TIDMPPB
RNS Number : 6758Y
Paddy Power Betfair plc
07 March 2017
7 March 2017
Paddy Power Betfair plc
Preliminary Results for the year ended 31 December 2016
Paddy Power Betfair plc (the "Group") announces preliminary
results for the year ended 31 December 2016.
Highlights
-- 2016 Proforma results(1) :
- Revenue up 18% to GBP1,551m, with double-digit growth across
all four operating divisions
- Underlying EBITDA(2, 3) up 35% to GBP400m with EBITDA margin
increased to 26% from 22%
- Underlying operating profit(2,3) and EPS both increased 44%,
to GBP330m and 331p per share, respectively
- Final dividend of 113p per share results in total dividends
for the year of 165p per share(4)
-- Merger integration:
- Key integration actions and operational changes required to
realise cost synergies completed in 2016
- 2017 focus is on fully unlocking the Group's potential through
the integration of technology platforms
-- Current trading:
- Trading in 2017 to date has been in line with our
expectations, with Group sportsbook stakes up 22% or 12% in
constant currency(5) .
Breon Corcoran, Chief Executive, commented:
"2016 was a transformational year for Paddy Power Betfair with
much of the integration of the businesses completed sooner and more
efficiently than expected.
The integration of our technology platforms is on track and
customers are already seeing some benefits, including more markets
and better odds.
In keeping with our dual brand strategy, we are serving
different parts of the market with distinct value propositions. For
instance, at Cheltenham next week Paddy Power has a generous money
back offer for second place and Betfair will reward winners with a
free bet offer and exceptional odds.
We have created a business with considerable scale that is
stronger and better able to compete than either of the individual
legacy companies. The Group is well positioned to deliver
sustainable, profitable growth".
Financial summary
Proforma(1) , underlying(3) Statutory
results results
GBPm 2016 2015 Change 2016 2015
GBPm GBPm % GBPm GBPm
----------------- --------------- -------------- -------------- ------- ------
Revenue 1,551 1,318 +18% 1,501 794
EBITDA(2) 400 296 +35% 264 163
Operating profit 330 229 +44% 15 125
Earnings/(loss)
per share 330.9p 229.8p +44% (7.2)p 239.9p
Dividends per 165p n/a
share(4)
Notes:
(1) The merger of Paddy Power plc ("Paddy Power") and Betfair
Group plc ("Betfair") completed on 2 February 2016 and is accounted
for as an acquisition of Betfair by Paddy Power on that date. The
reported statutory results reflect this accounting treatment in
accordance with generally accepted accounting principles (GAAP) and
only include Betfair results since the merger completion on 2
February 2016 and no Betfair results for the 2015 comparative. This
announcement also includes results prepared on a "Proforma" basis
(non-GAAP basis) for the Group as if Paddy Power and Betfair had
always been merged, which combine the full 12 month results of
Paddy Power and Betfair for 31 December 2016 and 2015. The
directors consider that this is the most appropriate information
for understanding and analysing the performance of the Group and
accordingly, in the narrative, the results are discussed on a
Proforma basis. A reconciliation between the statutory and the
non-GAAP proforma, underlying financials is included in Appendix 2
(page 18)
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure (see Appendix 2 on
page 18).
(3) The "underlying" measures remove the effects of the Merger
exceptional costs that are not part of the usual business activity
of the Group and are also excluded when internally evaluating
performance, which have been therefore reported as "separately
disclosed items" (see note 4 and page 33 to the financial
statements and Appendix 2 on page 18)
-(4) Full year dividend includes closing dividends paid on
merger relating to January 2016 equating to 12 pence per share, the
interim dividend paid in September 2016 of 40 pence per share and
the proposed final dividend of 113 pence per share
(5) Constant currency ("cc") growth is calculated by
retranslating non-sterling denominated component of the prior year
comparative at current year exchange rates
Analyst briefing:
The Group will host a presentation for institutional investors
and analysts this morning at 10:00am (IST/BST). The presentation
will be webcast live on the Group's corporate website
(www.paddypowerbetfair.com) and a conference call facility will
also be available. To dial into the conference call, participants
should dial 0844 800 3850 or 0208 996 3900 from the UK, (01) 242
1074 from Ireland and +44 844 800 3850 from elsewhere. The passcode
is 284 923 93.
A presentation replay facility will be available later today on
our corporate website:
https://www.paddypowerbetfair.com/investor-relations/results-centre/2017.
Contacts:
+ 44 20 8834 6139
Paul Rushton, Investor Relations / + 353 1 903 9105
+ 44 20 8834 6843
James Midmer, Corporate Communications / + 353 1 903 9106
Billy Murphy, Drury / Porter
Novelli + 353 1 260 5000
Rob Greening / Simon Compton,
Powerscourt + 44 20 7250 1446
About Paddy Power Betfair
Paddy Power Betfair plc is one of the leading sports betting and
gaming groups in the world.
The business was formed from the February 2016 merger of Paddy
Power plc and Betfair Group plc and has four divisions:
Online, which runs two of Europe's leading online sports betting
and gaming brands, Paddy Power and Betfair, as well as a telephone
based sportsbook and a number of B2B partnerships
Australia, consisting of Sportsbet, the market leader in the
fast-growing Australian online betting market
US, which combines TVG, America's leading horse-racing TV and
betting network, Betfair Casino, an online casino in New Jersey,
and the Betfair New Jersey Exchange
Retail, which operates 615 Paddy Power betting shops across the
UK and Ireland
Following the successful merger, Paddy Power Betfair's strategy
is to create and sustain a world class, high performing business by
strengthening or developing leading positions in large regulated
markets. This will be achieved by generating superior returns
through scale, capability and innovation, fuelled by focussed
investment in people, technology, product, risk, trading and
marketing, primarily in mobile online sports betting.
Business Review
The completion of the merger on 2 February 2016 created a Group
with leading positions in the largest regulated online markets as
well as an increasing exposure to a number of other international
markets. The Group has leading, differentiated sports betting
products, a portfolio of distinctive, complementary sports-led
brands, and significant in-house technology and marketing
capabilities.
Proforma financial performance(1)
For statutory purposes the Group reported a loss of GBP5.7m
which is primarily due to expenses relating to the merger that have
been recognised as separately disclosed items. In addition, the
statutory results only reflect the contribution from the Betfair
business from the merger completion date. Accordingly, underlying
proforma results have been presented in this Business Review as
this best reflects the performance of the Group. A reconciliation
between the statutory and underlying proforma financials is
included on page 18.
The Group maintained good trading momentum during a year of
considerable operational change. Revenue was up 18% to GBP1,551m
(2015: GBP1,318m), with good performances across all four operating
divisions. This, combined with efficiencies arising from the
integration of the businesses and continued operating leverage,
resulted in a 35% increase in underlying EBITDA(2,3) to GBP400m
(2015: GBP296m).
Integration and delivery of cost synergies
Our key focus in 2016 was on integrating the legacy businesses
to achieve an optimal operational structure, to create a distinct
corporate culture and identity, and to realise cost synergies.
The integration progressed ahead of schedule and the key
integration actions and operational changes required to realise the
cost synergies are now complete. Therefore, from the 2017 financial
year, we will benefit from total cost synergies of GBP65m per annum
(GBP35m benefit in 2016). The one-off implementation cost to
achieve the synergies was GBP66m and was fully incurred in
2016.
Strategic update
The merger of two strong businesses provided an opportunity to
create an even stronger Group by (i) capitalising on our enhanced
scale, (ii) combining the best people, assets and practices from
each business, and (iii) optimising the positioning of our two main
brands. Over the last six months, we have made good progress in
each of these areas and have also developed technology and product
strategies that we believe best position us for long term
success.
1. Capitalising on our enhanced scale
We believe that scale is an important determinant of long-term
success in the online betting and gaming industry and that it can
facilitate a virtuous cycle of profitable growth. Revenue growth is
driven by ongoing investment in the customer proposition and the
fixed nature of a significant part of our cost base means that
efficiency improves with scale, leading to expansion of operating
profit margins and facilitating profitable growth and ongoing
investment.
Our enhanced scale enables us to improve our competitive
positioning by investing more as a combined group than either
legacy business was able to do alone. For example, we now have over
1,000 in-house product development specialists and invest
approximately GBP300m annually in marketing across the Group.
Increased scale is also improving our operating efficiency. In
2016, the average cost to serve our online customers, defined as
operating costs excluding marketing spend, decreased by 18% in
constant currency, contributing to a 4 percentage point increase in
our online EBITDA margin. Efficiency should further improve when
our platform integration work is complete.
In addition to driving higher returns within our existing
markets, our scale positions us better to withstand regulatory
headwinds and when combined with our enhanced technology and
operational capabilities, gives us greater capacity to enter new
markets as opportunities arise.
2. Combining the best assets and capabilities of each legacy
business
The key operational areas where the relative strengths of each
legacy business are being used to create a stronger combined
business are technology and product development, risk and trading
and digital marketing:
Technology and product development
Our objective is to operate an efficient, scalable and flexible
platform that supports our multiple brands, channels and
jurisdictions. This will enable us to unlock the full potential of
the Group's scale and deliver a number of key benefits, including
increased pace of development, faster roll out of new product and a
reduction in the investment required to enter new markets.
To achieve this, we are enhancing the modular, predominantly
in-house architecture of Betfair's existing platform with key
functionality of the Paddy Power platform as well as further
developing the platform's overall capabilities, flexibility and
scalability. Once this is completed, the Paddy Power brand will
migrate to this platform.
This integration work is progressing well. The integration onto
the Betfair platform of Paddy Power's market leading proprietary
pricing and risk management platforms is substantially complete
with the majority of the Betfair sportsbook now traded on the
integrated platform. Paddy Power's proprietary gaming content is
available to Betfair customers, representing approximately 30% of
its 'Arcade' revenues. Other changes that have been completed
include the harmonisation and upgrade of cyber security protection,
and enhancements in areas such as fraud detection, customer
verification and payments processing.
We expect to complete the integration of our European online
platforms by the end of 2017. Until then, new product releases on
the Paddy Power brand will be relatively limited, but on completion
customers will see immediate benefits. These include access to an
improved cash out product, a new proprietary desktop, greater
promotional flexibility and certain product features that are
currently only available to Betfair customers.
Importantly, this also means that new products will be
immediately available for use on either of our brands, greatly
improving the efficiency of our development spend.
Risk and trading
The integration of our risk and trading function is now
substantially complete. Moving to an integrated trading platform
across the Group is enabling us to operate more efficiently and
with greater flexibility across our brands, channels and
jurisdictions. The increase in the volume of bets driving our
pricing models, the sharing of data and processes between our
brands, and the use of our exchange has improved our overall
pricing and risk management capability. Importantly, the platform
will have the flexibility that means traders can price an event
once and then offer different odds across different brands and/or
jurisdictions.
The most significant benefits of the integration are being seen
on the Betfair sportsbook which, due to its lack of scale prior to
the merger, used third party pricing sources for most sports and
the majority of its markets. Paddy Power proprietary pricing and
risk management tools are now used for over 85% of bets on the
Betfair sportsbook, and for 19 sports. Within the next few months,
all markets will operate on the integrated platform.
This change has had two major customer-facing benefits: (i) it
has enabled a broader range of markets to be offered with, outside
of football and racing, a 70% increase in the number of in-play
betting events now offered on the Betfair sportsbook; and (ii) it
significantly improves the accuracy and responsiveness of pricing,
allowing us to provide even better value to customers at any given
expected gross win margin. This has facilitated our brand pricing
strategy, as described below.
Notwithstanding the integration work, we have continued to
invest in our proprietary models. In January 2017, we launched the
next generation of our in-house football model. This model enables
more accurate pricing, reduced in-play market suspension time (to
less than one minute over an average football match, down from
around five minutes previously), a greater range of markets, and
faster bet acceptance and settlement.
Digital marketing
We are now using the best technology systems and processes from
each legacy business, resulting in both our brands having access to
a stronger shared digital marketing capability.
In CRM, for example, since December 2016 both brands have been
operating on a platform that has more advanced algorithms and
greater automation, enabling more efficient, targeted and optimised
messaging. This is improving the reach and efficacy of our customer
retention activity.
Operating two individual brands on an integrated shared function
is also proving to be beneficial for efficiency. The pooling of
analytics data has improved our econometric modelling, giving us
greater insight into the effectiveness of marketing activity and
leading to improved optimisation of spend. For example, we can
better test the effectiveness of different approaches to promotions
on a particular event and up weight activity that is driving the
most effective returns. Co-ordinated bidding for assets, such as
keywords on paid search, is also improving the efficiency of our
marketing spend.
3. Optimising our brand positioning in the UK and Ireland
Within the UK and Ireland we have two leading sports-led brands
which appeal to distinct market segments and have limited customer
overlap. Accordingly we believe a dual brand approach is
appropriate to that market whilst internationally (excluding
Australia and the USA) we will focus exclusively on a single sports
brand, Betfair.
In the UK and Ireland we are seeking to maximise growth by
optimising the positioning of our two complementary brands across
market segments. Accordingly, whilst both brands are supported by
shared digital marketing, risk & trading and customer
operations, their consumer propositions will remain distinct.
The Betfair brand is primarily focused on customers whose
motivations to bet are value-related, and accordingly its marketing
communications have a key emphasis on highlighting its strong value
proposition along with its leading product functionality. The Paddy
Power brand is focused on customers whose primary motivations are
social interaction and entertainment, in addition to value.
Therefore the brand's marketing communications are focussed on
cultivating its distinctive personality, supported by standout
headline promotional offers and attractive pricing on the most
popular bets.
Each brand's distinct strategy for providing customer value is
illustrated by its football proposition. Paddy Power offers market
leading odds on the most-backed Premier League favourites alongside
attractive promotions such as the current "2 Up - you win" offer,
which pays out immediately when the team you back goes two goals
up, regardless of the final result. Conversely, the Betfair
exchange and sportsbook offer consistently strong pricing on all
selections, with market leading overrounds on Premier League
matches.
Operating dual brands is also advantageous for targeting
customers at key events. At Cheltenham, our brands' headline offers
appeal to two distinct customer mind-sets with Betfair rewarding
customers with a free bet for each winning bet at odds of 3/1 or
higher and Paddy Power compensating customers for near misses with
its 'Money-back if 2(nd) ' offer.
Market research shows that Betfair customers consistently rate
Betfair as offering best odds in the market and that Paddy Power
customers see the brand as being the most fun and entertaining
betting brand. We believe our targeted brand approach allows us to
further capitalise on these distinct brand strengths, whilst our
overall enhanced product and operations capabilities can also allow
both brands to further extend their reach.
Current trading and outlook
The new financial year has started in line with our
expectations. Group sportsbook stakes in the year to date are up
22% or 12% in constant currency ("cc"), with Online up 13% (cc 9%),
Australia up 47% (cc 19%) and Retail up 15% (cc 7%).
Our industry remains highly competitive and exposed to external
factors including the economic and regulatory environment. However,
our scale, market positions and leading capabilities position us
well for sustainable profitable growth and we look forward to the
future with confidence.
Operating and Financial Review(1)
For statutory purposes the Group reported a loss of GBP5.7m
which is primarily due to expenses relating to the merger that have
been recognised as separately disclosed items. In addition, the
statutory results only reflect the contribution from the Betfair
business from the merger completion date. Accordingly, underlying
proforma results have been presented in this Operating and
Financial Review as this best reflects the performance of the
Group. This announcement also includes results prepared on a
"Proforma" basis (non-GAAP basis) for the Group as if Paddy Power
and Betfair had always been merged, which combine the full 12 month
results of Paddy Power and Betfair for 31 December 2016 and 2015.
The directors consider that this is the most appropriate
information for understanding and analysing the performance of the
Group and accordingly, in the narrative, the results are discussed
on a Proforma basis. A reconciliation between the statutory and
underlying proforma financials is included on page 18.
Group
GBPm 2016 2015 Change Constant
Proforma(1) GBPm GBPm % Currency(5)
Change
%
------------------------------ ------ ------ ------ ------------
Sportsbook stakes 9,890 7,999 +24% +16%
Sportsbook net revenue
% 8.7% 8.8% -0.1% -0.1%
Sports revenue 1,198 1,009 +19% +11%
Gaming revenue 353 309 +14% +12%
------ ------ ------ ------------
Total revenue 1,551 1,318 +18% +11%
Cost of sales (357) (311) +15% +9%
------ ------ ------ ------------
Gross profit 1,194 1,007 +19% +12%
Sales and marketing (293) (231) +27% +21%
Product and technology (148) (147) +1% -7%
Operations (296) (271) +9% +1%
Central costs (58) (62) -8% -14%
------ ------ ------ ------------
Total operating costs (794) (711) +12% +4%
------ ------ ------ ------------
Underlying EBITDA(2,
3) 400 296 +35% +31%
Underlying EBITDA margin
% 25.8% 22.4% +3.4% +3.8%
Depreciation and amortisation (70) (67) +4% -5%
------ ------ ------ ------------
Underlying(3) operating
profit 330 229 +44% +42%
Separately disclosed
items (318) (9) n/a n/a
------ ------ ------ ------------
Operating profit 12 219 -94% -95%
------ ------ ------ ------------
Underlying(3) earnings
per share 330.9p 229.8p +44%
Dividends per share(4) 165p n/a
Net cash at year end(6) GBP36m GBP84m
Group revenue increased by 18% to GBP1,551m, with sports
revenues increasing by 19% and gaming revenues increasing by 14%.
Revenue growth included a GBP78m benefit from the translation of
non-UK revenues due to the weakness of sterling versus the prior
year. On a constant currency ("cc")(5) basis, revenue growth was
11%.
Sports revenue growth was driven by a 24% increase in sportsbook
stakes (cc +16%). During the year, sports results ebbed and flowed
between favouring bookmakers and customers. The first quarter saw a
high number of favourites winning at the Cheltenham festival,
before unfancied results at the Euro 2016 tournament boosted
revenues in June and July. The year concluded with customer
friendly football results in December. Across the year as a whole,
the overall group sportsbook net revenue percentage was broadly in
line with the prior year but was marginally lower than our normal
expectations.
Revenue from regulated markets represented 95% of total revenues
in 2016 (2015: 94%).
Revenue growth combined with operational leverage led to a 35%
increase in underlying EBITDA to GBP400m (2015: GBP296m),
representing an EBITDA margin of 26% (2015: 22%). Underlying
operating profit increased by 44% to GBP330m (2015: GBP229m).
Underlying EBITDA included an GBP11m foreign exchange translation
benefit and increased by 31% on a constant currency basis.
Cost of sales were adversely affected by GBP7m of new taxes and
product fees. Total operating costs increased by 12%, or by 4% on a
constant currency basis. Within this, sales and marketing spend
increased by GBP62m or 27% (cc +21%), driven by Euro 2016,
increased competitive intensity and continued asset inflation.
Other operating cost growth, which benefitted from merger
synergies, increased by 4%, which represented a 3% reduction in
constant currency.
After separately disclosed items, which related entirely to the
merger, the Group recorded an operating profit of GBP12m (2015:
GBP219m).
Online
GBPm 2016 2015 Change Constant
Proforma(1) GBPm GBPm % Currency(5)
Change
%
------------------------------ ----- ----- ------ ------------
Sportsbook stakes 5,266 4,416 +19% +16%
Sportsbook net revenue
% 6.6% 6.6% Flat Flat
Sports revenue 609 534 +14% +10%
Gaming revenue 245 214 +14% +12%
----- ----- ------ ------------
Total revenue 853 748 +14% +11%
Cost of sales (193) (178) +8% +5%
----- ----- ------ ------------
Gross profit 661 570 +16% +12%
Sales and marketing (195) (159) +23% +19%
Product and technology (111) (117) -6% -13%
Operations (65) (66) -2% -8%
Total operating costs (371) (343) +8% +3%
----- ----- ------ ------------
Underlying EBITDA(2,3) 289 227 +27% +28%
Depreciation and amortisation (34) (36) -6% -13%
----- ----- ------ ------------
Underlying operating
profit(3) 255 191 +34% +36%
----- ----- ------ ------------
Active customers (000's)^ 3,904 3,511 +11%
Online division includes the UK/Ireland telephone business.
^ Active customers throughout this statement are defined as
those who have deposited real money and have bet in the reporting
period, excluding indirect B2B customers. Note that the active
customer numbers have not been adjusted for customers who were
active on both the Paddy Power and Betfair brands.
The Online division includes the online brands of Paddy Power
and Betfair, the Paddy Power telephone sportsbook, as well as a
number of B2B partnerships.
Revenue increased by 14% to GBP853m (cc +11%). Within this,
revenue from regulated markets was up 16% (cc +13%) and unregulated
market revenues fell by 2% (cc -11%), due primarily to the
year-on-year impact on the first half from exiting from Portugal in
July 2015. Active customers increased by 11% driven by sportsbook
acquisition growth across both our brands, including at Euro
2016.
Sports revenue increased by 14% to GBP609m (cc +10%). This was
comprised of a 19% (cc +16%) increase in sportsbook stakes and 7%
(cc +3%) growth in exchange and B2B revenues.
During the year we continued to launch innovative new betting
features such as 'Each Way Edge' on the Betfair sportsbook. The
feature builds on the success of 'Acca Edge' and allows customers
to choose their own each way terms on a racing bet, to either
increase their chances of winning or enhance their potential
winning returns. Since launching in December, the product has
proved popular, with 15% of racing customers on the Betfair
sportsbook using the feature last month.
We have also enhanced sports streaming from January 2017 on both
the Betfair and Paddy Power apps, along with making incremental
improvements to our exchange product, including an updated desktop
front end, increased personalisation and quicker bet placement.
Gaming revenue increased 14% to GBP245m (cc +12%), with growth
continuing to be driven by cross-sell from sports and mobile.
Gaming growth slowed in the fourth quarter, primarily attributable
to lower direct gaming activations on our Paddy Power brand, a
reduction in Betfair sports customers cross-sold to gaming and
reduced year-on-year VIP activity across both brands. Direct
activations on Paddy Power were impacted by a reduction in gaming
TV advertising and in response we increased TV advertising from
mid-December.
Underlying EBITDA increased by 27% to GBP289m (cc +28%) and
underlying operating profit increased by 34% to GBP255m (cc +36%).
Total operating costs increased by 8% (cc +3%) versus the 14% (cc
+11%) revenue growth, with 23% growth in sales and marketing costs
(cc +19%), driven by continued asset inflation and Euro 2016,
offset by the benefit of merger synergies and underlying low cost
growth across other cost categories.
Australia(7)
GBPm 2016 2015 Change Change
GBPm GBPm % %
GBP A$
----------------------- ----- ----- ------ ------
Sportsbook stakes 2,911 2,053 +42% +25%
Sportsbook net
revenue % 10.7% 11.3% -0.6% -0.6%
Revenue 312 232 +34% +18%
Cost of sales (80) (58) +38% +20%
----- ----- ------ ------
Gross profit 231 174 +33% +17%
Sales and marketing (72) (51) +41% +28%
Product and technology (24) (19) +24% +11%
Operations (41) (34) +22% +4%
Total operating
costs (137) (104) +32% +17%
----- ----- ------ ------
Underlying EBITDA(2,
3) 94 70 +35% +18%
Depreciation and
amortisation (10) (9) +11% -2%
----- ----- ------ ------
Underlying(3)
operating profit 84 61 +38% +21%
----- ----- ------ ------
Active customers
(000's) 956 767 +25%
The Australia division operates under the Sportsbet brand and is
the market leader in the Australian online betting market.
Stakes continued to grow strongly in 2016, up 25% to GBP2.9
billion, despite the intensified level of competition, and was
driven by 25% growth in active customers. Revenue, up 18% to
GBP312m, was impacted by adverse sports results, in particular in
horseracing during the first half of the year.
The first nine months of the year benefited from strong growth
in telephone in-play betting, driven by our 'Bet Live' product.
This product was released in December 2015 but was withdrawn on 4
October 2016 following regulatory changes. In the first three
quarters of 2016 in-play betting contributed 14% of stakes and 7%
of revenue versus 6% and 3%, respectively in the prior year. In the
fourth quarter, the in-play mix broadly returned to levels seen
prior to the launch of 'Bet Live'.
We continue to invest in Sportsbet's product and marketing to
maintain our online market leadership position. Key product
releases in 2016 included 'Multibuilder' and 'Same Game Multi',
which enhance accumulator betting, and 'Power Play' which
encourages customer loyalty by allowing them to trigger a daily
power play that increases the odds on their selection. It was
launched on racing ahead of the Spring Carnival and in January 2017
was extended to Big Bash cricket and Australian Open tennis. For
the upcoming 2017 seasons we have secured sponsorship of
free-to-air TV coverage of AFL to complement our continued
sponsorship of the equivalent NRL coverage.
Underlying EBITDA increased by 18% to GBP94m (2015: GBP70m).
This was driven by 39% growth in the second half of the year which
offset a 10% decline in the first half's profits. The improvement
in the second half, whilst benefitting from a reduced year-on-year
impact from both sports results and product fee rate increases, was
primarily driven by a reduction in operating cost growth from 30%
to 7%. The slowdown in cost growth partially reflected the lapping
of a significant operational expansion during the second half of
2015 but was also due to an increased focus on achieving operating
efficiencies.
Retail
GBPm 2016 2015 Change Constant
GBPm GBPm % Currency(5)
Change
%
------------------------------ ----- ----- ------ ------------
Sportsbook stakes 1,713 1,530 +12% +4%
Sportsbook net revenue
% 11.6% 11.7% -0.1% -0.1%
Sports revenue 198 178 +11% +3%
Machine gaming revenue 97 88 +10% +10%
----- ----- ------ ------------
Total revenue 295 266 +11% +6%
Cost of sales (63) (58) +7% +4%
----- ----- ------ ------------
Gross profit 233 208 +12% +6%
Sales and marketing (7) (6) +9% +3%
Product and technology (6) (5) +10% +5%
Operations (158) (145) +9% +5%
Total operating costs (170) (156) +9% +5%
----- ----- ------ ------------
Underlying EBITDA(2,
3) 62 52 +21% +10%
Depreciation and amortisation (18) (15) +16% +10%
----- ----- ------ ------------
Underlying(3) operating
profit 45 36 +23% +10%
----- ----- ------ ------------
Shops at year end 613 598 +3%
The Retail division operates 613 Paddy Power betting shops
across the UK and Ireland. The business continues to take market
share, leading to revenue growth of 11% to GBP295m (cc +6%). This,
along with careful cost control drove a 23% increase in underlying
operating profit to GBP45m (up 10% excluding currency benefit).
Revenues from UK shops increased by 8% and Irish shop revenues
were up 2% in local currency. Excluding the impact of new shops and
year-on-year currency movements, like-for-like(8) revenues
increased by 3% and operating costs increased by 2%. The
like-for-like(8) revenue growth was comprised of a 1% increase in
both sportsbook stakes and revenues, and a 7% increase in machine
gaming growth, primarily driven by growth from B3 slots
content.
Our average EBITDA(2) per shop in 2016 was GBP103,000 which is
significantly higher than the average of our major competitors. Our
high quality retail estate has been built around providing a fun,
social environment focused around live sport and we are continually
improving our customer experience with new products. The launch of
our exclusive 'Track My Bet' service on our Self Service Betting
Terminals ("SSBTs"), along with in-store self-service online
sign-up tablets and cross-channel promotions of our Hotshot Jackpot
game successfully target multi-channel customers. In December, we
introduced free WiFi to all our stores and in January 2017 we
released a new retail app 'Paddy Power Onside' which allows us to
bring some of the benefits of digital into our retail estate and
provides another platform for online cross-sell.
During the year we were able to selectively identify additional
shop locations which could further enhance the quality and coverage
of our estate and we opened 12 new shops in the UK and four in
Ireland. We also closed one UK shop.
US(7)
GBPm 2016 2015 Change Change
Proforma(1) GBPm GBPm % %
GBP US$
----------------------- ----- ----- ------ ------
Sports revenue 79 64 +24% +10%
Gaming revenue 12 7 +56% +39%
----- ----- ------ ------
Total revenue 91 71 +28% +13%
Cost of sales (21) (16) +34% +18%
----- ----- ------ ------
Gross profit 70 55 +26% +11%
Sales and marketing (18) (15) +24% +14%
Product and technology (8) (5) +56% +44%
Operations (31) (26) +21% +6%
Total operating
costs (57) (45) +26% +12%
----- ----- ------ ------
Underlying EBITDA(2,3) 12 10 +25% +6%
Depreciation and
amortisation (9) (7) +20% +5%
----- ----- ------ ------
Underlying(3)
operating profit 4 3 +39% +9%
----- ----- ------ ------
Active customers
(000's) 139 131 +6%
The US division combines TVG, America's leading horseracing TV
and betting network (operating in over 30 states), Betfair Casino,
an online casino in New Jersey, and the Betfair New Jersey
Exchange.
Revenue increased by 13% to GBP91m, driven by growth in both our
TVG and Betfair New Jersey businesses, and EBITDA increased by 6%
to GBP12m.
In TVG, revenue increased by 9% as the business continued to
increase its market share.
The online casino in New Jersey continues to see strong revenue
growth, and is now operating at breakeven EBITDA after a couple
years of start-up losses.
In May, under the Betfair brand we launched the US market's
first online exchange wagering platform for horseracing in New
Jersey. Whilst the size of that market is limited, it is a good
opportunity to test consumer demand for exchange betting and to
attract new customers to the overall horseracing betting
market.
Regulatory update
In the UK budget in March 2016, it was announced that from
August 2017 the treatment of free bets for online gaming point of
consumption tax will change to bring it in line with their
non-deductibility for sports. We estimate the impact of this change
will be approximately GBP6m per annum.
The British Government has announced that from April 2017 the
statutory Horserace Betting Levy will be extended to cover all
operators and it will become mandatory to pay the levy at of rate
of 10% of gross winnings from all customers in Great Britain
betting on British racing. While our Betfair brand already makes
contributions to British racing through the Authorised Betting
Partner scheme, we estimate that the net incremental impact of the
new scheme will be approximately GBP10m per annum for the
Group.
In October 2016, the UK Government launched its Review of Gaming
Machines and Social Responsibility Measures, which is reviewing the
maximum stakes and prizes for, and the number and location of,
gaming machines across all licensed premises (including licensed
betting offices) and also is reviewing social responsibility
measures to protect players from gambling-related harm, including
reviewing restrictions around gambling advertising.
In October 2016, the UK Competition and Markets Authority
announced that it was conducting an investigation into UK online
gambling operators. The investigation is part of joint programme of
work with the Gambling Commission following concerns raised by the
Gambling Commission about potential breaches of consumer law and
the fairness of licensees' consumer-facing terms amongst operators.
The CMA have indicated that they will be providing a further update
in April 2017.
In June 2015, the EU 4(th) Anti-Money Laundering Directive was
published. All EU member states have two years to transpose the
directive's requirements into national law and therefore we expect
any necessary changes to be published ahead of June 2017.
In April 2016, the Australian Federal Government announced an
intention to ban credit betting along with a series of consumer
protection measures. We do not anticipate that either of these
changes will materially affect our business given the limited use
of credit by our customers and our pre-existing responsible
gambling measures.
In June 2016, the Government in South Australia announced that
it will introduce a 15% place of consumption tax in the state,
effective from July 2017. In 2016, revenues from South Australian
customers represented 7% of our total Australian revenues.
Responsible gambling
Operating responsibly is essential to the ongoing sustainability
of our business and ensuring our customers, across all of our
brands and geographies, bet safely and responsibly is of the
highest importance. Following the completion of the merger we have
continued to develop our systems and processes towards greater
transparency and responsibility.
We have standardised and expanded our online and retail tools,
enabling customers to better manage their play. We also continue to
participate in a wide-range of industry and government initiatives
to promote responsible gambling, including being a key participant
in the Senet Group and a cornerstone partner of a new Multi
Operator Self Exclusion Scheme ("MOSES") in retail.
During 2016, Sportsbet helped to establish Responsible Wagering
Australia, an industry group with the objective of ensuring that
Australia has the best conducted, socially responsible wagering
industry in the world.
Separately disclosed items
GBPm 2016 2015
Proforma(1) GBPm GBPm
---------------------------------------- ----- -----
Merger deal expenses (50) (6)
Merger integration expenses (66) -
Restructuring costs (pre-merger) - (3)
Non-cash merger related items:
Intangible asset amortisation (174) -
Fair value adjustment for replacement
share-based payment awards (22) -
Impairment of assets (6) -
----- -----
Total separately disclosed items (318) (9)
All the 2016 separately disclosed items relate specifically to
the merger and therefore are excluded from underlying profits.
Merger deal expenses include costs, fees and stamp duty incurred to
complete the merger. These costs totalled GBP56m, with GBP50m
incurred in the first half of 2016 and GBP6m incurred in the second
half of 2015.
Merger integration expenses are one-off costs incurred to
achieve recurring cost synergies. These expenses, totalling GBP66m,
were fully incurred in 2016 and related primarily to the costs
associated with the rationalisation of duplicated roles, shifting
of technology resources to our existing European development
centres, the closure of five offices and the consolidation of our
data centres.
The merger is accounted for as an acquisition of Betfair by
Paddy Power with the accounting treatment therefore resulting in
the recognition of a number of non-cash items. These include
amortisation of intangible assets (GBP174m in 2016), a fair value
adjustment on the replacement of legacy Betfair share-based payment
awards for equivalent awards in the Group on completion (GBP22m in
2016) and asset impairments of GBP6m in relation to assets impaired
as a result of integration actions taken.
Taxation
The Group's underlying effective tax rate was 15.5% (2015:
15.6%).
Capital expenditure
The Group had GBP85m(9) of capital expenditure in 2016 (2015:
GBP92m). Approximately 20% of the expenditure related to our retail
business with the remainder primarily related to technology
projects and product development.
Cash flow and financial position
GBPm 2016 2015
Proforma(1) GBPm GBPm
----------------------------- ----- -----
Underlying EBITDA(2,
3) 400 296
Capex(9) (85) (92)
Working capital and
tax (63) 32
----- -----
Underlying free cash
flow 252 236
Cash flow from separately
disclosed items (104) (9)
Free cash flow 148 227
Dividends paid (179) (88)
Return of capital (including
fees) - (484)
Interest and other
borrowing costs (2) (1)
Other 2 (11)
Net decrease in cash (31) (357)
Net cash at start of
the year 84 453
Movement to restricted
cash (8) -
Foreign currency exchange
translation (9) (12)
Net cash at year end(6) 36 84
----------------------------- ----- -----
The Group's profits convert strongly into cash flow, with
underlying free cash flow of GBP252m representing 91% of underlying
profit after tax in 2016.
As at 31 December 2016, the Group had net cash of GBP36m,
excluding customer balances.
Dividend and capital structure
In line with our dividend policy, the Board continues to target
a pay-out ratio for the Group's dividend of approximately 50% of
underlying profits after tax. Accordingly, a final dividend of 113p
per share has been proposed, taking the full year dividend for 2016
to 165p per share(4) . The ex-dividend date will be 6 April 2017,
the record date will be 7 April 2017 and payment will be on 24 May
2017.
The efficiency of the Group's capital structure is kept under
regular review by the Board. Relevant considerations include the
Group's strong cash flow generation, its investment plans and
general capital market conditions.
______________________________________________________________________________________
(1) The merger of Paddy Power plc ("Paddy Power") and Betfair
Group plc ("Betfair") completed on 2 February 2016 and is accounted
for as an acquisition of Betfair by Paddy Power on that date. The
reported statutory results reflect this accounting treatment in
accordance with generally accepted accounting principles (GAAP) and
only include Betfair results since the merger completion on 2
February 2016 and no Betfair results for the 2015 comparative. This
announcement also includes results prepared on a "Proforma" basis
(non-GAAP basis) for the Group as if Paddy Power and Betfair had
always been merged, which combine the full 12 month results of
Paddy Power and Betfair for 31 December 2016 and 2015. The
directors consider that this is the most appropriate information
for understanding and analysing the performance of the Group and
accordingly, in the narrative, the results are discussed on a
Proforma basis. A reconciliation between the statutory and the
non-GAAP proforma, underlying financials is included in Appendix 2
(page 18)
(2) EBITDA is profit before interest, tax, depreciation and
amortisation expenses and is a non-GAAP measure (see Appendix 2 on
page 18).
(3) The "underlying" measures remove the effects of the Merger
exceptional costs that are not part of the usual business activity
of the Group and are also excluded when internally evaluating
performance, which have been therefore reported as "separately
disclosed items" (see note 4 and page 33 to the financial
statements and Appendix 2 on page 18)
(4) Full year dividend includes closing dividends paid on merger
relating to January 2016 equating to 12 pence per share, interim
dividend paid in September 2016 of 40 pence per share and the
proposed final dividend of 113 pence per share
(5) Constant currency ("cc") growth throughout this Operating
& Financial Review is calculated by retranslating non-sterling
denominated component of 2015 at 2016 exchange rates
(6) Net cash at 31 December 2016 is comprised of gross cash
excluding customer balances of GBP250m and borrowings of GBP214m.
The comparative balance shown as at 31 December 2015 is comprised
of gross cash excluding customer balances of GBP86m, borrowings of
GBP143m and Betfair's net cash of GBP141m (see Appendix 3)
(7) Growth rates in the commentary are in local currency
(8) Like-for-like growth rates are in constant currency(5) and
are calculated by only including in the 2016 results, financial
results from shops open prior to 2015 plus the financial results
from shops opened during 2015 only from the anniversary of their
opening date
(9) Capital expenditure is on a Proforma basis and excludes the
intangible assets which were recognised under the accounting for
the Merger
Appendix 1: Divisional Key Performance Indicators
Proforma
GBPm Online Australia Retail US Group
------------- ---------------------------- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2016 2015 % CC(1) 2016 2015 % A$ 2016 2015 % CC(1) 2016 2015 % US$ 2016 2015 % CC(1)
Change % Change % Change Change % Change % Change Change %
Change Change Change
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Sportsbook
stakes 5,266 4,416 +19% +16% 2,911 2,053 +42% +25% 1,713 1,530 +12% +4% 9,890 7,999 +24% +16%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Sportsbook
net rev % 6.6% 6.6% Flat Flat 10.7% 11.3% -0.6% -0.6% 11.6% 11.7% -0.1% -0.1% 8.7% 8.8% -0.1% -0.1%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Sports net
revenue 609 534 +14% +10% 312 232 +34% +18% 198 178 +11% +3% 79 64 +24% +10% 1,198 1,009 +19% +11%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Gaming net
revenue 245 214 +14% +12% - - - - 97 88 +10% +10% 12 7 +56% +39% 353 309 +14% +12%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Total net
revenue 853 748 +14% +11% 312 232 +34% +18% 295 266 +11% +6% 91 71 +28% +13% 1,551 1,318 +18% +11%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Regulated
markets 782 676 +16% +13% 312 232 +34% +18% 295 266 +11% +6% 91 71 +28% +13% 1,480 1,246 +19% +12%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Unregulated
markets 71 73 -2% -11% - - - - - - - - - - - - 71 73 -2% -11%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Total net
revenue 853 748 +14% +11% 312 232 +34% +18% 295 266 +11% +6% 91 71 +28% +13% 1,551 1,318 +18% +11%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Cost of sales (193) (178) +8% +5% (80) (58) +38% +20% (63) (58) +7% +4% (21) (16) +34% +18% (357) (311) +15% +9%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Gross Profit 661 570 +16% +12% 231 174 +33% +17% 233 208 +12% +6% 70 55 +26% +11% 1,194 1,007 +19% +12%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Sales &
marketing (195) (159) +23% +19% (72) (51) +41% +28% (7) (6) +9% +3% (18) (15) +24% +14% (293) (231) +27% +21%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Product &
technology (111) (117) -6% -13% (24) (19) +24% +11% (6) (5) +10% +5% (8) (5) +56% +44% (148) (147) +1% -7%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Operations (65) (66) -2% -8% (41) (34) +22% +4% (158) (145) +9% +5% (31) (26) +21% +6% (296) (271) +9% +1%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Unallocated
central
costs (58) (62) -8% -14%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Operating
costs (371) (343) +8% +3% (137) (104) +32% +17% (170) (156) +9% +5% (57) (45) +26% +12% (794) (711) +12% +4%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Underlying
EBITDA 289 227 +27% +28% 94 70 +35% +18% 62 52 +21% +10% 12 10 +25% +6% 400 296 +35% +31%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Depreciation
&
amortisation (34) (36) -6% -13% (10) (9) +11% -2% (18) (15) +16% +10% (9) (7) +20% +5% (70) (67) +4% -5%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Underlying
operating
profit 255 191 +34% +36% 84 61 +38% +21% 45 36 +23% +10% 4 3 +39% +9% 330 229 +44% +42%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Separately
disclosed
items (318) (9) n/a n/a
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
Operating
profit 12 219 -94% -95%
------------- ----- ----- ------ ------ ----- ----- ------ --------- ----- ----- ------ ------ ---- ---- ------ -------- ----- ----- ------ ------
(1) Constant currency ("cc") growth is calculated by
retranslating non-sterling denominated component of 2015 at 2016
exchange rates
Notes:
* Sportsbook stakes includes amounts staked via SSBTs
and excludes the exchange, gaming, US advance deposit
wagering and business-to-business activities.
* Sportsbook net revenue % is calculated after
deduction of costs for customer promotions and
bonuses.
* Sports net revenue includes sportsbook net revenues,
exchange and US advance deposit wagering commissions
and revenues from business-to-business activities.
* 'Online' segment includes UK/Ireland telephone business.
* Regulated markets currently include UK, Australia,
Ireland, US, Italy, Bulgaria, Denmark, Gibraltar,
Malta, Romania, Spain and business-to-business
activities.
* Cost of sales primarily comprises betting and gaming
taxes, customer payment transaction fees, software
supplier costs, sporting levies and other data rights
charges.
* Sales & Marketing costs include all marketing costs
including affiliate commissions and people costs for
employees working in marketing roles.
Half-yearly and quarterly divisional key performance indicators are available
on our corporate website: https://www.paddypowerbetfair.com/investor-relations/results-centre/2017
Appendix 2: Reconciliation of Proforma results to Statutory
results
The merger of Paddy Power plc ("Paddy Power") and Betfair Group
plc ("Betfair") completed on 2 February 2016, with the merger
accounted for as an acquisition of Betfair by Paddy Power on that
date. The Statutory results reflect this accounting treatment.
Proforma results for the Group are prepared as if Paddy Power and
Betfair had always been merged and are included in these results,
as they best depict the underlying performance of the Group. The
difference between the Statutory results and Proforma results is
the results of Betfair in the period prior to completion as per the
table below.
GBPm Proforma Betfair results Statutory
results pre-merger results
completion
---------------------------- ---------------------------------- -------------------- ----------------------
2016 2015 2016 2015 2016 2015
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Revenue 1,551 1,318 50 524 1,501 794
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Cost of sales (357) (311) (11) (120) (347) (191)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Gross Profit 1,194 1,007 39 404 1,154 603
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Operating costs (794) (711) (26) (279) (767) (432)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying EBITDA 400 296 13 125 387 171
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Depreciation & amortisation (70) (67) (2) (29) (68) (38)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying operating
profit 330 229 11 96 319 132
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Net interest expense (4) (2) - (2) (4) (1)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying profit
before tax 327 226 11 94 316 132
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying taxation (51) (35) (2) (15) (49) (20)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying profit
for the year 276 191 9 79 267 112
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying basic
earnings per share
(pence)(1) 330.9 229.8 n/a n/a n/a n/a
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Underlying operating
profit 330 229 11 96 319 132
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Separately disclosed
items (318) (9) (14) (2) (304) (7)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Operating profit
/ (loss) 12 219 (3) 94 15 125
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Net interest expense (4) (2) - (2) (4) (1)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Profit / (loss) before
tax 8 217 (3) 93 12 124
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Taxation (19) (32) (2) (16) (18) (16)
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
(Loss) / profit for
the year (11) 185 (5) 77 (6) 108
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Basic (loss) / earnings
per share (pence)(1) (12.8) 223.0 n/a n/a (7.2) 239.9
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Revenue by operating
segment
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Online 853 748 44 452 809 296
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Australia 312 232 - - 312 232
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Retail 295 266 - - 295 266
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
US 91 71 6 71 85 -
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Gross Profit by operating
segment
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Online 661 570 35 349 626 221
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Australia 231 174 - - 231 174
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
Retail 233 208 - - 233 208
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
US 70 55 5 55 65 -
---------------------------- ---------------- ---------------- -------- ---------- ---------- ----------
(1) In the Proforma results, in 2016 the weighted average number
of shares is taken for the period from merger completion, 2
February 2016, to the end of the year, 31 December 2016 (83.4
million shares). For the 2015 Proforma results comparative the
weighted average number of shares is taken as the number of shares
on merger completion, 2 February 2016, adjusted for shares held in
treasury, shares held by long term incentive plan trust and
unexercised vested share options (83.2 million shares).
EBITDA is defined as profit for the period before depreciation
and amortisation, financial income, financial expense and tax
expense / credit. The Group uses EBITDA, Underlying EBITDA and
Underlying operating profit to comment on its financial
performance. These measures are used internally to evaluate
performance, to establish strategic goals and to allocate
resources. The directors also consider that these are commonly
reported and widely used by investors as an indicator of operating
performance and ability to incur and service debt, and as a
valuation metric. These are non-GAAP financial measures and are not
prepared in accordance with IFRS and, as not uniformly defined
terms, these may not be comparable with measures used by other
companies to the extent they do not follow the same methodology
used by the Group. Non-GAAP measures should not be viewed in
isolation, nor considered as a substitute for measures reported in
accordance with IFRS. All of the adjustments shown have been taken
from the audited financial statements.
Appendix 3: Reconciliation of Proforma cash flow to Statutory
cash flow
The merger of Paddy Power plc ("Paddy Power") and Betfair Group
plc ("Betfair") completed on 2 February 2016, with the merger
accounted for as an acquisition of Betfair by Paddy Power on that
date. The Statutory cash flow reflects this accounting treatment.
The Proforma cash flow for the Group is prepared as if Paddy Power
and Betfair had always been merged and is included in these
results, as it best depicts the underlying performance of the
Group. The difference between the Statutory cash flow and Proforma
cash flow is the cash flow of Betfair in the period prior to
completion and the inclusion of deposits and borrowings to
determine a net cash position, as per the table below.
GBPm Proforma Adjustment Adjustment Reported
cash flow to exclude to include cash flow
Betfair deposits,
pre-merger borrowings
completion & movement
cash flow to restricted
cash
----------------------------- ------------ ------------- ---------------- ------------
2016 2015 2016 2015 2016 2015 2016 2015
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Underlying EBITDA
(1) 400 296 (13) (125) - - 387 171
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Capex (including
retail & HRTV acquisitions)
(2) (85) (92) 1 45 - - (84) (47)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Working capital &
tax (3) (63) 32 141 (7) (8) - 70 25
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Underlying free cash
flow 252 236 129 (87) (8) - 373 149
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Cash flow from separately
disclosed items (104) (9) - 2 - - (104) (7)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Free cash flow 148 227 129 (85) (8) - 269 142
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Dividends paid (179) (88) 14 33 - - (165) (55)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Return of capital
(including fees) - (484) - 201 - - - (283)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Interest & other
borrowing costs (4) (2) (1) - (1) - - (2) (2)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Other (5) 2 (11) - (6) - - 2 (17)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Transfers from financial
assets - deposits - - - - - 15 - 15
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Net amounts drawn
down on borrowings - - - - 44 140 44 140
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Net (decrease) /
increase in cash (31) (357) 143 142 36 155 148 (60)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Net cash at start
of the year 84 453 (141) (284) 143 (16) 86 153
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Movement to restricted
cash (8) - - - 8 - - -
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Foreign currency
exchange translation (9) (12) (2) 1 27 4 16 (7)
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
Net cash at year
end 36 84 - (141) 214 143 250 86
----------------------------- ----- ----- ------ ----- ------- ------- ----- -----
(1) Underlying EBITDA includes the following line items in the
statutory cash flow: (Loss) / profit for the year, separately
disclosed items, tax expense before separately disclosed items,
financial income, financial expense, and depreciation and
amortisation before separately disclosed items.
(2) Capex (including retail & HRTV acquisitions) includes
loss on disposal of PPE and intangible assets, purchase of
property, plant and equipment, purchase of intangible assets,
purchase of retail businesses (net of cash acquired), capitalised
internal development expenditure, payment of contingent deferred
consideration and proceeds from disposal of property, plant and
equipment and intangible assets.
(3) Working capital & tax includes (increase) / decrease in
trade and other receivables, (decrease) / increase in trade, other
payables and provisions, taxes paid, cash acquired from merger with
Betfair, employee equity-settled share based payments expense
before separately disclosed items, and foreign currency exchange
gain. Note the 2016 adjustment to exclude Betfair pre-merger
completion cash flow includes GBP147.5m of Betfair cash acquired on
completion.
(4) Interest & other borrowing costs includes interest paid,
interest received and fees in respect of borrowings facility.
(5) Other includes proceeds from the issue of new shares and
purchase of shares by employee benefit trust.
CONDENSED CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2016
Restated
(Notes 18 & 19) Restated
Before (Note 19)
Before Separately separately Separately Restated
separately disclosed disclosed items disclosed (Notes 18 & 19)
disclosed items 2015 items Total
items (Note 4) Total GBPm (Note 4) 2015
Note 2016 2016 2016 2015 GBPm
GBPm GBPm GBPm GBPm
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Continuing
operations
Revenue 3 1,500.8 - 1,500.8 794.3 - 794.3
Cost of sales (346.5) - (346.5) (191.3) - (191.3)
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Gross profit 1,154.3 - 1,154.3 603.0 - 603.0
Operating
costs
excluding
depreciation
and
amortisation (767.3) (123.1) (890.4) (432.1) (7.4) (439.5)
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
EBITDA (1) 387.0 (123.1) 263.9 170.9 (7.4) 163.5
Depreciation
and
amortisation (67.9) (180.6) (248.5) (38.4) - (38.4)
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Operating
profit /
(loss) 319.1 (303.7) 15.4 132.5 (7.4) 125.1
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Financial
income 1.5 - 1.5 1.4 - 1.4
Financial
expense (5.0) - (5.0) (2.0) - (2.0)
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Profit /
(loss) before
tax 315.6 (303.7) 11.9 131.9 (7.4) 124.5
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Tax (expense)
/ credit 5 (49.0) 31.4 (17.6) (19.7) 3.4 (16.3)
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
Profit /
(loss) for
the year -
all
attributable
to equity
holders of
the Company 266.6 (272.3) (5.7) 112.2 (4.0) 108.2
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
(Loss) /
earnings per
share
Basic 6 (GBP0.072) GBP2.399
Diluted (2) 6 (GBP0.072) GBP2.358
--------------- ------- ------------ ------------- ----------- ---------------- ------------- -----------------
1 EBITDA is defined as profit for the year before
depreciation and amortisation, 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,
as it is 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.
2 Where any potential ordinary shares would have
the effect of decreasing a loss per share, they
have not been treated as dilutive.
Notes 1 to 19 on pages 26 to 53 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2016
Restated
(Note
19)
Note 2016 2015
GBPm GBPm
----------------------------------- ------- --------------- -----------------
(Loss) / profit for the year
- all attributable to equity
holders of the Company (5.7) 108.2
-------------------------------------------- --------------- -----------------
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 7.6 (4.5)
Fair value of foreign exchange
cash flow hedges transferred
to income statement (9.3) 8.3
Foreign exchange gain / (loss)
on translation of the net
assets of foreign currency
denominated entities 49.7 (20.2)
Deferred tax on fair value
of cash flow hedges 0.2 (0.5)
Other comprehensive income
/ (loss) 48.2 (16.9)
Total comprehensive income
for the year - all attributable
to equity holders of the Company 42.5 91.3
-------------------------------------------- --------------- -----------------
Notes 1 to 19 on pages 26 to 53 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
Restated Restated
(Notes (Notes
18 & 19) 18 & 19)
31 December 31 December 31 December
2016 2015 2014
Note GBPm GBPm GBPm
--------------------------- ------ ------------- ------------- ----------------------------
Assets
Property, plant
and equipment 134.0 92.0 98.7
Intangible assets 581.2 60.3 59.5
Goodwill 7 3,891.1 79.9 80.1
Deferred tax assets 8.6 6.7 6.4
Investments 0.1 - -
Available for sale
financial assets 9 1.3 - -
Trade and other
receivables 9 5.8 - 1.5
--------------------------- ------ ------------- ------------- ----------------------------
Total non-current
assets 4,622.1 238.9 246.2
--------------------------- ------ ------------- ------------- ----------------------------
Trade and other
receivables 9 55.2 22.7 25.2
Derivative financial
assets 9 - 1.8 -
Financial assets
- restricted cash 10 64.8 60.2 53.7
Financial assets
- deposits 10 - - 15.0
Cash and cash equivalents 10 249.9 86.1 153.3
--------------------------- ------ ------------- ------------- ----------------------------
Total current assets 369.9 170.8 247.2
--------------------------- ------ ------------- ------------- ----------------------------
Total assets 4,992.0 409.7 493.4
--------------------------- ------ ------------- ------------- ----------------------------
Equity
Issued share capital
and share premium 11 417.2 8.7 39.0
Treasury shares (40.7) (40.7) (44.8)
Shares held by employee
benefit trust (30.9) (49.2) (47.9)
Other reserves 173.0 8.5 27.2
Retained earnings 3,798.0 123.6 327.9
--------------------------- ------ ------------- ------------- ----------------------------
Total equity attributable
to equity holders
of the Company 4,316.6 50.9 301.4
Liabilities
Trade and other
payables 13 320.6 184.1 156.9
Derivative financial
liabilities 13 8.6 12.5 13.2
Provisions 4.6 0.4 0.4
Current tax payable 38.8 10.9 13.5
Borrowings 14 0.2 0.2 -
--------------------------- ------ ------------- ------------- ----------------------------
Total current liabilities 372.8 208.1 184.0
--------------------------- ------ ------------- ------------- ----------------------------
Trade and other
payables 13 26.9 5.0 4.5
Derivative financial
liabilities 13 - - 0.1
Provisions 1.1 1.0 0.9
Deferred tax liabilities 61.0 2.9 2.5
Borrowings 14 213.6 141.8 -
--------------------------- ------ ------------- ------------- ----------------------------
Total non-current
liabilities 302.6 150.7 8.0
--------------------------- ------ ------------- ------------- ----------------------------
Total liabilities 675.4 358.8 192.0
--------------------------- ------ ------------- ------------- ----------------------------
Total equity and
liabilities 4,992.0 409.7 493.4
--------------------------- ------ ------------- ------------- ----------------------------
Notes 1 to 19 on pages 26 to 53 form an integral part of these
condensed consolidated financial statements.
On behalf of the Board
Breon Corcoran Alex Gersh
Chief Executive Officer Chief Financial Officer
7 March 2017
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2016
Restated
(Notes 18 & 19)
Note 2016 2015
GBPm GBPm
------------------------------------------------------------------------------- ------ -------- -----------------
Cash flows from operating activities
(Loss) / profit for the year - all attributable to equity holders of the
Company (5.7) 108.2
Separately disclosed items 4 272.3 4.0
Tax expense before separately disclosed items 49.0 19.7
Financial income (1.5) (1.4)
Financial expense 5.0 2.0
Depreciation and amortisation before separately disclosed items 67.9 38.4
Employee equity-settled share-based payments expense before separately
disclosed items 20.8 12.1
Foreign currency exchange gain (2.5) (1.9)
Loss on disposal of property, plant and equipment and intangible assets 0.3 0.2
Cash from operations before changes in working capital 405.6 181.3
(Increase) / decrease in trade and other receivables (3.5) 0.2
(Decrease) / increase in trade, other payables and provisions (50.4) 33.6
------------------------------------------------------------------------------- ------ -------- -----------------
Cash generated from operations 351.7 215.1
Tax paid (43.1) (19.2)
------------------------------------------------------------------------------- ------ -------- -----------------
Net cash from operating activities before merger fees and integration and
restructuring costs 308.6 195.9
Merger fees and integration and restructuring costs paid (104.4) (7.4)
------------------------------------------------------------------------------- ------ -------- -----------------
Net cash from operating activities 204.2 188.5
------------------------------------------------------------------------------- ------ -------- -----------------
Purchase of property, plant and equipment (40.8) (20.2)
Purchase of intangible assets (32.3) (21.9)
Purchase of retail businesses, net of cash acquired 8 (0.2) (4.0)
Cash acquired from merger with Betfair Group plc 8 147.5 -
Capitalised internal development expenditure (7.0) -
Payment of contingent deferred consideration 8 (3.8) (1.1)
Proceeds from disposal of property, plant and equipment and intangible assets 0.2 0.2
Transfers from financial assets - deposits - 15.4
Interest received 1.3 1.5
Net cash from / (used in) investing activities 64.9 (30.1)
------------------------------------------------------------------------------- ------ -------- -----------------
Proceeds from the issue of new shares 11 2.5 2.0
Purchase of shares by employee benefit trust - (18.5)
Dividends paid 12 (142.3) (55.4)
Return of capital to shareholders (including associated costs) - (282.8)
Net amounts drawn down on borrowings facility 14 44.1 139.6
Fees in respect of borrowings facility - (1.8)
Interest paid (2.9) (1.5)
Betfair Group plc closing dividend 12 (22.6) -
Net cash used in financing activities (121.2) (218.4)
------------------------------------------------------------------------------- ------ -------- -----------------
Net increase / (decrease) in cash and cash equivalents 147.9 (60.0)
Cash and cash equivalents at start of year 86.1 153.3
Foreign currency exchange gain / (loss) on cash and cash equivalents 15.9 (7.2)
------------------------------------------------------------------------------- ------ -------- -----------------
Cash and cash equivalents at end of year 10 249.9 86.1
------------------------------------------------------------------------------- ------ -------- -----------------
Notes 1 to 19 on pages 26 to 53 form an integral part of these
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016
Attributable to equity holders of the Company (see Note 11)
---------------- -------------------------------------------------------------------------------------------------------------------------
Issued
Number share Foreign Cash Shares Share-
of capital and exchange flow held by based
ordinary share translation hedge Other Treasury employee payment Retained Total
shares premium reserve reserve reserves shares benefit reserve earnings equity
in GBPm GBPm GBPm GBPm GBPm trust GBPm GBPm GBPm
issue GBPm
millions
---------------- ---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
Balance at 1
January 2016 46.0 8.7 (20.2) 1.5 1.7 (40.7) (49.2) 25.5 123.6 50.9
---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
Total comprehensive income / (loss) for the year
Loss for the
year - - - - - - - - (5.7) (5.7)
Foreign
exchange
translation - - 49.7 - - - - - - 49.7
Net change in
fair value of
cash flow
hedge
reserve - - - (1.7) - - - - - (1.7)
Deferred tax on
cash flow
hedges - - - 0.2 - - - - - 0.2
Total
comprehensive
income /
(loss) for the
year - - 49.7 (1.5) - - - - (5.7) 42.5
---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
Transactions with owners of the Company, recognised directly in equity
Shares issued
(Note 11) 0.4 2.5 - - - - - - - 2.5
Equity-settled
transactions -
expense
recorded in
income
statement - - - - - - - 28.4 - 28.4
Equity-settled
transactions -
vestings - - - - - - 18.3 (19.8) 2.0 0.5
Tax on
share-based
payments - - - - - - - - (1.5) (1.5)
Transfer to
retained
earnings on
exercise of
share options
(Note 11) - - - - - - - (25.6) 25.6 -
Shares issued
as
consideration
for
acquisition of
Betfair Group
plc (Note 8) 39.6 4,202.3 - - - - - - - 4,202.3
Capital
reduction -
share premium
cancellation
(Note 11) - (3,796.3) - - - - - - 3,796.3 -
Dividends to
shareholders
(Note 12) - - - - - - - - (142.3) (142.3)
Issue of
replacement
share options
(Note 8) - - - - - - - 111.4 - 111.4
Replacement
share options
- expense
recorded in
income
statement
(Note 4) - - - - - - - 21.9 - 21.9
---------------- ---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
Total
contributions
by and
distributions
to
owners of the
Company 40.0 408.5 - - - - 18.3 116.3 3,680.1 4,223.2
---------------- ---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
Balance at 31
December 2016 86.0 417.2 29.5 - 1.7 (40.7) (30.9) 141.8 3,798.0 4,316.6
---------------- ---------- ------------ ------------- --------- ---------- ---------- ---------- --------- ---------- ----------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2015
Attributable to equity holders of the Company (see Note 11)
------------------------ --------------------------------------------------------------------------------------------------------------------------
Restated
Issued Restated Restated Restated Restated
Number share Foreign Cash Shares Share-
of capital exchange flow Restated Restated held by based Restated Restated
ordinary and translation hedge Other Treasury employee payment Retained Total
shares share reserve reserve reserves shares benefit reserve earnings equity
in premium GBPm GBPm GBPm GBPm trust GBPm GBPm GBPm
issue GBPm GBPm
millions
------------------------ ---------- --------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at 1 January
2015 51.1 39.0 - (1.8) 1.0 (44.8) (47.9) 28.0 327.9 301.4
---------- --------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income / (loss) for the year
Profit for the year - - - - - - - - 108.2 108.2
Foreign exchange
translation - - (20.2) - - - - - - (20.2)
Net change in fair
value of cash flow
hedge
reserve - - - 3.8 - - - - - 3.8
Deferred tax on cash
flow hedges - - - (0.5) - - - - - (0.5)
Total comprehensive
(loss) / income for
the year - - (20.2) 3.3 - - - - 108.2 91.3
---------- --------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Transactions with owners of the Company, recognised directly in equity
Shares issued (Note 11) - 2.0 - - - - - - - 2.0
Own shares acquired by
employee benefit trust
- net of B shares'
receipt - - - - - - (18.5) - - (18.5)
Equity-settled
transactions - expense
recorded in income
statement - - - - - - - 12.1 - 12.1
Equity-settled
transactions -
vestings - - - - - - 17.2 (14.0) (2.5) 0.7
Tax on share-based
payments - - - - - - - - 0.1 0.1
Transfer to retained
earnings on exercise
of share options (Note
11) - - - - - - - (0.6) 0.6 -
Return of capital to
shareholders
(including related
costs) (Note 11) - - - - - - - - (282.8) (282.8)
Capital reduction -
share consolidation (5.1) (0.7) - - 0.7 4.1 - - (4.1) -
Capital reduction -
share premium
cancellation (Note 11) - (31.6) - - - - - - 31.6 -
Dividends to
shareholders (Note 12) - - - - - - - - (55.4) (55.4)
Total contributions by
and distributions to
owners of the Company (5.1) (30.3) - - 0.7 4.1 (1.3) (2.5) (312.5) (341.8)
------------------------ ---------- --------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at 31
December 2015 46.0 8.7 (20.2) 1.5 1.7 (40.7) (49.2) 25.5 123.6 50.9
------------------------ ---------- --------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Notes 1 to 19 on pages 26 to 53 form an integral part of these
condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Paddy Power Betfair plc (the "Company") and its subsidiaries
(together referred to as the "Group") is a global sports betting
and gaming group, whose headquarters are in Dublin, Ireland. The
Group currently operates across four divisions; (i) Online, which
includes the online brands of Paddy Power and Betfair, the Paddy
Power telephone sportsbook, as well as a number of
business-to-business partnerships; (ii) Australia, consisting of
Sportsbet, the market leader in the fast-growing Australian online
betting market; (iii) Retail, which operates over 600 Paddy Power
betting shops across the UK and Ireland; and (iv) US, which
combines TVG, America's leading horse-racing TV and betting
network, Betfair Casino, an online casino in New Jersey, and the
Betfair New Jersey Exchange.
During the year ended 31 December 2016, the Company completed an
all-share merger with Betfair Group plc (the "Merger") - see Note 8
for further information on the Merger. The results of Betfair Group
plc prior to completion of the Merger are not included in these
condensed consolidated financial statements.
The Company is a public limited company incorporated and
domiciled in the Republic of Ireland and has its primary listing on
the London Stock Exchange and a secondary listing on the Irish
Stock Exchange.
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 2016, prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the European
Union ("EU") together with an unqualified audit report thereon
under Section 391 of the Companies Act 2014, will be annexed to the
annual return and filed with the Registrar of Companies.
The consolidated financial statements of the Group for the year
ended 31 December 2016 comprise the financial statements of the
Company and its subsidiary undertakings and were approved for issue
by the Board of Directors on 7 March 2017.
2. Basis of preparation and summary of significant accounting
policies
The condensed consolidated financial statements are prepared in
accordance with the Transparency (Directive 2004/109/EC)
Regulations 2007 and the Transparency Rules of the Republic of
Ireland's Financial Regulator. The condensed consolidated financial
statements are prepared on the historical cost basis except for
betting transactions and foreign exchange forward contracts (which
are recorded as derivative financial instruments), contingent
deferred consideration and certain share-based payments, all of
which are stated at fair value (grant date fair value in the case
of share-based payments). The condensed consolidated financial
statements are presented in pounds sterling, a change from the
previous presentation currency of euro, and are rounded to the
nearest million.
Except as set out below under 'Changes in accounting policies
and restatement of comparatives', the financial information
contained in these condensed consolidated financial statements has
been prepared in accordance with the accounting policies set out in
the Group's last annual financial statements for the year ended 31
December 2015.
Changes in accounting policies and restatement of
comparatives
The Group has reviewed and amended its accounting policies in
light of the Merger. The changes do not impact the Group's reported
operating profit, or amounts reported in the statement of financial
position. The treatment of these items has developed over the past
few years and the Group has reviewed its presentation of these
items to align reporting for the Group subsequent to the Merger and
to bring treatment in line with current industry practice for
comparability purposes. Where adjustments have been made to
comparative information in respect of the year ended 31 December
2015 the relevant financial statement or note is headed up as
'Restated'.
The revised accounting policy for revenue is:
Revenue
The services provided by the Group comprise sports betting
(sportsbook, the exchange sports betting product and pari-mutuel
betting products), fixed odds games betting, online games and
casino, peer-to-peer games including online bingo and poker and
business-to-business services. Revenue is stated exclusive of
value-added tax.
2. Basis of preparation and summary of significant accounting
policies (continued)
The Group's betting and gaming activities are classified as
derivative financial instruments, with the exception of the
exchange sports betting product and pari-mutuel betting products on
which commission income is earned, peer-to-peer games on which
commission income and tournament fees are earned, and
business-to-business services on which fees are earned.
Revenue from sportsbook betting activities represents the net
gain or loss from betting activities in the period plus the gain or
loss on the revaluation of open positions at period end, and is
stated net of the cost of customer promotions and bonuses incurred
in the period.
These derivatives are recognised initially at fair value and
subsequently at fair value through profit or loss, within the
revenue line as this represents the Group's principal activity.
Customer promotions (including free bets) and bonuses are deducted
from sportsbook betting revenue.
Revenue from the exchange sports betting product represents
commission earned on betting activity and is recognised on the date
the outcome for an event is settled.
Revenue from pari-mutuel betting products represents a
percentage of stake and is recognised on settlement of the event,
and is stated net of customer promotions and bonuses in the
period.
Revenue from fixed odds games and the online casinos represents
net winnings ("customer drop"), being amounts staked net of
customer winnings, and is stated net of customer promotions and
bonuses incurred in the period.
Revenue from peer-to-peer games represents commission income
("rake") and tournament fees earned from games completed by the
period end, and is stated net of the cost of customer promotions
and bonuses incurred in the period. Revenue from
business-to-business services represents fees charged for the
services provided in the period.
There are no changes to revenue recognition for prior year
comparatives as per the new accounting policy outlined above.
The revised accounting policy for cost of sales is:
Cost of sales
Cost of sales principally comprises betting and gaming taxes,
software supplier costs, customer payment transaction fees,
sporting levies and other data rights charges.
The revised accounting policy for operating segment reporting
is:
Operating segment reporting
Operating segments are distinguishable components of the Group
that have been established based on the internal reports regularly
reviewed by the Group's Chief Operating Decision Maker (the Board
of Directors) in order to assess each segment's performance and to
allocate resources to them. Geographical segments provide services
within a particular economic environment that are subject to risks
and rewards that are different from those components operating in
alternative economic environments. The Group has determined that
its operating segments of Online, Australia, US and Retail are its
reportable segments. See Note 3 for further information on
operating segments.
The revised accounting policy for other non-derivative financial
instruments is:
Other non-derivative financial instruments
Other non-derivative financial instruments comprise cash and
cash equivalents, restricted cash, deposits, trade and other
receivables and trade and other payables.
Non-derivative financial instruments are recognised initially at
fair value plus, for instruments not at fair value through profit
or loss, any directly attributable transaction costs. Subsequent to
initial recognition, non-derivative financial instruments are
measured as described below.
A financial instrument is recognised if the Group becomes a
party to the contractual provisions of the instrument. Financial
assets are derecognised if the Group's contractual right to the
cash flows from the financial assets expire or if the Group
transfers the financial asset to another party without retaining
control or substantially all the risks and rewards of the asset.
Regular way purchases and sales of financial assets are accounted
for at trade date, i.e. the date that the Group commits itself to
purchase or sell the asset. Financial liabilities are derecognised
if the Group's obligations specified in the contract expire or are
discharged or cancelled.
2. Basis of preparation and summary of significant accounting
policies (continued)
Cash and cash equivalents for the purpose of the statement of
cash flows comprise cash and call deposits with an original
maturity of three months or less.
Restricted cash represents cash held by the Group but which is
ring fenced, or used as security for specific arrangements (such as
cash held on the balance sheet in designated client fund accounts
where certain jurisdictions require the Group to do so, or as
collateral for a bank guarantee), and to which the Group has
restricted access for a period of time. It includes funds held to
cover monies owed to customers, as per the terms of the Australian
corporate sports book making licenses issued to Sportsbet.
Restricted cash is classified as held to maturity and carried at
amortised cost. Restricted cash balances are further classified as
current or non-current depending on when the restriction first
ends.
Neither cash and cash equivalents or restricted cash include
certain customer funds deposited in a stakeholder account held by
The Sporting Exchange (Clients) Limited, a wholly-owned subsidiary
of the Group, 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.
Deposits represent term deposits with an original maturity of
greater than three months. In accordance with IAS 7, 'Statement of
Cash Flows', these deposits do not qualify as a cash equivalent for
the purposes of the statement of cash flows as the maturity is
greater than three months from the date of the original
deposit.
Trade and other receivables are stated at their nominal value as
reduced by appropriate allowances for estimated impaired
losses.
Subsequent to initial recognition, cash and cash equivalents,
deposits and trade and other payables are measured at amortised
cost.
The revised accounting policy for bank and credit card charges
is:
Bank and credit card charges
Bank and credit card charges and fees that are considered
integral to the operations of the Group's business are recognised
in 'cost of sales' in the condensed consolidated income statement.
Bank charges and fees that are related to the Group's financing
activities are recognised in 'financial expense' in the condensed
consolidated income statement.
The impact of the changes, by reporting segment, on the major
components of operating profit (before separately disclosed items),
on the condensed consolidated statement of financial position, and
on the major components of the condensed consolidated statement of
cash flows, for the year ended 31 December 2015 is disclosed in
Note 18 to the condensed consolidated financial statements.
Following the Merger with Betfair Group plc, the Group changed
its presentation currency from euro to pounds sterling. The change
in presentation currency has been applied retrospectively.
The revised accounting policy for functional and presentation
currency is:
Functional and presentation currency
Pounds sterling represents the primary currency for transactions
and as such the Group has chosen to present its financial
statements in pounds sterling, a change from the previous
presentation currency of euro. The Company's functional currency is
euro. Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates, which are
primarily pounds sterling, euro, Australian dollar and US
dollar.
Foreign currency transactions
Transactions in foreign currencies are translated at the
relevant foreign exchange rate ruling at the date of the
transaction. Non-monetary assets that are carried at historical
cost are not subsequently retranslated. Monetary assets and
liabilities denominated in foreign currencies at the reporting date
are translated to functional currencies at the foreign exchange
rates ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement.
2. Basis of preparation and summary of significant accounting
policies (continued)
Gains and losses arising on the retranslation of cash and cash
equivalent balances are included within 'other expenses' in the
income statement rather than as financial income or expense, as the
Directors consider that the gains or losses arising relate to
operations, as the Group broadly matches its foreign currency
denominated assets and liabilities to ensure that foreign exchange
gains and losses are minimised. Gains and losses on retranslation
of non-cash assets and liabilities are also dealt with as operating
items. Gains and losses on foreign currency retranslation are
separately analysed into their components in the statement of cash
flows.
Foreign currency translation of foreign operations
To the extent that the Group's foreign operations are considered
to have functional currencies which are different from the Group's
presentation currency, the assets and liabilities of foreign
operations, including goodwill and fair value adjustments arising
on consolidation and long term intra-group loans that are part of
the net investment because repayment is not planned or foreseen,
are translated to GBP at the foreign exchange rates ruling at the
reporting date. The revenues and expenses of these foreign
operations are translated to GBP at rates approximating
the foreign exchange rates ruling at the dates of the
transactions. Foreign exchange differences arising on
translation are recognised directly in the condensed
consolidated statement of comprehensive income and presented in the
foreign currency translation reserve within equity.
Further information on the procedures used to restate
comparative information is provided in Note 19 to the condensed
consolidated financial statements.
Going concern
The Group has considerable financial resources. As a
consequence, the Directors believe that the Group is well placed to
manage its business risks successfully. The Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future, and
therefore they continue to adopt the going concern basis in the
condensed consolidated financial statements.
Recent accounting pronouncements
The IASB have issued the following standards, policies,
interpretations and amendments which were effective for the Group
for the first time in the year ended 31 December 2016:
-- Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
-- Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
-- Amendments to IAS 16 and IAS 41: Bearer Plants
-- Amendments to IAS 27: Equity Method in Separate Financial Statements
-- Annual Improvements to IFRSs 2012-2014 Cycle
-- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities - Applying the Consolidation
-- Amendments to IAS 1: Disclosure Initiative
The adoption of the above new standards and interpretations did
not have a significant impact on the Group's condensed consolidated
financial statements.
Adopted IFRS not yet applied
The following Adopted IFRSs have been issued but have not been
applied in these financial statements. Their adoption is not
expected to have a material effect on the financial statements:
-- IFRS 9 Financial Instruments (effective date 1 January 2018).
-- IFRS 15 Revenue from Contract with Customers (effective date 1 January 2018).
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses (effective date to be confirmed).
-- Amendments to IAS 7: Disclosure Initiative (effective date to be confirmed).
-- Amendments to IFRS 2: Classification and Measurement of
Share-based Payment Transactions (effective date to be
confirmed).
-- Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (effective date to be
confirmed).
The following Adopted IFRS has been issued but has not been
applied in these financial statements. The Group is currently
considering the impact of this amendment on future Annual
Reports:
-- IFRS 16 Leases (effective date to be confirmed).
2. Basis of preparation and summary of significant accounting
policies (continued)
Basis of consolidation
The Group's financial statements consolidate the financial
statements of the Company and its subsidiary undertakings based on
accounts made up to the end of the financial year. A subsidiary is
an entity controlled by the Company. The Group controls an entity
when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the entity. Intra-group balances and
any unrealised gains and losses or income and expenses arising from
intra-group transactions are eliminated on consolidation except to
the extent that unrealised losses provide evidence of
impairment.
Critical Accounting Estimates and Judgements
The preparation of 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.
3. Operating segments
The Group's reportable segments are divisions that are managed
separately, due to a combination of factors including method of
service delivery, geographical location and the different services
provided.
Reportable business segment information
Subsequent to the Merger, the Group's reportable segments are as
follows:
* Online;
* Australia;
* Retail;
* US.
The reportable segments reflect the way financial information is
reviewed by the Group's Chief Operating Decision Maker ("CODM").
The Group has restated the operating segment information for 2015
accordingly.
The Online segment derives its revenues primarily from sports
betting (sportsbook and the exchange sports betting product) and /
or gaming (games, casino, bingo and poker) services in all
business-to-customer ("B2C") geographies that the Group operates in
except the US and Australia, and business-to-business ("B2B")
services globally. Online services are delivered primarily through
the internet with a small proportion delivered through the public
telephony system. The previous reportable segments of Online (ex
Australia) and Telephone are included in the Online segment.
The Australia segment earns its revenues from sports betting
services provided to Australian customers using primarily the
internet with a small proportion using the public telephony system.
The Australia segment was previously called Online Australia.
The Retail segment derives its revenues from sports betting and
/ or gaming machine services delivered through licenced bookmaking
shop estates in the UK and Ireland. The previous reportable
segments of UK Retail and Irish Retail are included in the Retail
segment.
The US segment earns its revenues from sports betting (including
the exchange sports betting product) and gaming services provided
to US customers via the internet.
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 Note 2.
3. Operating segments (continued)
The Group does not allocate income tax expense or interest to
reportable segments. Treasury management is centralised for the
Online, US and Retail segments. The Australian segment manages its
own treasury function under Group Treasury oversight.
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.
Reportable business segment information for the year ended 31
December 2016:
Online Australia Retail US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- -------- ----------- -------- ------- ---------- --------
Revenue from external
customers 809.4 311.5 295.3 84.6 - 1,500.8
Cost of sales (183.4) (80.5) (62.8) (19.8) - (346.5)
-------- ----------- -------- ------- ---------- --------
Gross profit 626.0 231.0 232.5 64.8 - 1,154.3
Operating costs
excluding depreciation
and amortisation (352.1) (137.4) (170.2) (53.4) (54.2) (767.3)
-------- ----------- -------- ------- ---------- --------
EBITDA 273.9 93.6 62.3 11.4 (54.2) 387.0
Depreciation and
amortisation (32.6) (9.6) (17.7) (8.0) - (67.9)
Reportable segment
profit / (loss)
before separately
disclosed items 241.3 84.0 44.6 3.4 (54.2) 319.1
-------------------------------------------------------- -------- ----------- -------- ------- ---------- --------
Separately disclosed
items (Note 4):
* Merger fees and associated costs (35.5)
* Integration and restructuring costs (65.7)
* Amortisation of merger related intangible assets (174.1)
* Replacement share options (21.9)
* Impairment of property, plant and equipment, and
intangible assets (6.5)
--------
Operating profit 15.4
--------
Reportable business segment information for the year ended 31
December 2015:
Restated Restated Restated Restated Restated Restated
Online Australia Retail US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- ------------ --------- --------- ----------- ---------
Revenue from external
customers 295.5 232.5 266.3 - - 794.3
Cost of sales (74.4) (58.4) (58.5) - - (191.3)
--------- ------------ --------- --------- ----------- ---------
Gross profit 221.1 174.1 207.8 - - 603.0
Operating costs
excluding depreciation
and amortisation (138.5) (104.5) (156.2) - (32.9) (432.1)
--------- ------------ --------- --------- ----------- ---------
EBITDA 82.6 69.6 51.6 - (32.9) 170.9
Depreciation and
amortisation (14.4) (8.7) (15.3) - - (38.4)
Reportable segment
profit / (loss)
before separately
disclosed items 68.2 60.9 36.3 - (32.9) 132.5
----------------------------------------- --------- ------------ --------- --------- ----------- ---------
Separately disclosed
items (Note 4):
* Merger fees and associated costs (4.2)
* Restructuring costs (3.2)
Operating profit 125.1
---------
3. Operating segments (continued)
Reconciliation of reportable segments to Group totals:
Restated
2016 2015
GBPm GBPm
----------------------------------- -------- ---------
Revenue
Total revenue from reportable
segments, being total Group
revenue 1,500.8 794.3
----------------------------------- --------
Profit and loss
Operating profit 15.4 125.1
Unallocated amounts:
Financial income - non-Australia
(1) 0.6 0.3
Financial income - Australia 0.9 1.1
Financial expense - non-Australia
(1) (4.9) (1.9)
Financial expense - Australia (0.1) (0.1)
-----------------------------------
Profit before tax 11.9 124.5
----------------------------------- -------- ---------
1 Non-Australia above comprises the Online, Retail,
and US operating segments. Financial expense
relating to these segments is primarily in respect
of interest on borrowings, guarantee and facility
fees payable, other interest amounts payable,
and the unwinding of discounts on provisions
and other non-current liabilities.
Geographical segment information
The Group considers that its primary geographic segments are 'UK
and Ireland', 'Australia', 'US' and 'Rest of World'. The UK and
Ireland geographic segment consists of the Retail bookmaking
business, online and telephone sports betting from UK and Irish
customers, and online gaming from UK and Irish customers. The
Australia geographic segment consists of online and telephone
sports betting from Australian customers. The US geographic segment
is comprised of online sports betting and online gaming from US
customers. The Rest of World geographic segment is comprised of
online sports betting, online gaming and B2B services provided to
customers in geographies other than the UK, Ireland, Australia and
the US. Revenues from customers outside the UK and Ireland,
Australia and the US are not considered sufficiently significant to
warrant separate reporting.
Group revenues by geographical segment are as follows:
Restated
2016 2015
GBPm GBPm
---------------- -------- ---------
UK and Ireland 978.3 539.8
Australia 311.5 232.5
US 84.6 -
Rest of World 126.4 22.0
Total 1,500.8 794.3
---------------- -------- ---------
Revenues are attributed to geographical location on the basis of
the customer's location.
Non-current assets (excluding deferred tax asset balances) by
geographical segment are as follows:
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
---------------- -------------- ------------- -------------
UK and Ireland 4,137.3 146.1 149.1
Australia 94.1 63.1 65.2
US 365.0 - -
Rest of World 17.1 23.0 25.5
----------------
Total 4,613.5 232.2 239.8
---------------- -------------- ------------- -------------
4. Separately disclosed items
Restated
2016 2015
GBPm GBPm
Merger fees and associated
costs (35.5) (4.2)
Integration and restructuring
costs (65.7) (3.2)
Amortisation of merger related (174.1) -
intangible assets
Replacement share options (21.9) -
Impairment of property, plant (6.5) -
and equipment and intangible
assets
Operating profit impact of
separately disclosed items (303.7) (7.4)
------------------------------------ -------- ---------
Tax credit on separately disclosed
items 31.4 0.4
Corporation tax provision - 3.0
Total separately disclosed
items (272.3) (4.0)
------------------------------------ -------- ---------
Merger fees and associated costs
Merger fees and associated costs relate to costs incurred in the
period directly as a result of the Merger. This includes stamp duty
of GBP20.7m and professional fees of GBP14.8m which were subject to
completion of the Merger. This does not include any professional
fees incurred by Betfair Group plc and its subsidiaries prior to
the Merger.
Integration and restructuring costs
Integration costs relate to incremental, one-off costs incurred
as a result of integration and restructuring related
activities.
Amortisation of merger related intangible assets
Non-cash amortisation of GBP174.1m has been incurred in the
period primarily as a result of intangible assets separately
identified under IFRS 3 as a result of the Merger.
Replacement share options
Under the terms of the Merger, outstanding unvested share option
awards granted under the Betfair Long Term Incentive Plan in
2013/14, 2014/15 and 2015/16 and the Betfair Sharesave Plans would
not vest on completion but would be replaced by share option awards
over an equivalent number of ordinary shares in the Company,
calculated by reference to the exchange ratio of 0.4254. Whilst the
awards will vest in line with their previous terms, the replacement
of the options, under IFRS 3, requires them to be accounted for at
fair value on acquisition. As a result, non-cash accounting charges
of GBP21.9m were incurred in the period.
Impairment of property, plant and equipment and intangible
assets
Non-cash impairments amounting to GBP6.5m in relation to certain
property, plant and equipment and intangible assets has also been
incurred in light of integration related activities
post-Merger.
Corporation tax provision
In 2015, the Group released a specific historic provision of
GBP3.0m that was no longer required.
Merger fees and associated costs, integration and restructuring
costs and replacement share options are included in the condensed
consolidated income statement within operating costs excluding
depreciation and amortisation. Amortisation of merger related
intangible assets and impairment of property, plant and equipment
and intangible assets are included in the condensed consolidated
income statement within depreciation and amortisation.
5. Tax expense
Restated
2016 2015
GBPm GBPm
----------------------------- ------- ---------
Recognised in profit or
loss:
Current tax charge 44.0 20.9
Prior year over provision (1.9) (4.0)
------- ---------
Total current tax 42.1 16.9
------- ---------
Deferred tax credit (25.3) (1.4)
Prior year under provision 0.8 0.8
------- ---------
Decrease in net deferred
tax liability (24.5) (0.6)
----------------------------- ------- ---------
Total tax expense in income
statement 17.6 16.3
----------------------------- ------- ---------
The difference between the total tax expense shown above and the
amount calculated by applying the standard rate of corporation tax
to the profit before tax is as follows:
Restated
2016 2015
GBPm GBPm
-------------------------------------- ------- ---------
Profit before tax 11.9 124.5
------- ---------
Tax on Group profit before
tax at the standard Irish
corporation tax rate of
12.5% 1.5 15.5
Depreciation on non-qualifying
property, plant and equipment 1.4 1.1
Effect of different statutory
tax rates in overseas jurisdictions 7.6 4.1
Non-deductible expenses 10.2 (1.2)
Interest income taxable
at higher rates - 0.1
Effect of changes in statutory
tax rates (1.7) (0.1)
Movement on deferred tax (0.3) -
balances not recognised
Over provision in prior
year (1.1) (3.2)
--------------------------------------- ------- ---------
Total tax expense 17.6 16.3
--------------------------------------- ------- ---------
Total tax expense for 2016 includes a credit for separately
disclosed items amounting to GBP31.4m (2015: GBP3.4m) (see Note
4).
Tax rates
The Group's consolidated effective tax rate on profits including
separately disclosed items for 2016 is 148.2%. The tax effect of
separately disclosed items in the current year amounted to a tax
credit of GBP31.4m.
The Group's underlying effective tax rate of 15.5% is materially
impacted by the geographic mix of profits and reflects a
combination of higher and lower headline rates of tax in the
various jurisdictions in which the Group operates when compared
with the Irish standard rate of corporation tax of 12.5%.
The increase in the tax effect of non-deductible expenses during
the year primarily relates to additional disallowable expenditure
incurred as a result of the acquisition of Betfair Group plc in
February 2016.
No significant changes are expected to statutory tax rates other
than those announced and enacted at 31 December 2016; principally
the reduction in the headline rate of UK corporation tax to 19% in
April 2017 and further to 17% in April 2020.
The effect of the reduction in the UK headline rate of
corporation tax on deferred tax balances in the UK is reflected in
the above tax reconciliation.
The future effective tax rate of the Group is principally
affected by the ongoing geographic mix of profits in accordance
with the OECD guidelines in relation to Base Erosion and Profit
Shifting.
6. 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 year. The weighted average number of shares
has been adjusted for amounts held as Treasury Shares and amounts
held by the Group's Employee Benefit Trust ("EBT").
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares.
The calculation of basic and diluted EPS is as follows:
Restated
2016 2015
----------------------------------- ------------- -----------
Numerator in respect of basic
and diluted earnings per share
(GBPm):
(Loss) / profit attributable
to equity holders of the Company (5.7) 108.2
----------------------------------- ------------- -----------
Numerator in respect of adjusted
earnings per share (GBPm):
(Loss) / profit attributable
to equity holders of the Company (5.7) 108.2
Separately disclosed items
(See Note 4) 272.3 4.0
----------------------------------- ------------- -----------
Profit for adjusted earnings
per share calculation 266.6 112.2
Weighted average number of
ordinary shares in issue during
the year (in 000's) 79,986 45,115
----------------------------------- ------------- -----------
Basic (loss) / earnings per (GBP0.072) GBP2.399
share
----------------------------------- ------------- -----------
Adjusted basic earnings per GBP3.333 GBP2.488
share
----------------------------------- ------------- -----------
Adjustments to derive denominator in
respect of diluted earnings per share
(in 000's):
Weighted average number of
ordinary shares in issue during
the year 79,986 45,115
Dilutive effect of share options
and awards on issue - 780
----------------------------------- ------------- -----------
Adjusted weighted average number
of ordinary shares in issue
during the year 79,986 45,895
----------------------------------- ------------- -----------
Diluted (loss) / earnings per (GBP0.072) GBP2.358
share
----------------------------------- ------------- -----------
Adjusted diluted earnings per GBP3.333 GBP2.445
share
----------------------------------- ------------- -----------
The average market value of the Company's shares of GBP90.40
(2015: GBP63.54) was used to calculate the dilutive effect of share
options based on the market value for the period that the options
were outstanding.
Where any potential ordinary shares would have the effect of
decreasing a loss per share, they have not been treated as
dilutive.
7. Goodwill
The following cash generating units, being the lowest level of
asset for which there are separately identifiable cash flows, have
the following carrying amounts of goodwill:
Irish
Online Australia US UK Retail Retail Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ----------- -------- ---------- -------- ----------
Balance at 1 January
2015 (restated) 10.4 40.5 - 16.3 12.9 80.1
Arising on acquisitions
during the year
(Note 8) - - - 0.4 3.8 4.2
Foreign currency
translation adjustment (0.6) (2.5) - (0.5) (0.8) (4.4)
------------------------- ---------- ----------- -------- ---------- --------
Balance at 31 December
2015 (restated) 9.8 38.0 - 16.2 15.9 79.9
Arising on acquisitions
during the year
(Note 8) 3,420.9 - 324.5 0.1 0.1 3,745.6
Foreign currency
translation adjustment 1.6 7.2 52.5 1.6 2.7 65.6
------------------------- ---------- ----------- -------- ---------- -------- ----------
Balance at 31 December
2016 3,432.3 45.2 377.0 17.9 18.7 3,891.1
------------------------- ---------- ----------- -------- ---------- -------- ----------
The Online segment goodwill amount arose from the acquisition by
the Group in 2011 of CT Networks Limited ("Cayetano"), a games
developer based in the Isle of Man and Bulgaria, and the Betfair
online business (excluding operations in the US) acquired as part
of the all-share merger with Betfair Group plc in 2016, described
more fully in Note 8.
The Australia segment goodwill amount arose from the acquisition
by the Group of an initial 51% interest in Sportsbet Pty Limited
("Sportsbet") and the subsequent acquisition of International All
Sports Limited ("IAS") by Sportsbet, both in 2009.
The US segment goodwill amount arose from the acquisition by the
Group in 2016 of the US business associated with Betfair Group plc,
consisting of TVG, an online horseracing betting operator based in
California, and Betfair Casino, an online casino site in New Jersey
(see Note 8).
Goodwill on UK Retail arose from the acquisition of two London
bookmaking businesses in 2004, the acquisition of a retail
bookmaking company in Northern Ireland in 2008 and the acquisition
of a number of retail bookmaking shop properties since 2010 (see
Note 8).
Goodwill on Irish Retail arose from the amalgamation of three
bookmaking businesses to form Paddy Power plc in 1988, the
acquisition of three retail bookmaking businesses in 2007 and the
acquisition of a number of retail bookmaking shop properties since
2009 (see Note 8).
Impairment tests for cash generating units containing goodwill
and indefinite life intangible assets
In accordance with accounting requirements, the Group performs
an annual test for impairment of its cash generating units. The
most recent test was performed at 31 December 2016. Based on the
reviews as described above, with the exception of the IAS brand
impairment of AUD6.9m initially provided for in 2011, no impairment
has arisen.
8. Business combinations
Year ended 31 December 2016
Acquisition of Betfair Group plc
On 2 February 2016, Paddy Power plc completed an all-share
merger with Betfair Group plc (the "Merger") resulting in Paddy
Power plc shareholders owning 52% and Betfair Group plc
shareholders owning 48% of Paddy Power Betfair plc (previously
Paddy Power plc) (the "Company", together with its subsidiaries,
the "Group"), on a fully diluted basis taking into account existing
share options and award schemes for both companies as at the date
of the Rule 2.7 announcement in relation to the agreement of the
terms of the Merger (8 September 2015). Post-merger, the Company is
the Ultimate Parent of Betfair Group Limited (previously Betfair
Group plc).
Under the terms of the Merger, holders of Betfair Group plc
shares received 0.4254 ordinary shares with nominal value of EUR
0.09 each in the Company ("ordinary shares") in exchange for one
ordinary share of 0.095 pence each held in Betfair Group plc
("Exchange Ratio"). Accordingly, the Company issued a total of
39,590,574 ordinary shares in exchange for 93,066,700 shares in
Betfair Group plc, in addition to replacement share option awards
in lieu of outstanding unvested share option awards granted under
the Betfair Long Term Incentive Plan in 2013/14, 2014/15 and
2015/16 and the Betfair Sharesave Plans. The consideration was
GBP4.3bn based on the value of the Company's shares issued to
Betfair Group plc's shareholders and the fair value of the
replacement share options. No cash consideration was
transferred.
Betfair was an innovative online betting and gaming operator
which pioneered the betting exchange in 2000, changing the
landscape of the sports betting industry. The main drivers for the
Merger include increased scale driving growth and creating greater
returns on product and marketing investment; highly complementary
products and geographies; distinct brands with strong online
capabilities; and a stronger combined group with market-leading
talent, technology and operations.
In a business combination effected primarily by exchanging
equity interests, the acquirer is usually the entity that issues
its equity interests. IFRS 3 provides guidance as to how to
identify the acquirer in a business combination and consideration
was given to this when concluding on the accounting for the Merger
and subsequent recognition of Betfair Group plc as an acquisition
by Paddy Power plc.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
8. Business combinations (continued)
As at 2 February
2016
GBPm
------------------------------- -----------------
Assets
Property, plant and equipment 18.8
Intangible assets 680.5
Available-for-sale financial
asset and Investments 1.4
Total non-current assets 700.7
------------------------------- -----------------
Trade and other receivables 22.9
Financial assets - restricted
cash 17.1
Cash and cash equivalents 147.5
------------------------------- -----------------
Total current assets 187.5
------------------------------- -----------------
Total assets 888.2
------------------------------- -----------------
Liabilities
Trade and other payables 184.9
Provisions 4.3
Current tax payable 33.2
Total current liabilities 222.4
------------------------------- -----------------
Trade and other payables 20.9
Deferred tax liabilities 76.6
Total non-current liabilities 97.5
------------------------------- -----------------
Total liabilities 319.9
------------------------------- -----------------
Net assets acquired 568.3
------------------------------- -----------------
Goodwill 3,745.4
------------------------------- -----------------
Consideration 4,313.7
------------------------------- -----------------
Consideration satisfied
by:
Issue of 39,590,574 PPB
plc ordinary shares 4,202.3
Issue of replacement
share options 111.4
------------------------------- -----------------
Consideration 4,313.7
------------------------------- -----------------
Included within the intangible assets were GBP627.6m of
separately identifiable intangibles comprising brands, customer
relations, technology and licences acquired as part of the
acquisition, with the additional effect of a deferred tax liability
of GBP95.0m thereon. These intangible assets are being amortised
over their useful economic lives of up to eight years.
The main factors leading to the recognition of goodwill (none of
which is deductible for tax purposes) is growth by combining
business activities, a strong workforce, leveraging existing
products and synergy cost savings of the merged operations.
Receivables acquired amounted to GBP22.9m. The book value
equated to the fair value as all amounts are expected to be
received. The Group also acquired GBP250.1m of cash and cash
equivalents held on trust in The Sporting Exchange (Clients)
Limited, on behalf of the customers of Betfair Group plc and its
subsidiaries (the "Betfair Group"), and is equal to amounts
deposited into customer accounts. These balances are not
consolidated and reported in the condensed consolidated statement
of financial position for the Group.
The Betfair Group operates in an uncertain marketplace where
many governments are either introducing or contemplating new
regulatory or fiscal arrangements. 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. No contingent liabilities have been
booked on acquisition. Total revenue and total profit of the
combined entities is disclosed in the operating and finance review
on page 8. Betfair Group's statutory revenue and profit cannot be
readily defined due to the integration of the two business during
the period post-Merger. Merger and acquisition costs in respect of
this acquisition can be found in Note 4.
8. Business combinations (continued)
Shop property business acquisitions
In 2016, the Group, in the absence of available comparable sites
for organic shop openings, acquired a number of licensed bookmaking
businesses in the UK and Ireland.
Details of the net assets acquired and the goodwill arising on
these acquisitions under IFRS are as follows:
Provisional
fair values
31 December
2016
GBPm
----------------------------------- -------------
Identifiable net assets acquired:
Property, plant and equipment 0.1
Goodwill arising on acquisition
- UK Retail and Irish Retail 0.2
-------------
Consideration 0.3
-------------
The consideration is analysed as:
Cash consideration 0.2
Contingent deferred consideration 0.1
-------------
0.3
-------------
The principal factors contributing to the UK Retail and Irish
Retail goodwill balances are the well-established nature of the
acquired businesses within the locations in which they operate and
the potential synergies, rebranding opportunities and operational
efficiencies achievable for the acquired businesses within the
Group.
Information in respect of revenue, operating profit and cash
flows for the acquired businesses in the period from acquisition
and for the year ended 31 December 2016 has not been presented on
the basis of immateriality.
Contingent deferred consideration is payable to the vendors by
reference to the acquired businesses' performance against agreed
financial targets for the 12 months following the date of
acquisition. The contingent deferred consideration amount of
GBP0.1m at 31 December 2016 represents management's best estimate
of the fair value of the amounts that will be payable.
During 2016, the Group settled deferred consideration
liabilities of GBP0.4m in relation to prior years' Retail
acquisitions.
8. Business combinations (continued)
Year ended 31 December 2015
Shop property business acquisitions
In 2015, the Group, in the absence of available comparable sites
for organic shop openings, acquired a number of licensed bookmaking
businesses in Great Britain and Ireland.
Details of the net assets acquired and the goodwill arising on
these acquisitions under IFRS are as follows:
Restated
Fair values
31 December
2015
GBPm
----------------------------------- -------------
Identifiable net assets acquired:
Property, plant and equipment 0.5
Goodwill arising on acquisition -
UK Retail and Irish Retail 4.2
-------------
Consideration 4.7
-------------
The consideration is analysed as:
Cash consideration 4.0
Contingent deferred consideration 0.7
-------------
4.7
-------------
The principal factors contributing to the UK Retail and Irish
Retail goodwill balances are the well-established nature of the
acquired businesses within the locations in which they operate and
the potential synergies, rebranding opportunities and operational
efficiencies achievable for the acquired businesses within the
Group.
Information in respect of revenue, operating profit and cash
flows for the acquired businesses in the period from acquisition
and for the year ended 31 December 2015 has not been presented on
the basis of immateriality.
Contingent deferred consideration is payable to the vendors by
reference to the acquired businesses' performance against agreed
financial targets for the 12 months following the date of
acquisition. The contingent deferred consideration amount of
GBP0.7m at 31 December 2015 represents management's best estimate
of the fair value of the amounts that will be payable.
During 2015, the Group settled deferred consideration
liabilities of GBP1.1m in relation to prior years' Retail
acquisitions (see below).
Net cash (inflow) / outflow from purchase of businesses
Restated
31 December 31 December
2016 2015
GBPm GBPm
----------------------------------- -------------- -------------
Cash consideration - acquisitions
in the year 0.2 4.0
Cash acquired - acquisitions (147.5) -
in the year
Cash consideration - acquisitions
in previous years 3.8 1.1
----------------------------------- -------------- -------------
(143.5) 5.1
----------------------------------- -------------- -------------
Analysed for the purposes
of the statement of cash
flows as:
Purchase of retail businesses,
net of cash acquired 0.2 4.0
Cash acquired from merger (147.5) -
with Betfair Group plc
Payment of contingent deferred
consideration 3.8 1.1
----------------------------------- -------------- -------------
(143.5) 5.1
----------------------------------- -------------- -------------
In addition to settlement of deferred consideration liabilities
for prior years' Retail acquisitions (GBP0.4m), the Group also paid
GBP3.4m relating to deferred consideration payable to the Stronach
Group, due to Betfair's historical acquisition of HRTV, a
horseracing television network based in the US.
9. Available-for-sale financial assets, trade and other
receivables and derivative financial assets
Non-current assets
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
------------------------------- ------------ ------------ ------------
Available-for-sale-financial 1.3 - -
assets
------------------------------- ------------ ------------ ------------
Available-for-sale financial assets
As a result of the Merger, the Group at 31 December 2016, has a
non-controlling interest in LMAX Limited of 31.4% (GBP1.2m) and a
non-controlling interest in Featurespace of 6.4% (GBP0.1m). The
Group does not have any significant influence over the operations
and decision making of LMAX Limited and does not have any
representation on the Board.
Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
----------------------------- -------------- -------------- -------------
Trade and other receivables
Prepayments and accrued
income 5.8 - 1.5
----------------------------- -------------- -------------- -------------
Current assets
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
-------------------------------- -------------- ------------- -------------
Trade and other receivables
Trade receivables - credit
betting customers 3.5 2.5 3.2
Trade receivables - other
sports betting counterparties 6.8 1.6 1.1
-------------- ------------- -------------
Trade receivables 10.3 4.1 4.3
Other receivables 3.7 1.1 1.3
Value-added tax and goods
and services tax - - 1.0
Prepayments and accrued
income 41.2 17.5 18.6
-------------------------------- -------------- ------------- -------------
55.2 22.7 25.2
-------------------------------- -------------- ------------- -------------
Trade and other receivables
Trade and other receivables are non-interest bearing.
Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
Derivative financial assets
Foreign exchange forward - 1.8 -
contracts - cash flow hedges
------------------------------ -------------- ------------- --------------
Foreign exchange forward contracts - cash flow hedges
The notional principal amount of outstanding foreign exchange
forward contracts at 31 December 2015 was GBP74.8m. Gains and
losses recognised in the cash flow hedge reserve in equity at 31
December 2015 on foreign exchange forward contracts designated as
cash flow hedges under IAS 39, 'Financial Instruments: Recognition
and Measurement', were released to the income statement at various
dates during 2016.
10. Financial assets and cash and cash equivalents
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
------------------------------- ------------------- ------------------ -------------
Current
Financial assets - restricted
cash 64.8 60.2 53.7
Financial assets - deposits - - 15.0
Cash and cash equivalents 249.9 86.1 153.3
------------------- ------------------ -------------
Total 314.7 146.3 222.0
------------------------------- ------------------- ------------------ -------------
The effective interest rate on bank deposits at 31 December 2016
was 0.65% (2015: 1.78%, 2014: 1.05%); these deposits have an
average original maturity date of 14 days (2015: 12 days, 2014: 41
days). The bank deposits also have an average maturity date of 7
days from 31 December 2016 (2015: 4 days, 2014: 19 days). The
Directors believe that all short term bank deposits can be
withdrawn without significant penalty.
Financial assets - restricted cash, financial assets - deposits
and cash and cash equivalents are analysed by currency as
follows:
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
------- -------------- ------------- -------------
GBP 185.4 76.8 74.4
EUR 41.0 26.4 93.2
AUD 52.1 41.2 51.1
USD 27.2 1.8 2.7
Other 9.0 0.1 0.6
314.7 146.3 222.0
------- -------------- ------------- -------------
Financial assets
Included in financial assets - restricted cash at 31 December
2016 are bank deposits which were either (1) restricted at that
date, as they represented customer funds balances securing player
funds held by the Group or (2) required to be held to guarantee
third party letter of credit facilities. These customer funds that
are not held in trust are matched by liabilities of equal
value.
As at 31 December 2016, GBP349.2m (31 December 2015: GBPNil, 31
December 2014: GBPNil) 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.
11. Share capital and reserves
The total authorised share capital of the Company comprises
150,000,000 ordinary shares of EUR0.09 each (2015: 150,000,000
ordinary shares of EUR0.09 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.
The movement in the number of issued ordinary shares during the
period was as follows:
On 2 February 2016, the Company completed an all-share merger
with Betfair Group plc. The Merger resulted in the holders of Paddy
Power plc shares owning 52% of the Company, and the holders of
Betfair Group plc shares owning 48% of the Company, on a fully
diluted basis taking into account existing share options and share
award schemes for both companies as at the date of the Rule 2.7
announcement in relation to the agreement of the terms of the
Merger (8 September 2015).
Under the terms of the Merger, holders of Betfair Group plc
shares received 0.4254 ordinary shares of EUR0.09 each ("ordinary
shares") in the Company in exchange for each Betfair Group plc
ordinary share of 0.095 pence each. The Company issued 39,590,574
ordinary shares in exchange for 93,066,700 shares in Betfair Group
plc giving rise to a share premium of GBP4.2bn.
During the year ended 31 December 2016, 318,523 ordinary shares
(2015: 77,150) were issued as a result of the exercise of share
options under employee share schemes, giving rise to a share
premium of GBP2.5m (2015: GBP2.0m).
In 2016, following shareholder approval at an Extraordinary
General Meeting on 21 December 2015 and court approval on 28 April
2016, the Company cancelled a portion of its share premium account
transferring GBP3.8bn (EUR4.9bn) to the retained earnings account
within reserves. In 2015, following shareholder approval at the
Annual General Meeting on 14 May 2015 and court approval on 6
November 2015, the Company cancelled a portion of its share premium
account and transferred GBP31.6m (EUR44.9m) to the retained
earnings account within reserves.
Also in 2015, the Group returned GBP282m (EUR391.5m) to
shareholders via a B share scheme, and completed a capital
reorganisation which involved the consolidation of its ordinary
share capital on a nine for ten basis. The transaction involved a
number of steps. The existing ordinary shares in issue at the date
of the capital reorganisation of 51,118,370 of EUR0.10 each were
converted into 51,118,370 'intermediate' ordinary shares of
EUR0.081 each and 51,118,370 B shares of EUR0.019 each. An amount
of 2,184,000 B shares were issued to the Company and certain of its
subsidiaries as a result of treasury shares held. Such shares were
not entitled to receive a dividend or redemption payment. The
holders of the remaining B shares in issue of 48,934,370 were
entitled to receive a payment of EUR8 per share by way of a once
off dividend or a redemption payment. Subsequent to the dividend or
redemption payment all B shares were cancelled during the year. The
'intermediate' ordinary shares were consolidated and sub-divided
into 46,006,533 'new' ordinary shares of EUR0.09 each.
A total of 1,965,600 ordinary shares were held in treasury as of
31 December 2016 (31 December 2015: 1,965,600). All rights
(including voting rights and the right to receive dividends) in the
shares held in treasury are suspended until such time as the shares
are reissued. The Group's distributable reserves are restricted by
the value of the treasury shares, which amounted to GBP40.7m as of
31 December 2016 (31 December 2015: GBP40.7m). The cost of treasury
shares held by the Company at 31 December 2016 was GBP4.2m (2015:
GBP4.2m), with a further GBP36.5m of shares being held by the
Company's subsidiaries (2015: GBP36.5m).
At 31 December 2016, the Paddy Power Betfair plc Employee
Benefit Trust ("EBT") held a further 478,392 (2015: 874,890) of the
Company's own shares, which were acquired at a total cost of
GBP30.9m (2015: GBP49.2m), in respect of potential future awards
relating to the Group's employee share plans. The Company's
distributable reserves at 31 December 2016 are further restricted
by this cost amount. In the year ended 31 December 2016, 396,498
shares with an original cost of GBP18.3m were transferred from the
EBT to beneficiaries of the EBT consequent to the vesting thereof
(2015: 410,499 shares with an original cost of GBP17.2m). During
the year ended 31 December 2015, the EBT purchased 327,004 Paddy
Power plc ordinary shares for a total consideration of GBP22.1m and
received GBP3.6m from the B share scheme return of capital to
shareholders. No such purchases were made in 2016.
11. Share capital and reserves (continued)
The foreign exchange translation reserve at 31 December 2016 had
a credit balance of GBP29.5m (2015: debit balance of GBP20.2m), and
arose from the retranslation of the Group's net investment in Euro,
AUD and USD functional currency entities. The movement in the
foreign exchange translation reserve for the year ending 31
December 2016 reflects the strengthening of USD, AUD and Euro
against GBP in the year.
Other reserves comprise a capital redemption reserve fund, a
capital conversion reserve fund and a net wealth tax reserve. The
capital redemption reserve fund of GBP1.4m (2015: GBP1.4m) relates
to the nominal value of shares in the Company acquired by the
Company and subsequently cancelled, and in 2015, the nominal value
of shares in the Company cancelled as part of the return of capital
to shareholders. The capital conversion reserve fund of GBP0.2m
(2015: GBP0.2m) arose on the redenomination of the ordinary share
capital of the Company at the time of conversion from Irish pounds
to Euro.
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. The Group had entered into foreign exchange
forward contracts to hedge a portion of GBP exposures expected to
arise from GBP denominated income in the year ended 31 December
2016. No such contracts were outstanding at 31 December 2016.
In 2016, an amount of GBP25.6m (2015: GBP0.6m) in respect of
share options exercised during the year was transferred from the
share-based payment reserve to retained earnings. An amount of
GBP5.9m of deferred tax relating to the Group's share-based
payments was charged to retained earnings in 2016 (2015: credit of
GBP0.1m). An amount of GBP4.4m of current tax relating to the
Group's share-based payments was credited to retained earnings in
2016 (2015: GBPNil).
12. Dividends paid on ordinary shares
Restated
2016 2015
GBPm GBPm
---------------------------------------- ------- ---------
Ordinary shares:
- final dividend of EUR1.20 (GBP0.933)
per share for the year ended 31
December 2015 (31 December 2014:
EUR1.02) 40.8 36.1
- special dividend of EUR1.814 61.9 -
(GBP1.411) per share (31 December
2015: EURNil)
- Paddy Power plc 1(st) interim
dividend of EUR0.18 (GBP0.140) 6.1 -
per share (31 December 2015: EURNil)
- 2(nd) interim dividend of GBP0.40
per share (2015: EUR0.60 (GBP0.44)) 33.5 19.3
---------------------------------------- ------- ---------
Amounts recognised as distributions
to equity holders in the year 142.3 55.4
---------------------------------------- ------- ---------
The Directors have proposed a final dividend of 113.0 pence per
share which will be paid on 24 May 2017 to shareholders on the
Company's register of members at the close of business on the
record date of 7 April 2017. This dividend, which amounts to
approximately GBP95.0m, has not been included as a liability at 31
December 2016.
The Paddy Power plc 1(st) interim dividend represented the
period from 1 January 2016 to 1 February 2016.
During the year end ended 31 December 2016, the Group paid the
Betfair Group plc closing dividend amounting to GBP22.6m, which
represented the period prior to Merger completion.
13. Trade and other payables and derivative financial
liabilities
Current liabilities
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
----------------------------------- -------------- ------------- -------------
Trade and other payables
Trade payables 9.8 12.1 8.8
Customer balances 62.2 58.4 52.3
PAYE and social security 6.6 4.7 4.5
Value-added tax and goods
and services tax 0.2 3.1 -
Betting duty, data rights,
and product and racefield
fees 40.4 26.1 12.6
Employee benefits 46.1 25.9 24.3
Contingent deferred consideration
- business combinations 3.7 0.8 1.5
Accruals and other liabilities 151.6 53.0 52.9
----------------------------------- -------------- ------------- -------------
320.6 184.1 156.9
----------------------------------- -------------- ------------- -------------
Derivative financial liabilities
Foreign exchange forward
contracts - cash flow hedges - - 2.1
Sports betting open positions 8.6 12.5 11.1
----------------------------------- -------------- ------------- -------------
8.6 12.5 13.2
----------------------------------- -------------- ------------- -------------
Non-current liabilities
Restated Restated
31 December 31 December 31 December
2016 2015 2014
GBPm GBPm GBPm
----------------------------------- -------------- ------------- -------------
Trade and other payables
PAYE and social security 0.2 0.1 0.2
Employee benefits 5.0 4.1 3.8
Contingent deferred consideration
- business combinations 20.4 - 0.1
Accruals and other liabilities 1.3 0.8 0.4
----------------------------------- -------------- ------------- -------------
26.9 5.0 4.5
----------------------------------- -------------- ------------- -------------
Derivative financial liabilities
Sports betting open positions - - 0.1
- - 0.1
Sports betting open positions
Amounts received from customers on sportsbook events that have
not occurred by the year end are derivative financial instruments
and have been designated by the Group on initial recognition as
financial liabilities at fair value through profit or loss.
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.
Included within non-current liabilities is contingent deferred
consideration of GBP20.4m which was acquired as a result of the
Merger. This is payable to the Stronach Group due to Betfair's
historical acquisition of HRTV, a horseracing television network
based in the US. The amount payable at 31 December 2016 amounted to
GBP23.9m, with GBP20.4m due after one year from the reporting
date.
14. Borrowings
Current liabilities
Restated Restated
31 December 2016 31 December 2015 31 December 2014
GBPm GBPm GBPm
Accrued interest on borrowings 0.2 0.2 -
Non-current liabilities
Restated Restated
31 December 2016 31 December 2015 31 December 2014
GBPm GBPm GBPm
Revolving credit facility 214.0 143.1 -
Less: expenses relating to revolving credit facility (0.4) (1.3) -
213.6 141.8 -
In 2015, the Group secured a committed revolving credit bank
loan facility ("RCF") of EUR300m provided by a syndicate of banks
which expires in May 2020. At 31 December 2016, EUR250m (GBP214.0m)
of this facility was drawn down (2015: EUR195m (GBP143.1m). During
2016, the Group drew down EUR211.0m (GBP170.9m) and repaid
EUR156.0m (GBP126.8m) under this facility.
Borrowings under the RCF are unsecured but are guaranteed by the
Company and certain of its operating subsidiaries. Borrowings under
the RCF incur interest at EURIBOR plus a margin of between 1.10%
and 1.95%. A commitment fee, equivalent to 35% of the margin, is
payable in respect of available but undrawn borrowings.
Upfront participation and arrangement fees plus associated costs
incurred in arranging the RCF have been capitalised and offset
against the loan in the condensed consolidated statement of
financial position and are being amortised to the income statement
over the expected life of the facility.
It is the Directors' opinion that due to the Group's bank
borrowings being subject to floating interest rates and the proven
cash generation capability of the Group, there is no significant
difference between the book value and fair value of the Group's
borrowings.
Under the terms of the RCF, the Group is required to comply with
the following financial covenants on a semi-annual basis.
-- Net Leverage Ratio: Consolidated net borrowings shall not be
more than 3.0 times underlying consolidated EBITDA.
-- Interest Cover Ratio: Underlying consolidated EBITDA shall
not be less than 4.0 times net finance charges.
During the year ended 31 December 2016, all covenants have been
complied with.
15. Commitments and contingencies
(a) Guarantees
The Group has uncommitted working capital overdraft facilities
of GBP12.4m (2015: GBP11.7m) with Allied Irish Banks p.l.c. These
facilities are secured by a Letter of Guarantee from Paddy Power
Betfair plc.
The Group has bank guarantees: (1) 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 (2) 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 31 December 2016 was GBP29.1m (2015: GBP11.2m). No claims had
been made against the guarantees as of 31 December 2016 (2015:
GBPNil). The guarantees are secured by counter indemnities from
Paddy Power Betfair plc and certain of its subsidiary companies.
The value of cash deposits over which the guaranteeing banks hold
security was GBP0.9m at 31 December 2016 (2015: GBPNil).
The Australian corporate sports bookmaking licences issued to
Sportsbet require those companies to hold sufficient cash funds to
cover monies owed to customers. At 31 December 2016, the total
value of relevant customer balances attributable to the Australia
business segment was GBP39.8m (AUD68.0m) (2015: GBP25.5m
(AUD51.8m)) and the combined cash and cash equivalent balances held
by Sportsbet at that date totalled GBP50.9m (AUD86.8m) (2015:
GBP41.2m (AUD83.6m)). The Group holds cash amounts totalling
GBP25.0m in respect of customer funds that are not held on trust in
The Sporting Exchange (Clients) Limited in accordance with local
regulations. Customer funds that are not held on trust are matched
by liabilities of an equal value.
The Company enters into financial guarantee contracts to
guarantee the indebtedness of other companies within the Group. The
Company considers these to be insurance arrangements and accounts
for them as such. The Company treats the guarantee contract as a
contingent liability until such time as it becomes probable that
the Company will be required to make a payment under the
guarantee.
As mentioned in Note 14, borrowings under the RCF are unsecured
but are guaranteed by the Company and certain of its operating
subsidiaries.
(b) 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.
(c) Capital commitments
Capital expenditure contracted for at the statement of financial
position date but not yet incurred was as follows:
31 December 2016 31 December 2015
GBPm GBPm
Property, plant and equipment 3.9 0.7
15. Commitments and contingencies (continued)
(d) Operating leases
The Group leases various licensed betting and other offices
under operating lease agreements. The leases have varying terms,
escalation clauses and renewal rights. The leases have, on average,
approximately six years left to run (if the Group was to exercise
available break options), with a right of renewal after that date.
Lease rentals are typically reviewed every five years to reflect
market rental rates or changes in general inflation rates.
At 31 December 2016 and 2015, the future minimum rentals payable
under non-cancellable operating leases on properties were as
follows:
Restated
31 December 2016 31 December 2015
GBPm GBPm
Within one year 32.6 24.8
Between two and five years 100.1 77.6
After five years 52.7 51.8
185.4 154.2
The Group has a small number of shop properties that are sublet.
Sublease payments of GBP0.4m (2015: GBP0.4m) are expected to be
received during the year ended 31 December 2017.
During 2016, an amount of GBP33.3m was recognised in profit or
loss in respect of operating leases (2015: GBP25.3m). Contingent
rent expense in profit or loss amounted to a credit of GBP0.5m
(2015: credit of GBP0.5m). Sublease income (netted against
operating lease expense on the basis of immateriality) amounted to
GBP0.4m in 2016 (2015: GBP0.3m).
Operating leases for licensed betting and other offices are
entered into as combined leases of land and buildings. Since the
title to the land does not pass, the rent paid to the landlord of
the building is increased to market rent at regular intervals and
the Group does not participate in the residual value of the
building, it was determined that substantially all the risks and
rewards of the offices are with the landlord. As such, the Group
has determined that the leases are operating leases.
16. Related parties
There were no transactions with related parties during the years
ended 31 December 2016 and 2015 that materially impacted the
financial position or performance of the Group.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
17. Events after the reporting date
Dividend
In respect of the current year, the Directors propose that a
final dividend of 113.0 pence per share will be paid to
shareholders on 24 May 2017. This dividend is subject to approval
by shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements. The proposed
dividend is payable to all shareholders on the Register of Members
on 7 April 2017. The total estimated dividend to be paid amounts to
GBP95.0m.
18. Changes in accounting policies
Under the new Group accounting policies as outlined in Note 2,
payment transaction costs, previously accounted for as operating
expenses are accounted for as cost of sales, and affiliate
commissions, previously accounted for as cost of sales are
accounted for as operating expenses. In addition, certain amounts
previously reported within the Online, Australia and Retail
operating segments are reported within the Corporate operating
segment. The impact of the changes, by reporting segment, on the
major components of operating profit for the year ended 31 December
2015 are as follows:
Year ended 31 December 2015
Online Australia Retail US Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ----------
Cost of sales
As reported under previous accounting policies (79.9) (60.6) (57.2) - - (197.7)
Restatement 5.5 2.2 (1.3) - - 6.4
As reported under new accounting policies (74.4) (58.4) (58.5) - - (191.3)
Operating costs excluding depreciation and
amortisation
As reported under previous accounting policies (159.7) (105.5) (160.5) - - (425.7)
Restatement 21.2 1.0 4.3 - (32.9) (6.4)
As reported under new accounting policies (138.5) (104.5) (156.2) - (32.9) (432.1)
Impact on operating profit 26.7 3.2 3.0 - (32.9) -
The total restatement between cost of sales and operating costs
excluding depreciation and amortisation for the year ended 31
December 2016 amounted to GBP6.4m (EUR8.8m).
Under the new Group accounting policies as outlined in Note 2,
certain amounts previously accounted for as cash and cash
equivalents and included in the statement of cash flows are
accounted for as financial assets - restricted cash and are
excluded from the statement of cash flows. The impact of the
changes on the major components of the condensed consolidated
statement of cash flows in the year ended 31 December 2015 are as
follows:
2015 2015
As reported under previous accounting As reported under new accounting
policies policies
GBPm GBPm
Net cash from operating activities 196.2 188.5
Net cash used in investing activities (30.1) (30.1)
Net cash used in financing activities (222.2) (218.4)
Net decrease in cash and cash
equivalents (56.1) (60.0)
Cash and cash equivalents at start of
year 176.4 153.3
Foreign currency exchange loss on cash
and cash equivalents (8.5) (7.2)
Cash and cash equivalents at end of
year 111.8 86.1
18. Changes in accounting policies (continued)
The impact of the changes on the condensed consolidated
statement of financial position as at 31 December 2015 and 31
December 2014 are as follows:
31 December 2015 31 December 2015 31 December 2014 31 December 2014
As reported As reported As reported As reported
under previous under new under previous under new
accounting accounting accounting accounting
policies policies policies policies
GBPm GBPm GBPm GBPm
Financial assets - restricted cash 34.5 60.2 30.6 53.7
Cash and cash equivalents 111.8 86.1 176.4 153.3
19. Change in presentation currency
In restating the Group financial statements for 2015, the
reported information was converted to pounds sterling from euro
using the following procedures:
- assets and liabilities of foreign operations where the
functional currency is other than pounds sterling were translated
into pounds sterling at the relevant closing rates of exchange,
namely 1 January 2015 and 31 December 2015. Non-sterling trading
results were translated into sterling at the actual rates of
exchange for the transactions (or the relevant average rates of
exchange where this was a reasonable approximation). Differences
arising from the retranslation of the opening net assets and the
results for the year have been taken to the foreign currency
translation reserve;
- the cumulative foreign currency translation reserve was set to
nil at 1 January 2015, the date at the beginning of the prior year
comparative period. All subsequent movements comprising differences
on the retranslation of the opening net assets of non-sterling
entities have been taken to the foreign currency translation
reserve. Share capital, share premium and other reserves were
translated into pounds sterling at the rate of exchange at 1
January 2015 and at the historic rates prevailing at the dates of
transactions thereafter; and
- all exchange rates used were extracted from the Group's
underlying financial records.
19. Change in presentation currency (continued)
CONDENSED CONSOLIDATED INCOME STATEMENT
Before Before
separately Separately separately Separately
disclosed items disclosed disclosed disclosed
2015 items Total items items Total
As restated 2015 2015 2015 2015 2015
in EUR As restated in As restated in As restated As restated in As restated in
EURm EUR EUR in GBP GBP GBP
EURm EURm GBPm GBPm GBPm
Continuing
operations
Revenue 1,094.0 - 1,094.0 794.3 - 794.3
Cost of sales (267.5) - (267.5) (191.3) - (191.3)
Gross profit 826.5 - 826.5 603.0 - 603.0
Operating costs
excluding
depreciation
and
amortisation (593.5) (10.2) (603.7) (432.1) (7.4) (439.5)
EBITDA 233.0 (10.2) 222.8 170.9 (7.4) 163.5
Depreciation and
amortisation (52.6) - (52.6) (38.4) - (38.4)
Operating profit
/ (loss) 180.4 (10.2) 170.2 132.5 (7.4) 125.1
Financial income 1.9 - 1.9 1.4 - 1.4
Financial
expense (2.6) - (2.6) (2.0) - (2.0)
Profit / (loss)
before tax 179.7 (10.2) 169.5 131.9 (7.4) 124.5
Income tax
(expense) /
credit (27.0) 4.8 (22.2) (19.7) 3.4 (16.3)
Profit / (loss)
for the year -
all
attributable to
equity holders
of the Company 152.7 (5.4) 147.3 112.2 (4.0) 108.2
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2015 2015
As originally reported As restated in GBP
EURm GBPm
----------------------------------------
Profit for the year - all
attributable to equity holders
of the Company 147.3 108.2
---------------------------------------- -------------------
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 (6.2) (4.5)
Fair value of foreign exchange
cash flow hedges transferred
to income statement 11.3 8.3
Foreign exchange gain / (loss)
on translation of the net
assets of foreign currency
denominated entities 3.9 (20.2)
Deferred tax on fair value
of cash flow hedges (0.6) (0.5)
Other comprehensive income
/ (loss) 8.4 (16.9)
Total comprehensive income
for the year - all attributable
to equity holders of the Company 155.7 91.3
----------------------------------------
19. Change in presentation currency (continued)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2015 31 December 31 December 31 December
As restated in 2015 2014 2014
EUR As restated As restated in As restated in
EURm in EUR GBP
GBP EURm GBPm
GBPm
-------------
Assets
Property, plant and equipment 125.4 92.0 126.8 98.7
Intangible assets 82.1 60.3 76.4 59.5
Goodwill 108.9 79.9 102.8 80.1
Deferred tax assets 9.1 6.7 8.2 6.4
Trade and other receivables - - 2.0 1.5
---------------- -------------
Total non-current assets 325.5 238.9 316.2 246.2
---------------- -------------
Trade and other receivables 31.0 22.7 32.4 25.2
Derivative financial assets 2.4 1.8 - -
Financial assets - restricted cash 81.9 60.2 68.9 53.7
Financial assets - deposits - - 19.3 15.0
Cash and cash equivalents 117.3 86.1 196.8 153.3
-------------
Total current assets 232.6 170.8 317.4 247.2
-------------
Total assets 558.1 409.7 633.6 493.4
-------------
Equity
Issued share capital and share premium 6.8 8.7 50.1 39.0
Treasury shares (51.8) (40.7) (57.5) (44.8)
Shares held by employee benefit trust (63.1) (49.2) (61.5) (47.9)
Other reserves 40.9 8.5 34.8 27.2
Retained earnings 136.5 123.6 421.1 327.9
-------------
Total equity attributable to equity holders of the
Company 69.3 50.9 387.0 301.4
Liabilities
Trade and other payables 250.7 184.1 201.4 156.9
Derivative financial liabilities 17.0 12.5 17.0 13.2
Provisions 0.6 0.4 0.5 0.4
Current tax payable 14.9 10.9 17.4 13.5
Borrowings 0.3 0.2 - -
-------------
Total current liabilities 283.5 208.1 236.3 184.0
-------------
Trade and other payables 6.8 5.0 5.8 4.5
Derivative financial liabilities 0.1 - 0.1 0.1
Provisions 1.3 1.0 1.2 0.9
Deferred tax liabilities 3.9 2.9 3.2 2.5
Borrowings 193.2 141.8 - -
---------------- -------------
Total non-current liabilities 205.3 150.7 10.3 8.0
---------------- -------------
Total liabilities 488.8 358.8 246.6 192.0
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Total equity and liabilities 558.1 409.7 633.6 493.4
-------------
19. Change in presentation currency (continued)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
2015 2015
As restated in EUR As restated in GBP
EURm GBPm
Cash flows from operating activities
Profit for the year - all attributable to equity holders of the Company 147.3 108.2
Separately disclosed items 5.5 4.0
Tax expense before separately disclosed items 27.0 19.7
Financial income (1.9) (1.4)
Financial expense 2.6 2.0
Depreciation and amortisation before separately disclosed items 52.6 38.4
Employee equity-settled share-based payments expense before separately
disclosed items 16.8 12.1
Foreign currency exchange gain (2.1) (1.9)
Loss on disposal of property, plant and equipment and intangible assets 0.3 0.2
Cash from operations before changes in working capital 248.1 181.3
Decrease in trade and other receivables 0.5 0.2
Increase in trade, other payables and provisions 45.0 33.6
Cash generated from operations 293.6 215.1
Tax paid (26.3) (19.2)
Net cash from operating activities before merger fees and integration and
restructuring costs 267.3 195.9
Merger fees and integration and restructuring costs paid (10.2) (7.4)
Net cash from operating activities 257.1 188.5
Purchase of property, plant and equipment (27.8) (20.2)
Purchase of intangible assets (30.1) (21.9)
Purchase of retail businesses, net of cash acquired (5.5) (4.0)
Payment of contingent deferred consideration (1.5) (1.1)
Proceeds from disposal of property, plant and equipment and intangible
assets 0.3 0.2
Transfers from financial assets - deposits 21.0 15.4
Interest received 2.0 1.5
Net cash used in investing activities (41.6) (30.1)
Proceeds from the issue of new shares 2.7 2.0
Purchase of shares by employee benefit trust (25.3) (18.5)
Dividends paid (76.3) (55.4)
Return of capital to shareholders (including associated costs) (392.1) (282.8)
Net amounts drawn down on borrowings facility 195.0 139.6
Fees in respect of borrowings facility (2.5) (1.8)
Interest paid (2.1) (1.5)
Net cash used in financing activities (300.6) (218.4)
Net decrease in cash and cash equivalents (85.1) (60.0)
Cash and cash equivalents at start of year 196.8 153.3
Foreign currency exchange gain / (loss) on cash and cash equivalents 5.6 (7.2)
Cash and cash equivalents at end of year 117.3 86.1
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKADNCBKDBNK
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March 07, 2017 02:00 ET (07:00 GMT)
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