12 August 2022

Flutter Entertainment plc - 2022 Interim Results

Strong recreational player growth; US profitable in Q2; Group in line with expectations

Flutter Entertainment plc (the "Group") announces interim results for six months ended 30 June 2022.

	Reported1			Adjusted2
	H1	H1		H1	H1
	2022	2021		2022	2021		CC3
	£m	£m	YoY %	£m	£m	YoY %	YoY %
Average monthly players4 ('000s)				8,716	7,625	+14%
Group Revenue	3,388	3,053	+11%	3,388	3,053	+11%	+9%
Group EBITDA5	434	562	-23%	476	597	-20%	-19%
Group EBITDA excluding US				608	684	-11%	-10%
(Loss)/Profit after tax	(112)	(86)		177	306	-42%
(Loss)/Earnings per share (pence)	(64.7p)	(50.4p)		97.2p	171.1p	-43%
Net Debt at period end6	3,004	2,682

Operational Highlights:

•     Group: Positive revenue momentum of +9% driven by recreational player growth

-     Average monthly players ('AMPs') 1.1m or 14% higher at 8.7m

•     US: Adjusted EBITDA positive in Q2

-     Sports betting market share accelerated to 51%⁷ in Q2 driven by FanDuel's superior product, efficient customer acquisition and strong operational execution

-     Increasingly profitable player base underpinning confidence in full year 2023 EBITDA profit⁸

•     Group ex-US:

-     UK & Ireland: H1 performance reflects safer gambling initiatives and prior year Covid frequency benefit; product improvements delivered in H1 support expected return to revenue growth in H2

-     Australia: AMPs 10% higher with strong customer retention driving revenue growth

-     International: Investments in high growth markets generating strong returns, partially offsetting known headwinds; Acquisition of Sisal completed on 4th August 2022

-     Three-year compound growth in revenue of 10% and in Adjusted EBITDA of 6% demonstrating growth through regulatory change, driven by operational execution, scale and diversification

•     Sustainability: Positive Impact Plan launched in March; Safer gambling tool usage at 34.8% of online customers, two percentage points up from December 2021⁹

Financial Highlights:

•     Adjusted EBITDA of £476m (Reported EBITDA of £434m), in line with expectations

-     Increased US investment as the business scales and builds towards full year profitability in 2023⁸

-     Proactive safer gambling initiatives and International regulatory changes improved sustainability of Group

•     Reported loss after tax of £112m (2021: £86m) after £286m charge for amortisation of acquired intangibles

•     Net debt increased £322m year-on-year to £3,004m at 30 June 2022 including H1 completion of Tombola acquisition. Leverage ratio of 3.4 times⁶ (June 2021: 2.3 times), or 2.6 times excluding US losses

Outlook:

•     H2 has started in line with expectations. No discernible signs of a consumer slow down currently, but we are closely monitoring key spend indicators given the uncertain macro economic outlook. Assuming normalised sports results, we anticipate full year EBITDA to be in line with market expectations:

-     US: Net revenue ahead of expectations at between £2.3bn and £2.5bn ($2.85bn - $3.1bn) and Adjusted EBITDA loss of between £225m and £275m

-     Group ex-US: Adjusted EBITDA of between £1,290m and £1,390m including a five-month contribution from Sisal (completed 4 August)

•     Hosting an investor day on our US business on 16 November 2022

 

Peter Jackson, Chief Executive, commented:

"The first half of 2022 was positive for the Group with significant progress made against the strategic objectives we outlined in March. We expanded our recreational customer base by over one million players in the half and increased the proportion of customers using safer gambling tools to over one third.

We are particularly pleased with momentum in the US where we extended our leadership in online sports betting with FanDuel claiming a 51% share of the market and number one position in 13 of 15 states, helping contribute to positive earnings in Q2. We remain firmly on the path to profitability in 2023, driven by our compelling customer economics and disciplined investment.

Outside of the US, the business remains well positioned thanks to its leadership positions in its mature markets and the investment we are making in attractive, high growth markets such as India, Canada and Brazil. In the UK, while the delay in publishing the Gambling Act Review White Paper has been disappointing, we are confident that the safer gambling changes we have already made to date position us well for the future. In Australia, we delivered another excellent performance with revenue and players continuing to grow. We were also delighted to welcome Sisal to the Group earlier this month, a business that performed strongly during H1.

The second half of the year has started well and we look forward to the start of the football seasons in both the US and Europe. Being part of the Flutter Group provides unique strategic advantages to our portfolio of brands, giving access to expertise, technology and resources to drive performance and capitalise on further growth opportunities we see ahead."

 

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 pre-recorded presentation will be made available on the Group's corporate website (www.flutter.com/investors) from 8:00am. To dial into the conference call, participants need to register here where they will be provided with the dial in details to access the call.
Contacts:
Investor Relations:
Paul Tymms, Group Director of Investor Relations and FP&A	+ 44 75 5715 5768
Ciara O'Mullane, Director of Investor Relations	+ 353 87 947 7862
Liam Kealy, Director of Investor Relations	+ 353 87 665 2014
Press:
Kate Delahunty, Group Director of Corporate Communications	+ 44 78 1077 0165
Lindsay Dunford, Group Head of Corporate Affairs	+ 44 79 3197 2959
Rob Allen, Group Head of Corporate Campaigns	+ 44 75 5444 1363
Billy Murphy, Drury Communications	+ 353 1 260 5000
James Murgatroyd, Finsbury	+ 44 20 7251 3801

 

 

 

Business review ^2-5

The scale and diversification of the Group have been transformed during the last three years with the US accounting for over one third of Group revenue in Q2. FanDuel has strengthened its clear leadership position in US online sports betting, gaining market share through a combination of superior product, efficient customer acquisition and strong operational execution. Our US business was profitable during Q2 (£16m/$22m) and remains firmly on track to be EBITDA positive for the full year 2023⁸.

During the same period the Group's ex-US business has also grown and been reshaped. We have expanded our gold medal positions in the UK&I and Australia. With the recent acquisition of Sisal in Italy providing another number one position in one of the world's largest regulated markets, our International division is on a more sustainable footing with 86% of revenue from regulated or regulating markets¹⁰. These strong podium positions are combined with high growth opportunities in a number of markets that have significant long term market potential. The Group's track record of operational execution, combined with its scale and diversification give us confidence that the ex-US Group can continue to outgrow regulatory headwinds.

Being part of the Flutter Group provides unique strategic advantages to our portfolio of brands, driving both revenue growth and operating efficiencies. Our people have industry leading sports betting and gaming expertise, with high levels of talent and idea sharing in the Group. Our products enable the broadest and deepest range of options for local hero brands, while our technology stack delivers scalable, reliable platforms for growth. Our strong cash generation profile allows us to allocate resources to power the 'flywheel' at a local market level.

In March, we launched our sustainability strategy, the Positive Impact Plan. Good progress has been made in the half with (i) Safer gambling tool usage two percentage points higher at 34.8%⁹ of AMPs, (ii) the launch of global advocacy and Pride groups and (iii) significant time (nearly 2,200 hours) and monetary (£1.1m) donations as we continue to contribute positively to the communities in which we operate.

H1 2022 review

The Group delivered positive top line momentum with revenue growth of 9% driven by a 14% increase in our recreational player base. Adjusted EBITDA of £476m included a £132m investment loss from our US division. The Group ex-US had Adjusted EBITDA of £608m, a 10% decline on the prior year, with continued growth in Australia, offset by our proactive safer gambling initiatives in the UK&I and regulatory changes in International markets, all as previously guided. Excluding these guided items, Group ex-US Adjusted EBITDA was 4% higher year-on-year.

US

Our US division delivered another excellent performance during H1. Quarterly revenue exceeded $750m for the first time in Q2 with positive Adjusted EBITDA of $22m in the same period. We expanded our clear number one position in the market, growing online sports betting market share⁷ to 51% in Q2 and an overall combined online share of 36%⁷, clearly demonstrating our significant operational and structural advantages over the rest of the market. This competitive lead is delivered by winning in two key areas: (i) customer acquisition and (ii) product.

Customer acquisition: The strength of the FanDuel brand, coupled with strategic partnerships including Turner Sports and Pat McAfee, have ensured we are accessing the broader population of sports bettors more quickly, leading to faster adoption curves as each state launches. In the four years since launch, FanDuel has refined its state launch 'play book', converting customers from our daily fantasy sports database at a faster rate with each new state. Combined with a disciplined and efficient approach to marketing investment, FanDuel's cost per acquisition¹¹ has remained attractive at under $300.

Product: FanDuel has the best sports betting product in the market, benefitting from Flutter's global pricing and risk management capabilities. We are continually improving, with incremental features such as 'Same Game Parlay+', helping FanDuel fortify its sportsbook leadership position and maintain its competitive edge. Penetration of higher margin parlay products was over 80% of customers in Q2 and is a major factor in FanDuel's superior monetisation of customers. Retention rates also remain strong as customers favour FanDuel's market leading product. US customer cohorts are exhibiting reassuringly familiar characteristics to those in our existing established businesses, with each cohort's revenue growing year-on-year as the customer base matures.

We continue to improve our iGaming proposition, with the launch of FanDuel branded live dealer tables in the first half as well as adding new content to our platform. Through leveraging our market leading gaming capabilities in the Group, we are focusing on growing our market share in our existing five iGaming states and ensuring we are well positioned to leverage our sportsbook penetration as future states regulate.

Execution across customer acquisition and product continues to deliver attractive customer economics with payback periods of 12-18 months. As noted at our preliminary results announcement dated 1 March 2022, customer acquisition is now being funded by profits from existing customers. As the existing customers continue to become an increasingly large proportion of our total customer base, profits will increase, delivering an expected EBITDA profit for the full year 2023⁸. This pattern can be evidenced in H1, where sportsbook and iGaming contribution was more than three times greater than for the entire year in 2021.

In states that launched before 2021, bonus and marketing spend is reducing toward levels observed in existing businesses and profit margins are increasing. Operating leverage is also clearly evident as we have grown revenue more than twice as fast as other operating costs since H1 2019, with further operating efficiency expected as our US footprint expands. We estimate that New Jersey EBITDA margin is already 17%¹² despite the early stage of the market and continued disciplined investment behind the strong customer economics we see.

Group excluding the US

UK & Ireland

Revenue declined 4% as a result of our proactive safer gambling actions and the prior year Covid-related increase in player days, which has now moderated towards pre-Covid levels. The significant actions taken in 2021 to improve the sustainability of our business in advance of the Government's review of the Gambling Act had an annualised revenue impact of £48m during H1, in line with previous guidance. While the delay to the publication of the UK Gambling Act Review White Paper has been disappointing, our proactive safer gambling actions position us well for the future. In Ireland, we welcome and fully support the recent progress towards regulation, and we are meaningfully contributing to the legislative process.

Online performance has improved sequentially with Q2 just 4% lower versus 20% lower in Q1. This included a return to year-on-year gaming revenue growth in June 2022 as we lapped the introduction of some of these safer gambling measures, giving us confidence of delivering growth in H2. This growth will be driven by continued expansion of our recreational customer base, which has increased at a compound rate of 13% since 2019. Combined with our safer gambling initiatives just 5% of revenue, excluding Tombola, came from the highest value tier in H1. The proportion of revenue from our lowest value tier has increased by 14% percentage points since H1 2019 to 43%.

In H1, Sky Bet released a number of improvements to its pre-game sports betting product, including the launch of 'BuildABet', which has already been used by nearly one-third of football customers. Further enhancements are planned for H2. On the gaming side, Paddy Power continues to innovate its offering with branded slots content and free-to-play initiatives proving popular with direct gaming customers. Over 80% of customers are playing with our daily engagement tool 'Wonder Wheel', which is powering record gaming customer volumes and retention levels.

As we further integrate the businesses, we have also identified a range of efficiency initiatives:

•     Optimising the efficiency of marketing and promotional spend by delivering more value to the right customers at the right time and a greater allocation of spend to our more recreational brands

•     Integrating more of the SBG technology stack onto proprietary platforms

•     Removing team structure complexity

These initiatives will both help offset the current high inflationary headwinds we are seeing, and ensure the UK&I division is well-placed ahead of the pending Gambling Act Review.

Australia

Sportsbet delivered another strong performance, once again demonstrating excellent execution across product, value and brand. Following significant retail restrictions in H2 2021, we focused on retaining customers through targeted generosity initiatives ahead of the new AFL and NRL season in H1. As a result AMPs were 10% higher year-on-year, driving revenue growth of 5% despite the adverse impact of year-on-year sports results. Penetration of our long-established Same Game Multi product continues to increase and a number of new product features were rolled out during Q2, helping to drive player engagement levels. 'Same Game Multi Cash Out' and 'Same Game Multi Bet Tracker' have proven very popular with punters, further enhancing our market leading product.

We remain well positioned to capitalise on the recent Point of Consumption ('POC') tax changes announced in Queensland, New South Wales and the Australian Capital Territory which will cost an estimated £22m in 2022 with an annualised impact in 2023 of £73m (AUD $125m). Sportsbet has a strong track record of managing regulatory risk, having taken meaningful market share and grown profits after the initial implementation of POC taxes in 2019.

International

In our International division, we continue to refine our approach to the diverse range of markets we operate in. This consists of four categories where we will:

•     Consolidate our existing #1 positions and drive market share growth across Italy, Georgia, Armenia and Spain. Following the Sisal acquisition, Italy now accounts for approximately 50% of the division's EBITDA

•     Invest for leadership in the high growth regulated and regulating markets including Canada, Brazil and India. We will continue to innovate with PokerStars virtual reality poker and casino products, a top five experience in the Oculus app store and the highest revenue generating freemium product on the market

•     Optimise return on investment in key regulated markets by supporting the liquidity they provide with targeted marketing spend. While these markets have some attractive qualities, our current lack of scale limits the returns from increasing investment. This covers several, mostly European, regulated markets

•     Maintain existing position in the tail of remaining unregulated or non-regulating markets, which now make up 14% of revenue for the International division, of which the largest market is 0.3% of Flutter Group revenue¹⁰

The acquisition of Junglee in January 2021 is a great example of our investment in a high growth market. India is one of the fastest growing gaming market globally powered by both a doubling of India's internet and smartphone penetration, and a 45% increase in disposable income over the last five years. The online gaming market is expected to reach £4.2bn by 2026, from £1.4bn in 2021, of which rummy is the fastest growing segment, accounting for 57% of revenue¹³. Junglee is the fastest growing rummy brand and now number two in the rummy market. Product leadership and increased investment in player acquisition has resulted in compound growth of 73% in gross gaming revenue and 112% in players since H1 2019. Since acquisition, Flutter has added its global gaming product expertise and sophisticated marketing capabilities to accelerate Junglee's growth, in tandem with excellent execution from the local team.

Capital structure and balance sheet update⁶

The Group had gross debt of £3,785m¹⁴ at 30 June 2022 and a net debt position of £3,004m (30 June 2021: £2,682m) which represents a leverage ratio of 3.4x. During the period the Group acquired Tombola for a cash cost of £410m in January and post period end the Group completed the acquisition of Sisal on 4 August 2022 utilising existing debt facilities.

This acquisition will result in an increased leverage ratio in the near term of 4.1 times or 3.3 times excluding US losses. As previously highlighted, the Group continues to generate significant free cash flow which will facilitate de-levering quickly. In addition, as the US business becomes profitable this will transform the earnings and debt profile of the Group.

The Group remains committed to its medium-term leverage target of 1-2 times at which point the Board will review the Group's dividend policy.

Other updates

As previously disclosed, the Group is in a legal arbitration process with FOX Corporation with respect to its option to acquire an 18.6% stake in FanDuel and related issues. The arbitration hearing commenced in June and, should the parties not reach a negotiated agreement in the interim, we expect a binding decision from the arbitrator in October 2022. The Group continues to vigorously defend its position.

Current trading/outlook

In the first 5 weeks to 7 August, Group revenue was in line with our expectations. We currently see no discernible signs of a consumer slow down and resultant reduced spending levels across our businesses. However, we will continue to closely monitor key spend indicators as we move through H2 given the uncertain macro economic outlook. Assuming normalised sport results for the remainder of the year, the Group anticipates:

•     US revenue of between £2.3bn - £2.5bn ($2.85bn - $3.1bn) and an Adjusted EBITDA loss of between £225m - £275m. This assumes we launch online in Kansas in Q4 2022

•     Group ex-US Adjusted EBITDA in line with market expectations of between £1,290m - £1,390m, including a five-month contribution from Sisal, which completed on 4 August 2022, and Australian point of consumption tax changes

The Group also anticipates for 2022:

•     An effective Group ex-US corporate tax rate for the full year of between 22% - 24% including Sisal

•     Capital expenditure of between £360m - £390m including Sisal

•     A weighted average cost of debt for H2 of 3.4%

 

 

Operating and financial review^1-6

Group

	H1	H1		CC
	2022	2021	Change	Change
Unaudited Adjusted	£m	£m	%	%
Average monthly players ('000s)	8,716	7,625	+14%
Sports revenue	2,118	1,894	+12%	+10%
Gaming revenue	1,270	1,159	+10%	+8%
Total revenue	3,388	3,053	+11%	+9%
Cost of sales	(1,353)	(1,109)	+22%	+20%
Cost of sales as a % of net revenue	39.9%	36.3%	+360bps	+350bps
Gross profit	2,036	1,944	+5%	+3%
Sales and marketing	(819)	(728)	+12%	+9%
Contribution	1,216	1,215	-%	-1%
Other operating costs	(686)	(563)	+22%	+19%
Corporate costs	(55)	(55)	-1%	-6%
Adjusted EBITDA2,5	476	597	-20%	-19%
Adjusted EBITDA margin %	14.1%	19.6%	-550bps	-500bps
Depreciation and amortisation	(143)	(125)	+14%	+11%
Adjusted operating profit	334	472	-29%	-28%
Net finance expense	(57)	(74)	-23%
Adjusted profit before tax	277	398	-30%
Taxation	(100)	(91)	+10%
Adjusted profit for the period	177	307	-42%
Adjusted basic earnings per share	97.2p	171.1p	-43%
Net debt6 at period end	3,004	2,682	+12%

Note: Junglee, acquired in January 2021, Singular, acquired in September 2021 and Tombola, acquired in January 2022, have been included on a reported basis due to materiality. A full analysis of the Group's reported performance can be found at pages 16-17. A reconciliation to the Group's consolidated income statement is included in Appendix 2.

During the half we increased our recreational customer base by over one million monthly players to 8.7m, 14% higher than the prior year. The rapid expansion of our US business has been key to this growth, along with good underlying player momentum in the UK&I and Australia. This resulted in revenue growth of 9% to £3.4bn, including a 50% increase in the US. Outside of the US, the increase in revenue as a result of strong customer retention in Australia and the addition of Tombola was offset by regulatory changes in International markets and our proactive safer gambling initiatives in the UK&I, both of which put our business on a more sustainable footing for growth.

Cost of sales as a percentage of net revenue increased by 350 basis points to 39.9% with a greater proportion of revenue coming from higher direct cost markets.

Sales and marketing costs increased by 9% in line with revenue growth. Marketing spend in the US increased 29% as we acquired large volumes of new players but reduced as a percentage of revenue, declining by 620 basis points. Other operating costs increased 19% or 9% for Group ex-US where the return of retail and addition of Tombola more than offset synergies and cost efficiencies in the UK&I. Corporate costs remain tightly controlled.

Adjusted EBITDA was £476m with the US investment-led loss increasing by £46m to £132m, despite being profitable in Q2. As expected, Group ex-US Adjusted EBITDA was 10% lower due to the regulatory changes and safer gambling initiatives noted above. Excluding these headwinds, Adjusted EBITDA increased 4% in H1.

The Group's Adjusted effective tax rate in the period was 36.2% (HY 2021: 22.9%), primarily driven by the changing mix of taxable earnings across geographies. The Group ex-US effective tax rate in the period was 22% with the full-year 2022 adjusted Group ex-US effective tax rate expected to be between 22% and 24% (FY2021: 18.5%). This includes Sisal and reflects upward pressure due to profits earned in higher tax geographies.

Adjusted basic earnings per share reduced from 171p to 97p reflecting the lower Adjusted EBITDA and the increased tax charge in the current period.

Net debt at 30 June 2022 was £3,004m, a £322m increase on prior year, primarily due to the acquisition of Tombola in January 2022 and settlement of a historic legal case with the state of Kentucky offsetting the free cash flow generated by the operating activities of the Group.

A full analysis of the Group's reported performance can be found at pages 16-17.

 

US³

	H1	H1		CC
	2022	2021	Change	Change
Unaudited Adjusted	£m	£m	%	US$
Average monthly players ('000s)	2,188	1,470	+49%
Sportsbook stakes	10,911	5,072	+115%	+102%
Sportsbook net revenue margin	6.0%	6.2%	-20bps	-20bps
Sports revenue	770	452	+70%	+58%
Gaming revenue	281	200	+41%	+31%
Total revenue	1,051	652	+61%	+50%
Cost of sales	(544)	(293)	+86%	+73%
Cost of sales as a % of net revenue	51.8%	44.9%	+680bps	+700bps
Gross profit	507	359	+41%	+31%
Sales and marketing	(399)	(292)	+37%	+29%
Contribution	108	67	+60%	+38%
Other operating costs	(240)	(154)	+56%	+46%
Adjusted EBITDA2,5	(132)	(87)	+52%	+53%
Adjusted EBITDA margin	(12.5%)	(13.3%)	+70bps	-30bps
Depreciation and amortisation	(31)	(22)	+39%	+29%
Adjusted operating profit	(162)	(108)	+50%	+48%

The US division includes FanDuel, FOXBet, TVG, PokerStars and Stardust 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 50% to £1.1bn ($1.4bn) in H1 with an Adjusted EBITDA loss of £132m ($176m). This was driven by efficient customer acquisition in new and existing states, our superior product driving strong customer economics and good operating efficiencies, offset by the cost of our sportsbook launch in New York where tax rates are higher. Within this performance FanDuel Group represented 97% of revenue and 80% of Adjusted EBITDA loss.

Sports revenue grew 58% with sportsbook revenue increasing by 91%. This was driven by staking growth which more than doubled year-on-year to over £10.9bn ($14.2bn). Our continued sportsbook expansion aided growth, with five new US states as well as Ontario, Canada added to our offering since H1 last year (Arizona in Q3 2021, Connecticut in Q4 2021 and New York, Louisiana and Wyoming in Q1 2022). A full six-month of revenues from Michigan and Virginia, which launched part way during Q1 2021 also provided a benefit to growth.

Net revenue margin of 6.0% was 40 basis points below expectations (£41m) due to a run of adverse sports results in Q1. Excluding this impact, net revenue margin would have been broadly flat year-on-year. Our improving product mix and superior pricing and risk management capabilities funded additional promotional generosity to acquire customers in the period in both new and existing states and also offset the impact of £63m in favourable sports results in the prior year.

Gaming revenue was 31% higher driven by an increase in AMPs of 40% and the full six months of revenue from the three additional gaming states launched in the prior year; Michigan (Q1 2021), West Virginia (Q2 2021) and Connecticut (Q4 2021).

Cost of sales as a percentage of net revenue increased by seven percentage points primarily reflecting the launch of the FanDuel sportsbook in New York, where the gaming tax rate is 51%, materially higher than in other states.

Sales and marketing increased by 29% as we continued to invest in customer acquisition both in new and existing states. As a proportion of revenue, sales and marketing declined by 620 basis points as our business continues to scale and acquisition investment in existing states, which are an increasingly large proportion of our business, reduces.

Other operating costs increased 46%. Adjusting for the year-on-year impact of sports results, operating costs would have declined by around four percentage points as a proportion of revenue demonstrating operating leverage. This is despite the business still being at a relatively early stage in its expansion.

 

UK & Ireland

	UK & Ireland Total				UK & Ireland Online				UK & Ireland Retail
	H1	H1			H1	H1			H1	H1
Unaudited Adjusted	2022	2021	Change		2022	2021	Change		2022	2021	Change
	£m	£m	%		£m	£m	%		£m	£m	%
Average monthly players ('000s)					3,704	3,303	+12%
Sportsbook stakes	5,185	6,091	-15%		4,494	5,885	-24%		691	207	+234%
Sportsbook net revenue margin	10.9%	10.7%	+20bps		10.6%	10.6%	0bps		13.2%	12.5%	+70bps
Sports revenue	630	738	-15%		538	712	-24%		92	26	+253%
Gaming revenue	462	397	+16%		418	382	+10%		44	16	+183%
Total revenue	1,092	1,135	-4%		956	1,094	-13%		136	41	+227%
Cost of sales	(335)	(342)	-2%		(304)	(332)	-8%		(31)	(10)	+218%
Cost of sales as a % of net revenue	30.7%	30.1%	+60bps		31.8%	30.4%	+140bps		22.8%	23.4%	-70bps
Gross profit	757	793	-5%		652	762	-14%		105	32	+230%
Sales and marketing	(197)	(207)	-5%		(194)	(204)	-5%		(3)	(3)	+13%
Contribution	559	587	-5%		458	558	-18%		101	29	+251%
Other operating costs	(239)	(227)	+5%		(155)	(160)	-3%		(83)	(68)	+23%
Adjusted EBITDA2,5	321	359	-11%		303	398	-24%		18	(39)	-147%
Adjusted EBITDA margin	29.4%	31.6%	-220bps		31.6%	36.4%	-470bps		13.5%	(93.6%)	+10,710bps
Depreciation and amortisation	(63)	(63)	+1%		(44)	(42)	+5%		(19)	(21)	-7%
Adjusted operating profit	258	297	-13%		259	356	-27%		(1)	(59)	-98%

The UK & Ireland division operates Paddy Power, Betfair, Sky Betting & Gaming and Tombola brands online, as well as retail operations in the UK and Ireland.

Revenue declined by 4% and Adjusted EBITDA was £38m lower at £321m. The Covid-related restrictions in the prior year result in complex year-on-year comparatives in our online and retail businesses.

UK & Ireland Online

Revenue was 13% lower in H1, sequentially improving from -20% in Q1 to -4% in Q2, due to the:

•     Annualisation of our proactive safer gambling measures introduced across 2021 reducing revenue by £48m

•     Peak in Covid related player engagement during H1 2021, with average player days down 10% in H1 2022

•     Benefit of the European football championships in June 2021, generating revenue of £43m in H1 2021

•     Addition of Tombola in January 2022 which added eight percentage points of growth (pro forma including Tombola H1 -19%, Q2 -11%)

The relative impact of these factors by product is reflected in the 24% decline of sports revenue compared to 10% growth in gaming revenue. Sportsbook net revenue margin was in line year-on-year, with both periods benefitting from approximately 100 basis points in favourable sports results.

AMPs grew 12% (flat including Tombola's highly recreational customer base on a pro forma basis) with strong acquisition and retention of gaming customers in Paddy Power being offset by the factors above.

Cost of sales as a percentage of revenue increased by 140 basis points to 31.8% reflecting higher transaction fees and streaming costs.

Sales and marketing decreased by 5% (pro forma including Tombola -13%) reflecting the European football championships investment in the prior year. Sales and marketing was 20.3% of revenue in H1, in line with the prior full year. Other operating costs were 3% lower in H1 (pro forma including Tombola -11%) with synergies and cost efficiencies offsetting the inflationary increases in employee pay and data.

Online Adjusted EBITDA declined £95m year-on-year to £303m.

UK & Ireland Retail

Retail revenue more than trebled in the half, with our estate open for all of H1. In the prior year, our shops were closed from January to April in the UK and to May in Ireland due to Covid-related restrictions. In the UK estate, both sports and gaming revenue has returned to 2019 levels while in our Ireland estate revenue is at 69% of H1 2019, reflecting the slower return of retail footfall in Ireland.

Other operating costs increased by 23% reflecting our shops being open across the half. The business generated £18m of Adjusted EBITDA in H1.

Currently, we have 614 (June 2021: 624) retail outlets with 362 in the UK and 252 in Ireland. Since June 2021 we have opened 5 shops in the UK and closed 15 shops in Ireland as part of normal business practice.

 

Australia³

	H1	H1		CC
	2022	2021	Change	Change
Unaudited Adjusted	£m	£m	%	A$
Average monthly players ('000s)	993	906	+10%
Sportsbook stakes	5,209	5,000	+4%	+4%
Sportsbook net revenue margin	11.8%	11.7%	+10bps	+10bps
Total revenue	612	585	+5%	+5%
Cost of sales	(290)	(275)	+5%	+5%
Cost of sales as a % of net revenue	47.3%	47.0%	+30bps	+30bps
Gross profit	322	310	+4%	+4%
Sales and marketing	(54)	(59)	-9%	-10%
Contribution	269	252	+7%	+7%
Other operating costs	(50)	(51)	-2%	-3%
Adjusted EBITDA2,5	219	201	+9%	+10%
Adjusted EBITDA margin	35.8%	34.3%	+150bps	+180bps
Depreciation and amortisation	(14)	(13)	+4%	+5%
Adjusted operating profit	206	188	+9%	+11%

The division encompasses Sportsbet, which offers online sports betting in the Australian market.

Sportsbet delivered another excellent performance during H1 as Adjusted EBITDA increased by 10% to £219m. This was driven by a combination of a 10% increase in the player base leading to good top line momentum as well as continued operating leverage improving EBITDA margins by 180 basis points.

Customer growth was aided by strong retention of players who migrated online during H2 2021 when Covid restrictions were at their peak. Staking growth of 4% and an increase in net revenue margin of 10 basis points to 11.8%, delivered revenue growth of 5% in the period. Sports results represented a headwind year-on-year with 50 basis points of favourable results in H1 2022 compared to a 140 basis point benefit in H1 2021. This headwind, along with a further step up in promotional generosity spend was more than offset by structural margin improvements due to increased penetration of higher margin products and improvements to pricing and risk management capabilities.

Our continued focus on a personalised approach to promotional spend and generosity led to an increase in cost of sales by 30 basis points as a percentage of revenue as taxes are levied on gross gaming revenue, resulting in a higher effective tax rate. Sales and marketing also reflected this dynamic, declining by 10% primarily driven by promotional spend shifting to within our net revenue margin of 11.8%.

Other operating costs were roughly flat year-on-year with Adjusted EBITDA of £219m.

 

International³

	H1	H1		CC
	2022	2021	Change	Change
Unaudited Adjusted	£m	£m	%	%
Average monthly players ('000s)	1,831	1,945	-6%
Sportsbook stakes	710	871	-18%	-18%
Sportsbook net revenue margin	9.0%	9.1%	-10bps	-10bps
Sports revenue	106	118	-10%	-10%
Gaming revenue	527	562	-6%	-7%
Total revenue	633	680	-7%	-8%
Cost of sales	(184)	(199)	-8%	-8%
Cost of sales as a % of net revenue	29.1%	29.3%	-20bps	-20bps
Gross profit	449	481	-7%	-7%
Sales and marketing	(169)	(171)	-1%	-3%
Contribution	280	310	-10%	-10%
Other operating costs	(158)	(131)	+20%	+18%
Adjusted EBITDA2,5	122	179	-32%	-31%
Adjusted EBITDA margin	19.3%	26.3%	-700bps	-630bps
Depreciation and amortisation	(33)	(25)	+31%	+22%
Adjusted operating profit	89	154	-42%	-40%

International includes PokerStars, Adjarabet, Betfair and Junglee brands which offer online poker, casino, sports betting, rummy and daily fantasy products. Excludes PokerStars US business and Betfair UK and Ireland operations.

Strong revenue growth in our 'consolidate and invest' markets including India, Brazil, Georgia, Armenia and Canada was offset by the previously guided impact of regulatory changes and the challenging Covid-related comparatives. Adjusted EBITDA of £122m, a decline of £57m, reflects a £98m Adjusted EBITDA impact from these known headwinds:

•     Combined impact of market exits in the Netherlands (£20m) and Russia/Ukraine (£20m), along with a gaming tax change in Germany (£20m) of £60m

•     Covid restrictions boosted online activity by an estimated £38m in the prior period

Revenue in H1 of £633m, a decline of 8%, reflected these headwinds. Excluding market exits and tax changes, revenue increased by 4%. Revenue growth in our 'consolidate and invest' markets was 14% and these markets represented 56% of the International division in H1 (72% including Sisal on a pro forma basis). This growth was largely offset by the unwind of the prior year Covid-related boost to revenue in our remaining markets.

Cost of sales as a % of net revenue is broadly in line year-on-year at 29.1%.

Sales and marketing declined by 3% in H1 reflecting the ongoing investment in our 'consolidate and invest' markets offset by savings elsewhere. Other operating costs increased by 18% in H1. This partly reflects the annualisation of the increased resources put into the business to stabilise and improve our capabilities across product, technology and customer operations, along with the expansion of Junglee in India. We continue to monitor opportunities for improved operational efficiencies as we further integrate our International businesses.

 

Statutory review¹

Group

	H1	H1
	2022	2021	Change
Unaudited	£m	£m	%
Sports revenue	2,118	1,894	+12%
Gaming revenue	1,270	1,159	+10%
Total revenue	3,388	3,053	+11%
Cost of sales	(1,353)	(1,122)	+21%
Cost of sales as a % of net revenue	39.9%	36.8%	+310        bps
Gross profit	2,036	1,931	+5%
Operating costs	(1,602)	(1,368)	+17%
EBITDA	434	562	-23%
EBITDA margin %	12.8%	18.4%	-560 bps
Amortisation of acquisition related intangibles	(286)	(276)	+4%
Depreciation and amortisation	(145)	(125)	+16%
Gain on disposal	2	-	+100%
Operating profit	5	162	-97%
Net finance expense	(57)	(85)	-33%
(Loss)/ profit before tax	(51)	77
Taxation	(61)	(163)	-63%
Loss after tax	(112)	(86)
Basic loss per share	(64.7p)	(50.4p)
Diluted loss per share	(64.7p)	(50.4p)
Net current liabilities	(439)	(327)
Net assets	10,226	10,724
Net cash from operating activities	264	427	-38%

Note: A full analysis of the Group's adjusted performance can be found at pages 8-15. A reconciliation of the Group's adjusted performance to the Group's consolidated income statement is included in Appendix 2.

H1 revenue grew 11% to £3.4bn driven by the rapid expansion of our US business, where revenue was 50% higher, strong customer retention in Australia and the addition of Tombola.

Cost of sales as a percentage of net revenue increased by 310 basis points to 39.9% with a greater proportion of revenue coming from higher direct cost markets.

Operating costs were 17% higher in H1 driven by the US, where we increased marketing investment to acquire large volumes of new customers and scaled up our operational capabilities.

Reported EBITDA was £128m lower at £434m due to the increased US investment-led loss, regulatory changes in International markets and proactive safer gambling initiatives in the UK&I.

A reduced tax charge in the period of £61m resulted in a loss after tax of £112m, £26m higher than H1 2021. The lower tax charge was primarily due to a one off deferred tax charge of £105m in the prior year relating to the UK's main corporate tax rate change from 19% to 25% applicable from 1 April 2023. Loss per share of 64.7p decreased in line with the movement in the loss after tax.

Net current liabilities increased from £112m at 31 December 2021 to £439m at 30 June 2022 mainly due to the purchase of Tombola in January 2022 for £410m which was financed from the Group's cash resources. 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 reduced in the period from £10.3bn at 31 December 2021 to £10.2bn due to a reported loss after tax of £112m and the recognition of a £204m liability relating to the exercise of the Adjarabet put option. This was partially offset by the foreign currency translation impact relating to goodwill and intangible assets.

Net cash flow from operating activities reduced from £427m to £264m mainly due to EBITDA reducing by £128m. Other factors included a higher working capital outflow compared to the prior year period and higher tax payments. These were partially offset by amounts paid in respect of the Kentucky litigation in the prior year period.

A full analysis of the Group's Adjusted performance can be found at pages 8-15.

 

Separately disclosed items

	H1	H1
	2022	2021
Unaudited	£m	£m
Amortisation of acquisition related intangible assets	(286)	(276)
Transaction fees and associated costs	(10)	-
Restructuring and integration initiatives	(32)	(22)
Greece tax expense	-	(13)
Operating loss impact of separately disclosed items	(328)	(310)
Financial expense	-	(11)
Loss before tax impact of separately disclosed items	(328)	(321)
Tax credit / (charge) on separately disclosed items	39	(72)
Total separately disclosed items	(289)	(392)

Separately disclosed items do not relate to business as usual activity of the Group, are items that are volatile in nature or non-cash purchase price accounting amortisation and therefore are excluded from Adjusted profits.

Amortisation of acquisition related intangible assets increased £10m to £286m in H1. The current period will include a charge for Tombola, which was acquired in January 2022.

Transaction and associated costs of £10m were incurred for the acquisition of Tombola and Sisal, along with legal fees for the FOX arbitration.

Restructuring and integration costs primarily relate to the integration with TSG.

The tax credit of £39m primarily relates to a deferred tax credit in respect of the amortisation of acquisition-related intangibles.

 

Cash flow and financial position

	H1	H1
	2022	2021
Unaudited	£m	£m
Adjusted EBITDA	476	597
Capex	(156)	(138)
Working capital	(41)	18
Corporation tax	(132)	(92)
Lease liabilities paid	(21)	(27)
Adjusted free cash flow	127	358
Cash flow from separately disclosed items	(39)	(24)
Free cash flow	87	333
Interest cost	(46)	(70)
Other borrowing costs	(2)	(5)
Amounts paid in respect of Kentucky settlement	-	(71)
Purchase of shares by the Employee Benefit Trust ("EBT")	-	(89)
Acquisitions and disposals	(410)	(51)
Cash transferred in acquisitions/ disposals	15	18
Other	(3)	(4)
Net (decrease)/increase in cash	(360)	61
Net debt6 at start of year	(2,647)	(2,814)
Foreign currency exchange translation	(241)	26
Change in fair value of hedging derivatives	244	45
Net debt as at 30 June	(3,004)	(2,682)

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 of £127m in H1 compared with £358m in the prior year. This reduction reflects:

•     Capital expenditure of £156m which was £18m higher, primarily driven by continued investment in product and technology in the US

•     Corporate tax payments increased by £40m reflecting the change in the geographic mix of profits in H1 as a greater proportion of profits were earned in jurisdictions with higher tax rates, as well as the timing of payments and refunds in the period

•     A working capital outflow due to an unwind of accruals at 31 December 2021 and the prepayment of some US marketing assets during H1 when compared with a working capital benefit in the prior year

Cash flow from separately disclosed items of £39m principally relates to restructuring and integration costs in relation to the combination with TSG.

Interest costs were £24m lower than in the prior year due to the debt refinancing in July 2021 which significantly reduced the effective cost of debt for the Group.

The acquisition of Tombola in January resulted in a cash outflow of £410m.

As at 30 June 2022, the Group had net debt of £3,004m, excluding customer balances, representing a leverage ratio of 3.4x times⁶. 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 currency¹⁵ 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.

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, as not uniformly defined terms, it may not be comparable with measures used by other companies to the extent they do not follow the same methodology used by the Group. Non-GAAP measures should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with IFRS. All of the adjustments shown have been taken from the financial statements.

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 Adjusted EBITDA for the appropriate 12-month period.

⁷ Online sportsbook market share is the GGR market share of FanDuel and FOXBet for Q2 2022 in the states in which FanDuel was live based on published gaming regulator reports in those states. During Q2 2022 FanDuel was live in 15 states; Arizona (AZ), Colorado (CO), Connecticut (CT), Illinois (IL), Indiana (IN), Iowa (IA), Louisiana (LA), Michigan (MI), New Jersey (NJ), New York (NY), Pennsylvania (PA), Tennessee (TN), Virginia (VA), West Virginia (WV) and Wyoming (WY). During Q2 2022 FOXBet was live in 4 states; CO, NJ, MI and PA. Market share does not include AZ and IL for June as the data has yet to be released. Combined online market share is the GGR online sportsbook market share above plus the combined CT, MI, NJ, PA and WV market share of our gaming brands. 

⁸ 2023 profit projection is for full year 2023 including share based compensation and FOXBet. Projections are based on our current expectation of the timing of regulatory developments and new state launches in 2022 and 2023, and excludes California.

⁹ Global Play Well goal now 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. During H1, Flutter strengthened the measurement of this metric including a change to measure AMPs instead of active customers, apply more consistent tool usage definitions across the Group as well as including Adjarabet, Junglee and Tombola.

¹⁰ Includes Sisal revenue for H1 of £402m.

¹¹ Cost per acquisition is the cumulative cost per acquisition for FanDuel sportsbook and iGaming and represents the total media and digital marketing spend per acquired customer including those cross-sold from daily fantasy sports.

¹² The US business is not managed to EBITDA on a state by state or product basis given its shared cost base. For the purposes of illustrating FanDuel online sportsbook and iGaming state EBITDA, operating costs have been allocated to US product verticals on a GGR basis with an allocation to online sportsbook/casino business of each state based on the population of that state

¹³ Source: Redseer Strategy Consultants.

¹⁴ Includes the gross value of derivatives.

¹⁵ Constant currency ("CC") growth is calculated by retranslating the non-sterling denominated component of H1 2021 at H1 2022 exchange rates (see Appendix 3).