Annual Report & Accounts 2019 2019 - RNS Submit

OverviewGary McGannChairWe know that we cannot solve thecomplex challenges that the gamblingindustry faces alone and we workproactively with other leaders and relevantorganisations in the industry to develop aprogressive responsible gambling mindsetfocused on solutions which provide thesafest possible environment in whichto gamble. Last year saw us work withothers in the sector to launch the SaferGambling Commitments and to committo significantly enhanced funding totreat those suffering from gamblingrelated harm.Culture and valuesCentral to the long-term delivery ofour strategy is the Group’s culture,underpinned by the values and behavioursexpected of our employees. Our valueshave been communicated Group-wideand will continue to be promoted by theGroup’s management teams to guideour employees in the way we do business.In addition to receiving updates fromExecutives throughout the year, in July2019, the Board visited FanDuel, in NewYork. As well as providing commercialinsights, site visits allow the Board to gainan understanding of the Group’s culture.This visit also allowed employees to meetwith the Non-Executive Directors, askquestions and gain an understanding ofthe operation ofthe Board.Andrew Higginson was appointed as aNon-Executive Director on 2 October2019. Andrew brings an extensive wealthof Board, commercial, retail and leadershipexperience to the Board.We continue to focus on Board renewaland composition, and keep under reviewdiversity of the Board and the appropriatemix and balance of Board capabilitiesand experience.Investor engagementand remunerationDuring 2019, I continued to engagewith our investors and both Peter Rigby,Chair of the Remuneration Committee,and I met with shareholders to discussproposed remuneration changes in thecontext of internal and external strategicdevelopments, business and regulatorychanges, as well as discussing generalgovernance matters. The objectiveof these discussions is to presenta remuneration structure that canwithstand the uncertainties within ourindustry and our dynamic businessstrategy, while creating strong alignmentwith shareholders’ interests. The proposedchanges to our Remuneration Policy arepresented in this report for shareholderapproval at our 2020 AGM.Below PPB Marketing offsite and racedaywhere staff shared ideas on how to keep ourcustomers at the heart of everything we do.Board updateOn 15 May, Nancy Cruickshank wasappointed as Non-Executive Director.Nancy brings a wealth of digital andNon-Executive Director expertise,combined with a proven entrepreneurialspirit and track record.5

Flutter Entertainment plc Annual Report & Accounts 2019Chair’s Statement continuedOur peopleOur industry is competitive and fast-movingand it is vital that we continue to attract,develop and retain highly talented peopleand reward success. The Group has inplace a range of initiatives designed toensure a successful and inclusive workingenvironment. We continue to focus onpromoting diversity for all employees.During 2019, the Board appointed twoNon-Executive Directors dedicatedto workforce engagement. This is animportant initiative for the Board to gaina wider understanding of views from ouremployees and will continue to be a focusfor the Board during 2020.In addition to the dedicated workforceengagement programme, I spent timethroughout 2019 visiting offices acrossthe Group. I had the pleasure of visitingour Malta and Hammersmith offices andFanDuel operations, using the opportunityto meet employees across the business.I continue to be impressed by the quality,dedication and commitment shown byour colleagues throughout the Group ledby the Executive team, and I would liketo thank them all for their contributionthroughout 2019.6Dividend policy/proposedcombination with The StarsGroupWe have proposed a Final Dividend for2019 of 133p per ordinary share (subjectto shareholder approval), which wouldmaintain the full-year dividend at 200pper ordinary share.On 2 October 2019, the Group announcedthat it had agreed terms with The StarsGroup to bring the two businessestogether in what both Boards believewill be a transformational combination.The transaction is subject to the approvalof both sets of shareholders as wellas a number of national competitionauthorities that will review the proposeddeal. Assuming such approvals areforthcoming, the transaction is expectedto complete in either Q2 or Q3 2020.The Board of Flutter believes that thetransaction will allow the Group toaccelerate its progress against all fourpillars of its strategy and position it verywell to accelerate its international growth.The combined Group will also be betterdiversified from both a geographic andproduct standpoint.As a result of the transaction, the Group’sfinancial leverage will change materially,with an expectation that the Group willhave a pro-forma net debt/EBITDA ratio ofapproximately 3.5 times upon completion.This is above the Group’s stated mediumterm net debt/EBITDA target of 1–2 times.As such, the Board is proposing that adistribution of an ordinary dividend of200p per share annually is targeted untilsuch time as the Group’s net debt positionreturns to below 2 times.We look forward to completing The StarsGroup transaction and approaching thefuture thereafter with confidence.Gary McGannChair26 February 2020

Strategic ReportStrategySection Contents8 Chief Executive Officer’s Review12 Business Model14 Market Review16 Our Strategy18 Our Brands20 Corporate Social Responsibility24 People and Culture28 Engaging with Stakeholders34 Operating and Financial Review45 Understanding and Managingour Principal Risks7

Flutter Entertainment plc Annual Report & Accounts 2019Chief Executive Officer’s ReviewFlutter grew revenuesby 14% during 2019 toover 2.1 billion.We took a leadership position in theUS online sports betting and gamingmarket, executed strongly in Australia andexpanded our European presence throughthe acquisition of Georgian market leader,Adjarabet. Group underlying EBITDA1,2for the year was 385m, down 15% onthe prior year, reflecting incremental tax/regulatory changes of 107m and ourinvestment in the nascent US market.Excluding the impact of the tax andregulatory changes, underlying EBITDA1,2increased 12%.The Group’s four pillar strategy that welaid out last year remains in place and goodprogress has been made against eachpillar during 2019. In our core markets weremain strongly positioned. Internationallywe have made progress in improving theBetfair proposition and have added to ourpodium positions with the acquisition ofAdjarabet. In the US, our business goesfrom strength to strength.Peter JacksonChief Executive Officer8The external regulatoryand tax backdropWhile executing on our strategy remainsa key focus, it is important that we reflecton the future direction of our businessand the sector more broadly. Our Groupoperates in a fast-paced, highlycompetitive industry, that is governedby a multitude of national regulatory andtax frameworks which are continuouslyevolving. Regulatory change presentsthe Group with great opportunities butalso poses real potential challenges andrisks. To be well positioned to deal withsuch change, we believe that globalscale and diversification are key.In 2019 we saw examples of both.The expansion of the regulated sportsbetting market in the US continuesapace, an opportunity that we believeis transformational for the Group.In our core markets of the UK, Irelandand Australia we also incurred significanttax increases while our internationaloperations experienced severalunexpected market closures in thefirst half of the year. In addition, theintroduction of a 2 staking limit onUK gaming machines changed theunit economics for UK shop operators,equating to an annualised profitabilityimpact of 30m for our retail estate.As we look to the future, we believethat we have reached a pivotal timewhen it comes to responsible gambling.To better protect potentially vulnerablecustomers and to put our business ona more sustainable footing, it is clearthat we must do more in this area bothas an operator and as an industry.As an operator During 2019 we improved two key aspectsof our responsible gambling program:µµHow we identify customers who need tobe protected: we improved our in-housetechnology by significantly increasing thenumber of behaviours that we monitorto determine whether customersare using our products responsibly.µµHow we interact with our customers:we more than trebled the size of ourresponsible gambling team over thelast 18 months, investing in specialisttraining to ensure that our people areinteracting with our customers at anearly stage. This positively influencesbehaviours and aims to ensure thatcustomers do not spend more thanthey can afford on our products.The results of these initiatives have beenencouraging to date with an 84% increasein customers choosing to set depositlimits while delivering a 56% increasein real time contact with customers.Notwithstanding the progress made, wehave more to do and we must continuouslyseek to raise our standards when it comesto responsible gambling and complianceprocedures. For example, as part of ourongoing review of business relationships,we have taken the decision to stop takingbusiness from a number of Exchange B2Bpartners where we felt their compliancepolicies were no longer sufficiently alignedwith those of the Group. This decisionis likely to lead to a reduction in ourExchange revenues during 2020.Responsible gambling isa critical component ofour strategy. This is whywe continue to raise ourstandards as a sociallyprogressive operator andto help lead the industryin a race to the top whenit comes to responsiblegambling practices.

Strategic ReportThe entrepreneurial culture of our business andthe quality of our people are continuing to drive ourglobal expansion while providing our teams with theopportunities they seek to develop their careersand gain new experiences.As an industry Collaboration between industry leadersis essential to put the sector on amore sustainable footing. We mustpromote a mindset that encouragesa race to the top when it comes toresponsible gambling best practice.During 2019, we worked with severalleading operators in the UK to introducesafer gambling commitments. To ensurethat these commitments are deliveredwith the transparency and authenticityintended, the newly established Bettingand Gaming Council will regularly reportpublicly on the progress we are makingagainst them. Arising from thesecommitments, the industry is now workingalongside the Gambling Commission onthree specific areas of focus. These are:µµVIP code: development of acode to ensure loyalty schemesdo not incentivise behaviourwhich puts customers at riskµµAdvertising technology: reviewof online advertising to enhanceprotection of vulnerable peopleµµResponsible game design:setting a framework to ensureproducts and game design doesnot drive high risk behavioursAbove The Paddy’s Rewards Club and RhodriGiggs combination was one of 2019’s mosttalked about adverts.12%Paddy Power customer growthFuture regulationOn January 14th, the UK GamblingCommission announced that it wouldintroduce a ban on gambling by credit cardfrom 14th April this year. In our submissionto the UK Gambling Commission on creditcards, we had acknowledged that there wasa need for some change in this area andwe will be in a position to implement therequired changes on schedule. In addition,the UK Government has announced that itwill review the 2005 Gambling Act in themonths ahead and we are hopeful that theemphasis of future UK regulation will be onplayer protection with a clear focus onaffordability. In Ireland, we remain supportiveof the Government’s work on the GamblingControl Bill which seeks, among otherthings, to establish a dedicated regulatorfor the gambling sector in Ireland.PPB Online and RetailPaddy Power enjoyed good momentumacross all products during 2019. Leveragingour iconic brand we rolled out severalattention grabbing campaigns such asthe Rhodri Giggs “Loyalty is dead” and our“Don’t think you’re special” campaigns.Both drove good customer acquisitionand engagement with customer growthof 12% during the year excluding theWorld Cup. In addition, we improved thePaddy Power product offering with ‘ACCAinsurance’, leading the market with thisoffering. This has contributed to PaddyPower ranking best-in-class in the marketwhen it comes to promotions. We havealso been pleased with how our PPB Retailbusiness has responded to the 2 stakingAbove Paddy Power enlistedone of Europe’s greatestexports, Eric Cantona,as Brexit ambassador.limit on Fixed Odd Betting Terminals,with signs that we are winning marketshare as competitors reduce the sizeof their retail estates.During 2019, Betfair was the businessmost impacted by regulatory change andthe initiatives we introduced to re-shapeour business. Positively we continue toinvest in the brand and deliver productenhancements. We launched our newClive Owen Betfair brand campaignwhich uses simple analogies to explainthe concept of the Betfair Exchangeto new customers. The campaign hasa greater focus on digital channels toachieve greater marketing efficiency.Our international business benefittedfrom a multitude of product improvementsincluding rolling out country specificpricing (CSP) in Q1 and the addition offour new payment options and five newcurrencies during the year. We havebeen pleased with the underlyingmomentum within our internationalbusiness, with underlying Exchangecustomer growth of 23% during 2019 andan uplift in contribution from both CSPand marketing efficiencies achieved.In line with our international strategy tosecure podium positions in new markets,we acquired a 51% stake in Adjarabet inFebruary, giving us a leadership positionin another regulated market. Integrationhas gone well with the business now ableto access the Group’s sports bettingexpertise. Very strong organic growthsince acquisition has reinforced ourview that local scale and focus is vitalto winning in international markets.23%Betfair International Exchangecustomer growth9

Flutter Entertainment plc Annual Report & Accounts 2019Chief Executive Officer’s Review continuedAustraliaThe Sportsbet team delivered a strongperformance during 2019. While substantialincreases in taxes and product feesreduced gross profit margins, most of thiswas recovered through strong top linegrowth as a result of continued investmentin product, value and marketing. Thebusiness maintained operating costdiscipline, extending its strong trackrecord of delivering operating leverage.We continued to pursue our 2018 strategyof prioritising customer generosity withpositive results. Sportsbet has beenrecognised as having some of the best andmost generous promotions in the market.This drove customer growth of 9%during the year (excluding the World Cup),while the number of online bettors usingSportsbet as their main mobile accountof choice remains almost twice that ofour nearest competitor.9%Sportsbet customer growthThe USThe growth opportunity in the US hascontinued to unfold quickly during 2019.We have been encouraged by the paceof regulation to date, with 14 individualstates having now passed sports bettinglegislation. These 14 states account forc. 24% of the US population and with morestates expected to follow, we are nowincreasingly confident that the total USaddressable market for our productscould exceed 10bn.To take advantage of this opportunity,we continue to believe that certainty ofmarket access in each state is key, ideallyvia “first skin” access agreements. Firstskin refers to having the right to use thefirst online/mobile license that a landbased partner is granted in a particularstate. Some states have only granted oneskin per operator, for example Michigan,which is why securing first skin access isa priority. We recently secured additionalfirst skin market access deals withThe Cordish Company in Maryland andTwin River in Colorado. We now havefirst skin market access deals in 15 USstates. Looking ahead, we believe that thestrength of our market share performanceto date will make us an attractive potentialpartner in further states.FanDuel investor dayIn March 2019 we invited analysts andinvestors to our Meadowlands sportsbookto learn further detail on the FanDuelGroup and to understand the opportunityin the US market. Discover more at 0,000Customers in the US since launch44%Online share in the US 130mMarketing investment in FanDuelbrand in 2019During 2019, we successfully leveragedour key US assets to acquire 285,000additional sports betting customers,bringing our total US sports-bettingcustomer base to over 350,000.Those key assets are:µµA strong starting position withestablished businesses in theUS performing strongly, growingcontribution and absorbing a portionof the cost base.µµA US database of 8.5 millioncustomers, a rich source of customercross-sell; 42% of our sports bettingcustomers have come from the DailyFantasy Sports (DFS) database to dateand cross-sell into the New Jersey casinohas accelerated significantly since weembedded gaming content into oursports app. We rolled out our onlinecasino product in Pennsylvaniain January 2020 and the early trendsto date have been very encouraging.µµThe FanDuel brand which resonatesstrongly, benefitting from a marketinginvestment of 130m during 2019alone and over 600m to date. Inthe sportsbook markets in which wecurrently operate, FanDuel has thehighest unaided brand awareness andleadership in Google search trends,highlighting how the brand has massappeal beyond its traditional DFS base.This has ultimately resulted in a veryattractive average customer acquisitioncost3 of less than 250 since thesportsbook was launched.

Strategic ReportProposed combinationwith The Stars GroupOn 2 October 2019 we announced our plansto combine with The Stars Group to createa global betting and gaming company. iscover more at flutter.com oupµµA high quality and broad productrange which we continue to innovate.We were the first operator to offer samegame parlay betting and continue tobe the only operator to offer it on NFLgames. In addition, the integrationof our risk and trading functions withour global business allows us to offersignificantly more betting markets thanour competitors.µµA team that has true scale; our US teamnow numbers over 1,000. This scaleis unrivalled in the US online market.Over 70 experienced employees fromFlutter’s global team have joined ourUS business over the last 18 months.The combination of favourable customeracquisition economics and our leadingproduct offering means that we haveexperienced average customer paybackof less than 12 months in New Jersey,benefitting from cross-sell to casino.Furthermore, we believe that thestandalone New Jersey sportsbookwill be structurally contribution positivein 2020.200pOrdinary dividend per share in 2019 243mReturns to shareholders1x-2xMedium-term Group leverage ratioIn 2020, we expect to go live

Feb 28, 2020 · Flutter ntertaiment plc Annual eport ccount 019 2 Flutter Entertainment plc Annual Report & Accounts 2019 Our Business at a Glance A portfolio of leading international brands Our team of excep