Paddy Power Betfair plc 2016 Interim Results 2 Overview Revenue - - PowerPoint PPT Presentation

Paddy Power Betfair plc 2016 Interim Results

2

• Revenue up 18%, with good performances across all divisions
• Underlying EBITDA up 31% to £181m
• Underlying operating profit up 39% to £148m

H1 Results ts

1

Merg rger Integration

• n

Overview

Outlook

• k
• Integration progressing ahead of schedule
• Now expect cost synergy benefit of £65m vs £50m initial expectation
• Majority of integration actions already completed – full benefit to land in 2017
• Full year 2016 underlying EBITDA expected to be between £365m and £385m
• Scale, market positions and leading capabilities; well placed for sustainable,

profitable growth

1 Note throughout this presentation results are shown prepared on a “Proforma” basis for the Group as if the merger completed on 1 January 2015.

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Financial & Operating Review

4

Financial highlights

• 18% revenue growth (Q1 +16%, Q2 +20%)
• Euro 2016 contributed £22m revenues to

H1 (£38m for full tournament)

• Operating costs up 14%:

− 31% increase in sales & marketing − 5% increase in other costs

• Excluding FX impact, net revenue up 16%

and EBITDA up 30%

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY %

Net r reven enue 759 642 +18% Cost of sales (175) (149) +17% Gross ss profi fit 584 493 +19% Operating costs (403) (355) +14% EBITDA 181 138 +31%

EBITDA margin % 23.8% 21.5% +2.3%

Depreciation & amortisation (33) (32) +6% Underlyin ing o

• peratin

ing p profit it 148 106 +39% Separately disclosed items (195)

• n/a

Operating (loss)/profit (48) 106 n/a Underlying earnings per share 147.0p 107.7p +36% Interim dividends per share 52p n/a Net cash at end of period £2m £12m

5

Divisional overview

£m, Proforma Underlying

ONLINE NE AUSTRALI LIA RETAIL US US GROUP UP H1’16 16 YOY % Y % H1’16 16 YOY % Y % H1‘16 16 YOY % Y % H1’16 16 YOY % Y % H1’16 16 YOY % Y %

Sportsbook stakes 2,700 +20% 1,259 +29% 851 +10%

• 4,810

+21%

Sportsbook net rev % 6.7% +0.6% 10.3%

• 1.1%

11.6% +0.1%

• 8.5%

5% +0.1%

Sports net revenue 316 +21% 129 +17% 100 +12% 38 +23% 582 +18% Gaming net revenue 124 +20%

• 47

+11% 5 +23% 177 +17% Total n net r revenue 440 +20% 129 +17% 147 +12% 43 +23% 759 +18% EBITDA DA 140 +34% 30

• 10%

31 +16% 7 +65% 181 +31% Operatin ing p profit it 123 +40% 26

• 12%

23 +21% 3 +153% 53% 148 +39%

Regulated Online 53% Unregulated Online 5% Australia 17% US 6% Retail 19%

H1 2 2016 N Net R Revenue By M Marke ket

Online Sportsbook 41% Exchange, US Sports & B2B 22% Online Gaming 17% Retail Sportsbook 13% Retail Gaming 6%

By Pr Product H1 2016 2016 O Operating P Profit By d div ivisio ion2

Online 70% Australia 15% US 2% Retail 13%

1 Group EBITDA and operating profit includes unallocated central costs 2 Before unallocated central costs of £28m

1

6

Online

• Sportsbook stakes growth driven by mobile

(76% of revenues)

• Exchange & B2B revenue +3%
• Gaming revenues driven by strong cross-

sell and mobile revenue growth

• Regulated revenues up 25% with

unregulated -13%, primarily due to exiting Portugal in July 2015

• Sales & marketing costs increase includes

continued asset inflation and Euro 2016

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY %

Sport rtsb sbook st stakes 2,700 700 2,242 242 +20% Sportsbook net revenue % 6.7% 6.1% +0.6% Sports net revenue 316 262 +21% Gaming net revenue 124 103 +20% Total n net r revenue 440 365 +20% Cost of sales (100) (87) +16% Gross ss Profi fit 339 278 +22% Sales & marketing (108) (82) +32% Product & technology (58) (56) +2% Operations (33) (35)

• 6%

Total operating costs (199) (174) +14% Underlyi ying EB EBITDA 140 104 +34% Depreciation & amortisation (17) (17) +3% Underlyin ing o

• peratin

ing p profit it 123 88 +40% Active customers (000’s)* 3,061 2,614 +17%

Online division includes the UK/Ireland telephone business * Active customers throughout 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.

7

Australia

• Revenue growth impacted by adverse

horseracing results

• In-play betting contributed 15% of stakes &

8% of revenues in H1 2016, versus 8% & 4% in FY 2015 prior to launch of ‘Bet Live’

• Sales & marketing cost growth reflects

substantial investment in media assets and cost inflation

• Other cost growth reflects significant new

hires in H2 2015; expected to moderate from H2 2016

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY %

Sport rtsb sbook st stakes 1,259 259 973 +29% Sportsbook net revenue % 10.3% 11.4%

• 1.1%

Net r reven enue 129 111 +17% Cost of sales (32) (26) +25% Gross ss Profi fit 97 85 +14% Sales & marketing (34) (26) +35% Product & technology (12) (9) +27% Operations (20) (16) +25% Total operating costs (66) (51) +30% Underlyi ying EB EBITDA 30.3 33.8

• 10%

0% Depreciation & amortisation (4.2) (4.1) +3% Underlyin ing o

• peratin

ing p profit it 26.1 29.8

• 12%

2% Active customers (000’s) 610 465 +31%

Note YoY impact of movement in FX rates was immaterial in H1 (A$ YoY movement disclosed in the Interim statement).

8

Retail

• Good revenue growth in both estates:

― UK +11% ― Ireland +13% (+6% in constant currency)

• Like-for-like KPIs in constant currency:

― Sportsbook stakes +2% ― Sportsbook revenues +4% ― Machine gaming revenues +5% ― Total net revenue +4% ― Opex +3%

• Excluding FX impact, operating profit

increased 14%

• 6 new shops opened in H1 2016 (3 in

Ireland & 3 in the UK) & 1 UK closure

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY %

Sport rtsb sbook st stakes 851 773 +10% Sportsbook net revenue % 11.6% 11.5% +0.1% Sportsbook net revenue 100 89 +12% Machine gaming net revenue 47 43 +11% Total n net r revenue 147 132 +12% Cost of sales (32) (29) +11% Gross ss Profi fit 115 103 +12% Operating costs (84) (76) +10% Underlyi ying EB EBITDA 31.1 26.9 +16% Depreciation & amortisation (8.2) (7.9) +4% Underlyin ing o

• peratin

ing p profit it 23.0 19.0 +21% Shops at period end 603 584 +3%

9

US

• Sports revenue driven by 17% growth

(constant currency) in TVG handle

• New Jersey casino market share

maintained at >10%

• Horseracing exchange launched in New

Jersey in May

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY % US$ S$ YO YOY %

Sports net revenue 38 31 +23% +16% Gaming net revenue 5 4 +23% +16% Total n net r revenue 43 35 +23% +16% Cost of sales (10) (8) +19% +12% Gross ss Profi fit 33 27 +25% +17% Operating costs (27) (23) +17% +11% Underlyi ying EB EBITDA 6.9 4.2 +65% +50% Depreciation & amortisation (4.0) (3.0) +31% +23% Underlyin ing o

• peratin

ing p profit it 2.9 1.2 +153% 153% +110% +110% Active customers (000’s) 118 114 +4%

10

Cost synergies

• Now expect £65m annualised cost synergies

− Increased from £50m and delivered a year earlier than previously expected

• One-off cash implementation costs still expected to be less than £65m
• Key actions:

― Restructuring of management teams ― Rationalisation of duplicated roles ― Offshoring of technology roles ― Closure of four offices ― Consolidation of data centres ― Procurement savings ― Reduced use of third-party suppliers

H1'16 FY 2016 FY 2017

£65m £65m £30m £30m £9m £9m

Expec ected ed phasing of cost synerg ergy be benefits

11

Separately disclosed items

£m, Proforma H1 2016 016

Merger deal costs 50 Includes stamp duty & advisor fees Merger integration costs 49 One-off costs to achieve the cost synergy savings Non-cash merger related items: Business combination intangible asset amortisation 79 IFRS3 acquisition accounting Fair value adjustment for share-based payments 13 Revaluation of existing plans Impairment of assets 4 Obsolete assets resulting from the merger Total s separately d disclos

• sed i

items 195

• All items result from the merger
• Further details included in the Appendix

12

Cash flow

£m, Proforma H1 2016 016 H1 1 20 2015 15 YO YOY %

Underlying EBITDA 181 138 +31% Capex (incl. retail & HRTV acquisitions) (34) (53)

• 36%

Working capital & tax (7) 15 n/a Underly lying f free c cash f flo low 140 100 +39% Cash flow from separately disclosed items (63)

• n/a

Free c cash f flow

• w

77 100

• 24%

4% Dividends paid (145) (46) +219% Return of capital (incl. fees)

• (482)

n/a Interest & other borrowing costs (1) (1) Flat Other 1 (5) n/a Net d decrea ease in c n cash (69) (433) 33) n/ n/a Net cash at start of period 84 453

• 81%

FX translation impact (13) (8) n/a Net c cash a at end of

• f p

period

• d

2 12

• 81%

1%

13

Financial guidance

• Proforma 2016 full year underlying EBITDA expected to be between £365m and £385m

(2015: £296m)

Full Year 201 016 6 Profits Cost syne nergies

• £65m benefit from 2017 (c.£30m benefit in 2016)
• One-off cash costs to achieve synergies expected to be less than £65m (£49m incurred)

Marketing Capex Effective tax rate FX FX Regulatory

• UK: eGaming POCT change from Aug 2017 (c.£6m annual impact); potential levy

extension to online; AML; responsible gambling

• Australia: In-play; credit betting; South Australian POCT; NSW greyhounds; product fees
• Full-year 2016 sales & marketing costs up c.30% year-on-year
• Full-year 2016 capex expected to be between £70m and £80m
• Full-year 2016 underlying effective tax rate of approximately 16%
• c.75% of Group EBITDA is GBP denominated with c.35% AUD, USD & other currencies
• ffset by net EUR losses of c.10%

Business Review

15

Merger created global Group with leading positions…

Global presenc nce Distinctive e & complem emen entary brands Products ts Leadin ing capabil ilit itie ies

• No. 1 online operator
• r in key regulated markets
• With exposur

ure to a large number of int nterna nationa nal markets

• Leading spor
• rtsboo
• ok
• No.1 global bettin

ing exchange

• eGaming
• B2B
• Scalable

le proprie ietary t technolo logy platforms

• In

In-hou

• use prod
• duct d

develop

• pment
• Dig

igit ital market eting exper ertise

• Ris

isk & t tradin ing

16

UK&I sports US horseracing Australia

c.22% c.35%

Local l onli line scale le

c.29%

…and substantial scale.

= Estimated PPB Market Share3

No.1 operator in all of these markets

247 302 317 447 580 633 646 753 1153 1475

Sky Bet 888 Betsson Unibet Ladbrokes + Gala Coral GVC William Hill Amaya Bet365

Online Revenues1 £m

Global l onli line scale le

Technology gy & & marketing g firepower

£471 471m annual spend2

1 Most recently reported 12 month period. Source: Public filings. Paddy Power Betfair is proforma for year ended 30 Jun 2016. Bet365 is the year ended 31 Mar 2015, Sky Bet is the year

ended 30 Jun 2015, Gala Coral is the year ended 9 Apr 2016; GVC is proforma for the year ended 30 Jun 2016; 888 is for the year ended 31 Dec 2015; all others are year ended 30 Jun

• 2016. Paddy Power Betfair and William Hill include telephone, which are reported within online divisions. For companies whose reporting currency is not GBP, revenues have been

converted to GBP at the average spot rate in the applicable period.

2 Proforma spend for the twelve months ended 30 June 2016. Technology spend includes capital expenditure. 3 Management estimates

17

PPB regulated mix:

• 95% of revenue

Mobile revenue mix:

• 76% of sportsbook

Our r position1

• Fastest growing online segment
• Higher barriers to entry
• Better customer retention
• Largest & fastest growing
• nline segment
• Greater certainty of returns

Clear strategic focus

Prioritise se i invest stme ment i in t the f fast stest st g growi wing m markets a s and s segme ments

Priorities Rationale le

• Fastest growing market
• Structural migration from

retail to online

Invest i t in p product, t, m marketi ting, technology & & t talent Operat ate e efficie iently at at s scal ale

Online mix:

• 80% of revenue
• 87% of profits
• 79% of online revenue
• 73% of gaming

activations via cross-sell

Onl nline ne-le led Sports-le led Mobile le-le led Regulated markets

Sustain ainable profit itab able growth

1 H1 2016

18

1 2 3

Combining the best st asse sets s and capabilities s of each legacy busi siness ss Optimis isin ing our brand posit itio ionin ing in the UK & Ireland Capitalising ng on n our ur enh nhanced scale

Key priorities

19

Combining the best assets and capabilities

1

Product

Betfair t tenni nnis p produc uct e enh nhanc nced Propri rietary ry ga gaming g cont ntent nt on B Betfair air

c.17%

Betfair Arcade handle (Jul ’16)

3rd Party Content Propriet etary Content

Pre-merger Now

x2 x2

Betfair Sportsbook

• No. of tennis matches available in-play

Paddy P Power S Sportsbook Euro 2016 In-play betting

Bets ts Stak akes

20% 11%

Existing markets New markets

Paddy P Power f football p product e enhanced

• Sharing existing products where practical with

current technology architecture

• Full sharing of product once brands operating on a

common platform

20

Technology P Platform: L Legacy P Position

Combining the best assets and capabilities

1

Technology & product development

Account and Wallet Exchange Platform Services Exchange Web/Mobile Sportsbook Gaming APIs Sportsbook Web/Mobile Gaming Web/Mobile Customer Service Promotions Pricing

Betfair ir Platfo form

• Predominantly proprietary systems, including Account &

Wallet and Promotional tools

• Modular architecture provides high level of scalability

Sportsbook Sportsbook Mobile Sportsbook Web Account and Wallet Customer Service Promotions Gaming Web/Mobile Pricing = 3rd Party

Paddy P Pow

• wer Platfor
• rm
• Proprietary front-ends for mobile sportsbook apps
• Proprietary sportsbook pricing & risk management tools
• Proprietary gaming content
• Reliance on disparate 3rd Party back end systems

APIs Paddy Power Gaming = In-house (PP) = In-house (BF)

21

Technology P Plat atform: C Combin inatio ion o

• f k

key f feat atures o

• f e

exis istin ing s systems

Combining the best assets and capabilities

1

Technology & product development

Account and Wallet Exchange Platform Services Sportsbook Gaming APIs BF Sportsbook Web/Mobile Customer Service Promotions Pricing = 3rd Party = In-house BF Exchange Web/Mobile BF Gaming Web/Mobile PP Sportsbook Web/Mobile PP Gaming Web/Mobile

Key bene nefits

• Key functionality located in proprietary platform layers (e.g.

Platform Services, Account, Promotions) allows: − Improved pace of development − Retention of IP / knowledge − Customisation of bonuses & promotions − Lower cost of development

• Improved speed & cost to roll out across multiple brands,

channels and geographies

• Highly scalable

Effici cient, scala lable le, fle lexible le, controlla llable le pla latform that supports multiple brands, channels and geog

• graphies
• Based on Betfair’s predominantly in-house architecture
• Incorporates Paddy Power’s pricing & risk management tools

and proprietary gaming content

= In-house Betfair front-end = In-house Paddy Power front-end

22

Technology P Platform: S Sportsbook C Cash O Out c case s study

Combining the best assets and capabilities

1

Technology & product development

Platform Services

Paddy Power Cash Out service Betfair Cash Out service

Sports- book

Developed

3rd party In-house

Launch on singles

Nov‘13 May ‘13

Launch on ACCAs

Mar’14 May ‘13

Estimated capacity1

• c. 4X

Typical availability2

81% 91%

Archite tectu ture Technic ical al K KPIs

• Advantages of modular architecture and in-house development are illustrated by Cash Out KPIs
• Common architecture will allow shared Cash Out capability

1 Based on estimated maximum number of requests for Cash Out quotes per second 2 Based on % of time a Cash Out offer is available in-play for a typical 4-leg football accumulator 3 % of each brands existing customers ranking the brand as “No.1 for Cash Out”, customer surveys undertaken Q2’15 to Q1’16 4 FY2015

Customer K KPIs

Cash Out usage4

4%

% of football stakes4

17%

Cash Out customer rating3

7m 2m

23

Combining the best assets and capabilities

1

Marketing & operations

Marketing

• Shared marketing technology (PPC, ad server, CRM)
• Sharing of customer analytics data, models and practices
• Co-ordinated bidding for assets
• Optimisation of media assets

Risk & & t trad adin ing Customer o

• perations
• Pooled customer services resources
• Improved customer verification journey
• More responsive fraud management
• Aligning responsible gambling tools
• Sharing of proprietary models & greater liquidity improves pricing capability
• Pricing strategy informed by observing impact of different price positions of two brands
• Exchange pricing used to enhance sportsbook (e.g. less bet suspension time & more markets)
• Enhanced risk management capability from pooled data, models & processes

24

Sp Sportsbook r revenue s split

74% 18% 8% 8%

% of 2015 Paddy Power Betfair UK Online Sportsbook revenues

Limited customer overlap

Optimising our brand positioning in the UK & Ireland

2

Customer o r overla rlap

73% 18% 9% 9%

% of 2015 Paddy Power Betfair UK Online customers

Only have account with one of our brands Only active with one of our brands Active with both of our brands

Note: Active means a customer who placed a bet in 2015

25

Our t two b bran ands ar are s strong in in d dis istin inct m mar arket s segments

Note: size of box indicates proportion of the total market represented by each segment

Football ll focusse sed Racing ng focusse ssed Mixed / other spor

• rts

Our current brand positioning

Optimising our brand positioning in the UK & Ireland

2

Key Drivers

• f Brand

Choice

Thrill ll-seeker

Atti ttitude to to gambli bling Sports p preference

• Best odds
• Range of Markets
• Reliability of website
• Range of Markets
• Live sport
• Consistently good
• dds
• Ease of using the app
• Brand that does things

differently

• Convenience

Money-cent ntric Social

Shading indicates where each brand over- indexes relative to overall market share

26

Our brand approach

Optimising our brand positioning in the UK & Ireland

2

Smart, Spirited, Straight-forward Pri rimary ry target segment nt Brand person

• na

Brand propos

• sition
• n

Key enablers Sharp-witted, Brave, Fun Money-centric Social Best Value on Exchange & Sportsbook The Most Entertaining Experience Market leading Risk Management & Pricing Best-in-class Brand Marketing Digital Marketing expertise In-house Product Development

27

Access t ss to t the b best a asse ssets

5-year N r NRL sponsorshi hip FC B Barc rcelona 3 3 year g glo loba bal l partner r

Capitalising on our enhanced scale

3

Marketing

Improv

• ved e

efficiency

Aug/Sep '15 Aug/Sep '16 Estimate

24% >30%

Incre reased s share re o

• f v

voice

UK Share of gambling category TVRs1 for Paddy Power and Betfair

1 Targeted view rating for Male 18-44 ABC1

Estimated unit cost of key TV assets

2013/14 2014/15 2015/16 2016/17 2016/17

Market average Top T TV p packages f for 2016/ 16/17 f 17 football seaso son

28

Capitalising on our enhanced scale

3

Product development

c.1, 1,000 00

Substa tanti tial d development t resourc rces

c.600 600

In-house product development headcount

• Each brand has access to greater resources
• Higher returns possible as products can be
• ffered to both customer bases

c.450 450

Pr Pre-merger Post st-mer erger

29

Summary

• Good trading momentum maintained
• Merger integration delivered ahead of schedule
• Additional cost synergies identified

H1 progr gress Key prio iorit itie ies

• Combining the best assets and capabilities of each legacy business
• Optimising our brand positioning in the UK & Ireland
• Capitalising on our enhanced scale
• Prioritise investment in the fastest growing markets and segments
• Invest in product, marketing, technology and talent
• Operate efficiently at scale

Strategic c focu cus

Q&A

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Appendices

32

Separately disclosed items

MERGER ACQUISITION ACCOUNTING £m Consid ideratio ion 4,314 Market value at completion of shares issued plus fair value of replacement share options issued Less: ss: Betfair net assets on completion 39 Net of fair value adjustments Identified i intangible a assets (comprising brands, customer relationships, technology & licences) Amortised to income statement over useful lives of up to 8 years:

H116 FY16 FY17 FY18 FY19 FY20 – FY23

628 79 173 132 83 67 43 p.a. Deferred tax on identified intangible assets (95) (10) (21) (18) (12) (10) (8) p.a. Equals Goodwill 3,742 Not amortised, reviewed annually for impairment OTHER FAIR VALUE ADJUSTMENTS £m Fair v val alue ad adjustment f for s shar are-based p payments Revaluation of existing plans required on completion, additional charge to income statement over vesting period reflecting increased market value of shares: H116 FY16 FY17 FY18 Total P&L impact 13 22 11 2 35

33

Proforma Income Statement

£m, Proforma H1 2016 016 H1 1 20 2015 15 H2 2 20 2015 15 FY 20 2015 15

Revenue 759 759 642 642 676 676 1, 1,31 318 Cost of sales (175) (149) (162) (311) Gross profit 584 493 514 1,007 Operating costs (403) (355) (356) (711) Underly lying E EBITDA 181 181 138 138 158 158 296 296 Depreciation & amortisation (33) (32) (36) (67) Underly lying o

• perating p

profit 148 148 106 106 122 122 229 229 Net interest expense (2) (0) (2) (2) Underlying profit before tax 146 106 120 226 Underlying taxation (23) (17) (19) (35) Underlying profit for the period 122 90 102 191 Underly lying ba basic e earnings p per s share 147. 7.0p 0p 107. 7.7p 7p 122. 2.1p 1p 229. 9.8p 8p Underly lying o

• perating p

profit 148 148 106 106 122 122 229 229 Separately disclosed items (195)

• (9)

(9) Operating ( (lo loss)/profit (47) 47) 106 106 113 113 219 219 Net interest expense (2) (0) (2) (2) (Loss) / profit before tax (49) 106 111 217 Taxation (8) (17) (15) (32) (Loss) / profit for the period (57) 90 96 185 Basic ( (loss) / / e earnings p per s sha hare (68. 68.3)p 107. 7.7p 7p 115. 5.3p 3p 223. 3.0p 0p

34

2015 Proforma Cash flow

£m, Proforma H1 1 20 2015 15 H2 2 20 2015 15 FY 20 2015 15

Underlying EBITDA 138 158 296 Capex (incl. retail & HRTV acquisitions) (53) (39) (92) Working capital & tax 15 17 32 Underly lying f free c cash f flo low 100 135 236 Cash flow from separately disclosed items

• (9)

(9) Free c cash f flow

• w

100 126 227 Dividends paid (46) (42) (88) Return of capital (incl. fees) (482) (2) (484) Interest & other borrowing costs (1) (1) (1) Other (5) (6) (11) Net ( (decrease) / / i increasein c cash sh (433) 33) 76 (357) 57) Net cash at start of period 453 12 453 FX translation impact (8) (4) (12) Net c cash a at end of

• f p

period

• d

12 84 84