GVC.L Regulatory News (GVC)

13 September 2018

GVC Holdings PLC

 ("GVC" or the "Group")

Interim Results

GVC Holdings PLC (LSE: GVC), the multinational sports-betting and gaming group, is pleased to announce its Interim Results for the six months ended 30 June 2018.

Financial highlights (proforma basis2)

· Proforma Group NGR up 8% at £1,717.0m

· Proforma Group revenue up 8% at £1,694.3m

· Proforma Group underlying EBITDA4 up 11% at £349.5m

· Proforma Group underlying operating profit5 of £277.9m up 17%

· Adjusted diluted EPS6 of 32.2p up 30%

· Interim dividend of 16.0p per share (H1 2017: 14.6p)

· Adjusted net debt at 30 June 2018 of £1,887.0m (2.69x LTM underlying EBITDA)

Operational highlights (proforma basis2)

· Good momentum in Online with market share gains in all key territories; NGR up 18% (+20% in constant currency ("cc")3); Sports brands +19% (+21% cc3) and Games brands +13% (+15% cc3)

· UK Retail like-for-like7 NGR -3%; a good World Cup helping offset the impact of poor weather in first half

· European Retail NGR +29% (+26% cc3) with strong growth in Italy

· Positive World Cup tournament driven by both gross win margin and volumes

· Completed the acquisition of the Ladbrokes Coral Group on 28 March; Capex synergies of at least £30m now identified. Integration progressing well and on target to achieve at least £130m cost synergies by 2021.

Update and Current Trading2 (Q3 for period 1 July 2018 to 2 September 2018)

· Established a 50/50 joint venture with MGM Resorts to create a leading sports-betting and online gaming platform in the U.S.

· Strong current trading: Group proforma NGR +14% with strong growth in Online (NGR +30%) and European Retail (NGR +26%)

· Product development and marketing driving continued market share gains

Kenneth Alexander (CEO) said:

"The performance of the GVC Group in the first half has been extremely pleasing in what has been a very busy period. Strong momentum in Online and European Retail has continued, and a positive World Cup helped improve trends in UK Retail in the second quarter. The acquisition of Ladbrokes Coral completed on 28 March and the integration of that business is progressing well. We have now identified capex synergies of at least £30m in addition to the £130m cost synergies and we are well placed to deliver those savings while driving top line growth. We are gaining market share in all our key markets and we will look to reinvest to further strengthen our market position.

The repeal of PASPA by the U.S. Supreme Court in May provides a significant new market opportunity and we are delighted to have announced a joint venture with MGM Resorts to provide sports-betting and online gaming services in the US. The combination of MGM's leading brands together with GVC's proprietary technology, and both businesses' combined betting and gaming expertise, puts the Group in the best possible position to benefit from what could become the world's largest regulated sports-betting market.

Our strategy to build scale and diversification through organic growth and acquisition is more relevant today than ever. Gaming regulation continues to evolve globally creating both opportunities and challenges, with barriers to entry rising all the time. Against this backdrop, GVC is well positioned to continue to create further shareholder value. We also recognise the importance of corporate social responsibility and in particular that actions speak louder than words. Over the coming months we will announce a number of new initiatives across all areas of CSR.

We have announced an interim dividend of 16 pence, 10 per cent ahead of last year, and the positive performance of the Group in the first half means that we are confident of delivering a full year result in-line with the Board's expectations."

Notes

(1) 2018 and 2017 reported results are unaudited and reflect the acquisition of the Ladbrokes Coral Group plc on 28 March 2018

(2) The Group's proforma results are unaudited and presented as if the current Group, post the acquisition of Ladbrokes Coral Group plc, had existed since 1 Jan 2017. As such, it excludes the results of the Turkish business which was discontinued during 2017 and the 360 shops that the Ladbrokes Coral Group plc was required to divest on the merger of Ladbrokes PLC and the Coral Group. The results of Crystalbet are included from the date of acquisition (11 April 2018) and the results of Kalixa are excluded from the date of disposal (31 May 2017)

(3) Growth on a constant currency basis is calculated by translating both current and prior year performance at the 2018 exchange rates

(4) Stated pre separately disclosed items and shared based payments

(5) Stated pre separately disclosed items

(6) Adjusted for the impact of separately disclosed items, foreign exchange movements on financial indebtedness and gains on derivative financial instruments (see note 7 in the interim financial statements)

(7) UK Retail numbers are quoted on a LFL basis. During H1 there was an average of 3,563 shops in the estate, compared to an average of 3,663 in the same period last year

Presentation and live webcast

An analyst presentation will be held at 9:30am (BST) at Deutsche Bank, Winchester House, 1 Great Winchester St, London EC2N 2DB.

The presentation will be webcast live and will be available via the following link:

https://edge.media-server.com/m6/p/brci2i6u

Replays will be available on the GVC website.

Enquiries:

Forward looking statements

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.

About GVC Holdings PLC

GVC Holdings PLC is one of the world's largest sports-betting and gaming groups, operating both online and in the retail sector. The Group owns a comprehensive portfolio of established brands; Sports Brands include bwin, Coral, Crystalbet, Eurobet, Ladbrokes and Sportingbet; Gaming Brands include CasinoClub, Foxy Bingo, Gala, Gioco Digitale, partypoker and PartyCasino. The Group owns proprietary technology across all of its core product verticals and in addition to its B2C operations provides services to a number of third-party customers on a B2B basis. GVC acquired Ladbrokes Coral Group plc on 28 March 2018 and is now the UK's largest high street bookmaker, with over 3,500 betting shops. The Group, incorporated in the Isle of Man, is a constituent of the FTSE 100 index and has licences in more than 20 countries, across 5 continents.

For more information see the Group's website: www.gvc-plc.com 

LEI: 213800GNI3K45LQR8L28

CHIEF EXECUTIVE'S REVIEW

Overview

The Group made significant progress in the first six months of the year. The acquisition of the Ladbrokes Coral Group was completed on the 28 March 2018, and the enlarged Group was subsequently admitted to the FTSE 100 index on 16 June 2018. A ground-breaking joint venture with MGM Resorts was announced in July, which leaves the Group very well placed to take advantage of current and future regulation and liberalisation of the US sports-betting market. We also acquired a controlling interest in Crystalbet, one of Georgia's leading online gaming companies. The main sporting event during the period was the World Cup, which was a good tournament for the Group as a whole with volumes, margins and the value of first time deposits all ahead of expectations.

The Group's financial performance in the period was very pleasing. Looking at the business on a proforma basis and before separately disclosed items, NGR was 8% ahead and underlying EBITDA 11% ahead at £349.5m. Meanwhile, underlying operating profit increased 17% to £277.9m, with underlying reported profit before tax 152% higher at £162.1m. Adjusted fully diluted EPS grew by 30% to 32.2p and an interim dividend of 16.0p per share was declared, an increase of 1.4p on the previous year. Our intention is to pay dividends on a 50:50 (H1:H2) basis. As at 30 June 2018, adjusted net debt was £1,887.0m, reflecting leverage of 2.69x the last twelve months underlying EBITDA.

Online NGR grew strongly and was 18% ahead of last year and 20% ahead on a constant currency basis. Momentum continued in the legacy GVC brands with NGR up 22%, and 25% on a constant currency basis, supported by new product launches and the World Cup. Partypoker continues to take market share, while the newly acquired Crystalbet business delivered very strong growth post its acquisition in April. The Ladbrokes Coral online brands also performed well, with NGR +14% (+15% constant currency). There were many positives in the first half with Ladbrokes.com.au in Australia and Eurobet.it in Italy continuing to gain market share, Coral.co.uk also performed ahead of key peers and Ladbrokes.com showed strong NGR growth in Q2 with NGR 21% ahead. In markets where we see an opportunity to continue to grow market share we will look to reinvest excess returns into accelerating growth.

UK Retail business growth was in-line with our expectations, with like-for-like NGR 3% down. The positive tailwind from the World Cup was partly offset by the very cold weather in Q1 and also a Triennial Review "hangover" as the negative coverage of FOBTs that dominated the UK press and news outlets undoubtedly fed its way into customers' spending on Machines. Now that a final Triennial Review decision has been made, the business can look forward with certainty and ensure that we are able to quickly transition to a smaller more sustainable estate post the implementation of the £2 B2 stake limit. In the meantime, the rollout of next generation FOBTs, trials of in-house SSBTs and the EPOS2 shop till system will help support both the top and bottom line.

European Retail NGR was up 29%, primarily driven by continuing good growth in Eurobet Retail, albeit helped by the soft margins in the prior period. Our Italian retail estate of over 830 units, and our long-established multi-channel expertise of acquiring online customers through our retail estate in that market, will prove to be a significant advantage over online-only operators following the marketing and promotions restrictions implemented by the new Italian government. We have moved quickly to secure key marketing contracts ahead of the implementation of the full ban in July 2019.

The integration of the Ladbrokes Coral business is well underway. Detailed synergy delivery plans are finalised in key areas, with new top-level organisation structures already in place. The high quality of our people coupled with the speed at which we implemented new structures meant that we were able to continue to drive growth whilst at the same time commence integration. We therefore remain very confident in our integration timetable and synergy targets. Crucially, we will always strive to ensure that integration doesn't come at the expense of product development or business-as-usual operations. Our ongoing commitment to new product delivery is demonstrated by a range of new features on our Sports brands, including increased options on the build-a-bet offering, continued improvements to user experience and real-time CRM, as well as the launch of new gaming content across all gaming brands. The performance of the business since acquisition reflects the ever growing importance of continued product development.

Discussions with Playtech regarding the development of our existing relationship are progressing well. We believe there is an opportunity for both parties to benefit; the Group from additional flexibility to realise operational synergies by consolidating its IT infrastructure and for Playtech to provide product and content in markets where they don't currently support GVC.

Strategically we are now in a very good position to continue to grow the business both in existing and new markets. Scale, geographic diversification, a portfolio of leading brands and end-to-end proprietary technology are all enablers of growth, as evidenced by the joint venture announced with MGM Resorts, which we believe positions us very well in the race for sustainable market share in the newly regulating US sports-betting market. The joint venture will utilise GVC's leading technology and online sports-betting expertise alongside the MGM brands, and through market access agreements, we expect to gain access to all key states as regulation develops.

The Group continues to evaluate a number of new geographic markets through either organic entry or via acquisition. One of the key strengths of GVC is the experience we have across diverse international markets and we expect to enter a number of new territories over the coming 12 months.

As the Group evolves it is important that the Board evolves too, reflecting the growing scale and internationalisation of the business. In June we announced the appointment of Virginia McDowell as an independent non-executive director. Virginia brings exceptional industry experience, having worked in the US gaming market for 35 years. Virginia is also Chair of the newly created Corporate Social Responsibility Committee, with her experience as Vice Chairperson of Global Gaming Women, a non-profit organisation with a mission to inspire and influence the development of women in the gaming industry, a major asset for the Group. We have also announced today the appointment of Pierre Bouchut to the Board as an independent non-executive director. Pierre has significant experience in senior finance and operational roles at a number of multinational businesses including CFO at Delhaize and Carrefour. He is currently a non-executive director and chairman of the audit committee at Hammerson plc and Firmenich SA, and with immediate effect will succeed Stephen Morana as chairman of GVC's Audit Committee. Finally, we would like to thank Will Whitehorn who stepped down as non-executive director in June. 

Corporate Social Responsibility (CSR)

The past 10 years has seen GVC become one of the world's leading gaming companies. In 2007, the Group had less than 40 employees, compared to over 28,000 today. With this growth in scale comes increased corporate social responsibility, to our employees, our customers and the communities in which we operate. It is important that companies such as GVC take the lead and work positively with regulators and government to ensure a safe environment.

Following the acquisition of Ladbrokes Coral we established the Corporate Social Responsibility Committee, a Board level group that is led by Virginia McDowell. This will have full oversight across all areas of CSR within the business. We have also appointed a Head of CSR who is responsible for the co-ordination of CSR with all key stakeholders across the Group. The formulation of a new comprehensive CSR strategy is in progress and over the coming months we will be announcing a number of major new initiatives across all key areas of the business.

Responsible gaming: We are continuing to actively work on numerous positive projects being undertaken by the relevant industry bodies and regulators, as well as engaging closely with our peers. However, we also recognise the unique position we hold in the industry and believe that by taking a positive lead others will be encouraged to follow. We already contribute 0.1% of UK GGR to responsible gaming initiatives but will go materially beyond this going forward. Investment in technology, training and education to aid prevention is a key area of investment. As an example the new EPOS system being rolled-out across the UK retail estate will have the most advanced responsible gaming tools in the industry when fully up and running. In the US, GVC is to become a Platinum Member of the National Council on Problem Gambling and are providing funding for a proposed National Survey of Gambling in America.

Corporate culture: GVC would not have achieved the success it has to date without the hard work and dedication of our employees. The creation of an entrepreneurial culture where all have the opportunity to succeed is at the core of the Group. A number of key new initiatives will further build upon the positive environment we cultivate:

· Improving Gender Diversity: A new programme aimed at supporting the progression of our female leaders "Horizon - Women in Leadership" has been established to encourage and support the progression of the many thousands of talented women working at GVC.

· Improved recruiting and selection processes adopted to remove any potential for selection bias.

· GDPR: Training rolled out to all employees to ensure compliance with treatment of employee and customer data.

· Health & Safety: A dedicated Safety Management Centre has been established for the UK Retail estate, along with a number of other safety and security improvements.

There is rightly much commentary concerning the economic footprint of large companies who operate in the UK. Based on the 2017 PWC Total Tax Contribution Survey, the Group was a top 25 tax contributor to the UK Government.

Communities: The Group and its employees play an active role in the many communities in which we operate. One such example is the Ladbrokes Coral Trust, which has donated more than £8m to nearly 1,000 local charities/good causes since it was created. Although, the recent triennial review will have a negative impact on the quantum of monies raised and donated by the charity, it will remain an important part of our communities programme. Within the UK Retail estate we also teamed up with the Bobby Moore Trust, contributing £100,000 following a fund raising campaign in our shops during the World Cup. The positive role our colleagues play in their local communities is often overlooked, be we are proud of the contribution they make.

As part of the CSR strategy we are looking at how and whom we work with in terms of the communities in which we operate. The cornerstones of the new strategy will be greater coordination, focus and most importantly funding.

Regulatory Update

In the UK, the Government announced its final Triennial Review decision, reducing maximum B2 stakes to £2 per spin. We estimate that this will result in the closure of around1,000 Ladbrokes Coral shops. We await a decision from the Government on an implementation date, but we expect enactment of the new legislation to be complete by the end of the calendar year.

The newly formed Italian Government has implemented wide-ranging restrictions on betting and gaming promotions and advertising. All forms of direct marketing and sponsorship will be prohibited when the ban comes into full effect in mid-2019. The benefit of running an 836-strong retail estate in Italy in this environment will be significant, as in- store recruitment of customers becomes the only viable way of attracting customers online.

In Spain, online duty was reduced from 25% to 20% on 1 July 2018 while in Sweden licences for online sports and betting are expected to be issued at the start of 2019, a process that GVC has entered into.

All of the Australian states have now confirmed online point of consumption tax (POCT) rates and implementation dates. The majority of states will implement the new tax on 1 January 2019, with the exceptions being Queensland (1 October 2018) and South Australia (already implemented; started on 1 July 2017). The blended rate impact for the Group is c11.5% of gross gaming revenue.

There has been no material update on the German regulatory position since the Group's 2017 full year results announcement; a number of states are still pushing for some form of gaming regulation, and a working party of state representatives is due to meet later in the year to consider options.

During the prior year, the Group received a tax audit assessment from the Greek Audit Centre for Large Enterprises in respect of 2010 and 2011 (the "Assessment"). During this period the business was owned by Sportingbet plc, prior to its acquisition by GVC in 2013. The total amount of the Assessment is €186.77m, substantially higher than total Greek revenues generated by the subsidiary during the relevant periods. Whilst the directors, based on tax and legal advice received, believe that there are strong grounds for appeal, on 28 February 2018 , in order to enable the Group's subsidiary to continue to trade normally, the Group entered into a payment scheme where payments are held on account by the relevant authority. As at 30 June, £46.6m has been paid by the Group under this arrangement. Whilst there have been very few developments on this matter since entering into the payment scheme, the Directors continue to be of the view that, based on legal and tax advice received, the Group has strong grounds for appeal and it is not probable that a liability will arise. As such, following the resolution of this matter, the Directors believe that the Group will recover the amounts paid through either a repayment or deduction from future tax liabilities.

Separately, the Greek Ministry of Finance has recently announced proposals to introduce a permanent online licensing scheme, to replace the interim licensing regime. The proposals, which include a license fee of €4m for sports betting and €1m for online games, will be subject to a public consultation in October and subsequently notified to the European Commission. The Group welcomes the move to a permanent licensing scheme.

In the US, several states have introduced or authorised legislation expanding sports-betting post the repeal of PASPA. Delaware, New Jersey and Mississippi have already introduced or expanded sports-betting options.

Following the result of a national referendum in Switzerland, legislation to restrict foreign operators from participating directly in the online gaming market cleared a key hurdle. The implementation of the legislation has yet to be confirmed and potential legal challenges remain. The proposed effective date is 1 January 2019 and if implemented, casino and poker operators would have to partner with a land based casino in order to continue offering online services. The Group is currently in discussions with a land-based casino to provide such services. Only the two national lottery operators will be permitted to offer online sports-betting, and as such, if the legislation is implemented in its current form, the Group will have to cease offering all sports-betting into Switzerland. Switzerland sports-betting represents less than 1% of total Group NGR.

Current trading and outlook

Trading in the period 1 July 2018 to 2 September was strong. Group NGR was 14% ahead helped by the final two weeks of the World Cup.

Online NGR was 30% ahead (27% ahead excluding Crystalbet) with Sports brands NGR 34% ahead, driven by particularly strong growth in the legacy GVC brands (NGR 52% ahead; 42% ahead excluding Crystalbet) and in the UK where Coral.co.uk grew NGR by 28% and Ladbrokes.com by 19%. Sports brands sports gross win margin was 0.7pp ahead and sports wagering was 22% ahead. Games brands NGR was 17% ahead. European Retail NGR was 26% ahead and UK Retail like-for-like NGR was 4% behind.

Whilst the prior year comparatives get increasingly tough, with Q4 2017 being a record quarter for the Group due to exceptional sports gross win margins, our target of double digit annual online NGR growth remains on track and we expect to deliver EBITDA and operating profit in-line with the Board's expectations. 

Financial Results (unaudited) and the use of Non-GAAP measures

The reported statutory results for H1 2018 reflect the acquisition of Ladbrokes Coral Group which took place at the close of business on 28 March 2018 and therefore include the results of the Ladbrokes Coral Group from that date only. As such, H1 2017 reflects the trading for GVC Holdings PLC only as this was prior to acquisition of the Ladbrokes Coral Group.

In order to aid the comparison of year-on-year results, the Directors have deemed it appropriate to provide and analyse proforma results for the combined Group as if it had existed from 1 Jan 2017. Given the changes in capital structure arising from the acquisition of the Ladbrokes Coral Group, the historical interest, tax and dividend charges are not deemed to be meaningful. As a result, proforma results have only been provided down to operating profit.

Proforma results exclude the results of the Turkish business which was discontinued during 2017 and the 360 shops that the Ladbrokes Coral Group was required to divest on the merger of Ladbrokes and Coral.

As a result of IFRS 3 requirements to fair value acquired businesses, proforma depreciation and amortisation charges in H1 2018 may not be comparable with those arising post the acquisition. Therefore, the Directors believe that the provision of EBITDA within the proforma and segmental information, is appropriate as it aids the comparability of "underlying" profit whilst the IFRS 3 impact on depreciation and amortisation annualises.

The tables below reconcile the reported results to the proforma information for H1 2018 and H1 2017, the latter of which was previously reported in Euros rather than the Group's new reporting currency which is GBP.

Notes

(1) Excludes the impact of separately disclosed items

(2) Represents the trading results for the Ladbrokes Coral Group plc for the period 1 January 2018 to 28 March 2018 pre separately disclosed items

(3) Includes a gross profit figure not previously reported

(4) Translated at a rate of GBP1.00:EUR1.13

(5) Excludes the results of the Turkish business included in the 2017 reported figures but now classified as discontinued

(6) Represents the trading results for the Ladbrokes Coral Group plc for the period 1 January 2017 to 30 June 2017 pre separately disclosed items and excluding the 360 shops that the Ladbrokes Coral Group was required to sell as part of the merger of Ladbrokes PLC and the Coral Group.

(7) Depreciation and amortisation previously reported included amortisation of acquired intangibles of €59.5m which are now classified separately within the income statement

BUSINESS REVIEW

The Group operates through five segments; Online, UK Retail, European Retail, Other and Corporate.

Group

Reported Results1:

Revenue increased by 195% to £1,105.9m and underlying EBITDA4 increased by 133% to £235.0m. This growth reflects both the continued growth in the legacy GVC business and the impact of the three months of trading for the Ladbrokes Coral business post acquisition. Underlying operating profit of £188.6m was 140% ahead of last year and operating profit post separately disclosed items of £140.1m was £148.7m ahead of 2017.

Proforma Results2:

Group revenue increased 8% for the six months to 30 June 2018, predominantly driven by Online and European Retail. During the period, the World Cup contributed £35.2m of NGR pre-substitution (total of £64.1m for the whole tournament), with 65% of the marketing spend falling in H1. Front-ended World Cup marketing spend, higher UK POCT, geographic mix and the disposal of Kalixa, resulted in a contribution margin of 53.8% vs 57.1% for the same period in 2017.

The benefits of synergies from the Ladbrokes Coral merger and to a lesser extent the remaining synergies from the bwin.party acquisition, helped underlying EBITDA4 to improve 11% to £349.5m. Meanwhile, underlying operating profit5 increased 17% to £277.9m, with lower share based payments, £6.0m (H1 2017: £11.5m) being a factor. As a consequence, the Group's proforma operating margin improved to 16.4% (H1 2017: 15.1%). 

Online

Reported Results1:

On a reported basis, revenue of £673.8m was £308.8m ahead of last year and underlying EBITDA4 of £168.6m was 49% ahead reflecting continued growth in the legacy GVC business and the reporting period containing three months of trading of Ladbrokes Coral Group plc post acquisition. Underlying operating profit5 of £140.2m was 45% ahead of 2017, and operating profit post separately disclosed items of £20.5m was £23.3m behind. 

Proforma Results2:

Online growth was strong with NGR 18% ahead (cc +20%) driven by good underlying growth in all material markets and also by a positive World Cup. During the period marketing spend represented 26.0% of NGR (23.7% in H1 2017), largely reflecting the World Cup (first half weighted) as well as continued investment in partypoker. The contribution margin declined to 40.7% (44.7% H1 2017) due to a number of factors including front ended World Cup marketing, the disposal of Kalixa (May 2017), UK POCT on gaming free bets and geographic mix. We expect marketing spend as a percentage of NGR to be lower in H2, however, where we see opportunities to accelerate market share gains through targeted investment we will do so. Underlying EBITDA4 of £210.9m was 12% ahead of last year and underlying operating profit5 of £170.3m was 14% ahead. Operating costs were 1% higher than last year reflecting the growth in the business, increased regulatory and compliance costs in the UK and also the inclusion of Crystalbet costs, all partly offset by the delivery of synergies from the Ladbrokes Coral merger.

Sports brands NGR was 19% ahead (cc +21%), with the legacy GVC brands 23% ahead (cc +26%), continuing the momentum shown throughout 2017. The bwin brand continued to benefit from high profile marketing campaigns including the "Who stole the Cup" World Cup campaign, featuring Diego Maradona, that ran across TV and online platforms, helping drive the legacy GVC sports brands sports NGR 27% ahead, while gaming NGR was 20% ahead. The acquired Ladbrokes Coral sports brands NGR was 16% ahead (cc +17%). Australia is a core market for the Group and with Ladbrokes.com.au NGR increasing 24% (cc +31%) during the period, the business continues to take share from competitors. Importantly, the scale of the business means it will continue to be profitable after the full implementation of POCT at the start of 2019 (Queensland 1/10/18). Eurobet.it NGR was 36% ahead (cc +32%) with strong growth across sports and gaming. In the UK, Coral.co.uk NGR grew ahead of the market, with NGR 12% ahead, helped by innovative new products including a range of build-a-bet player markets. Ladbrokes.com returned to growth (NGR+7%) following corrective action taken by management in 2017. Most encouragingly, Ladbrokes performance accelerated materially in Q2, significantly ahead of the market. Whilst it is only one quarter we take some confidence that the Ladbrokes brand is finally becoming more relevant again in the UK online market after years of underperformance. Meanwhile, the acquisition of 51% of Crystalbet was completed on 11 April 2018 and the performance of the business since acquisition has been very strong. Within two months of acquisition we provided Crystalbet customers with access to over 300 additional casino games, the most comprehensive offering in the Georgian market.

Games brands NGR was 13% ahead, with partypoker.com NGR 36% ahead driven in part by a very successful live events programme and despite the impact of the withdrawal from Australia in 2017. In June we launched shared liquidity across France and Spain. Ahead of shared liquidity and post its implementation, France and Spain have been amongst our fastest growing markets. Galabingo.com grew NGR by 5% in H1, a solid performance in a competitive market. New products, together with greater personalisation were introduced during the period, with further enhancements to come through in H2. The legacy GVC casino brands also delivered 12% growth during the first six months.

Outlook:

The positive momentum in the business leaves us well placed to deliver our target of double-digit annual top line growth from Online. This will not be straight-forward given the competitive and slower growth of the UK market versus many of the international markets we operate in. However, we still have many of the benefits from the Ladbrokes Coral integration to harvest and the performance of the business places us in a strong position. Furthermore, in markets where we are taking share we will invest excess returns to further strengthen our competitive position.

UK Retail

Reported Results1:

On a reported basis, revenue was £351.5m and underlying EBITDA4 was £67.5m reflecting the results for the three months of trading of Ladbrokes Coral Group plc post acquisition. Underlying operating profit5 was £56.6m, and £41.6m after charging separately disclosed items.

Proforma Results2:

UK Retail NGR of £664.6m was 5% behind last year and 3% on a like-for-like6 basis. Underlying EBITDA4 of £125.8m was 4% behind and underlying operating profit5 of £106.9m was 4% ahead.

OTC wagers were 8% behind, but after adjusting for the impact of shop closures and poor weather in Q1, and the positive impact of having full live coverage of UK racing in the period this year, as well as the World Cup, OTC wagering trends were 6% behind, broadly in-line with the longer term average. SSBT stakes continue to grow and were 14% ahead. In-house developed SSBTs were successfully introduced at the start of the year and were being successfully trialled in eight shops at the end of the period.

OTC gross win margin was flat year-on-year. Football gross win margins were 2.0pp ahead of last year helped by a good World Cup, while horse racing margin was broadly in line, with a positive Cheltenham offset by Tiger Roll winning the Grand National, which at the off was the worst result in the book.

Machines NGR was 3% behind last year and 1% behind on a like-for-like6 basis. After adjusting for the adverse impact of reduced shop opening hours (an EBITDA positive action) and the poor weather in Q1, machines NGR was broadly flat. Machines stakes were undoubtedly impacted by the negative coverage of FOBTs leading up to and after the announcement of the final Triennial Review findings. During the period, the Group announced a new seven-year deal with Scientific Games for the provision of next generation FOBTS, the first part of which will be the roll out of new Equinox terminals across the estate this year. An initial trial of these new units in 100 shops demonstrated encouraging returns.

Multi-channel sign-ups remain a key part of the UK Retail offering, delivering high value and loyal customers to the online UK brands at minimum cost. During the period there were 184k new multichannel sign-ups. 

Contribution margin of 71.4% was 0.6pp lower than last year reflecting the higher machines mix and the recognition of media rev share costs in cost of sales. Operating costs were 6% lower primarily driven by the synergies arising from the Ladbrokes Coral merger and shop closures. At the end of the period there were 3,562 shops in the estate (2017:3,660).

Outlook:

The final Triennial Review decision will allow the business to start planning for the transition to a smaller estate and a project team has already been established to ensure that the shop closure programme is optimised, central cost savings are identified and that the impact on business-as-usual trading is minimised. Alongside the new FOBT rollout, the implementation of the new shop till system "EPOS2" will be completed in 2019. These initiatives will help support revenue while continued tight cost control and the delivery of the final Ladbrokes Coral merger cost synergies will protect the operating cost base.  

European Retail

Reported Results1:

On a reported basis, revenue was £67.0m and underlying EBITDA4 was £12.5m reflecting the results for the three months of trading of Ladbrokes Coral Group plc post acquisition. Underlying operating profit5 was £8.3m and was £6.9m after charging separately disclosed items.

Proforma Results2:

European Retail NGR of £134.1m was 29% ahead of last year (+26% cc). Underlying EBITDA4 of £28.8m was 83% ahead and underlying operating profit5 of £20.2m was 82% ahead.

OTC wagers were 7% ahead (+4% cc) primarily driven by growth in Eurobet Retail and estate growth in Ladbrokes Belgium. An OTC margin of 17.8% was 3.0pp ahead of last year as football gross win margins in Italy returned to more normal levels compared to the prior period. Other OTC growth of 8% (+5% cc) was driven by growth in Eurobet Retail virtual which was partially offset by the temporary suspension of the Ladbrokes Belgium virtual product for five weeks during the first half in advance of the Belgian Government finally approving the legal framework for virtual betting in May.

Contribution margin of 50.0% improved by 1.6pp due to the impact of a lower mix of payments to franchisees in Italy following the stronger year-on-year results, partly offset by upfront World Cup marketing costs. Operating costs were 11% higher primarily due to an increase in Eurobet staff and technology costs to support the growth in the business, and also due to the acquisition of 23 independent shops in Belgium.

As at 30 June 2018 there were a total of 1,602 outlets/shops. Italy 836 (2017: 828), Belgium shops 320, outlets 307 (2017: shops 289; outlets 213) and Ireland 139 (2017: 141).

Outlook:

In Italy, we will leverage our leading multi-channel expertise to ensure the business remains well-placed to support its online offering post the marketing restrictions that will be implemented in 2019. In Belgium, we will look to expand the estate through the further acquisition of independent operators where the multiples make sense, expand our footprint in newsagents and continue our programme to optimise SSBT density and utilisation across the estate.Other

Reported Results1:

On a reported basis, NGR of £15.3m was £5.5m ahead of last year and underlying EBITDA4 of £1.2m was 121% ahead reflecting the impact of the sale of Kalixa in 2017 and the three months of trading of Ladbrokes Coral post acquisition. Underlying operating profit5 of £1.5m was 126% ahead of 2017 and operating profit after charging separately disclosed items of £1.5m was £9.8m ahead.

Proforma Results2:

NGR of £24.6m was 22% behind last year due to the disposal of Kalixa in May 2017. Excluding the sale of Kalixa, NGR was 6% behind, primarily due to a very strong sports gross win margin in the prior period in Telebet. Underlying EBITDA4 of £2.0m was £4.8m ahead of last year and underlying operating profit5 of £2.3m was £4.2m ahead.

Corporate

Reported Results1:

On a reported basis, Corporate costs were £14.8m (2017: £6.6m) and £18.0m (2017: £12.5m) after share based payments and depreciation and amortisation with the year-on-year increase reflecting the inclusion of Ladbrokes Coral results post acquisition. After charging separately disclosed items operating profit of £69.6m was £113.7m ahead of 2017.

Proforma Results2:

On a proforma basis Corporate costs of £18.0m increased by £0.5m primarily driven by a one-off credit arising in the prior year, partly offset by the synergies arising from the Ladbrokes Coral merger. After the cost of share based payments and depreciation and amortisation, total corporate costs were £21.8m, a reduction of 11% driven by reduced share based payments following the vesting of a number of legacy schemes in 2017.

Notes

(1) 2018 and 2017 reported results are unaudited and reflect the acquisition of the Ladbrokes Coral Group plc on 28 March 2018

(2) The Group's proforma results are unaudited and presented as if the current Group, post the acquisition of Ladbrokes Coral Group plc, had existed since 1 January 2017. As such, it excludes the results of the Turkish business which was discontinued during 2017 and the 360 shops that the Ladbrokes Coral Group plc was required to divest on the merger of Ladbrokes PLC and the Coral Group. The results of Crystalbet are included from the date of acquisition (11 April 2018) and the results of Kalixa are excluded from the date of disposal (31 May 2017)

(3) Growth on a constant currency basis is calculated by translating both current and prior year performance at the 2018 exchange rates

(4) Stated pre separately disclosed items and shared based payments

(5) Stated pre separately disclosed items

(6) UK Retail numbers are quoted on a LFL basis. During H1 there was an average of 3,563 shops in the estate, compared to an average of 3,663 in the same period last year

CHIEF FINANCIAL OFFICER'S REVIEW

NGR and Revenue

Group reported NGR was 191% ahead and revenue was 195% ahead due to growth in the legacy GVC business and the inclusion of three months of trading of Ladbrokes Coral Group in the current year following the acquisition. On a proforma basis both NGR and revenue were 8% ahead as detailed in the Business Review section.

Underlying operating profit5

Group reported underlying operating profit5 was £188.6m (2017: £78.6m) as a result of underlying EBITDA4 of £235.0m (2017: £100.7m), £5.0m of share based payments costs (2017: £9.1m), £42.1m of depreciation and amortisation (2017: £13.0m) as well as £0.7m of JV income (2017: £nil). This represents growth of £110.0m driven by the ongoing growth in the legacy GVC business as well as the impact of three months of trading of the Ladbrokes Coral business which are consolidated into the 2018 reported numbers.

On a proforma basis, underlying operating profit5 of £277.9m was £41.0m or 17% ahead of 2017 reflecting the £35.4m year-on-year growth in underlying EBITDA4 as well as savings in share based payments charges of £5.5m and a reduction in depreciation and amortisation of £1.5m, offset by a £1.4m reduction in JV income.

Financing costs

Net financing costs during H1 of £26.5m (2017: £14.2m) were £12.3m higher than in 2017 as a result of the interest on loans taken out to complete the acquisition of the Ladbrokes Coral Group. Current year finance costs also include a net £4.3m charge associated with foreign exchange losses on debt facilities offset by gains on currency swaps and associated derivative financial instruments taken out to manage the Groups exposure to certain currencies.

Separately disclosed items

Items separately disclosed in H1 amount to a £48.5m charge and include:

· The non-cash amortisation of acquired intangibles of £126.2m

· £48.4m of deal costs primarily related to the acquisition of the Ladbrokes Coral Group

· £12.8m of legal and onerous contract costs, largely associated with onerous leases in UK Retail

· £3.4m of integration costs associated with bringing the various businesses together

· A £142.3m credit associated with the reduction in the fair value of contingent consideration, a credit largely related to a reduction in the market value of the CVR associated with the acquisition of Ladbrokes Coral

Profit before tax

Profit before tax of £113.6m was £136.4m ahead of the £22.8m loss recorded in 2017.

Taxation

The tax charge for H1 was a £0.2m credit reflecting a £19.5m charge on underlying trading offset by a £19.7m credit on separately disclosed items. The underlying tax charge reflects a 12% effective tax rate.

Dividends

An interim dividend of 16.0p per share was declared, an increase of 1.4p on the previous year.

Dividend timetable

Cashflow

The Group generated a net cash inflow for the first half of 2018 of £174.6m (2017: £127.0m outflow). During the period, which contains the results and cashflows of Ladbrokes Coral post acquisition, the Group generated underlying EBITDA4 of £235.0m (2017: £100.7m), incurred £69.7m (2017: £18.4m) of capital investment costs and had a working capital outflow of £101.9m (2017: £14.4m). The working capital outflow in the year to date is primarily as a result of the payment of staff bonuses which caused an outflow of £44.0m, a large proportion of which will unwind in the year-to-go, and £46.6m in payments on account to the Greek government in respect of the tax audit assessment which was received during the prior year (see note 17). The Group also paid £6.9m in interest (2017: £28.4m), £10.4m in corporate taxes (2017: £10.4m) and £0.8m in finance lease repayments (2017: £nil) resulting in a free cash inflow of £45.3m (2017: £29.1m).

The Group paid £68.3m (2017: £11.5m) in relation to items that have been separately disclosed in the period, £51.7m of which related to fees associated with the acquisition of Ladbrokes Coral and Mars LLC ("Crystalbet") and £7.7m relating to the integration of the legacy businesses. The cash consideration element of the two acquisitions was £665.0m, and was partially offset by £194.5m of cash within those businesses at the date of acquisition. The Group raised £1,398.0m of new debt to fund the acquisitions and repaid £660.2m of the existing Ladbrokes Coral debt. £31.5m of fees were incurred in raising the new debt and £1.5m has been repaid since acquisition.

During the first half the Group also raised £10.8m from the issue of share capital and paid £46.2m in dividends resulting in a total cash inflow, pre foreign exchange, of £175.9m (2017: £129.8m outflow).

Net debt and liquidity

In order to facilitate the acquisition of the Ladbrokes Coral business the Group raised additional borrowings of £1,398.0m, £660.2m of which was used to repay legacy Ladbrokes Coral debt and £630.4m to fund the cash element of the acquisition consideration with the balance used as liquidity to fund the combined Group's working capital requirements and the acquisition of Crystalbet. As at 30 June 2018, accounting net debt was £1,770.6m and adjusted net debt £1,887.0m, representing a net debt to proforma underlying EBITDA4 ratio of 2.69x.

Going Concern

Having assessed the financial forecasts of the business, the principal risks and other matters discussed in connection with the viability statement, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements as the Group will generate sufficient cash to meet its ongoing obligations for at least 12 months from the date of signing the financial statements.

Notes

(1) 2018 and 2017 reported results are unaudited and reflect the acquisition of the Ladbrokes Coral Group plc on 28 March 2018

(2) The Group's proforma results are unaudited and presented as if the current Group, post the acquisition of Ladbrokes Coral Group plc, had existed since 1 January 2017. As such, it excludes the results of the Turkish business which was discontinued during 2017 and the 360 shops that the Ladbrokes Coral Group plc was required to divest on the merger of Ladbrokes PLC and the Coral Group. The results of Crystalbet are included from the date of acquisition (11 April 2018) and the results of Kalixa are excluded from the date of disposal (31 May 2017)

(3) Growth on a constant currency basis is calculated by translating both current and prior year performance at the 2018 exchange rates

(4) Stated pre separately disclosed items and shared based payments

(5) Stated pre separately disclosed items

Principal risks

Key risks are reviewed by the Executive and Risk Committees (made up of executive directors and senior management) and the Board of GVC Holdings plc on a regular basis and where appropriate, actions taken to mitigate the key risks that are identified. The Board has overall responsibility for risk management.

The principal risks and uncertainties, which could affect the Group, are set out on pages 34 to 37 of the Group's 2017 Annual Report, a copy of which is available on the Group's corporate website, www.gvc-plc.com. Following the acquisition of Ladbrokes Coral, there are additional risks that the Group is now exposed to, over and above those previously disclosed in the Group's Annual Report.

The principal risks and uncertainties of the enlarged Group are as follows:

Betting and gaming industry:

Taxes, laws, regulations, licensing and regulatory compliance

Regulatory, legislative and fiscal regimes for betting and gaming in key markets around the world can change, sometimes at short notice. Such changes could benefit or have an adverse effect on the Group and additional costs might be incurred in order to comply with any new laws or regulations in multiple jurisdictions.

Increased cost of product

The Group is subject to certain financing arrangements intended to support industries from which it profits. Examples are the horseracing and the voluntary greyhound racing levies which respectively support the British horseracing and greyhound industries. In addition, the Group enters into contracts for the distribution of television pictures, audio and other data that are broadcast across the various routes to market. A number of these are under negotiation at any one time.

Operational and bookmaking:

Trading, liability management and pricing

The Group may experience significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of its risk management processes.

Information technology and communications:

Technology failure

The Groups operations are highly dependent on technology and advanced information systems and there is a risk that such technology or systems could fail. In particular, any damage to, or failure of online systems and servers, electronic point of sale systems and electronic display systems could result in interruptions to financial controls and customer service systems.

Data breach and cyber security

The Group processes sensitive personal customer data (including name, address, age, bank details and betting and gaming history) as part of its business and therefore must comply with strict data protection and privacy laws in all jurisdictions in which the Group operates. The Group is exposed to the risk that this data could be wrongfully obtained through either a cyber-attack or a breach in data security. This could result in prosecutions including financial penalties and the loss of the goodwill of its customers.

Marketplace:

Impact of Brexit

The UK's departure from the EU because of the Brexit referendum may impact the Group's operations in certain EU markets.

Health and Safety:

Failure to meet the requirements of the various domestic and international rules and regulations could expose the company (and individual employees and directors) to material civil/criminal action with the associated financial and reputational consequences

Statement of Directors' Responsibilities

The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

- an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year, and

- related party transactions in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during the period; and any material changes in the related party transactions described in the last annual report.

A list of current directors is maintained on the GVC Holdings PLC website www.gvc-plc.com.

On behalf of the Board

K Alexander P Bowtell

Chief Executive Chief Financial Officer

13 September 2018

Independent review report to GVC Holdings PLC

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Mike Harper

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

Canary Wharf

London

E14 5GL

13 September 2018

Unaudited financial statements

Interim condensed consolidated income statement

Memo

Interim condensed consolidated statement of comprehensive income

Interim condensed consolidated balance sheet