[toc]Paddy Power and Betfair merged earlier this year, but the half-year combined company results issued on August 24 provided the first comprehensive look at the financial shape of the new Paddy Power Betfair.
The accounts were presented as if the merger took place at the beginning of the year. The merger costs of £195 million took the group to an operating loss, but net sales were up by 18 percent to £759 million.
Much of the growth came from sports betting where total stakes rose by 21 percent to £4.81 billion. Around a third of the group’s business is in Australia, with a small US business and a UK-based retail division.
As expected from previous results filings by other companies, Euro 2016 had a sizable impact, adding £38 million worth of extra sales in Q2. A weak horse racing performance at Cheltenham had the opposite impact in Q1.
Full-year 2016 underlying EBITDA is expected to be between £365 million and £385 million.
Chief Executive Breon Corcoran, commented:
“Paddy Power Betfair has sustained good momentum through a period of considerable change. The restructuring is now largely complete and the merger synergies are being delivered ahead of schedule.
We are creating a world-class operation by exploiting the unique assets and capabilities of each legacy business, particularly in the key functions of technology, marketing and trading.
While our industry remains highly competitive and is exposed to the prevailing economic and regulatory environments, our strong market positions, increased scale and enhanced capabilities position us well for sustainable, profitable growth”.
Paddy Power Betfair shares fell just over 1 percent on the day’s trading.
Strong sportsbook growth across the business
Online sports betting stakes rose by 20 percent to £2.7 billion, with net revenues up 21 percent to £316 million. Other online gambling revenue added £124 million, also up by 20 percent.
The company made a net profit of £140 million on total online revenues of £440 million, 40 percent more than in the same period last year.
Revenue and profits from the other business verticals were:
- Australia — revenues of £129 million profits of £26 million
- US — revenues of £43 million profits of £3 million
- Retail business — revenues of £147 million profits of £23 million
The US business is currently operating at a lower margin than the other businesses, but is growing comfortably with revenues up 23 percent and profits up by 153 percent.
The revenue growth has resulted from 17 percent growth at the TVG brand, the launch of a horse racing exchange business in New Jersey in May, and the maintenance of a better than 10 percent market share in the NJ online gambling market.
Mobile and active customers up
According to the results presentation, the growth in sportsbook revenues has largely been driven by mobile, which now accounts for 76 percent of revenues.
The total number of active customers is a little over three million, up 17 percent on the same period in 2015, but there may be some double counting as no adjustment has been made for customers who previously had accounts at both Betfair and Paddy Power.
Synergy savings to be delivered earlier than expected
A key success touted in the report was that £65 million of synergy cost savings are now expected to be delivered a year ahead of schedule.
These savings look like they are being used for extra marketing, with total marketing costs up 30 percent year on year, and partly to pay for higher gambling taxes.
As a combined group, Paddy Power Betfair is now No. 2 in the world
Paddy Power Betfair is now the second largest online gambling company in the world, after Bet365. The results presentation produced a useful graphic showing how the combined business fits into the sector by revenues.
With annual online revenues of £1,471 million, Bet365 leads the pack, followed by Paddy Power Betfair with £1,153 million and Amaya at £753 million.
The recently collapsed merger of William Hill, Rank and 888 would have created a group ranking third, one slot above Amaya.
Interestingly, of the top 10 publicly listed online gambling companies, only Amaya is based in North America. Betsson and Unibet are Scandinavian, and the rest are UK-based companies.
Paddy Power co-founder decides that now is the time to step down
Alongside the half year results, the company announced that Stewart Kenny will be stepping down from the board of directors.
Kenny co-founded Paddy Power in 1988 and was CEO until 2002; chairman from then until 2003 and subsequently a non-executive director for the last 13 years.
Chairman of Paddy Power Betfair, Gary McGann said:
“After 40 years in bookmaking and 28 years’ involvement with this business, Stewart has an enviable record in the industry and leaves a great legacy. He was instrumental in creating a highly successful international business from a small domestically-focussed retail operation at inception. Stewart, more than anyone, positively influenced the culture of the business. He played a hugely supportive role in the merger of Paddy Power with Betfair. He is retiring after many years of enormous service to the Company and the industry. We wish him every success in the future and thank him for his incredible contribution to this business.”