REG - Flutter Entertainmnt - 2023 Interim Results
09/08/2023 07:00
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RNS Number : 7147I Flutter Entertainment PLC 09 August 2023
9 August 2023
Flutter Entertainment plc - 2023 Interim Results
US business reached profitability inflection point driving Group earnings
transformation;
H1 pro forma EBITDA +37%
Flutter Entertainment plc (the "Group") announces interim results for six
months ended 30 June 2023.
Reported(1) Adjusted(2)
H1 H1 H1 H1
2023 2022 2023 2022 CC(3)
£m £m YoY % £m £m YoY % YoY %
Average monthly players(4) ('000s) 12,285 9,635 +28%
Group Revenue 4,809 3,388 +42% 4,809 3,388 +42% +38%
Group EBITDA(5) 765 434 +76% 823 476 +73% +72%
Group pro forma EBITDA 823 596 +38% +37%
Profit/ (loss) after tax 128 (112) 420 177 +138%
Earnings/ (loss) per share (pence) 73.8p (64.7p) 237.5p 97.2p +144%
Net Debt at period end(6) (4,634) (3,004)
Pro forma references include Sisal for a full 6-month period in both 2022 and
2023. See appendix 2 for a reconciliation of adjusted pro forma to statutory
numbers. Any differences due to rounding.
Operational Highlights:
• Group: Delivery of strategic goals drove Flutter's growth engine;
strong H1 player momentum with average monthly players ("AMPs") +28%, driven
by US growth (+43%) and the addition of Sisal, which has performed strongly
since joining the Group (Group pro forma AMPs +18%)
• US: Reached profitability inflection point, FanDuel generated
$100m (£79m) Adjusted EBITDA in H1 (US division $63m (£49m)). Scale
advantage compounding with revenue +63%
- Consolidating clear #1 position in sportsbook, with 47% market share
in Q2(7)
- Margin benefit over the market expanded to 410bps; new NBA markets
further evidence of sustainable product leadership
- Improved iGaming proposition drove market share gains to 23% in Q2
• Group ex-US: Growth through regulatory headwinds with pro forma
revenue +8% and EBITDA +4%
- UK & Ireland (revenue +13%): Product enhancements and efficient
generosity underpinning recreational customer growth and driving market share
gains in both sports and gaming
- Australia (revenue -1%): Effective retention of enlarged customer
base (AMPs +7%), offset by Covid spend reversion and point of consumption tax
changes
- International (revenue +8%): Division at a growth inflection point,
'Consolidate and Invest'(8) markets driving performance, now comprise 77% of
divisional revenue and growing at +19%
• Sustainability: Positive Impact Plan progressing well; Play
Well(9) tool usage, +7 percentage points to 42% with 34% female representation
in leadership as we move closer to 2026 goal of 40%
• US listing: Working towards a listing in late Q4 2023 or early Q1
2024
Financial Highlights:
• Reported revenue growth of 38% for Group, benefiting from an
exceptionally strong US performance and strong momentum in UK&I and
International, along with the addition of Sisal in August 2022 (pro forma
revenue +24%)
• Group at earnings transformation point with Adjusted EBITDA +72%
to £823m (pro forma +37%)
- US Adjusted EBITDA of £49m ($63m) versus a £132m loss in H1 2022
- Group ex-US Adjusted EBITDA +24% (pro forma +4%), strong top line
momentum and the addition of Sisal, which has performed strongly in H1, partly
offset by Australian tax changes
• Reported profit after tax of £128m (H1 2022: Loss of £112m)
after £314m charge for amortisation of acquired intangibles
• Adjusted basic earnings per share ("EPS") of 237.5p, 144% higher
than H1 2022; Reported EPS of 73.8p from loss of 64.7p in H1 2022 reflected
swing to profitability in current period
• Net debt of £4.6bn at 30 June 2023 (31 December 2022 £4.6bn) and
pro forma leverage ratio of 3.3 times (31 December 2022 3.9 times)(6)
Outlook:
• H2 has started in line with expectations. Assuming normalised
sports results for H2, we anticipate full year Adjusted EBITDA to be broadly
in line with market expectations:
- US: Net revenue of between £3.6bn - £3.9bn ($4.5bn - $4.9bn) and
Adjusted EBITDA of between £90m - £190m ($120m - $240m)
- Group ex-US Adjusted EBITDA of between £1.44bn - £1.6bn, with
strong momentum in the UK&I and International, offset by softer than
expected market conditions in Australia
Peter Jackson, Chief Executive, commented:
"The first half of 2023 marks a pivotal moment for the Group, with our US
business now at a profitability inflection point, helping transform the
earnings profile of the Group and significantly enhance our financial
flexibility.
With our divisions and their brands benefitting from the competitive
advantages provided by the Flutter Edge, Group performance in the period was
very strong, with delivery of our strategic objectives resulting in pro forma
EBITDA growth of 37%. Our recreational player base increased to over 12
million monthly players, and importantly, more players than ever interacting
with our safer gambling tools, aided by a £45m investment in our Play Well
strategy in H1.
The US delivered another exceptional performance. We acquired over two million
new players in the period, cemented our leadership position in sports and grew
our share in iGaming to 23%. The US business was profitable in the first half
with FanDuel generating over $100m in EBITDA. This profit profile provides us
with a clear platform to invest materially in the second half, as we strive to
continuously improve our customer offering. Our player acquisition strategy
has consistently delivered, generating excellent returns on investment,
embedding even greater value into our customer base, and increasing our future
profitability.
In the UK, we took market share due to ongoing product enhancements, while in
International, Sisal continues its strong trajectory since its acquisition in
August 2022. This combined momentum helped offset the reduction in Australian
profitability, due to more challenging COVID-related comparatives and a
changing tax environment.
The second half of the year has started well and we look forward to adding a
US listing for Flutter shares later this year or early next year."
Analyst briefing:
The Group will host a questions and answers call for institutional investors
and analysts this morning at 9:30am (BST). Ahead of that call, a presentation
will be made available on the Group's corporate website
(www.flutter.com/investors (http://www.flutter.com/investors) ) from 8:00am.
To dial into the conference call, participants need to register here
(https://event.loopup.com/SelfRegistration/registration.aspx?booking=dNiJV8BL6Gf6fwCo0mM7osDOqIUUZ8YIFWpAjBNREYY=&b=2389e96d-457b-46a8-bebb-fec356d5b031)
where they will be provided with the dial in details to access the call.
Contacts:
Investor Relations:
Paul Tymms, Investor Relations + 44 75 5715 5768
Ciara O'Mullane, Investor Relations + 353 87 947 7862
Liam Kealy, Investor Relations + 353 87 665 2014
Press:
Kate Delahunty, Corporate Communications + 44 78 1077 0165
Lindsay Dunford, Corporate Communications + 44 79 3197 2959
Rob Allen, Corporate Communications + 44 75 5444 1363
Billy Murphy, Drury Communications + 353 1 260 5000
James Murgatroyd, FGS Global + 44 20 7251 3801
Business review (2-5)
Flutter is the world's number one sports betting and iGaming operator with
access to large and fast-growing market opportunities. The US market is
expected to be worth more than $40bn by 2030, while outside of the US, the
market is already worth £263bn, growing at a projected 9% CAGR over the next
five years(10). Flutter has an unparalleled portfolio of products, diversified
geographic footprint and the benefit of the combined power of the Group, the
Flutter Edge, which empowers Flutter's brands to win in their respective
markets. The Flutter Edge encapsulates the Group's distinctive, unique,
competitive advantage by providing our brands with access to our talent,
technology, product and capital.
This is underpinned by a clear strategy to (i) invest to win in the US, (ii)
grow our gold medal positions in our core markets and (iii) build on our
network and invest for leadership across international markets. This is
achieved in conjunction with our sustainability strategy, our Positive Impact
Plan.
The Group is at an earnings transformation point, with our US business now
profitable following five years of player acquisition investment. Our existing
US player base is now of sufficient scale to more than offset the ongoing cost
of future player acquisition, which will enable significant future profit
growth. The Group ex-US business has consistently delivered revenue growth of
5%-10% and our International "Consolidate and Invest"(8) markets provide the
platform for continued high levels of future growth.
The execution against our clear and consistent strategy drives the Group's
financial growth engine:
• Sustainable revenue growth: Expanding the Group's recreational
customer base and growing player value through product innovation and
generosity efficiency. As noted above, there are significant revenue growth
opportunities for both the US and ex-US businesses.
• Margin benefits: Increasing the efficiency of our marketing
investment and the operating leverage derived from the Group's Flywheel
combine to deliver high EBITDA margins. Our rapid US growth will also drive
accretion in the Group's profitability margin.
• Significant cashflow generation: Profits are converted into cash
at a high rate. Low levels of capital intensity due to the scalable nature of
our technology platforms, and positive working capital from our expanding
business, will in turn drive rapid deleveraging.
• Disciplined capital allocation: Significant scope to invest
capital at attractive returns across:
(i) Highly disciplined organic investment: The Group's sophisticated customer
acquisition cost (CAC), life time value (LTV) and customer relationship
management (CRM) models and algorithms provide a highly disciplined evaluation
framework to drive very high returns from our investment in customer growth
and retention.
(ii) Value creative M&A: Clear criteria for acquiring bolt-on, local-hero
brands, with podium positions in high growth markets, and complemented in the
post acquisition period by the benefits of the Flutter Edge. This approach has
proved very successful, as demonstrated by the acquisitions of FanDuel,
Adjarabet, Junglee, tombola and Sisal. There remains significant further
M&A potential to add market leading businesses in regulated markets where
the Group does not have a presence.
(iii) Returns to shareholders: The Group's projected profit growth and
significant cash generation will drive rapid deleveraging and provide
significant future balance sheet capacity. Capital that cannot be effectively
deployed in (i) and (ii) will be returned to shareholders.
The combination of margin benefits, cashflow generation and disciplined
capital allocation is expected to drive earnings per share growth and long
term value creation.
Driving sustainable growth is central to our long term value creation, and we
made further progress during H1 through our Positive Impact Plan. Under our
Play Well pillar we increased safer gambling tool usage year on year across
the Group by 7 percentage points to 42%(9) and we stepped up our investment in
safer gambling initiatives by 31% to £45m. We continue to strive for
increased diversity, equity and inclusion under our Work Better pillar with
34% female representation in leadership roles in the first half of the year,
well on track to meet our 2026 goal of 40%. Our efforts to Do More in our
Communities continued to improve lives with almost 460,000 lives improved
since launch. We also remain committed to reducing our impact on the
environment and climate, and during H1 we used our SBTi baselines established
in 2022 to set a Net Zero date of 2035.
H1 2023 review
The Group delivered a strong performance in H1 with pro forma AMP and revenue
growth of 18% and 24% respectively, driving pro forma Adjusted EBITDA 37%
higher to £823m. Our US business grew revenue by 63% in the half and
generated £49m in Adjusted EBITDA. In Group ex-US, pro forma revenue grew 8%
driven by strong momentum in our UK and Ireland (revenue +13%) and
International (revenue +8%, reported +74%) divisions partly offset by
challenging comparatives in Australia (revenue -1%). This resulted in a pro
forma Group ex-US Adjusted EBITDA increase of 4% (reported +24%), with top
line growth in UK and Ireland (Adjusted EBITDA +24%) and International
(Adjusted EBITDA +8%, reported +103%) being partly offset in Australia
(Adjusted EBITDA -27%) by point of consumption ("POC") tax changes.
Delivering on our strategy
(i) Invest to win in the US
FanDuel delivered another outstanding performance in the first half. US
revenue grew 63% from continued strong momentum in our sportsbook and gaming
businesses, along with favourable sports results. This resulted in continued
outperformance in the US market with a 47% share in online sports betting for
Q2 and 23% share of online iGaming(7).
We have a clear strategy for success in the US to (i) extend our #1 US
sportsbook position, (ii) grow our iGaming proposition and (iii) strengthen
and leverage the Flywheel. At our Capital Markets Day
(https://www.flutter.com/investors/results-reports-and-presentations/year/2022/)
("CMD") in November 2022, the FanDuel team outlined how this strategy is
driving our market leadership.
The combination of the Flutter Edge with the FanDuel Advantage of (i)
acquiring customers more efficiently (ii) retaining customers for longer and
(iii) growing customer value better than competitors is delivering results in
sports.
• Acquiring customers more efficiently: In H1, FanDuel acquired over
two million new players, a new record, and an 18% increase on the volume
acquired in the comparable prior year period. This reflected significant
acquisition in the 2023 launched states of Ohio and Massachusetts, along with
continued strong momentum in more mature states. This has been achieved while
keeping the projected payback period on the acquisition investment below 18
months.
• Retaining customers for longer by having the best sports product
and best customer experience framed around disciplined promotions. In H1,
leveraging our proprietary pricing and risk management capabilities, we
innovated further on our market leading product by launching a number of new
quick duration, simple, NBA player prop markets (e.g. markets based on a
player's performance by quarter). During the NBA playoffs, approximately
one-third of our players engaged with this new offering. Further innovations
are being developed to maintain our product leadership.
• Growing customer value by using the Flutter Edge to drive a
structural margin advantage. FanDuel's expected gross win margin increased by
170 basis points year-on-year driven by higher adoption of our Same Game
Parlay products and improvements in pricing accuracy. This extended our
pricing advantage over the rest of the industry to 410 basis points (i.e. 51%
higher), a 60 basis point expansion of our advantage versus 2022(11).
In iGaming, delivery against our strategic priorities resulted in an improved
gaming performance. In H1, we have:
• Grown FanDuel Casino as a brand that resonates with iGaming
customers: 38% increase in the number of new casino-first players.
• Improved the breadth of our product offering: Launched the FanDuel
Casino branded live casino in New Jersey along with adding personalised game
recommendations to overall game play.
• Delivered engaging promotional tools: First in the US market to
launch daily jackpots.
The combination of these items drove FanDuel iGaming AMPs 52% higher in H1 and
a three percentage point year on year increase in our iGaming market share to
23% in Q2.
Future modelling framework
The uncertain timing, and associated cost, of new state launches add
complexity in forecasting short-term revenue and profit growth in our US
business. As the US market evolves, we expect the states that have already
regulated for sports betting and gaming to drive significant profitability for
the Group through a combination of top line growth and operating leverage.
Partly offsetting this will be the significant short-term cost incurred in
investing in acquiring new players as we launch in additional states.
Existing states: At our CMD, we provided a view on the US addressable market
in 2030. We are now providing an estimate of what we think market growth for
regulated states could look like in the medium-term. We estimate that for
pre-2022 states(12), the market could increase at a compound annual growth
rate ("CAGR") of between 15-20% from 2022 to 2025. In the same period, we
believe that the combined market CAGR of 2022 and 2023 state launches(12)
could be between 60-70% off the 2022 base levels, aided by new state launches
in 2023.
If the market achieves these levels of growth, this could potentially reduce
our costs as a percentage of revenue, versus H1 2023 levels, in 2024 and 2025
by the following ranges:
Existing states
As a % of revenue 2030 Target H1 2023 Actual Potential 2024/25 reduction vs H1 2023
Cost of sales % 47.5% - 52.5% 50% Currently within range
Sales and marketing % ~12.5% 27% ~5.5 - 6.5 ppts per annum
Other operating costs % ~10% 20% ~1ppt per annum
Future state launches: New states are materially loss making in the first
twelve months of operation before turning contribution positive in months
13-24. For example, Ohio, which accounts for 3.4% of the US population,
launched on 1 January 2023 and the loss incurred from the launch to 30 June
2023 was approximately $120m after adjusting for positive sports results in
the period. We do not expect to incur significant losses in H2. Currently, we
estimate that states representing an additional 4% and 5% of the population
will regulate sports betting in 2024 and 2025 respectively. The Ohio template
is a good framework for considering the financial profile of these states in
the period post launch.
(ii) Grow our gold medal positions in our core markets
UK & Ireland
Strong online momentum continued in our UK & Ireland division during the
first half. Our portfolio of market leading brands took significant share
across both sports and gaming, with AMPs +10% in H1 and reaching a record 4.1m
in Q2. This drove H1 revenue growth of 13% and 24% higher Adjusted EBITDA.
Delivering a best-in-class product proposition by leveraging the Flutter Edge,
underpinned this excellent performance. We increased our emphasis on
personalised generosity including disciplined deployment of value enhancing
spend. This led to increases in customer acquisition, retention and value.
Our leading Betbuilder products are powered by the broadest depth of content,
and this helped drive both new customer acquisition up 11%, and strong
retention levels, as evidenced by 90% of World Cup sportsbook customers from
Q4 2022 still playing with us in H1. Penetration of our Betbuilder products
also increased, driving structural margin improvements of 150 basis points in
H1.
Our accelerated focus on personalised generosity ensures we deliver the right
value to customers at the right time, with efficiency improvements driving a
220 basis point reduction in promotional spend as a % of normalised gross
gaming revenue(13) in Q2. This was achieved while simultaneously driving
record AMP volumes.
Our gaming brands benefited from adding multiple new industry leading games to
our portfolio with expanded Live Casino content for Sky Vegas, as well as
branded online slots content for Paddy Power. Conversion of sports customers
to our gaming proposition reached record levels with strong cross-sell rates
benefiting from excellent World Cup customer retention and an improved
customer journey for Sky Bet customers. We continued to focus on efficient and
segmented generosity across our gaming proposition which led to growth in
customer value and record AMP volumes, growing 13% in H1.
We also took share across our retail estate with revenue growth of 11% in H1
and EBITDA growth of 44%. This was despite the industry-wide high levels of
cost inflation impacting our retail business. Our excellent performance was
driven by a leading product offering, with our estate benefiting from
investment in our product proposition in H2 2022 as well as a focus on
efficient generosity to grow customer value.
Australia
Sportsbet AMPs increased 7% with strong retention of our enlarged player base
from the Covid pandemic. Revenue was broadly flat with growth of 3% in Q2
being offset by a 4% decline in Q1, which was more impacted by the challenging
Covid comparatives. Adjusted EBITDA declined 27% due to (i) POC tax changes
which cost £33m and drove a 540 basis point increase in cost of sales as a
percentage of net revenue to 52.8%, (ii) additional marketing spend of £10m
to defend our leadership position and (iii) increased other operating costs to
expand our product teams to enable more customer facing content and,
inflationary cost pressures.
The Australian market is currently undergoing a period of disruption due to
POC tax increases and a post-COVID softening of consumer demand, most notably
in racing. Sportsbet was a disproportionate beneficiary of the Covid
tailwinds, and as such, is also being disproportionally adversely impacted
from the unwind. The softer racing market is expected to continue into H2,
resulting in lower market growth expectations, which will impact Sportsbet
profitability.
However, the sports segment of the market has shown continued growth, with
Sportsbet's performance particularly strong helped in part by the evolution of
our product, e.g. Same Game Multi. Sportsbet has a strong heritage in
leveraging its scale and superior product expertise to win in the market. This
continued in H1 with expansion of our Same Game Multi Tracker product to the
NRL and further evolution of social betting product, Bet With Mates, by adding
player statistics and chat functionality. Sportsbet's significant scale
advantage (clear #1 with a 48% market share in FY 2022)(14), and superior
product provides us with confidence around the future trajectory of our
Australian business as it navigates this period of change.
(iii) Build on our network and invest for leadership across international
markets
International
We have built our International division to a growth inflection point. We grew
revenue 74% and Adjusted EBITDA by 103% to £284m, reflecting strong growth in
our customer base and the addition of Sisal which has performed strongly since
joining the Group in August 2022 (pro forma revenue +8%, Adjusted EBITDA +8%).
Our International business is segmented into four market types: (i)
Consolidate existing #1 positions, (ii) Invest for leadership in high growth
markets, (iii) Optimise returns, and (iv) Maintain an existing position.
Consolidate and Invest markets, which are our fastest growing opportunity,
represent 77% of the division's revenue, up five percentage points when
compared with the prior year, and represent 71% of the division's
contribution. We have built a sustainable foundation which positions us well
to capitalise on the future growth in these markets. Revenue from regulated or
regulating markets is 97% of Group revenue, with no unregulated market
representing more than 0.4% of Group contribution. Our scale and geographic
diversification means that we are exceptionally well positioned to navigate
industry and regulatory changes across our markets such as the recent proposed
tax changes in India(15).
We operate a diversified product portfolio across these markets encompassing
leading sports betting, casino and poker products. Access to the Flutter Edge
powers this product leadership, a key driver of both customer acquisition and
retention. With the addition of Sisal we have now also added a market leading
lottery product to our portfolio. This has already proved an important route
to new markets with a lottery-led regulatory framework such as Turkey, and
will also act as a future path to additional lottery-led markets for Flutter
going forward.
Performance in H1 was underpinned by the above, driving strong growth across
our Consolidate and Invest markets. In Italy revenue grew 17% as our gold
medal brand, Sisal, delivered excellent online cross-sell via a market leading
product. In Georgia a refreshed generosity proposition delivered revenue
growth of 10% while increased content and a localised generosity strategy grew
revenue by 15% in Spain. Turkey was our second largest market in H1 with
growth of 109% through market leading customer experience across online and
retail. In India, leveraging Flutter expertise and access to capital, Junglee
delivered strong growth with revenue 54% higher.
There is a clear pathway to meaningful further growth with a sizeable
International addressable market(10) of £227bn in 2022, of which over £120bn
is currently regulated or regulating. Our Consolidate and Invest markets are
projected to benefit from 44% GDP growth in the next 5 years(16) and our
current presence here represented approximately 20% of the total regulated
opportunity with a significant untapped, regulated market where Flutter
maintains a subscale share. This expansion potential, when combined with
International's stable of market-leading brands each empowered by the Flutter
Edge, presents a significant opportunity to build and buy further podium
positions in line with our strategy and embed future value.
Capital structure(6)
The Group had gross debt of £5,321m(17) at 30 June 2023 and a net debt
position of £4,634m (31 December 2022: £4,644m), which represents a pro
forma leverage ratio of 3.3x (31 December 2022 3.9x). The Group typically
generates significant free cash flow, with H1 impacted by seasonality in
working capital. This adverse working capital movement is expected to unwind
in H2. These positive cash flows and the future profitability profile of the
Group, in particular US profit growth, will facilitate rapid de-levering. The
Group is committed to running an efficient balance sheet. As the business both
rapidly de-levers, and gains an additional US listing, the Group will consider
what is an appropriate level of leverage, as well as the best mechanism for
returning any excess funds to shareholders.
Other updates
US listing
In H1, Flutter shareholders voted overwhelmingly in favour of Flutter having
an additional listing of shares on a US exchange. We are working towards
attaining this additional listing in late Q4 2023 or early Q1 2024. This will
also provide the potential to pursue, as a second phase, moving our primary
listing from the London Stock Exchange to the US, should shareholders deem
this appropriate. In connection with the additional listing, we expect to
prepare our full year 2023 financials in US GAAP and in US dollars.
FOX Bet
On 31 July, we announced the closure of the sports betting platform FOX Bet.
FOX Bet was part of the The Stars Group US ("TSG US") along with the US facing
operations of PokerStars. Flutter will retain ownership of PokerStars, while
FOX will retain future use of the FOX and FOX Bet brands including FOX Bet
Super 6. Approximately half of the losses associated with TSG US will no
longer be incurred following FOX Bet's closure.
Current trading/outlook
Trading for the Group in the first 5 weeks to 6 August has been in line with
expectations. Assuming normalised sports results for the remainder of the
year, the Group anticipates:
• US revenue of between £3.6bn - £3.9bn ($4.5bn - $4.9bn) and
Adjusted EBITDA of between £90m - £190m ($120m - $240m). This assumes we
launch online in Kentucky ahead of the NFL season and invest in line with more
recent state launches.
• Group ex-US Adjusted EBITDA in line with market expectations of
between £1.44bn - £1.6bn, with strong momentum in the UK&I and
International, offset by softer than expected market conditions in Australia
(Australia Adjusted EBITDA now expected in the range £300m - £320m).
The Group also anticipates for 2023:
• Capital expenditure of approximately £500m
• Group Adjusted depreciation and amortisation charge of
approximately £495m
• A weighted average cost of debt in H2 of 6.7%, resulting in full
year interest charge of approximately £285m
• An effective tax rate of 25-27% for the Group ex-US. This will be
partly offset by a US tax credit of £166m on the recognition of a deferred
tax asset associated with previously unrecognised US tax losses resulting in a
total Group effective tax rate of 6-8%
• One-off cash items in H2 totalling £155m from acquiring an
additional interest in Junglee and purchase of Flutter shares for future
settlement of US employee incentive schemes
Operating and financial review(1-6)
Group(3)
H1 H1 CC
2023 2022 Change Change
Unaudited Adjusted £m £m % %
Average monthly players ('000s) 12,285 9,635 +28%
Sports revenue 2,996 2,118 +41% +39%
Gaming revenue 1,813 1,270 +43% +37%
Total revenue 4,809 3,388 +42% +38%
Cost of sales (2,008) (1,353) +48% +44%
Cost of sales as a % of net revenue 41.7% 39.9% +180bps +180bps
Gross profit 2,801 2,036 +38% +34%
Sales and marketing (930) (819) +14% +9%
Contribution 1,871 1,216 +54% +52%
Other operating costs (983) (686) +43% +40%
Corporate costs (64) (55) +18% +16%
Adjusted EBITDA(2,5) 823 476 +73% +72%
Adjusted EBITDA margin % 17.1% 14.1% +310bps +330bps
Depreciation and amortisation (238) (143) +67% +63%
Adjusted operating profit 585 334 +75% +76%
Net finance expense (131) (57) +131%
Adjusted profit before tax 454 277 +64%
Taxation (34) (100) -66%
Adjusted profit for the period 420 177 +138%
Adjusted basic earnings per share 237.5p 97.2p +144%
Net debt(6) at period end (4,634) (3,004) +54%
Sisal (acquired August 2022) has been included on a reported basis. Pro forma
references within the commentary for a specified period include Sisal as
though part of the Group in both 2022 and 2023 for the entire period. A full
analysis of the Group's reported performance can be found at pages 19-20.
Flutter grew H1 revenue by 38% (Q1 +46%, Q2: +32%) driven by (i) recreational
player momentum across all of our businesses with AMPs up 28% to 12.3m, (ii)
further US expansion where revenues increased 63% compared with the prior year
and (iii) the benefit of Sisal, acquired in August 2022, which has also
delivered strong growth since acquisition and drove Group ex-US revenue +27%.
Adjusted EBITDA grew 72% as our US business became profitable in H1 with
EBITDA of £49m, and the delivery of growth through regulation in our ex-US
business.
Adjusting for the acquisition of Sisal, pro forma Group revenue (+24%) and
AMPs growth (+18%) were also strong. Outside of the US, pro forma revenue grew
8% as our UK & Ireland division took market share and our Consolidate and
Invest markets drove growth in our International division. This more than
offset a more challenging environment in Australia as softer market conditions
combined with a normalisation of Covid player engagement exceeded the benefit
of strong customer retention.
Cost of sales as a percentage of net revenue increased by 180 basis points to
41.7%, primarily driven by an increase in Australian POC taxes and the
increased proportion of US revenues, where direct costs are higher.
Sales and marketing costs were 9% higher year on year, driven primarily by
increased US spend. As a proportion of revenue, investment reduced by 510
basis points to 19.3% and by 280 basis points on a pro forma basis to £930m
primarily reflecting the (i) greater marketing leverage in the US and (ii)
lower marketing levels in Sisal than the rest of the Group, as a result of
advertising restrictions in the Italian market.
Other operating costs increased 40% or 16% on a pro forma basis reflecting
further scaling of our US business as well as continued investment in our
talent, technology resources and product innovation in our business outside of
the US.
Group Adjusted EBITDA of £823m was up 72%. On a pro forma basis, Adjusted
EBITDA was 37% higher reflecting an increase in Group pro forma EBITDA margin
from 15.7% to 17.1% driven by the US turning profitable. Group ex-US grew 24%
(pro forma +4%), despite previously guided Australian tax changes (£33m) and
regulatory changes in International markets (£10m).
Group Adjusted depreciation and amortisation increased, primarily due to
growth in our US division. Interest increased £74m to £131m reflecting the
acquisition of Sisal and higher debt costs. The increase in interest costs was
partly offset by a reduction in the Group's Adjusted tax charge to £34m. This
reflects the Group's effective tax rate in the period of 7.6% compared with
36.2% in H1 2022. The Group effective tax rate benefits from the recognition
of a deferred tax asset of £92m in respect of US losses which were previously
unrecognised. Our Group ex-US effective tax rate was 26% (H1 2022: 22%). The
increase compared with the prior year reflects a greater proportion of profits
earned in high tax jurisdictions.
Adjusted basic earnings grew 144% to 237.5p driven by the addition of Sisal
and strong underlying EBITDA.
Net debt at 30 June 2023 was £4,634m. This was £1.6bn higher than 30 June
2022, due to the acquisition of Sisal, which offset the free cash flow
generated by the operating activities of the Group during the year.
A full analysis of the Group's reported performance can be found at pages
19-20.
US(3)
H1 H1 CC
2023 2022 Change Change
Unaudited Adjusted £m £m % US$
Average monthly players ('000s) 3,119 2,188 +43%
Sportsbook stakes 15,547 10,911 +42% +35%
Sportsbook net revenue margin 8.1% 6.0% +210bps +210bps
Sports revenue 1,371 770 +78% +70%
Gaming revenue 425 281 +52% +44%
Total revenue 1,797 1,051 +71% +63%
Cost of sales (899) (544) +65% +57%
Cost of sales as a % of net revenue 50.0% 51.8% -170bps -180bps
Gross profit 897 507 +77% +69%
Sales and marketing (484) (399) +21% +15%
Contribution 413 108 +282% +284%
Other operating costs (364) (240) +52% +45%
Adjusted EBITDA(2,5) 49 (132)
Adjusted EBITDA margin 2.7% (12.5%) +1,530bps +1,570bps
Depreciation and amortisation (53) (31) +74% +66%
Adjusted operating loss (4) (162) +97% +98%
The US division includes FanDuel, FOX Bet, TVG and PokerStars brands, offering
regulated real money and free-to-play sports betting, casino, poker, daily
fantasy sports and online racing wagering products to customers across various
states in the US and in Canada.
Revenue grew 63% (Q1 +92%; Q2 +41%) to £1.8bn ($2.2bn), and Adjusted EBITDA
increased £181m from a loss of £132m in the prior year to a profit of £49m
in H1 2023. FanDuel Group represented 98% of US revenue and made an Adjusted
EBITDA profit of £79m ($100m), more than offsetting losses coming from the
FOX Bet and PokerStars businesses. The increase in FanDuel's profits was
driven by:
• Strong top line growth in existing sportsbook and iGaming states
• Significant operating leverage with our Adjusted EBITDA margin
improving 15 percentage points year on year to 2.7%
Sports revenue grew 70% (Q1 +116%; Q2 +40%) with sportsbook up 84%, while DFS
and TVG (7% of total revenue) declined 7%. The sportsbook performance was due
to:
• Delivering excellent growth in existing states with revenue in
pre-2022 states 51% higher, aided in part by favourable sports results
• The launch in four additional sportsbook states (Kansas, Maryland,
Ohio and Massachusetts)
• Sportsbook net revenue margin 210 basis points higher to 8.1% (Q2
9.5%) as a result of:
- A structural win margin improvement of 170 basis points driven by
our market leading pricing and risk management capabilities and superior
product proposition
- Favourable sports results adding 180 basis points to our margin when
compared to unfavourable results in the prior period
- An increase in customer acquisition related generosity, which
generated strong returns
We increased iGaming revenue by 44% (Q1 +43%; Q2 +45%), in line with strong
iGaming player growth of 48%. As stated in the business review section, the
strong delivery against our iGaming strategic objectives has seen FanDuel
Casino take market share.
Cost of sales as a percentage of revenue declined 180 basis points to 50.0% as
contribution from New York, where the gaming tax rate is unusually high,
becomes a smaller proportion of the US business as new states launch.
Sales and marketing costs grew 15% to £484m, but reduced as a percentage of
revenue by 11 percentage points to 26.9%. This is driven by the operating
leverage in existing states, where the proportionate levels of marketing spend
are lower than new states.
Operating costs increased by 45% reflecting ongoing investment in the business
to support the strong revenue growth, and delivery of good operating leverage
when compared with revenue growth of 63%.
UK & Ireland(3)
UK & Ireland Total UK & Ireland Online UK & Ireland Retail
H1 H1 CC H1 H1 CC H1 H1 CC
Unaudited Adjusted 2023 2022 Change 2023 2022 Change 2023 2022 Change
£m £m % £m £m % £m £m %
Average monthly players ('000s) 4,066 3,704 +10%
Sportsbook stakes 5,279 5,185 +1% 4,581 4,494 +2% 698 691 -1%
Sportsbook net revenue margin 12.0% 10.9% +110bps 11.6% 10.6% +100bps 15.3% 13.2% +210bps
Sports revenue 709 630 +12% 602 538 +11% 106 92 +14%
Gaming revenue 533 462 +15% 487 418 +16% 47 44 +6%
Total revenue 1,242 1,092 +13% 1,089 956 +14% 153 136 +11%
Cost of sales (374) (335) +11% (340) (304) +11% (34) (31) +8%
Cost of sales as a % of net revenue 30.1% 30.7% -60bps 31.2% 31.8% -60bps 22.1% 22.8% -70bps
Gross profit 868 757 +14% 749 652 +15% 119 105 +12%
Sales and marketing (206) (197) +4% (203) (194) +4% (3) (3) -5%
Contribution 662 559 +18% 546 458 +19% 116 101 +13%
Other operating costs (266) (239) +10% (177) (155) +12% (89) (83) +6%
Adjusted EBITDA(2,5) 396 321 +24% 369 303 +22% 27 18 +44%
Adjusted EBITDA margin 31.9% 29.4% +260bps 33.9% 31.6% +240bps 17.7% 13.5% +400bps
Depreciation and amortisation (59) (63) -7% (39) (44) -10% (20) (19) +1%
Adjusted operating profit 337 258 +31% 329 259 +28% 8 (1)
The UK & Ireland division operates Paddy Power, Betfair, Sky Betting &
Gaming and tombola brands online, as well as retail operations in the UK &
Ireland.
We grew our total UK & Ireland revenue by 13% and Adjusted EBITDA by 24%
to £396m as our market leading brands took market share across sports, gaming
and in both online and retail channels.
UK & Ireland Online
Strong customer acquisition and retention of World Cup customers from Q4 2022
drove AMP growth 10% higher, reaching a record 4.1m customers during Q2. This
strong recreational player momentum, together with our ongoing focus on
growing customer value drove revenue +14% in H1 (Q1: +17%, Q2 +11%).
We grew sports revenue 11% (Q1 +16%, Q2 +7%). This was driven by (i) an
expanding recreational customer base with an increased skew toward lower
staking, higher margin products and (ii) acceleration of our generosity
strategy to deploy spend more efficiently. Stakes of £4.6bn were 2% higher
while we delivered a net revenue margin of 11.6% which was 100 basis points
ahead of last year. This primarily reflects structural gains driven by the
launch of Betbuilder products for SBG in Q1 2022 as well as a reduction in
generosity spend. H1 actual margin was 40 basis points ahead of expectations,
all arising in Q2, and resulting in an overall sports results' headwind year
on year of 60 basis points for H1.
We increased gaming revenue by 16% (Q1 +17%, Q2 +15%). Our gaming brands
benefited from strong cross-sell from our enlarged sports customer base as
well as new and refreshed content which helped drive direct gaming customer
acquisition.
Cost of sales as a percentage of revenue reduced by 60 basis points to 31.2%,
reflecting product mix changes.
Sales and marketing increased by 4% but reduced as a percentage of revenue by
160 basis points to 18.7% reflecting marketing efficiencies implemented in H2
2022. Other operating costs were in line year on year as a percentage of
revenue at 16.2% despite the high levels of cost inflation which we expect to
have a greater impact on pay costs in H2.
Our strong revenue performance and focus on cost efficiency resulted in Online
Adjusted EBITDA growth of 22% year on year to £369m.
UK & Ireland Retail
We grew retail revenue 11% (Q1: +15%, Q2 +8%) and Adjusted EBITDA of £27m up
44% during the year. This performance reflects share gains across our estate
in both the UK and Ireland. Product investment in H2 2022 and a focus on value
enhancing generosity has driven structural margin gains and reductions in
promotional spend similar to our online business. This focus on delivering a
best-in-class customer proposition and experience has underpinned our
outperformance.
Other operating costs increased by 6% year on year, despite higher pay and
utility cost inflation, reflecting a disciplined approach to cost mitigation.
At 30 June 2023, we had 607 (30 June 2022: 614) retail outlets with 356 in the
UK and 251 in Ireland.
Australia(3)
H1 H1 CC
2023 2022 Change Change
Unaudited Adjusted £m £m % A$
Average monthly players ('000s) 1,066 993 +7%
Sportsbook stakes 4,953 5,209 -5% -4%
Sportsbook net revenue margin 12.1% 11.8% +30bps +30bps
Total revenue 601 612 -2% -1%
Cost of sales (317) (290) +10% +11%
Cost of sales as a % of net revenue 52.8% 47.3% +550bps +540bps
Gross profit 284 322 -12% -11%
Sales and marketing (64) (54) +20% +23%
Contribution 219 269 -18% -18%
Other operating costs (61) (50) +23% +23%
Adjusted EBITDA(2,5) 158 219 -28% -27%
Adjusted EBITDA margin 26.4% 35.8% -950bps -950bps
Depreciation and amortisation (16) (14) +20% +22%
Adjusted operating profit 142 206 -31% -30%
The Australian division encompasses Sportsbet, which offers online sports
betting in the Australian market.
Sportsbet AMPs were 7% higher following effective retention of our Covid
enlarged player base. Revenue declined slightly against challenging
comparatives, with Adjusted EBITDA £61m lower at £158m due to increased POC
taxes and strategic investments in marketing and product capabilities.
Revenue decline of 1% (Q1 -4%; Q2 +3%) reflected the higher AMPs and positive
sports results of 80 basis points versus expectations, mostly in Q2, offset by
7% lower revenue per customer. Lower customer revenue levels were most notable
in racing when compared to the Covid-related peaks when options for other
discretionary leisure spend were significantly restricted.
Cost of sales as a % of revenue increased 540 basis points to 52.8% from the
previously guided impact of POC tax changes in H1 of £33m (annualised £73m)
across several Australian states. In H1 2023, the state of Victoria announced
it would increase the POC rate to 15% from July 2024, which will add an
incremental £27m annualised cost for Sportsbet.
Sales and marketing increased by 23% to defend our leadership position in the
market and form key strategic partnerships with a number of local sports and
racing organisations.
Other operating costs increased £11m or 23%, from expansion of our product
teams to enable more customer facing content and inflationary cost pressures.
International(3)
Reported Pro forma
H1 H1 CC H1 H1 CC
2023 2022 Change Change 2023 2022 Change Change
Unaudited Adjusted £m £m % % £m £m % %
Average monthly players ('000s) 4,035 2,750 +47% 4,035 3,515 +15%
Sportsbook stakes 1,979 710 +179% +167% 1,979 1,722 +15% +10%
Sportsbook net revenue margin 13.6% 9.0% +460bps +460bps 13.6% 12.4% +120bps +120bps
Sports revenue 315 106 +197% +183% 315 255 +23% +18%
Gaming revenue 854 527 +62% +52% 854 780 +9% +5%
Total revenue 1,169 633 +85% +74% 1,169 1,035 +13% +8%
Cost of sales (417) (184) +127% +114% (417) (363) +15% +11%
Cost of sales as a % of net revenue 35.7% 29.1% +660bps +660bps 35.7% 35.1% +60bps +90bps
Gross profit 752 449 +67% +58% 752 672 +12% +7%
Sales and marketing (175) (169) +3% -2% (175) (180) -3% -7%
Contribution 577 280 +106% +93% 577 492 +17% +12%
Other operating costs (292) (158) +85% +84% (292) (250) +17% +15%
Adjusted EBITDA(2,5) 284 122 +133% +103% 284 242 +17% +8%
Adjusted EBITDA margin 24.3% 19.3% +500bps +350bps 24.3% 23.4% +90bps 0bps
Depreciation and amortisation (107) (33) +226% +207% (107) (87) +23% +17%
Adjusted operating profit 177 89 +98% +69% 177 155 +15% +3%
The International division includes Sisal, PokerStars, Adjarabet, Betfair and
Junglee brands but excludes PokerStars' US business and Betfair UK &
Ireland operations. Sisal was acquired in August 2022. Pro forma references
within the commentary include Sisal as though part of the division in both
2022 and 2023 for the entire period. A reconciliation of the division's
reported and pro forma income statement is included in Appendix 2.
Pro forma
Our Consolidate and Invest markets continued to drive a strong performance in
our International division, and we grew AMPs 15% and revenue 8% to £1.2bn in
H1. We delivered Adjusted EBITDA of £284m which was 8% higher as we continued
to invest in our key markets.
We grew revenue in our Consolidate and Invest markets by 19% in H1,
representing 77% of the total division, up 5 percentage points from H1 2022.
In Italy, which was 47% of divisional revenue, Sisal's online business drove
17% growth as a market leading product proposition continued to deliver strong
player acquisition and retention, combined with higher multi-product player
rates. Turkey was our second largest market in H1, doubling revenues year on
year driven by a strong performance across both retail and online. In India we
continue to leverage the Flutter Edge to drive player momentum, in turn
driving revenue 54% higher. Optimise and Maintain markets declined 17% in H1
and 9% in Q2, when the final known major regulatory headwinds relating to
disruption in Russia and Ukraine were fully lapped.
Cost of sales grew 90 basis points as a percentage of revenue as we continued
to drive sustainable growth in our regulated markets which have a greater
associated direct cost.
Sales and marketing reduced by 7% and 240 basis points as a percentage of
revenue with the benefits of a more targeted approach in our Optimise and
Maintain markets which was partly offset by increased investment in higher
growth opportunities such as Turkey and India. This delivered contribution
growth of 12%, with our Consolidate and Invest markets which represented 71%
of H1 2023 contribution, up 19%.
Other operating costs were 15% higher due to continued investment in product
and technology as well as our ongoing expansion in our Invest markets with
depreciation growth of 17% reflecting this investment.
We grew EBITDA by 8%, while EBITDA margin was in line when compared with the
prior year as strong contribution growth in our Consolidate markets offset
spend to drive our Invest expansion.
Reported
Reported performance includes a six-month contribution from Sisal (revenue:
+£516m, EBITDA +£146m) in H1 2023 only.
We grew revenue by 74% reflecting the above, as well as strong growth in our
Consolidate and Invest markets. Sports represents a higher proportion of Sisal
revenue compared with the existing International businesses, driving sports
183% higher while gaming grew 52%.
The addition of Sisal also had the following impacts:
• Cost of sales as a % of net revenue increased by 660 basis points
to 35.7% as Sisal is a higher direct cost business, reflecting the largely
franchise model operated in the retail estate
• Sales and marketing as a % of net revenue reduced by 11.5
percentage points reflecting lower marketing costs due to advertising
restrictions in Italy
• Other operating costs increased by 84%
Separately disclosed items
H1 H1
2023 2022
£m £m
Transaction fees and associated costs (16) (10)
Restructuring and integration initiatives (42) (32)
EBITDA impact of separately disclosed items (58) (42)
Amortisation of acquisition related intangible assets (314) (286)
Operating profit impact of separately disclosed items (372) (328)
Tax credit on separately disclosed items 80 39
Profit/ (loss) after tax impact of separately disclosed items (292) (289)
Separately disclosed items do not relate to business-as-usual activity of the
Group, but are items that are volatile in nature or acquisition related
amortisation, and therefore are excluded from Adjusted profits.
Transaction fees and associated costs incurred of £16m related primarily to
the proposed listing of Flutter shares in the US.
Restructuring and integration costs primarily relate to technology-driven
efficiency projects and Sisal integration costs.
Amortisation of acquisition related intangible assets increased by £28m to
£314m reflecting the acquisition of Sisal in August 2022.
The tax credit of £80m primarily relates to the tax effect of the
amortisation of acquisition-related intangibles and other SDIs.
Statutory review(1)
Group
H1 H1
2023 2022 Change
Unaudited £m £m %
Sports revenue 2,996 2,118 +41%
Gaming revenue 1,813 1,270 +43%
Total revenue 4,809 3,388 +42%
Cost of sales (2,008) (1,353) +48%
Cost of sales as a % of net revenue 41.7% 39.9% +180 bps
Gross profit 2,801 2,036 +38%
Operating costs (2,036) (1,602) +27%
EBITDA 765 434 +76%
EBITDA margin % 15.9% 12.8% +310 bps
Amortisation of acquisition related intangibles (314) (286) +10%
Depreciation and amortisation (238) (145) +64%
Gain on disposal - 2
Operating profit 214 5 +3,865%
Net finance expense (131) (57) +131%
Profit/ (loss) before tax 83 (51)
Taxation 45 (61)
Profit/ (loss) after tax 128 (112)
Basic loss per share 73.8p (64.7p)
Diluted loss per share 72.8p (64.7p)
Net current liabilities (516) (416)
Net assets 10,153 10,337
Net cash from operating activities 71 308 -77%
Note: Comparative figures for net current liabilities and net assets are as at
31 December 2022. A full analysis of the Group's adjusted performance can be
found at pages 9-17.
Flutter delivered strong revenue growth of 42%, driven by an expanded
recreational customer base with AMPs up 28% to 12.3m. This performance was
underpinned by further expansion of our US business which generated positive
EBITDA for the first time. The Group outside of the US also delivered a strong
performance. The acquisition of Sisal in August 2022 contributed to strong
organic growth in key International markets and we delivered market share
gains within UK & Ireland which more than offset softer market conditions
in Australia, coinciding with a normalisation of Covid player engagement when
compared with the prior year.
Cost of sales as a percentage of net revenue increased by 180 basis points to
41.7% primarily driven by an increase in Australian POC taxes.
Operating costs increased by 27% driven by continued investment in marketing
and product across the Group, particularly in the US, as well as the inclusion
of Sisal. Reported EBITDA grew 76%, significantly ahead of revenue growth as
the US becomes profitable and we leverage our scale advantage.
Net current liabilities increased from £416m at 31 December 2022 to £516m at
30 June 2023. The main driver of this was a reduction in the value of hedging
derivatives as a result of foreign exchange movements. As in previous years,
the Group regularly operates in a net current liability position due to the
Group's operating model, whereby it receives payments for nearly all revenues
in advance, with material cost items paid in arrears.
Net assets of £10.2bn at 30 June 2023 were further reduced versus 31 December
2022 due to the lower carrying amount of intangible assets and goodwill,
partially offset by reduced borrowings, with the reduction in each driven by
foreign exchange movements.
Net cash flow from operating activities decreased to £71m from £308m due to
a reduction in cash and cash equivalents - customer balances and the unwind of
the year-end working capital position, partially offset by increased
profitability.
A full analysis of the Group's Adjusted performance can be found at pages
9-17.
Cash flow and financial position
H1 H1
2023 2022
Unaudited £m £m
Adjusted EBITDA 823 476
Capex (237) (156)
Working capital (144) (41)
Corporation tax (138) (132)
Lease liabilities paid (52) (21)
Adjusted free cash flow 253 127
Cash flow from separately disclosed items (60) (39)
Free cash flow 193 87
Interest cost (116) (46)
Other borrowing costs (1) (2)
Purchase of shares by the Employee Benefit Trust ("EBT") (131) -
Acquisitions and disposals - (410)
Cash transferred in acquisitions/ disposals - 15
Other (4) (3)
Net decrease in cash (59) (360)
Net debt(6) at start of year (4,644) (2,647)
Foreign currency exchange translation 162 (241)
Change in fair value of hedging derivatives (93) 244
Net debt as at 30 June (4,634) (3,004)
Note: Prepared on a net cash/debt basis including borrowings, debt related
derivatives and cash and cash equivalents - available for corporate use, but
excluding cash and cash equivalents - customer balances. A reconciliation to
the Group's consolidated statement of cash flows is included in Appendix 4.
Adjusted free cash flow doubled in H1 2023 to £253m and reflected the
following:
• Material increase in Adjusted EBITDA from £476m to £823m.
• An increase in capital expenditure of £81m, with £41m relating
to the addition of Sisal and the remaining increase reflecting investment in
our global tech platforms along with pricing and risk capabilities. Pro forma
capital expenditure increased by 15%.
• Net working capital outflow of £144m driven by a reduction in
payables relating to the seasonal unwind associated with the quieter summer
period, which, in line with the prior year, is expected to reverse in H2.
Cash outflow from separately disclosed items was £60m. This relates to
technology-driven efficiency projects, the proposed listing of Flutter shares
in the US and Sisal integration costs.
Interest cost rose £70m to £116m mainly due to the debt-funded acquisition
of Sisal and higher interest rates.
The Employee Benefit Trust purchased £131m in Flutter shares for future
settlement of US employee incentive schemes that were put in place at the time
of the original FanDuel acquisition to incentivise value creation in FanDuel.
As at 30 June 2023, the Group had net debt of £4,634m, excluding customer
balances, representing a leverage ratio of 3.3x times(6) pro forma Adjusted
EBITDA. The Group continues to hedge the impact of currency fluctuations on
its leverage ratio through cross currency swap agreements. Changes in the fair
value of these hedging derivatives are reflected in net debt.
Notes:
(1) Reported figures represent the IFRS reported statutory numbers. Where
amounts have been normalised for separately disclosed items they are noted as
Adjusted.
(2) "Adjusted" measures exclude items that are separately disclosed as they
are: (i) not part of the usual business activity of the Group (ii) items that
are volatile in nature and (iii) purchase price accounting amortisation of
acquired intangibles (non-cash). Therefore, they have been reported as
"separately disclosed items (SDIs)" (see note 5 to the financial statements).
(3) Growth rates in the commentary are in local or constant currency(18)
except reported numbers which are in nominal currency.
(4) Average Monthly Players represent the average number of players who have
placed and/or wagered a stake and/or contributed to rake or tournament fees
during the month in the reporting period. Average Monthly Player numbers now
include Junglee players, and comparative figures have been adjusted to show a
like for like comparison.
(5) EBITDA is defined as profit for the period before depreciation,
amortisation, impairment, gain on disposal, financial income, financial
expense and taxation and is a non-GAAP measure. This measure is used
internally to evaluate performance, to establish strategic goals and to
allocate resources. The directors also consider the measure to be commonly
reported and widely used by investors as an indicator of operating performance
and ability to incur and service debt, and as a valuation metric. It is a
non-GAAP financial measure and is not prepared in accordance with IFRS and,
not being a uniformly defined term, it may not be comparable with measures
used by other companies to the extent they do not follow the same methodology
used by the Group. Non-GAAP measures should not be viewed in isolation, nor
considered as a substitute for measures reported in accordance with IFRS. All
of the adjustments shown have been taken from the financial statements.
(6) Net debt is the principal amount of borrowings plus associated accrued
interest, minus available cash & cash equivalents plus/minus carrying
value of debt related derivatives. Leverage is calculated using pro forma
Adjusted EBITDA for the appropriate 12-month period.
(7) Online sportsbook market share is the GGR market share of FanDuel and FOX
Bet for H1 2023 in the states in which FanDuel was live based on published
gaming regulator reports in those states. During H1 2023 FanDuel was live in
19 states; Arizona (AZ), Colorado (CO), Connecticut (CT), Illinois (IL),
Indiana (IN), Iowa (IA), Kansas (KS), Louisiana (LA), Maryland (MD),
Massachusetts (MA), Michigan (MI), New Jersey (NJ), New York (NY), Ohio (OH),
Pennsylvania (PA), Tennessee (TN), Virginia (VA), West Virginia (WV) and
Wyoming (WY). During H1 2023 FOX Bet was live in 4 states; CO, NJ, MI and PA.
Market share does not include AZ, CO, IL, OH and VA for June as the data has
yet to be released. Online gaming market share is the GGR share in CT, MI, NJ,
PA and WV.
(8) Consolidate and Invest markets in International are Italy, Spain, Georgia,
Armenia, Brazil, India, Turkey and Virtual Reality.
(9) Global Play Well goal is measured as the 12-month rolling average % of
AMPs who use a safer gambling (Play Well) tool in the specified reporting
period. A safer gambling tool is any tool that a customer has used (or Flutter
has applied to a customer) in the reporting period that helps to promote safer
gambling.
(10) US total addressable market based on internal estimates and excluding
Canada (estimated mature total addressable market of $3bn). Total addressable
market outside US based on H2GC data and internal estimates. Total addressable
regulated market of £120bn based on total addressable market outside US above
excluding the UK, Ireland, Australia and various markets that are unregulated
or operating under monopoly conditions.
(11) US gross win margin comparison is based on published gaming regulatory
reports in US states.
(12) US pre-2022 states include AZ, CO, CT, IL, IN, IA, MI, NJ, PA, TN, VA and
WV for sportsbook and CT, MI, NJ, PA and WV for iGaming along with Canada.
State launches in 2022 and 2023 includes KS, LA, NY, OH, MA, MD, WY and
Kentucky which is expected to launch in September 2023.
(13) Normalised gross gaming revenue refers to gross gaming revenue adjusted
to remove the gross impact of sports results in the relevant period being the
variance between expected gross revenue margin and actual gross revenue
margin.
(14) Australian gross gaming revenue market share for 2022 based on competitor
filings and internal estimates.
(15) Indian tax changes refer to proposal to amend tax base for Goods and
Services Tax from 28% of gross gaming revenue to deposits which may represent
deposits or stakes.
(16) International Monetary Fund
(https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD),
2022-2027 for Consolidate and Invest markets(8).
(17) Includes the gross value of derivatives.
(18) Constant currency ("CC") growth is calculated by retranslating the
non-sterling denominated component of 2022 at 2023 exchange rates (see
Appendix 3).
Appendix 1: Reconciliation of Adjusted to statutory results
In the operating and financial review the Group's financial performance has
been presented on an Adjusted and reported basis. The difference between the
Adjusted and reported information relates to the inclusion of separately
disclosed items. The impact on the income statement and earnings per share is
set out below.
Adjusted results Separately disclosed items(1) Statutory results
H1 H1 H1 H1 H1 H1
£m unaudited 2023 2022 2023 2022 2023 2022
Sports revenue 2,996 2,118 2,996 2,118
Gaming revenue 1,813 1,270 1,813 1,270
Total revenue 4,809 3,388 - - 4,809 3,388
Cost of sales (2,008) (1,353) - - (2,008) (1,353)
Cost of sales as a % of net revenue 41.7% 39.9% 41.7% 39.9%
Gross profit 2,801 2,036 - - 2,801 2,036
Sales and marketing (930) (819) (930) (819)
Contribution 1,871 1,216 - - 1,871 1,216
Other operating costs (983) (686) - - (983) (686)
Corporate costs (64) (55) (58) (42) (122) (97)
EBITDA 823 476 (58) (42) 765 434
EBITDA margin 17.1% 14.1% 15.9% 12.8%
Depreciation and amortisation (238) (143) (314) (286) (552) (429)
Operating profit 585 334 (372) (328) 214 5
Net finance expense (131) (57) - - (131) (57)
Profit/ (loss) before tax 454 277 (372) (328) 83 (51)
Taxation (34) (100) 80 39 45 (61)
Profit/ (loss) for the period 420 177 (292) (289) 128 (112)
Profit/ (loss) attributable to non controlling interest 1 (5) 1 3 3 (2)
Profit/ (loss) attributable to equity holders 422 172 (291) (286) 131 (114)
Weighted average number of shares ('000s) 177,502 176,658 177,502 176,658
Adjusted basic EPS (pence) 237.5p 97.2p 73.8p (64.7p)
(1) See note 5 of the financial statements.
Appendix 2: Reconciliation of pro forma to statutory results
Sisal, acquired in August 2022, has been included in this statement on a
reported basis unless stated otherwise. Pro forma measures for the
International division have been included in these interim results where they
best represent underlying performance.
The difference between the reported and pro forma results is the inclusion
separately disclosed items and exclusion of the results of Sisal in the period
prior to completion in reported figures, as per the table below.
International
Adjusted Adjusted results Separately disclosed items(1) Statutory reported
pro forma pre-completion
H1 H1 H1 H1 H1 H1 H1 H1
2023 2022 2023 2022 2023 2022 2023 2022
Unaudited Adjusted £m £m £m £m £m £m £m £m
Sports revenue 315 255 - (149) 315 106
Gaming revenue 854 780 - (253) 854 527
Total revenue 1,169 1,035 - (402) - - 1,169 633
Cost of sales (417) (363) - 179 (417) (184)
Cost of sales as a % of net revenue 35.7% 35.1% 35.7% 29.1%
Gross profit 752 672 - (223) - - 752 449
Sales and marketing (175) (180) - 10 (175) (169)
Contribution 577 492 - (212) - - 577 280
Other operating costs (292) (250) - 92 - - (292) (158)
EBITDA 284 242 - (120) - - 284 122
EBITDA margin 24.3% 23.4% 24.3% 19.3%
Depreciation and amortisation (107) (87) - 54 (171) (130) (278) (163)
Operating profit/(loss) 177 155 - (66) (171) (130) 6 (41)
Adjusted pro forma revenue and EBITDA measures have also been referenced
within these interim results. This has been reconciled in the table below.
Group
Adjusted Adjusted results Separately disclosed items(1) Statutory reported
pro forma pre-completion
H1 H1 H1 H1 H1 H1 H1 H1
2023 2022 2023 2022 2023 2022 2023 2022
Unaudited Adjusted £m £m £m £m £m £m £m £m
Total revenue 4,809 3,790 - (402) - 4,809 3,388
EBITDA 823 596 - (120) (58) (42) 765 434
(1) See note 5 of the financial statements.
Appendix 3: Reconciliation to constant currency growth rates
Constant currency ("CC") growth is calculated by retranslating non-sterling
denominated component of H1 2022 at H1 2023 exchange rates as per the table
below.
H1 H1
H1 H1 % 2022 2022 CC %
£m unaudited 2023 2022 Change FX impact CC Change
Sports revenue 2,996 2,118 +41% 39 2,158 +39%
Gaming revenue 1,813 1,270 +43% 49 1,319 +37%
Total revenue 4,809 3,388 +42% 89 3,477 +38%
Cost of sales (2,008) (1,353) +48% (38) (1,391) +44%
Cost of sales as a % of net revenue 41.7% 39.9% +180bps 40.0% +180bps
Gross profit 2,801 2,036 +38% 51 2,086 +34%
Sales and marketing (930) (819) +14% (32) (851) +9%
Contribution 1,871 1,216 +54% 19 1,235 +52%
Other operating costs (983) (686) +43% (15) (701) +40%
Corporate costs (64) (55) +18% (1) (55) +16%
Adjusted EBITDA 823 476 +73% 3 479 +72%
Adjusted EBITDA margin 17.1% 14.1% +310bps 13.8% +330bps
Depreciation and amortisation (238) (143) +67% (4) (146) +63%
Adjusted operating profit 585 334 +75% (1) 333 +76%
Revenue by division
UK & Ireland 1,242 1,092 +14% 5 1,096 +13%
Australia 601 612 -2% (6) 606 -1%
International 1,169 633 +85% 39 672 +74%
US 1,797 1,051 +71% 52 1,102 +63%
Adjusted EBITDA by division
UK & Ireland 396 321 +23% 0 321 +24%
Australia 158 219 -28% (2) 217 -27%
International 284 122 +133% 18 140 +103%
US 49 (132) -137% (11) (143) -134%
Corporate costs (64) (55) +18% (1) (55) +16%
Appendix 4: Reconciliation of Adjusted cash flow to reported statutory cash
flow
In the operating and financial review the cash flow has been presented on a
net cash basis. The difference between the net cash basis and the reported
cash flow is the inclusion of borrowings, debt related derivatives and cash
and cash equivalents - available for corporate use but excluding cash and cash
equivalents - customer balances to determine a net cash position.
Adjusted cash flow Debt and customer balances adjustments Statutory cash flow
£m unaudited 2023 2022 2023 2022 2023 2022
Adjusted EBITDA(1) 823 476 823 476
Capex(2) (237) (156) (237) (156)
Working capital(3) (144) (41) (144) (41)
Corporation tax (138) (132) (138) (132)
Lease liabilities paid (52) (21) (52) (21)
Adjusted free cash flow 253 127 - - 253 127
Cash flow from separately disclosed items(4) (60) (39) (60) (39)
Free cash flow 193 87 - - 193 87
Interest cost(5) (116) (46) (116) (46)
Other borrowing costs(5) (1) (2) (1) (2)
Settlement of swaps - - 170 - 170 -
Purchase of shares by the EBT (131) - (131) -
Acquisitions and disposals(6) - (410) - (410)
Cash acquired in business combinations(6) - 15 - 15
Other(7) (4) (3) (4) (3)
Movement in cash and cash equivalents - customer balances - - (411) 44 (411) 44
Net amounts repaid on borrowings(8) - - (80) 178 (80) 178
Net (decrease)/increase in cash (59) (360) (320) 222 (379) (137)
Net (debt)/cash at start of year(9) (4,644) (2,647) 6,735 4,276 2,091 1,629
Foreign currency exchange translation 162 (241) (187) 252 (24) 11
Change in fair value of hedging derivatives (93) 244 93 (244) - -
Net (debt)/cash as at 30 June(9) (4,634) (3,004) 6,322 4,507 1,688 1,503
(1) Adjusted EBITDA includes the following line items in the statutory cash
flow: Profit for the period, separately disclosed items, tax expense,
financial income, financial expense and depreciation and amortisation.
(2) Capex includes purchase of property, plant and equipment, purchase of
intangible assets, capitalised internal development expenditure, lease
incentive received and payment of contingent deferred consideration.
(3) Working capital includes movements in trade and other receivables, trade
and other payables and provisions, employee equity-settled share-based
payments expense before separately disclosed items and investments and foreign
currency exchange loss/(gain).
(4) Cash flow from separately disclosed items relates to transaction fees,
along with restructuring and integration costs.
(5) Interest and other borrowing costs includes interest paid, interest
received and fees in respect of borrowing facilities.
(6) The combination of acquisition and disposals of (£410m) and cash acquired
in business combinations (£15m) in H1 2022 reconcile to the statutory cash
flow amounts for purchase of businesses net of cash acquired (£395m).
(7) Other includes proceeds from the disposal of assets, proceeds from the
issue of shares on exercise of employee options, dividends paid to
non-controlling interest, lease interest paid and other.
(8) Net amounts repaid on borrowings includes principle repayments on USD
First Lien Term Loan B and additional draw downs and repayments on the GBP
Revolving Credit Facilities.
(9) Net (debt)/cash comprises principal outstanding balance of borrowings,
accrued interest on those borrowings, derivatives held for hedging debt
instruments, cash and cash equivalents - available for corporate use and cash
and cash equivalents - customer balances.
STATEMENT OF DIRECTORS RESPONSIBILITIES
For the half year ended 30 June 2023
The directors are responsible for preparing the half-yearly financial report
in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007
("Transparency Directive"), and the Transparency Rules of the Central Bank of
Ireland.
In preparing the condensed set of consolidated financial statements included
within the half-yearly financial report, the directors are required to:
• prepare and present the condensed set of consolidated financial
statements in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU, and the Transparency Directive and the Transparency Rules of the
Central Bank of Ireland;
• ensure the condensed set of consolidated financial statements has
adequate disclosures;
• select and apply appropriate accounting policies; and
• make accounting estimates that are reasonable in the
circumstances.
• assess the Entity's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Entity or to cease operations, or have no realistic alternative
but to do so.
The directors are responsible for designing, implementing and maintaining such
internal controls as they determine is necessary to enable the preparation of
the condensed set of consolidated financial statements that is free from
material misstatement whether due to fraud or error.
We confirm that to the best of our knowledge:
1) the condensed set of consolidated financial statements included
within the half-yearly financial report of Flutter Entertainment PLC for the
six months ended 30 June 2023 ("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 the related explanatory notes, have
been presented and prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU, the Transparency Directive and Transparency
Rules of the Central Bank of Ireland.
2) The interim financial information presented, as required by the
Transparency Directive, includes:
1. an indication of important events that have occurred during the
first 6 months of the financial year, and their impact on the condensed set of
consolidated financial statements;
2. a description of the principal risks and uncertainties for the
remaining 6 months of the financial year
3. related parties' transactions that have taken place in the first 6
months of the current financial year and that have materially affected the
financial position or the performance of the enterprise during that period;
and
4. 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 6 months of the current
financial year.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Entity's website.
Legislation in the Republic of Ireland governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
On behalf of the board
Peter
Jackson
Paul Edgecliffe-Johnson
Chief Executive Officer
Chief Financial Officer
8 August 2023
Principal risks
The principal risks and uncertainties which are considered to have a material
impact on the Group's future performance and strategic objectives are set out
on the following pages. The principal risks and uncertainties are consistent
with those defined in the Group's Annual Report & Accounts 2022, available
at www.flutter.com.
This is not intended to be an exhaustive and extensive analysis of all risks
which may affect the Group. Additional risks and uncertainties currently
deemed to be less material, or not presently known to Management, may also
have an adverse effect on the performance and strategic objectives of the
Group.
Changing legal and regulatory landscape
Why we need to manage this How we manage and mitigate the risk
The complex and constantly changing regulatory environments in which we • We have dedicated internal and external Legal,
operate, in terms of multiple jurisdictions, tax regimes and licensing Regulatory, Compliance and Tax teams covering all regions with responsibility
obligations, can make it commercially challenging for us to operate, or impact for working with, and advising management on any upcoming regulatory changes,
our ability to grow at pace. to set appropriate policies, processes and controls to adapt and ensure
compliance.
• Our regulatory profile continues to improve with an
increased proportion of revenues coming from regulated markets and a
continuous focus on reducing exposure to higher risk jurisdictions.
• For material markets, we engage external counsel to
complement our in-house ongoing monitoring activity and to guide and support
strategic decision making and planning associated with these markets.
• We invest continuously in the flexibility of our
in-house technology which is key for entering or remaining in markets, and
allowing for adaptability and flexibility of our products as market conditions
change.
• Flutter and its divisions have dedicated Corporate
Affairs teams and hold memberships with associations and industry groups
working with regulators and governments to drive proportionate, transparent
and reasonable regulation and taxation in the industry.
US growth execution and competition
Why we need to manage this How we manage and mitigate the risk
The successful execution of the growth strategy for the US business across its • We continue to establish and maintain strong
brands and partnerships is critical to our long‑term ambitions. commercial relationships with our market access partners and strategic media
partners to secure access to new markets and maintain growth.
• We invest in people, product and brands to acquire
further market share and to maintain the agility, scalability and leading
market positions.
• We continue to develop our in-house technology stack,
including our proprietary global betting platform for the provision of sports
betting, to continuously improve our offering and meet evolving stakeholder
needs.
• We have dedicated external advisers, internal
expertise and resources to support with the monitoring and assessment of the
US competitive landscape to take appropriate actions.
• Our dedicated US Legal, Risk and Compliance teams work
closely with the business teams to monitor ongoing compliance across multiple
jurisdictions to continuously improve our processes and controls to ensure
compliance with our federal and state obligations.
Cyber resilience
Why we need to manage this How we manage and mitigate the risk
We are dependent on technology to support our products, business activities • We invest significantly in cyber security resources,
and customer operations. Cyber maturity and capabilities across our expanding capabilities and technologies, and work with a variety of external security
Group vary and may increase the number of potential attack vectors or internal specialists to ensure security arrangements and systems are appropriate for
threats, which could lead to financial loss, data breaches, regulatory action our evolving threats and continue to follow leading practice.
and reputational damage.
• The Group Chief Information Security Officer works
with the Group and divisional information security teams to devise and advance
our strategy for cyber security, enhance our control assurance capabilities
and governance.
• The Flutter cyber security team owns and reports on
the Group-wide cyber policy detailing our key cyber topics and control
standards, with periodic review and approval, in addition to internal and
external annual assessment of security maturity.
• Flutter cyber assurance reviews provide ongoing
assessment of security controls implemented to protect against key
risk topics.
• We have defined and rehearsed cross divisional cyber
incident management processes to mitigate the impact of Group-wide major
cyber incidents.
Third parties and key suppliers
Why we need to manage this How we manage and mitigate the risk
Across our divisions and Group, we place reliance upon certain critical • Strategic and critical suppliers are subject to
suppliers and key third parties in technology, sports associations, marketing, regular business and quality reviews to ensure ongoing relationship and
sports content and media which are fundamental to our business and product performance management.
offerings. The effective management of critical third party relationships,
performance and regulatory expectations is key to our strategic objectives. • The Group Procurement and Third Party Assurance
functions maintain a Risk Heatmap to monitor strategic and critical suppliers
and ensure continuity of critical services.
• As part of our procurement processes, we employ
dedicated resources supplemented by subject matter expertise within risk,
compliance, legal and technology assurance to protect and enhance value,
demonstrate our high standards of corporate integrity, and reinforce
organisational resilience.
• Where possible, we limit reliance on a single supplier
to reduce potential single point of failure.
Leadership and talent pipeline
Why we need to manage this How we manage and mitigate the risk
To ensure that those in our most critical roles are developed to their full • A common talent framework to develop top senior talent
potential, and succession is being built. To ensure we become the natural home which enables targeted development of individuals and effective succession
for the world's best talent in the skills we deem most critical. planning.
• We proactively manage executive plans, succession and
search, securing candidates with the capability and calibre to lead Flutter as
it continues to grow and transform.
• As a global company, we need to leverage our diverse
talent to win in our local markets, and ensure colleagues bring their whole
selves to work.
• We provide opportunities for high potential diverse
talent to develop and flourish, including through a Board Apprenticeship
scheme or co-leading on one of our four Global Advocacy Programmes
International technology transformation
Why we need to manage this How we manage and mitigate the risk
Challenges to transform, expand and scale our capabilities, given reliance on • Fully restructured CTO leadership team; key new roles
legacy technologies and variances across entities, which may lead to lower have been introduced in the International Technology function, through
than desired resilience, reliability and product agility. recruiting externally and leveraging internal talent from other brands and
divisions.
• Full review of the International division's technology
risk profile with clear plans and structures in place to improve, using a
risk-based approach.
• Our revised technology strategy has been defined to
support significant market growth and expansion.
• We continue to invest in resources, software and
hardware to address themed strategic initiatives, which address stability,
process, people and technology.
• Focused support from external advisers, strategic
partners and experts to support with technology transformation delivery.
Compliance with existing legal and regulatory landscape
Why we need to manage this How we manage and mitigate the risk
The interpretation and ongoing compliance with complex and multiple regulatory • For the jurisdictions in which we hold a licence,
and legislative requirements applicable to the Group's activities in the dedicated Divisional Compliance teams work closely with the business teams to
markets in which it operates underpins the sustainability and reputation of monitor ongoing compliance and continuously enhance our processes and controls
our business. to ensure compliance with regulatory frameworks and licence requirements.
• We have a number of Group-led overarching policies and
compliance programmes to govern processes across divisions and thereby ensure
compliance with applicable laws and regulations.
• Detailed policy and procedures across each division
ensure local regulatory requirements are documented, monitored and reviewed
periodically.
• Annual compliance training is mandatory for all staff,
as well as regular, targeted training and awareness sessions.
• Divisional and Group management provide periodic legal
and regulatory updates through established governance forums at both
divisional and Group level Committees.
Technology resilience
Why we need to manage this How we manage and mitigate the risk
We have a critical dependency on our technology, and on certain material third • We invest in our proprietary technology and resources
parties, to maintain the stability and availability of our customer-facing to improve IT resilience, eliminate single points of failure and drive better
products, as well as the ability to recover in a timely manner from severe performance.
disruption with minimal impact on our customers and products.
• We have established a standard scale to better compare
the IT disaster recovery resilience levels in each division and ensure
adequate improvement plans are developed and tracked to mitigate any material
risks.
• We have dedicated resources to develop, enhance and
test our disaster recovery capability for our key products across all our
brands of the Group.
• Key global metrics on critical systems and platforms
which are regularly monitored and reported on identify any potential emerging
issues on our brands or customer-facing technologies.
• We have a defined formal incident management process
in place for identifying, escalating and resolving issues and a post-incident
process to ensure we continuously improve our proprietary technology stack and
incident response processes.
Safer gambling/performance against Play Well strategy
Why we need to manage this How we manage and mitigate the risk
Safer gambling underpins every element of our strategy. We want to demonstrate • Our safer gambling strategy informs everything from
consistency and global alignment with our safer gambling strategy to protect how we identify and interact with at-risk customers through to how we
our customers who are at risk of the potential negative effects of gambling communicate to our broad group of stakeholders and how we encourage safer
and ensure we grow our business sustainably. gambling tool usage.
• We leverage and share policies, processes and
practices across the ever expanding Group to enhance the strategic approach to
safer gambling and demonstrate our commitment to ESG.
• A leading range of tools are provided on all our brand sites to support
customers in managing their spend and play, and we are continually working to
improve and enhance our tools and site content to enable us to identify and
interact with at-risk customers.
• We work closely with leading external third parties to
facilitate internal teams to enhance our understanding, and capabilities in
relation to identification of problem gambling through the use of artificial
intelligence.
• We invest significantly in improvements for tackling
the problem through donations to research, treatment and education
initiatives, as well as through driving collaboration across the industry with
other operators, charities and regulatory bodies.
Global talent management
Why we need to manage this How we manage and mitigate the risk
The people who work within Flutter are key to our the success. Insufficient • Our brands across the world are setting the pace when
management and retention of key individuals may impact our ability to deliver it comes to attracting and retaining the best people, enhanced by local
on our strategic and operational objectives. insights, plans and processes.
• Our Global People Strategy and plan focuses on five
key priorities (e.g. nurturing critical skills) that enable us to build on our
scale as a leader, go beyond our industry and gain a reputation as the best
company in the world to work for.
• We listen to colleagues through surveys and listening
groups to ensure the colleague experience we build is engaging and attractive.
Our Flutter Workforce Engagement Committee operates to provide oversight of
the Group People Strategy and provide a forum for the voice of our colleagues
at Board level.
• We launched a Global Advocacy Programme, led by our
executives, and use data and measurement so that equity and equality remain at
the forefront of our decision making.
• Operate communities of practice for our most critical
skills that brings our collective capability together to achieve shared
outcomes with greater connection, collaboration, and open-source innovation,
as well as elevate our best talent.
Consolidated Interim Income Statement
For the six months ended 30 June 2023
2023 2022
Unaudited Note £m £m
Revenue 4 4,808.6 3,388.2
Cost of sales (2,007.6) (1,352.6)
Gross profit 2,801.0 2,035.6
Operating costs excluding depreciation, amortisation and (loss)/gain on (2,035.7) (1,601.5)
disposal
EBITDA(1) 765.3 434.1
Amortisation of acquisition-related intangible assets 5 (313.9) (286.1)
Depreciation and amortisation of other assets (237.6) (144.6)
(Loss)/gain on disposal (0.2) 1.9
Operating profit 213.6 5.3
Financial income 6 15.2 0.7
Financial expense 6 (146.1) (57.4)
Profit/(loss) before tax 82.7 (51.4)
Tax credit/(expense) 45.4 (60.8)
Profit/(loss) for the period 128.1 (112.2)
Attributable to:
Equity holders of the Company 131.0 (114.3)
Non-controlling interest (2.9) 2.1
128.1 (112.2)
Earnings per share
Basic 8 £0.738 (£0.647)
Diluted 8 £0.728 (£0.647)
1 EBITDA is defined as profit for the period before depreciation,
amortisation, impairment, loss/gain on disposal, financial income, financial
expense and tax expense. It is considered by the Directors to be a key measure
of the Group's financial performance.
Notes 1 to 20 on pages 38 to 61 form an integral part of these condensed
consolidated financial statements.
Consolidated Interim Statement of Other Comprehensive Income
For the six months ended 30 June 2023
2023 2022
Unaudited Note £m £m
Profit/(loss) for the period 128.1 (112.2)
Other comprehensive income/(loss):
Items that are or may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges(2) 6 (141.3) 269.7
Fair value of cash flow hedges transferred to the income statement(2) 6 126.2 (244.2)
Foreign exchange gain/(loss) on net investment hedges, net of tax(1) 6 19.9 (41.0)
Foreign exchange (loss)/gain on translation of the net assets of foreign 6 (187.3) 222.4
currency denominated entities(2)
Debt instruments at FVOCI(2) 6 0.4 (2.3)
Other comprehensive (loss)/income (182.1) 204.6
Total comprehensive (loss)/income for the period (54.0) 92.4
Attributable to:
Equity holders of the Company (50.4) 86.2
Non-controlling interest (3.6) 6.2
Total comprehensive (loss)/income for the period (54.0) 92.4
1 Foreign exchange gain/(loss) on net investment hedges is presented including
an income tax charge of £17.6m (six months ended 30 June 2022 : £4.7m)
which relates to the tax effect of the Group's hedging activities.
2 There is no tax impact associated with these items
Notes 1 to 20 on pages 38 to 61 form an integral part of these condensed
consolidated financial statements.
Consolidated Interim Statement of Financial Position
As at 30 June 2023
30 June 2023 31 December 2022
Unaudited Audited
Note £m £m
Assets
Property, plant and equipment 659.1 702.2
Intangible assets 5,540.7 5,879.9
Goodwill 9 10,677.4 10,860.0
Deferred tax assets 159.2 67.2
Non-current tax receivable 18.9 13.0
Investments at FVTPL 11 9.1 9.2
Derivative financial assets 15 5.7 -
Financial assets - restricted cash 11.9 13.0
Other receivables 11 60.9 38.5
Total non-current assets 17,142.9 17,583.0
Trade and other receivables 11 309.1 345.0
Derivative financial assets 15 - 279.6
Cash and cash equivalents - customer balances 882.6 1,293.2
Cash and cash equivalents - available for corporate use 805.2 797.9
Current investments at FVOCI - customer deposits 141.8 138.0
Current tax receivable 39.2 45.5
Total current assets 2,177.9 2,899.2
Total assets 19,320.8 20,482.2
Equity
Issued share capital and share premium 16 488.4 484.6
Shares held by Employee Benefit Trust 16 (131.5) (0.2)
Cash flow hedge reserve 16 35.6 50.7
Other reserves 16 169.8 300.2
Retained earnings 16 9,475.5 9,373.3
Total equity attributable to equity holders of the Parent 10,037.8 10,208.6
Non-controlling interest 16 115.7 128.3
Total equity 10,153.5 10,336.9
Liabilities
Trade and other payables 12 1,444.5 1,533.1
Customer balances 951.2 1,394.6
Derivative financial liabilities 15 66.4 144.7
Provisions 13 41.1 46.7
Current tax payable 74.3 75.4
Lease liability 83.4 85.4
Borrowings 14 33.1 35.6
Total current liabilities 2,694.0 3,315.5
Trade and other payables 12 60.8 50.8
Derivative financial liabilities 15 101.3 73.7
Provisions 13 44.4 67.5
Deferred tax liabilities 677.7 760.1
Non-current tax payable 7.1 15.0
Lease liability 299.1 320.8
Borrowings 14 5,282.9 5,541.9
Total non-current liabilities 6,473.3 6,829.8
Total liabilities 9,167.3 10,145.3
Total equity and liabilities 19,320.8 20,482.2
Notes 1 to 20 on pages 38 to 61 form an integral part of these condensed
consolidated financial statements.
On behalf of the Board
Peter
Jackson
Paul Edgecliffe-Johnson
Chief Executive
Officer
Chief Financial Officer
8 August 2023
Consolidated Interim Statement of Cash Flows
For the six months ended 30 June 2023
2023 2022
Unaudited Note £m £m
Cash flows from operating activities
Profit/(loss) for the period 128.1 (112.2)
Tax expense 7 (45.4) 60.8
Financial income 6 (15.2) (0.7)
Financial expense 6 146.1 57.4
Amortisation of acquisition related intangible assets 5 313.9 286.1
Depreciation and amortisation of other assets 237.6 144.6
Loss/(gain) on disposal 0.2 (1.9)
Separately disclosed items included within EBITDA 5 57.8 42.2
Employee equity-settled share-based payments expense 71.4 50.1
Foreign currency exchange gain (18.4) (16.1)
Cash from operations before changes in working capital 876.1 510.3
Increase in trade and other receivables (5.2) (38.6)
Decrease in trade, other payables and provisions (191.8) (36.6)
Movement in cash and cash equivalents - customer balances (410.6) 44.1
Cash generated from operating activities 268.5 479.2
Taxes paid (137.5) (131.7)
Cash generated from operations, net of taxes paid 131.0 347.5
Transaction fees, restructuring and integration costs paid 5 (59.6) (39.3)
Net cash from operating activities 71.4 308.2
Cash flows from investing activities:
Purchase of property, plant and equipment (39.1) (26.6)
Purchase of intangible assets (64.2) (20.8)
Capitalised internal development expenditure (133.9) (93.1)
Purchase of businesses net of cash acquired 10 - (395.2)
Payment of contingent deferred consideration 10 - (15.3)
Proceeds from disposal of assets - 3.8
Interest received 6 13.5 0.7
Other 0.2 (0.3)
Net cash used in investing activities (223.5) (546.8)
Cash flows from financing activities:
Proceeds from the issue of shares on exercise of employee options 16 3.8 3.1
Dividend paid to non-controlling interest 16 - (5.4)
Payment of lease liabilities (51.7) (20.9)
Payment of lease interest (7.6) (4.7)
Proceeds from borrowings 14 501.0 275.0
Repayment of borrowings 14 (580.8) (96.6)
Interest paid 14 (129.3) (46.8)
Settlement of derivatives 15 170.2 -
Financing fees paid in respect of borrowing facilities 14 (1.3) (2.3)
Ordinary shares of the Company acquired by the Employee Benefit Trust (131.3) -
Net cash (used in)/from financing activities (227.0) 101.4
Net decrease in cash and cash equivalents (379.1) (137.2)
Cash and cash equivalents at start of period 2,091.1 1,629.3
Foreign currency exchange (loss)/gain on cash and cash equivalents (24.2) 10.8
Cash and cash equivalents at end of period 1,687.8 1,502.9
Presented on the Statement of Financial Position within:
Cash and cash equivalents - customer balances 882.6 721.7
Cash and cash equivalents - available for corporate use 805.2 781.2
1,687.8 1,502.9
Notes 1 to 20 on pages 38 to 61 form an integral part of these consolidated
financial statements.
Consolidated Interim Statement of Changes in Equity
For the six months ended 30 June 2023
Number of ordinary shares in issue Issued share capital and share premium Shares held by Employee Benefit Trust Cash flow hedge reserve Fair value reserve(1) Foreign exchange translation reserve(1) Other reserves(1) Share-based payment reserve(1) Retained earnings Total equity attributable to shareholders of the Non-controlling interest Total equity
Company
Unaudited m £m £m £m £m £m £m £m £m £m £m £m
Balance at 1 January 2023 176.1 484.6 (0.2) 50.7 (4.3) 60.3 2.5 241.7 9,373.3 10,208.6 128.3 10,336.9
Total comprehensive income for the period
Profit for the period - - - - - - - - 131.0 131.0 (2.9) 128.1
Foreign exchange translation including net investment - - - - - (149.1) - - - (149.1) (0.7) (149.8)
hedges
Effective portion of changes in fair value of cash - - - (141.3) - - - - - (141.3) - (141.3)
flow hedges (Note 6)
Fair value of cash flow hedges transferred to the - - - 126.2 - - - - - 126.2 - 126.2
income statement (Note 6)
Financial assets at FVOCI (Note 6) - - - - 0.4 - - - - 0.4 - 0.4
Tax on foreign exchange hedging (Note 7) - - - - - (17.6) - - - (17.6) - (17.6)
Total comprehensive income for the period - - - (15.1) 0.4 (166.7) - - 131.0 (50.4) (3.6) (54.0)
Transactions with owners of the Company, recognised directly in equity
Shares issued on exercise of employee share options 0.5 3.8 - - - - - - - 3.8 - 3.8
(Note 16)
Put/call fair value adjustment (Note 12) - - - - - - - - (12.1) (12.1) - (12.1)
Liability recognised on put option (Note 12) - - - - - - - - (64.9) (64.9) (10.4) (75.3)
Ordinary shares of the Company acquired by the - - (131.3) - - - - - - (131.3) - (131.3)
Employee Benefit Trust (Note
16)
Equity-settled transactions - expense recorded in the - - - - - - - 74.0 - 74.0 - 74.0
income statement (Note
16)
Tax on share-based payments (Note 16) - - - - - - - - 8.9 8.9 - 8.9
Transfer to retained earnings on exercise of share - - - - - - - (39.3) 39.3 - - -
options and vesting of
share awards
Translation of hyperinflationary results - - - - - - 1.2 - - 1.2 1.4 2.6
Total contributions by and distributions to owners of 0.5 3.8 (131.3) - - - 1.2 34.7 (28.8) (120.4) (9.0) (129.4)
the Company
Balance at 30 June 2023 176.6 488.4 (131.5) 35.6 (3.9) (106.4) 3.7 276.4 9,475.5 10,037.8 115.7 10,153.5
1 Included in other reserves in the Statement of Financial Position.
Notes 1 to 20 on pages 38 to 61 form an integral part of these consolidated
financial statements.
Consolidated Interim Statement of Changes in Equity
For the six months ended 30 June 2022
Number of ordinary shares in issue Issued share capital and share premium Shares held by Employee Benefit Trust Cash flow hedge reserve Fair value reserve(1) Foreign exchange translation reserve(1) Other reserves(1) Share-based payment reserve(1) Retained earnings Total equity attributable to shareholders of the Non-controlling interest Total equity
Company
Unaudited m £m £m £m £m £m £m £m £m £m £m £m
Balance at 1 January 2022 175.6 477.6 (4.0) 22.7 (1.7) (194.2) 2.5 131.7 9,816.3 10,250.9 37.5 10,288.4
Total comprehensive income / (loss) for the period
Profit/(loss) for the period - - - - - - - - (114.3) (114.3) 2.1 (112.2)
Foreign exchange translation including net - - - - - 182.0 - - - 182.0 4.1 186.1
investment hedges
Effective portion of changes in fair value of cash - - - 269.7 - - - - - 269.7 - 269.7
flow hedges
Fair value of cash flow hedges transferred to the - - - (244.2) - - - - - (244.2) - (244.2)
income statement
Financial assets at FVOCI - - - - (2.3) - - - - (2.3) - (2.3)
Tax on foreign exchange hedging - - - - - (4.7) - - - (4.7) - (4.7)
Total comprehensive income / (loss) for the period - - - 25.5 (2.3) 177.3 - - (114.3) 86.2 6.2 92.4
Transactions with owners of the Company, recognised directly in equity
Shares issued on exercise of employee share options 0.2 3.1 - - - - - - - 3.1 - 3.1
(Note 16)
Liability recognised on put option - - - - - - - - (169.8) (169.8) (34.2) (204.0)
Equity-settled transactions - expense recorded in - - - - - - - 50.1 - 50.1 - 50.1
income statement
Tax on share-based payments - - - - - - - - 1.0 1.0 - 1.0
Transfer to retained earnings on exercise of share - - - - - - - (11.7) 11.7 - - -
options and vesting of
share awards
Dividend paid to non-controlling interest (Note 16) - - - - - - - - - - (5.4) (5.4)
Total contributions by and distributions to owners 0.2 3.1 - - - - - 38.4 (157.1) (115.6) (39.6) (155.2)
of the Company
Balance at 30 June 2022 175.8 480.7 (4.0) 48.2 (4.0) (16.9) 2.5 170.1 9,544.9 10,221.5 4.1 10,225.6
1 Included in other reserves in the Statement of Financial Position.
Notes 1 to 20 on pages 38 to 61 form an integral part of these consolidated
financial statements.
Notes to the Condensed Consolidated Financial Statements
1. General information
Flutter Entertainment plc (the "Company") is a company incorporated in the
Republic of Ireland. The Condensed Consolidated Financial Statements of the
Company for the six months ended 30 June 2023 comprise the Company and its
subsidiaries (together referred to as the "Group"). These Condensed
Consolidated Interim Financial Statements are unaudited but have been reviewed
by KPMG, the Group's auditor, whose report is set out on the last page of this
document.
The financial information presented herein does not comprise full statutory
financial statements and therefore does not include all of the information
required for full annual financial statements. Full statutory financial
statements for the year ended 31 December 2022, 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.
These Condensed Consolidated Interim Financial Statements were approved for
issue by the Board of Directors of Flutter Entertainment plc on 8 August
2023.
2. Basis of preparation and accounting policies
The Condensed Consolidated Interim Financial Statements have been prepared in
accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the
Transparency Rules of the Central Bank of Ireland and with IAS 34 'Interim
Financial Reporting' as adopted by the EU.
The Condensed Consolidated Interim Financial Statements are prepared on the
historical cost basis except for derivative financial instruments (which
include betting transactions), equity securities, certain financial assets
which have been designated as FVOCI, contingent deferred consideration and
share-based payments, all of which are stated at fair value (grant date fair
value in the case of equity-settled share-based payments). The Condensed
Consolidated Interim Financial Statements are presented in pounds sterling and
are rounded to the nearest £0.1 million.
Going concern
The Group reported EBITDA of £765.3m (six months ended 30 June 2022:
£434.1m) and a profit after tax of £128.1m for the six months ended 30 June
2023 (six months ended 30 June 2022: a loss of £112.2m). This includes
£551.5m of depreciation and amortisation charged against profit in the period
(six months ended 30 June 2022: £430.7m). The net cash generated from
operating activities during the period ended 30 June 2023 was £71.4m (six
months ended 30 June 2022: £308.2m). The balance sheet at 30 June 2023
reported a net current liability position of £516.1m (31 December 2022:
£416.3m). During the six months ended 30 June 2023, the Group is in
compliance with all covenants related to its lending arrangements.
The Directors have considered the available financial resources which include,
at 30 June 2023, £1,687.8m (31 December 2022: £2,091.1m) of cash and cash
equivalents and a £749m Revolving Credit Facility with undrawn capacity of
£738m. Whilst there are certain loan repayments due within the next 12 months
of £33.1m, the Group's lending facilities primarily fall due in 2025 and 2026
as set out in more detail in Note 14. As a consequence, the Directors believe
that the Group is well placed to manage its business risks successfully. See
'Principal Risks and Uncertainties' in this report for more detail.
The Group's forecasts to the next 12 months indicate that it will continue to
have significant financial resources, continue to settle its debts as they
fall due and operate well within its banking covenants as outlined in Note 14
for at least a period of 12 months from the date of the approval of these
condensed consolidated financial statements. 12 months from the date of the
approval of these condensed consolidated financial statements was selected as
the going concern period as it represents the period in which the Group has
prepared detailed forecasts for a proportion of the period and it also reduces
the degree of judgement and estimation uncertainty involved in both the
forecasts and the downside scenarios.
Various downside scenarios over and above those already included in the base
case model on the potential impact of further reductions to cash flows due to
reduced customer discretionary income, changes in the legal, regulatory and
licencing landscape and the Group's cyber and IT resilience have been
considered in respect of these forecasts. The impact of these items involves
significant judgement and estimation uncertainty.
In the event that it was necessary to draw down additional debt funding, the
Directors have a reasonable expectation that this could be achieved within the
confines of its existing debt facilities and financial covenant requirements.
Having given regard to the above, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
a period of at least 12 months from the date of approval of these financial
statements and therefore they continue to operate the going concern basis in
its financial statements.
Accounting policies
The financial information contained in these Condensed Consolidated Interim
Financial Statements has been prepared in accordance with the accounting
policies set out in the Group's last annual financial statements in respect of
the year ended 31 December 2022 except as set out below.
2. Basis of preparation and accounting policies (continued)
Turkey has met the requirements to be designated as a hyper-inflationary
economy under IAS 29 'Financial Reporting in Hyper-Inflationary Economies' and
that the Group's financial reporting relating to Turkey during the period
ending 30 June 2023 will be in accordance with IAS 29. Under IAS 29, Turkish
Lira results and non-monetary asset and liability balances are revalued to
present value equivalent local currency amounts (adjusted based on an
inflation index) before translation to euros at reporting-date exchange rates.
3. Judgements and estimates
The preparation of interim financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Judgements
In preparing these condensed Consolidated Financial Statements, the
significant judgements in applying the Group's accounting policies and the key
sources of estimation uncertainty were consistent with those that applied to
the Consolidated Financial Statements as at and for the year ended
31 December 2022 and are detailed below:
Valuation of tax assets and liabilities
Whilst we maintain good communication with key tax authorities, given the
global nature of our business and the complex international tax landscape,
there remain areas of tax uncertainty and therefore there is a level of
uncertainty with regards to the measurement of our tax assets and liabilities.
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.
Where uncertain tax treatments exist, the Group assesses whether it is
probable that a tax authority will accept the uncertain tax treatment applied
or proposed to be applied in its tax filings. The Group assesses each
uncertain tax treatment as to whether it should be considered independently or
whether some tax treatments should be considered collectively based on what
the Group believes provides a better estimate of the resolution of the
uncertainty. The Group considers whether it is probable that the relevant
authority will accept each uncertain tax treatment, or group of uncertain tax
treatments, assuming that the taxation authority will have full knowledge of
all relevant information when doing so.
The key areas of judgement are in relation to intercompany transactions,
including internally generated intangible asset transfers, and the recognition
of deferred tax, particularly in respect to the US segment.
Recognition of deferred tax assets requires consideration of the value of
those assets and the likelihood that those assets will be utilised in the
foreseeable future. The recognition relies on the availability of sound and
relatively detailed forecast information regarding the future performance of
the business which has the legal right to utilise the deferred tax assets. The
Group performed its assessment of the recovery of deferred tax assets at
30 June 2023, taking into account the Group's actual and historic
performance, the impact of tax legislation enacted at the reporting date and
the detailed financial forecasts and budgets for the business covering the
periods over which the assets are expected to be utilised. During the six
months ended 30 June 2023, the Group has recognised a deferred tax asset of
£92m in respect of US losses and other temporary timing differences as a
result of taxable profits being forecast during the period and beyond, its
confidence in its forecasts over the remainder of 2023 and the strong
forecasted profits in 2024.
New information may become available that causes the Group to change its
judgement regarding the adequacy of existing tax assets and liabilities; such
changes to tax assets and liabilities will impact the income tax 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 position for all tax assets and liabilities at
30 June 2023 is adequate based on its assessment of the range of factors
outlined above but given the inherent uncertainty, it is possible that
resolution of tax uncertainties may differ from the amounts provided for.
Estimates
Determining the fair value of some assets and liabilities requires estimation
of the effects of uncertain future events on those assets and liabilities at
the end of the reporting period. The following discussion sets forth key
sources of estimation uncertainty at the end of the reporting period that
management believes have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year.
Measurement of the recoverable amounts of cash generating units containing
goodwill, indefinite life licences and intangible assets
The Group reviews the carrying value of goodwill for impairment annually (or
more frequently if there are indications that the value of goodwill may be
impaired) by comparing the carrying values of these cash generating units with
their recoverable amounts (being the higher of value in use and fair value
less costs to sell). The impairment review is performed on a "value-in-use"
basis, which requires estimation of future net operating cash flows, the time
period over which they will occur, an appropriate discount rate and an
appropriate growth rate. Certain of these estimates and assumptions are
subjective in nature.
3. Judgements and estimates (continued)
The Group has reviewed the performance in the first half of 2023 in the
UK&I Online, Retail, International, Australia and US CGUs and based on
this and in conjunction with the headroom that existed at 31 December 2022 is
satisfied that no impairment has arisen during the six months ended 30 June
2023.
4. Operating segments
Reportable business segment information
The Group's four reportable segments are:
• UK & Ireland;
• Australia;
• International; and
• US.
UK & Ireland
The UK & Ireland ("UK&I") segment is comprised of the operations of
Sky Betting & Gaming, Paddy Power, Betfair and from January 2022, tombola
(see Note 10). Revenues are earned primarily from sports betting (sportsbook
and the exchange sports betting product) and gaming services (games, casino,
bingo and poker). Services are provided primarily via the internet but also
through licensed bookmaking shop estates.
Australia
The Australia segment is comprised of the operations of the Sportsbet brand
and earns its revenues from sports betting services provided to Australian
customers primarily online.
International
The International segment is comprised of PokerStars, Betfair International,
Adjarabet, Junglee Games and from August 2022, Sisal. The International
segment earns most of its revenues from poker, casino, rummy, lottery and
sports betting through various brands. Services are provided primarily via the
internet but also through licensed retail outlets mainly in Italy following
the acquisition of Sisal.
US
The US segment is comprised of the FanDuel, TVG, FOX Bet and PokerStars
brands' and earns its revenues from sports betting, daily fantasy sports and
gaming services (casino and poker) provided to customers, using primarily the
internet, with a proportion of US sports betting services also provided
through a small number of retail outlets.
Corporate
Corporate administrative costs (Board, Finance, Legal, Internal Audit, HR,
Property and other central functions) cannot be readily allocated to
individual operating segments and are not used by the CODM for making
operating and resource allocation decisions. These are shown in the
reconciliation of reportable segments to Group totals.
The accounting policies in respect of operating segments reporting are the
same as those described in the basis of preparation and summary of significant
accounting policies set out in the Company's last annual financial statements
in respect of the year ended 31 December 2022.
The Group does not allocate income tax expense or financing income and
expenses to reportable segments. Treasury management is centralised for the
UK&I, Australia, International and US segments.
Assets and liabilities information is reported internally in total and not by
reportable segment and, accordingly, no information is provided in this note
on assets and liabilities split by reportable segment.
Seasonality
The Group's sportsbook revenue is driven by a combination of the timing of
sporting and other events and the Group's results derived from those events.
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
2023:
UK&I Australia International US Corporate Total
£m £m £m £m £m £m
Revenue from external customers 1,242.1 600.9 1,169.0 1,796.6 - 4,808.6
Cost of sales (374.0) (317.2) (417.3) (899.1) - (2,007.6)
Gross profit 868.1 283.7 751.7 897.5 - 2,801.0
Operating costs excluding depreciation and amortisation before separately (472.3) (125.3) (467.3) (848.5) (64.5) (1,977.9)
disclosed items
Adjusted EBITDA(1) before separately disclosed items 395.8 158.4 284.4 49.0 (64.5) 823.1
Depreciation and amortisation before separately disclosed items (58.8) (16.5) (106.9) (53.1) (2.3) (237.6)
Loss on disposal (0.2) - - - - (0.2)
Reportable segment profit/(loss) before separately disclosed items 336.8 141.9 177.5 (4.1) (66.8) 585.3
Amortisation of acquisition-related intangible assets (Note 5) (124.6) (9.3) (171.3) (8.7) - (313.9)
Reportable segment profit/(loss) after amortisation of acquisition-related 212.2 132.6 6.2 (12.8) (66.8) 271.4
intangibles
Transaction fees and associated costs(2) (16.0)
Restructuring and integration costs(2) (41.8)
Operating profit 213.6
Financial income 15.2
Financial expense (146.1)
Profit before tax 82.7
4. Operating segments (continued)
Reportable business segment information for the six months ended 30 June
2022:
UK&I Australia International US Corporate Total
£m £m £m £m £m £m
Revenue from external customers 1,091.8 612.1 633.6 1,050.7 - 3,388.2
Cost of sales (335.0) (289.7) (184.0) (543.9) - (1,352.6)
Gross profit 756.8 322.4 449.6 506.8 - 2,035.6
Operating costs excluding depreciation and amortisation before separately (436.3) (103.1) (327.1) (638.6) (54.2) (1,559.3)
disclosed items
Adjusted EBITDA(1) 320.5 219.3 122.5 (131.8) (54.2) 476.3
Depreciation and amortisation before separately disclosed items (63.4) (13.7) (32.8) (31.8) (2.9) (144.6)
Profit on disposal 0.2 - - 1.2 0.5 1.9
Reportable segment profit/(loss) before separately disclosed items 257.3 205.6 89.7 (162.4) (56.6) 333.6
Amortisation of acquisition-related intangible assets (Note 5) (135.7) (11.4) (130.1) (8.9) - (286.1)
Reportable segment profit/(loss) after amortisation of acquisition-related 121.6 194.2 (40.4) (171.3) (56.6) 47.5
intangibles
Transaction fees and associated costs(2) (9.9)
Restructuring and integration costs(2) (32.3)
Operating profit 5.3
Financial income 0.7
Financial expense (57.4)
Loss before tax (51.4)
1 Adjusted EBITDA which is a non-GAAP measure in the above segment note is
defined as profit for the six months before separately disclosed items,
depreciation, amortisation, impairment, (loss) / gain on disposal, 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 transaction fees and restructuring and
integration costs to reportable segments.
Reconciliation of reportable segment pre Separately disclosed items
information to Group totals:
2023 2022
Before Separately disclosed Total Before Separately disclosed Total
separately disclosed items separately disclosed items
items items
£m £m £m £m £m £m
Gross profit 2,801.0 - 2,801.0 2,035.6 - 2,035.6
Operating costs excluding depreciation, amortisation and (loss)/gain on (1,977.9) (57.8) (2,035.7) (1,559.3) (42.2) (1,601.5)
disposal
EBITDA(1) 823.1 (57.8) 765.3 476.3 (42.2) 434.1
Depreciation and amortisation (237.6) (313.9) (551.5) (144.6) (286.1) (430.7)
(Loss) /gain on disposal (0.2) - (0.2) 1.9 - 1.9
Operating profit 585.3 (371.7) 213.6 333.6 (328.3) 5.3
Net finance costs (130.9) - (130.9) (56.7) - (56.7)
Profit / (loss) before tax 454.4 (371.7) 82.7 276.9 (328.3) (51.4)
Tax credit/(expense) (34.3) 79.7 45.4 (100.3) 39.5 (60.8)
Profit / (loss) for the period 420.1 (292.0) 128.1 176.6 (288.8) (112.2)
1 EBITDA is defined as profit for the six months before depreciation,
amortisation, impairment, (loss)/gain on disposal, 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.
See Note 5 for further detail on separately disclosed items.
4. Operating segments (continued)
Disaggregation of revenue under IFRS 15:
Group revenue disaggregated by product line for the six months ended 30 June
2023:
UK&I Australia International US Total
£m £m £m £m £m
Sports revenue(1) 708.7 600.9 315.4 1,371.1 2,996.1
Gaming revenue(2) 533.4 - 853.6 425.5 1,812.5
Total Group revenue 1,242.1 600.9 1,169.0 1,796.6 4,808.6
Group revenue disaggregated by product line for the six months ended 30 June
2022(:)
UK&I Australia International US Total
£m £m £m £m £m
Sports revenue(1) 629.7 612.1 106.4 770.1 2,118.3
Gaming revenue(2) 462.1 - 527.2 280.6 1,269.9
Total Group revenue 1,091.8 612.1 633.6 1,050.7 3,388.2
1 Sports revenue comprises sportsbook, exchange sports betting, daily fantasy
sports and pari-mutuel betting.
2 Gaming revenue includes Games, Poker, Casino, Lottery, Rummy and Bingo.
Geographical information
Group revenue disaggregated by geographical market for the six months ended
30 June 2023:
UK&I Australia International US Total
£m £m £m £m £m
US - - - 1,761.5 1,761.5
UK 1,085.7 - 28.3 - 1,114.0
Australia - 600.9 - - 600.9
Rest of World(1) 1.9 - 403.5 35.1 440.5
EU (excl. Italy and Ireland)(2) 10.7 - 183.3 - 194.0
Italy 18.2 - 551.2 - 569.4
Ireland 125.6 - 2.7 - 128.3
Total Group revenue 1,242.1 600.9 1,169.0 1,796.6 4,808.6
1 The Rest of World category includes multiple countries, that individually
represent less than 2% of total Group revenue.
2 The EU (excl. Italy and Ireland) category includes multiple countries,
that individually represent less than 2% of total Group revenue.
Group revenue disaggregated by geographical market for the six months ended
30 June 2022:
UK&I Australia International US Total
£m £m £m £m £m
US - - - 1,054.4 1,054.4
UK 952.5 - 31.5 - 984.0
Australia - 612.1 - - 612.1
Rest of World(1) 1.6 - 318.5 (3.7) 316.4
EU (excl. Italy and Ireland)(2) 9.1 - 185.0 - 194.1
Italy 12.9 - 96.1 - 109.0
Ireland 115.7 - 2.5 - 118.2
Total Group revenue 1,091.8 612.1 633.6 1,050.7 3,388.2
1 The Rest of World category includes multiple countries that individually
represent less than 2% of total Group revenue.
2 The EU (excl. Italy and Ireland) category includes multiple countries that
individually represent less than 4% of total Group revenue.
Revenues are attributable to geographical location on the basis of the
customers location.
5. Separately disclosed items
The separately disclosed items noted in Note 4 are comprised as follows:
2023 2022
£m £m
Transaction fees and associated costs (16.0) (9.9)
Restructuring and integration costs (41.8) (32.3)
EBITDA impact of separately disclosed items (57.8) (42.2)
Amortisation of acquisition-related intangible assets (313.9) (286.1)
Loss before tax impact of separately disclosed items (371.7) (328.3)
Tax credit on separately disclosed items 79.7 39.5
Total separately disclosed items (292.0) (288.8)
Attributable to:
Equity holders of the Company (290.6) (286.0)
Non-controlling interest (1.4) (2.8)
(292.0) (288.8)
Amortisation of acquisition-related intangible assets
Amortisation of £313.9m has been incurred in the period (six months ended
30 June 2022: £286.1m) as a result of intangible assets separately
identified under IFRS 3 as a result of the merger with Betfair in 2016, the
acquisitions of FanDuel Limited in 2018 and Adjarabet in 2019, the Combination
with TSG in 2020, the acquisitions of Junglee and Singular in 2021 and the
acquisitions of tombola and Sisal in 2022.
Transaction fees and associated costs
During the six months ended 30 June 2023, £16.0m (six months ended 30 June
2022: £9.9m) of costs were incurred relating mainly to the proposed US
listing. The costs were included as separately disclosed items as they have
not been incurred in the ordinary course of business.
Restructuring and integration costs
During the six months ended 30 June 2023 costs of £41.8m (six months ended
30 June 2022: £32.3m) relating to incremental, one-off costs, were incurred
by the Group mainly as a result of technology-driven efficiency projects and
Sisal integration costs.
Presentation within the Consolidated Income Statement
Transaction fees and associated costs and restructuring and integration costs
are included in the Consolidated Income Statement within operating costs
excluding depreciation, amortisation, and loss/(gain) on disposal.
Tax credit on separately disclosed items
The tax credit of £79.7m (six months ended 30 June 2022: £39.5m) has arisen
primarily on the tax effect of acquisition related intangible amortisation of
£54.6m and the tax effect of other separately identified items of £25.1m.
6. Financial income and expense
Recognised in profit or loss
2023 2022
£m £m
Financial income:
Foreign exchange gain on financing instruments associated with financing 0.6 -
activities
Movement in fair value of investment 0.1 -
On financial assets at amortised cost:
Interest income 14.5 0.7
Total 15.2 0.7
Financial expense:
Foreign exchange loss on financing instruments associated with financing - 0.2
activities
On financial liabilities at amortised cost:
Interest on borrowings, bank guarantees and bank facilities 128.0 43.2
Interest on lease liabilities 7.6 4.7
Other interest 10.5 9.3
Total 146.1 57.4
Recognised in other comprehensive income/(loss):
2023 2022
£m £m
Recognised in other comprehensive income/(loss):
Effective portion of changes in fair value of cash flow hedges (141.3) 269.7
Fair value of cash flow hedges transferred to income statement 126.2 (244.2)
Net change in fair value of cash flow hedge reserve (15.1) 25.5
Debt instruments at FVOCI 0.4 (2.3)
Foreign exchange gain/(loss) on net investment hedges, net of tax 19.9 (41.0)
Foreign exchange (loss)/gain on translation of the net assets of foreign (187.3) 222.4
currency denominated entities
Total (182.1) 204.6
A gain of £1.1m was recorded in financial income/expense in the income
statement in respect of ineffective cash flow hedges in the six months ended
30 June 2023 (six months ended 30 June 2022: charge of £1.0m).
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 7.6% (six months ended 30 June 2022: 36.2%), which compares to
the standard Irish tax rate of 12.5%. %. This is primarily driven by the
changing mix of taxable earnings across geographies and the recognition of a
full deferred tax asset for the tax losses and other temporary differences of
the US as at year-end. This deferred tax asset has been recognised on the
basis that its US business has significant positive evidence that it will make
profits in the future against which the losses and other temporary differences
can be used. This has been reflected in calculating the expected annual
effective tax rate and will be apportioned between the interim periods. A tax
credit on separately disclosed items amounting to £79.7m was recorded during
the six months ended 30 June 2023 (six months ended 30 June 2022: credit of
£39.5m) (see Note 5).
The future effective tax rate of the Group will be affected by the ongoing
geographic mix of profits in accordance with the OECD guidelines in relation
to Base Erosion and Profit Shifting. On 15 December 2022, European Union (EU)
Member States unanimously adopted the Minimum Tax Directive via written
procedure ensuring a global minimum level of taxation (set at 15%) for
multinational enterprise groups. GLoBE Model rules were released in March 2022
and broadly EU Member States have until 31 December 2023 to transpose the
Directive into national legislation with the rules to be applicable for fiscal
years starting on or after 31 December 2023.
7. Tax expense (continued)
None of the countries in which the Group operates has enacted or substantively
enacted Pillar Two Model Rules as part of their national laws as of 30 June
2023. Whilst consultation on a number of areas remains ongoing, we will
continue to monitor developments closely and we expect this to lead to an
increase in tax from 2024 onwards.
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:
2023 2022
Numerator in respect of basic and diluted earnings per share (£m):
Profit/(loss) attributable to equity holders of the Company 131.0 (114.3)
Numerator in respect of adjusted earnings per share (£m):
Profit/(loss) attributable to equity holders of the Company 131.0 (114.3)
Separately disclosed items (Note 5) 290.6 286.0
Profit for adjusted earnings per share calculation 421.6 171.7
Weighted average number of ordinary shares in issue during the period (in 177,502 176,658
'000s)(1)
Basic earnings per share £0.738 (£0.647)
Adjusted basic earnings per share £2.375 £0.972
Adjustments to derive denominator in respect of diluted earnings per share (in
'000s):
Weighted average number of ordinary shares in issue during the period 177,502 176,658
Dilutive effect of share options and awards on issue 2,372 -
Adjusted weighted average number of ordinary shares in issue during the 179,874 176,658
period(1)
Diluted earnings per share £0.728 (£0.647)
Adjusted diluted earnings per share £2.344 £0.972
1 Where any potential ordinary shares would have the effect of decreasing a
loss per share, they have not been treated as dilutive. The number of options
excluded from the diluted weighted average number of ordinary shares
calculation due to their effect being anti-dilutive is 180,097 (2022:
2,187,856).
The average market value of the Company's shares of £143.83 (30 June 2022:
£94.53) was used to calculate the dilutive effect of share options based on
the market value for the period that the options were outstanding.
9. Goodwill
Goodwill acquired through business combination activity has been allocated to
CGUs that are expected to benefit from synergies in that combination. The CGUs
represent the lowest level within the Group at which the associated goodwill
is monitored for internal management purposes, and are not larger than the
operating segments determined in accordance with IFRS 8. A total of 16 (2022:
16) CGUs have been identified and these are grouped together for goodwill
impairment purposes as per the below. Any indefinite life intangible assets
attributed to one of the 16 CGUs (2022: 16) is tested for impairment at the
CGU level.
Number of cash generating units Goodwill
30 June 2023 31 December 2022 30 June 2023 31 December 2022
UK&I Online 4 4 5,984.5 5,984.7
UK Retail 1 1 18.9 18.9
Irish Retail 1 1 20.7 20.7
International 6 6 3,576.1 3,696.3
Australia 1 1 471.2 505.1
US 3 3 606.0 634.3
Total Group 16 16 10,677.4 10,860.0
UK&I Online UK Retail Irish Retail International Australia US Total
£m £m £m £m £m £m £m
Balance at 1 January 2022 5,766.9 18.9 20.7 2,490.3 482.4 567.6 9,346.8
Arising on acquisitions during the year (Note 10) 217.2 - - 1,021.9 - - 1,239.1
Foreign currency translation adjustment 0.6 - - 184.1 22.7 66.7 274.1
Balance at 1 January 2023 5,984.7 18.9 20.7 3,696.3 505.1 634.3 10,860.0
Adjustments to provisional purchase price accounting (Note 10) - - - (26.3) - - (26.3)
Foreign currency translation adjustment (0.2) - - (93.9) (33.9) (28.3) (156.3)
Balance at 30 June 2023 5,984.5 18.9 20.7 3,576.1 471.2 606.0 10,677.4
The Group reviews the carrying value of goodwill for impairment annually (or
more frequently if there are indications that the value of goodwill may be
impaired) by comparing the carrying values of these CGUs with their
recoverable amounts (being the higher of value in use and fair value less
costs to sell).
The Group has reviewed the performance in the first half of 2023 in the
UK&I Online, Retail, International, Australia and US CGUs and based on
this and in conjunction with the headroom that existed at 31 December 2022 is
satisfied that no impairment has arisen during the six months ended 30 June
2023.
10. Business combinations
Six months ended 30 June 2023
There have been no acquisitions during the period.
Finalisation of Sisal acquisition accounting
On 4 August 2022, the Group completed the acquisition of 100% of Sisal,
Italy's leading retail and online gaming operator with operations also in
Turkey (of which it has a controlling 49% interest) and Morocco. The purchase
comprised of a cash payment of £1,674.8m (€2,002m). As at 31 December
2022, the acquisition accounting for this acquisition was provisional. During
the six months ended 30 June 2023, the Group finalised the acquisition
accounting for Sisal which resulted in the following adjustments to the
provisional amounts recognised.
Provisional Fair values as at Adjustments to provisional acquisition accounting Final Fair values as at
4 August 2022 4 August 2022 4 August 2022
£m £m £m
Assets
Property, plant and equipment 156.0 9.5 165.5
Trade and other receivables 9.7 - 9.7
Deferred tax assets 16.2 (2.5) 13.7
Intangible assets 1,057.8 - 1,057.8
Total non-current assets 1,239.7 7.0 1,246.7
Trade and other receivables 67.3 3.9 71.2
Cash and cash equivalents - available for corporate use 89.9 - 89.9
Cash and cash equivalents - customer balances 304.2 - 304.2
Total current assets 461.4 3.9 465.3
Total assets 1,701.1 10.9 1,712.0
Liabilities
Trade and other payables 195.6 - 195.6
Customer balances 304.2 - 304.2
Lease liability 16.7 - 16.7
Total current liabilities 516.5 - 516.5
Trade and other payables 24.0 - 24.0
Lease liability 45.2 - 45.2
Provisions 39.8 (15.4) 24.4
Deferred tax liability 291.1 - 291.1
Total non-current liabilities 400.1 (15.4) 384.7
Total liabilities 916.6 (15.4) 901.2
Net assets acquired 784.5 26.3 810.8
Goodwill 1,015.8 (26.3) 989.5
Non-controlling interest measured at the fair value of net assets identified (125.5) - (125.5)
Consideration 1,674.8 - 1,674.8
These adjustments arose as a result of new information that was obtained
relating to conditions that existed at the acquisition date primarily related
to provisions and the fair value finalisation of property, plant and equipment
acquired which increased the net assets acquired by £26.3m and reduced
goodwill by £26.3m.
10. Business combinations (continued)
Six months ended 30 June 2022
Acquisition of tombola
On 10 January 2022, the Group completed the acquisition of a 100% stake in
tombola, the UK market's leading online bingo operator. tombola is a
successful bingo-led gaming company with an emphasis on providing a low
staking bingo proposition to a highly engaged customer base. The purchase
comprised of a cash payment of £409.9m. Details of the fair value of
identifiable assets and liabilities acquired, purchase consideration and
goodwill are as follows:
Fair values as at
10 January 2022
£m
Assets
Property, plant and equipment
11.4
Intangible assets
245.0
Total non-current assets
256.4
Trade and other receivables
12.6
Cash and cash equivalents - available for corporate use
14.7
Total current assets
27.3
Total assets
283.7
Liabilities
Trade and other payables
29.7
Total current liabilities
29.7
Deferred tax liabilities
61.3
Total non-current liabilities
61.3
Total liabilities
91.0
Net assets acquired
192.7
Goodwill
217.2
Consideration
409.9
The consideration is analysed as:
Consideration satisfied by cash
409.9
Consideration
409.9
Included within the intangible assets were £245.0m of separately identifiable
intangibles comprising brand, customer relations and technology acquired as
part of the acquisition, with the additional effect of a deferred tax
liability of £61.3m thereon. These intangible assets are being amortised over
their useful economic lives of up to 20 years. The book value equated to the
fair value on the remaining assets 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) are the expansion of the Group's position in
online bingo and the sharing of product capabilities, expertise and technology
across the UK&I Online division. The goodwill has been allocated to the
existing UK&I Online CGU.
10. Business combinations (continued)
Cash (outflows) / inflows from business combinations:
30 June 2023 30 June 2022
£m £m
Cash consideration paid for acquisitions in the period - (409.9)
Cash and cash equivalents - available for corporate use acquired from - 14.7
acquisitions in the period
Cash consideration - acquisitions in previous periods - (15.3)
As presented in the statement of cash flows:
Purchase of businesses net of cash acquired - (395.2)
Payment of contingent deferred consideration - (15.3)
During 2022, the Group settled in cash, deferred consideration liabilities of
£15.3m in relation to Betfair's historical acquisition of HRTV, a horseracing
television network based in the US. No further payments are due in respect of
this acquisition.
11. Investments and trade and other receivables
Non-current assets
30 June 2023 31 December 2022
£m £m
Investments - FVTPL 9.1 9.2
Investments relate to a small number of individually immaterial equity
investments in various companies.
30 June 2023 31 December 2022
£m £m
Other receivables
Other receivables 45.8 21.4
Prepayments 10.4 12.6
Deferred financing costs (see Note 14) 4.7 4.5
Total 60.9 38.5
Other receivables
Other receivables are comprised primarily of tax advances, deposits for
licences and property as well as VAT and other refunds due.
Deferred financing costs on Revolving Credit Facility
In May 2020, the Group entered into a new Revolving Credit Facility agreement
as part of its financing agreements. The Group incurred £5.3m of initial
transaction costs and fees relating to the Revolving Credit Facility with an
additional £3.7m capitalised following the increase of the facility in
September 2022, which have been capitalised and included within non-current
receivables. The balance at 30 June 2023, net of accretion, was £4.7m (2022:
£4.5m). These fees are charged as financial expenses over the term of
Revolving Credit Facility agreement. As at 30 June 2023, nothing was drawn
under the Revolving Credit Facility (31 December 2022: £63.0m).
Current assets
30 June 2023 31 December 2022
£m £m
Trade and other receivables
Trade receivables 44.3 95.4
Other receivables 51.8 73.4
Value-added tax and goods and services tax 30.9 7.5
Prepayments 182.1 168.7
Total 309.1 345.0
12. Trade and other payables
Current liabilities
30 June 2023 31 December 2022
£m £m
Trade and other payables
Trade payables 196.0 204.4
PAYE and social security 32.8 36.8
Value-added tax, goods and services tax, betting duties, data rights, and 287.1 352.9
product and racefield fees
Employee benefits 158.2 181.4
Deferred consideration - business combinations 75.0 -
Accruals and other liabilities 695.4 757.6
Total 1,444.5 1,533.1
Non-current liabilities
30 June 2023 31 December 2022
£m £m
Trade and other payables
Employee benefits 5.8 6.2
Contingent deferred consideration - business combinations 15.5 17.8
Put/call liability for acquisition 24.3 12.3
Accruals and other payables 15.2 14.5
Total 60.8 50.8
Deferred consideration - business combinations
In July 2023, the Group completed the acquisition of a further 32.5%
outstanding shares of Junglee for a cash payment of £75m. This liability has
been recorded as a current liability as at 30 June 2023. This acquisition
brings the Group's holding in Junglee to 84.8% up from the previous
controlling interest of 52.3%.
As outlined in previous financial statements, as part of the acquisition of
Junglee in 2021, a mechanism was agreed, consisting of call and put options,
that could see its ownership in the business further increase in 2025. The
call/put option consideration can be settled, at the Group's election, in cash
or shares. As a consequence of both the put and call options being only
exercisable at fair value being the future EBITDA and revenue multiple which
are considered to be two key inputs into valuing the option, it was determined
that the fair value was not material and was close to nominal value.
Contingent deferred consideration - business combinations
The Group's contingent deferred consideration liability at 30 June 2023
amounted to £15.5m (31 December 2022: £17.8m) relates to the acquisition of
Singular in 2021.
Put/call liability
As part of the acquisition of Sachiko in 2022, the Group has put in place
arrangements, consisting of call and put options, that could result in it
acquiring the 5% of Junglee held by the former shareholders of Sachiko in 2027
and 2032 based on the future Revenue and EBITDA performance of Junglee. As the
Group cannot avoid settling the options in cash, a liability of £24.3m has
been recorded at 30 June 2023 (31 December 2022: £12.3m) driven by the
remeasurement of the present value of the amount payable upon exercise of the
option.
Amounts held in Trust
As at 30 June 2023, £352.4m (31 December 2022: £366.2m) 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. Provisions
Provisions balances at 30 June 2023 and 31 December 2022 and movements
during the six months ended 30 June 2023 are outlined below:
Employee benefits (long service leave) Onerous contracts Gaming tax Other legal Other Total
£m £m £m £m £m £m
Balance at 31 December 2022 4.0 9.4 22.6 70.0 8.2 114.2
Additional provisions recognised 0.7 0.8 2.4 5.2 0.8 9.9
Amounts used during the year (0.3) (3.5) (2.0) (3.7) (5.5) (15.0)
Purchase price accounting adjustment (see Note 10) - - - (15.4) - (15.4)
Unused amounts reversed (0.1) - 1.0 (6.3) - (5.4)
Foreign currency translation (0.2) (0.3) (0.6) (1.7) - (2.8)
Balance at 30 June 2023 4.1 6.4 23.4 48.1 3.5 85.5
Presented in:
Balance at 31 December 2022:
Current 2.9 4.8 18.3 14.5 6.2 46.7
Non-current 1.1 4.6 4.3 55.5 2.0 67.5
Total 4.0 9.4 22.6 70.0 8.2 114.2
Balance at 30 June 2023:
Current 3.0 2.5 16.9 17.2 1.5 41.1
Non-current 1.1 3.9 6.5 30.9 2.0 44.4
Total 4.1 6.4 23.4 48.1 3.5 85.5
Employee benefits (long service leave)
The timing and amount of long service leave cash outflows are primarily
dependent on when staff employed at the reporting date avail of their
entitlement to leave and their expected salaries at that time. As of 30 June
2023 and 31 December 2022, it was expected that cash outflows would occur
primarily within the following five years.
Onerous contracts
The onerous contracts provision at 30 June 2023 relates to various marketing
and minimum guarantee contracts where the cost of fulfilling these contracts
exceeds the expected economic benefits to be received from them.
Gaming tax
These are gaming tax provisions relating to amounts provided for taxes in
certain jurisdictions where the interpretation of tax legislation is
uncertain. When the Group disagrees with the application of unclear tax
legislation, for example when it is applied retrospectively and / or results
in a one-off disproportionate tax equivalent to many times the profit derived
by the Group from its historic activities in that jurisdiction, the Group
continues to challenge these interpretations.
Whilst the maximum potential obligation for all ongoing cases could be greater
than the recognised provision, and the outcomes may not be known for some
time, a liability has been recorded for the Directors' best estimate of the
cash outflows that will ultimately be required in respect of each claim.
Management has not provided a sensitivity for this provision as the range is
not considered to be material.
Other legal
Other legal provisions generally consist of payments for various future legal
settlements where, based on all available information, management believes it
is probable that there will be a future outflow.
These provisions comprise a number of different legal cases, the majority of
which are immaterial. The most significant relates to the foreign payments
contingent liabilities outlined in more detail in Note 18. Further disclosure
in respect of these provisions has not been provided as such information would
be expected to be prejudicial to the Group's position in such matters.
Whilst the maximum potential obligation for all ongoing cases could be greater
than the recognised provision, and the outcomes may not be known for some
time, a liability has been recorded for the Directors' best estimate of the
cash outflows that will ultimately be required in respect of each claim.
Management has not provided a sensitivity for this provision as the range is
not considered to be material.
Other
Other provisions primarily comprise a number of different regulatory
provisions.
14. Borrowings
The following is a summary of borrowings, including accrued interest,
outstanding as at 30 June 2023 and 31 December 2022:
30 June 2023 31 December 2022
Contractual interest rate(1) Principal outstanding balance in currency of borrowing Carrying amount (including accrued interest)(2) Principal outstanding balance in currency of borrowing Carrying amount (including accrued interest)
% Local currency (m) £m Local currency (m) £m
GBP First Lien Term Loan A 2025 6.23 £1,017.9 1,013.2 £1,017.9 1,012.0
EUR First Lien Term Loan A 2026 5.96 €549.5 472.7 €549.5 486.9
USD First Lien Term Loan A 2026 7.08 $200.0 157.9 $200.0 165.3
USD First Lien Term Loan B 2026 2.76 $2,887.0 2,261.0 $2,901.7 2,375.7
USD First Lien Term Loan B 2028 6.67 $1,240.6 979.6 $1,246.9 1,030.5
EUR First Lien Term Loan B 2026 5.52 €507.2 431.6 €507.2 443.9
GBP Revolving Credit Facility 2025 6.23 £- - £63.0 63.2
Total borrowings 5,316.0 5,577.5
Presented in:
Current portion 33.1 35.6
Non-current portion 5,282.9 5,541.9
Total borrowings 5,316.0 5,577.5
1 The rates include the impact of the contractual Swap Agreements (as defined
below).
2 The carrying amounts at 30 June 2023 include accrued interest of £nil
(31 December 2022: £1.1m) presented within the current portion of borrowings
above.
During the six months ended 30 June 2023, the Group incurred the following
interest on its then outstanding borrowings:
Effective interest rate(1) Interest accretion Interest (2) Total Interest (2)
% £m £m £m
GBP First Lien Term Loan A 2025 6.70 1.5 29.2 30.7
EUR First Lien Term Loan A 2026 6.20 - 12.9 12.9
USD First Lien Term Loan A 2026 7.30 - 6.3 6.3
USD First Lien Term Loan B 2026 3.10 2.8 27.8 30.6
USD First Lien Term Loan B 2028 6.90 - 39.1 39.1
EUR First Lien Term Loan B 2026 6.10 0.7 11.4 12.1
GBP Revolving Credit Facility 2025 6.20 - 1.3 1.3
Total 5.0 128.0 133.0
1 The effective interest rate calculation includes the impact of the Swap
Agreements (as defined below).
2 Interest shown includes the impact of the Swap Agreements and is the cash
cost. In addition to the amount included above, the Group incurred £2.0m of
interest expense relating to commitment, utilisation, and fronting fees
associated with its Revolving Credit Facility.
The Group's change in borrowings during the six months ended 30 June 2023
was as follows:
Balance at 1 Jan 2023 New debt Principal payments Interest accretion(1) FX translation Balance at 30 June 2023
£m £m £m £m £m £m
GBP First Lien Term Loan A 2025 1,011.7 - - 1.5 - 1,013.2
EUR First Lien Term Loan A 2026 486.8 - - - (14.1) 472.7
USD First Lien Term Loan A 2026 165.2 - - - (7.3) 157.9
USD First Lien Term Loan B 2026 2,375.3 - (11.8) 2.8 (105.3) 2,261.0
USD First Lien Term Loan B 2028 1,030.3 - (5.0) - (45.7) 979.6
EUR First Lien Term Loan B 2026 444.1 - - 0.7 (13.2) 431.6
GBP Revolving Credit Facility 2025 63.0 501.0 (564.0) - - -
Total 5,576.4 501.0 (580.8) 5.0 (185.6) 5,316.0
Accrued interest 1.1 -
Total borrowings 5,577.5 5,316.0
1 Interest accretion represents interest expense calculated at the effective
interest rate less interest expense calculated at the contractual interest
rate and is recorded in financial expenses in the consolidated income
statement.
14. Borrowings (continued)
Revolving Credit Facility and First Lien Term Loans
Each of the Group's facilities are discussed below.
TLA Agreement - GBP First Lien Term Loan A
In May 2020, certain members of the Group entered into a Term Loan A and
Revolving Credit Facility Agreement (the "TLA Agreement") comprising a term
loan and revolving credit facility totalling £1.4bn. In December 2021, an
additional lender was added to the facility increasing the overall TLA
Agreement by £100m bringing the total to £1.5bn. From this £100m, the Group
received £68m cash drawings from the TLA with the remaining £32m becoming
available as incremental Revolving Credit Facility. In 2022, we entered into
the Third Amendment of the TLA Agreement which enabled the drawdown of
€549.5m and $200.0m during the year. The TLA Agreement described above now
provides a term loan facility in an aggregate amount of:
• £1,017.9m (2022: £1,017.9m) priced at SONIA plus 0.0326% CSA
plus a margin of 1.75% (the "GBP First Lien Term Loan A"), with a maturity
date of 5 May 2025 and a SONIA floor of 0%;
• €549.5m (2022: €549.5m) priced at 1M EURIBOR plus 2.75% and
a EURIBOR floor of 0% (the "EUR First Lien Term Loan A") with a maturity date
of 31 July 2026; and
• $200.0m (2022: $200.0m) priced at Daily Compound SOFR plus
0.2616% CSA plus a margin of 2.75% (the "USD First Lien Term Loan A") with a
maturity date of 31 July 2026.
There is no amortisation on the GBP, EUR and USD First Lien Term Loan A and
the principals are due at maturity. The Group incurred £11.9m of initial
transaction costs and fees on drawdown which have been capitalised against the
principal of the debt in 2020 and are recorded as financial expense over the
term of the debt using the effective interest rate method.
TLA Agreement - Revolving Credit Facility
The TLA Agreement described above provides a multi-currency revolving credit
facility in an aggregate amount of £748.8m (2022: £748.8m) (the "Revolving
Credit Facility"). Maturing on 5 May 2025, the Revolving Credit Facility
includes a margin of 1.75% over SONIA 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. During the period ending 30 June 2023 the Group drew down
£501.0m of this facility and repaid £564.0m leaving an outstanding principal
amount of £0m (2022: £63.0m). The Group has an undrawn capacity of £738m
(2022: £675m) on the Revolving Credit Facility with £11m (2022: £11m) of
capacity reserved for the issuance of Group guarantees as of 30 June 2023.
The terms of the TLA Agreement limit the Group's ability to, among other
things: (i) incur additional debt (ii) grant additional liens on their assets
and equity (iii) distribute equity interests and/or distribute any assets to
third parties (iv) make certain loans or investments (including acquisitions)
(v) consolidate, merge, sell or otherwise dispose of all or substantially all
assets (vi) pay dividends on or make distributions in respect of capital stock
or make restricted payments, and (vii) modify the terms of certain debt or
organisational documents, in each case subject to certain permitted
exceptions. The TLA Agreement requires, subject to a testing threshold, that
the Company comply on a bi-annual basis with a maximum net total leverage
ratio of 5.1 to 1.0. During the six months ended 30 June 2023, the Group is
in compliance with all covenants related to its First Lien Term Loan A.
First Lien Term Loan B's
The Group's First Lien Term Loan B has three separate tranches outstanding as
follows:
• USD first lien term loan with an outstanding principal balance
of $2,887.0m (2022: $2,901.7m) priced at 3M SOFR plus CSA plus 2.25% (2022:
2.25%) (the "USD First Lien Term Loan B") with a maturity date of 21 July
2026, and a SOFR floor, as applicable, of 0%;
• USD first lien term loan with an outstanding principal balance
of $1,240.6m (2022: $1,246.9m) priced at 3M Term SOFR plus CSA plus 3.25%
(2022: 3.25%) margin with a 0.5% SOFR floor (the "the USD First Lien Term Loan
B 2") with a maturity date of 22 July 2028; and
• EURO first lien term loan with an outstanding principal balance
of €507.2m (2022: €507.2m) priced at EURIBOR plus 2.5% (2022: 2.5%) (the
"EUR First Lien Term Loan B") with a maturity date of 21 July 2026 and EURIBOR
floor, as applicable, of 0%.
The two USD First Lien Term Loan B tranches requires scheduled quarterly
principal payments in amounts equal to 0.25% of the combined initial aggregate
principal amount of the USD First Lien Term Loan B of $4,188m (2022: $4,188m),
with the balance due at maturity of each tranche. There is no amortisation on
the EUR First Lien Term Loan B and the principal is due at maturity.
14. Borrowings (continued)
The three tranches of First Lien Term Loan B are governed by the "Syndicated
Facility Agreement". The Syndicated Facility Agreement limits Stars Group
Holdings B.V. and Flutter Financing B.V, as borrowers, and its subsidiaries'
ability to, among other things, (i) incur additional debt (ii) grant
additional liens on their assets and equity (iii) distribute equity interests
and/or distribute any assets to third parties (iv) make certain loans or
investments (including acquisitions), (v) consolidate, merge, sell or
otherwise dispose of all or substantially all assets (vi) pay dividends on or
make distributions in respect of capital stock or make restricted payments
(vii) enter into certain transactions with affiliates (viii) change lines of
business and (ix) modify the terms of certain debt or organisational
documents, in each case subject to certain permitted exceptions. The agreement
also provides for customary mandatory prepayments, including a customary
excess cash flow sweep if certain conditions are met. During the six months
ended 30 June 2023, the Group is in compliance with all covenants related to
its First Lien Term Loan B's.
Reconciliation to Statement of Cash Flows:
Reconciliation of movements in borrowings to the Statement of Cash Flows:
2023 2022
£m £m
Financing activities:
Proceeds from borrowings 501.0 275.0
Repayment of borrowings (580.8) (96.6)
Interest paid (129.3) (46.8)
15. Derivatives
Derivatives and hedge accounting
The Group uses derivative financial instruments for risk management and risk
mitigation purposes. As such, any change in cash flows associated with
derivative instruments are expected to be offset by changes in cash flows
related to the hedged item. The Group's derivatives are discussed below.
Swap agreements
The Group has executed cross-currency and interest rate swaps to better match
the currency mix of the Group's EBITDA and risk profile. On 7 June 2023 the
Group terminated a portion of the existing USD First Lien Term Loan B
cross-currency interest rate swaps due for maturity in July 2023 as part of a
restructuring of the Group's hedging arrangements receiving cash of £170.2m
on termination. In combination with the already existing hedging arrangements,
the Group entered new cross-currency interest rate swap agreements and new
interest rate swap agreements to align to the risk management strategy.
In combination, these hedging instruments comprise of:
(i) USD-EUR amortising cross-currency interest rate swap agreements (the "EUR
Cross-Currency Interest Rate Swaps") with an outstanding notional amount of
€859m (£739m) (31 December 2022: €2,009m (£1,780m)), which fix the USD
to EUR exchange rate at 1.025 (2022: 1.127) and fix the euro interest payments
at an average interest rate of 5.51% (31 December 2022: 2.92%) on portions of
the USD First Lien Term Loan B's 2026 and 2028;
(ii) USD-GBP amortising cross-currency interest rate swap agreements (the "GBP
Cross-Currency Interest Rate Swaps") with a remaining notional amount of
£739m (31 December 2022: £1,689m), which fix the USD to GBP exchange rate
at 1.167 (2022: 1.234) and fix the GBP interest payments at an average
interest rate of 7.54% (31 December 2022: 5.63%) on portions of the USD First
Lien Term Loan B's 2026 and 2028, and entire USD First Lien Term Loan A 2026;
and
(iii) Interest rate swap agreements with a notional amount of $1,100m (£946m)
(2022: nil) that fix the USD interest payments at an average interest rate of
4.48%. (31 December 2022: nil) on a portion of the USD First Lien Term Loan B
2026.
The swaps outlined above are in hedging relationships with and have a profile
that amortises in line with the USD First Lien Term Loan B's. The swaps mature
in September 2024 and June 2025.
Sports betting open positions
Amounts received from customers on sportsbook events that have not occurred by
the balance sheet date are derivative financial instruments and have been
recognised by the Group on initial recognition as financial liabilities at
fair value through profit or loss.
The fair value of open sports bets at 30 June 2023 and 31 December 2022 has
been calculated using the latest available prices on relevant sporting events.
The carrying amount of the liabilities is not significantly different from the
amount that the Group is expected to pay out at maturity of the financial
instruments. Sports bets are non-interest bearing. There is no interest rate
or credit risk associated with open sports bets.
It is primarily based on expectations as to the results of sporting and other
events on which bets are placed. Changes in those expectations and ultimately
the actual results when the events occur will result in changes in fair value.
There are no reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology, although final value
will be determined by future sporting results.
15. Derivatives (continued)
The following table summarises the fair value of derivatives as at 30 June
2023 and 31 December 2022:
30 June 2023 31 December 2022
Assets Liabilities Assets Liabilities
£m £m £m £m
Derivatives held for hedging
Derivatives designated as cash flow hedges:
Cross-currency interest rate swaps - current - - 275.1 -
Cross-currency interest rate swaps - non-current - (95.7) - (61.0)
Interest rate swaps - non-current 5.7 - - -
Total derivatives designated as cash flow hedges 5.7 (95.7) 275.1 (61.0)
Derivatives designated as net investment hedges:
Cross-currency interest rate swaps - current - - 4.5 (37.1)
Cross-currency interest rate swaps - non-current - (4.9) - (12.2)
Total derivatives designated as net investment hedges - (4.9) 4.5 (49.3)
Total derivatives held for hedging 5.7 (100.6) 279.6 (110.3)
Derivatives held for risk management and other purposes not designated as
hedges
Sports betting open positions - current - (66.4) - (107.6)
Sports betting open positions - non-current - (0.7) - (0.5)
Total derivatives held for risk management and other purposes not designated - (67.1) - (108.1)
as hedges
16. Share capital and reserves
Share capital
The total authorised share capital of the Company comprises 300,000,000
ordinary shares of €0.09 each (2022: 300,000,000 ordinary shares of €0.09
each). All issued share capital is fully paid. The holders of ordinary
shares are entitled to vote at general meetings of the Company on a one vote
per share held basis. Ordinary shareholders are also entitled to receive
dividends as may be declared by the Company from time to time.
Transactions during the six months ended 30 June 2023:
• A total of 463,516 ordinary shares were issued as a result of
the exercise of employee share options, giving rise to share capital and share
premium of £3.8m;
Transactions during the six months ended 30 June 2022:
• A total of 192,342 ordinary shares were issued as a result of
the exercise of employee share options, giving rise to share capital and share
premium of £3.1m;
Equity reserves at 30 June 2023 and at 31 December 2022 include the
following classes of reserves:
Shares held by Employee Benefit Trust
At 30 June 2023, the Paddy Power Betfair plc Employee Benefit Trust ("EBT")
held 826,796 (31 December 2022: 1,396) of the Company's own shares, which
were acquired at a total cumulative cost of £131.5m (31 December 2022:
£0.2m) in respect of potential future awards relating to the Group's employee
share plans. The Company's distributable reserves at 30 June 2023 are
restricted by this cost amount. 825,400 shares were purchased at a cost of
£131.3m during the six months ended 30 June 2023 (31 December 2022: 23,775
shares at a cost of £2.8m). During the six months ended 30 June 2023, no
shares were transferred from the EBT to the beneficiaries of the EBT (year
ended 31 December 2022: 55,537 shares with an original cost of £6.6m).
Cash flow hedge reserve
The cash flow hedge reserve represents the effective portion of the cumulative
net change in the fair value of cash flow hedging instruments related to
hedged transactions that had not yet occurred at that date.
Fair value reserve
The fair value reserve represents the fair value movement in Current
Investments at FVOCI - customer deposits.
16. Share capital and reserves (continued)
Foreign exchange translation reserve
The foreign exchange translation reserve at 30 June 2023 amounted to a debit
balance of £106.4m (31 December 2022: credit balance of £60.3m) and arose
from the retranslation of the Group's net investment in primarily EUR and USD
functional currency companies. The movement in the foreign exchange
translation reserve for the six months ended 30 June 2023, reflects mainly
the strengthening of EUR and USD against GBP in the period.
Other reserves
Other reserves comprise undenominated capital. Undenominated capital at
30 June 2023 of £3.7m (31 December 2022 £2.5m) relates to the nominal
value of shares in the Company acquired by the Company of £2.3m (31 December
2022: £2.3m) and subsequently cancelled, the impact of Hyperinflation of
£1.2m and an amount of £0.2m (31 December 2022: £0.2m) which arose on the
redenomination of the ordinary share capital of the Company at the time of
conversion from Irish pounds to Euro.
Share-based payment reserve
During the six months ended 30 June 2023, an amount of £74.0m was expensed
in the Consolidated Income Statement with respect to share based payments (six
months ended 30 June 2022: £50.1m) and an amount of £39.3m (six months
ended 30 June 2022: £11.7m) in respect of share options exercised during the
year was transferred from the share-based payment reserve to retained
earnings.
An amount of £5.6m of deferred tax relating primarily to the Group's
share-based payments was credited to retained earnings in the six months ended
30 June 2023 (six months ended 30 June 2022: credit of £0.8m). An amount
of £3.3m of current tax relating to the Group's share-based payments was
credited to retained earnings in six months ended 30 June 2023 (six months
ended 30 June 2022: £0.2m).
Non-controlling interest
No dividends were paid to a non-controlling interest during the six months
ended 30 June 2023. During the six months ended 30 June 2022 the Group paid
dividends totalling £5.4m to the non-controlling interest in Adjarabet.
As outlined in more detail in Note 12, as a result of the exercise of the
option in respect of the Junglee non-controlling interest and the agreement to
settle in cash in July 2023, an amount of £10.4m was recorded in
non-controlling interest with the remaining amount of £64.9m booked to
retained earnings.
17. Fair values
Financial instruments carried at fair value
Fair value hierarchy
The table below analyses recurring fair value measurements for financial
assets and financial liabilities. These fair value measurements are
categorised into different levels in the fair value hierarchy based on the
inputs to the valuation method used. The different levels are defined as
follows:
• Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access at the measurement
date;
• Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or indirectly;
and
• Level 3: unobservable inputs for the asset or liability.
30 June 2023
Level 1 Level 2 Level 3 Total
£m £m £m £m
Current investments at FVOCI - customer deposits 123.7 18.1 - 141.8
Investments - FVTPL - - 9.1 9.1
Derivatives - 5.6 - 5.6
Total financial assets 123.7 23.7 9.1 156.5
Derivative financial liabilities - 100.6 67.1 167.7
Non-derivative financial liabilities 75.0 - 39.8 114.8
Total financial liabilities 75.0 100.6 106.9 282.5
17. Fair values (continued)
31 December 2022
Level 1 Level 2 Level 3 Total
£m £m £m £m
Current investments at FVOCI - customer deposits 126.2 11.8 - 138.0
Investments - FVTPL - - 9.2 9.2
Derivatives - 279.6 - 279.6
Total financial assets 126.2 291.4 9.2 426.8
Derivative financial liabilities - 110.4 108.1 218.5
Non-derivative financial liabilities - - 30.1 30.1
Total financial liabilities - 110.4 138.2 248.6
As part of its periodic review of fair values, the Group recognises transfers,
if any, between levels of the fair value hierarchy at the end of the reporting
period during which the transfer occurred. There were no transfers between
levels of the fair value hierarchy during the periods ended 30 June 2023 or
31 December 2022.
Valuation of Level 2 financial instruments
Borrowings
The Group has determined that the principal value of the GBP, EUR and USD
First Lien Term Loan A (as defined above) approximates its fair value. The
Group estimates the fair value of its First Lien Term Loan B by using a
composite price derived from observable market data for a basket of similar
instruments which approximates fair value.
Current investments (Bonds) - FVOCI - customer deposits
The Group has determined that the carrying value of the bonds approximates
their fair value which is determined by using observable quoted prices or
observable input parameters derived from comparable bonds/markets. Although
the Group has determined that a number of the bonds fall within Level 1 of the
fair value hierarchy, there are a class of bonds which have been classified as
Level 2 due to the existence of relatively inactive trading markets for those
bonds.
Derivative financial instruments
Swap agreements
The Group uses derivative financial instruments to manage its interest rate
and foreign currency risk. The valuation of these instruments is determined
using widely accepted valuation techniques including discounted cash flow
analysis of the expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period to maturity,
and uses observable market-based inputs, such as yield curves, spot and
forward FX rates.
To comply with the provisions of IFRS 13, Fair Value Measurement, the Group
incorporates credit valuation adjustments to appropriately reflect both its
own non-performance risk and the applicable counterparty's non-performance
risk in the fair value measurements. In adjusting the fair value of its
derivative contracts for the effect of non-performance risk, the Group has
considered the impact of netting and any applicable credit enhancements, such
as collateral postings, thresholds, mutual puts and guarantees.
Although the Group has determined that the majority of the inputs used to
value its derivatives fall within Level 2 of the fair value hierarchy, the
credit valuation adjustments associated with its derivatives utilise Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by itself and its counterparties. At both 30 June 2023 and
31 December 2022, the Group assessed the significance of the impact of the
credit valuation adjustments on the overall valuation of its derivative
positions, determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a result, the
Group determined that its valuations of its derivatives in their entirety are
classified in Level 2 of the fair value hierarchy.
Level 3 fair values
Derivatives (Level 3)
Some of the Group's financial assets and liabilities are classified as Level 3
of the fair value hierarchy because the respective fair value determinations
use inputs that are not based on observable market data. As at 30 June 2023,
the valuation techniques and key inputs used by the Group for each Level 3
asset or liability were as follows:
Sports betting open positions (Level 3)
Derivative financial liabilities comprise sports betting open positions. The
fair value of open sports bets at the period end has been calculated using the
latest available prices on relevant sporting events. Changes in the fair value
of the unsettled bets are recorded in revenue in the consolidated income
statement.
It is primarily based on expectations as to the results of sporting and other
events on which bets are placed. Changes in those expectations and ultimately
the actual results when the events occur will result in changes in fair value.
There are no reasonably probable changes to assumptions and inputs that would
lead to material changes in the fair value methodology although final value
will be determined by future sporting results.
17. Fair values (continued)
Non-derivative financial instruments (Level 3)
Investments
The Group valued its equity investments in private companies with reference to
earnings measures from similar businesses in the same or similar industry and
adjusts for any significant changes in the earnings multiple and the
valuation. A reasonable change in assumptions would not have a material impact
on fair value. Changes in the fair value of equity in private companies are
recorded in financial income or financial expense in the consolidated income
statement.
Contingent deferred consideration (Level 3)
Non-derivative financial liabilities include contingent consideration. The
contingent consideration payable is primarily determined with reference to
forecast performance for the acquired businesses during the relevant time
periods and the amounts to be paid in such scenarios. The fair value was
estimated by assigning probabilities to the potential payout scenarios. The
significant unobservable inputs are forecast performance for the acquired
businesses.
The fair value of contingent consideration is primarily dependent on forecast
performance for the acquired businesses in excess of a predetermined base
target. An increase and decrease of 10% in the excess over the predetermined
base target during the relevant time periods would increase and decrease the
value of contingent consideration at 30 June 2023 by £1.5m and £1.5m
respectively (31 December 2022: £1.1m and £2.0m).
FOX Corporation
As announced on 2 October 2019, in order to achieve economic alignment of
Flutter's and TSG's strategic third party relationships across their
respective US businesses, concurrent with the Combination with TSG, the Group
entered into an arrangement with FOX, pursuant to which FSG Services, a
wholly-owned subsidiary of FOX, had an option to acquire an 18.6% equity
interest in FanDuel Group at its fair market value in July 2021. Under the
terms of the agreement an arbitration mechanism was put in place in the event
of a disagreement between the two parties relating to the option.
In April 2021, FOX filed an arbitration claim against the Group with respect
to its option to acquire an 18.6% equity interest in FanDuel seeking the same
price that the Group paid for the acquisition of 37.2% of FanDuel from
Fastball Holdings LLC in December 2020, based on an $11.2 billion valuation
for FanDuel. In the Group's opinion this valuation would be materially
favourable for FOX compared to the fair market valuation as of July 2021.
On 7 November 2022, the Group announced the outcome of the arbitration. The
arbitration tribunal has determined that the price payable for the option is
based on FanDuel's fair market value as of 3 December 2020, the date on which
Flutter announced the acquisition of Fastball's 37.2% stake in FanDuel. The
tribunal has determined the fair market value of FanDuel as of December 2020
amounts to $20bn. This contrasts with an implied $11.2bn valuation for
FanDuel when Flutter acquired the stake from Fastball.
FOX has a ten-year period from December 2020 within which to exercise the
Option, should it wish to do so, subject to an annual compounding carrying
value adjustment of 5%. Cash payment is required at the time of exercise and
the option can only be exercised in full. Exercise of the option requires
FOX to be licensed and should FOX not exercise within this timeframe, the
option shall lapse.
As of 30 June 2023 the option price is c$4.2bn made up of the $3.7bn exercise
price for 18.6% of FanDuel plus the 5% annual carrying value adjustment.
The fair market value of the option as at 30 June 2023 is required to reflect
the value that a market participant would have paid for such an option, with
the option exercise price, reflecting the conditions that would have existed
at 30 June 2023. Given the market assessment of comparable US assets, it is
management's view that there has been no increase in the market value of
FanDuel since the valuation date of the option, and therefore it is determined
that the value of the option is out of the money for FOX and the derivative
has close to nominal value at 30 June 2023.
Non-controlling interest agreements
Boyd
A mechanism has been agreed with Boyd who hold a non-controlling interest in
FanDuel Group, consisting of call and put options, which enables the Group to
acquire the remaining 5% at prevailing market valuations in 2028. The call/put
option consideration can be settled, at the Group's election, in cash or
shares. As a consequence of both the put and call options being only
exercisable at fair value based on the market value of FanDuel at the date of
exercise of the options, it was determined that the fair value was not
material and was close to nominal value.
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 Boyd pursuant to which Boyd would receive a
total payment of 1.5% of the increase in FoxBet's market value between
completion of the Combination and July 2023 (subject to a carrying value
adjustment). Any payment due to Boyd in respect of this is not expected to be
significant.
17. Fair values (continued)
On 22 October 2021, FanDuel Group Parent LLC ("FanDuel") and Boyd Interactive
Holdings LLC ("Boyd") entered into an arrangement where Boyd contributed
91,828 Investor Units equivalent to 0.5% of FanDuel's total Investor Units in
exchange for 91,828 warrants to acquire Investor Units of FanDuel. The
aggregate exercise price of the warrants is $1.00 and are exercisable at any
time within the next 10 years. If the warrants remain outstanding after 10
years, they will be automatically converted into the number of Investor Units
for which such warrants are exercisable. As this transaction involves the
exchange of one form of fixed equity instrument for another fixed instrument
with a non-controlling interest for no additional consideration, no further
accounting is required.
Junglee
As part of the acquisition of Junglee, the Group has put in place
arrangements, consisting of call and put options, that could see its ownership
in the business increase in 2025. The call/put option consideration can be
settled, at the Group's election, in cash or shares. As a consequence of both
the put and call options being only exercisable at fair value being the future
EBITDA and revenue multiple which are considered to be two key inputs into
valuing the option, it was determined that the fair value was not material and
was close to nominal value.
During 2023, options were exercised enabling the Group to purchase a portion
of the non-controlling shareholders shares, and the Group entered into an
arrangement with the non-controlling shareholders to acquire a further 32.5%
for a cash payment of $97.4m (£75m) in line with the terms of the original
agreement.
Sachiko
As part of the acquisition of Sachiko (see Note 12), the Group has put in
place arrangements, consisting of call and put options, that could result in
it acquiring the 5% of Junglee held by the former shareholders of Sachiko in
2028 and 2032 for an amount based on the future Revenue and EBITDA performance
of Junglee. As the Group cannot avoid settling the put/call options in cash, a
liability of £24.3m has been recorded at 30 June 2023 (31 December
2022:£12.3m). An increase and decrease of 10% in the forecasted target during
the relevant time periods would increase and decrease the value of the option
at 30 June 2023 by £2.4m and £2.4m respectively.
18. Commitments and contingencies
Guarantees
The Group has uncommitted working capital overdraft facilities of £16.2m
(31 December 2022: £16.2m) with Allied Irish Banks p.l.c. These facilities
are secured by a Letter of Guarantee from Flutter Entertainment plc.
The Group has bank guarantees: (i) in favour of certain gaming regulatory
authorities to guarantee the payment of player funds, player prizes, and
certain taxes and fees due by a number of Group companies; and (ii) in respect
of certain third-party rental and other property commitments, merchant
facilities and third party letter of credit facilities. The maximum amount
of the guarantees at 30 June 2023 was £257.0m (31 December 2022:
£246.7m). No claims had been made against the guarantees as of 30 June
2023 (31 December 2022: £Nil). The guarantees are secured by counter
indemnities from Flutter Entertainment plc and certain of its subsidiary
companies. The value of cash deposits over which the guaranteeing banks hold
security was £22.6m at 30 June 2023 (31 December 2022: £22.6m).
As mentioned in Note 14, borrowings under the TLA Agreement and Syndicated
Facility Agreement are guaranteed by the Company and certain of its operating
subsidiaries.
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.
Prior to the combination with TSG in 2020, 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, the Group continues to co-operate with the United
States and Canada governmental authorities in respect of all inquiries. Based
on its review 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.
The Group has seen a number of player claims in Austria and Germany for
reimbursement of historic gaming losses. We have provided our remote services
in Austria and Germany (outside of Schleswig-Holstein) from Maltese entities
on the basis of multi-jurisdictional Maltese licences and EU law, however the
Austrian Courts and some German Courts consider our services are contrary to
their respective local laws.
18. Commitments and contingencies (continued)
The Group strongly disputes the basis of these claims and any related
judgements. The prospect of any player claims or judgements being successfully
enforced in Malta against our Maltese licensed entities is unlikely as to
allow the enforcement of these claims against a legitimately licensed entity
is contrary to Maltese local law and public policy. It is not possible at this
stage ,however, to provide a reasonable estimate of the contingent liability
as the matter is still at an early stage and unlikely to be fully resolved in
the short term.
19. Related parties
There were no material transactions with related parties during the six months
ended 30 June 2023 or the six months ended 30 June 2022.
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
20. Events after the reporting date
Acquisition of 32.5% shares of Junglee Games
In July 2023, as outlined in more detail in Note 12, the Group made a cash
payment of $97.4m (£75m) in respect of the acquisition of a further 32.5%
outstanding shares of Junglee Games. This acquisition brings the Group's
holding in Junglee Games to 84.8% up from the previous controlling interest of
52.3%. This liability has been recorded as a current liability as at 30 June
2023.
FOX Bet
On 31 July 2023, we announced the closure of the sports betting platform FOX
Bet. FOX Bet was part of the The Stars Group US along with the US facing
operations of PokerStars. Flutter will retain ownership of PokerStars, while
FOX will retain future use of the FOX Bet brand (including Super 6).
Independent Review Report to Flutter Entertainment PLC ("the Entity")
Conclusion
We have been engaged by the Entity to review the Entity's condensed set of
consolidated financial statements in the half-yearly financial report for the
six months ended 30 June 2023 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, a
summary of significant accounting policies and other explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 June 2023 is not
prepared, in all material respects in accordance with International Accounting
Standard 34 Interim Financial Reporting ("IAS 34") as adopted by the EU and
the Transparency (Directive 2004/109/EC) Regulations 2007 ("Transparency
Directive"), and the Central Bank (Investment Market Conduct) Rules 2019
("Transparency Rules of the Central Bank of Ireland).
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (Ireland) 2410 Review of Interim Financial Information Performed
by the Independent Auditor of the Entity ("ISRE (Ireland) 2410") issued for
use in Ireland. 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
consolidated financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (Ireland) 2410. However, future events or conditions may cause the Entity
to cease to continue as a going concern, and the above conclusions are not a
guarantee that the Entity will continue in operation.
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.
The directors are responsible for preparing the condensed set of consolidated
financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
As disclosed in note 1, the annual financial statements of the Entity for the
year ended 31 December 2022 are prepared in accordance with International
Financial Reporting Standards as adopted by the EU.
In preparing the condensed set of consolidated financial statements, the
directors are responsible for assessing the Entity's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Entity or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Entity a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Entity in accordance with the terms of our
engagement to assist the Entity 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 Entity
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 Entity for our review work, for this
report, or for the conclusions we have reached.
KPMG
8 August 2023
Chartered Accountants
1 Stokes place
St. Stephen's Green
Dublin
2
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