by bookmaker
friendly sports results and ongoing gaming customer growth across
our recreational brands. Growth was particularly strong at SBG,
reflecting good underlying momentum and a significant variance in
year-on-year net revenue margin. In the US, FanDuel launched its
online casino in Pennsylvania in January as well as retail
operations in Mississippi and Michigan.
From mid-March on, the impact of Covid-19 disruption was felt
across our businesses in different ways. The widespread disruption
to the sporting calendar materially impacted our sports and retail
businesses. This was most acute in Europe where, in addition to all
mainstream sports being postponed, UK and Irish horse racing was
suspended for 2 1/2 months. In Australia, and to a lesser degree
the US, horse racing continued behind closed doors, experiencing a
higher level of prominence on mainstream television in the absence
of competing sports. This higher exposure, coupled with the closure
of retail betting, led to an accelerated migration of customers
from retail to online. It remains to be seen whether these
customers will continue to bet online as retail outlets
re-open.
In contrast to our sports betting operations, our poker and
casino businesses experienced a major uplift in player numbers
during this period as people sought new ways to entertain
themselves while staying at home. PokerStars' average daily gaming
customers increased 70% year-on-year in Q2, despite relatively low
levels of marketing investment. This pattern was similar to that
seen at PPB and SBG where average daily gaming actives were up 65%
in Q2.
Customer activity has been encouraging since the resumption of
sports. Sky Bet has seen sportsbook customer numbers return to
normal levels, benefitting from the condensed UK football calendar.
Paddy Power was the most downloaded betting app during Royal Ascot,
having offered festival-like generosity to coincide with the
resumption of racing. Encouragingly, despite the return of sports,
overall gaming performance has remained resilient across our
brands. In the US we retained our online sportsbook and gaming
leadership position with a combined market share of 31%(5) in H1.
FanDuel online sportsbook now has over half a million customers and
is operating across 6 states, following our launch in Colorado in
May and Iowa in August.
This combination of volume-led gaming growth, stronger horse
racing revenues in Australia and the US and the successful return
of sports has resulted in Group revenue growth of 20% during the
disrupted period.
Maintaining player engagement responsibly: A key focus for our
teams throughout the period has been responsible engagement with
customers, with an emphasis on providing entertainment
experiences.
At PokerStars for example, our customer surveys highlighted that
the number one reason customers signed up was to join friends and
family playing online. Home games, where friends have the option of
playing poker against each other for virtual chips (at no cost)
proved particularly popular, with average daily players increasing
more than 7-fold in Q2 versus the prior quarter. With very limited
sporting events occurring in Q2, our sports-led brands designed
innovative content to remain relevant to our customers. Examples
included free-to-play daily fantasy contests on the Democratic
Party's presidential debate, 'Darts from Home' on Paddy Power and
Super 6 contests on the NFL Draft in April.
Safeguarding the wellbeing of our customers remains paramount
and we were particularly conscious of our heightened responsibility
while 'stay-at-home' restrictions were in place. We further
increased our safer gambling measures with customer interactions
two-thirds higher in Q2 versus Q1 for both PPB and Sportsbet. In
SBG we sent deposit limit messaging to over 700,000 customers that
were active with our brands in the early weeks of the pandemic.
Across PPB and SBG, total combined UK revenue was down 13% in Q2.
Meanwhile at PokerStars, customers on average spent around GBP10
per week in the first half of 2020, consistent with H1 2019.
Increasing investment as we target sustainable growth
At the time of our equity Placing in May, we outlined how we
believed the evolving landscape could create additional investment
opportunities for the Group, most notably in the US (where the
prospects for accelerated online regulation were improving) and in
other markets where we were seeing faster customer migration from
retail to online. In addition, as we have reviewed the PokerStars
business, we have identified further opportunities to invest in
areas such as marketing, product and technology.
US: The US remains a key focus of investment for the Group. At
our full year results in February, we outlined how we expected to
offer FanDuel's online sportsbook to 21% of the US population in
2021 (across 9 legislated states). Since then legislation has also
been passed in Virginia (c. 2.5% of US population), with planned
referenda in Maryland and Louisiana in H2 to potentially approve
sports betting there also. Our planned investment in Michigan and
Illinois may now occur earlier than we previously anticipated.
Michigan could possibly "go live" date in Q4 2020, subject to
regulatory approvals. In Illinois, the requirement for in-property
mobile account registration has been temporarily removed in
response to the Covid-19 outbreak. It remains uncertain as to how
long the easing of this restriction will remain in place. Along
with new state launches, investment in technology has been a
priority and we are pleased to now have our own proprietary account
and wallet live across all states. We expect to begin migration of
FanDuel's existing third-party online betting platform to in-house
technology before the end of 2020.
Online migration: We have highlighted in the past the ongoing
migration of customers from retail to online in our core markets.
In the last two years alone, this has contributed to a circa 20%
reduction in the number of betting shops in the UK. Research has
shown that retail brands only retain 40-50% of their customers who
migrate online(6) . A similar channel shift is evident in
Australia, where retail accounted for 31% of sportsbook gross
revenue in 2019, down from 44% in 2016. We believe that the current
Covid-19 pandemic is accelerating these trends and therefore our
goal remains to acquire as many migrating customers as we can,
through ongoing investment in product and value. With approximately
88% of the global gambling market still estimated to be offline(7)
, the future potential growth from this customer migration remains
significant.
PokerStars: Prior to the combination with TSG, our hypothesis
had been that PokerStars' historically high profit margins were
driven, in part at least, by underinvestment. As we have sought to
better understand the business post completion, we have identified
3 areas where we feel there may be opportunities to make additional
investments:
-- Marketing: Sales and marketing investment as a percentage of
revenue was just 14% in 2019 compared with an industry average of
around 25% while casino revenue growth in recent years has been a
function entirely of cross-sell from poker, with negligible
investment in direct casino acquisition.
-- Promotional generosity: Customer generosity (free bets etc.)
as a percentage of gross revenue has been reduced significantly at
PokerStars over the last 5 years. This reduction has been
deliberate, with specific initiatives undertaken to make sure that
generosity was being directed towards customers who would enhance
the overall health/liquidity of the poker ecosystem. While these
measures have been effective, we know that we must get the balance
right as we protect and develop our business for the long-run.
-- Product, technology and customer experience: It is clear that
the customer perception of the PokerStars product lags behind
competitors in a number of jurisdictions and we have work to do to
address this. We are looking at ways in which we may be able to
accelerate development work on product and operational improvements
to address these gaps and to build increased flexibility into the
technology stack. In addition, much can be done to improve the
sports betting offering within our newly formed International
division and we will leverage the assets of the rest of the Group
to accelerate this.
Finally, we continue to assess acquisition opportunities where
we feel they will further enhance the growth profile and
diversification of the Group. Given the strength of our presence in
our core markets (e.g. UK, Ireland and Australia), it is more
likely that such transactions will be pursued by our International
division.
Capital structure and balance sheet
To better position the Group to take advantage of these
investment opportunities, we took a number of steps during the
first half to strengthen our balance sheet. In March, we were
pleased to refinance Flutter's existing debt with well-priced
facilities totalling GBP1.4bn. In response to the global pandemic,
we paid our final 2019 dividend payment in the form of shares.
Finally on May 28, we successfully raised GBP813m via an equity
placing, with the funds used to repay existing debt.
Flutter debt is currently rated as investment grade by one
rating agency. As we continue to execute on our financial goal to
de-lever, we believe a clear path will emerge to further improve
our rating. This should in turn provide us with the opportunity to
refinance our remaining debt, thus further reducing finance costs
for the Group. At 30 June 2020 the pro forma leverage(8) of the
Group was below our expectations at 2.3 times. Leverage at year-end
is expected to be higher (at circa 2.5-2.8 times), reflecting
additional US investment year on year, working capital movements
and the other investment opportunities we have noted above. We are
confident that the highly cash generative nature of the Group will
bring us to our leverage target of 1-2 times over the medium-term.
Once we have returned to within this range, we will re-examine the
Group's dividend policy.
Operating and Financial Review (1,2,3)
Group (4,9,10,11)
Reported Pro forma
H1 H1 H1 H1 CC(12)
2020 2019 Change 2020 2019 Change Change
GBPm GBPm % GBPm GBPm % %
------------------------------ --------- ------- ------- ----- ------ ------- -------
Sports revenue 924 794 +16% 1,199 1,117 +7% +8%
Gaming revenue 598 225 +165% 1,190 858 +39% +40%
--------- ------- ------- ----- ------ ------- -------
Total revenue 1,522 1,020 +49% 2,389 1,975 +21% +22%
Cost of sales (496) (301) +65% (738) (566) +30% +32%
Cost of sales as a
% of net revenue 32.6% 29.5% +310bps 30.9% 28.7% +230bps +220bps
Gross profit 1,026 719 +43% 1,650 1,409 +17% +18%
Sales and marketing (287) (214) +34% (426) (389) +9% +10%
Contribution 740 505 +47% 1,224 1,020 +20% +22%
Other operating costs (360) (263) +37% (473) (435) +9% +9%
Corporate costs (38) (26) +45% (67) (62) +9% +7%
--------- ------- ------- ----- ------ ------- -------
Adjusted EBITDA(1,2) 342 216 +59% 684 523 +31% +35%
Adjusted EBITDA margin 22.4% 21.1% +130bps 28.6% 26.5% +210bps +260bps
Depreciation and amortisation (89) (69) +29% (117) (103) +14% +14%
--------- ------- ------- ----- ------ ------- -------
Adjusted (1) operating
profit 253 147 +73% 567 420 +35% +40%
Adjusted net interest
expense (35) (7) +415%
Separately disclosed
items (194) (59) +230%
Profit before tax 24 81 -70%
--------- -------
Adjusted (1) earnings
per share(13) 187.5p 145.5p +29% 286.3 183.3p +56%
Basic earnings per
share(13) 18.1p 96.2p -81%
Dividends per share - 67.0p
Net debt at period GBP2,899m GBP356m
end (14)
------------------------------ --------- ------- ------- ----- ------ ------- -------
Note: Flutter's combination with TSG completed on May 5 2020.
Reported 2020 numbers reflect a full 6-month contribution from
Flutter and a 56-day contribution from TSG. The pro forma numbers
presented show the Group's financials with TSG included for a full
6-month period in both 2019 and 2020. The pro forma numbers include
a 6-month contribution from Adjarabet in 2019.
Reported revenue grew by 49% year-on-year in H1 2020 to
GBP1,522m, following completion of the Group's combination with
TSG. Reported Adjusted EBITDA increased by 59% to GBP342m.
Reported profit before tax was GBP24m (H1 2019: GBP81m) after
charging separately disclosed items ("SDIs") totalling GBP194m (H1
2019: GBP59m). The uplift in SDIs was driven by an increase in the
amortisation of acquired intangibles, as well as costs associated
with the merger.
Pro Forma
Total revenue increased by 22% in H1 to GBP2,389m with Adjusted
EBITDA growth of 35% to GBP684m.
The first half performance reflects two distinct phases; the
first (from January 1 to March 15) was characterised by a "normal"
trading environment while the second phase (from March 16 to June
30) saw widespread disruption to global sporting events as a result
of Covid-19. In the commentary that follows, we refer to the period
from March 16 to June 30 as the "disrupted period".
Total Group sports revenue increased by 8% in H1 with growth of
43% pre-disruption and a decline of 11% in the disrupted period.
Sports revenue grew by double digit percentages across every
division in the pre-disrupted period, with the highest growth
recorded at SBG due to a substantial improvement in net revenue
margin year-on-year (+940bps). Overall Group net revenue margins
increased by 330bps year-on-year in the pre-disrupted period,
helped by favourable sports results.
During the disrupted period, sports revenue declined by 32%
across our UK and Irish online facing businesses (PPB and SBG)
while retail revenues were down 94%, reflecting the closure of our
shops for approximately 2 1/2 months. Elsewhere sports revenue
performance was more robust with the continuation of racing in
Australia leading to growth there of 57%. In the US the
continuation of horseracing behind closed doors drove average daily
actives growth of 79% for TVG in Q2.
Gaming revenue was 40% higher in H1, with the key driver being
the uplift in recreational customer numbers across the Group's
online poker and gaming platforms during the disrupted period.
Pre-disruption, gaming growth had been +7% with increases in PPB,
SBG and the US, partly offset by declines in TSG (poker-led) and
Retail, where the business was still lapping the introduction of
the GBP2 staking limit on FOBTs.
Cost of sales as a percentage of revenue increased by 220 basis
points, driven by higher direct costs in the Group's US business
and an additional quarter of higher remote gaming duty in the UK
(from 15% to 21%).
Sales and marketing investment across the Group grew 10% with
the increase almost entirely driven by the US. Excluding the US,
sales and marketing grew 1%. Other operating costs increased by 9%
in H1, reflecting continued investment in people and technology as
the Group continues its international expansion.
This resulted in Adjusted EBITDA growth of 35% in H1. The
'Adjusted' EBITDA measure is consistent with 'Underlying' EBITDA as
per previous Flutter financial reports. This is solely a change in
naming convention to reflect accounting best practice.
Our multi-year investment in online product and technology,
combined with expansion in our US footprint, has resulted in an
increase in depreciation and amortisation of 14% in the half.
As we flagged at the time of the merger announcement, there are
certain costs (such as share based payments and recurring
professional/legal fees) that TSG historically treated as
separately disclosed items (SDIs) but which Flutter considers
"business as usual" operating costs. Flutter intends to treat these
costs as operating costs going forward. Had Flutter's accounting
treatment been applied to TSG's 2019 reported earnings, TSG's full
year EBITDA would have been GBP663m versus its previously reported
figure of GBP724m, a reduction of GBP61m. A full reconciliation of
previously reported financials to presented pro forma financials
can be found in Appendix 3.
Net interest expense increased by GBP28m reflecting the
additional debt taken on by the Group following the combination
with TSG in May. Separately disclosed items primarily relate to the
amortisation of acquired intangibles and transaction costs relating
to the TSG merger. Further detail in relation to these costs is
available in the section below on separately disclosed items.
The Group's adjusted pro forma effective tax rate was 9.3% (H1
2019: 13.4%) primarily driven by the mix of taxable earnings among
and across geographies.
PPB
PPB Total PPB Online PPB Retail
H1 H1 H1 H1 H1 H1
2020 2019 Change 2020 2019 Change 2020 2019 Change
Pro forma GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------------- ----- ----- --------- ----- ----- ------- ------ ----- ---------
Sportsbook stakes 2,222 3,594 -38% 1,839 2,688 -32% 383 907 -58%
Sportsbook net revenue
margin 10.9% 8.9% +200bps 10.2% 7.7% +250bps 14.6% 12.5% +210bps
Sports revenue 320 448 -29% 264 335 -21% 56 113 -51%
Gaming revenue 220 210 +5% 197 167 +18% 23 43 -46%
----- ----- --------- ----- ----- ------- ------ ----- ---------
Total revenue 540 658 -18% 461 502 -8% 79 156 -50%
Cost of sales (157) (175) -11% (140) (140) +0% (17) (36) -53%
Cost of sales as
a % of net revenue 29.0% 26.7% +230bps 30.3% 27.8% +250bps 21.6% 23.0% -140bps
Gross profit 383 483 -21% 321 362 -11% 62 120 -49%
Sales and marketing (127) (133) -5% (124) (129) -4% (3) (3) -17%
----- ----- --------- ----- ----- ------- ------ ----- ---------
Contribution 256 350 -27% 198 233 -15% 59 117 -50%
Other operating costs (171) (170) +1% (103) (91) +13% (69) (80) -14%
----- ----- --------- ----- ----- ------- ------ ----- ---------
Adjusted EBITDA
(1,2) 85 179 -53% 95 142 -33% (10) 37 -126%
Adjusted EBITDA margin 15.7% 27.3% -1,160bps 20.5% 28.4% -780bps -12.4% 23.7% -3,610bps
Depreciation and
amortisation (47) (45) +6% (26) (24) +9% (21) (21) +2%
----- ----- --------- ----- ----- ------- ------ ----- ---------
Adjusted (1) operating
profit 37 134 -72% 69 119 -42% (31) 16 -295%
The PPB division operates the Paddy Power, Betfair and Adjarabet
brands online, as well as retail operations in the UK and
Ireland.
Total revenue (online and retail combined) reduced 18% to
GBP540m, leading to a 53% decline in Adjusted EBITDA.
Online
Total online net revenue declined 8% in H1 to GBP461m, with a
21% reduction in sports and 18% increase in gaming.
Sportsbook stakes reduced 32% due to Covid-19 disruption, partly
offset by a 250 basis point increase in net revenue margin. The
margin improvement reflected a 220 basis point benefit from
favourable sports results and increased customer interest in less
mainstream sports. Sportsbook revenue declined 9% in H1 as a
result. Exchange and B2B revenue reduced 40% year-on-year given its
higher correlation to the volume of sporting events. Sports revenue
was 21% lower in H1, having been 19% higher in the pre-disrupted
period.
Gaming revenue growth was driven by excellent customer growth.
Average daily actives across our 3 brands grew 37%, helped by some
substitution of sports betting spend to gaming. Customer growth
also reflected our continued focus on acquiring recreational
customers.
Cost of sales as a percentage of revenue increased 250 basis
points, reflecting the full half impact of the increase in remote
gaming duty in the UK in April 2019 and a greater share of revenues
coming from gaming rather than sports. Sales and marketing costs
were 4% lower year-on-year but increased as a percentage of revenue
(26.9% versus 25.9% in H1 2019). Other operating costs increased
13% as a result of continued tech investment in personalisation and
our overall gaming proposition. Online EBITDA declined 33% to
GBP95m.
Retail
PPB Retail generated an EBITDA loss of GBP10m in H1, reflecting
the closure of shops for around 2 1/2 months. Performance prior to
the closures was encouraging, with revenue growth of 13% in the
pre-disrupted period. This was delivered despite the introduction
of staking limits on UK gaming machines in April 2019. The strong
performance also reflected favourable sports results and an ongoing
benefit from competitor closures. Our shops re-opened by the end of
June and we have been pleased with customer activity levels since.
We remain confident that our estate can make further market share
gains as competitors continue to reduce the size of their
estates.
SBG (9)
H1 H1
2020 2019 Change
Pro forma GBPm GBPm %
------------------------------ ----- ----- -------
Sportsbook stakes 1,639 2,339 -30%
Sportsbook net revenue
margin 14.8% 7.4% +740bps
Sports revenue 253 185 +36%
Gaming revenue 186 146 +27%
----- ----- -------
Total revenue 439 331 +32%
Cost of sales (119) (91) +30%
Cost of sales as a
% of net revenue 27.0% 27.6% -60bps
Gross profit 320 240 +33%
Sales and marketing (70) (73) -4%
----- ----- -------
Contribution 250 167 +50%
Other operating costs (66) (56) +17%
----- ----- -------
Adjusted EBITDA (1,2) 184 111 +66%
Adjusted EBITDA margin 41.9% 33.4% +860bps
Depreciation and amortisation (12) (11) +5%
----- ----- -------
Adjusted (1) operating
profit 172 99 +73%
SBG includes Sky Bet sportsbook and Sky Vegas gaming businesses
as well as Oddschecker
SBG increased revenue by 32% in H1 to GBP439m, with strong
growth across both sports and gaming.
Sports revenue grew 36% with Sky Bet's net revenue margin
doubling year-on-year to 14.8%. This significant increase reflected
a number of factors:
-- Sports results were bookmaker friendly in H1, contributing to
a 590 basis point improvement in net revenue margin. Sky Bet has a
higher mix of UK football, where results were particularly
favourable.
-- Sky Bet's expected margin increased by approximately 100
basis points due to customers betting on less mainstream (higher
margin) sports. This increase in expected margin was likely a
temporary phenomenon, given the postponement of traditional sports
during the second quarter.
-- Reduced investment in promotional activity during the 2020
Cheltenham Festival compared to elevated levels in 2019.
While net revenue margins doubled, sportsbook stakes declined
30%. This was primarily due to the cancellation of sporting events
- stakes declined 46% year-on-year in the disrupted period.
Gaming revenue increased 27% year-on-year, driven by excellent
customer growth; average daily actives were up 59% versus the prior
year. This growth highlights the recreational appeal of the Sky
Vegas brand which was the UK's most downloaded casino app in the
first half of the year. The app consistently outscores competitors
on key metrics such as ease of use, trust and quality of products
available.
While cost of sales grew broadly in line with revenue growth,
sales and marketing declined 4% with deferral of some non-committed
spend once sports events were cancelled. Other operating costs grew
17% reflecting the ongoing investment being made within the
business.
Overall SBG benefitted from strong operating leverage with
adjusted EBITDA growth of 66% to GBP184m.
PokerStars (4,9)
H1 H1 CC(12)
2020 2019 Change Change
Pro forma GBPm GBPm % %
------------------------------ ----- ----- ------- -------
Sportsbook stakes 308 389 -21% -19%
Sportsbook net revenue
margin 8.6% 7.6% +100bps +100bps
Sports revenue 27 30 -10% -9%
Gaming revenue 671 479 +40% +43%
----- ----- ------- -------
Total revenue 697 509 +37% +40%
Cost of sales (147) (114) +29% +29%
Cost of sales as a
% of net revenue 21.1% 22.3% -120bps -180bps
Gross profit 550 395 +39% +43%
Sales and marketing (82) (74) +10% +10%
----- ----- ------- -------
Contribution 469 321 +46% +51%
Other operating costs (89) (84) +6% +6%
----- ----- ------- -------
Adjusted EBITDA (1,2) 380 237 +60% +67%
Adjusted EBITDA margin 54.5% 46.6% +780bps +900bps
Depreciation and amortisation (23) (18) +29% +29%
----- ----- ------- -------
Adjusted (1) operating
profit 357 220 +63% +70%
PokerStars includes the PokerStars, PokerStars Casino,
PokerStars Sports and Full Tilt brands which collectively offer
online poker, casino and sports betting products. Excludes
PokerStars US business.
PokerStars increased revenue by 40% in H1 to GBP697m. Gaming
grew 43%, with poker revenue growth of 38% and casino growth of
51%.
In the pre-disrupted period, total gaming revenues declined 3%,
with a continuation of the declining poker trend reported in the
fourth quarter of 2019. Had the overall gaming trend continued for
the entire first half, we estimate PokerStars' revenue would have
been approximately GBP205m lower.
Post disruption, PokerStars experienced elevated customer
numbers across both its poker and casino platforms as people sought
alternative forms of home entertainment. In Q2, average daily
customers increased by 70% leading to revenue growth of 75%.
While the absolute level of marketing spend increased by GBP8m
year-on-year in H1, it reduced as a percentage of revenue from
14.9% to just 11.7%. This reflected good organic customer growth
from mid-March despite low levels of marketing investment and
highlights the resilience of the PokerStars brand. Other operating
costs increased by 6%, primarily reflecting increased investment in
product and technology. This was partially offset by cost saving
initiatives rolled out in the second half of 2019.
Adjusted EBITDA for the division was GBP380m, an increase of 67%
on the prior year.
Australia(4,9)
H1 H1 CC
2020 2019 Change Change
Pro forma GBPm GBPm GBP A$
------------------------------ ----- ----- ------- -------
Sportsbook stakes 3,723 3,312 +12% +18%
Sportsbook net revenue
margin 11.7% 9.5% +220bps +220bps
Revenue 435 314 +39% +45%
Cost of sales (200) (140) +43% +50%
Cost of sales as a
% of net revenue 45.9% 44.5% +140bps +150bps
Gross profit 235 174 +35% +41%
Sales and marketing (59) (56) +5% +10%
----- ----- ------- -------
Contribution 176 118 +49% +56%
Other operating costs (55) (49) +11% +16%
----- ----- ------- -------
Adjusted EBITDA (1,2) 121 69 +76% +84%
Adjusted EBITDA margin 27.9% 21.9% +600bps +600bps
Depreciation and amortisation (14) (15) -3% +1%
----- ----- ------- -------
Adjusted (1) operating
profit 107 54 +98% +108%
The Australian division encompassed the Sportsbet and BetEasy
online sports betting brands during H1.
Pro forma net revenue in our Australian online business grew by
45% in H1 to GBP435m as it benefitted from the temporary closure of
retail betting outlets nationwide in Q2.
While most major sports were postponed/cancelled from mid-March
on, horse racing crucially continued behind closed doors, resulting
in our combined Australian business experiencing growth in daily
active racing customers of more than 30% in the half. The increased
prominence of racing, coupled with the temporary closure of retail,
led to an acceleration in the migration of retail customers online.
As a result, pro forma Australian revenues grew 57% year on year
during the disrupted period.
Overall stakes grew 18% in the half, notwithstanding a 220 basis
point improvement in the sportsbook net revenue margin. There were
a number of different factors that contributed to these
increases:
-- Results were favourable during H1 and we estimate this added
120 basis points to the net revenue margin.
-- The increased prominence of racing, with more racing content
being televised on primetime free-to-air television. Racing is a
structurally higher margin product than other sports.
-- The addition of some traditional retail customers who tend to
bet on higher margin racing products.
-- Increased investment in Australian racing customer generosity
in the half. This reduced net revenue margin by 110bps versus the
prior year.
While sales and marketing costs increased 10% year-on-year, they
reduced as a percentage of revenue by 430bps. Other operating costs
increased GBP6m, reflecting ongoing investment in our
platforms.
Adjusted EBITDA grew 84% to GBP121m in the half, reflecting
excellent operational leverage.
US(4,9)
H1 H1 CC
2020 2019 Change Change
Pro forma GBPm GBPm GBP US$
------------------------------ ----- ----- --------- ---------
Sportsbook stakes 1,090 862 +26% +23%
Sportsbook net revenue
margin 4.9% 4.0% +90bps +90bps
Sports revenue 164 140 +18% +14%
Gaming revenue 113 23 +394% +380%
----- ----- --------- ---------
Total revenue 278 163 +71% +66%
Cost of sales (116) (46) +153% +145%
Cost of sales as a
% of net revenue 41.9% 28.3% +1,360bps +1,360bps
Gross profit 162 117 +38% +34%
Sales and marketing (88) (53) +67% +63%
----- ----- --------- ---------
Contribution 73 64 +14% +11%
Other operating costs (92) (75) +23% +19%
----- ----- --------- ---------
Adjusted EBITDA (1,2) (19) (11) +69% +68%
Adjusted EBITDA margin -6.9% -7.0% +10bps -10bps
Depreciation and amortisation (18) (11) +61% +57%
----- ----- --------- ---------
Adjusted (1) operating
profit (38) (23) +65% +62%
The US includes FanDuel, FoxBet, TVG, PokerStars and Betfair
brands, offering regulated real money and free-to-play sports
betting, online gaming, daily fantasy sports and online racing
wagering products to customers across various states in the US
Revenue grew 66% in H1, benefitting from our diversified US
product offering. We are the only operator offering sports betting,
daily fantasy sports, casino, poker and horse racing wagering. The
key drivers of our growth were:
-- Online sportsbook was live in 5 states compared with 2 the
prior year (Pennsylvania, Indiana and Colorado launched since H1
2019) while we launched our online casino in Pennsylvania in
January 2020.
-- Strong growth in TVG thanks to the continuation of US horse
racing, with racing enjoying greater prominence on mainstream
television, leading to a year on year growth in average daily
actives of 79% in Q2
-- Substitution of spend from sports betting to gaming following
widespread disruption to global sports
-- In the first half alone, we added more than 350,000 customers across our US business
Sportsbook stakes increased by 23% in the half with growth of
81% in Q1 partly offset by a 44% reduction in Q2. Net revenue
margin increased by 90bps reflecting a combination of favourable
sports results, an uplift from changes in sports mix and further
enhancement of our risk and trading capabilities.
During Q2, when most US sports were postponed or cancelled, the
combination of strong performance in our TVG horse racing business,
coupled with better-than-anticipated sportsbook staking, meant that
Q2 sports revenues still grew 4%. This was despite the decline in
daily fantasy revenue which was particularly pronounced given its
high correlation with the number of sporting events that take
place.
Gaming revenue grew 380%, with continued strong growth in New
Jersey boosted by the launch in Pennsylvania of the FanDuel Casino
in January and PokerStars in November 2019. Q2 benefitted from
substitution of customer activity to gaming, with revenues
increasing more than fourfold. Cross-sell exceeded our expectations
and direct gaming revenues more than doubled quarter on quarter,
partly benefitting from redirection of marketing investment away
from sports to gaming.
Cost of sales as a percentage of revenue increased materially
year-on-year to 42%. Approximately half of the increase reflected
changing product mix with daily fantasy sports revenues
significantly reduced due to the cancellation of sports. DFS
revenues have lower cost of sales associated with them. The
remainder of the increase reflects changing state mix and some
content cost appreciation.
Sales and Marketing grew in line with revenues. Other operating
costs increased 19% in H1 as we continued to invest in our team and
technology, with both the FanDuel and FoxBet online sportsbooks
launching in Colorado in May. The US generated an Adjusted EBITDA
loss of GBP19m in the half.
Separately disclosed items
H1 H1
2020 2019
GBPm GBPm
---------------------------------------- ------ -----
Amortisation of acquisition related
intangible assets (128) (59)
Transaction fees and associated (26) -
costs
Restructuring and integration costs (41) -
VAT refund 10 -
Operating profit impact of separately
disclosed items (185) (59)
Financial Income 49 -
Financial Expense (59) -
Profit before tax impact of separately
disclosed items (194) (59)
Tax credit on separately disclosed
items 14 9
Total separately disclosed items (180) (49)
Separately disclosed items do not relate to the usual business
activity of the Group and therefore are excluded from adjusted(1)
profits.
During H1 2020, these costs included GBP128m of amortisation of
acquired intangible assets recognised on accounting for the 2016
merger of Paddy Power and Betfair, the 2018 combination of the
Group's US assets with FanDuel, the 2019 acquisition of Adjarabet
and the 2020 combination with TSG.
The Group also incurred transaction fees and associated costs in
relation to the combination of GBP26m, not including professional
fees incurred by TSG prior to the date of completion. Restructuring
and integration costs of GBP41m were also incurred by the Group
relating to the realisation of synergies following completion.
During the period the Group received a VAT refund in respect of
an historic claim for overpaid VAT in relation to retail gaming
machines in the UK.
Financial income and expense items incurred reflect gains and/or
losses on items relating to the Group's debt financing, principally
related to embedded derivatives and foreign exchange. The expense
line also includes a GBP9.5m loss arising from additional
contingent consideration payable for HRTV, now part of TVG. For
further details, see notes 5 and 6 of the financial statements.
Foreign Exchange
At current spot rates, the foreign exchange impact on H2 2020
EBITDA versus H2 2019 is a circa GBP9m headwind.
Outlook
The second half of the year has started well, benefitting from
condensed football fixtures, favourable sports results and the
ongoing resilience of gaming. However the outlook remains highly
uncertain, due to potential further Covid-19 related disruption and
potential regulatory change in various markets. Assuming normalised
net revenue margins for the remainder of the year, no material
additional disruption to sporting events and no further shutdown of
retail operations, we anticipate that 2020 pro forma Adjusted
EBITDA will be:
-- Between GBP1,175m and GBP1,325m for Group ex-US, reflecting
an additional GBP50m marketing investment in H2 over H1 and the
cost of the enhanced RG/AML measures introduced in PokerStars.
-- An EBITDA loss of GBP140-160m in the US, assuming online
launches in Tennessee and Michigan in H2 and the continuation of
mobile registration in Illinois for the full remainder of the half.
Should mobile registration be restricted at some point, the loss
will likely be closer to the GBP140m end of the range.
Based on a mid-range EBITDA outcome, the Group's leverage
ratio(8) is expected to be circa 2.5-2.8x at year-end, reflecting
additional investment in H2. We are very pleased with the progress
achieved in H1 and we are excited about the opportunities we see
for the business in H2 and beyond.
Cash flow and financial position
H1 2020
Pro forma GBPm
--------------------------------------- --------
Adjusted EBITDA 684
Capex (118)
Working capital 105
Corporation tax (63)
Adjusted free cash flow 608
Cash flow from separately disclosed
items (SDI) (84)
Free cash flow 524
Interest cost (101)
Other borrowing costs (22)
Settlement of swaps (28)
Lease liabilities paid and other (19)
Net increase in cash before equity
raise 356
Proceeds from equity raise 806
Net increase in cash 1,162
Net (debt)/cash at start of year (3,827)
Foreign currency exchange translation (253)
Change in fair value of hedging
derivatives 19
Net debt at 30 June 2020(14) (2,899)
The net increase in cash during the period primarily relates to
strong free cash flow of GBP524m and the proceeds of the Group's
equity raise on May 28.
Free cash flow reflects capital expenditure during H1 of
GBP118m. This represents a pro forma increase of GBP12m compared
with H1 2019 due to investment in Group-wide product and technology
development as well as US expansion plans. Working capital during
the half was positively affected by the strong performance of the
Group and the associated timing of certain related costs. We
anticipate that capex for the full year will be circa GBP250-270m
while much of the working capital benefit is expected to unwind in
the second half.
Cash flow from SDIs principally relates to professional fees and
integration costs in relation to the combination with TSG.
Interest costs were GBP12m lower on a pro forma basis due to
debt repayments during the period as well as more favourable
financing which came into effect at completion.
Net debt at the end of the period incorporates an adjustment for
unhedged foreign currency fluctuations relating to TSG USD and Euro
denominated debt prior to completion. At completion, the Group
assumed certain cross currency swap agreements and entered a new
cross currency swap agreement, as part of its strategy to hedge the
impact of currency fluctuations on its leverage ratio. Changes in
the fair value of these hedging derivatives are also reflected in
net debt.
As at 30 June 2020, the Group had net debt of GBP2,899m,
excluding customer balances, representing a leverage ratio of 2.3
times.
Dividend
In line with our announcement of March 27(th) this year, the
Board has suspended the Group's dividend for the current financial
year ending 31 December 2020 (2019 interim dividend 67p per share).
The Board is committed to reviewing dividend policy once the Group
returns to its medium-term leverage target of 1-2x.
______________________________________________________________________________________
(1) The "Adjusted" measures exclude separately disclosed items,
that are not part of the usual business activity of the Group, and
have been therefore reported as "separately disclosed items" (see
note 5 to the financial statements).
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure. The Group uses
EBITDA, Adjusted EBITDA and Adjusted operating profit to comment on
its financial performance. These measures are used internally to
evaluate performance, to establish strategic goals and to allocate
resources. The directors also consider that these are commonly
reported and widely used by investors as an indicator of operating
performance and ability to incur and service debt, and as a
valuation metric. These are non-GAAP financial measures and are not
prepared in accordance with IFRS and, as not uniformly defined
terms, these may not be comparable with measures used by other
companies to the extent they do not follow the same methodology
used by the Group. Non-GAAP measures should not be viewed in
isolation, nor considered as a substitute for measures reported in
accordance with IFRS. All of the adjustments shown have been taken
from the financial statements.
(3) Flutter's combination with TSG completed on May 5 2020. The
pro forma numbers presented show the Group's financials with TSG
included for a full 6-month period in both 2019 and 2020. The pro
forma numbers include a 6-month contribution from Adjarabet in 2019
(completion date: Feb 1 2019). See Appendix 4 for a reconciliation
of pro forma results to statutory results.
(4) Growth rates in the commentary are in local or constant
currency(12) except reported numbers which are in nominal
currency.
(5) Market share refers to total FanDuel and FoxBet's share of
the online gross gaming revenue for H1 2020 in the states in which
FanDuel was live. Sports betting: Colorado, Indiana, New Jersey,
Pennsylvania, West Virginia. iGaming: New Jersey and
Pennsylvania.
(6) Source: Populus research, n=4,996
(7) Source: H2GC.
(8) The leverage ratio is calculated using pro forma Adjusted
EBITDA for the 12-month period to 30 June 2020.
(9) A full reconciliation of previously reported financials to
presented pro forma financials can be found in Appendix 3.
(10) Reported revenue and cost of sales exclude SDIs which
relate to a GBP13.7m refund of VAT from the HMRC, based on the
historic incorrect application of VAT to UK gaming machines.
(11) Reported represents the IAS 34 reported numbers. Where
amounts in the table have been normalised for SDIs they are
labelled as adjusted.
(12) Constant currency ("cc") growth throughout the Business
Review and Operating & Financial Review is calculated by
retranslating the non-sterling denominated component of H1 2019 at
H1 2020 exchange rates (see Appendix 5).
(13) The 2019 earnings per share figures have been restated to
incorporate the 1,312,260 new Flutter ordinary shares that were
issued in May 2020 as payment of the 2019 final dividend. The
weighted average number of shares in issue during the period was
adjusted to include these bonus shares as if they were issued 1
January, 2019.
(14) Net debt at 30 June 2020 is the principal amount of
borrowings plus associated accrued interest, minus cash & cash
equivalents plus/minus carrying value of debt related derivatives.
This comprised of gross cash excluding customer balances of GBP787m
and borrowings of GBP3,685m at 30 June 2020 (see Appendix 6).
(15) Differences due to rounding unless otherwise stated
Appendix 1: Divisional Key Performance Indicators
Half yearly
Pro forma basis(1)
GBPm PPB SBG PokerStars Australia US Group
--------------------------- -------------------------------------
H1 H1 % H1 H1 % H1 H1 % CC(2) H1 H1 % A$ H1 H1 % US$ H1 H1 % CC(2)
% % % %
Change Change Change
2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change Change 2020 2019 Change
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Sportsbook
stakes 2,222 3,594 -38% 1,639 2,339 -30% 308 389 -21% -19% 3,723 3,312 +12% +18% 1,090 862 +26% +23% 8,982 10,497 -14% -13%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Sportsbook
net revenue
margin 10.9% 8.9% +200bps 14.8% 7.4% +740bps 8.6% 7.6% +100bps +100bps 11.7% 9.5% +220bps +220bps 4.9% 4.0% +90bps +90bps 11.1% 8.3% +280bps +280bps
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Sports
revenue 320 448 -29% 253 185 +36% 27 30 -10% -9% 435 314 +39% +45% 164 140 +18% +14% 1,199 1,117 +7% +8%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Gaming
revenue 220 210 +5% 186 146 +27% 671 479 +40% +43% 0 0 n/a n/a 113 23 +394% +380% 1,190 858 +39% +40%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Total revenue 540 658 -18% 439 331 +32% 697 509 +37% +40% 435 314 +39% +45% 278 163 +71% +66% 2,389 1,975 +21% +22%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Cost of sales (157) (175) -11% (119) (91) +30% (147) (114) +29% +29% (200) (140) +43% +50% (116) (46) +153% +145% (738) (566) +30% +32%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Cost of sales
as % of net
revenue 29.0% 26.7% +230bps 27.0% 27.6% -60bps 21.1% 22.3% -120bps -180bps 45.9% 44.5% +140bps +150bps 41.9% 28.3% +1360bps +1360bps 30.9% 28.7% +230bps +220bps
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Gross Profit 383 483 -21% 320 240 +33% 550 395 +39% +43% 235 174 +35% +41% 162 117 +38% +34% 1,650 1,409 +17% +18%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Sales &
marketing (127) (133) -5% (70) (73) -4% (82) (74) +10% +10% (59) (56) +5% +10% (88) (53) +67% +63% (426) (389) +9% +10%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Contribution 256 350 -27% 250 167 +50% 469 321 +46% +51% 176 118 +49% +56% 73 64 +14% +11% 1,224 1,020 +20% +22%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Other
Operating
Costs (171) (170) +1% (66) (56) +17% (89) (84) +6% +6% (55) (49) +11% +16% (92) (75) +23% +19% (473) (435) +9% +9%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Corporate
costs (67) (62) +9% +7%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Adjusted
EBITDA 85 179 -53% 184 111 +66% 380 237 +60% +67% 121 69 +76% +84% (19) (11) +69% +68% 684 523 +31% +35%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Adjusted
EBITDA
margin 15.7% 27.3% -1,160bps 41.9% 33.4% +860bps 54.5% 46.6% +780bps +900bps 27.9% 21.9% +600bps +600bps -6.9% -7.0% +10bps -10bps 28.6% 26.5% +210bps +260bps
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Depreciation
&
amortisation (47) (45) +6% (12) (11) +5% (23) (18) +29% +29% (14) (15) -3% +1% (18) (11) +61% +57% (117) (103) +14% +14%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
Adjusted
operating
profit /
(loss) 37 134 -72% 172 99 +73% 357 220 +63% +70% 107 54 +98% +108% (38) (23) +65% +62% 567 420 +35% +40%
------- ------- --------- ------- ------- --------- ------- ------- --------- -------- ------- ------- --------- -------- ------- ------- --------- --------- ------- ------- --------- --------
(1) Flutter's combination with TSG completed on May 5 2020. The
pro forma numbers presented show Group financials with TSG included
for a full 6-month period in both 2019 and 2020. The pro forma
numbers include a 6-month contribution from Adjarabet in 2019
(completion date: Feb 1 2019).
(2) Constant currency ("cc") growth is calculated by
retranslating non-sterling denominated component of H1 2019 at H1
2020 exchange rates (see Appendix 5)
(3) For split of PPB between Online and Retail, please see the
KPIs section of our investor relations website.
Appendix 2: Divisional Key Performance Indicators
Quarterly, unaudited
Pro forma basis(1)
GBPm PPB SBG PokerStars Australia US Group
------------------------ ------------------------ ----------------------------------
Q1 Q1 % Q1 Q1 % Q1 Q1 % CC(2) Q1 Q1 % A$ Q1 Q1 % US$ Q1 Q1 % CC(2)
% Change % Change % % Change
2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change Change 2020 2019 Change
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sportsbook
stakes 1,433 1,777 -19% 960 1,168 -18% 158 202 -22% -20% 1,545 1,641 -6% +0% 864 469 +84% +81% 4,959 5,258 -6% -4%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sportsbook
net
revenue
margin 11.3% 7.7% +360bps 15.0% 5.0% +1000bps 10.4% 7.6% +280bps +280bps 10.4% 9.0% +140bps +140bps 4.6% 3.9% +70bps +70bps 10.5% 7.2% +330bps +330bps
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sports
revenue 211 201 +5% 151 65 +131% 16 15 +7% +9% 161 148 +9% +16% 88 69 +28% +25% 627 499 +26% +28%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Gaming
revenue 107 108 -1% 80 72 +11% 268 245 +10% +11% 0 0 n/a n/a 43 11 +313% +304% 498 435 +14% +16%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Total
revenue 318 310 +3% 231 137 +68% 284 260 +9% +11% 161 148 +9% +16% 132 79 +66% +62% 1,126 934 +21% +22%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Pro forma basis(1)
GBPm PPB SBG PokerStars Australia US Group
------------------------ ------------------------ ----------------------------------- ---------------------------------- ----------------------------------
Q2 Q2 % Q2 Q2 % Q2 Q2 % CC(2) Q2 Q2 % A$ Q2 Q2 % US$ Q2 Q2 % CC(2)
% Change % Change % % Change
2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change 2020 2019 Change Change 2020 2019 Change
----------- ------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sportsbook
stakes 789 1,817 -57% 680 1,171 -42% 151 187 -20% -18% 2,177 1,671 +30% +34% 226 393 -42% -44% 4,023 5,239 -23% -23%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sportsbook
net
revenue
margin 10.4% 10.0% +40bps 14.5% 9.8% +470bps 6.8% 7.7% -90bps -90bps 12.6% 9.9% +270bps +270bps 6.2% 4.2% +200bps +200bps 11.9% 9.4% +250bps +250bps
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Sports
revenue 109 247 -56% 102 120 -15% 10 14 -29% -29% 273 166 +65% +70% 76 71 +7% +4% 571 618 -8% -7%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Gaming
revenue 113 102 +11% 106 74 +43% 403 235 +72% +75% 0 0 n/a n/a 70 12 +464% +444% 692 423 +63% +66%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
Total
revenue 222 348 -36% 208 194 +7% 413 249 +66% +69% 273 166 +65% +70% 146 84 +75% +69% 1,263 1,041 +21% +22%
------ ------ -------- ------ ------ -------- ------ ------ -------- --------- ------ ------ -------- --------- ------ ------ -------- -------- ------ ------ -------- --------
(1) Flutter's combination with TSG completed on May 5 2020. The pro forma numbers presented show the
Group's financials with TSG included for a full 6-month period in both 2019 and 2020. The pro forma numbers
include a 6-month contribution from Adjarabet in 2019 (completion date: Feb 1 2019). Further details
on pro forma Q3 and Q4 2019 revenues are available on Flutter's website.
(2) Constant currency ("cc") growth is calculated by retranslating non-sterling denominated component
of H1 2019 at H1 2020 exchange rates (see Appendix 5)
(3) For split of PPB between Online and Retail, please see the KPIs section of our investor relations
website.
Appendix 3 (i): Reconciliation of previously reported TSG
results to Flutter pro forma results
H1 2019, unaudited
TSG previously filed quarterly reported results in US$m. The
table below shows how these previously reported TSG financials
translate into the pro forma numbers in GBPm shown elsewhere in
this document for H1 2019. Alongside the change in reporting
currency, Flutter made a number of changes to align TSG reporting
with its own accounting policies, with the summary movements
outlined below.
Adjustments
(US $m)
--------- ------------------- --------- --------- --------- ----------
Legacy
Per Legacy Flutter Total
TSG Flutter TSG pro pro Flutter
Reported policies forma forma* pro forma
H1 2019 (US $m) 1 2 3 (US $m) (GBPm) (GBPm) (GBPm)
--------------------------- --------- ----- ----- ----- --------- --------- --------- ----------
Total revenue N/A PPB* 658 658
--------- -----------
Cost of sales (175) (175)
--------- -----------
Gross profit 483 483
Total operating
costs (303) (303)
Adjusted EBITDA 179 179
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
UK revenue 432 - (4) - 428 331 SBG N/A 331
--------------- ----------- ---------
Cost of sales (133) - 15 - (118) (91) (91)
----------- ---------
Gross profit 299 - 11 - 310 240 240
Total operating
costs (156) - (11) (1) (168) (129) (129)
Adjusted EBITDA 143 - - (1) 142 111 111
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
INTERNATIONAL revenue 662 (4) - - 659 509 POKERSTARS N/A 509
--------------- ----------- ---------
Cost of sales (153) 3 3 - (147) (114) (114)
----------- ---------
Gross profit 509 (1) 3 - 512 395 395
Total operating
costs (207) 8 (3) (3) (204) (158) (158)
Adjusted EBITDA 303 8 - (3) 307 237 237
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
AUSTRALIA revenue 126 - 12 - 138 107 AUSTRALIA 207 314
--------------- -----------
Cost of sales (51) - (22) - (73) (56) (83) (140)
-----------
Gross profit 76 - (10) - 65 50 124 174
Total operating
costs (60) - 10 (2) (52) (40) (65) (105)
Adjusted EBITDA 16 - - (2) 13 10 58 69
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
US revenue N/A 4 - - 4 3 US 160 163
--------------- --------- -----------
Cost of sales (3) 1 - (2) (2) (44) (46)
--------- -----------
Gross profit 1 1 - 2 1 116 117
Total operating
costs (11) (1) (10) (22) (17) (111) (128)
Adjusted EBITDA (10) - (10) (20) (16) 4 (11)
--------------------------- --------- ----- ----- ----- --------- ----------- ---------
Total CORPORATE
CORPORATE revenue (3) - 3 - - - COSTS - -
--------------- -----------
Cost of - - - - - - - -
sales
--------------- -----------
Gross profit (3) - 3 - - - - -
Total operating
costs (27) 2 (3) (20) (47) (36) (26) (62)
Adjusted EBITDA (30) 2 - (20) (47) (36) (26) (62)
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
GROUP revenue 1,218 - 11 - 1,229 950 GROUP 1,025 1,975
--------------- -----------
Cost of sales (337) - (4) - (341) (263) (303) (566)
-----------
Gross profit 881 - 7 - 888 687 722 1,409
Total operating
costs (449) - (7) (37) (493) (380) (506) (886)
Adjusted EBITDA 432 - - (37) 395 307 216 523
--------------------------- ----- ----- ----- --------- ----------- ---------
Adjustments:
1. TSG US financials: These were previously reported within TSG
International and 'Corporate', they have now moved to Flutter's US
division. This increases the profitability of International and
increases the loss in the US. The net EBITDA impact of this change
is nil.
2. Accounting treatment adjustments - Reclassifications:
Revenue recognition: The most material change here is in
Australia where TSG reported revenue excluding Goods and Services
Tax ("GST"). Flutter includes GST within revenue with a
corresponding deduction in the cost of sales line.
UK Intercompany transactions: Certain costs and revenues that
had been removed at a consolidated Group level, via the corporate
cost centre, are now consolidated within SBG per Flutter policies.
Separately TSG previously recorded an 'Other income' line in each
of its divisions, which has been reallocated to sports or gaming as
appropriate. This is not visible in the table above.
Expense allocation: Reallocation of expenses between cost of
sales and operating expenses, principally relating to treatment of
affiliates, licensing, streaming, and other costs.
As with the US adjustment above, these are simply
reclassifications with nil net impact on Adjusted EBITDA at a Group
level.
3. Accounting treatment adjustments - separately disclosed items:
Applying Flutter accounting policies in relation to separately
disclosed items results in certain items previously added back to
Adjusted EBITDA within TSG now being reported as ongoing expenses.
These include share-based payments, non-recurring
professional/legal fees and certain other costs. The application of
Flutter policy to TSG 2019 reported earnings would have been -$37m
at the EBITDA line in H1.
* Note PPB H1 2019 results are pro forma for Adjarabet, acquired
in February 2019 as well as combining the legacy PPB Online and
retail divisions.
Appendix 3 (ii): Reconciliation of previously reported TSG
results to Flutter pro forma results
Financial Year 2019, unaudited
This reconciliation is as per above, but for the 2019 full
calendar year. Please see notes above for further details.
Adjustments
(US$m)
--------- ------------------- --------- --------- --------- ----------
Legacy
Per Legacy Flutter Total
TSG Flutter TSG pro pro Flutter
Reported policies forma forma* pro forma
FY 2019 (US$m) 1 2 3 (US$m) (GBPm) (GBPm) (GBPm)
--------------------------- --------- ----- ----- ----- --------- --------- --------- ----------
Total revenue N/A PPB* 1,323 1,323
--------- -----------
Cost of sales (355) (355)
--------- -----------
Gross profit 968 968
Total operating
costs (578) (578)
Adjusted EBITDA 390 390
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
UK revenue 947 - (8) - 939 736 SBG N/A 736
--------------- ----------- ---------
Cost of sales (292) - 32 - (260) (203) (203)
----------- ---------
Gross profit 655 - 24 - 679 533 533
Total operating
costs (330) - (24) (2) (357) (280) (280)
Adjusted EBITDA 325 - - (2) 322 253 253
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
INTERNATIONAL revenue 1,312 (12) - - 1,300 1,018 POKERSTARS N/A 1,018
--------------- ----------- ---------
Cost of sales (297) 12 7 - (278) (217) (217)
----------- ---------
Gross profit 1,015 (0) 7 - 1,022 801 801
Total operating
costs (410) 37 (7) (0) (382) (298) (298)
Adjusted EBITDA 605 37 - (0) 641 503 503
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
AUSTRALIA revenue 274 - 25 - 300 235 AUSTRALIA 446 681
--------------- -----------
Cost of sales (104) - (45) - (150) (117) (182) (299)
-----------
Gross profit 170 - (20) - 150 118 264 382
Total operating
costs (126) - 20 (1) (107) (84) (137) (221)
Adjusted EBITDA 44 - - (1) 43 34 127 161
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
US revenue N/A 12 - - 12 10 US 376 386
--------------- --------- -----------
Cost of sales (12) 2 - (11) (8) (116) (124)
--------- -----------
Gross profit 0 2 - 2 1 261 262
Total operating
costs (38) (2) (19) (59) (47) (297) (343)
Adjusted EBITDA (38) - (19) (57) (45) (36) (82)
--------------------------- --------- ----- ----- ----- --------- ----------- ---------
Total CORPORATE
CORPORATE revenue (5) - 5 - - - COSTS - -
--------------- -----------
Cost of - - - - - - - -
sales
--------------- -----------
Gross profit (5) - 5 - - - - -
Total operating
costs (48) 2 (5) (55) (106) (82) (55) (137)
Adjusted EBITDA (53) 2 - (55) (106) (82) (55) (137)
--------------------------- ----- ----- ----- --------- ----------- ---------
Total
GROUP revenue 2,528 - 23 - 2,551 1,999 GROUP 2,145 4,144
--------------- -----------
Cost of sales (693) - (5) - (698) (546) (652) (1,198)
-----------
Gross profit 1,835 - 18 - 1,854 1,453 1,493 2,946
Total operating
costs (914) - (18) (77) (1,010) (790) (1,067) (1,857)
Adjusted EBITDA 921 - - (77) 844 663 426 1,089
--------------------------- ----- ----- ----- --------- ----------- ---------
Appendix 4: Reconciliation of pro forma results to Statutory
results
The merger of Flutter and TSG completed on 5 May 2020, with the
merger accounted for as an acquisition of TSG by Flutter on that
date. The Statutory results reflect this accounting treatment. Pro
forma results for the Group are prepared as if Flutter and TSG had
always been merged and are included in these Interim Results, as
they best represent the Group's underlying performance. The 2019
pro forma numbers also include a 6-month contribution from
Adjarabet in 2019, completed on 1st Feb 2019. The difference
between the Statutory results and Pro forma results is the results
of TSG and Adjarabet in the period prior to completion as per the
table below.
Pro forma results TSG & Adjarabet Statutory results
results pre-merger
completion*
H1 H1 H1 H1 H1 H1
GBPm 2020 2019 2020 2019 2020 2019
------------------------------- --------- --------- ---------- ---------- --------- ---------
Sports revenue 1,199 1,117 275 323 924 794
Gaming revenue 1,190 858 592 633 598 225
--------- --------- ---------- ---------- --------- ---------
Total revenue 2,389 1,975 866 955 1,522 1,020
Cost of sales (738) (566) (243) (265) (496) (301)
Cost of sales as a
% of net revenue 30.9% 28.7% 28.0% 27.8% 32.6% 29.5%
Gross profit 1,650 1,409 624 690 1,026 719
Sales and marketing (426) (389) (139) (175) (287) (214)
Contribution 1,224 1,020 484 515 740 505
Other operating costs (473) (435) (113) (172) (360) (263)
Corporate costs (67) (62) (29) (36) (38) (26)
--------- --------- ---------- ---------- --------- ---------
Adjusted EBITDA(1,2) 684 523 342 307 342 216
Adjusted EBITDA margin 28.6% 26.5% 39.5% 32.2% 22.4% 21.1%
Depreciation and amortisation (117) (103) (28) (34) (89) (69)
--------- --------- ---------- ---------- --------- ---------
Adjusted (1) operating
profit 567 420 314 273 253 147
Revenue by division
PPB 540 658 - 5 540 653
SBG 439 331 290 331 149 -
PokerStars 697 509 468 509 230 -
Australia 435 314 87 107 348 207
US 278 163 22 3 256 160
Adjusted EBITDA by
division
PPB 85 179 - 1 85 179
SBG 184 111 117 111 67 -
PokerStars 380 237 264 237 116 -
Australia 121 69 11 10 110 58
US (19) (11) (22) (16) 2 4
Corporate costs (67) (62) (29) (36) (38) (26)
------------------------------- --------- --------- ---------- ---------- --------- ---------
* Note the adjustments to reflect the exclusion of TSG results
prior to the merger also include any transactions that are now
deemed to be intercompany as a result of the merger.
Appendix 5: Reconciliation of pro forma growth rates to pro
forma constant currency growth rates
Constant currency ("cc") growth is calculated by retranslating
non-sterling denominated component of H1 2019 at H1 2020 exchange
rates as per the table below.
H1 H1 CC
H1 H1 % 2019 2019 %
GBPm, pro forma 2020 2019 Change FX impact CC Change
------------------------------- ------ -------- ---------- ------ --------
Sports revenue 1,199 1,117 +7% (10) 1,107 +8%
Gaming revenue 1,190 858 +39% (11) 847 +40%
------ -------- ---------- ------ --------
Total revenue 2,389 1,975 +21% (21) 1,954 +22%
Cost of sales (738) (566) +30% 5 (561) +32%
Cost of sales as a
% of net revenue 30.9% 28.7% +230bps 28.7% +220bps
Gross profit 1,650 1,409 +17% (16) 1,394 +18%
Sales and marketing (426) (389) +9% 1 (388) +10%
Contribution 1,224 1,020 +20% (14) 1,005 +22%
Other operating costs (473) (435) +9% 1 (434) +9%
Corporate costs (67) (62) +9% (1) (63) +7%
Adjusted EBITDA(1,2) 684 523 +31% (15) 508 +35%
Adjusted EBITDA margin 28.6% 26.5% +210bps 26.0% +260bps
Depreciation and amortisation (117) (103) +14% 0 (102) +14%
------ -------- ---------- ------ --------
Adjusted (1) operating
profit 567 420 +35% (15) 406 +40%
------ -------- ---------- ------ --------
Revenue by division
PPB 540 658 -18% (2) 656 -18%
SBG 439 331 +32% (0) 331 +32%
PokerStars 697 509 +37% (9) 500 +40%
Australia 435 314 +39% (14) 300 +45%
US 278 163 +71% 5 168 +66%
Adjusted EBITDA by
division
PPB 85 179 -53% (1) 179 -52%
SBG 184 111 +66% 0 111 +66%
PokerStars 380 237 +60% (10) 227 +67%
Australia 121 69 +76% (3) 66 +84%
US (19) (11) +69% (0) (12) +68%
Corporate costs (67) (62) +9% (1) (63) +7%
------------------------------- ------ -------- ---------- ------ --------
Appendix 6: Reconciliation of Pro forma cash flow to Reported
statutory cash flow
In the Operating and Financial Review the cash flow has been
presented on a pro forma net cash basis. The merger of Flutter and
TSG completed on 5 May 2020, with the merger accounted for as an
acquisition of TSG by Flutter on that date. The Statutory cash flow
reflects this treatment while the Pro forma cash flow is prepared
as if Flutter and TSG had always been merged. The difference
between the net cash basis and the reported cash flow is the
inclusion of borrowings to determine a net cash position.
Pro forma TSG results Adjustment Statutory
cash flow pre-merger to include cash flow
completion borrowings
H1 H1 H1 H1
GBPm 2020 2020 2020 2020
---------------------------------- ------------ ------------ -----------
Adjusted EBITDA 684 342 342
Capex (118) (33) (85)
Working capital 105 (8) 114
Corporation tax (63) (3) (60)
Adjusted free cash flow 608 298 311
Cash flow from separately
disclosed items (SDI) (84) 0 (84)
Free cash flow 524 298 227
Interest cost (101) (64) (37)
Other borrowing costs (22) 0 (22)
Settlement of swaps (28) 0 (28)
Lease liabilities paid and
other (19) 1 (20)
Net increase in cash before
equity raise 356 235 121
Proceeds from equity raise 806 806
Net amounts repaid on borrowings (686) (686)
Cash acquired in TSG 445 445
Net increase / (decrease)
in cash 1,162 235 (240) 686
Net (debt)/cash at start of
year (3,827) (3,563) 372 108
Foreign currency exchange
translation (253) 245 (8)
Change in fair value of hedging
derivatives 19 (19)
Net debt at 30 June 2020 (2,899) (3,328) 357 787
(1) Adjusted EBITDA includes the following line items in the
statutory cash flow: Profit for the period, separately disclosed
items, tax expense before separately disclosed items, financial
income before separately disclosed items, financial expense before
separately disclosed items and depreciation and amortisation before
separately disclosed items.
(2) Capex includes purchase of property, plant and equipment,
purchase of intangible assets, capitalised internal development
expenditure, payment of contingent deferred consideration and
proceeds from the disposal of assets.
(3) Working capital includes increase in trade and other
receivables, increase / (decrease) in trade, other payables and
provisions, employee equity-settled share-based payments expense
before separately disclosed items, and foreign currency exchange
loss / (gain).
(4) Cash flow from separately disclosed items relates to costs
incurred as a result of the Combination with TSG.
(5) Interest and other borrowing costs includes interest paid,
interest received and fees in respect of borrowing facilities.
(6) Lease liabilities paid and other includes payment of lease
liabilities, proceeds from the issue of shares on exercise of
employee options and dividends paid to non-controlling
interest.
(7) Net amounts repaid on borrowings includes proceeds from GBP
First Lien Term Loan A, net amounts drawn down previous GBP
revolving credit facility, repayment of USD First Lien Term Loan B
and old GBP Term Loan facility and amounts repaid on overdraft
facility
(8) Net debt comprises principal outstanding balance of
borrowings, accrued interest on those borrowings, cash and cash
equivalents and derivatives held for hedging debt instruments.
STATEMENT OF DIRECTORS RESPONSIBILITES
For the six months ended 30 June 2020
The Directors are responsible for preparing this interim
management report in all material respects, in accordance with IAS
34 Interim Financial Reporting as adopted by the EU, the
Transparency (Directive 2004/109/EC) Regulations 2007
("Transparency Directive"), and the related Transparency Rules of
the Central Bank of Ireland.
In preparing the interim financial information, the Directors
are required to:
-- prepare and present the interim financial information in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU, the Transparency (Directive 2004/109/EC) Regulations 2007
("Transparency Directive"), and the Transparency Rules of the
Central Bank of Ireland;
-- ensure the interim financial information has adequate disclosures;
-- select and apply appropriate accounting policies; and
-- make accounting estimates that are reasonable in the circumstances.
We confirm that to the best of our knowledge:
a) the condensed set of financial statements in the half-yearly
financial report of Flutter Entertainment plc ("the Company")
for the six months ended 30 June 2020 ("the interim financial
information") which comprises the Condensed Consolidated Interim
Income Statement, the Condensed Consolidated Interim Statement
of Other Comprehensive Income, the Condensed Consolidated Interim
Statement of Financial Position, the Condensed Consolidated
Interim Statement of Cash Flows, the Condensed Consolidated
Interim Statement of Changes in Equity and related explanatory
notes, have been presented and prepared in accordance with
International Accounting Standard 34, Interim Financial Reporting,
as adopted by the European Union.
b) the interim financial information presented, as required by
the Transparency (Directive 2004/109/EC) Regulations 2007,
includes:
i) an indication of important events that have occurred during
the first six months of the financial year, and their impact
on the condensed set of financial statements;
ii) a description of the principal risks and uncertainties for
the remaining six months of the financial year;
ii) related parties' transactions that have taken place in the
first six months of the current financial year and that
have materially affected the financial position or the performance
of the enterprise during that period; and
iv) any changes in the related parties' transactions described
in the last annual report that could have a material effect
on the financial position or performance of the enterprise
in the first six months of the current financial year.
On behalf of the Board of Directors
Peter Jackson Jonathan Hill
Chief Executive Officer Chief Financial Officer
26 August 2020
Understanding and managing our principal risks
A summary of the principal risks and uncertainties that are most
relevant to the remainder of the current financial year is included
below. A number of the risks are trending upwards and the Group has
identified a new risk related to the COVID-19 pandemic. Across the
world the pandemic has brought a significant increase in focus on
risk management for all aspects of public, private and corporate
life. The Group implemented a structured business continuity
program to manage the new risks recognised as the pandemic
developed. Operational redesigns were implemented with minimum
disruption and the Group continued to serve customers within the
guidelines set by local and regional policy makers. The pandemic
has identified increases in risks related to technology and third
parties on which the Group relies. Processes have been deployed to
manage any new risks in these areas. With the acquisition of the
Stars Group, the Group has expanded its operational base
significantly and recognises risks in relation to integrating
businesses and standardising risk appetite over time across the
newly enlarged Group.
Risk Risk Definition Risk Mitigation
Trend
COVID-19 The inability to New
Pandemic adequately * Activated business continuity plans and governance
manage the impact of the with regular meetings to respond quickly to the
COVID-19 pandemic, its emergence of the COVID-19 pandemic, protecting the
implications health and wellbeing of employees in all locations in
on the Group's financial compliance with local government and health
and strategic plans, the authorities' guidelines
cancellation of live
sporting
events and subsequent * Assessing risks heightened by COVID-19 on a periodic
impacts basis to ensure key strategic, operational,
on business operations, technology and regulatory risks continue to be
as well as its short-term managed and mitigated appropriately throughout the
and long-term pandemic, supplemented by Group Internal Audit
macroeconomic assurance.
impacts.
* Entered into new debt arrangements in 2020,
contingent only on completion of the Combination,
comprising a term loan and revolving credit facility
totalling GBP1.4bn. These facilities were utilised
for the refinancing of existing Flutter and TSG debt
as well as providing the Group with ongoing financial
flexibility.
* Increased frequency of commercial forecasting and
scenario cashflow modelling continue to be conducted
to manage the uncertainty of our commercial related
risks.
* Monitoring of Government guidelines and regular
communications to employees to ensure the correct
measures are implemented throughout the business to
reduce the impact of COVID-19 on the health and
wellbeing of employees and customers.
-------------------------- ------- ------------------------------------------------------------
Safer Gambling Failure to operate in a Ü
responsible manner or to * Group Safer Gambling strategy is embedded into our
embed good practice and businesses from how we identify and interact with
appropriate controls to at-risk customers through to how we communicate to a
meet safer gambling broad group of stakeholders and how we encourage
requirements safer gambling tool usage.
and public expectations
into processes and
systems * Providing a leading range of tools on our websites to
resulting in reputational support customers in managing their spend and play,
damage, regulatory and we are continually working to improve and enhance
enforcement our tools and site content.
or poor customer
outcomes.
* Refining of our safer gambling capabilities and our
in house developed machine learning tools and models,
such as the Customer Activity Awareness Program
(CAAP), continuously to enable us to identify and
interact with at-risk customers. The CAAP model
monitors customer behaviours daily and assigns risk
scores to each active customer.
* Continuously investing in improvements at tackling
the problem through donations to the research,
treatment, education initiatives, and driving
collaboration across the industry with other
operators, charities and regulatory bodies.
* Since the recent business combination, implementing a
Group strategic review to ensure we take the best
policies and processes available across the newly
enlarged Group and updated the strategic approach to
Safer Gambling accordingly.
-------------------------- ------- ------------------------------------------------------------
Business The risk of interruption Ý
continuity to the Group's businesses * Developed business continuity plans for all critical
planning due to disruptive areas of the business. These are regularly reviewed
incidents together with IT Disaster Recovery capability and
such as natural disaster service level agreements with third parties. Where
or cyber-attack impacting possible, we have fail safe solutions and seek to
the systems, processes, limit single points of failure.
people or physical
locations
providing * Established a Business Continuity Steering Committee
business-critical to maintain an oversight of the management and
services; resulting in improvement of the Business Continuity Plans.
financial
loss through an inability
to provide reliable * Maintaining a BCP risk register for the tracking of
services. progress on business continuity planning across the
Group.
* Collaborating business continuity plans across the
group for risk mitigation as COVID-19 highlighted the
need to better align this risk across all our
locations.
-------------------------- ------- ------------------------------------------------------------
Data Protection The risk that information Ý
and Cyber belonging to the Group * Aligning the framework for data protection and cyber
Security business security with the aim to protect the privacy rights
or its customers is of individuals in accordance with the relevant
accessed legislations and GDPR and align cyber control
or modified by standards across the Group in managing the risks.
unauthorised
parties (internal or
external), * Implemented Technology and IT Security controls to
or system processing is restrict access to sensitive data and ensure
disrupted or exploited by individuals only have access to the data they require
an attacker (internal or to do their job.
external) owing to a
failure
in service provision from * Completing annual mandatory employee training on data
a Group provider or protection and information security and cyber
external awareness for all employees and additional regular
supplier resulting in training for key parts of the business where customer
reputational and staff personal information are handled.
damage, regulatory
enforcement
or financial loss through * Continuously investing in IT security resources and
manipulation of business working with a variety of external security
process or temporary specialists to ensure security arrangements and
inability systems are up-to-date with emerging threats.
to provide services.
-------------------------- ------- ------------------------------------------------------------
Technology Reduced availability of Ý
systems our products arising from * Investing continuously in a cost-effective technology
stability software, infrastructure platform to ensure stability and availability, to
and availability, and system issues eliminate single points of failure and improve
and disaster resulting performance.
recovery in a poor customer
experience
and may have an impact on * Monitoring of key metrics to monitor key systems and
customer loyalty platforms globally and identify potential emerging
affecting issues for all divisions.
our ability to grow the
business. Delays in
restoring * Defined formal incident management process in place
services following a for identifying, escalating and resolving issues and
major a post-incident process to ensure that similar issues
disruption could result cannot happen again.
in loss of customers and
reputational damage.
* Investing continuously in developing and testing our
disaster recovery capability for our key products
across the Group. Where possible, we have failover
solutions available and seek to limit single points
of failure.
-------------------------- ------- ------------------------------------------------------------
Regulation, Failure to meet new or Ü
licencing existing * Dedicated internal and external Legal, Compliance and
and regulatory licensing or legislative Tax teams for all regions with responsibility for
compliance requirements due to poor advising business units on these matters and working
management of the license with the business to set appropriate policies,
application process, processes and controls.
inadequate
governance and ongoing
monitoring, * For the jurisdictions in which we hold a licence, the
resulting in enforcement relevant Compliance teams perform ongoing monitoring
action, increased of compliance with the regulatory framework and
regulatory licence requirements.
scrutiny and loss of
license.
* Dedicated Regulatory Affairs and Compliance teams
work with regulators and governments in relation to
proportionate and reasonable regulation.
* Reporting by Management periodically to the Board
Risk Committees on the application of various laws
and regulations by the relevant jurisdiction to
ensure that they are appropriately understood and
managed.
* Report of the findings of their audit procedures by
the Group's internal auditors to the Audit Committee
on relevant compliance matters to ensure full
oversight.
-------------------------- ------- ------------------------------------------------------------
Key employees' Inability to recruit, Ü
recruitment retain * Reviewing of key positions and reward by the Board
and retention and motivate existing through the Nomination and Remuneration Committees.
talented The Executive Directors, senior management and other
and highly skilled key employees are part of medium- or long-term
employees incentive plans, which reward performance and
due to inadequate loyalty.
recruitment
process, remuneration and
rewards packages, and * Active managing of succession planning by the HR
lack function and the processes that are in place
of mentoring, training throughout the business to identify key roles and
and conduct regular appraisals, succession and talent
advancement reviews, engagement surveys as well as career
opportunities, development opportunities.
leading to a lack of
suitable
people in key positions * Reviewing of employee salaries, providing a
needed to keep growing comprehensive benefit package and eligibility to join
and (subject to local jurisdictional requirements) our
developing the business. all-employee save as you earn share scheme as an
opportunity for them to participate in the Group's
performance.
* In respect of the impact of COVID-19 on employees,
the Group has implemented an extensive range of
measures to provide the safest working environment
possible for our people and health and wellbeing
initiatives. Where our UK and Ireland Retail business
was closed during lockdown, employees were paid full
salary without availing of any government financial
supports.
-------------------------- ------- ------------------------------------------------------------
Reliance Failure in service Ý
on third provision * Established a Supplier Relationship Management
parties by a third-party due to framework for the managing and performance of the
and key ineffective processes to efficiency and quality of third-party suppliers'
supplier select, contract and performance.
relationships manage
suppliers resulting in
reputational * Aligning a technology third party assurance framework
damage, regulatory for managing security risks introduced by third party
actions to provide assurance.
and financial loss.
* Limiting reliance on a single supplier where possible
to reduce potential single points of failure.
* Reviewing of contracts and service level agreements
with third parties on a regular basis to ensure
adequate protection for the Group.
* Carrying out follow up reviews of suppliers' ability
to provide required services in light of COVID-19 and
taking appropriate follow up action where required.
-------------------------- ------- ------------------------------------------------------------
Integration Missed or inappropriate Ý
and project targets and/or poor * Established the Flutter Transformation Management
change integration Office (TMO) with a robust framework to manage
risk post acquisition due to organisational changes from merger related objectives
lack of defined end to
end
process and governance * Dedicated and experienced internal resources,
around complemented with external expertise, are put in
M&A resulting in failed place to manage projects and programmes associated
acquisitions causing with integrations, with direct reporting lines to the
financial Group's Executive Committee and Board.
loss and reputational
damage.
* Dedicated business development, corporate finance and
divisional management teams are in place to
continually and proactively review potential
acquisitions.
* Assessing all potential acquisition targets to ensure
their strategic fit with the business and their
long-term viability to generate positive returns.
-------------------------- ------- ------------------------------------------------------------
Market Restrictions on new or Ü
Restrictions existing * Monitoring of potential changes in regulatory
markets such as environments on an ongoing basis with a view to
advertising managing any changes appropriately and cost
bans or material taxation efficiently.
changes can impact growth
plans.
* Continuously promoting transparent and effective
regulations in all markets that create a level
playing field.
* Established a product prioritisation process to
ensure any new regulations are complied with in a
timely manner.
* Investing continuously in the flexibility of our
technology, which is key for entering or remaining in
markets and allowing for adaptability as market
conditions change.
-------------------------- ------- ------------------------------------------------------------
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
For the six months ended 30 June 2020
Before Separately Before Separately
separately disclosed separately disclosed
disclosed items disclosed items
items (Note 5 ) Total items (Note 5) Total
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
30 June 2020 30 June 2020 30 June 2020 30 June 2019 30 June 2019 30 June 2019
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Continuing
operations
Revenue 4 1,522.4 13.7 1,536.1 1,019.9 - 1,019.9
Cost of sales (495.9) (2.0) (497.9) (301.0) - (301.0)
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Gross profit 1,026.5 11.7 1,038.2 718.9 - 718.9
Operating costs
excluding
depreciation
and
amortisation (684.8) (68.9) (753.7) (503.1) - (503.1)
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
EBITDA (1) 341.7 (57.2) 284.5 215.8 - 215.8
Depreciation and
amortisation (88.9) (127.8) (216.7) (69.3) (58.8) (128.1)
Operating profit 252.8 (185.0) 67.8 146.5 (58.8) 87.7
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Financial income 6 0.4 49.2 49.6 0.4 - 0.4
Financial
expense 6 (34.9) (58.5) (93.4) (7.1) - (7.1)
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Profit before
tax 218.3 (194.3) 24.0 139.8 (58.8) 81.0
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Tax (expense) /
credit 7 (29.1) 14.1 (15.0) (22.8) 9.4 (13.4)
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Profit for the
period 189.2 (180.2) 9.0 117.0 (49.4) 67.6
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Attributable to:
Equity holders
of the Company 191.3 (172.8) 18.5 116.3 (39.4) 76.9
Non-controlling
interest (2.1) (7.4) (9.5) 0.7 (10.0) (9.3)
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
189.2 (180.2) 9.0 117.0 (49.4) 67.6
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
Earnings per Restated
share (Note 8)
Basic 8 GBP0.181 GBP0.962
Diluted 8 GBP0.179 GBP0.959
----------------- ------- ------------- ------------- -------------- ------------- ------------- --------------
1 EBITDA is defined as profit for the period before depreciation,
amortisation and impairment, financial income, financial expense
and tax expense / credit. It is considered by the Directors
to be a key measure of the Group's financial performance.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE
INCOME
For the six months ended 30 June 2020
Six months Six months
ended ended
30 June 30 June
2020 2019
(unaudited) (unaudited)
GBPm GBPm
------------------------------------------------- ---- ------------- --------------
Profit for the period 9.0 67.6
------------------------------------------------------- ------------- --------------
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss:
Effective portion of changes in fair (88.2) -
value of cash flow hedges
Fair value of cash flow hedges transferred 86.5 -
to the income statement
Foreign exchange gain on translation
of the net assets of foreign currency
denominated entities(1) 174.7 2.0
Debt instruments at FVOCI 0.1 -
Other comprehensive income 173.1 2.0
------------------------------------------------------- ------------- --------------
Total comprehensive income for the period 182.1 69.6
------------------------------------------------------- ------------- --------------
Attributable to:
Equity holders of the Company 181.0 78.4
Non-controlling interest 1.1 (8.8)
------------------------------------------------------- ------------- --------------
182.1 69.6
------------------------------------------------------ ------------- --------------
(1) Foreign exchange gain on translation of the net assets of
foreign currency denominated entities is presented including an
income tax credit of GBP6.2m which relates to the tax effect on
foreign exchange activities with respect to the Group's hedging
activities. A corresponding tax charge of GBP6.2m in relation to
the same is recognised in the Condensed Consolidated Income
Statement such that there is no overall impact on the Condensed
Consolidated Interim Statement of Financial position.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL
POSITION
As at 30 June 2020
30 June 2020 31 December
2019
Note (unaudited) (audited)
GBPm GBPm
----------------------------------- ------ ------------- ------------
Assets
Property, plant and equipment 385.6 298.2
Intangible assets 5,868.6 558.5
Goodwill 9 9,533.7 4,120.3
Deferred tax assets 17.0 11.9
Non-current tax receivable 13.5 -
Derivative financial assets 16 31.6 -
Investments 11 4.6 0.1
Other receivables 11 89.4 50.4
Financial assets - restricted
cash 12 9.2 -
----------------------------------- ------ ------------- ------------
Total non-current assets 15,953.2 5,039.4
----------------------------------- ------ ------------- ------------
Trade and other receivables 11 164.3 64.6
Current tax receivable 11.5 -
Financial assets - restricted
cash 12 477.0 189.1
Current investments - customer
deposits 12 87.2 -
Cash and cash equivalents 12 786.5 108.1
----------------------------------- ------ ------------- ------------
Total current assets 1,526.5 361.8
----------------------------------- ------ ------------- ------------
Total assets 17,479.7 5,401.2
----------------------------------- ------ ------------- ------------
Equity
Issued share capital and share
premium 1,334.7 428.3
Merger reserve 6,189.5 -
Treasury shares (40.7) (40.7)
Shares held by employee benefit
trust (5.8) (6.1)
Other reserves 243.0 63.7
Retained earnings 3,624.6 3,539.5
----------------------------------- ------ ------------- ------------
Equity attributable to owners
of the parent 11,345.3 3,984.7
Non-controlling interest 199.0 204.9
----------------------------------- ------ ------------- ------------
Total equity 11,544.3 4,189.6
----------------------------------- ------ ------------- ------------
Liabilities
Trade and other payables 13 858.6 369.6
Customer balances 542.0 179.2
Derivative financial liabilities 13 30.9 20.4
Provisions 5.4 2.9
Current tax payable 9.8 20.0
Lease liabilities 54.6 38.4
Borrowings 15 56.2 255.0
Total current liabilities 1,557.5 885.5
----------------------------------- ------ ------------- ------------
Trade and other payables 13 12.2 11.5
Derivative financial liabilities 13 41.4 0.7
Provisions 54.5 1.1
Deferred tax liabilities 544.3 65.0
Lease liabilities 156.5 132.1
Borrowings 15 3,569.0 115.7
----------------------------------- ------ ------------- ------------
Total non-current liabilities 4,377.9 326.1
----------------------------------- ------ ------------- ------------
Total liabilities 5,935.4 1,211.6
----------------------------------- ------ ------------- ------------
Total equity and liabilities 17,479.7 5,401.2
----------------------------------- ------ ------------- ------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
For the six months ended 30 June 2020
Six months Six months
ended ended
30 June 2020 30 June 2019
Note (unaudited) (unaudited)
GBPm GBPm
--------------------------------------------------------------------------- ------- -------------- --------------
Cash flows from operating activities
Profit for the period 9.0 67.6
Separately disclosed items 5 180.2 49.4
Tax expense before separately disclosed items 29.1 22.8
Financial income before separately disclosed items (0.4) (0.4)
Financial expense before separately disclosed items 34.9 7.1
Depreciation and amortisation before separately disclosed items 88.9 69.3
Employee equity-settled share-based payments expense before separately
disclosed items 18.0 12.7
Foreign currency exchange loss 15.4 0.5
Gain on disposal of property, plant and equipment and intangible assets (0.2) -
Cash from operations before changes in working capital 374.9 229.0
Increase in trade and other receivables 5.8 (2.1)
Increase in trade, other payables and provisions 74.6 11.2
--------------------------------------------------------------------------- ------- -------------- --------------
Cash generated from operations 455.3 238.1
Tax paid (60.0) (21.9)
--------------------------------------------------------------------------- ------- -------------- --------------
Net cash from operating activities before combination fees and
restructuring costs and legacy
tax assessments 395.3 216.2
Combination fees, restructuring and integration costs paid (83.9) (1.8)
Amounts paid in respect of legacy Greek and German tax assessments - (39.6)
--------------------------------------------------------------------------- ------- -------------- --------------
Net cash from operating activities 311.4 174.8
--------------------------------------------------------------------------- ------- -------------- --------------
Purchase of property, plant and equipment (21.8) (9.9)
Purchase of intangible assets (21.5) (18.6)
Proceeds from disposal of assets 0.2 -
Proceeds from disposal of investment - 2.3
Purchase of businesses 10 - (102.0)
Capitalised internal development expenditure (37.1) (24.1)
Cash acquired from acquisitions 10 445.2 0.2
Payment of contingent deferred consideration 10 (4.6) (2.8)
Interest received 0.4 0.4
--------------------------------------------------------------------------- ------- -------------- --------------
Net cash from / (used in) investing activities 360.8 (154.5)
--------------------------------------------------------------------------- ------- -------------- --------------
Proceeds from the issuance of new shares in respect of equity placement
(net of issuance costs) 18 806.3 -
Proceeds from the issue of shares on exercise of employee options 8.9 0.3
Dividend paid to Non-controlling interest 18 (7.0) -
Dividends paid 17 - (104.0)
Payment of lease liabilities (21.7) (20.0)
Proceeds from GBP First Lien Term Loan A and previous GBP Term Loan 15 950.0 250.0
Net amounts drawn down previous GBP Revolving Credit facility 15 (117.2) (76.2)
Repayment of USD & EUR First Lien Term Loan B and old GBP Term Loan (1,513.5) -
facility
Amounts (repaid) / drawn down on overdraft facility 15 (5.0) -
Interest paid (37.5) (3.4)
Settlement of derivatives (27.6) -
Financing fees paid in respect of borrowing facilities (21.5) (0.3)
Purchase of own shares including direct purchase costs - (86.8)
Net cash from / (used in) financing activities 14.2 (40.4)
--------------------------------------------------------------------------- ------- -------------- --------------
Net increase / (decrease) in cash and cash equivalents 686.4 (20.1)
Cash and cash equivalents at start of period 108.1 123.7
Foreign currency exchange (loss) / gain on cash and cash equivalents (8.0) 0.4
--------------------------------------------------------------------------- ------- -------------- --------------
Cash and cash equivalents at end of period 12 786.5 104.0
--------------------------------------------------------------------------- ------- -------------- --------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2020
Attributable to equity holders of the Company
Number Issued
of share Shares
ordinary capital Foreign Cash held by Share-
shares and share exchange flow Financial employee based Non-controlling
in premium Merger translation hedge assets at Other Treasury benefit payment Retained Total interest Total
(unaudited) issu e GBPm reserve reserve reserve FVOCI reserve shares trust reserve earnings equity GBPm equity
millions GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ---------- ------------- ------------- --------- ----------- --------- ---------- ---------- --------- ---------- ----------- ----------------- -----------
Balance at 1
January 2020 80.3 428.3 - (21.5) 2.3 - 2.3 (40.7) (6.1) 80.6 3,539.5 3,984.7 204.9 4,189.6
Total comprehensive income
for the period
Profit for the
period - - - - - - - - - - 18.5 18.5 (9.5) 9.0
Foreign exchange
translation - - - 157.9 - - - - - - - 157.9 10.6 168.5
Tax credit on
foreign exchange
hedging - - - 6.2 - - - - - - - 6.2 - 6.2
Effective portion
of changes in
fair value of
cash flow hedges - - - - (88.2) - - - - - - (88.2) - (88.2)
Fair value of
cash flow hedges
transferred to
the income - - - - 86.5 0.1 - - - - - 86.6 - 86.6
Total
comprehensive
income for the
period - - - 164.1 (1.7) 0.1 - - - - 18.5 181.0 1.1 182.1
--------- ---------- ------------- ------------- --------- ----------- --------- ---------- ---------- --------- ---------- ----------- ----------------- -----------
Transactions with owners of the Company, recognised directly in equity
Shares issued on
equity placement
(net of issuance
costs) (Note 18) 8.0 812.6 - - - - - - - (6.3) 806.3 - 806.3
Shares issued on
exercise of
employee share
options (Note
18) 0.8 8.9 - - - - - - - - - 8.9 - 8.9
Shares issued as
consideration
for the
acquisition of
TSG (Note 10) 65.3 5.1 6,189.5 - - - - - - - - 6,194.6 - 6,194.6
Issue of
replacement
options (Note
10) - - - - - - - - - 58.8 - 58.8 - 58.8
Shares issued as
consideration
for acquisition
of TSG Australia
(Note 10) 0.8 79.7 - - - - - - - - - 79.7 - 79.7
Equity-settled
transactions -
expense
recorded in
income statement - - - - - - - - - 27.6 - 27.6 - 27.6
Equity-settled
transactions -
vestings - - - - - - - - 0.3 (0.2) (0.1) - - -
Tax on
share-based
payments - - - - - - - - - - 3.7 3.7 - 3.7
Transfer to
retained
earnings on
exercise of
share options
and vesting of
share awards - - - - - - - - - (69.4) 69.4 - - -
Dividend paid to
Non-controlling
interest (Note
18) - - - - - - - - - - - - (7.0) (7.0)
Dividends to
shareholders
(Note 17) 1.3 0.1 - - - - - - - - (0.1) - - -
Total
contributions by
and
distributions to
owners of the
Company 76.3 906.4 6,189.5 - - - - - 0.3 16.8 66.6 7,179.6 (7.0) 7,172.6
------------------ --------- ---------- ------------- ------------- --------- ----------- --------- ---------- ---------- --------- ---------- ----------- ----------------- -----------
Balance at 30
June 2020 156.6 1,334.7 6,189.5 142.6 0.6 0.1 2.3 (40.7) (5.8) 97.4 3,624.6 11,345.3 199.0 11,544.3
------------------ --------- ---------- ------------- ------------- --------- ----------- --------- ---------- ---------- --------- ---------- ----------- ----------------- -----------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2019
Attributable to equity holders of the Company
---------------------------
Issued Shares
Number share Foreign held by Share-
of capital exchange employee based Non-controlling
ordinary and translation Other Treasury benefit payment Retained Total interest Total
shares share reserve reserves shares trust reserve earnings equity GBPm equity
(unaudited) in premium GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
issu e GBPm
millions
--------------- ---------- -------- ------------- ---------- ---------- --------- --------- ---------- ---------- ----------------- ----------
Balance at 1
January 2019 81.4 424.8 4.1 2.2 (40.7) (8.6) 86.1 3,530.1 3,998.0 213.3 4,211.3
Total comprehensive income
for the period
Profit for the
period - - - - - - - 76.9 76.9 (9.3) 67.6
Foreign
exchange
translation - - 1.5 - - - - - 1.5 0.5 2.0
Total
comprehensive
income for
the period - - 1.5 - - - - 76.9 78.4 (8.8) 69.6
---------- -------- ------------- ---------- ---------- --------- --------- ---------- ---------- ----------------- ----------
Transactions with owners of the
Company, recognised directly in
equity
Shares issued
(Note 18) 0.1 0.3 - - - - - - 0.3 - 0.3
Business
combinations
(Note 10) - - - - - - - - - 31.6 31.6
Own shares
acquired by
the Group
(Note 18) (1.4) (0.1) - 0.1 - - - - - - -
Equity-settled
transactions -
expense
recorded in
income
statement - - - - - - 12.7 - 12.7 - 12.7
Equity-settled
transactions -
vestings - - - - - 0.2 (0.2) - - - -
Tax on
share-based
payments - - - - - - - (0.1) (0.1) - (0.1)
Transfer to
retained
earnings on
exercise of
share options - - - - - - (11.8) 11.8 - - -
Dividends to
shareholders
(Note 17) - - - - - - - (104.0) (104.0) - (104.0)
Total
contributions
by and
distributions
to
owners of the
Company (1.3) 0.2 - 0.1 - 0.2 0.7 (92.3) (91.1) 31.6 (59.5)
Balance at 30
June 2019 80.1 425.0 5.6 2.3 (40.7) (8.4) 86.8 3,514.7 3,985.3 236.1 4,221.4
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. General information
Flutter Entertainment plc (the "Company") is a company
incorporated in the Republic of Ireland. The Condensed Consolidated
Interim Financial Statements of the Company for the six months
ended 30 June 2020 comprise the Company and its subsidiaries
(together referred to as the "Group"). The Condensed Consolidated
Interim Financial Statements are unaudited but have been reviewed
by KPMG, the Group's auditor, whose report is set out on the last
page of this document.
During the period ended 30 June 2020, the Company completed an
all share Combination with The Stars Group Inc. (the "Combination")
- see Note 10 for further information on the Combination. The
results of The Stars Group Inc. ('TSG') prior to completion of the
Combination are not included in these condensed consolidated
interim financial statements.
The financial information presented herein does not comprise
full statutory financial statements and therefore does not include
all of the information required for full annual financial
statements. Full statutory financial statements for the year ended
31 December 2019, prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the EU
together with an unqualified audit report thereon under Section 391
of the Irish Companies Act 2014, will be annexed to the annual
return and filed with the Registrar of Companies in Ireland.
The Condensed Consolidated Interim Financial Statements were
approved for issue by the Board of Directors of Flutter
Entertainment plc on 26 August 2020.
2. Basis of preparation and accounting policies
The Condensed Consolidated Interim Financial Statements have
been prepared in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, the Transparency Rules of the
Central Bank of Ireland and with IAS 34 'Interim Financial
Reporting' as adopted by the EU. The Condensed Consolidated Interim
Financial Statements are prepared on the historical cost basis
except for derivative financial instruments (which include betting
transactions), equity securities, certain financial assets which
have been designated as FVOCI, contingent deferred consideration
and share-based payments, all of which are stated at fair value
(grant date fair value in the case of equity-settled share-based
payments).
Going concern
The Group has considerable financial resources which includes at
30 June 2020 GBP786.5m of cash and cash equivalents and a GBP450m
Revolving Credit Facility with undrawn capacity of GBP375m (see
Note 15) with borrowings due within the next 12 months of GBP56.2m.
As a consequence, the Directors believe that the Group is well
placed to manage its business risks successfully. See
'Understanding and Managing our Principal risks' in this report for
more detail including those related to COVID-19.
The Group's forecasts for the year ending 31 December 2020 and
beyond indicate that it will continue to have significant financial
resources and operate well within its banking covenants as outlined
in Note 15 for at least a period of 12 months from the date of
these financial statements. Various downside scenarios over and
above those already included in the base case model on the
potential impact of further reductions to cashflows
due to COVID-19 and Enhanced Regulation have also been considered in respect of these forecasts.
Having given regard to the above, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of these interim financial
statements, and therefore they continue to adopt the going concern
basis in the consolidated financial statements.
New accounting policies
The financial information contained in the Condensed
Consolidated Interim Financial Statements has been prepared in
accordance with the accounting policies set out in the Group's last
annual financial statements in respect of the year ended 31
December 2019, except as set out below.
The Group has introduced the below new accounting policies or
expanded existing policies as a result of the Combination. These
policies do not impact the Group's reported revenue, operating
profit, or amounts reported in the statement of financial position
in 2019.
2. Basis of preparation and accounting policies (continued)
Revenue
The services provided by the Group comprise sports betting
(sportsbook, the exchange sports betting product, and pari-mutuel
betting products), daily fantasy sports products, fixed odds games
betting, online games and casino, peer-to-peer games including
online bingo and online poker and business-to-business services.
Revenue is stated exclusive of value-added tax.
The Group's betting and gaming activities are classified as
derivative financial instruments, with the exception of the
exchange sports betting product and pari-mutuel betting products on
which commission income is earned, peer-to-peer games on which
commission income and tournament fees are earned (including daily
fantasy sports), and business-to-business services on which fees
are earned.
Revenue from sportsbook betting activities represents the net
gain or loss from betting activities in the period plus the gain or
loss on the revaluation of open positions at period end and is
stated net of the cost of customer promotions and bonuses incurred
in the period. These derivatives are recognised initially at fair
value and subsequently at fair value through profit or loss, within
the revenue line as this represents the Group's principal activity.
Customer promotions (including free bets) and bonuses are deducted
from sportsbook betting revenue.
Revenue from the exchange sports betting product represents
commission earned on betting activity and is recognised on the date
the outcome for an event is settled.
Revenue from conversion margins is the revenue earned on the
processing of real-money deposits and cash outs in specified
currencies. Revenue from customer cross-currency deposits and
withdrawals is recognised when the transaction is complete at a
point in time. Revenue is recognised with reference to the
underlying arrangement and agreement with the players and
represents a single performance obligation and is recorded within
the applicable line of operations.
Play-money gaming revenue - Customers can participate in online
poker tournaments and social casino games using play-money, or
virtual currency. Customers can purchase additional play-money
chips online to participate in the poker tournaments and social
casino games. The revenue is recognised at a point in time when the
customer has purchased such chips as control has been transferred
to the customer and no further performance obligations exist. Once
a customer has purchased such chips, they are non-refundable and
non-cancellable.
Other - The Group sponsors certain live poker tours and events,
uses its industry expertise to provide consultancy and support
services to the casinos that operate the events, and has marketing
arrangements for branded poker rooms at various locations around
the world. The Group also provides customers with access to odds
comparisons, tips and other information to assist with betting, and
provides other media and advertising services, and limited content
development services with revenue generated by way of affiliate
commissions, revenue share arrangements and advertising income as
applicable. Revenue is recognised upon satisfying the applicable
performance obligations, at a point in time or over time as
applicable.
Revenue from Daily Fantasy Sports products represents entry fees
less prizes paid and player acquisition and retention incentives.
Prizes are generally paid in cash or an entry fee into specific
contests or tournaments.
The Group earns service fees from offering fantasy sports
contests ("Contests") and fantasy sports tournaments
("Tournaments") to users. Contests are generally completed in a
single day or up to one week. Tournaments are generally completed
in one week or up to several months over two to three rounds. For
Contests, revenue is recognised when the contest is settled. For
Tournaments, revenue is recognised over the period of the
tournament as each round is completed and there is no longer a
service obligation to each user that participated in the
tournament.
The Group offers various incentives to build loyalty, encourage
and engage users on the platform, the costs of incentives are
recorded as a reduction to the amount recognised as revenue for
service fees.
Revenue from sponsorships represents advertising campaigns for
customers who become a presenting sponsor at events. Customers are
generally billed prior to the campaign launch and revenue is earned
over the period of the event.
2. Basis of preparation and accounting policies (continued)
Revenue from pari-mutuel betting products represents a
percentage of stake and is recognised on settlement of the event,
and is stated net of customer promotions and bonuses in the
period.
Revenue from fixed odds games and the online casinos represents
net winnings ("customer drop"), being amounts staked net of
customer winnings, and is stated net of customer promotions and
bonuses incurred in the period.
Revenue from peer-to-peer games represents commission income
("rake") and tournament fees earned from games completed by the
period end, and is stated net of the cost of customer promotions
and bonuses incurred in the period.
Revenue from business-to-business services represents fees
charged for the services provided in the period.
Financial Assets
Recognition and Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not measured
at FVTPL (as defined below), transaction costs that are directly
attributable to the acquisition of the financial asset. The Group
classifies financial assets into one of the following measurement
categories:
-- Those to be measured subsequently at fair value through profit or loss ("FVTPL");
-- Those to be measured subsequently through other comprehensive income ("FVOCI"); or
-- Those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows. Except in very limited circumstances, the classification may
not be changed subsequent to initial recognition. The Group only
reclassifies debt instruments when its business model for managing
those assets changes.
Debt instruments
Subsequent measurement of debt instruments depends on the
Group's business model for managing the asset and the cash flow
characteristics of that asset. There are three measurement
categories into which the Group classifies its debt
instruments:
-- Amortised cost: debt instruments are measured at amortised
cost if they are held within a business model with the objective of
collecting the contractual cash flows and those cash flows solely
represent payments of principal and interest. A gain or loss on a
debt instrument that is subsequently measured at amortised cost and
is not part of a hedging relationship is recognised in profit or
loss when the debt instrument is derecognised or impaired. Interest
income from these debt instruments is recognised using the
effective interest rate method. Cash, restricted cash and accounts
receivable are classified as amortised cost.
-- FVOCI: debt instruments are measured at FVOCI if they are
held within a business model with the objective of either
collecting the contractual cash flows or of selling the debt
instrument, and those cash flows solely represent payments of
principal and interest. Movements in the carrying amount are
recorded in other comprehensive income, with impairment gains or
losses, interest income and foreign exchange gains or losses
recognised in profit or loss. When the debt instrument is
derecognised, the cumulative gain or loss previously recognised in
other comprehensive income is reclassified to profit or loss. Bonds
recorded within current investments are classified as FVOCI.
-- FVTPL: debt instruments that are not solely payments of
principal and interest are classified and measured at FVTPL,
irrespective of the business model. Notwithstanding the criteria
for debt instruments to be classified at amortised cost or at
FVOCI, as described above, debt instruments may be designated at
FVTPL on initial recognition if doing so eliminates, or
significantly reduces, an accounting mismatch. A gain or loss on a
debt instrument that is subsequently measured at FVTPL and is not
part of a hedging relationship is recognised in profit or loss and
presented in the consolidated income statement. The Group does not
currently hold any financial assets at FVTPL.
2. Basis of preparation and accounting policies (continued)
Financial Liabilities
Recognition and measurement
Financial liabilities are classified, at initial recognition, as
either financial liabilities at FVTPL or other financial
liabilities.
-- FVTPL: Financial liabilities are classified as FVTPL if they
are held for trading or are designated as FVTPL upon initial
recognition if such designation eliminates or significantly reduces
a measurement or recognition inconsistency that would otherwise
arise or the financial liability is managed and its performance is
evaluated on a fair value basis. Any gains or losses arising on
re-measurement are recognised in the consolidated income statement.
Derivative instruments and certain other level 3 liabilities (See
Note 16) are classified as FVTPL.
-- Other financial liabilities: Financial liabilities, including
borrowings, are initially measured at fair value, net of
transaction costs. Other financial liabilities are subsequently
measured at amortised cost using the effective interest method. The
effective interest method calculates the amortised cost of a
financial liability and allocates interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the
expected life of the financial liability (or a shorter period where
appropriate) to the net carrying amount on initial recognition.
Long-term debt is classified within other financial liabilities and
is measured at amortised cost.
Debt modifications
The Group may pursue amendments to its credit agreements based
on, among other things, prevailing market conditions. Such
amendments, when completed, are considered by the Group to be debt
modifications.
The accounting treatment of debt modifications depends upon
whether the modified terms are substantially different than the
previous terms. The terms of an amended debt agreement are
considered substantially different when either: (i) the discounted
present value of the cash flows under the new terms, discounted
using the original effective interest rate, are at least ten
percent different from the discounted present value of the
remaining cash flows of the original debt or (ii) management
determines that other changes to the terms of the amended
agreement, such as a change in the environment in which a floating
interest rate is determined, are substantially different. If the
modification is considered to be substantially different, the
transaction is accounted for as an extinguishment of the original
debt instrument, which is derecognised and replaced by the amended
debt instrument, with any unamortised costs or fees incurred on the
original debt instrument recognised as part of the gain or loss on
extinguishment. If the modification is not considered to be
substantially different, an adjustment to the carrying amount of
the original debt instrument is recorded, which is calculated as
the difference between the original contractual cash flows and the
modified cash flows discounted at the original effective interest
rate with
the difference recognised in financial expense in the
consolidated income statement.
Transaction costs
Transaction costs that are directly attributable to the
acquisition or issuance of financial assets and financial
liabilities (other than financial assets and financial liabilities
that are classified as FVTPL) are added to or deducted from, as
applicable, the fair value of the financial instrument on initial
recognition. These costs are expensed to financial expenses in the
consolidated income statement over the term of the related
interest-bearing financial asset or financial liability using the
effective interest method. When a debt facility is retired by the
Group, any remaining balance of related debt transaction costs is
expensed to financial expenses in the period that the debt facility
is retired. Transaction costs related to financial instruments at
FVTPL are expensed when incurred.
2. Basis of preparation and accounting policies (continued)
Derivatives
As permitted by IFRS 9, the Group continues to apply the hedge
accounting requirements of IAS 39 rather than the requirements of
IFRS 9 and complies with the annual hedge accounting disclosures as
required by IFRS 7.
The Group uses derivative instruments for risk management
purposes and does not use derivative instruments for speculative
trading purposes (except for derivatives with respect to the
Group's Sportsbook line of operations, which are transactions
within the scope of IFRS 9 but reported as revenue as discussed
above). All derivatives are recorded at fair value in the
consolidated statements of financial position. The accounting for
subsequent changes in fair value depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the
item being hedged. For derivatives not designated as hedging
instruments, the re-measurement of those derivatives each period is
recognised in the consolidated income statement.
Derivatives may be embedded in other financial liabilities and
non-financial instruments (i.e., the host instrument). Embedded
derivatives are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the
host instrument, the terms of the embedded derivative are the same
as those of a stand-alone derivative and the combined instrument
(i.e., the embedded derivative plus the host instrument) is not
held-for-trading or designated at fair value. These embedded
derivatives are measured at fair value with subsequent changes
recognised in the consolidated income statement.
A derivative embedded within a hybrid contract containing a
financial asset host is not accounted for separately under IFRS 9.
The financial asset host together with the embedded derivative is
required to be classified in its entirety as a financial asset at
FVTPL.
Hedge accounting
The Group designates certain derivatives as either:
-- hedges of a particular risk associated with the cash flows of
recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges), or
-- hedges of a net investment in a foreign operation (net investment hedges).
At inception of the hedge relationship, the Group formally
documents how the hedging relationship meets the hedge accounting
criteria. It also records the economic relationship between the
hedged item and the hedging instrument, including the nature of the
risk, the risk management objective and strategy for undertaking
the hedge and the method that will be used to assess the
effectiveness of the hedging relationship at inception and on an
ongoing basis.
Cash flow hedges
The Group uses derivatives for cash flow hedges. The effective
portion of the change in fair value of the hedging instrument is
recorded in other comprehensive income and accumulated in the cash
flow hedging reserve, while the ineffective portion is recognised
immediately in the consolidated income statement. Gains and losses
on cash flow hedges accumulated in other comprehensive income
(loss) are reclassified to the consolidated income statement in the
same period the hedged item affects the consolidated income
statement. If the forecast transaction is no longer expected to
occur, the hedge no longer meets the criteria for hedge accounting,
the hedging instrument expires or is sold, terminated or exercised,
or the designation is revoked, the hedge accounting is discontinued
prospectively. If the forecast transaction is no longer expected to
occur, then the amount accumulated in equity is reclassified to the
consolidated income statement.
Net investment hedges
Hedges of net investments in foreign operations are accounted
for similarly to cash flow hedges. Any gain or loss on the hedging
item relating to the effective portion of the hedge is recognised
in other comprehensive income and accumulated under the heading
foreign exchange translation reserve. The gain or loss relating to
the ineffective portion is recognised immediately in the
consolidated income statement. Gains and losses accumulated in
other comprehensive income are reclassified to the consolidated
income statement when the foreign operation is partially disposed
of or sold.
2. Basis of preparation and accounting policies (continued)
Separately disclosed items
Separately disclosed items are those that in management's
judgement need to be disclosed by virtue of their size, incidence
or if not part of the Group's normal trading activities. The
separate reporting of these items helps provide a better
understanding of the Group's underlying performance.
Such items may include the amortisation of acquisition related
intangibles, significant restructuring and integration costs,
material fees in respect of acquisitions, significant impairment of
property, plant and equipment and intangible assets and significant
movement in the fair value of contingent consideration. Following
the acquisition of the TSG, and the significant change in the
Group's debt and derivatives portfolio, the Group also considers
items such as the gain/loss on Embedded derivatives, the gain/loss
on accelerated debt repayments, foreign exchange gain/losses on
financial instruments associated with financing activities, forward
contract gain/losses associated with financing and the write off
and expensing of one-off fees that do not meet the criteria for
capitalisation as items that should be separately disclosed.
In the majority of cases, it is the material impact that these
items have on the financial statements that determines whether they
should be separately disclosed. Materiality is determined by
assessing whether disclosing such items separately would present a
reader with a better understanding of the performance of the Group.
If such items were deemed to be less than material, they would not
be separately disclosed.
These items, usually due to their size and nature tend to be
non-recurring items and would not arise on an annual basis.
However, in other cases, items such as for example, the
amortisation of acquisition related intangibles may occur over
several years but are disclosed separately due to their finite life
and the significantly changing amortisation profile of the assets
in question in the related years. Other items such as the gain/loss
on embedded derivatives and foreign exchange gains/losses
associated with financing activities would also arise on a regular
basis and are disclosed separately due to their volatile
nature.
The separate disclosure of such items helps the reader better
understand underlying business performance.
The tax related impact of such items is also disclosed
separately.
Adoption of new and revised standards
In preparing these financial statements for the current period
the Group has adopted the following amendments to IFRS:
Amendments to existing standards
-- Amendments to references to the Conceptual Framework in IFRS Standards
-- Definition of material (Amendments to IAS 1 and IAS 8)
None of the above had a significant impact on the financial
statements.
3. Judgements and estimates
The preparation of interim financial statements in conformity
with IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements with the exception of the
judgements in relation to the Embedded Derivative and the FOX
equity option (which policies are outlined in further detail in
Notes 2 and 3) in applying the Group's accounting policies and the
key sources of estimation uncertainty were consistent with those
that applied to the Consolidated Financial Statements as at and for
the year ended 31 December 2019 and are detailed below.
Valuation of tax provisions and liabilities and associated
receivables
Taxation within the Group includes both Income Taxes and Gaming
Taxes. Judgement and estimation is required to interpret
international tax laws and the way these taxes interact within each
jurisdiction, to identify and value provisions in relation to
gaming and income taxes as applicable. The liabilities for
uncertain tax positions reflected
within current tax payable and provisions in the Consolidated
Statement of Financial Position for the six months ended 30 June
2020 are comprised of a number of individual immaterial uncertain
tax positions relating to the risks assessed in various
jurisdictions by Management. Uncertainties have been measured using
the best estimate of the likely outcome. This assessment relies on
estimates and assumptions and may involve a series of judgements
about future events. New information may become available that
causes the Group to change its judgement regarding the adequacy of
existing tax liabilities; such changes to tax liabilities will
impact the income tax or gaming tax expense in the period in which
such a determination is made. Management uses in-house tax experts,
professional firms and previous experience when assessing tax risks
and the Group believes that the accrual for all tax liabilities at
30 June
2020 is adequate for all uncertain tax positions based on its
assessment of the range of factors outlined above. Further
information in relation to the judgement relating to the disputed
legacy German and Greek tax assessments is outlined in Note 11.
Acquisition accounting and value of acquired assets and
liabilities
The acquisition method of accounting is used to account for all
business combinations. Identifiable assets acquired and liabilities
assumed in a business combination are measured initially at their
fair values at the acquisition date. Judgement and estimation is
required in particular in the identification and valuation of
separable intangible assets and determining appropriate useful
economic lives for these assets. If the purchase consideration
exceeds the fair value of the net assets acquired then the
difference is recognised as goodwill.
The Group has one year from the acquisition date to re-measure
the fair values of the acquired assets and liabilities and the
resulting goodwill if new information is obtained relating to
conditions that existed at the acquisition date.
Acquisition related costs are expensed as incurred. The business
combinations entered into during the period are disclosed in Note
10.
Measurement of the recoverable amounts of cash generating units
containing goodwill and indefinite life licences and brands
intangible assets
The Group reviews the carrying value of goodwill for impairment
annually (or more frequently if there are indications that the
value of goodwill may be impaired) by comparing the carrying values
of these cash generating units with their recoverable amounts
(being the higher of value in use and fair value less costs to
sell).
The impairment review is performed on a "value-in-use" basis,
which requires estimation of future net operating cash flows, the
time period over which they will occur, an appropriate discount
rate and an appropriate growth rate. Certain of these estimates and
assumptions are subjective in nature.
The impact of COVID-19 on the performance of the group and its
individual business units is set out in the business review section
of the H1 results announcement. The retail cash generating units
(CGUs) were impacted significantly due to the temporary suspension
of the activities of shops for a period leading to shorter term
impacts such as social distancing as well as longer term
uncertainty in respect of customer behaviours. Based on the
significant headroom that existed in the 31 December 2019
impairment test, the strong performance of the shops for the period
up to the date of suspension of activities, customer activity
levels since the shops have reopened as well as opportunities to
make further market share gains as competitors reduce the size of
their respective estates, the Group is satisfied that no impairment
has arisen during the period to 30 June 2020.
3. Judgements and estimates (continued)
For the Group's various Online CGUs which generate income from
sportsbook the impact of COVID-19 has not been as significant due
to greater substitution possibilities and they also benefit from
the ongoing retail to online migration. While no impairments have
arisen in the Group's CGUs during the period to 30 June 2020, there
is economic uncertainty in the global economy due to the ongoing
COVID-19 global pandemic and this could be a potential future
risk.
Lease term and judgement of whether the Group is reasonably
certain to exercise extension options
Some property leases, particularly in our retail business
contain extension and break options to provide operational
flexibility. These options are held by the Group and not by the
lessors. The Group assesses whether it is reasonably certain to
exercise these options at lease commencement date. The Group is of
the view that other than the underlying trading of the shop, there
is no economic incentive to extend a particular lease. For example,
the rents are at market rates, there are no significant leasehold
improvements and there are no significant costs relating to exiting
or relocating.
Contingent liabilities
The Group reviews its legal proceedings following developments
in the same at each balance sheet date, considering, among other
things: the nature of the litigation, claim or assessment; the
legal processes and potential level of damages in the jurisdiction
in which the litigation, claim or assessment has been brought; the
progress of the case (including progress after the date of the
consolidated financial statements but before those statements are
issued); the opinions or views of legal counsel and other advisors;
experience of similar cases; and any decision of the Group's
management as to how it will respond to the litigation, claim or
assessment. The Group assesses the probability of an outflow of
resources to settle the alleged obligation as well as if the
outflow can be reliably measured. If these conditions are not met,
no provision will be recorded and the relevant facts will be
disclosed as a contingent liability. See Note 19 for further
detail.
Valuation of Embedded Derivative on Senior Notes
The Senior Notes (as defined in Note 15) include certain
embedded features allowing the Group to redeem the Senior Notes or
allowing the holders to require a redemption of the Senior Notes.
These features were bifurcated from the carrying value of the
Senior Notes. Management used estimates, including an implied
credit spread of 4.2% as at 30 June 2020 (5 May 2020 - 5.1%), in
determining the fair value of the Embedded Derivative. The implied
credit spread represents management's estimate of the Group's
creditworthiness as implied by the market value of the Senior
Notes. During the period ending 30 June 2020 a gain of GBP29.9
million was recorded through financial income in relation to the
re-measurement of this Embedded Derivative .
FOX equity option
As part of the Combination, the Group acquired the following
agreement in relation to TSG's US business.
On 8 May 2019, TSG and FOX Sports ("FOX Sports"), a unit of Fox
Corporation, announced plans to launch FOX Bet, the first-of-its
kind national media and sports wagering partnership in the United
States and entered into a commercial agreement of up to 25 years.
As part of the transaction, FOX Sports will receive certain brand
license, integration and affiliate fees. In addition, during the
term of the commercial agreement, TSG has agreed to a minimum
annual advertising commitment on certain FOX media assets. Prior to
the tenth anniversary of the commercial agreement, and subject to
certain conditions and applicable gaming regulatory approvals, FOX
Sports has the right to acquire up to a 50% equity stake in TSG's
U.S. business. In accordance with IFRS 2, Share-based payment based
on the judgment of management, this right granted to FOX Sports is
considered a contingently cash-settled share-based payment because
FOX Sports, subject to receiving regulatory approvals and meeting
certain other conditions, has discretion to exercise the right.
During the period ended 30 June 2020, the Group recorded GBP2.1m to
sales and marketing expense in relation to the commercial
agreement.
Management has made certain judgments in the recognition and
measurement of liabilities in relation to this commercial agreement
and associated right of FOX Sports to acquire equity, including its
judgment as to the probable method of settlement. The right has
been valued using a discounted cash flow model and as it represents
a contingently cash-settled share-based payment, will be recorded
at fair value at each reporting period.
4. Operating segments
Reportable business segment information
Subsequent to the Combination, the Group's reportable segments
are as follows:
* PPB;
* PokerStars;
* Sky Betting and Gaming;
* Australia; and
* US.
The reportable segments reflect the way financial information is
reviewed by the Group's Chief Operating Decision Maker (the Board
of Directors, "CODM"). The Group has restated the operating segment
information for the six months ended 30 June 2019 accordingly.
The previous reportable segments of PPB Online and PPB Retail
have been aggregated in the PPB segment due to the similar
products, markets and regulatory environment that both segments
operate in.
The PPB segment derives its revenues primarily from sports
betting (sportsbook and the exchange sports betting product) and
gaming (games, casino, bingo and poker) services for the Paddy
Power and Betfair brands and some business-to-business ("B2B")
services globally. Services are delivered through the internet and
through licenced bookmaking shop estates in the UK and Ireland with
a small proportion delivered through the public telephony
system.
The PokerStars segment derives its revenues primarily from
Poker, Gaming and Sports betting for the Pokerstars, BetStars, Full
Tilt and their related brands mainly via the internet.
The Sky Betting and Gaming segment derives its revenues
primarily from sportsbook and gaming (games, casino, bingo and
poker) for Sky Bet and its related brands via the internet as well
as from Oddschecker, the UK's leading odds comparison website.
The Australia segment comprising the Sportsbet and BetEasy
brands earns its revenues from sports betting services provided to
Australian customers using primarily the internet with a small
proportion using the public telephony system.
The US segment comprising the FanDuel, TVG, Betfair, Pokerstars
and FoxBet brands earns its revenues from sports betting, daily
fantasy sports and gaming services provided to US customers using
primarily the internet with a proportion of US sports betting
services also provided through a small number of retail
outlets.
Corporate administrative costs (Board, Finance, Legal, Internal
Audit, HR, Property and other central functions) cannot be readily
allocated to individual operating segments and are not used by the
CODM for making operating and resource allocation decisions. These
are shown in the reconciliation of reportable segments to Group
totals.
The accounting policies in respect of operating segments
reporting are the same as those described in the basis of
preparation and summary of significant accounting policies set out
in the Company's last annual financial statements in respect of the
year ended 31 December 2019.
The Group does not allocate income tax expense or interest to
reportable segments. Treasury management is centralised for the
PPB, PokerStars, Sky Betting and Gaming, Australia and US
segments.
Assets and liabilities information is reported internally in
total and not by reportable segment and, accordingly, no
information is provided in this note on assets and liabilities
split by reportable segment.
Seasonality
The Group's sportsbook revenue is driven by a combination of the
timing of sporting and other events and the Group's results derived
from those events. The COVID-19 pandemic that caused the
postponement and cancellation of sporting events across the world
has skewed results for the period. Gaming and other revenue is not
as dependent on the sporting calendar.
4. Operating segments (continued)
Reportable business segment information for the six months ended
30 June 2020:
Sky Betting
PPB PokerStars and Gaming Australia US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from external
customers before VAT
refund 540.1 229.7 148.8 348.0 255.8 - 1,522.4
Cost of sales (156.8) (51.3) (40.4) (148.2) (99.2) - (495.9)
Gross profit 383.3 178.4 108.4 199.8 156.6 - 1,026.5
Operating costs excluding
depreciation and amortisation (298.3) (62.4) (41.9) (90.0) (154.3) (37.9) (684.8)
Adjusted EBITDA (1) 85.0 116.0 66.5 109.8 2.3 (37.9) 341.7
Depreciation and amortisation (47.5) (7.1) (3.7) (12.3) (16.1) (2.2) (88.9)
Reportable segment profit
/ (loss) before separately
disclosed items 37.5 108.9 62.8 97.5 (13.8) (40.1) 252.8
Amortisation of acquisition
related intangible assets
(Note 5) (27.1) (51.0) (29.6) (4.4) (15.7) - (127.8)
VAT refund (Note 5) 10.3 - - - - 10.3
Reportable segment profit
/ (loss) after amortisation
of acquisition related
intangibles and VAT refund 20.7 57.9 33.2 93.1 (29.5) (40.1) 135.3
Combination fees and
associated costs(2) (26.3)
Restructuring and Integration
costs(2) (41.2)
Operating profit 67.8
Reportable business segment information for the six months ended
30 June 2019:
Sky Betting
PPB PokerStars and Gaming Australia US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from external
customers 653.2 - - 206.8 159.9 - 1,019.9
Cost of sales (173.6) - - (83.1) (44.3) - (301.0)
Gross profit 479.6 - - 123.7 115.6 - 718.9
Operating costs excluding
depreciation and amortisation (300.8) - - (65.2) (111.2) (25.9) (503.1)
Adjusted EBITDA (1) 178.8 - - 58.5 4.4 (25.9) 215.8
Depreciation and amortisation (45.2) - - (11.6) (10.1) (2.4) (69.3)
Reportable segment profit
/ (loss) before separately
disclosed items 133.6 - - 46.9 (5.7) (28.3) 146.5
Amortisation of acquisition
related intangible assets
(Note 5) (38.5) - - - (20.3) - (58.8)
Operating profit 95.1 - - 46.9 (26.0) (28.3) 87.7
1 Adjusted EBITDA which is a non-GAAP measure in the above segment
note is defined as profit for the period before separately
disclosed items, depreciation, amortisation and impairment,
financial income, financial expense and tax expense / credit.
It is considered by the Directors to be a key measure of the
Group's financial performance.
2 The Group does not allocate Combination fees and associated
costs and restructuring and integration costs to reportable
segments.
4. Operating segments (continued)
Reconciliation of reportable segments to Group totals:
Six months Six months ended
ended 30 June 2019
30 June 2020
GBPm GBPm
Revenue
Total revenue from reportable segments,
being total Group revenue before VAT
refund 1,522.4 1,019.9
VAT refund 13.7 -
Total revenue from reportable segments,
being total Group revenue 1,536.1 1019.9
Profit and loss
Operating profit 67.8 87.7
Unallocated amounts:
Financial income 49.6 0.4
Financial expense (93.4) (7.1)
Profit before tax 24.0 81.0
Disaggregation of revenue under IFRS 15
Group revenue after the VAT refund (see Note 5) disaggregated by
product line for the six months ended 30 June 2020:
Sky Betting
PPB PokerStars and Gaming Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 320.1 8.3 84.5 348.0 163.3 924.2
Gaming revenue(2) 233.7 221.4 64.3 - 92.5 611.9
Total Group revenue 553.8 229.7 148.8 348.0 255.8 1,536.1
Group revenue disaggregated by product line for the six months
ended 30 June 2019:
Sky Betting
PPB PokerStars and Gaming Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm
Sports revenue(1) 447.6 - - 206.8 140.0 794.4
Gaming revenue 205.6 - - - 19.9 225.5
Total Group revenue 653.2 - - 206.8 159.9 1,019.9
(1) Sports revenue comprises sportsbook, exchange sports
betting, daily fantasy sports and pari-mutuel betting.
(2) Gaming revenue includes Games, Poker, Casino and Bingo and
in PPB includes the VAT refund (see Note 5).
Group revenue after the VAT refund (see Note 5) disaggregated by
geographical market for the six months ended 30 June 2020:
Sky Betting
PPB PokerStars and Gaming Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm
UK 378.4 21.8 147.9 - - 548.1
Ireland 78.3 2.7 0.9 - - 81.9
Australia - - - 348.0 - 348.0
US - - - - 255.8 255.8
Rest of World 97.1 205.2 - - - 302.3
Total Group revenue 553.8 229.7 148.8 348.0 255.8 1,536.1
Group revenue disaggregated by geographical market for the six
months ended 30 June 2019:
Sky Betting
PPB PokerStars and Gaming Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm
UK 421.5 - - - - 421.5
Ireland 123.7 - - - - 123.7
Australia - - - 206.8 - 206.8
US - - - - 159.9 159.9
Rest of World 108.0 - - - - 108.0
Total Group revenue 653.2 - - 206.8 159.9 1,019.9
Revenues are attributable to geographical location on the basis
of the customers location.
5. Separately disclosed items
Six months Six months
ended ended
30 June 2020 30 June 2019
GBPm GBPm
Amortisation of acquisition related
intangible assets (127.8) (58.8)
Combination fees and associated costs (26.3) -
Restructuring and integration costs (41.2) -
VAT refund 10.3 -
Operating profit impact of separately
disclosed items (185.0) (58.8)
Financial Income 49.2 -
Financial Expense (58.5) -
Profit before tax impact of separately
disclosed items (194.3) (58.8)
Tax credit on separately disclosed items 14.1 9.4
Total separately disclosed items (180.2) (49.4)
Attributable to:
Equity holders of the Company (172.8) (39.4)
Non-controlling interest (7.4) (10.0)
------------- -------------
(180.2) (49.4)
------------- -------------
Amortisation of acquisition related intangible assets
Non-cash amortisation of GBP127.8m has been incurred in the
period (six months ended 30 June 2019: GBP58.8m) as a result of
intangible assets separately identified under IFRS 3 as a result of
the merger with Betfair in 2016, the acquisitions of FanDuel
Limited in 2018 and Adjarabet in 2019 and the Combination with TSG
in 2020.
Combination fees and associated costs
Combination fees and associated costs of GBP26.3m relate to
costs incurred in the period directly as a result of the
Combination. This does not include any professional fees incurred
by TSG prior to the Combination.
Restructuring and integration costs
This relates to incremental, one-off costs incurred during the
six months ended 30 June 2020, as a result of significant
restructuring and integration initiatives due to the Combination
with TSG. No such costs were incurred in 2019.
VAT refund
In May 2020, HMRC confirmed it would not appeal the ruling of
the Upper Tier Tribunal in the cases of Rank Group Plc and Done
Brothers (Cash Betting) Ltd (trading as Betfred) that VAT was
incorrectly applied to revenues earned from certain gaming machines
prior to 2013. The Group has submitted protective claims for the
period and are in the process of formally requesting repayment from
HMRC . The Group continues to engage with HMRC to agree the quantum
and timing of the refund. Accordingly, it has recognised income to
the extent that the Group consider it is virtually certain it will
receive the refund, net of the best estimate of associated third
party costs expected to be incurred as a result of the refund.
The refund of VAT due from HMRC of GBP13.7m has been booked as
revenue with associated third-party costs of GBP2.0m and GBP1.4m
recorded in cost of sales and operating expenses respectively.
Financial Income
As detailed in Note 6, this comprises the gain of GBP36.9m on
the remeasurement of the embedded derivatives and the FX gain of
GBP12.3m on financial instruments associated with financing
activities.
Financial expense
As detailed in Note 6, this comprises the loss of GBP9.5m on the
remeasurement of the HRTV contingent consideration (see Note 13),
the FX loss on the forward contract of GBP11.2m, a loss of GBP32.8m
relating to accelerated debt repayments and GBP5.0m relating to the
expensing of one-off financing related fees not eligible for
capitalisation.
Combination fees and associated costs and restructuring and
integration costs are included in the Condensed Consolidated
Interim Income Statement within operating costs excluding
depreciation, amortisation and impairment. Amortisation of
acquisition related intangible assets is included within
depreciation and amortisation.
6. Financial income and expense
Six months Six months
ended ended
30 June 30 June
2020 2019
GBPm GBPm
Recognised in profit or loss:
Financial income:
Gain on remeasurement of embedded derivatives
(see Note 5 and Note 15) 36.9 -
Foreign exchange gain on financing instruments
associated with financing activities (Note 5) 12.3 -
Movement in fair value of investment 0.1 -
On financial assets at amortised cost
Interest income 0.3 0.4
Total 49.6 0.4
Financial expense:
Change in fair value of contingent consideration
(see Note 5) 9.5 -
Foreign exchange loss on forward contract associated
with financing activities (see Note 5) 11.2 -
Financing related fees not eligible for capitalisation
(See Note 5 and Note 15) 5.0 -
Accelerated accretion on debt repayments (See
Note 5 and Note 15) 32.8 -
On financial liabilities at amortised cost
Interest on borrowings, bank guarantees and
bank facilities 28.4 3.6
Other interest 6.5 3.5
Total 93.4 7.1
Six months Six months
ended ended
30 June 30 June
2020 2019
GBPm GBPm
Recognised in other comprehensive income /
(loss) :
Effective portion of changes in fair value of
cash flow hedges (88.2) -
Fair value of cash flow hedges transferred to
income statement 86.5 -
Net change in fair value of cash flow hedge
reserve (1.7) -
Debt instruments at FVOCI 0.1 -
Foreign exchange gain on translation of the
net assets of foreign currency denominated entities 174.7 2.0
Total 173.1 2.0
No amounts were recorded in the income statement in respect of
ineffective cash flow hedges in the six months ended 30 June 2020
(six months ended 30 June 2019: GBPnil).
7. Tax expense
Tax is accrued for the interim reporting period using
Management's best estimate of the weighted average tax rate that is
expected to be applicable to estimated total annual earnings which
may be adjusted for any significant non-recurring events. This
expected annual effective tax rate is applied to the taxable income
of the interim period.
The Group's adjusted effective tax rate before separately
disclosed items for the period was 13.3% (six months ended 30 June
2019: 16.3%), which compares to the standard Irish tax rate of
12.5%. A tax credit on separately disclosed items amounting to
GBP14.1m was accounted for in the period ended 30 June 2020 (six
months ended 30 June 2019: GBP9.4m) (see Note 5).
8. Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period. The weighted average number of
shares has been adjusted for amounts held as Treasury Shares and
amounts held by the Paddy Power Betfair plc Employee Benefit Trust
("EBT").
Diluted EPS is determined by adjusting the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares.
Adjusted EPS is determined by adjusting the profit attributable
to ordinary shareholders for the impact of separately disclosed
items.
The calculation of basic, diluted and adjusted EPS is as
follows:
Restated(1)
Six months Six months
ended ended
30 June 30 June 2019
2020
Numerator in respect of basic and diluted
earnings per share (GBPm):
Profit attributable to equity holders
of the Company 18.5 76.9
Numerator in respect of adjusted earnings
per share (GBPm):
Profit attributable to equity holders
of the Company 18.5 76.9
Separately disclosed items (Note 5) 172.8 39.4
Profit for adjusted earnings per share
calculation 191.3 116.3
Weighted average number of ordinary shares
in issue during the period (in '000s)(1) 102,042 79,947
Basic earnings per share GBP0.181 GBP0.962
Adjusted basic earnings per share GBP1.875 GBP1.455
Adjustments to derive denominator in respect of
diluted earnings per share (in '000s):
Weighted average number of ordinary shares
in issue during the period(1) 102,042 79,947
Dilutive effect of share options and
awards on issue 1,448 218
Adjusted weighted average number of ordinary
shares in issue during the period(1) 103,490 80,165
Diluted earnings per share GBP0.179 GBP0.959
Adjusted diluted earnings per share GBP1.848 GBP1.451
------------
1. The 2019 earnings per share figures have been restated to
incorporate the 1,312,260 new Flutter ordinary shares that were
issued in May 2020 as payment of the 2019 final dividend. The
weighted average number of shares in issue during the period was
adjusted to include these bonus shares as if they were issued 1
January, 2019.
The average market value of the Company's shares of GBP90.54 (30
June 2019: GBP60.15) 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 nil (30 June 2019: 396,342).
9. Goodwill
The following cash generating units, being the lowest level of
asset for which there are separately identifiable cash flows, have
the following carrying amounts of goodwill:
UK Irish Sky Betting
PPB Online Retail Retail PokerStars and Gaming Australia US Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2019 3,432.7 18.9 20.7 - - 42.5 560.5 4,075.3
Arising on
acquisitions
during the
year
(Note 10) 69.6 - - - - - - 69.6
Foreign
currency
translation
adjustment (5.9) - - - - (1.4) (17.3) (24.6)
Balance at 31
December
2019 3,496.4 18.9 20.7 - - 41.1 543.2 4,120.3
Arising on
acquisitions
during the
period
(Note 10) - - - 1,938.4 2,551.8 420.1 354.2 5,264.5
Foreign
currency
translation
adjustment 0.3 - - 71.0 - 36.1 41.5 148.9
Balance at 30
June
2020 3,496.7 18.9 20.7 2,009.4 2,551.8 497.3 938.9 9,533.7
The Group reviews the carrying value of goodwill for impairment
annually (or more frequently if there are indications that the
value of goodwill may be impaired) by comparing the carrying values
of these cash generating units with their recoverable amounts
(being the higher of value in use and fair value less costs to
sell). The impact of COVID-19 on the performance of the group and
its individual business units is set out in the business review
section of the H1 results announcement. The retail cash generating
units (CGUs) were impacted significantly due to the temporary
suspension of the activities of shops for a period leading to
shorter term impacts such as social distancing as well as longer
term uncertainty in respect of customer behaviours. Based on the
significant headroom that existed in the 31 December 2019
impairment test, the strong performance of the shops for the period
up to the date of suspension of activities, customer activity
levels since the shops have reopened as well as opportunities to
make further market share gains as competitors reduce the size of
their respective estates, the Group is satisfied that no impairment
has arisen during the period to 30 June 2020. For the Group's
various Online CGUs which generate income from sportsbook the
impact of COVID-19 has not been as significant due to greater
substitution possibilities and they also benefit from the ongoing
retail to online migration. While no impairments have arisen in the
Group's CGUs during the period to 30 June 2020, there is economic
uncertainty in the global economy due to the ongoing COVID-19
global pandemic and this could be a potential future risk.
10. Business combinations
Six months ended 30 June 2020
Acquisition of The Stars Group Inc.
On 5 May 2020, Flutter Entertainment plc completed an all share
Combination with The Stars Group Inc. (the "Combination") resulting
in existing Flutter Entertainment plc shareholders owning 54.64%
and the Stars Group Inc. shareholders owning 45.36% of Flutter
Entertainment plc (the "Company", together with its subsidiaries,
the "Group"), on a fully diluted basis (excluding any out of the
money options). Post-Combination, the Company is the Ultimate
Parent of The Stars Group Inc. (TSG).
Under the terms of the Combination, holders of TSG shares
received 0.2253 ordinary shares with nominal value of EUR 0.09 each
in the Company ("ordinary shares") in exchange for each outstanding
TSG share (the 'Exchange Ratio'). Accordingly, the Company issued a
total of 65,316,588 ordinary shares in exchange for 289,909,400
shares in The Stars Group. The fair value of the ordinary shares
issued was GBP94.84 per share at this date.
In addition: (i) each TSG Option outstanding at 5 May 2020,
under the TSG Share Plans will be exchanged for an option to
purchase such number of New Flutter Shares calculated in accordance
with the Exchange Ratio; and (ii)
each TSG restricted share unit ("RSU"), TSG performance share
unit ("PSU") and TSG deferred share unit ("DSU") outstanding at the
Effective Time under the TSG Equity Plan will be amended so as to
substitute for the TSG Shares, subject to such equity awards, a
number of Flutter Shares calculated in accordance with the Exchange
Ratio but subject to any adjustment required to that award by the
TSG Equity Plan or grant documentation as a result of the Plan of
Arrangement.
10. Business combinations (continued)
TSG is a global leader in the online and mobile gaming and
interactive entertainment industries, entertaining millions of
customers across its online real- and play-money poker, gaming and
betting product offerings. TSG offers
these products directly or indirectly under several ultimately
owned or licensed gaming and related consumer businesses and
brands, including, among others, PokerStars, PokerStars Casino,
BetStars, Full Tilt, FOX Bet, BetEasy, Sky Bet, Sky Vegas, Sky
Casino, Sky Bingo, Sky Poker, and Oddschecker, as well as live
poker tour and events brands, including the PokerStars Players No
Limit Hold'em Championship, European Poker Tour and Asia Pacific
Poker Tour. TSG is one of the world's most licensed online gaming
operators with its subsidiaries collectively holding licenses or
approvals in 22 jurisdictions throughout the world, including in
Europe, Australia and the Americas.
The main drivers for the Combination will be to accelerate
delivery against each of the components of Flutter's four pillar
strategy; create a highly diversified business from a geographic,
product and brand perspective with an enhanced global platform;
deliver significant value for shareholders through the realisation
of material cost synergies; reinforce a robust financial profile
which will facilitate strategic flexibility as well as generate
sustainable long-term shareholder returns; and maintain a leading
role in the promotion of responsible gambling through an enlarged
global footprint.
Since the date of acquisition to 30 June 2020, TSG has
contributed GBP453.5m of revenue and GBP165.1m of Adjusted
operating profit.
If the TSG acquisition had occurred on 1 January 2020, then
their contribution to revenue and Adjusted operating profit would
have been GBP1,319.7m and GBP479.2m respectively for the period
ended 30 June 2020. Acquisition costs in respect of this
transaction are disclosed as Combination fees and associated costs
in Note 5 and within transaction fees in Note 4 of the 2019
financial statements.
Included within the intangible assets were GBP5,155m 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 GBP524m
thereon. These intangible assets are being amortised over their
useful economic lives of up to 20 years. Receivables acquired
amounted to GBP114.6m. The book value equated to the fair value as
all amounts are expected to be received.
The main factors leading to the recognition of goodwill (none of
which is deductible for tax purposes) is growth by combining
business activities, a strong workforce, leveraging existing
products and synergy savings of the merged operations. The goodwill
associated with the PokerStars and Sky Betting and Gaming
businesses has been allocated to separate CGU's. The goodwill
associated with the Australia and US businesses has been allocated
to the respective existing Australia and US CGU's and it has been
deemed that separate CGU's are not appropriate.
As the transaction only completed in May 2020 and the Group has
one year from the acquisition date to re-measure the fair values of
the acquired assets and liabilities and the resulting goodwill if
new information is obtained relating to conditions that existed at
the acquisition date, the fair values of the identifiable assets
and liabilities acquired are provisional.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
10. Business combinations (continued)
Provisional
as at
5 May 2020
GBPm
------------
Assets
Property, plant and equipment 102.2
Intangible assets 5,295.4
Deferred tax asset 8.3
Non-current tax receivable 19.1
Derivative financial assets 79.2
Investments 4.0
Other receivables 26.2
Financial assets - restricted cash 8.9
Total non-current assets 5,543.3
Trade and other receivables 88.4
Current tax receivable 28.7
Financial assets - restricted cash 292.4
Current investments - customer deposits 89.7
Cash and cash equivalents 445.2
------------
Total current assets 944.4
------------
Total assets 6,487.7
------------
Liabilities
Trade and other payables 496.4
Customer balances 376.7
Derivative financial liabilities 10.0
Provisions 1.4
Current tax payable 15.1
Lease liabilities 16.4
Borrowings 59.7
Total current liabilities 975.7
------------
Trade and other payables 3.1
Derivative financial liabilities 56.9
Provisions 49.3
Non-current tax payable 22.3
Deferred tax liabilities 491.5
Lease liabilities 26.1
Borrowings 3,873.9
Total non-current liabilities 4,523.1
Total liabilities 5,498.8
------------
Net assets acquired 988.9
Goodwill 5,264.5
Consideration 6,253.4
Consideration satisfied by:
Issue of 65,316,588 Flutter Entertainment
plc ordinary shares 6,194.6
Issue of replacement share options
and awards 58.8
Consideration 6,253.4
10. Business combinations (continued)
Six months ended 30 June 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.
In 2018, Adjarabet generated revenues (unaudited) of 215m
Georgian Lari (GEL) (GBP64m) and EBITDA (unaudited) of GEL68m
(GBP20m). The initial cash consideration paid by the Group for the
51% stake was 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.
From the date of acquisition to 30 June 2019, Adjarabet business
contributed GBP28.6m of revenue and GBP8.0m of operating profit. If
the Adjarabet acquisition had occurred on 1 January 2019, then
their contribution to revenue and operating profit would have been
GBP33.5m and GBP8.7m respectively for the period ended 30 June
2019.
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 PPB Online CGU and it has been deemed that a separate CGU is
not appropriate.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
10. Business combinations (continued)
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
10. Business combinations (continued)
Net cash outflow from purchase of businesses
Six months Six months
ended ended
30 June 2020 30 June 2019
GBPm GBPm
Cash consideration - acquisitions in
the period - 102.0
Cash acquired - acquisitions in the
period (445.2) (0.2)
Cash consideration - acquisitions in
previous periods 4.6 2.8
440.6 104.6
Analysed for the purposes of the statement
of cash flows as:
Purchase of businesses - 102.0
Cash acquired - acquisitions in the
period (445.2) (0.2)
Payment of contingent deferred consideration 4.6 2.8
440.6 104.6
On 12 May 2020, the Group issued 819,230 new Flutter ordinary
shares as consideration for the acquisition by Flutter of the
remaining 20% interest of TSG Australia Pty Ltd. The value of
shares issue amounted to AUD$151.4m (GBP79.7m).
As announced on 2 October 2019, in order to achieve economic
alignment of Flutter's and TSG's strategic third-party
relationships across their respective US businesses, the Group
entered into arrangements conditional on completion of the
Combination with FOX (TSG's US media partner for FOX Bet), Fastball
and Boyd (together Flutter's co-shareholders in FanDuel Group)
pursuant to which:
- FSG Services, a wholly-owned subsidiary of FOX Sports will
have the right to acquire an approximate 18.5% equity interest in
FanDuel Group at its market value in 2021 (structured as a 10-year
option from 2021, subject to a carrying value adjustment); and
- Fastball and Boyd will receive a total payment of the 12.5% of
the increase in FOX Bet's market value between completion of the
Combination and the exercise of Flutter's option to acquire
Fastball's remaining equity interest in July 2023 (also subject to
a carrying value adjustment). Discussions are currently ongoing
with the relevant parties in respect of the future operating model
for the FOX Bet business. The outcome of these discussions will
determine the relevant base value for determining any potential
liability.
11. Investments and trade and other receivables
Non-current assets
30 June 2020 31 December
GBPm 2019
GBPm
Investments - FVTPL 4.6 0.1
------------ -----------
Investments relate to a small number of equity investments in
various unquoted companies.
Non-current assets
30 June 2020 31 December
GBPm 2019
GBPm
Other receivables
Other receivables 14.0 -
Prepayments 25.0 9.0
Value-added tax and goods and services tax 2.5 -
Finance lease receivable 1.6 2.6
Deferred financing costs on Revolving Credit
Facility (see Note 15) 4.8 -
Amounts paid in respect of legacy German and
Greek tax assessments 41.5 38.8
89.4 50.4
Derivative financial assets
Derivatives held for hedging (see Note 16) 31.6 -
31.6 -
Current assets
30 June 2020 31 December
GBPm 2019
GBPm
Trade and other receivables
Trade receivables 25.3 8.5
Other receivables 13.5 8.0
Finance lease receivable 0.9 0.4
Receivable from insurance 17.8 -
Value-added tax and goods and services tax 29.8 1.9
Prepayments 77.0 45.8
-----------
164.3 64.6
Non-current other receivables comprises primarily of deposits
for licences and property. Deferred financing costs relates to fees
that the Group has incurred and capitalised on its undrawn
Revolving Credit Facility and will be recorded as financial expense
over the life of the facility using the straight-line method.
Receivable from Insurance of GBP17.8m relates to the amount due
from the Group's insurance carriers in respect of the full
settlement agreement relating to the Quebec class action lawsuit.
An amount of GBP17.8m payable in respect of the lawsuit is included
within trade and other payables. In July 2020, both the proceeds
from the insurance and the amount payable in respect of the lawsuit
were settled in full.
Amounts paid in respect of legacy German and Greek tax
assessments
On 13 February 2019, the Group provided an update on two
separate disputed legacy tax assessments. The first relates to the
Betfair Exchange in Germany, which operated there until November
2012, and the second relates to the paddypower.com business in
Greece.
11. Investments and trade and other receivables (continued)
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 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 EUR15m 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 is ongoing 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 when assessed.
12. Current investments, Financial assets - restricted cash and
cash and cash equivalents
30 June 2020 31 December
GBPm 2019
GBPm
Non-current financial assets - restricted
cash 9.2 -
Current Investments - customer deposits 87.2 -
Current financial assets - restricted
cash 477.0 189.1
Cash and cash equivalents 786.5 108.1
1,359.9 297.2
Included in financial assets - restricted cash at 30 June 2020
are bank deposits which w ere either (1) restricted at that date,
as they represented customer funds balances securing player funds
held by the Group, (2) required to be held to guarantee third party
letter of credit facilities or as collateral for foreign exchange
trades or (3) cash held as collateral for the Kentucky proceedings
(see Note 19). Customer funds that are not held in trust are
matched by liabilities of equal value.
Investments relate to customer deposits held in accounts
segregated from investments held for operational purposes.
Investments held in relation to customer deposits are liquid
investments in short duration corporate and government bonds and
are classified as current assets consistent with the current
classification of customer deposits to which the investments
relate. Management's investment strategy for the portfolio results
in the majority of the bonds being held to maturity. Bonds are
classified as FVOCI.
As at 30 June 2020, GBP287.8m (31 December 2019: GBP318.2m) 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.
13. Trade and other payables
Current liabilities
30 June 2020 31 December
GBPm 2019
GBPm
Trade and other payables
Trade payables 44.0 25.3
PAYE and social security 26.0 9.7
Value-added tax and goods and services
tax 27.9 3.0
Betting duty, data rights, and product
and racefield fees 139.1 60.1
Employee benefits 91.6 52.3
Contingent deferred consideration
- business combinations 21.2 7.4
Accruals and other payables 508.8 211.8
858.6 369.6
Derivative financial liabilities
Sports betting open positions (see
Note 16) 30.9 20.4
Non-current liabilities
30 June 2020 31 December
GBPm 2019
GBPm
Trade and other payables
Employee benefits - 0.5
Contingent deferred consideration
- business combinations 9.3 11.0
Accruals and other payables 2.9 -
12.2 11.5
Derivative financial liabilities
Derivatives held for hedging (see
Note 16) 40.0 -
Sports betting open positions (see
Note 16) 1.4 0.7
41.4 0.7
Included in non-current accruals and other payables at 30 June
2020 is deferred and contingent consideration of GBP9.3m (31
December 2019: GBP11.0m) primarily due to Betfair's historical
acquisition of HRTV (GBP9.1m), a horseracing television network
based in the United States. The amount payable in respect of the
HRTV acquisition at 30 June 2020 amounted to GBP25.1m (31 December
2019: GBP18.3m), with GBP16.0m due within one year (31 December
2019: GBP7.3m) and GBP9.1m due after one year from the reporting
date (31 December 2019: GBP11.0m). The amount payable within one
year also includes amounts in respect of Diamond Game Enterprises,
acquired as part of the combination with TSG (GBP5.1m).
14. Financial instruments
The Group determined that the carrying values of its short-term
financial assets and liabilities approximate their fair value
because of the relatively short periods to maturity of these
instruments and their low credit risk.
Certain of the Group's financial assets and liabilities are
measured at fair value, including at FVTPL or FVOCI, at the end of
each reporting period. The following provides information about how
the fair values of these financial assets and liabilities were
determined as at 30 June 2020:
14. Financial instruments (continued)
Financial instruments carried at fair value
Fair value hierarchy
The table below analyses recurring fair value measurements for
financial assets and financial liabilities. These fair value
measurements are categorised into different levels in the fair
value hierarchy based on the inputs to the valuation method used.
The different levels are defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access
at the measurement date;
-- Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
or indirectly; and
-- Level 3: unobservable inputs for the asset or liability.
30 June 2020
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Bonds - FVOCI 87.2 - - 87.2
Investments - FVTPL - - 4.6 4.6
Derivatives - 31.6 55.7 87.3
Total financial assets 87.2 31.6 60.3 179.1
Derivatives - (51.6) (32.3) (83.9)
Non-derivative financial
liabilities - - (26.0) (26.0)
Total financial liabilities - (51.6) (58.3) (109.9)
31 December 2019
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Investments - FVTPL - - 0.1 0.1
Derivative financial liabilities - - (21.1) (21.1)
Non-derivative financial
liabilities (18.4) (18.4)
Total financial liabilities - - (39.5) (39.5)
The fair values of other financial assets and liabilities
measured at amortised cost, other than those for which the Group
has determined that their carrying values approximate their fair
values on the consolidated statement of financial position as at 30
June 2020 are as follows:
30 June 2020
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
First Lien Term Loans B
(as defined below) - 1,883.1 - 1,883.1
Senior Notes - 857.8 - 857.8
Total financial liabilities - 2,740.9 - 2,740.9
As part of its periodic review of fair values, the Group
recognises transfers, if any, between levels of the fair value
hierarchy at the end of the reporting period during which the
transfer occurred. There were no transfers between levels of the
fair value hierarchy during the six months ended 30 June 2020 or
the year ended 31 December 2019.
14. Financial instruments (continued)
Valuation of Level 2 financial instruments
Borrowings
The Group has determined that the carrying value of the GBP
First Lien Term Loan A (as defined below) approximates its fair
value. The Group estimates the fair value of its First Lien Term
Loans B and Senior Notes by using a composite price derived from
observable market data for a basket of similar instruments which
approximates fair value.
Embedded derivative
The fair value of the 0% interest rate floor included within the
EUR First Lien Term Loan B was determined using a discounted value
of the estimated cash flows using the forward EURIBOR rates
compared to the estimated cash flows using the floor and
considering Euro interest rate volatility.
Derivative Financial Instruments
Swap Agreements
The Group uses derivative financial instruments to manage its
interest rate and foreign currency risk. The valuation of these
instruments is determined using widely accepted valuation
techniques including discounted cash flow analysis of the expected
cash flows of each derivative. This analysis reflects the
contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, such as interest
rate curves spot and forward FX rates.
To comply with the provisions of IFRS 13, Fair value
measurement, the Group incorporates credit valuation adjustments to
appropriately reflect both its own non-performance risk and the
applicable counterparty's non-performance risk in the fair value
measurements. In adjusting the fair value of its derivative
contracts for the effect of non-performance risk, the Group has
considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts
and guarantees.
Although the Group has determined that the majority of the
inputs used to value its derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated
with its derivatives utilise Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by
itself and its counterparties. As of 30 June 2020, the Group has
assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions,
with the exception of the Embedded Derivative in connection with
the Senior Notes, which is classified as Level 3, and determined
that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Group
determined that its valuations of its derivatives in their entirety
are classified in Level 2 of the fair value hierarchy.
Level 3 fair values
Some of the Group's financial assets and liabilities are
classified as Level 3 of the fair value hierarchy because the
respective fair value determinations use inputs that are not based
on observable market data. As at 30 June 2020, the valuation
techniques and key inputs used by the Group for each Level 3 asset
or liability were as follows:
Embedded derivative redemption option in connection with the
Senior Notes issuance
The Group used an interest rate option pricing valuation model
to determine the fair value of the redemption option using an
implied credit spread of 4.2% at 30 June 2020. A 10-basis point
increase or decrease in the implied credit spread would have a
GBP3.5 m or GBP 3.5m impact on fair value, respectively. Changes in
the fair value of the redemption option are recorded in financial
income or expense in the consolidated income statement.
Investments
The Group valued its equity investments in private companies
with reference to earnings measures from similar businesses in the
same or similar industry and adjusts for any significant changes in
the earnings multiple and the valuation. A reasonable change in
assumptions would not have a material impact on fair value. Changes
in the fair value of equity in private companies are recorded in
financial income or financial expense in the consolidated income
statement.
14. Financial instruments (continued)
Sports betting open positions (Level 3)
Derivative financial liabilities comprise sports betting open
positions. The fair value of open sports bets at the period end has
been calculated using the latest available prices on relevant
sporting events. Changes in the fair value of the unsettled bets
are recorded in Revenue in the Condensed consolidated income
statement.
It is primarily based on expectations as to the results of
sporting and other events on which bets are placed. Changes in
those expectations and ultimately the actual results when the
events occur will result in changes in fair value. There are no
reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology although
final value will be determined by future sporting results.
Non-derivative financial liabilities (Level 3)
Contingent consideration (Level 3)
Non-derivative financial liabilities includes contingent
consideration. The contingent consideration payable is determined
with reference to forecast performance for the acquired businesses
during the relevant time periods and the amounts to be paid in such
scenarios. The fair value was estimated by assigning probabilities
to the potential payout scenarios. The significant unobservable
inputs are forecast performance for the acquired businesses.
The fair value of contingent consideration is primarily
dependent on forecast performance for the acquired businesses in
excess of a predetermined base target. An increase and decrease of
10% in the excess over the predetermined base target during the
relevant time periods would increase and decrease the value of
contingent consideration at 30 June 2020 by GBP1.7m and GBP1.7m
respectively (31 December 2019: GBP0.7m and GBP0.7m).
EBITDA support agreement (Level 3)
In connection with the initial public offering Innova Gaming
Group Inc. (TSX: IGG) ("Innova"), TSG entered into an EBITDA
support agreement with Innova. The Group uses a net present value
approach for the EBITDA support agreement. T here are no reasonably
probable changes to assumptions and inputs that would lead to
material changes in the fair value methodology.
15. Borrowings
The following is a summary of borrowings, including accrued
interest, outstanding as at 30 June 2020 and 31 December 2019.
31 December 31 December
30 June 2019 2019
2020 30 June Principal Carrying
Principal 2020 outstanding amount
outstanding Carrying balance (including
balance amount in accrued
Contractual in (including currency interest)
interest currency accrued of
rate of borrowing interest) borrowing
Local currency GBPm* Local currency GBPm*
% m m
GBP First Lien Term Loan 1.84 and
A 1.93 GBP950.0 940.7 - -
USD First Lien Term Loan
B 3.81 $1,761.8 1,392.0 - -
EUR First Lien Term Loan
B** 3.75 EUR507.2 455.5 - -
Senior Notes** 7.00 $1,000 837.0 - -
Previous GBP Term Loan 1.51 - - GBP250.0 249.7
1.80 and
Previous GBP RCF - GBP 1.81 - - GBP79.0 78.1
0.63 and
Previous GBP RCF - Euro 0.65 - - EUR45.0 37.9
Overdraft facility 0.50 - - GBP5.0 GBP5.0
----------- ----------------
Total borrowings 3,625.2 370.7
----------- ----------------
Current portion 56.2 255.0
----------- ----------------
Non-current portion 3,569.0 115.7
----------- ----------------
* The carrying amounts include accrued interest as at 30 June
2020 and 31 December 2019 of GBP27.2m and GBP0.5m, respectively and
is included within the current portion of borrowings above.
** The carrying amounts include a liability of GBP11.6m and an
asset of GBP55.7m relating to the embedded derivatives in the EUR
First Lien Term Loan B and the Senior Notes respectively. See below
in this note for further detail.
15. Borrowings (continued)
During the six months ended 30 June 2020, the Group incurred the
following interest on its then outstanding borrowings:
Effective Interest** Interest
Interest accretion*** Total interest
rate*
% GBPm GBPm GBPm
GBP First Lien Term Loan
A 2.08 1.9 0.1 2.0
USD First Lien Term Loan
B 5.74 16.7 21.5 38.2
EUR First Lien Term Loan
B 4.74 4.2 11.3 15.5
Senior Notes 5.70 8.8 (1.1) 7.7
Previous GBP Term Loan 1.63 1.4 0.5 1.9
Previous GBP RCF - GBP 2.36 0.7 1.1 1.8
Previous GBP RCF - Euro 0.81 0.1 0.5 0.6
33.8 33.9 67.7
* The effective interest rate calculation excludes the impact of
the accelerated interest accretion expense due to prepayments as
well as the impact of the Swap Agreements (as defined below).
** In addition to the amount included above, the Group incurred
GBP1.1m of interest expense relating to commitment, utilisation,
and fronting fees associated with its Revolving Credit Facility and
its Previous GBP RCF.
*** Interest accretion for the six months ended 30 June 2020
includes GBP32.8m included within financial expenses in respect of
prepayments of the Group's First Lien Term Loans B and its Previous
GBP Term Loan and previous GBP RCF.
The Group's change in borrowings (excluding accrued interest)
from 31 December 2019 to 30 June 2020 was as follows:
Adjustments Gain on
Opening New Debt Principal to amortised Interest Embedded FX Closing
balance payments costs* accretion** derivative translation balance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
GBP First Lien
Term Loan A - 950.0 - (10.5) 0.1 - - 939.6
USD First Lien
Term Loan B - 2,329.5 (955.6) (5.1) 21.5 - 1.7 1,392.0
EUR First Lien
Term Loan B - 738.2 (307.9) (2.1) 11.3 (7.0) 23.0 455.5
Senior Notes - 834.9 - - (1.1) (29.9) 7.0 810.9
Previous GBP
Term
Loan 249.5 - (250.0) - 0.5 - - -
Previous GBP
RCF 115.7 130.0 (247.2) - 1.6 - (0.1) -
Overdraft 5.0 - (5.0) - - - - -
Total 370.2 4,982.6 (1,765.7) (17.7) 33.9 (36.9) 31.6 3,598.0
* Adjustments to amortised costs include transactions costs and
fees incurred and capitalised in respect of the TLA Agreement and
the amendment to the Syndicated Facility Agreement.
** Interest accretion represents interest expense calculated at
the effective interest rate less interest expense calculated at the
contractual interest rate and is recorded in financial expenses in
the consolidated income statement. Interest accretion for the six
months ended 30 June 2020 includes GBP32.8m included within
financial expenses in respect of prepayments of the Group's First
Lien Term Loans B and its Previous GBP Term Loan and previous GBP
RCF.
15. Borrowings (continued)
As at 30 June 2020, the contractual principal repayments of the
Group's outstanding borrowings, excluding accrued interest, amount
to the following:
< 1 year 1-2 years 2-3 years 3-4 years 4 -5 years >5 years
GBPm GBPm GBPm GBPm GBPm GBPm
GBP First
Lien Term
Loan A - - - - 950.0 -
USD First
Lien Term
Loan B 29.0 29.0 29.0 29.0 29.0 1,282.8
EUR First
Lien Term
Loan B - - - - - 461.5
Senior Notes - - - - - 810.4
29.0 29.0 29.0 29.0 979.0 2,554.7
Revolving credit facility, first lien term loans and senior
notes
On 11 March 2020, the Group, along with its subsidiaries PPB
Financing Unlimited Company and PPB Treasury Unlimited Company as
borrowers, entered into a Term Loan A and Revolving Credit Facility
Agreement (the "TLA Agreement"), contingent on the completion of
The Stars Group Combination. The TLA Agreement comprised a term
loan and revolving credit facility totalling GBP1.3 billion. On 5
May 2020, the Group completed the TSG Combination, assumed TSG's
existing indebtedness with an acquisition date fair value of
approximately GBP3,934m and terminated its then-existing revolving
credit facility under which there were no drawings. In addition, on
5 May 2020, an Incremental Facility Agreement was signed to
increase borrowing capacity under the TLA agreement by GBP100
million to GBP1.4 billion, with all terms and conditions consistent
with the TLA Agreement. Each of the Group's facilities are
discussed below. During the six months ended 30 June 2020, the
Group complied with all covenants related to its borrowings under
all facilities.
TLA Agreement - GBP First Lien Term Loan A
The TLA Agreement and subsequent Incremental Facility Agreement
both as described above provide a term loan facility in an
aggregate amount of GBP950m priced at GBP-LIBOR plus 1.75% (the
"GBP First Lien Term Loan A"), with a maturity date of 5 May 2025
and a GBP-LIBOR floor of 0%. There is no amortisation on the GBP
First Lien Term Loan A and the principal is due at maturity. The
Group incurred GBP10.5m of transaction costs and fees which have
been capitalised against the principal of the debt and will be
recorded as financial expense over the term of the debt using the
effective interest rate method.
TLA Agreement - Revolving Credit Facility
The TLA Agreement and subsequent Incremental Facility Agreement
both as described above provide a a multi-currency revolving loan
facility in an aggregate amount of GBP450 million (the "Revolving
Credit Facility"). Maturing on 5 May 2025, the Revolving Credit
Facility includes a margin of 1.75% for borrowings with a 0%
interest rate floor as well as a utilisation fee ranging from 0.1%
to 0.4% based on the proportion of drawings to the total
commitment. The commitment fee on the Revolving Credit Facility is
35% of the margin and is payable in respect of available but
undrawn borrowings. The Revolving Credit Facility is available for
general corporate purposes including the refinancing of existing
borrowings. The Group incurred GBP5.0m of transaction costs and
fees which have been capitalised and will be recorded as financial
expense over the life of the facility using the straight-line
method. These capitalised costs have been included within
non-current receivables on the consolidated statement of financial
position.
15. Borrowings (continued)
As at 30 June 2020 no loan amounts were drawn under the
Revolving Credit Facility. The Group had GBP75 m of letters of
credit issued but undrawn against the Facility as of 30 June 2020
leaving undrawn capacity of GBP375 m.
The TLA Agreement limits the Group's ability to, among other
things, (i) incur additional debt, (ii) grant additional liens on
their assets and equity, (iii) distribute equity interests and/or
distribute any assets to third parties, (iv) make certain loans or
investments (including acquisitions), (v) consolidate, merge, sell
or otherwise dispose of all or substantially all assets, (vi) pay
dividends on or make distributions in respect of capital stock or
make restricted payments, and (vii) modify the terms of certain
debt or organisational documents, in each case subject to certain
permitted exceptions.
Borrowings under the TLA Agreement are subject to the
satisfaction of customary conditions, including the absence of a
default and compliance with certain representations and warranties.
The TLA Agreement requires, subject to a testing threshold, that
the Company comply on a bi-annual basis with a maximum net total
leverage ratio of 5.10 to 1.00.
First Lien Term Loans B
On 5 May 2020 the Group completed TSG Combination and assumed
its existing indebtedness which included a USD term loan with an
outstanding principal balance of USD $2.96 billion priced at LIBOR
plus 3.50% (the "USD First Lien Term Loan B") and a EUR first lien
term loan with an outstanding principal balance of EUR850 million
priced at EURIBOR plus 3.75% (the "EUR First Lien Term Loan B" and,
together with the USD First Lien Term Loan, the "First Lien Term
Loans B"), each with a maturity date of 10 July 2025 and a LIBOR
and EURIBOR floor, as applicable, of 0%. The USD First Lien Term
Loan requires scheduled quarterly principal payments in amounts
equal to 0.25% of the initial aggregate principal amount of the USD
First Lien Term Loan B of USD $3,575 million, with the balance due
at maturity. There is no amortisation on the EUR First Lien Term
Loan B and the principal is due at maturity.
On 15 June 2020, pursuant to the terms of an amendment agreement
in respect of the syndicated facility agreement that governs the
First Lien Term Loans B (the "Syndicated Facility Agreement",
certain amendments were incorporated to the Syndicated Facility
Agreement so that (a) the covenants and restrictions therein bind
the combined Flutter and TSG allowing it to operate and integrate
as such; and (b) the reporting obligations under the Syndicated
Facility Agreement are synchronised with reporting of the
consolidated financial results of the Group to other of the Group's
stakeholders. The Group has also entered into a guarantee agreement
in respect of the obligations under the Syndicated Facility
Agreement. As part of this amendment, the Group made prepayments of
USD $1.2 billion on its USD First Lien Term Loan B and EUR343
million on its EUR First Lien Term Loan A, each including accrued
interest to the date of repayment, using proceeds from the GBP
First Lien Term Loan A, the Equity Placing and available cash on
hand. The Group made a cash payment of GBP2.8 million to the
lenders as a result of this amendment. The amendment was treated as
a non-substantial modification under IFRS 9, Financial instruments
and as a result GBP6.7m of transaction costs and fees were
capitalised and will be recorded as financial expense over the term
of the debt using the effective interest rate method. In addition,
interest accretion of GBP30.9m was recorded in respect of the
prepayments noted above.
EURIBOR is currently negative and the interest rate floor on the
EUR First Lien Term Loan B represents an embedded derivative that
is required to be bifurcated from its carrying value upon its
recognition on 5 May 2020. The fair value of the interest rate
floor liability as at 5 May 2020 and 30 June 2020 was GBP18.6m and
GBP11.6m , respectively. See Notes 14 and 16.
The Syndicated Facility Agreement limits Stars Group Holdings
B.V., as borrower, and its subsidiaries' ability to, among other
things, (i) incur additional debt, (ii) grant additional liens on
their assets and equity, (iii) distribute equity interests and/or
distribute any assets to third parties, (iv) make certain loans or
investments (including acquisitions),
15. Borrowings (continued)
(v) consolidate, merge, sell or otherwise dispose of all or
substantially all assets, (vi) pay dividends on or make
distributions in respect of capital stock or make restricted
payments, (vii) enter into certain transactions with affiliates,
(viii) change lines of business, and (ix) modify the terms of
certain debt or organisational documents, in each case subject to
certain permitted exceptions. The agreement also provides for
customary mandatory prepayments, including a customary excess cash
flow sweep if certain conditions are met.
Senior Notes
Also assumed in connection with TSG Combination, are the 7.00%
Senior Notes due 2026 (the "Senior Notes") which were issued by
Stars Group Holdings B.V. and Stars Group (US) Co-Borrower, LLC
(the "Issuers"), on 10 July 2018 at par in an aggregate principal
amount of USD $1 billion. The Senior Notes mature on 15 July 2026.
Interest on the Senior Notes is payable semi-annually on 15 January
and 15 July of each year. In connection with but prior to TSG
Combination, on 1 May 2020, the Issuers obtained the consent of the
requisite number of holders of the Senior Notes to amend certain
provisions of the indenture governing the Senior Notes (the "Senior
Notes Amendment") such that once effective (a) the covenants and
restrictions therein bind the entire combined group consisting of
The Stars Group and Flutter allowing it to operate as such; and (b)
the Stars Group Holdings B.V.'s reporting obligations under the
indenture are synchronised with reporting of the Combined Group's
consolidated financial results to other Combined Group
stakeholders. The Group made a payment of GBP1.8m to the holders of
the Senior Notes that consented to the Senior Notes Amendment and
incurred other transaction costs and fees of GBP3.2m. These amounts
were recorded as a financial expense in the consolidated income
statement.
Prior to 15 July 2021, the Issuers may redeem some or all of the
Senior Notes at a redemption price equal to 100% of the principal
amount of the Senior Notes, plus accrued and unpaid interest, if
any, to (but not including) the applicable redemption date, plus an
applicable "make-whole" premium. On or after 15 July 2021, the
Issuers may redeem some or all of the Senior Notes at declining
redemption prices as set forth in the Indenture that governs the
Senior Notes. This redemption option represents an embedded
derivative that required bifurcation from the carrying value of the
Senior Notes upon their recognition on 5 May 2020. The fair value
of the redemption option as at 5 May 2020 and 30 June 2020 was
GBP25.8m and GBP55.7m , respectively. See Notes 14 and 16.
The Senior Notes are guaranteed by each of the Group's
subsidiaries that guarantee the GBP First Lien Term Loan A, the
Revolving Credit Facility and the First Lien Term Loans B. The
Senior Notes are the Issuers' senior unsecured obligations and rank
pari-passu to all of the Issuers' existing and future senior
unsecured indebtedness. The Senior Notes include, among other terms
and conditions, limitations on the Group's ability to create, incur
or allow certain liens; create, assume, incur or guarantee
additional indebtedness of certain of the Group's subsidiaries; and
consolidate or merge with, or convey, transfer or lease all or
substantially all of the Group's and their subsidiaries' assets, to
another person.
(c) Previous GBP term loan and previous GBP revolving credit facility
In 2015, the Group secured a committed revolving credit bank
loan facility (the "Previous GBP RCF") of EUR300 million provided
by a syndicate of banks which was scheduled to expire in May 2020.
In 2018, the Previous GBP RCF was amended to an amount of GBP450
million and was extended to expire in April 2023. In May 2019, the
Group also secured a term loan facility of GBP250 million provided
by a syndicate of banks (the "Previous GBP Term Loan"). The term
loan facility was for an initial period of 18 months with an option
to extend further by up to 12 months. At 31 December 2019, GBP79
million and EUR45 million of the Previous GBP RCF was drawn down
and GBP250 million of the Previous GBP Term Loan was drawn down
totalling to GBP367.3 million. On 5 May 2020, the Group repaid and
extinguished the Previous GBP RCF and the Previous GBP Term Loan
using the proceeds of the GBP First Lien Term Loan. As a result of
the extinguishment, unamortised transaction costs of GBP1.9m were
recognised as an interest accretion expense included within
financial expense in the consolidated income statement.
Borrowings under the Previous GBP RCF and the Previous GBP Term
Loan were unsecured but were guaranteed by the Group and certain of
its operating subsidiaries. Borrowings under the Previous GBP RCF
incurred interest at GBP-LIBOR plus a margin of between 1.10% and
2.50%. A commitment fee, equivalent to 35% of the margin, was
payable in respect of available but undrawn borrowings. Borrowings
under the Previous GBP Term Loan incurred interest at LIBOR plus a
margin of between 0.60% and 2.40%.
16. Derivatives
Derivatives and Hedge Accounting
The Group uses derivative financial instruments for risk
management and mitigation purposes. As such, any change in cash
flows associated with derivative instruments is expected to be
offset by changes in cash flows related to the hedged position. On
5 May 2020 the Group completed TSG Combination and assumed the
existing hedging instruments held by TSG. Further, as part of
managing the Group's exposure to foreign exchange risk, the Group
entered into cross currency swap agreements in respect of the
Senior Notes. The Group's derivatives are discussed below.
Swap agreements
On 5 May 2020 the Group completed TSG Combination and assumed
the existing hedging instruments held by TSG consisting of a)
USD-EUR amortising cross-currency interest rate swap agreements
(the "EUR Cross-Currency Interest Rate Swaps") with a remaining
notional amount of EUR1.96 billion, which fix the USD to EUR
exchange rate at 1.167 and fix the Euro interest payments at an
average interest rate of 3.6%, b) EUR-GBP amortising cross-currency
interest rate swap agreements (the "GBP Cross-Currency Interest
Rate Swaps") with a remaining notional amount of GBP983 million,
which fix the EUR to GBP exchange rate at 0.889 and fix the GBP
interest payments at an average interest rate of 5.4%, and c) an
amortising USD interest rate swap agreement (the "Interest Rate
Swap") with a remaining notional amount of USD $600 million and
swaps the USD three-month LIBOR to a fixed interest rate of 2.82%.
The EUR Cross-Currency Interest Rate Swaps and GBP Cross-Currency
Interest Rate Swaps have a profile that amortises in line with the
USD First Lien Term Loan B and are set to mature in July 2023.
On 7 May 2020, a subsidiary of the Group entered into USD-EUR
cross-currency swap agreements (the "Cross-Currency Swaps" and,
collectively with the EUR Cross-Currency Interest Rate Swaps, the
GBP Cross-Currency Interest Rate Swaps, and the Interest Rate Swap,
the "Swap Agreements") with a total notional amount of EUR927.1
million, which fix the USD to EUR exchange rate at 1.079 and fix
the Euro interest payments at an average interest rate of 6.16%.
The cross-currency interest rate swaps have an interest payment
profile aligned with the Senior Notes and are set to mature on 15
July 2021.
Subsequent to TSG Combination to align the Swap Agreements with
the changes to the structure of the Group's borrowings (see Note
15), the Group a) settled the Interest Rate Swap resulting in a
cash payment of GBP27.8m, b) settled a notional amount of EUR447
million of the EUR Cross-Currency Interest Rate Swaps resulting in
a cash receipt of GBP0.2m.
Embedded derivatives
See Note 15 for a discussion of the features embedded in the EUR
First Lien Term Loan B and the Senior Notes that the Group
bifurcated as it determined that the features were derivatives to
be classified and recorded at fair value through profit or
loss.
The fair value of the 0% interest rate floor included within the
EUR First Lien Term Loan B as at 5 May 2020 and 30 June 2020 was a
liability of GBP18.6m and GBP11.6m , respectively. The fair value
of this embedded derivative was determined using a discounted value
of the estimated cash flows using the forward EURIBOR rates
compared to the estimated cash flows using the floor and
considering Euro interest rate volatility. This embedded derivative
is categorised as Level 2 within the fair value hierarchy.
The fair value of the redemption option included within the
Senior Notes as at 5 May 2020 and 30 June 2020 was an asset of
GBP25.8m and GBP55.7m , respectively. The fair value of this
embedded derivative was determined using an interest rate option
pricing valuation model. The key assumptions include the implied
credit spread of 5.1% at 5 May 2020 and 4.2% at 30 June 2020. This
embedded derivative is categorised as Level 3 within the fair value
hierarchy.
The Group did not account for the embedded derivatives as
qualifying hedges under IAS 39.
Sports betting open positions
The fair value of open sports bets at the period end has been
calculated using the latest available prices on relevant sporting
events.
16. Derivatives (continued)
It is primarily based on expectations as to the results of
sporting and other events on which bets are placed. Changes in
those expectations and ultimately the actual results when the
events occur will result in changes in fair value. There are no
reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology although
final value will be determined by future sporting results.
The following table summarises the fair value of derivatives as
at 30 June 2020 and 31 December 2019:
30 June 2020 31 December 2019
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
Derivatives held for hedging
Derivatives designated as cash
flow hedges
Cross currency interest rate swaps 31.6 - - -
Cross currency swaps - 36.6 - -
Total derivatives designated as
cash flow hedges 31.6 36.6 - -
Derivatives designated as net
investment hedges
Cross currency interest rate swaps 3.4 - -
Total derivatives designated as
net investment hedges - 3.4 - -
Total derivatives held for hedging 31.6 40.0 - -
Derivatives held for risk management
and other purposes not designated
as hedges
Sports betting open positions - 32.3 - 21.1
Total derivatives held for risk
management and other purposes
not designated as hedges - 32.3 - 21.1
Derivatives included within Borrowings
Embedded derivatives 55.7 11.6 - -
Hedge Accounting
Cash flow hedge accounting
In accordance with the Group's risk management strategy, the
Group acquired and entered into, as applicable, the Swap Agreements
to mitigate the risk of fluctuation of coupon and principal cash
flows due to changes in foreign currency rates and interest rates
related to the USD First Term Lien Loan B and the Senior Notes.
The Group assesses hedge effectiveness by comparing the changes
in fair value of a hypothetical derivative reflecting the terms of
the debt instrument issued due to movements in the applicable
foreign currency exchange rate and benchmark interest rate with the
changes in fair value of the cross-currency interest rate swaps and
cross-currency swaps used to hedge the exposure, as applicable. The
Group uses the hypothetical derivative method to determine the
changes in fair value of the hedged item. The Group has identified
the following possible sources of ineffectiveness in its cash flow
hedge relationships:
-- The use of derivatives as a protection against currency and
interest rate risk creates an exposure to the derivative
counterparty's credit risk which is not offset by the hedged item.
This risk is minimised by entering into derivatives with high
credit quality counterparties.
-- Difference in tenor of hedged items and hedging instruments.
-- Use of different discounting curves for hedged item and
hedging instrument, because for cross-currency interest rate swaps
the discounting curve used depends on collateralisation and the
type of collateral used.
-- Difference in timing of settlement of the hedging instrument and hedged item.
-- Designation of off-market hedging instruments.
16. Derivatives (continued)
The EUR Cross-Currency Interest Rate Swaps were designated in
cash flow hedge relationships to hedge the foreign exchange risk
and interest rate risk on the USD First Term Lien Loan B bearing a
minimum floating interest rate of 3.5% (USD three-month LIBOR plus
a 3.5% margin, with a LIBOR floor of 0%). The Cross-Currency Swaps
were designated in cash flow hedge relationships to hedge the
foreign exchange risk on the Senior Notes.
Net investment hedge accounting
In accordance with the Group's risk management strategy, the
Group designates certain cross-currency interest rate swap
contracts in net investment hedging relationships to mitigate the
risk of changes in foreign currency rates with respect to the
translation of assets and liabilities of subsidiaries with foreign
functional currencies.
Upon acquiring the GBP Cross-Currency Interest Rate Swaps, the
Group designated these instruments as a hedge of the forward
foreign exchange risk of its net investment in its GBP functional
subsidiaries. The Group assesses hedge effectiveness by comparing
the changes in fair value of the net assets designated, due to
movements in the foreign currency rate with the changes in fair
value of the hedging instruments used to hedge the exposure. The
Group uses the hypothetical derivative method to determine the
changes in fair value of the hedged item. The only source of
ineffectiveness is the effect of the counterparty and the Group's
own credit risk on the fair value of the derivative, which is not
reflected in the fair value of the hypothetical derivative.
17. Dividends paid on ordinary shares
Due to the impact of COVID-19, the Board paid the 2019 final
dividend in May 2020 in ordinary shares rather than cash. This
resulted in the Group issuing 1,312,260 Flutter ordinary shares of
EUR0.09 each.
The 2018 final dividend of GBP104.0m was settled via cash.
Given the impact of the current disruption caused by COVID-19
and the ambition for the Combined Group to de-lever, the Board
considers it prudent to suspend the dividend for the current
financial year ending 31 December 2020. The Board is committed to
reviewing dividend policy once the Group returns to its medium-term
leverage target of 1-2x.
18. Changes in equity
During the six month period ended 30 June 2020, 76,295,368
ordinary shares (six months ended 30 June 2019: 132,966) were
issued as follows:
- On 5 May 2020, the Company issued a total of 65,316,588
ordinary shares in exchange for 289,909,400 shares in TSG in
respect of the all share Combination with The Stars Group Inc. (the
"Combination") resulting in Flutter Entertainment plc shareholders
owning 54.64% and the Stars Group Inc. shareholders owning 45.36%
of Flutter Entertainment plc (the "Company", together with its
subsidiaries, the "Group"), on a fully diluted basis (excluding any
out of the money options). Under the terms of the Combination,
holders of TSG shares received 0.2253 ordinary shares with nominal
value of EUR 0.09 each in the Company ("ordinary shares") in
exchange for each outstanding TSG share (the 'Exchange Ratio').
Post-Combination, the Company is the Ultimate Parent of The Stars
Group Inc.. This gave rise to a Merger Reserve of GBP6,189.5m.
- 8,045,995 new ordinary shares at a price of 10,100 pence in
respect of an equity placement announced on 28 May 2020 raising
gross proceeds of GBP812.6m giving rise to share capital of GBP0.7m
and a share premium of GBP811.9m. The proceeds raised net of
issuance costs amounted to GBP806.3m with the issuance costs of
GBP6.3m recognised in retained earnings. The Placing Shares
represent approximately 5.5% of the Company's issued share capital
immediately prior to the Placing (excluding treasury shares). The
Placing Price represents a discount of approximately 4.7% to the
closing price on 28 May 2020.
- 1,312,260 new ordinary shares as consideration for the 2019
final dividend in May 2020 as outlined in Note 17.
- 819,230 new Flutter ordinary shares as consideration for the
acquisition by Flutter of the remaining 20% interest of TSG
Australia Pty Ltd. The value of shares issue amounted to AUD$151.4m
(GBP79.7m).
- 801,295 ordinary shares as a result of the exercise of
employee share options giving rise to share capital and share
premium of GBP8.9m.
As at 30 June 2020, 1,965,600 ordinary shares were held in
treasury (30 June 2019: 1,965,600). All rights (including voting
rights and the right to receive dividends) in the shares held in
treasury are suspended until such time as the shares are reissued.
The Group's distributable reserves are restricted by the value of
the treasury shares, which amounted to GBP40.7m as of 30 June 2020
(30 June 2019: GBP40.7m).
At 30 June 2020, the Flutter Entertainment plc Employee Benefit
Trust (the "EBT") held a further 67,320 (30 June 2019: 97,948
shares) of Flutter Entertainment plc shares in respect of potential
future awards relating to the Group's employee share plans, which
were acquired at a total cost of GBP5.8m (30 June 2019: GBP8.4m).
The Group's distributable reserves at 30 June 2020 are further
restricted by this cost amount.
As detailed in the Condensed Consolidated Interim Statement of
Changes in Equity during the six month period ended 30 June 2020,
the movement in the share-based payment reserve and in the shares
held by the EBT is due to the equity-settled share-based payments
charge and the vesting and exercising of share-based payments
awards. A total of 3,077 shares in respect of share-based payments
awards and related dividends were vested from the EBT to certain
staff during the six months ended 30 June 2020 (six months ended 30
June 2019: 2,124 shares).
The movement in the foreign exchange translation reserve in the
six months to 30 June 2020 reflects the strengthening of EUR, USD
and AUD against GBP in the period.
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 30 June 2020.
During the period, the Group paid a dividend of GBP7.0m to the
Non-Controlling interest in Adjarabet.
At 30 June 2020, other reserves comprise undenominated capital
and a net wealth tax reserve.
19. Contingent liabilities
The Group operates in an uncertain marketplace where many
governments are either introducing or contemplating new regulatory
or fiscal arrangements.
The Board monitors legal and regulatory developments and their
potential impact on the business, however given the lack of a
harmonised regulatory environment, the value and timing of any
obligations in this regard are subject to a high degree of
uncertainty and cannot always be reliably predicted. See Note 11
for details of legacy German and Greek tax assessments.
Prior to the Combination, the Board of TSG became aware of the
possibility of improper foreign payments by TSG or its subsidiaries
in certain jurisdictions outside of Canada and the United States
relating to its historical B2B business (which was never profitable
and effectively ceased operations in 2014). When this matter arose,
TSG contacted the relevant authorities in the United States and
Canada with respect to these matters and, following the
Combination, Flutter continues to cooperate with all governmental
authorities. Based on its review of these matters to date, the
Board of Flutter has not identified issues that it believes would
have a significant adverse effect on the Group's financial position
or business operations.
Kentucky Proceedings
Prior to the Combination, the Commonwealth of Kentucky, ex. rel.
J. Michael Brown, Secretary of the Justice and Public Safety
Cabinet, filed a legal proceeding against Stars Interactive Group a
100% owned subsidiary of The Stars Group Inc., then named Oldford
Group, and certain affiliates thereof (together, the "Oldford
Parties") and various other defendants (the "Kentucky Proceeding"),
pursuant to which the Commonwealth sought to recover alleged
gambling losses on behalf of Kentucky residents who played
real-money poker on the PokerStars website during the period
between 12 October 2006 and 15 April 2011. On 12 August 2015, the
trial court in the Kentucky Proceeding entered a default judgment
against the Oldford Parties following certain alleged discovery
failures, including by certain former owners of the Oldford
Parties, and partial summary judgment on liability in favour of the
Commonwealth. On 23 December 2015, the trial court entered an order
for damages in the amount of approximately US$290 million, which
the trial court trebled to approximately US$870 million.
TSG, through certain subsidiaries, filed a notice of appeal to
the Kentucky Court of Appeals and posted a US$100 million
supersedeas bond to stay enforcement of the order for damages
during the pendency of the appeals process. In connection with the
posting of the bond, TSG delivered cash collateral in the amount of
$5 million and letters of credit in the aggregate amount of US$65
million. See Notes 12 and 15. On 21 December 2018, the Kentucky
Court of Appeals ruled in TSG's favour and reversed in its entirety
the US$870 million judgment.
On 18 January 2019, the Commonwealth filed a motion for
discretionary review with the Kentucky Supreme Court asking the
Court to determine if it will hear an appeal of the decision issued
by the Kentucky Court of Appeals. On 11 April 2019, the Kentucky
Supreme Court granted such discretionary review. The Kentucky
Supreme Court heard oral arguments on 2 July 2020, with judgment
being reserved. The Group believes that judgment will be handed
down later in 2020 or early 2021.
No liability has been recognised relating to this matter as
based on all available information, the Group does not consider it
probable that there will be a future material outflow.
20. Related parties
There were no material transactions with related parties during
the six months ended 30 June 2020 or 30 June 2019 or the year ended
31 December 2019.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
21. Events after the reporting date
There are no events to report.
INDEPENDENT REVIEW REPORT TO FLUTTER ENTERTAINMENT PLC
Introduction
We have been engaged by Flutter Entertainment plc ('the
Company') to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June
2020 which comprises the Condensed Consolidated Interim Income
Statement, the Condensed Consolidated Interim Statement of Other
Comprehensive Income, the Condensed Consolidated Interim Statement
of Financial Position, the Condensed Consolidated Interim Statement
of Cash Flows, the Condensed Consolidated Interim Statement of
Changes in Equity and the related explanatory notes. Our review was
conducted having regard to the Financial Reporting Council's
("FRCs") International Standard on Review Engagements ("ISRE") (UK
and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity'.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 30 June 2020 is
not prepared, in all material respects, in accordance with IAS 34
'Interim Financial Reporting' as adopted by the EU, the
Transparency (Directive 2004/109/EC) Regulations 2007, and the
Transparency Rules of the Central Bank of Ireland.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Transparency Directive and the Transparency Rules of the
Central Bank of Ireland.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for ensuring that the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review having regard to the Financial Reporting
Council's International Standard on Review Engagements (UK and
Ireland) 2410 Review of Interim Financial Information Performed by
the Independent Auditor of the Entity. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (Ireland) and consequently
does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
We read the other information contained in the half-yearly
financial report to identify material inconsistencies with the
information in the condensed set of financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent, the knowledge acquired by us
in the course of performing the review. If we become aware of any
apparent material misstatements or inconsistencies, we consider the
implications for our report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Transparency Directive and the Transparency
Rules of the Central Bank of Ireland. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
26 August 2020
KPMG
Chartered Accountants
1 Stokes Place
St. Stephen's Green
Dublin 2
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END
IR BIGDIDBDDGGL
(END) Dow Jones Newswires
August 27, 2020 02:00 ET (06:00 GMT)
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