Zona de Azar UK – Stars Merger Helps Flutter Weather Covid-19 Impact in H1

UK.- August 28, 2020 www.zonadeazar.com  The significant expansion and diversification of Flutter Entertainment’s operations through its acquisition of The Stars Group helped the operator mitigate the disruption caused by novel coronavirus (Covid-19) in the first half of the year.

However, costs associated with the acquisition weighed on the enlarged operator’s bottom line, leading to a significant fall in net profit for the period.

Revenue for the six months to 30 June climbed 49% year-on-year to £1.52bn. On a pro forma basis, factoring in a full six months of revenue from The Stars Group, rather than from 5 May, when the acquisition was finalised, plus Adjarabet’s – acquired in February 2019 – results for the prior year, revenue was up 21% to €2.40bn.

The period prior to Covid-19, to mid-March, saw Flutter’s acquired and legacy businesses performing well, with revenue up 26%. During this period the Sky Betting & Gaming business performed strongly, and FanDuel expanded in the US, rolling out online casino in Pennsylvania and launching retail betting in Mississippi and Michigan.

From mid-March onwards, however, Covid-19 materially affected Flutter’s sports and retail businesses, especially in Europe where all mainstream sport, including UK and Irish racing, was suspended. This was mitigated by Australian and some US racing continuing behind closed doors, and enjoying increased prominence in the absence of other sporting content.

“The group’s first half financial performance exceeded expectations as we benefitted from geographic and product diversification,” Flutter chief executive Peter Jackson explained. “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 sports betting suffered disruption across all channels, poker and casino experienced a “major uplift” in player numbers. PokerStars’ daily average gaming customers were up 70% in Q2, despite low levels of marketing investment, while daily gaming actives for the Paddy Power Betfair and Sky Betting & Gaming businesses jumped 65% in the same period.

Since sports returned from May, Flutter said customer activity had been “encouraging”. For Sky Bet, customer numbers had returned to normal levels, aided by a busy English football calendar, while Paddy Power was the most downloaded app during Royal Ascot, aided by significant customer offers. Gaming, meanwhile, had remained “resilient” across all brands it added.

This helped revenue across both verticals grow, both on a reported and pro forma basis. On a reported basis, sports betting revenue climbed 16% year-on-year to £924m, with gaming’s contribution for the half year £598m, a 165% improvement on H1 2019.

On a pro forma basis, sports revenue was up 7% to £1.20bn (8% on a constant currency basis), with gaming growing 39% to £1.19bn.

Looking at performance by division, Paddy Power Betfair – comprising the Paddy Power, Betfair and Adjarabet online brands, plus British and Irish retail – saw amounts wagered decline 38% on a pro forma basis to £2.22bn. At a net revenue margin of 10.9% – up 200 basis points – this translated to sports revenue of £320m, down 29%. Gaming contributed a further £220m, up 5%.

Online betting revenue was down 21% to £264m, while retail sports’ total was down 51% at £56m. For gaming, online revenue rose 18% to £197m, with retail’s contribution falling to £23m.

The online-only Sky Betting and Gaming, meanwhile, saw stakes decline 30% to £1.64bn. However bookmaker-friendly results, coupled with customers betting on less mainstream sports while major events were suspended, improved sports net revenue margin to 14.8%, helping the grow betting revenue 36% to £253m.

Gaming’s contribution of £186m – up 27% – meant that Sky Betting and Gaming revenue rose 2% to £439m in H1.

PokerStars, including that brand’s poker, casino and sports brands, as well as Full Tilt, saw revenue grow 40% to £697m. Gaming revenue was up 43% to £671m, thanks to a 38% rise in poker revenue, and a 51% improvement in casino’s contribution. Sports, however, saw amounts wagered fall 21% to £308m, with revenue declining 9% to £27m.

That division benefitted particularly from the Covid-19 lockdown, Flutter noted. Prior to the pandemic hitting from mid-March, PokerStars’ gaming revenue had been down 3% year-on-year, and had this continued throughout the six months, the vertical’s contribution would have been £205m lower.

Turning to Australia, comprising the Sportsbet and BetEasy brands, the continuation of local racing behind closed doors significantly enhanced the division’s H1 performance. Stakes were up 12% to £3.72bn, and net revenue margin improved from 9.5% to 11.7%, resulting in revenue growing 39% to £435m.

Finally, the US division, incorporating the FanDuel, FoxBet, TVG, PokerStars and Betfair brands, saw revenue grow 71% to £278m.

This was aided by the online sports betting market growing significantly, with operations live in five states, and horse racing continuing behind closed doors. As such, amounts wagered increased 26% to 1.09bn, which at a 4.9% margin, resulted in revenue of £164m, up 14%.

The US business also benefitted from customers substituting betting for gaming in states such as New Jersey and Pennsylvania, resulting in the vertical’s contribution soaring from £23m to £113m.

The business’ cost of sales for the month amounted to £497.9m, up 65% year-on-year, including a £10.3m refund on value added tax wrongly paid on gaming machines in Great Britain, leaving a gross profit of £1.04bn, up 44%.

Operating costs – excluding depreciation and amortisation, but including transaction fees and associated costs, as well as restructuring and integration expenses – rose 50% to £753.7m. This meant earnings before interest, taxes, depreciation and amortisation grew 32% to £284.5m.

Once depreciation and amortisation charges of £216.7m, significantly higher due to amortisation of acquisition related intangibles, were factored in, Flutter’s operating profit fell year-on-year, to £67.8m. Had exceptional items been removed from the current and prior year figures, operating profit would have been up 73% to £252.8m.

After financial income of £49.6m, and expenses of £93.4m, again inflated by separately disclosed items, pre-tax profit fell to £24.0m. The operator did record a £14.0m tax benefit for these items, helping partially offset £29.1m in income taxes paid on operations, which ultimately resulted in a net profit of £9.0m, down significantly from H1 2019’s profit of £67.6m.

Looking ahead, Flutter said that second half trading had been encouraging, aided by a condensed football calendar, favourable sports results and gaming continuing to perform strongly despite increased gambling options available to customers.

However, it added, the outlook remained highly uncertain due to the potential for further disruption from Covid-19, coupled with possibly regulatory change in core markets.

Assuming it does not face disruption of the scale seen in the first half, Flutter anticipates EBITDA for the year (excluding the US) to come in the range of £1.18bn and £1.33bn. This reflects a £50m increase in marketing investment in the second half, and the roll-out of enhanced responsible gambling and anti-money laundering measures introduced for PokerStars.

For the US business, Flutter expects to post an EBITDA loss of between £140m and £160m. This assumes online betting rolls out in Tennessee and Michigan in H2, and Illinois allows remote registration for the full six month period.

“The second half has started well, with good sports betting performance following the return of major sport events, whilst gaming performance has remained resilient,” Jackson added.

“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.”

Editó: @_fonta   www.zonadeazar.com