EY - UK Betting and Gaming Update Q2 2016 - UK betting and gaming update is produced and distributed by EY quarterly. It is a digest of current news articles about the UK betting and gaming industry.
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EY - UK Betting and Gaming Update Q2 2016
1. UK betting and gaming update
Hospitality and leisure
April - June 2016
UK betting and gaming update is
produced and distributed by EY
quarterly. It is a digest of current
news articles about the UK betting
and gaming industry.
We hope you find it both interesting
and informative and we would
welcome your feedback. If you
would like any further information
or would like to be included on our
mailing list please let us know.
Please contact:
Cameron Cartmell
Partner, Ernst & Young LLP (UK)
EMEIA Hospitality & Leisure Leader
Hospitality & Leisure
+44 20 7951 5942
ccartmell@uk.ey.com
Grant Humphrey
Assistant Director, Ernst & Young LLP (UK)
Hospitality & Leisure
+44 1582 643182
ghumphrey@uk.ey.com
2. Betting and gaming update – April − June 2016 EY 1
Q2 2016
Listed betting and gaming company
share price information
Company
Market
cap
(24 Jun
16)
Share
price
(24 Jun
16)
Share
price
(24 Mar
16)
Change
in price
12-month
high
12-month
high
date
12-
month
low
12-month
low
date
32Red (AIM Listed) £108m £1.31 £1.51 -13% £1.81 01-Mar-16 £0.59 24-Aug-15
888 Holdings £747m £2.08 £1.99 5% £2.37 03-Jun-16 £1.49 02-Jul-15
GVC Holdings £1,651m £5.65 £5.01 13% £6.18 03-Jun-16 £3.68 20-Oct-15
IG Group Holdings £2,944m £8.05 £8.12 -1% £8.40 23-Jun-16 £6.79 24-Aug-15
Ladbrokes £1,683m £1.22 £1.17 4% £1.38 25-Jun-15- £0.93 29-Sep-15
Paddy Power Betfair £7,331m £87.25 £92.98 -6% £110.13 29-Feb-16 £55.47 24-Aug-15
Playtech £2,575m £7.98 £8.53 -6% £9.36 24-Jul-15 £7.03 11-Feb-16
Rank Group £847m £2.17 £2.54 -15% £2.97 08-Jan-16 £2.08 24-Jun-16
Sportech £118m £0.57 £0.61 -7% £0.80 24-May-16 £0.50 02-Mar-16
William Hill £2,400m £2.76 £3.30 -16% £4.13 25-Jun-15 £2.35 24-Jun-16
Source: ThomsonOne.com and other additional EY research. Share price information is presented for the largest 10 listed UK betting
and gaming companies by market capitalisation. The companies that constitute the largest 10 are refreshed every six months or when
other major changes occur.
Disclaimer: The currency referenced in the chart was left as stated in the original source material
Betting and gaming index The EY betting and gaming (B&G) has
outperformed the FTSE Travel & Leisure
Index in the last 12 months, primarily due to
both positive growth in B&G company annual
revenues, impacted by a shift towards new
innovative online customer focused
platforms and consolidation in the market.
The key topic dominating Q2 2016 was the
impact of Brexit across markets globally.
Volatility of stock prices ensued, with the
FTSE100 below 6,000, GBP/USD down 1%,
German 10-year yields turning negative for
the first time ever and European shares
slumping to a three-month low in the week
running up to the vote. Such economic
uncertainty and the resulting ‘Leave’ vote
has contributed to the gradual and
subsequently sharp decline in both the B&G
and FTSE Indexes alike, illustrated by
negative B&G share price movements in Q2,
albeit with a recovery in early July 2016.
The betting and gaming index is a snapshot of the
performance of the industry compared with the market
as a whole. The index is a quick and simple guide: for
example, it does not include private companies and
small or medium-sized companies. However, we hope
that it proves a useful guide to the recent events and
emerging trends.
Source: Thomson ONE Banker and other additional EY research. Index
price data is as of the end of the last trading day of every week. Index
prices are rebased to chart comparative performance of the indices over
the last six months.
3. Betting and gaming update – April − June 2016 EY 2
Overview
The most recent share price information of the largest 10 UK B&G companies saw a gradual decrease in
value over the second quarter. Share price performance was almost solely driven by increasing
uncertainty, as a decision on the UK’s membership with the EU drew close, with the increased market
volatility resulting in traders to become more frugal.
Aside from the referendum, the general performance of the majority of firms in the B&G industry has
been positive in Q2, with a number of operators recovering from the worst Cheltenham Festival
(financially) in history in March by benefitting from a good Grand National and the initial stages of the
European Championships.
In our Q2 B&G updated, we focus on key changes to taxation that may have an implication on the B&G
industry, both due to Brexit and other key factors.
B&G: key changes in taxation
The historic vote for Britain to leave the EU stole
the majority of the Q2 headlines; however, there
were also a number of additional taxation
developments that companies within the B&G
industry should be aware of.
Following the UK’s exit from the EU, the UK will
no longer be subject to the EU VAT Directive,
which may lead to changes in the UK VAT regime
and create some frictional costs of complying
with EU VAT rules going forward. Furthermore,
the potential for more scrutiny on the border
between Spain and Gibraltar post Brexit may
also impact businesses based in Gibraltar who
have employees living in Spain (currently
approximately half of the 3,000 individuals
employed in betting and gaming activity in
Gibraltar reside in Spain).
The Upper Tribunal released its decision on 2
June 2016 in the appeal by London Clubs
Management Ltd. This appeal raised the
question of the liability to gaming duty in
respect of the playing as stakes in casino games
of free bet vouchers or “non-negotiable” chips
(collectively referred to as “non-negs”) which
were provided by the taxpayer free of charge to
selected customers as a promotional tool to
encourage them to visit its casinos and play
casino games.
The Upper Tribunal found in favour of the
taxpayer and consequently agreed that the chips
and vouchers provided free of charge to players
and used for gaming had no value and no
liability to gaming duty arose in respect of them.
HMRC has published a consultation document
seeking views on proposals to reform the VAT
avoidance disclosure regime
(VADR). Specifically, the consultation seeks
views on proposals to move the primary
obligation to disclose VAT avoidance schemes
from users to scheme promoters, and considers
the extent to which the other requirements of
the Definition of disclosure of tax avoidance
schemes (DOTAS) regime should be carried
across to a revised VAT Avoidance Disclosure
Regime (VADR). It also seeks views on proposals
to extend the scope of the VADR, which
presently deals only with VAT, to include other
indirect taxes, in particular, gambling duties and
insurance premium tax.
Operators wishing to discuss their position in
more detail can contact Sunil Parmar (EY,
Director, Indirect Tax, +44 207 951 5469,
sparmar@uk.ey.com).
4. Betting and gaming update – April − June 2016 EY 3
Company and industry news
The theme illustrated by many, in the most recent trading updates referred to the continued investment
and development of companies’ respective online gaming businesses. Emerging gaming platforms have
been the driving force for industry growth, along with market consolidation, which has seen revenues grow
year-on-year.
Following news of the vote to leave the EU on 23 June, it is not yet clear as to the definitive impact that an
independent Britain will have on the B&G sector. Analysts have suggested that B&G companies may opt for
further consolidation, to mitigate or soften the potential impact triggering Article 50 may have.
Financial results and trading updates
► 32Red’s announced results for the year ended 31 December 2015, achieving record revenue
performance in 2015. The strong performance was driven by a combination of accelerated organic
growth in their core business (+35% on 2014) and a contribution from the Roxy Palace business that
was acquired on 14 July 2015. Ed Ware, Chief Executive, commented. “We are confident that 2016
will be another year of strong organic revenue growth as we continue to increase marketing
investment in both 32Red and Roxy Palace brands. The online gaming industry continues to grow,
driven by mobile devices and regulation… We continue to evaluate potential acquisitions that may
complement our strong organic growth”1
.
► 888 Holdings’ last communicated financial results were for the year ended 31 December 2015. 888
Holdings achieved like for like (LFL) B2C revenue growth of 14% to $444.2m (from $390.8m in 2014),
with LFL Casino revenue up 18% to $261.4m and strong sport growth of 74%. The company’s mobile
first’ strategy continued to reap rewards and revenue from mobile devices in the UK rose to represent
47% of UK B2C revenue (2014: 33%). Brian Mattingley, Chairman, commented, “888’s success is built
on its technological strength in combination with the efficient utilisation of this technology, directed
by extensive data analytics. 888’s business analytics aims to maximize customer recruitment, increase
customer lifetime value and minimize the cost per customer acquisition”.2
► Gala Coral announced its results for the twenty eight week period ending 09 April 2016, reporting 9%
increase in net revenue over the previous year to £271.6m. EBITDA stood at £62.2m (16% higher
than the previous comparable period). Carl Leaver, Chief Executive, commented, “EBITDA growth of
16% in the first half of the year represents a very satisfactory performance for the Group. After
adjusting for incremental regulatory costs, EBITDA was 43% ahead. Sportsbook margins benefitted
from improved football results in both the UK and Italy, and a good Grand National result helped offset
losses from the worst Cheltenham for the industry since 2003. During the second quarter we also re-
launched the Coral.co.uk mobile app on a proprietary platform. The transition went extremely well and
the new platform provides greater flexibility to develop the product offering.”3
► GVC Holdings announced its full year results for the year ended 31 December 2015. The Net gaming
revenue was up by 10% as compared to 2014. The clean EBITDA was up by 10% to a record €54.1m.
First quarter 2016 experienced group net gaming revenue of €167.7m following the acquisition of
Bwin.party. Kenneth Alexander, Chief Executive of GVC, commented, "GVC has had a momentous year.
Not only has the Company seen a fifth consecutive year of revenue and clean EBITDA growth but the
completion of the Bwin.party acquisition in early 2016 affords us an opportunity to take the Group to
the next level.”4
1
32Red Plc 2015 Annual Report, 32Red Plc website, http://www.32redplc.com/~/media/Files/T/Thirty-Two-Red/documents/reports-
and-presentations/2015/annual-report-2015.pdf
2
888 Holdings 2015 Annual Report, 888 Holdings website, http://html.investis.com/8/888Holdings/pdf/2015-annual-report-v3.pdf
3
“Continued strong momentum with EBITDA growth of 16%,” Gala Coral website, http://www.galacoral.co.uk/~/media/Files/G/Gala-
Coral/reports-and-presentations/quarterly-report/financial-results-q2-fy16.pdf, accessed 22 June 2016
4
“2016 Trading Update,” GVC website, http://www.gvc-plc.com/archive/results/prelims_2015.pdf, accessed 20 June2016
5. Betting and gaming update – April − June 2016 EY 4
► International Game Technology (IGT) announced interim results for the first quarter ending 31 March
2016. Total consolidated revenue was up by 51% and reached $1,282m reflecting GTech’s acquisition
of legacy IGT in April 2015. Marco Sala, Chief Executive, commented, “Continuing growth across all
regions, especially North America and Italy, propelled our lottery revenues. Gaming revenues were
resilient despite challenging market conditions in North America, our largest gaming market. We
remain focused on reenergizing gaming operations and strengthening our global leadership in
lotteries. We were successful in securing the Italian Lotto concession, one of our largest contracts and
a cornerstone of our Italian operations.”5
► Ladbrokes announced the results for the quarter ending 31 March 2016, reporting 10.6% increase in
revenue over the previous year. Jim Mullen, Chief Executive, commented, “Since July 2015 we have
been successfully implementing our strategic plan and the encouraging customer metrics we saw at
the end of the year have continued during the first quarter of 2016. While results have generally been
favourable, Cheltenham proved to be the worst in living memory which took some of the shine off the
period. While we see plenty of evidence to support that our plan is working, our focus remains on
delivering against our strategy and our 2017 targets.”6
► Paddy Power Betfair published a trading update for the three month period ended 31 March 2016;
with a comparable Q1 2015 period prepared on the basis as if Paddy Power and Betfair had always
been merged. Revenues were up 15% to £339m, in particular Online revenue grew 17% to £195m,
Australia revenue grew 25% £58m, US revenue grew 22% to £20m and retail revenue was up 5% to
£67m. Paddy Power Betfair reported an increase in EBITDA of 27% to £59m. Breon Corcoran, Chief
Executive, commented, “The good start to the financial year is a credit to our colleagues, particularly
at a time when we are bringing together two businesses. Our marketing, technology and operations
performed well throughout the key spring racing period…and post-merger integration is on-track”.7
► Playtech announced its full year results for the year ended 31 December 2015, reporting a strong
financial performance for the year with revenue and adjusted EBITDA up 38% and 22% respectively.
Ron Hoffman, CFO, commented, “Playtech had a busy year in 2015, with a combination of organic
growth, new business wins, bolt-on acquisitions and entrance into a new complementary vertical in
financial trading space”.8
► The Rank Group announced its results for 19 weeks ended 08 May 2016. Gross revenue decreased by
3% as compared to the same period previous year. Henry Birch, the chief executive, commented, “I am
pleased with the Group’s performance during this 19-week period. We have seen continued like-for-like
revenue growth across all of our brands and the performance in our Grosvenor digital business has
been particularly encouraging. During the period we launched our new digital platform which was
delivered both on time and on budget. This is an important development for the Group and we look
forward to the benefits that the increased functionality will bring.”9
► William Hill announced its results for 17 weeks ending 26 April 2016. Group net revenue decreased
by 3% in during the period. James Henderson, Chief Executive Officer of William Hill, commented, “ It
has been a tough start to the year in Online, which is being impacted by both regulatory change and a
gross win margin below normalised levels for the period due to a disappointing Cheltenham festival
and unfavourable European football results. Trends in recent weeks remain in line with the guidance
we gave in March. In Retail, it is pleasing to see gaming growth improve again and we are on track with
5
“INTERNATIONAL GAME TECHNOLOGY PLC REPORTS FIRST QUARTER 2016 RESULTS,” IGT Group website, http://phx.corporate-
ir.net/phoenix.zhtml?c=119000&p=quarterlyEarnings , accessed 22 June 2016
6
“Ladbrokes plc (LSE:LAD) announces its trading update for the three months ended 31 March 2016,” Ladbrokes website,
http://www.ladbrokesplc.com/~/media/Files/L/Ladbrokes-V2/Press-releases/q1-2016-trading-update-v2.pdf, accessed 22 June 2016
7
Paddy Power Betfair Q1 Trading Update, Paddy Power Betfair website, https://www.paddypowerbetfair.com/~/media/Files/P/Paddy-
Power-Betfair/documents/trading-update-2016.pd, accessed 08 July 2016
8
Playtech Annual Report 2015, Playtech website, http://playtech-ir.production.investis.com/~/media/Files/P/Playtech-IR/results-
reports-webcasts/2016/2015-report-and-accounts-v2.pdf
9
“Interim Management Statement for the 19 weeks to 8 May 2016,” The Rank Group website,
http://www.rank.com/content/dam/rank-
group/corporate/documents/Results_Reports_Presentations/2016/IMS%20May%202016%20-%20FINAL%20-%202016-05-12.pdf,
accessed 21 June 2016
6. Betting and gaming update – April − June 2016 EY 5
the roll-out of our self-service betting terminal before the Euros, allowing us to bring the best of
Online to our shops ahead of a big summer of sport.”10
10
“WILLIAM HILL PLC TRADING STATEMENT,” William Hill Plc website, http://files.williamhillplc.com/media/4160/wmh-trading-
statement 110516.pdf, accessed 20 June 2016