Paddy Power and Betfair owner Flutter Entertainment (FLTR) has reported a 21% increase in revenues to £2.4 billion and a 35% improvement in adjusted operating profit to £567 million, on a pro-forma basis for the six months ended 30 June.
This means the numbers include a six-month contribution from The Stars Group which acquisition by Flutter completed on 5 May 2020, as well as Adjarabet whose takeover completed on 1 February 2019.
Having briefly touched an all-time high of £135 in early trading, the shares fell back to £124.50.
A GAME OF TWO HALVES
Prior to March 15 when the lockdown began the group saw revenues grow 26% year-on-year on a pro-forma basis.
During the disrupted period, despite the cancellation of many sporting events the group benefited from the continuation of horse racing in both Australia and the US while the poker and gaming side of the business experienced ‘substantial growth’.
For example Poker Stars’ average daily gaming customers increased 70% year-on-year in the second quarter. This helped Flutter’s revenues grow 20% during the period from March 15 to 30 June.
NEW OPERATING STRUCTURE
The integration of The Stars Group appears to be progressing well and the company has decided to continue running the business on a decentralised basis with all four divisional chiefs now in place.
From 2021 the group will report along the following divisional lines; UK and Ireland including Sky Betting and Gaming, Paddy Power and Betfair; International, comprising PokerStars, Betfair International, Adjarabet and the Group’s risk and trading B2B operations; Australia; and the US, comprising FanDuel, Foxbet, TVG and Poker Stars’ US operations.
DELEVERAGING
A number of steps were taken in the first-half to improve the balance sheet and liquidity of the business including refinancing £1.4 billion of existing debt and a £813 million share placing which was used to reduce debt. The company also conserved some cash by paying the final 2019 dividend in shares.
At 30 June the group’s pro-forma leverage was below management’s expectations with net debt to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 2.3 times. Pro-forma EBITDA was £684 million at the period end.
However additional anticipated investment in the US during the second half will leave year-end leverage around 2.5 to 2.8 times.
The company signaled its intention to delever the balance sheet and improve its investment grade status in order to refinance existing debt and reduce finance costs. It believes strong cash generation will bring leverage into the target range of between one and two times over the medium term.
This will prompt the company to re-examine the dividend policy.
OUTLOOK
Assuming no further disruption to the sporting calendar and margins normalise throughout the rest of the year management expects to deliver full-year EBITDA of between £1.2 billion and £1.3 billion excluding the US, where losses are expected to be between £140 million and £160 million.
