Official announcement: -
http://corporate.betfair.com/media/pres ... -2012.aspx
Regulatory announcement (Where the real meat is!): -
http://www.investegate.co.uk/betfair-gr ... 00114195T/
Betfair H1 2012/13 results
Strategy update
Betfair operates in a highly competitive industry in which winners will be those who achieve and benefit from scale, both in-country and internationally. Following a period of significant success, the business has lost ground in recent years to competitors and faced a number of setbacks in following its international strategy.
Breon Corcoran joined Betfair as CEO on 1 August and is today setting out a plan to reinvigorate the business. This has three key elements:
· Focus the business on regulated jurisdictions to increase sustainability of revenues
· Invest in product and brand to enhance our competitive position and drive growth
· Introduce greater accountability and become a leaner and more dynamic business
If we deliver on these objectives, over time we will become an efficient and focused operator with the capacity to drive investment in a compelling and broad customer proposition that addresses a far greater part of the available market than we do today.
Focus on regulated jurisdictions
Betfair's international expansion, leveraged a centralised product to offer services to new geographies at low marginal cost. This approach was successful in growing international revenues to almost 50% of total Betfair revenues.
More recently, however, an increasing number of countries have, or are in the process of, introducing gaming regulation. This brings additional costs such as taxation and compliance costs, and in some cases results in risk to revenues if, for instance, product limitations are introduced. This risk has recently been illustrated in Germany, where we invested over a number of years to build a business with annual revenues of £13 million. Following changes in taxation laws in July 2012, which, if applicable, make our exchange model unviable, we have chosen to withdraw from the market. Other examples exist, including France, Greece and Cyprus.
We are addressing regulatory uncertainty by ceasing marketing and other investment in countries where we are not confident there is sufficient near-term regulatory visibility until such clarity is received. These countries contributed 24% of Group revenue in the first six months of the year and included 8% from Cyprus, Germany and Greece.
Stopping investment in these markets will allow greater focus on markets that are regulated or are in the process of regulating in the near term.
We anticipate that revenue from these jurisdictions will reduce over the next few years, reflecting our suspension of marketing and other local activity. While this will act as a drag on Group revenue growth for a period of time, we believe it better positions the company for the long-term and ensures that the quality of earnings is improved.
Investment in our products and brand to enhance our competitive position and drive growth
Our brand and unique products are our greatest assets. However, awareness of Betfair in the UK, our primary market, has suffered in recent years as competitor spend has increased and we have diverted marketing resources towards the pursuit of international growth. Also, our brand messaging has not always been inclusive and has sometimes limited the customer base we have addressed.
At the same time, while the exchange delivers high levels of customer satisfaction and retention due to its flexibility, value and uniqueness, some of its features can also make it appear complex to new customers. Unfamiliar terminology, such as 'back and lay', and concepts, such as 'market depth' and 'over-round percentage', can act as barriers to trial. Consequently, historically, this has also acted to limit the market we have addressed. In addition, liquidity gaps in certain markets can lead to situations where the betting proposition is sub-optimal, reducing Betfair's share of wallet.
In the UK, we intend to increase our marketing investment to help tackle market share losses and re-position our brand to increase its relevance with a wider audience.
While the exchange will continue to be central to Betfair's product portfolio, we are focused on developing a simpler, more intuitive customer interface for new customers, who can then be introduced to the benefits of the exchange as their relationship with Betfair develops.
We are responding to the issue of illiquid markets by taking bets on a risk basis. Betfair has already started in this direction through its fixed odds product, but we will now move faster towards a more competitive risk product.
Introduce greater accountability and cost discipline to become a leaner and more dynamic business
There are three main changes we are making to improve organisational effectiveness:
· A new structure to deliver greater accountability
· Increased investment focus
· Improved organisational efficiency
Betfair is currently organised around the three pillars of Product, Technology and Commercial. The Product department designs products, the Technology department builds them and the Commercial department then sells them. This structure does not engender a culture of product ownership or P&L accountability.
We will now operate under a new organisational structure based on the Exchange, Sportsbook and Gaming business units. Each unit will control, and have responsibility for, the design, build and sale of their respective products. This will help to drive a culture of increased ownership, resulting in faster and more efficient delivery.
Betfair is a gambling company and we believe that the opportunities and challenges facing this business demand the focus of both management time and the company's resources.
Accordingly, we have taken the decision to dispose of stakes in two non-gambling companies. We have entered an agreement to sell a majority stake in the LMAX financial exchange to a combination of management, led by current CEO David Mercer, and other private investors including Betfair co-founder, Edward Wray, for £2.4 million. The transaction is subject to FSA approval. The Tradefair financial spread betting business, which was previously part of the LMAX segment, will be retained as it is a cross-sell product for our existing customer base.
In addition, we have sold our minority stake in social gaming company Kabam for $30 million.
There is also a need to reduce costs. The main driver of excess cost in the business is complexity and inefficiency. We have commenced a detailed review of the cost base and have identified a number of areas of expenditure that either do not create value or where efficacy of spend could be improved.
So far, we have identified opportunities to reduce costs by approximately £20 million on an annual run-rate basis. The one-off cost to achieve these efficiencies is expected to be not more than one times the annual saving.
These efficiencies will include how we source services from external suppliers as well as the number of people we employ. This will involve some difficult decisions, but we are confident that our employees see the need for the business to become leaner and will embrace being part of a more efficient organisation.
Betfair operates in a highly competitive industry in which winners will be those who achieve and benefit from scale, both in-country and internationally. Following a period of significant success, the business has lost ground in recent years to competitors and faced a number of setbacks in following its international strategy.
Breon Corcoran joined Betfair as CEO on 1 August and is today setting out a plan to reinvigorate the business. This has three key elements:
· Focus the business on regulated jurisdictions to increase sustainability of revenues
· Invest in product and brand to enhance our competitive position and drive growth
· Introduce greater accountability and become a leaner and more dynamic business
If we deliver on these objectives, over time we will become an efficient and focused operator with the capacity to drive investment in a compelling and broad customer proposition that addresses a far greater part of the available market than we do today.
Focus on regulated jurisdictions
Betfair's international expansion, leveraged a centralised product to offer services to new geographies at low marginal cost. This approach was successful in growing international revenues to almost 50% of total Betfair revenues.
More recently, however, an increasing number of countries have, or are in the process of, introducing gaming regulation. This brings additional costs such as taxation and compliance costs, and in some cases results in risk to revenues if, for instance, product limitations are introduced. This risk has recently been illustrated in Germany, where we invested over a number of years to build a business with annual revenues of £13 million. Following changes in taxation laws in July 2012, which, if applicable, make our exchange model unviable, we have chosen to withdraw from the market. Other examples exist, including France, Greece and Cyprus.
We are addressing regulatory uncertainty by ceasing marketing and other investment in countries where we are not confident there is sufficient near-term regulatory visibility until such clarity is received. These countries contributed 24% of Group revenue in the first six months of the year and included 8% from Cyprus, Germany and Greece.
Stopping investment in these markets will allow greater focus on markets that are regulated or are in the process of regulating in the near term.
We anticipate that revenue from these jurisdictions will reduce over the next few years, reflecting our suspension of marketing and other local activity. While this will act as a drag on Group revenue growth for a period of time, we believe it better positions the company for the long-term and ensures that the quality of earnings is improved.
Investment in our products and brand to enhance our competitive position and drive growth
Our brand and unique products are our greatest assets. However, awareness of Betfair in the UK, our primary market, has suffered in recent years as competitor spend has increased and we have diverted marketing resources towards the pursuit of international growth. Also, our brand messaging has not always been inclusive and has sometimes limited the customer base we have addressed.
At the same time, while the exchange delivers high levels of customer satisfaction and retention due to its flexibility, value and uniqueness, some of its features can also make it appear complex to new customers. Unfamiliar terminology, such as 'back and lay', and concepts, such as 'market depth' and 'over-round percentage', can act as barriers to trial. Consequently, historically, this has also acted to limit the market we have addressed. In addition, liquidity gaps in certain markets can lead to situations where the betting proposition is sub-optimal, reducing Betfair's share of wallet.
In the UK, we intend to increase our marketing investment to help tackle market share losses and re-position our brand to increase its relevance with a wider audience.
While the exchange will continue to be central to Betfair's product portfolio, we are focused on developing a simpler, more intuitive customer interface for new customers, who can then be introduced to the benefits of the exchange as their relationship with Betfair develops.
We are responding to the issue of illiquid markets by taking bets on a risk basis. Betfair has already started in this direction through its fixed odds product, but we will now move faster towards a more competitive risk product.
Introduce greater accountability and cost discipline to become a leaner and more dynamic business
There are three main changes we are making to improve organisational effectiveness:
· A new structure to deliver greater accountability
· Increased investment focus
· Improved organisational efficiency
Betfair is currently organised around the three pillars of Product, Technology and Commercial. The Product department designs products, the Technology department builds them and the Commercial department then sells them. This structure does not engender a culture of product ownership or P&L accountability.
We will now operate under a new organisational structure based on the Exchange, Sportsbook and Gaming business units. Each unit will control, and have responsibility for, the design, build and sale of their respective products. This will help to drive a culture of increased ownership, resulting in faster and more efficient delivery.
Betfair is a gambling company and we believe that the opportunities and challenges facing this business demand the focus of both management time and the company's resources.
Accordingly, we have taken the decision to dispose of stakes in two non-gambling companies. We have entered an agreement to sell a majority stake in the LMAX financial exchange to a combination of management, led by current CEO David Mercer, and other private investors including Betfair co-founder, Edward Wray, for £2.4 million. The transaction is subject to FSA approval. The Tradefair financial spread betting business, which was previously part of the LMAX segment, will be retained as it is a cross-sell product for our existing customer base.
In addition, we have sold our minority stake in social gaming company Kabam for $30 million.
There is also a need to reduce costs. The main driver of excess cost in the business is complexity and inefficiency. We have commenced a detailed review of the cost base and have identified a number of areas of expenditure that either do not create value or where efficacy of spend could be improved.
So far, we have identified opportunities to reduce costs by approximately £20 million on an annual run-rate basis. The one-off cost to achieve these efficiencies is expected to be not more than one times the annual saving.
These efficiencies will include how we source services from external suppliers as well as the number of people we employ. This will involve some difficult decisions, but we are confident that our employees see the need for the business to become leaner and will embrace being part of a more efficient organisation.
Operating review
Sports
Sports revenue was up 8% in the period, driven by a 15% increase in football revenue. This was boosted by the European Championships and an increase in the number of second tier fixtures offered. Racing revenue was up slightly year-on-year, despite a large number of UK fixture cancellations due to the poor weather in June and July. Cancellations in the period totalled 55, compared with just two in the prior year.
Customer activity on our exchange continues to be strong, with the total value of bets up 12% year-on-year in the first half, led by growth in in-play betting. Part of this increase has resulted from many customers being introduced to the concept of trading through our 'Cash Out' tool, which makes it simpler for customers to lock-in profits or limit losses during a sporting event. The tool is one of the ways that we are bringing the advantages of the exchange to a wider audience and it has been particularly popular with recently acquired customers. In September, Cash Out was enhanced and is now available on 80% of all exchange markets and all major mobile platforms. This, combined with a TV marketing campaign, has led to a doubling of the number of daily Cash Out transactions in recent weeks.
Risk volumes increased by 17% in the period, helped by the launch of our 'fixed odds' product. Risk revenue increased by 47% in the period, reflecting the higher volumes and an easy comparative in the first quarter of last year, when margins were weak following losses in our telephone betting channel. Margins in August and September were affected by adverse sporting results, but October and November have seen strong margins.
We have completed the first stage of integration of Openbet and Amelco platforms and are starting to use these to drive increased levels of automation in our risk business. This will expand the number of markets we are able to offer. We have also strengthened our risk management and trading teams and processes to manage the growth we expect to see in this area.
Games
Games revenue was down 2% in the first half, after being significantly affected by regulation. Adjusting for Tradefair, which is now reported in this segment, revenue was flat year-on-year and performance improved throughout the period (revenue up 8% in the second quarter).
In August, we launched a TV advertising campaign featuring Betfair Casino in the UK. This has successfully led to an increase in active users and has helped to drive the revenue progression seen in the last few months. In parallel, the efficiency of online promotional activity has been improved and is driving better returns on investment.
Product enhancements have also contributed to the improved performance, including a refresh of our Arcade site and the addition of 25 new games. In November we re-launched casino products in Italy after withdrawing the product from the market in July 2011 for regulatory reasons.
Poker
The poker market continues to be difficult and revenue in the half was down 11% and second quarter revenue fell by 18%.
During the period, we entered into an agreement with Playtech to provide access to its iPoker network. This gives Betfair flexibility to choose the best network for its customers on a country-by-country basis and is particularly valuable in markets with ring-fenced liquidity such as Spain and Italy.
Mobile
The mobile channel continues to exhibit strong growth. In the period, revenue was up 108% to £18.1 million and, in October, we saw our first £1 million mobile revenue week.
Approximately 50% of customers in the UK and Ireland placed a mobile bet in the period. The exchange continues to be the primary driver of mobile usage, but, increasingly customers are also using the channel to access fixed odds and gaming products. This allows us to improve the monetisation of the channel.
Fixed odds multiples are now available across all major mobile platforms as well as through our standalone 'Betfair Multiples' app. Customer uptake has been ahead of our expectations and a significant proportion of revenue from football multiples bets came from the channel in recent months.
Following improvements to our mobile gaming proposition, over 20% of casino customers now play through the mobile channel. Enhancements include improved customer navigation, push notification and the addition of arcade games.
Mobile is also becoming an important acquisition channel. In the UK, where TV campaigns have featured our iPhone app, the channel generated a quarter of new customer activations in recent weeks.
UK Horserace Betting
In the UK, we have demonstrated our commitment to British horseracing by entering into a five-year commercial agreement with the industry. We have agreed to make guaranteed minimum payments of over £40 million during the period. The Department for Culture, Media and Sport (DCMS) has indicated that it intends to consult on proposals to reform or replace the Levy, which could include options to require all betting operators licensed in Great Britain that take bets from British customers to enter into their own commercial deals with the industry. Betfair will support these efforts.
Separately, in July, the High Court issued its judgment in the case of William Hill against the Horserace Betting Levy Board. The Court ruled in favour of the position of the Levy Board and Betfair, confirming the outcome of the consultation the Board undertook in 2010-2011 that determined that customers of betting exchanges are not liable to pay the Levy. William Hill was granted leave to appeal this decision. This appeal is expected to be heard in early 2013 and we again intend to support the Levy Board's position.
European Regulation
In Italy, the decree that sets out the licensing framework for betting exchanges is continuing to progress through the parliamentary process. The timing of any granting of licences, however, remains uncertain.
In Spain, following the award of remote gaming licences in June, we have restricted access to our exchange by Spanish customers until exchange licences are issued. We are continuing to work with the regulator to bring the advantages of exchange betting back to Spanish customers.
In Cyprus, Greece and Germany, countries that we previously indicated to have high regulatory risk, developments over the last six months have been disappointing.
In Cyprus, gaming legislation was introduced in July that seeks to limit the products that operators can offer in the country, including restrictions on betting exchanges, casino and poker. We believe that the legislation contains serious flaws and, in certain significant areas, is inconsistent with European Union law.
In Germany and Greece, a combination of fiscal and legal uncertainty has led us to withdraw some or all of our products until further clarity is received.
We estimate that the impact on revenue from these regulatory changes was approximately £8 million in the first half and the ongoing revenue impact is expected to be around £3.5 million per month on a run-rate basis.
Betfair US
TVG continues to grow faster than the wider market. First half handle and revenue increased by 6% and 7% respectively in local currency. TVG's geographical reach has been widened and it now operates in 20 states, up from 17 in the prior year. The business is acting to address its cost base and this should help it to deliver a positive performance in the full year. However, the cash flows generated by TVG are now expected to be below the level needed to support the goodwill carrying value, resulting in an impairment of £13.5 million.
Betfair Australia
Betfair Australia delivered revenue growth of 17% (local currency) in the period. This was driven by domestic racing, where revenue benefited from an increase in commission rates during the period as the business sought to recover higher race fields fees. These fees, however, largely offset the revenue growth and place a high burden on the business. As more states adopt a turnover based approach to race field fees, there is increasing pressure on the joint venture's profitability.
Sports
Sports revenue was up 8% in the period, driven by a 15% increase in football revenue. This was boosted by the European Championships and an increase in the number of second tier fixtures offered. Racing revenue was up slightly year-on-year, despite a large number of UK fixture cancellations due to the poor weather in June and July. Cancellations in the period totalled 55, compared with just two in the prior year.
Customer activity on our exchange continues to be strong, with the total value of bets up 12% year-on-year in the first half, led by growth in in-play betting. Part of this increase has resulted from many customers being introduced to the concept of trading through our 'Cash Out' tool, which makes it simpler for customers to lock-in profits or limit losses during a sporting event. The tool is one of the ways that we are bringing the advantages of the exchange to a wider audience and it has been particularly popular with recently acquired customers. In September, Cash Out was enhanced and is now available on 80% of all exchange markets and all major mobile platforms. This, combined with a TV marketing campaign, has led to a doubling of the number of daily Cash Out transactions in recent weeks.
Risk volumes increased by 17% in the period, helped by the launch of our 'fixed odds' product. Risk revenue increased by 47% in the period, reflecting the higher volumes and an easy comparative in the first quarter of last year, when margins were weak following losses in our telephone betting channel. Margins in August and September were affected by adverse sporting results, but October and November have seen strong margins.
We have completed the first stage of integration of Openbet and Amelco platforms and are starting to use these to drive increased levels of automation in our risk business. This will expand the number of markets we are able to offer. We have also strengthened our risk management and trading teams and processes to manage the growth we expect to see in this area.
Games
Games revenue was down 2% in the first half, after being significantly affected by regulation. Adjusting for Tradefair, which is now reported in this segment, revenue was flat year-on-year and performance improved throughout the period (revenue up 8% in the second quarter).
In August, we launched a TV advertising campaign featuring Betfair Casino in the UK. This has successfully led to an increase in active users and has helped to drive the revenue progression seen in the last few months. In parallel, the efficiency of online promotional activity has been improved and is driving better returns on investment.
Product enhancements have also contributed to the improved performance, including a refresh of our Arcade site and the addition of 25 new games. In November we re-launched casino products in Italy after withdrawing the product from the market in July 2011 for regulatory reasons.
Poker
The poker market continues to be difficult and revenue in the half was down 11% and second quarter revenue fell by 18%.
During the period, we entered into an agreement with Playtech to provide access to its iPoker network. This gives Betfair flexibility to choose the best network for its customers on a country-by-country basis and is particularly valuable in markets with ring-fenced liquidity such as Spain and Italy.
Mobile
The mobile channel continues to exhibit strong growth. In the period, revenue was up 108% to £18.1 million and, in October, we saw our first £1 million mobile revenue week.
Approximately 50% of customers in the UK and Ireland placed a mobile bet in the period. The exchange continues to be the primary driver of mobile usage, but, increasingly customers are also using the channel to access fixed odds and gaming products. This allows us to improve the monetisation of the channel.
Fixed odds multiples are now available across all major mobile platforms as well as through our standalone 'Betfair Multiples' app. Customer uptake has been ahead of our expectations and a significant proportion of revenue from football multiples bets came from the channel in recent months.
Following improvements to our mobile gaming proposition, over 20% of casino customers now play through the mobile channel. Enhancements include improved customer navigation, push notification and the addition of arcade games.
Mobile is also becoming an important acquisition channel. In the UK, where TV campaigns have featured our iPhone app, the channel generated a quarter of new customer activations in recent weeks.
UK Horserace Betting
In the UK, we have demonstrated our commitment to British horseracing by entering into a five-year commercial agreement with the industry. We have agreed to make guaranteed minimum payments of over £40 million during the period. The Department for Culture, Media and Sport (DCMS) has indicated that it intends to consult on proposals to reform or replace the Levy, which could include options to require all betting operators licensed in Great Britain that take bets from British customers to enter into their own commercial deals with the industry. Betfair will support these efforts.
Separately, in July, the High Court issued its judgment in the case of William Hill against the Horserace Betting Levy Board. The Court ruled in favour of the position of the Levy Board and Betfair, confirming the outcome of the consultation the Board undertook in 2010-2011 that determined that customers of betting exchanges are not liable to pay the Levy. William Hill was granted leave to appeal this decision. This appeal is expected to be heard in early 2013 and we again intend to support the Levy Board's position.
European Regulation
In Italy, the decree that sets out the licensing framework for betting exchanges is continuing to progress through the parliamentary process. The timing of any granting of licences, however, remains uncertain.
In Spain, following the award of remote gaming licences in June, we have restricted access to our exchange by Spanish customers until exchange licences are issued. We are continuing to work with the regulator to bring the advantages of exchange betting back to Spanish customers.
In Cyprus, Greece and Germany, countries that we previously indicated to have high regulatory risk, developments over the last six months have been disappointing.
In Cyprus, gaming legislation was introduced in July that seeks to limit the products that operators can offer in the country, including restrictions on betting exchanges, casino and poker. We believe that the legislation contains serious flaws and, in certain significant areas, is inconsistent with European Union law.
In Germany and Greece, a combination of fiscal and legal uncertainty has led us to withdraw some or all of our products until further clarity is received.
We estimate that the impact on revenue from these regulatory changes was approximately £8 million in the first half and the ongoing revenue impact is expected to be around £3.5 million per month on a run-rate basis.
Betfair US
TVG continues to grow faster than the wider market. First half handle and revenue increased by 6% and 7% respectively in local currency. TVG's geographical reach has been widened and it now operates in 20 states, up from 17 in the prior year. The business is acting to address its cost base and this should help it to deliver a positive performance in the full year. However, the cash flows generated by TVG are now expected to be below the level needed to support the goodwill carrying value, resulting in an impairment of £13.5 million.
Betfair Australia
Betfair Australia delivered revenue growth of 17% (local currency) in the period. This was driven by domestic racing, where revenue benefited from an increase in commission rates during the period as the business sought to recover higher race fields fees. These fees, however, largely offset the revenue growth and place a high burden on the business. As more states adopt a turnover based approach to race field fees, there is increasing pressure on the joint venture's profitability.
Current trading and outlook
The UK business has continued to perform well in Q3 to date, but previously flagged regulatory impacts on international revenues have acted as a drag on the Group's growth. Adjusting for the regulatory impact in Spain, Germany and Cyprus, revenue in the period was up 7% year-on-year. Unadjusted revenue was up 2%.
The long term outlook for the business is dependent on us successfully growing revenues in lower risk jurisdictions through our investments in our products and brand. In the short term, our strategy of ceasing to invest in countries with insufficient regulatory visibility, along with the impact already announced in Greece, Germany and Cyprus, will moderate the Group's top-line growth rate. Consequently, in the current financial year ending 30 April 2013, we expect revenues to be lower than the previous year.
The strategic actions that we are announcing today, and taking account of the changes to our reporting approach to include share based payments in underlying financials and a more conservative approach to capitalisation of development spend, mean that we now expect Group revenues of between £370 million and £385 million and Group underlying EBITDA of between £65 million and £70 million in the current financial year.
As regulated markets contribute a greater proportion of total revenue over the coming years, this impact will diminish and we are confident that the business will be on a stronger footing and better positioned for sustainable growth.
The UK business has continued to perform well in Q3 to date, but previously flagged regulatory impacts on international revenues have acted as a drag on the Group's growth. Adjusting for the regulatory impact in Spain, Germany and Cyprus, revenue in the period was up 7% year-on-year. Unadjusted revenue was up 2%.
The long term outlook for the business is dependent on us successfully growing revenues in lower risk jurisdictions through our investments in our products and brand. In the short term, our strategy of ceasing to invest in countries with insufficient regulatory visibility, along with the impact already announced in Greece, Germany and Cyprus, will moderate the Group's top-line growth rate. Consequently, in the current financial year ending 30 April 2013, we expect revenues to be lower than the previous year.
The strategic actions that we are announcing today, and taking account of the changes to our reporting approach to include share based payments in underlying financials and a more conservative approach to capitalisation of development spend, mean that we now expect Group revenues of between £370 million and £385 million and Group underlying EBITDA of between £65 million and £70 million in the current financial year.
As regulated markets contribute a greater proportion of total revenue over the coming years, this impact will diminish and we are confident that the business will be on a stronger footing and better positioned for sustainable growth.
FINANCIAL REVIEW
We intend to make a number of changes to our reporting in light of the strategic changes announced today:
· Focus will be on Group performance, whereas previously our reporting has focused on Core Betfair. We intend, however, to continue to provide sufficient transparency on Group businesses to provide an understanding of the drivers of overall performance.
· Share based payments will now be included within underlying EBITDA, recognising that these items are a real cost to equity holders.
· We will apply a more conservative approach to the capitalisation of future development costs.
· We will review our segmental reporting in light of the new organisational structure announced today.
We intend to make a number of changes to our reporting in light of the strategic changes announced today:
· Focus will be on Group performance, whereas previously our reporting has focused on Core Betfair. We intend, however, to continue to provide sufficient transparency on Group businesses to provide an understanding of the drivers of overall performance.
· Share based payments will now be included within underlying EBITDA, recognising that these items are a real cost to equity holders.
· We will apply a more conservative approach to the capitalisation of future development costs.
· We will review our segmental reporting in light of the new organisational structure announced today.
Impairment / Write down of investments
Following a review of our balance sheet at 31 October 2012, we have impaired goodwill totalling £34.6 million. In Core Betfair, the impairment includes goodwill arising on the acquisitions of Timeform in 2002, the PokerChamps platform in 2005 and Betfair TV, which owns technology that allows betting via internet connected TV sets, in 2008.
Betfair acquired TVG in 2009 as part of an entry strategy into the US gambling market. The goodwill arising on this acquisition was $53 million. After a strategic review of the business, we have impaired the carrying value of this goodwill by $21.7 million, or £13.5 million.
In Core Betfair, £30.4 million of own work capitalised has been written down. This includes costs incurred to develop our old website that has recently been replaced, social gaming applications that are no longer in use, development costs relating to jurisdictions where no licence has yet been received and legacy platforms. In addition, the carrying value of certain software licences has been written down by £5.1 million.
In Betfair US, uncertainty around the prospects for exchange based wagering in California has resulted in the impairment of the carrying value of US exchange technology. This impairment totalled £10.4 million.
Following a review of our balance sheet at 31 October 2012, we have impaired goodwill totalling £34.6 million. In Core Betfair, the impairment includes goodwill arising on the acquisitions of Timeform in 2002, the PokerChamps platform in 2005 and Betfair TV, which owns technology that allows betting via internet connected TV sets, in 2008.
Betfair acquired TVG in 2009 as part of an entry strategy into the US gambling market. The goodwill arising on this acquisition was $53 million. After a strategic review of the business, we have impaired the carrying value of this goodwill by $21.7 million, or £13.5 million.
In Core Betfair, £30.4 million of own work capitalised has been written down. This includes costs incurred to develop our old website that has recently been replaced, social gaming applications that are no longer in use, development costs relating to jurisdictions where no licence has yet been received and legacy platforms. In addition, the carrying value of certain software licences has been written down by £5.1 million.
In Betfair US, uncertainty around the prospects for exchange based wagering in California has resulted in the impairment of the carrying value of US exchange technology. This impairment totalled £10.4 million.
Revenues and KPIs
Overall revenue increased by 5% to £180.2 million (H1 FY12: £172.4 million).
The key growth driver was Sports, with revenue up 8% to £140.2 million (H1 FY12: £129.8 million), following strong first quarter growth. This period included the football European Championships, which generated revenue of £7.8 million, although some of this reflects substitution away from other sporting events.
The majority of the revenue increase was in Non-risk Sports, which is predominantly commission earned on the exchange, with revenue up 6% to £132.1 million (H1 FY12: £124.2 million). Revenue from Risk Sports was up 47% to £8.2 million (H1 FY12: £5.5 million) following exceptionally weak margins in the first quarter last year. Margins in the second quarter of the current financial year were below both the prior year and theoretical expectations due to adverse sporting results, particularly in August and September.
During the period, the number of active customers increased across all regions and in total was up 9% to 630,000 (H1 FY12: 576,000). Within this, there was a broadly even contribution from both new and existing customers. The key drivers of the increase were the Euro 2012 Championships and an increase in marketing investment in the period.
The average revenue per user ("ARPU") was down 4% to £285 (H1 FY12: £296) due to the mathematical dilution from adding new customers to the base as these customers tend to have lower ARPU. In part this is because, on average, they would not have been active for the whole period. ARPU from existing customers was marginally higher year-on-year.
The UK had a strong performance in the period, with revenue up 11%. In Europe, by contrast, revenue was down 8% due to the impact of regulation. Revenue from the Rest of the World had the highest growth rate at 30%, albeit from a relatively small base.
Overall revenue increased by 5% to £180.2 million (H1 FY12: £172.4 million).
The key growth driver was Sports, with revenue up 8% to £140.2 million (H1 FY12: £129.8 million), following strong first quarter growth. This period included the football European Championships, which generated revenue of £7.8 million, although some of this reflects substitution away from other sporting events.
The majority of the revenue increase was in Non-risk Sports, which is predominantly commission earned on the exchange, with revenue up 6% to £132.1 million (H1 FY12: £124.2 million). Revenue from Risk Sports was up 47% to £8.2 million (H1 FY12: £5.5 million) following exceptionally weak margins in the first quarter last year. Margins in the second quarter of the current financial year were below both the prior year and theoretical expectations due to adverse sporting results, particularly in August and September.
During the period, the number of active customers increased across all regions and in total was up 9% to 630,000 (H1 FY12: 576,000). Within this, there was a broadly even contribution from both new and existing customers. The key drivers of the increase were the Euro 2012 Championships and an increase in marketing investment in the period.
The average revenue per user ("ARPU") was down 4% to £285 (H1 FY12: £296) due to the mathematical dilution from adding new customers to the base as these customers tend to have lower ARPU. In part this is because, on average, they would not have been active for the whole period. ARPU from existing customers was marginally higher year-on-year.
The UK had a strong performance in the period, with revenue up 11%. In Europe, by contrast, revenue was down 8% due to the impact of regulation. Revenue from the Rest of the World had the highest growth rate at 30%, albeit from a relatively small base.
I wonder what the 'more competitive risk product' will be?We are responding to the issue of illiquid markets by taking bets on a risk basis. Betfair has already started in this direction through its fixed odds product, but we will now move faster towards a more competitive risk product.
Is that a fancy way of saying that they'll try to make a profit from value backing and laying?herbie wrote:We are responding to the issue of illiquid markets by taking bets on a risk basis. Betfair has already started in this direction through its fixed odds product
Jeff
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steven1976
- Posts: 1744
- Joined: Tue Jan 19, 2010 6:28 am
Thanks for the post. I like the fact they have identified they need to build the brand in the UK. Not sure how they plan to do it but until they educate joe public properly it will be difficult for them to grow in my opinion. If they get the uk right first the rest will follow.