SBC News Flutter sees 24% drop in profits bitten by global regulatory demands

Flutter sees 24% drop in profits bitten by global regulatory demands

Flutter Entertainment Plc, the rebranded entity of Paddy Power Betfair, has seen its interim H1 2019 profits before tax drop by 24%, as FTSE100 betting group cites changes in regulations and taxation as the lead factor in its year-on-year performance decline.

Operating its enlarged portfolio of Paddy Power, Betfair, FanDuel (US), Sportsbet (AUS) and the recently acquired Adjarabet (CIS), Flutter saw group profits before tax drop to £81m despite an 18% increase in revenues for the half to £1.02bn.

Among the regulatory headwinds the company experienced were new staking limits on FOBTs and an increase in remote gaming duty in the UK, a doubling of tax on sports-betting stakes in Ireland, new point of consumption taxes in three Australian states, an increase in taxes in Italy, Sweden and Romania, and the switching off of operations in grey markets such as Switzerland, Serbia, Slovakia and Albania.

SBC News Flutter sees 24% drop in profits bitten by global regulatory demands
Peter Jackson – Flutter Entertainment

Flutter Chief Executive Peter Jackson commented: “We have had another productive six months at Flutter Entertainment plc. All divisions are performing strongly on an underlying basis and have responded well to the challenges faced. We are pleased with the progress we are making to build a more diversified and sustainable business.”

The introduction of the £2 stake limit for FOBTs in the UK on 1 April saw a drop of 44% in gaming machine revenues for Q2, just slightly above the company’s estimated 33% to 43% decrease. There was good news with sportsbook revenue growing by 5%, driven by a 4% increase in stakes, but the retail division overall saw a 26% decline in underlying EBITDA to £26m.

Online saw a 3% fall in underlying EBITDA to £118m with total net revenue increasing by 8% in H1 to £497m. Excluding the newly acquired Adjarabet however, revenue onluy increased by 1%.

The company reported: “In sportsbook, net revenue margin was approximately 20 basis points ahead of our expectations in H1 as customer-friendly results in February (racing) and March (football) were more than offset by favourable results in the second quarter, particularly in UK football. Sportsbook revenue for the Q2 period prior to the World Cup grew by 22% year on year. Normalising for sports results, we estimate that our underlying expected margin for the period was 7.5% versus 6.9% last year.

“This structural increase reflects positive customer bet mix changes, the rollout of sportsbook country-specific pricing in international markets and an increase in the size of our recreational customer base. International revenues grew in H1, driven by the launch of sportsbook country specific pricing. This change led to a significant reduction in low-value staking activity but as expected, this was more than offset by an improvement in our net revenue margin in these markets. Stripping out World Cup comparatives and the impact of market switch offs, net revenue across Betfair’s international sportsbook grew 30%.”

Exchange and B2B revenue declined by 2% in the period with an increase of 1% in Q1 offset by a decline of 4% in Q2 due to World Cup comparatives. Exchange and B2B revenues were flat year-on-year in the Q2 period prior to the World Cup. Gaming revenue was up 29% in H1, or 8% excluding Adjarabet.

Flutter’s Australian brand Sportsbet ‘delivered a strong first half with great momentum in the business’. This translates to net revenue increasing by 16% with the blended net revenue margin of 9.8% matching the expected margin in the half. This also meant that underlying EBITDA was close to flat year-on-year despite a £24m headwind from the introduction of POC in the majority of states on 1 January as well as some additional product fee increases.

Jackson added: “In Australia, Sportsbet’s ongoing delivery of innovative products, appealing marketing and recreational focus has led to excellent performance. Our decision to increase investment ahead of the introduction of point of consumption tax has been vindicated, with Sportsbet’s earnings close to flat despite this very significant tax increase.”

The company also had a happy outlook in the US where its interests comprise of FanDuel, horseracing TV and wagering network TVG, and New Jersey online casino Betfair Casino. Proforma revenue in the US division was 46% higher, reflecting 5% revenue growth in the established sports businesses (daily fantasy and TVG), strong growth in Casino gaming revenue and £35m of sports betting net revenue.

Jackson commented: “In the US, our FanDuel brand and product proposition enabled us to take 50% of the sports-betting market in New Jersey in H1. We are delighted with this performance and have been encouraged by the regulatory momentum that has seen 10 states regulate online sports betting since the repeal of PASPA.

“Cross-sell is an important contributor to our success, with around half our customers in New Jersey coming from our existing daily fantasy business, while strong cross-sales have delivered 15% market share in online casino. We have recently gone live in Pennsylvania, where we are one of the first operators to launch online, and we hope to replicate our success there too.”

Flutter Entertainment – Group Overview – H1 2019

SBC News Flutter sees 24% drop in profits bitten by global regulatory demands

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