Flutter Entertainment Regulatory News (FLTR)

10 August 2021

Flutter Entertainment plc - 2021 Interim Results

Strong customer momentum driving growth; US profits expected in 2023

Flutter Entertainment plc (the "Group") announces interim results for six months ended 30 June 2021.

Operational Highlights: all commentary on a pro forma basis

· Group: Scale and quality of business enhanced with 30% revenue growth driven by 40% increase in average monthly players ("AMPs")

· US: FanDuel product underpins leadership position; 45% online sportsbook market share8 in Q2

- Revenue growth of 159% to £652m ($906m); over 2.2 million customers acquired since sports betting launch at average CPA9 of $291

- Average return on investment in first year post customer acquisition of 1.2 times9

- Proprietary sports technology migration complete; product and risk management advantages key to strong customer acquisition/retention, also benefitting sports margin

- Flutter US expected to generate positive EBITDA in 2023, based on our expectations of future state openings

· Group ex-US: Excellent customer growth with AMPs +26% aided by more normal sporting calendar

- UK & Ireland AMPs +44%, with integration progressing well

- Australian AMPs +52% driven by very high customer retention rates

- International revenue decline less than anticipated with casino now largest product vertical

· Safer gambling: Continued investment in resource and technology to optimise our controls

- Advanced development of Affordability Triple Step in UK&I, with next phase of rollout in H2

- Stepped up Group wide campaigns to promote safer gambling awareness and tools

Financial Highlights:

· Reported revenue and Adjusted EBITDA growth of 99% and 75% respectively benefitting from May 2020 combination with The Stars Group ("TSG")

· Reported profit before tax of £77m, including amortisation charge of £276m for acquired intangibles

· Pro forma revenue of £3.1bn, 30% higher than in H1 2020

· Pro forma Adjusted EBITDA for Group ex-US 2% lower year-on-year to £684m

· Higher US Adjusted EBITDA loss reflecting increased investment, with 6 additional states live compared to H1 2020

· Net debt reduced by 7%, equating to a leverage ratio of 2.3x

· Debt refinance complete, increasing liquidity and reducing future annual interest cost by circa £50m

· Dividend policy to be kept under review with medium-term leverage target of 1-2 times retained

Outlook:

· The second half of the year has started well. Assuming an uninterrupted sporting calendar for the remainder of the year and normalised sports results, we anticipate the following:

- Group ex-US: Adjusted EBITDA of between £1,270m - £1,370m, assuming our retail estates remain open throughout H2  

- US: Net revenue of between £1.285bn and £1.425bn ($1.8bn - $2.0bn) and Adjusted EBITDA loss of between £225m and £275m. This assumes H2 online launches in both Arizona and Connecticut

Peter Jackson, Chief Executive, commented:

"The first half of 2021 exceeded our expectations as we made substantial progress against our operational and strategic objectives while maintaining excellent momentum in growing our player base. Our global sports businesses benefitted from further enhancements to our products and the return to more normalised sporting calendars while we sustained our strong performance in gaming despite the challenging comparatives set last year.

In the US, we remain the number 1 online sports betting operator by some distance thanks to the quality of our products and the extensive reach of the FanDuel brand. The customer economics we are seeing in the US bode very well for the future, with early FanDuel customers generating positive payback within the first 12 months of acquisition. We remain absolutely focused on extending our sports product advantages and replicating our market share success in further states as they regulate. In gaming we see an opportunity to grow our market share and look forward to further enhancing our product offering in the coming months.

In the UK and Ireland, integration is progressing well with our 3 brands benefiting from shared learnings across product and operations. In Australia, Sportsbet delivered a phenomenal H1 performance with high customer retention rates during a period of reduced Covid disruption, suggesting that the business has experienced a permanent step change in scale. In International, which faced particularly challenging revenue comparatives following the growth in poker last year, revenue declines were less pronounced than anticipated as we continue to reposition and invest in the business for long-term sustainable growth.

Taking a lead on safer gambling remains a key priority for the Group as we continue investment across our brands and step up our activity to promote safer gambling awareness and tools. In markets where our campaigns are most advanced we are already seeing a positive impact on customer engagement and usage of safer gambling tools.

The second half of the year has started well and we look forward to making further progress in the coming months."

Notes:

1 Reported represents the IFRS reported statutory numbers. Where amounts in the table have been normalised for separately disclosed items (SDIs) they are labelled as Adjusted.

2 Flutter's combination with TSG completed on 5 May 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in 2020. Junglee, which was acquired in January 2021, has not been included on a pro forma basis. See Appendix 3 for a reconciliation of pro forma results to statutory results.

3 Constant currency ("cc") growth is calculated by retranslating the non-sterling denominated component of H1 2020 at H1 2021 exchange rates (see Appendix 4). Growth rates in the commentary are in local or constant currency.

4 Average Monthly Players represent the average number of players who have placed and/or wagered a stake and/or contributed to rake or tournament fees during the month in the reporting period. The AMP numbers do not include Junglee players in 2020 or 2021 to allow for better comparability of underlying player growth for International and Group.

5 The "Adjusted" measures include items that are separately disclosed as they are: (i) not part of the usual business activity of the Group (ii) items that are volatile in nature and (iii) purchase price accounting amortization of acquired intangibles (non-cash). Therefore, they have been reported as "separately disclosed items (SDIs)" (see note 5 to the financial statements).

6 EBITDA is profit before interest, tax, depreciation and amortisation expenses and is a non-GAAP measure.

7 Net debt is the principal amount of borrowings plus associated accrued interest, minus cash & cash equivalents plus/minus carrying value of debt related derivatives.

8 Online sportsbook market share is the GGR market share of FanDuel and FOX Bet for Q2 in the states in which FanDuel was live based on published gaming regulator reports in those states. During Q2 FanDuel was live in 10 states; Colorado (CO), Illinois (IL), Indiana (IN), Iowa (IA), Michigan (MI), New Jersey (NJ), Pennsylvania (PA), Tennessee (TN), Virginia (VA) and West Virginia (WV). During Q2 FOX Bet was live in 4 states; CO, NJ, MI and PA.

9 CPA is cost per acquisition and represents the total media and digital marketing spend per acquired customer including those cross-sold from daily fantasy sports. The return on investment is the average gross profit generated from those customers divided by their average CPA. It includes all quarterly cohorts of FanDuel sportsbook acquired between Q3 2018 through Q2 2020.

Business Review 1,2,3,4,5 

Flutter enjoyed a very strong first half of 2021 with excellent revenue growth driven by increased average monthly players ("AMPs"). We have cemented our leading market share in each of our core markets by continuing to make substantial customer-focused investments in our products, brands and value propositions. In the US, we have maintained our leadership position due to strong execution and the quality of our product offering.

During H1, pro forma revenue increased by 30% to £3.1bn, benefitting from the diversification of the Group on a product and geographic basis. Pro forma Adjusted EBITDA declined by 12% to £597m reflecting (i) increased investment in the US as we build our leadership position, (ii) substantial investments in our International division to position it for long-term success and (iii) the previously highlighted one-off nature of some lockdown related earnings in H1 2020. These were partially offset by a strong increase in sports revenue following the return to a more normalised sports calendar in Q2 2021. On a reported basis revenue and Adjusted EBITDA grew 99% and 75% respectively, reflecting a full six-month contribution from The Stars Group ("TSG") following the completion of our combination on 5 May 2020.

The Group is continuing to improve the sustainability and quality of its earnings through our focus on investment in regulated/regulating markets. The proportion of our revenues coming from regulated markets increased to 90% in H1, up 8 percentage points in just 2 years. This reflects the strength of ongoing performance in both our UK & Ireland and Australian divisions, our rapid expansion in the US and the regulation of certain other international markets over that time. At this point, no individual unregulated market accounts for more than 1.5% of Group revenue.

US deep dive: Achieving the "flywheel effect"

In the US, we generated over $900m in revenues in H1 and in Q2 we exceeded the half billion dollar mark in a single quarter for the first time. As a result, the revenue gap between our US business and its main competitors is continuing to widen, compounding the scale advantage we enjoy today.

That scale advantage is an important element of our goal to achieve a US flywheel effect which sees us use our scale to accelerate the growth of our business. The more we grow our customer base and revenues, the more we can invest in technology, products, promotions and pricing, thereby further enhancing our customer proposition. This in turn will help us to achieve better customer acquisition and retention than our competitors, increasing our scale and driving future growth.

Our success to date has been built upon two key competitive advantages, namely the quality of our product and the reach of the FanDuel brand.

1. FanDuel product

Technology

Technology is a key enabler of our success. We completed the migration of the FanDuel sportsbook on to our own proprietary sports betting platform in July (Flutter's Global Betting Platform) with some states live since Q1. The new platform has increased the speed, scalability and reliability of FanDuel's product, which had already been consistently ranked #1 by independent third-parties. When combined with the move to our own in-house account and wallet during 2020, it means FanDuel now operates on largely proprietary technology for sports.

Pricing and risk management

The Group's 20+ year heritage in pricing and risk management has enabled us to develop products that provide us with a sustainable competitive advantage:

· Product range: Our proprietary models provide customers with the broadest range of markets to bet on. For example, we offer over twice the number of pre-game markets and over seven times the number of in-play markets than the average of our nearest competitors on the NBA

· Our Same Game Parlay™ product: Originally developed elsewhere in the Group, this product is proving to be very popular with US customers; over 50% placed a Same Game Parlay bet during the last NFL season and we were the only operator to offer this product across NFL, NBA and MLB during H1

· Higher structural margins: The combination of the two factors above means that a higher proportion of our sportsbook stakes are placed on parlay (accumulator) type bets. These bets are structurally higher margin than single event wagers. Despite offering what we believe to be the best value in the market, our combination of pricing accuracy and advantageous product mix enables us to achieve higher gross win margins. In Q2 for example we generated gross win margins that were 300 basis points higher than the market. We estimate that approximately half of this benefit was derived from our sustainable product advantage. The remainder was due to favourable sports results, the benefit of which was compounded by our product mix

· Risk management: Confidence in our pricing accuracy allows us to take bigger bets from customers

We are continuing to maintain this product gap by iterating our existing pricing models to improve the precision of our pricing as well as also developing new models to cover more US sports. This will increase the proportion of our handle that we price in-house from 75% currently to circa 95% by the end of 2023.

We also improved FanDuel's gaming proposition during H1 with additional features such as:

· Our cross-product promotional platform to more effectively reward multi-product players

· An upgraded customer interface, leveraging Group resource at our Cluj technology hub in Romania

· Over 100 new gaming titles added in the half

We recognise however that we have more to do in gaming and look forward to expanding our portfolio of content further in the coming months. We remain convinced that (i) quality of product and (ii) having a deep understanding of what customers want are critical determinants of long-term success in this industry and a key driver of the high customer retention rates we are achieving today.

2. FanDuel brand

The FanDuel brand has benefited from over $1bn of marketing investment to date, providing it with leading awareness across US sports betting brands. The FanDuel daily fantasy sports ("DFS") database has expanded to nearly 13 million players, from 7 million in 2017, and continues to be the source of over 40% of all sports betting customers acquired. In the first half of 2021 alone, we spent an additional £225m on marketing. We have an extensive media strategy that combines national partnerships with the NFL, Turner Sports and CBS with key regional sports network ("RSN") deals. In sportsbook states where we are live, this investment across RSNs has delivered FanDuel 39% share of voice across local sports networks, the key networks consumers use to watch their local team games in the NBA, MLB and NHL.

We utilised to great effect the scale of our existing player base to further grow our AMPs. When the effectiveness of our viral marketing campaigns, such as "Spread the Love", is combined with the quality of our product, it enables a compounding customer referral effect, where we have more and more customers referring FanDuel to their friends. This combination of customer referrals and viral marketing has been identified as the source of 33% of our sports betting customers.

Resultant market share

We have maintained our leadership position in the US online market during H1.

· Our overall online market share6 in Q2 was 31%

· Our sports betting share6 in Q2 was 45%

· Our online gaming share6 in Q2 was 20%

Encouragingly we continue to lead in states at different stages in their life cycle. We are the market leader in more mature states like New Jersey and Pennsylvania but also lead in those states that have gone live this year, namely Michigan and Virginia. We have also bridged the gap in other states, such as Illinois and Indiana, where we entered marginally later than our competitors, with our product quality coming to the fore.

Customer economics update and medium-term outlook

With the benefit of 3 years' sports betting experience in the US, a clearer picture is emerging of the returns dynamics for FanDuel.

· Scaled customer acquisition at low cost: more than 2.2 million sportsbook and gaming customers acquired to date at an average cost per acquisition (CPA) of $2917

· Year-one return: The average first year return on investment for sportsbook and gaming customers is 1.2 times the average cost to acquire those customers7

· Year-two revenue: The average revenue generated from customers in the second-year post acquisition is 11% higher than the revenue they generate in year one7

We are continuing to grow our customer base rapidly. In the last 12 months to 30 June, FanDuel acquired 1.7 million new sportsbook and gaming customers, equating to over three times the total existing base acquired up to that point. Those existing players generated a positive contribution of $190m in the last 12 months. When combined with the $212m contribution from our daily fantasy and horse racing businesses, the total contribution of our US business pre-new player acquisition was $402m. This was an increase of 138% on the prior comparable period. We were able to use this positive contribution to fund new player acquisition of $311m.

As can be seen above, the existing base is providing us with the firepower to invest further in customer acquisition as new states launch, ensuring we keep the flywheel turning. As we consider the medium-term outlook for our US business, we now believe that we will reach the point in 2023 when the positive contribution from customers acquired pre-2023 will more than offset the cost of ongoing customer acquisition. We therefore expect that the US division will generate positive EBITDA in 2023.

It is important to note that we are not setting a target date for profitability - the date the business turns profitable remains an output for us. We remain entirely focused on growing the embedded value of the business by acquiring as many customers as we can for as long as we can generate attractive returns on that investment. It is important to note that our projection assumes that none of California, Florida or Texas launch online sports betting/gaming before 2024. Should one of these large states regulate sooner, our level of investment in new player acquisition would be higher and profitability could therefore be delayed. The projection also assumes no major change to the regulatory/tax landscape in current or prospective states.

Group ex-US: Structural trends playing to our strengths

Group ex-US delivered a strong performance in the first half of 2021 with AMPs up 26%, delivering pro forma revenue growth of 14% year-on-year. Excellent revenue performance in UK and Ireland (+30%) and Australia (+27%) more than offset a lower than anticipated decline in International revenues (-11%). On a reported basis revenue grew 90% (UK & Ireland 94%, Australia 68%, International 104%).

Several important factors influenced the market in H1: (i) sporting calendars normalised, particularly in the UK & Ireland (ii) lockdowns continued, with retail and traditional entertainment venues shut for an extended period during the half (iii) sports results were beneficial which added approximately 1 percentage point to ex-US win margins versus expectations and (iv) customers continued to migrate online as we focused on retention of the players acquired while retail was shut. Whilst it is too early to say what the long-term impact of some of the more structural changes will be, our performance in H1 and the trends we are seeing in our business provide grounds for cautious optimism.

UK & Ireland

In the UK & Ireland, AMPs grew 44% in H1, helped by the disrupted sports calendar in Q2 last year and the additional benefit derived from the European football championships this year. Gaming also performed well notwithstanding challenging Covid related comparatives and the lower share of consumer spend that these products usually generate during summer football tournaments.

SkyBet, Paddy Power and Betfair continued to deliver a differentiated proposition to recreational and more engaged customers alike as our team pursued its 'complement and compete' strategy. Good progress has been made on integration following the merger, with "centres of excellence" created across key areas. This has enabled the sharing of greater insights in areas like pricing and risk management, leading to improvements in our product offering across brands.

· Supported by targeted marketing campaigns, the SkyBet in-play experience has been enhanced while Paddy Power and Betfair are benefitting from improved 'Bet Builder' products

· The growth in popularity of these 'Bet Builder' products benefits margins with some of the upside reinvested in enhanced rewards to acquire and retain customers

· Betfair also leveraged product improvements ahead of the Euros, being the only operator to have cash out available 100% of the time during the tournament

· As a result, all brands achieved record high engagement during the half with sports AMPs up 24% compared with 2019

Our gaming franchises benefited from improved in-house and third-party content as well as the investments we made in our proposition over the last 12 months. Leveraging the expertise of the Sky Vegas team has helped with the successful launch of daily engagement products such as 'Paddy's Wonder Wheel', 'Betfair's Prize Pinball' and the launch of the enhanced Betfair gaming experience, leading to improved customer engagement and retention across our platforms with gaming AMPs 59% higher than the comparable period in 2019.

In Retail our shops reopened during Q2, with June the first full month of trading since September 2020. Revenue in the month was approximately 80% of June 2019 levels, with a notable difference between trading in our UK estate (where revenue was +7% versus 2019) and our Irish estate where revenues were running at 50% of 2019 levels, reflecting some operational restrictions and social distancing measures that have remained in place. Our UK shops benefitted from strong gaming performance and an earlier re-opening than our Irish shops (mid-April as opposed to mid-May). We continued to pay all staff costs throughout H1 without reliance on any government support schemes available.

Australia

Australia was less impacted by Covid related interruptions in H1 than the UK & Ireland. Competitor retail outlets were open for the majority of the half and therefore H1 trends may provide a good indication of longer-term customer behaviour in the market.

The scale of our Australian online business has increased significantly over the last two years with AMPs in H1 56% higher than in H1 2019 on a pro forma basis. Retention rates exceeded our expectations, most notably among customers identified as being traditional retail customers. The proportion of staking from these customers throughout H1 remained at the same elevated levels we experienced during 2020. With added confidence in our ability to retain these customers, we believe the events of the last 17 months may represent a permanent step change in the scale of the Sportsbet business.

We look forward to sharing more details and customer insight with you at our upcoming Australian investor day on September 22nd.

International

The shape of our International division continues to evolve, reflecting both changing market dynamics as well as the progress we are making to improve the sustainability of the earnings base. During H1 several key factors influenced performance:

· The step up in investment we have made across brand, people, product and technology to improve our customer proposition and drive growth in direct casino acquisition

· The impact of the compliance measures taken in 2020 following the merger with TSG to improve the sustainability of future revenue streams

· Adverse regulatory changes introduced in Germany

· The benefit of ongoing local lockdowns which continued to stimulate online activity, albeit to a much lesser extent than in H1 2020

In July, we built on this further by acquiring Singular, an Eastern European sports betting and gaming platform which is already fully integrated with our Adjarabet business, providing us with greater optionality as we enter new markets.

The improvements we have been making have delivered some important successes:

· Our total gaming customers in H1 2021 equated to 91% of our H1 2020 total, despite the unprecedented interest in poker last year, particularly during the first lockdown

· Casino revenue has exceeded poker revenues for the first time in H1 (year-on-two-year casino revenues +49%). Our investment in direct casino and proprietary content, as well as excellent casino execution at Adjarabet and Betfair, has contributed to the change in mix

· Proprietary games developed by our in-house studios accounted for 19% of PokerStars' casino gross gaming revenue in H1, making in-house content the largest single supplier of slots content to PokerStars Casino

We will continue to invest to further build on this momentum and to leverage our scale position across our international markets.

International regulatory changes represent both a challenge and opportunity for the Group. In Germany we were disappointed with confirmation of the new turnover tax on online poker and slots products which came into effect on July 1. When considered in conjunction with the product regulations announced late last year, it is increasingly clear that generating a positive contribution in Germany will now be challenging for all operators.

Elsewhere, Brazil, Canada and the Netherlands are all on a path to regulation in the next 24 months which could lead to growth in our addressable market. It may also mean however that the contribution from these markets could decline in the short-term with the introduction of taxes and/or other regulatory changes. Longer-term we believe our scale and product advantages will position us well to grow our share over time.

Safer gambling

Safer gambling remains a key priority for the Group. We continue to invest in safer gambling resource and technology, upweighting our dedicated teams and optimising our safer gambling controls.

In the UK & Ireland we have continued to refine our Triple Step Affordability framework, which takes an individual risk-based approach to financial vulnerability, in combination with a range of other factors, to minimise the probability of harm. We believe this framework strikes the right balance between protecting vulnerable customers without impinging on the personal freedoms of the vast majority of customers who enjoy a flutter. The next phase of the roll out is expected in H2, having shared our approach with the UK Government as part of our response to the Gambling Act review. We are also engaging constructively in other areas of the Review, such as backing calls from the Betting & Gaming Council ("BGC") to include an Ombudsman in the Government's White Paper, expected later this year.

In Ireland, where the legislative process is progressing, we introduced a range of proactive measures including a ban on credit card deposits and a pre-watershed whistle-to-whistle advertising ban during live sporting events. We also committed 1% of NGR to support the research, education and treatment of problem gambling.

In the US, FanDuel became the first online operator in March to partner with the American Gaming Association ("AGA") on its responsible sports betting campaign, "Have a Game Plan". The Group also announced a partnership with Gamban to provide blocking software to self-excluded customers as part of its commitment to building a comprehensive responsible gaming programme.

Across the Group, we have stepped up spending on the promotion of safer gambling awareness and tools through a range of TV campaigns, direct marketing and on-site visibility. We have seen an increase in the use of deposit limits and other safer gambling tools across all our brands in the UK and Ireland following introduction of these measures. In Australia, Sportsbet launched the "Take a sec before you bet" campaign at the end of July aimed at highlighting the benefits of pre-emptive deposit limits, while in the US FanDuel enhanced its customer experience on-site with information on tools and safe play.

Capital structure and balance sheet update8

As at June 30th, the Group had gross debt of £3,316m and a net debt position of £2,682m, representing a leverage ratio of 2.3x. Post period end, the Group announced the sale of Oddschecker Global Media for an initial £135m in cash, with the potential for this to rise to £155m in time depending on the future performance of the business.

In mid-July the Group announced completion of a debt refinancing transaction that will reduce its effective cost of debt to 2.5% (from circa 4.2% previously), leading to expected annualised savings of approximately £50m based on current leverage levels. The transaction also resulted in an increase in available liquidity of circa £250m for general corporate purposes.

The Group remains committed to its medium-term leverage target of 1-2 times and the Board will review the Group's dividend policy once leverage returns to these levels.

Other updates

Following the December 2020 ruling of the Kentucky Supreme Court in relation to a legacy case taken by the State against two TSG Isle of Man companies, the Group intends to submit a petition to the US Supreme Court to review the Kentucky judgement. Our petition will be submitted this month and we expect that the US Supreme Court will decide whether to take up the case during Q4 2021.

Separately, further to our statement on April 7 this year, the Group confirms that it has entered into a legal arbitration process with FOX Corporation with respect to its option to acquire an 18.6% stake in FanDuel. An arbitrator has been appointed and the Group intends to vigorously defend its position. A ruling in the arbitration is not expected before 2022.

Operating and Financial Review1-5, 9-12

Pro forma review

Group

Note: Flutter's combination with TSG completed on 5 May 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in both 2020 and 2021. Junglee, which was acquired in January 2021, has been included on a reported basis due to materiality.

Pro forma total revenue increased 30% to £3.1bn in the half, driven by growth of 57% in sports and 1% in gaming, with AMPs 40% higher at 7.6m. The growth in sports reflected excellent online performance in the UK & Ireland, Australia and the US, where we expanded our US sportsbook to 10 states (versus 4 for most of H1 2020). Sports revenue benefited from a more normal sporting calendar in 2021, while favourable sports results versus expectations contributed to an extra 120bps in win margin across the Group.

While sports benefitted from easy comparatives, the opposite was true of poker and casino where player engagement levels were elevated during the first international lockdown period in H1 2020.

Cost of sales as a percentage of net revenue increased by 510 basis points to 36.3% due to a higher proportion of revenue coming from the US which has higher direct costs. The changing product revenue mix in International and the US has also driven up direct costs in these divisions.

Merger related costs synergies in the half were £52m, with £7m in cost of sales, £22m in sales and marketing and £23m in other operating costs. We remain on track to deliver synergies of £170m by 2023, in line with our previous guidance.

Sales and marketing increased by £302m to £728m, with two-thirds of this increase attributable to the US division where we continue to invest heavily in customer acquisition in both new and existing states. The US expansion, including migration to the Group sports betting platform, is also the material driver of the 20% increase in other operating costs.

Adjusted EBITDA declined 12% to £597m. Excluding the US, Adjusted EBITDA was just 2% lower as the strong operating leverage achieved in UK & Ireland Online and Australia supported increased investment in our International division. Additionally, US EBITDA losses widened by £67m, due to our significant investment in scaling our rapidly expanding business.

The Group's adjusted effective tax rate in the period was 22.9% (HY 2020: 9.3%), primarily driven by the changing mix of taxable earnings across geographies. The full-year 2021 adjusted Group ex-US effective tax rate is now expected to be between 17% and 19% (FY2020: 10.4%) due to a growing share of profits coming from our Australian and UK&I divisions.

Adjusted basic EPS reduced 115p to 171p reflecting the increased US investment in the current period and our higher share count in H1 2021. Our acquisition of an additional 37.2% stake in FanDuel was mainly settled via the issuance of shares directly to Fastball and through an equity raise.

Net debt as at 30 June 2021 of £2,682m was 7% or £217m lower than the prior comparable period. This mainly reflects the net cash generated by the operating activities of the business over the last 12 months less cash used to fund the additional interest acquired in FanDuel in December 2020.

UK & Ireland

The UK & Ireland division operates Paddy Power, Betfair and Sky Betting & Gaming brands online, as well as retail operations in the UK & Ireland.

Our UK & Ireland division delivered revenue growth of 30% to £1.1bn and Adjusted EBITDA that was 43% higher than the prior period. This performance was delivered despite our retail units being closed for the entirety of Q1 and a proportion of Q2.

UK & Ireland Online

Revenue in UK & Ireland Online grew by 37% in H1 driven by strong AMP growth of 44% (Q1: +23%, Q2 +70%). Sports AMPs were the primary driver of this growth, reflecting softer comparatives in the prior year. Compared with the equivalent period in 2019, AMPs grew by 27% in H1.

Sports revenue grew 52% with sportsbook up 53% driven by staking growth of 82%. While actual margins were 110bps ahead of expectations in the half, they were down 200bps year-on-year to 10.6%. This was due to the fact that net revenue margins in H1 2020 were 390bps above expectations, reflecting particularly bookmaker friendly results.

Structural margin enhancements through product improvements and an increased demand from customers for higher margin products such as 'Request a Bet' and 'Bet Builder' helped to partially offset the year-on-year swing in results. Exchange and B2B revenue grew by 40% in H1 reflecting the normalised sporting calendar compared with the prior year.

Online gaming revenue grew 17%, despite the tougher comparatives, with improved cross-sell volumes from a higher number of sports AMPs and our enhanced product proposition helping to improve engagement.

Cost of sales as a percentage of revenue increased by 220 basis points to 30.4% reflecting (i) an increase in racing costs and streaming fees and (ii) the impact of an uplift in generosity provided to our customers which increases our effective tax rate.

Sales and marketing grew 23% to £204m as marketing budgets normalised following the cancellation of some sporting events in Q2 last year which had resulted in some savings. The increase also reflected increased investment ahead of the Euro 2020 campaign. Spend as a percentage of revenue declined by 210bps however, primarily due to the increase in revenue.

Other operating costs were up 9% reflecting increased investment in people, product and technology platforms. The uplift also reflects additional spend on safer gambling research, education and treatment programmes.

UK & Ireland Retail

Covid related shop closures continued to impact the financial performance of our Retail business. Revenue declined by 47% in H1 with Retail incurring a £39m Adjusted EBITDA loss. Both of our estates remained shut throughout Q1 with our UK retail shops re-opening on 12 April and our Irish shops re-opening on 17 May. Following re-opening, a variety of operational restrictions and social distancing requirements remain in place.

Given the unusual operating environment, overall retail performance has been in line with our expectations since re-opening. June revenues equated to approximately 80% of June 2019 levels with the performance in our UK shops particularly encouraging. June revenue in our UK estate was 7% ahead of June 2019 levels, helped by a strong gaming performance where revenues were up 33% on the same month 2 years ago. In Ireland, performance has reflected a more gradual re-opening of society with June revenues running 50% below 2019 levels. We anticipate that this gap will narrow in the coming months as further social restrictions are lifted.

Other operating costs declined by 2%, despite the fact that we continued to pay all our retail staff during the period of shop closures.

Australia4

Australia encompassed Sportsbet and BetEasy online brands, migrating to a single brand, Sportsbet, in September 2020.

Sportsbet delivered an excellent financial performance in the half with Adjusted EBITDA growth of 56% to £201m, driven by a combination of 27% revenue growth and the realisation of merger related cost synergies which reduced total operating costs by 8%.

Revenue growth was volume driven with AMPs up 52% (Q1 +43%; Q2 +61%) to 906,000 players. Sportsbet also benefited from a more normalised sports calendar in Q2 following the deferral of local and international sporting codes into Q3 and Q4 during 2020. The business will face more challenging comparatives in H2 from the condensed prior year sporting calendar.

Sportsbook stakes were 27% higher at £5bn. Sportsbook net revenue margin was in line with the prior year at 11.7% with the incremental generosity offered to retain customers offset by favourable sports results and improvements in expected margin. Favourable sports results in the period added 140 basis points to actual margin.

Cost of sales as a percentage of net revenue increased to 47.0% due to additional racing costs.

Sales and marketing as a percentage of net revenue declined 360 basis points in H1, significantly benefiting from the synergies associated with the single brand strategy. We continue to invest heavily in the Sportsbet brand, in tandem with personalised generosity (which is captured within net revenue margin), to maintain our expanded customer base and strong momentum. Other operating costs declined 11% due to merger related synergies.

These cost efficiencies are providing excellent operating leverage with Adjusted EBITDA as a % of net revenue expanding 630 basis points in the half to 34.3%.

International4

International includes PokerStars, Adjarabet, Betfair and Junglee brands which collectively offer online poker, casino, sports betting and rummy products. Excludes PokerStars US business and Betfair's UK & Ireland operations.

Revenue in our International division declined by 11% in H1 with Adjusted EBITDA of £179m. AMPs were down 3% year-on-year (Q1: +14%, Q2: -16%) but remain 17% above the equivalent period in 2019, reflecting the progress made in enlarging our International customer base.

The performance of the International division during the first half reflected a number of key factors:

· Challenging gaming comparatives; we previously disclosed that H1 2020 PokerStars revenues were boosted by £205m due to the first lockdown

· The compliance changes we made following our merger with TSG, along with adverse German regulatory developments, which we previously said would reduce annual contribution by £115m on a combined basis

· Localised lockdowns continuing into 2021 which contributed to higher gaming engagement in Q1, albeit not as pronounced as in 2020

· An increase in the proportion of revenues coming from regulated jurisdictions, with higher attributable direct costs and taxes

· Increased investment in line with our long-term strategy to improve our customer proposition, resulting in an EBITDA margin of 26.3%

Gaming revenue declined by 19% with casino growing 5% and poker declining by 34%. We estimate that approximately a quarter of the £205m revenue benefit from last year was retained in H1 due to ongoing lockdowns and player response to our promotional investments.

Casino growth of 5% was driven by our continued investment in direct casino acquisition in PokerStars, as well as enhanced in-house and third-party casino content driving improved cross-sell. Adjarabet and Betfair casino performed strongly during the period.

Sports revenue grew by 62% with strong growth across all sportsbooks, as stakes were 61% higher. Net revenue margin was 9.1%, 70bps ahead of expectations due to favourable sports results. We chose to reinvest this in the form of increased promotional generosity to customers. Overall margins increased by 40bps from the prior year due to improved pricing and risk management initiatives.

Cost of sales increased by 640bps to 29.3% due to (i) an ongoing increase in the proportion of revenues coming from regulated markets, (ii) an increase in the proportion of gaming revenues coming from casino and (iii) an increase in payment processing costs.

Sales and marketing as a percentage of revenue increased by 12 percentage points, primarily reflecting increased investment in the PokerStars brand and investment in high growth regions such as India and Latin America. We launched the "Epic Downtime" PokerStars Casino campaign, further expanded our collaboration with Neymar through our newly launched "I'm in" poker campaign and invested in showcasing poker through live streaming platforms to drive engagement. We also increased Betfair spend in LATAM ahead of the Euros and Copa America, expanding investment in the largest free to air TV provider in Brazil, further leveraging our long-term partnerships with CONMEBOL and sponsorships of Copa Libertadores and Copa Sudamerica.

Other operating costs increased by 16% as we invested in product and technology, customer operations and improved our wider operational capabilities to address the significant historic underinvestment in the PokerStars business. This will ensure that the business is on a stable footing for future growth.

US4

The US division includes FanDuel, FOX Bet, TVG, PokerStars and Stardust brands, offering regulated real money and free-to-play sports betting, online gaming, daily fantasy sports and online racing wagering products to customers in the US

Revenue grew 159% to £652m ($906m) in H1, with 93% of revenue attributable to FanDuel Group, benefiting from:

· Growth in AMPs of 166% to 1.5 million

· Continued strong performance in existing sportsbook and gaming states

· Successful state launches in Michigan (sportsbook and gaming) and Virginia (sportsbook)

· A full six-month contribution from four 2020 state launches, most of which occurred in H2 2020

· A relatively uninterrupted US sporting calendar in Q2 versus the widespread deferrals in 2020

Sports revenue trebled to £452m, with growth of 540% in sportsbook and 36% in other sports (DFS and TVG racing combined). Sportsbook net revenue margin grew 130 basis points to 6.2% due to an increase in our expected margin. Sports results were favourable in the period though this was offset by an increase in customer acquisition promotional activity.

Gaming net revenue increased 95% aided by the January launch in Michigan and growth in existing casino states.

Cost of sales as a percentage of net revenue increased 300 basis points to 44.9% reflecting the higher proportion of revenue coming from higher cost sportsbook and gaming verticals.

Marketing costs increased 262% to £292m, equating to over 80% of our entire 2020 spend of £348m. The increased spend has driven customer acquisition five times higher in H1 versus the comparable period benefitting from new state launches and continued high levels of acquisition in existing states.

Other operating costs grew 83%, well below revenue growth, with a doubling of our spend on product and technology as we build our capabilities within what is a rapidly expanding business. Lobbying costs associated with expansion of sports betting to new states are also included within other operating costs.

The US division made an Adjusted EBITDA loss of £87m in the half due to the significant investment in customer acquisition upon launch in Michigan and Virginia.

Statutory review

Group

The significant growth across all revenue and cost lines reflects a full six-month contribution from TSG in 2021 following the completion of our merger on 5 May 2020. Therefore, the 2020 comparative only includes a 56 day contribution from TSG. This resulted in Group reported revenue growth of 99% to £3.1bn when combined with the following factors:

· Further expansion of our market leading US online business to 10 states in 2021 from 4 in 2020

· A more normal sporting calendar in the half following widespread cancellations in Q2 2020

· Strong underlying growth in our online UK & Ireland and Australia divisions

Reported EBITDA increased 98% to £562m driven by these factors, partly offset by the increased investment we are making in customer acquisition in the US. Group operating profit increased 139% to £162m, including a charge of £276m in non-cash acquisition related intangibles.

The Group made a loss after tax of £86m for the period following a £105m increase in the deferred tax liability on separately identifiable acquisition related intangibles. This charge resulted from the change in the UK's main corporate tax rate from 19% to 25% applicable from 1 April 2023. See notes 5 of the financial statements for more details. When combined with the increased US losses, the Group had a basic loss per share of 50.4p in the six months ended 30 June 2021 compared to basic earnings per share of 18.1p in the corresponding period.

Net current liabilities reduced from £521m at 31 December 2020 to £327m at 30 June 2021 mainly due to the reclassification of the Oddschecker Global Media assets from non-current to current as a result of the announcement of the sale of this business post period end and also the movement of the current cross-currency interest swaps from being in a liability position at 31 December 2020 to being in an asset position at 30 June 2021.

Net assets reduced from £11.0bn to £10.7bn in the period mainly due to the foreign currency translation impact of goodwill and intangible assets.

Divisional performance

UK & Ireland

Revenue growth was 94% in the UK and Ireland with sport +107% and gaming +74%. The primary drivers of reported revenue growth were (i) the acquisition of the SkyBet business as part of the merger with TSG not fully reflected in the prior year which drove both sports and gaming growth and (ii) the normalisation of the sporting calendar in the current year when compared with the volume of cancelled and deferred sports events from March 2020 due to Covid. Adjusted EBITDA grew +171% reflecting the additional contribution of SkyBet and strong operational leverage in the division.

Australia

In Australia, revenue grew 68% to £585m reflecting a full six-month contribution from BetEasy (TSG's Australian brand) customers who migrated to Sportsbet following the integration of the two brands in September 2020 and strong growth in the Sportsbet customer base. The single brand strategy has resulted in significant cost synergies with marketing and other operating costs falling 720 basis points as a percentage of revenue to 18.7%. This operating leverage benefit and top line growth saw Adjusted EBITDA grow 83% to £201m.

International

Our International division delivered reported revenue growth of 104% with sport +112% and gaming +102%. The primary driver of reported revenue growth within the International division was similarly related to the merger with TSG and the addition of the PokerStars brand to our international portfolio.

Adjusted EBITDA grew +35% reflecting the additional contribution of PokerStars which more than offset the increase in investment we have made in the brand post-merger.

US

Revenue grew 155% in the US during the half benefiting from:

· Continued strong performance in existing sportsbook and gaming states.

· Successful state launches in Michigan (sportsbook and gaming) and Virginia (sportsbook)

· A full six-month contribution from four 2020 state launches, most of which occurred in H2 2020

· A relatively uninterrupted US sporting calendar in Q2 versus the widespread deferrals in 2020

Marketing costs increased 312% to £292m, reflecting the launches in new states and the continued high levels of customer acquisition we are seeing in existing states. The US division made an Adjusted EBITDA loss of £87m in the half due to this significant investment upon launch in Michigan and Virginia.

Separately disclosed items

Separately disclosed items do not relate to business as usual activity of the Group, items that are volatile in nature or non-cash purchase price accounting amortisation and therefore are excluded from Adjusted profits.

Amortisation of acquisition related intangible assets increased to £276m mainly due to the May 2020 combination with TSG, resulting in a full six month charge in 2021.

Restructuring and integration costs primarily relate to the integration with TSG.

The Greece tax expense relates to a historic case brought by the Greek authorities against Paddy Power when it was operating under an interim licence between 2012-14. The Group continues to appeal this ruling but following the dismissal of the case by the Athens Administrative Court of Appeal in June 2021, a once-off expense of £13m has been recognized.

Financial expense relates to foreign exchange losses on the Group's financing activities.

The increase in the UK's main corporation tax rate from 19% to 25% from 1 April 2023 (as outlined in note 7 of the financial statements) has resulted in a £105m increase in the deferred tax liability on separately identifiable acquisition related intangible assets. This charge is partly offset by the tax credit associated with other separately disclosed items.

Cash flow and financial position

The Group had Adjusted free cash flow of £358m during H1, down from £584m in the prior year primarily due to the effect of lockdown related benefits on performance and working capital in H1 2020.

Capital expenditure of £138m, reflects increased investment in product and technology capabilities across the Group, as well as further expansion into the US. We also refurbished a number of Flutter offices ahead of the anticipated "return to work" of colleagues.

Corporate tax payments were higher than the prior period due to the change in the geographic mix of profits during the first half.

Working capital of £18m was favourably impacted by the increase in size and scale of the Group. As expected however our working capital benefit was lower than during H1 last year when we benefitted from the deferral of certain payments. The performance of our Australian and US horse racing businesses in particular last year resulted in increased creditors, with the direct costs associated with these revenues generally paid one quarter after the revenue is generated.

Cash flow from SDIs principally relates to restructuring and integration costs in relation to the combination with TSG.

Interest costs were £31m lower than in 2020 on a pro forma basis due to the repayment of debt following the Group's equity raise in May 2020 and the reduction in the weighted average cost of debt following agreement of more favourable financing terms at that time.

During the period the Group paid the Commonwealth of Kentucky £71m, in line with the provision outstanding at 31 December 2020.

In the first half, an £89m share purchase was made by the Employee Benefit Trust in respect of FanDuel employee share awards, with further purchases of £92m expected in the second half. These purchases relate to employee incentive schemes that were put in place at the time of the original FanDuel acquisition to incentivise value creation in FanDuel.

The £51m acquisition charge relates to the acquisition of Junglee Games during the period.

As at 30 June 2021, the Group had net debt of £2,682m, excluding customer balances, representing a leverage ratio of 2.3x times9. The July 2021 refinancing resulted in an increase in pro forma net debt to £2,721m with no material change to the Group leverage ratio. The Group continues to hedge the impact of currency fluctuations on its leverage ratio through cross currency swap agreements. Changes in the fair value of these hedging derivatives are reflected in net debt.

Foreign exchange

At current spot rates, the foreign exchange impact on H2 2021 Adjusted EBITDA versus H2 2020 is a circa £6m headwind.

Current trading/Outlook

The second half of the year has started well, albeit July is traditionally a quieter period for many parts of our business reflecting less busy sporting calendars. Assuming normalised net revenue margins for the balance of the year and a regular sporting calendar the Group anticipates:

· Adjusted EBITDA for Group ex-US of between £1,270m - £1,370m. This guidance reflects our confidence in the underlying performance of both our UK & Ireland and Australian divisions, with the expectation that our retail estates can remain open for the remainder of the year

· As previously flagged International EBITDA will be negatively impacted in H2 2021 by between £15m and £25m due to the German tax change that has come into effect on July 1. The business is also less likely to benefit from some of the tailwinds it enjoyed in H1 when player engagement remained at elevated levels in parts of Europe as a result of the stay-at-home restrictions

· In the US, we expect to generate revenue of between £1.285bn - £1.425bn ($1.8bn - $2.0bn) and an Adjusted EBITDA loss of between £225m - £275m. This assumes that we launch online in both Arizona and Connecticut in H2

___________________________________________________________________________________

1 The "Adjusted" measures that are separately disclosed as they are: (i) not part of the usual business activity of the Group (ii) items that are volatile in nature and (iii) purchase price accounting amortization of acquired intangibles (non-cash). Therefore, they have been reported as "separately disclosed items (SDIs)" (see note 5 to the financial statements).

2 EBITDA is profit before interest, tax, depreciation and amortisation expenses and is a non-GAAP measure. This measure is used internally to evaluate performance, to establish strategic goals and to allocate resources. The directors also consider the measure 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. It is a non-GAAP financial measure and is not prepared in accordance with IFRS and, as not uniformly defined terms, it 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 financial statements.

3 Flutter's combination with TSG completed on 5 May 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in 2020. Junglee, which was acquired in January 2021, has not been included on a pro forma basis. See Appendix 3 for a reconciliation of pro forma results to statutory results.

4 Growth rates in the commentary are in local or constant currency11 except reported numbers which are in nominal currency.

5Average Monthly Players represent the average number of players who have placed and/or wagered a stake and/or contributed to rake or tournament fees during the month in the reporting period. The AMP numbers do not include Junglee players in 2020 or 2021 to allow for better comparability of underlying player growth for International and Group.

6 Online sportsbook market share is the GGR market share of FanDuel and FOX Bet for Q2 in the states in which FanDuel was live based on published gaming regulator reports in those states. During Q2 FanDuel was live in 10 states; Colorado (CO), Illinois (IL), Indiana (IN), Iowa (IA), Michigan (MI), New Jersey (NJ), Pennsylvania (PA), Tennessee (TN), Virginia (VA) and West Virginia (WV). During Q2 FOX Bet was live in 4 states; CO, NJ, MI and PA. Online gaming market share reflects the combined MI, NJ, PA and WV market share of our gaming brands.

7CPA is cost per acquisition and represents the total media and digital marketing spend per acquired customer including those cross-sold from daily fantasy sports. The year-one return on investment (ROI) is the average gross profit generated from customers divided by their average CPA. The year-one ROI includes all quarterly cohorts of FanDuel sportsbook and gaming customers acquired who have four full quarters of actual activity (i.e. customers acquired in Q3 2018 through Q2 2020). The revenue generated in year two will include all quarterly cohorts of FanDuel sportsbook and gaming customers acquired who have two full years of actual activity (i.e. customers acquired in Q3 2018 through Q2 2019).

8 The leverage ratio is calculated using pro forma Adjusted EBITDA for the 12-month period to 30 June 2021.

9Net debt is the principal amount of borrowings plus associated accrued interest, minus cash & cash equivalents plus/minus carrying value of debt related derivatives.

10 Reported represents the IFRS reported statutory numbers. Where amounts have been normalised for SDIs they are labelled as Adjusted.

11 Constant currency ("cc") growth is calculated by retranslating the non-sterling denominated component of H1 2020 at H1 2021 exchange rates (see Appendix 4). Growth rates in the commentary are in local or constant currency.

12 Differences due to rounding unless otherwise stated.

Appendix 1: Divisional Key Performance Indicators H1 2021

Unaudited pro forma

1 Flutter's combination with TSG completed on 5 May 2020. The pro forma numbers presented show the Group's financials with TSG included for a full 6-month period in 2020. Junglee, which was acquired in January 2021, has not been included on a pro forma basis. See Appendix 3 for a reconciliation of pro forma results to statutory results.

2 Constant currency ("cc") growth is calculated by retranslating the non-sterling denominated component of FY 2020 at FY 2021 exchange rates (see Appendix 4). Growth rates in the commentary are in local or constant currency.

3 Average Monthly Players represent the average number of players who have placed and/or wagered a stake and/or contributed to rake or tournament fees during the month in the reporting period. The AMP numbers do not include Junglee players in 2020 or 2021 to allow for better comparability of underlying player growth for International and Group. 

Appendix 2: Quarterly Divisional Key Performance Indicators

Unaudited pro forma

Quarter 2