Paddy Pow er Betfair plc 2017 Prelim Results 2 Overview Solid - PowerPoint PPT Presentation

Paddy Pow er Betfair plc 2017 Prelim Results

2 Overview  Solid financial performance in 2017 Many important competitive advantages   Merger integration successfully completed Observati Obs tions  Sportsbet has an excellent position in an attractive market  Assets in the USA position us well for potential regulatory change  Further sector consolidation is likely  New organisational structure to improve decision making speed and efficacy All development resources now deployed on customer-facing product  Key a y actions  Increasing investment in the Paddy Power brand and international markets Medium-term target leverage range identified 

Financial & Operating Review

4 Financial highlights Proforma 1  13% revenue growth (Sports +16%, YOY OY % % Gaming +2%) £m 2017 17 201 016 YOY OY % % CC CC 2 Revenue 1,7 ,745 1,5 ,551 +13% +10%  Operating costs up 5% in CC: − Sales & marketing +14% Cost of sales (405) (357) +14% +10% Gros oss profit it 1,3 ,340 1,1 ,194 +12% +10% − Other costs flat Operating costs (867) (794) +9% +5%  Operating leverage led to 18% increase in Underlyi lying E g EBITDA 473 400 +18% +19% EBITDA vs 13% revenue growth EBITDA margin % 27.1% 25.8% +1.3% +2.2%  Effective tax rate: 13.5% (2016: 15.5%) Depreciation & amortisation (81) (70) +16% +11%  Final dividend of 135p per share results in Underlyi lying o g operating p g profit 392 330 +19% +21% total dividends for the year of 200p per share, Separately disclosed items (142) (318) n/a n/a representing 50% underlying profits after tax Operating profit 250 12 n/a n/a Underlying earnings per share 398.0p 330.9p +20% Dividends per share 200p 165p +21% Net cash at end of year £244m £36m 1 Note throughout this presentation the 2016 comparatives and year-on-year (“YoY”) growth rates are shown on a “Proforma” basis for the Group as if the merger completed on 1 January 2016 2 Constant currency (“cc”) growth throughout this presentation is calculated by retranslating non-sterling denominated component of 2016 at 2017 exchange rates

5 Group EBITDA bridge EB EBITDA +£73m +£73m / / +1 +18% 8% £'m 15 29 11 12 119 3 473 47 400 400 397 97 2016 EBITDA FX impact 2016 EBITDA Revenue USA start-up Marketing cost Additional taxes Other costs 2017 EBITDA CC growth* losses growth** & levies*** * EBITDA impact of revenue growth estimated using average 2017 cost of sales % ** Excludes marketing from USA start-up businesses *** Includes impact from increased UK racing levy, increased UK online gaming POC tax and the introduction of POC tax in South Australia

6 Online Proforma £m 2017 17 201 016 YOY OY % %  Sportsbook revenue +14% benefitted from more Sportsbook stakes 5,633 5,266 +7% favourable sports results, partially offset by Sportsbook net revenue % 7.0% 6.6% +0.4% increased investment in pricing & promotions Sports revenue 660 609 +8%  Exchange & B2B revenue +1% Gaming revenue 238 245 -2% Total r revenue 898 853 +5%  Operating costs up 6% (cc +3%): Cost of sales (199) (193) +3% − Sales & marketing +14% Gros oss profit it 700 661 +6% − Other costs down 3% Sales & marketing (223) (195) +14% Product & technology (98) (111) -11% Operations (72) (65) +10% Total operating costs (394) (371) +6% Underlyi lying E g EBITDA 306 289 +6% Online division includes the UK/Ireland telephone (‘Dial-a-bet’) business FX I FX Impact CC Y CC YoY % Revenue +£7m +5% Underlying EBITDA -£9m +9%

7 Australia A$ A$ £m 2017 17 201 016 YOY OY % % YOY OY % %  Revenue growth driven by continued product Sportsbook stakes 3,708 2,911 +27% +19% investment and promotional generosity Sportsbook net revenue % 10.9% 10.7% +0.2% +0.2%  Cost of sales includes South Australian POC Revenue 404 312 +30% +21% tax from 1 July 2017 (£3m in H2) Cost of sales (111) (80) +38% +30%  Continued cost discipline maintained ahead Gros oss Profit it 292 231 +27% +18% of potential regulatory & tax changes Sales & marketing (82) (72) +13% +5% Product & technology (24) (24) +2% -6% Operations (47) (41) +14% +5% Total operating costs (153) (137) +11% +3% Underlyi lying E g EBITDA 139 94 +49% +42%

8 Retail £m 2017 17 201 016 YOY OY % %  Good revenue growth in both regions: ― UK +11% Sportsbook stakes 1,835 1,713 +7% ― Ireland +16% (+8% in constant currency) Sportsbook net revenue % 12.4% 11.6% +0.8% Sportsbook revenue 228 198 +15%  Like-for-like KPIs in constant currency: ― Sportsbook stakes +1% Machine gaming revenue 106 97 +10% ― Sportsbook revenue +9% Total r revenue 334 295 +13% ― Machine gaming revenue +7% Cost of sales (71) (63) +12% ― Total revenue +8% Gros oss Profit it 263 233 +13% ― Opex +2% Operating costs (182) (170) +7% Underlyi lying E g EBITDA 82 62 +31%  14 new shops opened in 2017 (11 in the UK & 3 in Ireland) & 1 Irish shop closed Shops at year end 626 613 +2% FX I FX Impact CC Y CC YoY % Revenue +£8m +10% Underlying EBITDA +£2m +28%

9 US Proforma  Sports revenue driven by 10% growth at TVG supplemented by US$ S$ £m 2017 17 201 016 YOY OY % % YOY % Y % revenues from DRAFT & the Betfair horseracing exchange in New Jersey Sports revenue 94 79 +19% +13% Gaming revenue 16 12 +34% +29%  TVG growth driven by continued investment in product and Total r revenue 109 91 +21% +15% marketing including the introduction Cost of sales (25) (21) +18% +13% of money-back specials to the US Gros oss profit it 85 70 +22% +16% racing market Operating costs (81) (57) +42% +36%  29% revenue growth at the Betfair Underlyi lying E g EBITDA 4 12 -71% -73% Casino (c.12% share of the online NJ market)  EBITDA comprised profits from TVG & Betfair Casino partially offset by £15m start-up losses in DRAFT & the Betfair Exchange

10 Cash flow Proforma £m 2017 17 201 016 YOY OY % %  Continued strong cash generation, Underlying EBITDA 473 400 +18% with underlying free cash flow up Capex (89) (85) +5% 57% to £395m Working capital 53 (15) n/a  2017 working capital had a one-off benefit from timing of payments Corporation tax paid (43) (48) -10% which will reverse in 2018 (c.£20m) Underlyi lying f g free c cash f flo low 395 252 +57%  2016 dividends included the Cash flow from separately disclosed items (12) (104) merger-related special dividend Free ee ca cash f flow 383 148 paid to Paddy Power shareholders on completion (£62m) Dividends paid (149) (179) DRAFT acquisition (14) - Interest - (2) Issue of shares 3 2 Net incr crea ease/ e/(decr ecrea ease) e) in ca n cash 222 (3 (31) Net cash at start of year 36 84 Movement to restricted cash - (8) FX translation impact (14) (9) Net et ca cash a at end end of yea ear 244 36

11 Financial guidance  c.£20m additional marketing and retention investment planned in Online in 2018 Ad Additional  Start-up losses in existing early stage businesses in the USA expected to be maintained at investme ment nt 2017 levels (c.£15m) in 2018  Australia POCT: South Australia 15% of GGR (from July ‘17); Western Australia 15% of GGR (from Jan ‘19); expect remaining states to announce their intentions in the coming months Regula lation  Government review into FOBT stake limits expected to conclude in Q2; no change in guidance on estimated impact of stake limit reductions 1 FX impact on 2018 EBITDA at current spot rates is a c£10m headwind versus 2017  FX FX (primarily A$) Capex  Full-year 2018 capex expected to be £90m to £100m Ef Effecti tive ta tax rate  Full-year 2018 underlying effective tax rate expected to be between 13% and 15% 1 Estimated reduction in FOBT revenues at different stake levels: £50 c.4%; £30 15%-21%; £20 19%-27%; £10 26%-36%; £2 33%-43% before potential mitigation

Business Review

13 Priorities • Return Paddy Power to growth Europe • Accelerate international growth • Maintain market leadership Australia • Capitalise on industry regulatory / fiscal headwinds • Ensure we are well placed ahead of any regulatory USA change Capital • Improve efficiency while maintaining strategic flexibility structure

Online Performance 14 Betfair sports performing well, Paddy Power losing share 2017 YoY revenue growth% 2017 YoY revenue growth% Sportsbook +29% Sportsbook +3% Exchange +1% Gaming -8% Gaming +4% Total al Total al +9% -1% Paddy P y Power ob observation ons Key y reme medial action ons Lost some focus  New organisational structure ensures greater focus Low share of wallet  Development resources now focused on customer-facing product  Increasing investment in retention activities Brand spend too low for  Increasing investment in above-the-line marketing mass market