Download - Investor - GVC Holdings · vs. expected €28.7m Removed €50m of cost and returned to profitability in
Investor
Pack August 2018
2
Business Overview
Appendix
2018 Trading Update
Historic Proforma Numbers
Other – Regulatory / Capital Structure / Geographic split
Contents
Business
Overview
4
GVC Business Overview
Languages
Shops across UK
Offices across five continents
Licenses
17
21
3,500
22
>20
GVC revenues processed derived through own platform
>95%
Source: 2016 annual report, as at 31 Dec 2016. GVC combined Prospectus and Class 1 circular dated 9 February 2018.
Business highlights
Global presence
Yes (Transitional)
Yes
Yes (Application)
Office Locations
Business overview
GVC is a global, multi-channel sports betting led gaming company
Diversified geographic footprint and product mix
Operates B2C sports brands (bwin, Ladbrokes, Coral, Sportingbet, Eurobet) and games brands (partypoker, PartyCasino, Galabingo, Gioco Digitale)
Scalable and proven proprietary platform also supports B2B offering
Acquired bwin.party in 2016 with a synergy target of €125m and Ladbrokes Coral in 2018 with a synergy target of £130m
Licensed jurisdictions
Major established B2C gaming brands
5
GVC Business Overview
Experienced management team with a track record of successful acquisitions
Opportunities for cost and revenue synergies
Strong brand portfolio and opportunity to leverage multi-channel
Market leading technology and product development
Geographic diversification with over 90% of revenue from regulated and/or taxed markets
Significant scale as the largest listed online-led betting and gaming operator by revenue 1
2
3
4
5
6
Well positioned to enter new markets in a consolidating industry 7
Acquisition of Ladbrokes Coral creates an enlarged company with a range of competitive advantages:
6
Significant Scale 1
Acquisition of Ladbrokes Coral creates a global leader
The largest online-led operator in the world
3.3
2.2
1.7 1.7
0.6 0.9
0.4 0.4 0.3
1.0
(£ in billions, last reported full year revenue)
(1) (2)
Source: Latest annual reports revenue figures. Note: Peer revenue based on last reported financial year. Exchange rates used as of 31 Dec 2017. Charts exclude Asian markets. (1) Includes Proforma GVC FY17 and Proforma Ladbrokes Coral FY17 (2) The Stars Group announced its acquisition of the Sky Betting and Gaming Group on 21 April 2018. Completion is expected in Q3 2018
105
20
17 16
14
11 10
9
3 2
US
Italy
Au
str
alia UK
Germ
any
Canada
Fra
nce
Sp
ain
Neth
erla
nds
Sw
eden
7
Geographic Diversification
Top 3 positions in Europe’s largest online markets – UK, Germany and Italy
Top 3 retail positions in UK, Italy, Spain, Belgium and Ireland
Strong presence in Australia and licensed in the US
Source: H2 Gambling Capital, Ladbrokes Coral 2016 annual report, GVC RNS 2 November 2017 (1) Pro forma for sale of Turkey facing business.
2
(€ in billions, gross win, 2017)
Present in all of the world’s top ten markets (ex Asia) Over 90% revenue from regulated / taxed markets
+ 75%
25%
94%
6%
GVC(1)
Combined Group
Ladbrokes Coral
Regulated/ing and Taxed
Unregulated
Regulated/ing and Taxed
Unregulated
Regulated/ing and Taxed
Unregulated
99.8%
0.2%
Present in the world’s most important gaming markets
8
Market Leading Technology
GVC proprietary technology platform
Highly AVAILABLE
Massively SCALABLE
Easily EXTENDABLE
Capable 1000+ IT STAFF
Multi BRAND & B2B
Fully REGULATED
Omni CHANNEL
Complete PRODUCT SET
Significantly improved since bwin.party acquisition
To integrate a new
Game Provider
Previously Now
To setup a new
Label (Business)
To adapt to a new
Regulation
To on-board a new
B2B Partner
20 to 24 Weeks
8 to 9 Weeks
16 to 20 Weeks
32 to 40 Weeks
2 to 3 Weeks
1 to 2 Weeks
2 to 4 Weeks
8 to 12 Weeks
3
Provides flexibility and independence from third parties
1
Significant economies of scale 2
Improvements to the platform benefit all brands (and B2B operations) at once
3
Device agnostic, providing a seamless experience from mobile to desktop to tablet
4
Content management system allows marketing teams to customise the site
5
Ensures that the group remains compliant and meets the needs of individual country regulators
6
Key strategic benefits of the GVC platform
Proprietary single, integrated technology platform yields a significant competitive advantage
Retail
Limited geographic brand overlap
9
Strong and Complementary Brand Portfolio
Greece
Eastern Europe
Germany
Spain
Belgium
Ireland
Italy
UK
Brazil
Australia
Canada
Online: Games Online: Sports-led
Eu
rop
e
Re
st
of
Wo
rld
4
Columbia
Highly complementary brand portfolios
Minimal brand overlap in key markets
Addition of Retail adds powerful, low-cost marketing channel for online
Combined Group to pursue multi-brand strategy in markets with overlap
Creates significant cross-sell and revenue synergies opportunities
Sports brands Games brands
10
Brand Portfolio: Online
Europe Latin America
Latin America
Central Europe
Most major markets
All major markets
17 well established B2C sports and gaming brands
Innovative products with in-house game studio building exclusive content
Holds top 3 positions in Europe’s largest online markets – UK, Germany and Italy
4
11
Brand Portfolio: Retail
UK Retail
#1 operator in UK retail gaming industry
41% market share(2)
Over 3,500 UK shops (3.6 year avg lease length in 2016)
Market leading multi-channel offering
– 1.3 million combined multi-channel signups
– Lifetime value of multi-channel customers are 2x higher
European Retail
Ireland #3 retail 140 shops
Italy #3 retail Strong multi-
channel presence 850 shops
Spain #1 retail Online recently launched 1,726 shops
Belgium #1 retail Online recently launched 541 shops
NGR H1-17
4
12
Experienced Management Team
Lee Feldman
Non-executive Chairman
2004 (GVC)
Name and role Year joined Experience
Kenneth Alexander
Chief Executive Officer
2007 (GVC)
Paul Bowtell
Chief Financial Officer
2011 (Gala Coral)
Andy Hornby
Joint Chief Operating Officer
2011 (Gala Coral)
Shay Segev
Joint Chief Operating Officer
2016 (GVC)
5
Experienced management team with a track record of successful acquisitions
13
Proven Track Record of Synergies Delivery
Deal Size
Source: Prospectus dated 9 February 2018, Ladbrokes Coral prospectus dated 27 October 2016, GVC presentation dated 16 November 2015, FactSet. Note: Close price adjusted for both dividends and splits. (1) William Hill contributed £36.5m towards balance sheet repair, restructuring and deal costs.
19 March 2013 1 February 2016 1 November 2016
€83.9m(1)
Delivered EBITDA of €38.3m in year 1 vs. expected €28.7m
Removed €50m of cost and returned to profitability in <1 year
£1.1bn
On track to deliver run rate synergy target of €125m by the end of 2017 (on 2015 EBITDA of only €109m)
bwin.party brands returned to growth almost immediately after four consecutive years of declining sales
£2.3bn
Cost savings / synergy delivery
65
150
Original synergiesprojection
Revised synergiesprojection
23
55 65
50
125
150
2017 2018 2019
Original synergies projectionRevised synergies projection
(£ in millions)
Ladbrokes Coral synergies phasing GVC share price since 2009
0
250
500
750
1,000
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
GBp
(£ in millions)
Date
Target
Su
cce
ssfu
l exe
cu
tio
n
5
Proven acquisition track record and ability to constantly overachieve on synergies over a short period
14
Synergies
Cost synergy areas Synergy overview
Source: GVC combined Prospectus and Class 1 circular dated 9 February 2018. [1] Exit run rate
Cost synergies now expected to be £130million (previously £100m) by the end of 20211
Total integration costs expected to be c1.0x cost synergies
Potential additional synergies:
− Capital expenditure savings from technology and procurement
− Revenue synergies through cross-selling, implementation of best in class systems and sophisticated marketing techniques
Technology and data enabled Corporate and administrative
Other Marketing
Common platforms
Own gaming content
Increased bargaining power with content suppliers
Consolidating customer service teams and technology costs
Lower cost locations
Common mktg & central functions
Leveraging combined Group’s business intelligence capability to achieve savings from reduced marketing and bonus spend
Combining international platforms and teams
External costs
Office and travel costs
6
Announced upgraded cost synergies of £130 million
Originally announced (cumulative) Updated guidance (cumulative)
Year post acq.
Exit Run Rate Financial Year
Exit Run Rate
Increase (Run
Rate)
New Exit Run Rate
Realised in Year
Year 1 £7m 2018 £5m £2m £7m £4m-£5m
Year 2 £33m 2019 £27m £8m £35m £16m-£26m
Year 3 £56m 2020 £50m £28m £78m £52m-£62m
Year 4 £100m 2021 £100m £30m £130m £104m-£114m
Year 5 £100m 2022 £100m £30m £130m £130m
Integration Costs
(In Year)
£17m
£39m
£43m
£31m
-
Synergies split: c£125m of synergies to be delivered in Online and c£5m in Corporate
15
US Opportunity: JV with MGM 7
Transaction structure and key terms
• 50 / 50 joint venture between MGM Resorts International (“MGM”) and GVC Holdings (“GVC”) for sports
betting and interactive gaming in the U.S.
• Both parties providing exclusive rights to relevant assets subject to 25-year agreements
Transaction
• Exclusive access to all U.S. land-based and online sports betting, online real money and free-to-play casino
gaming, major tournament and online poker, and other similar future interactive businesses
• Business to be conducted primarily under the playMGM and partypoker brands
• Parties are exclusive to each other in the U.S. for these activities
Joint venture
business
activity
• Four person board of directors, with two members appointed from each of MGM and GVC
• Equal governance and decision making rights
• Joint venture structure creates alignment of interests
Governance
• Independent leadership team to be selected from best-in-class talent from each company and additional
new hires
• New joint venture headquarters to be located in major U.S. technology hub
Management &
Operations
16
US Opportunity: JV with MGM 7
Exclusive access to relevant assets
Transaction creates a leading U.S. sports betting and interactive gaming platform with world-class
content, state-of-the-art proprietary technology, and broad distribution
Parties contributing exclusive access to:
Economics of existing and future U.S. sportsbooks All U.S. gaming licenses, including all “skins” for sports betting and interactive gaming Market access agreements with Boyd Gaming, providing a path to 15 states with addressable population of ~90mm(1) GVC’s platform technology (including Stadium) Premier, globally recognized gaming and sports brands
[1] Population figure represents Eilers & Krejcik Gaming estimate of population above 21 years old. Number of states includes pending acquisitions and development projects.
17
US Opportunity: JV with MGM 7
Joint venture transaction highlights
Opportunity to leverage each company’s unique and complementary assets to capture a once-in-a-lifetime new market opportunity
Creates a leading platform with world class content, state-of-the-art proprietary technology, and broad reach and distribution
Significantly increases speed to market for both parties and creates meaningful early mover advantages
Lowers execution risk due to strong existing relationship, complementary capabilities, and both companies’ track records of successful partnerships
Complete alignment of interests with a 50/50 joint venture structure
Ample liquidity with total upfront capital commitments from partners of $200 million
18
US Opportunity: JV with MGM 7
Broad footprint and marketable customer base
30 Million M Life Members
• Clear path to 15 states with total addressable population of ~90mm(1)
• Leading combination is well positioned to attract additional market access and other partners
[1] Population figure represents Eilers & Krejcik Gaming estimate of population above 21 years old. Number of states includes pending acquisitions and development projects.
MGM Nevada
Mississippi New York
New Jersey Maryland
Massachusetts Michigan
Boyd
Pennsylvania Ohio
Indiana Illinois Idaho
Missouri Kansas
Louisiana
Appendix:
2018 Trading Update
20
Combined Results – H1 Post Close Trading Update
Year-on-year growth in Q2 over Q1 driven by good underlying momentum and the World Cup
Strong underlying growth in Online and have continued to benefit from a pipeline of new products and high profile marketing campaigns
UK Retail improved in Q2 as the weather proved less disruptive than in Q1 European Retail remained very strong helped by soft comparative Positive World Cup tournament driven by gross win margin, volumes and value of new
customer deposits
[1] The Group’s proforma results are presented as if the current Group, post the acquisition of Ladbrokes Coral, had always existed. As such, it excludes the results of the Turkish business which was discontinued during 2017and the 360 shops that the Ladbrokes Coral Group was required to divest on merger. [2] Growth on a constant currency basis is calculated by translating both current and prior year performance at the 2018 exchange rates. [3] UK Retail numbers are quoted on a LFL basis. During H1 and Q2 there were an average of 3,562 shops in the estate, compared to an average of 3,662 in the same periods last year.
Q2: Group NGR +11% (cc2 +12%) Online NGR +22% (cc2 +25%) UK Retail Like-for-like (“LFL”)3 NGR +2% European Retail NGR +19% (cc2 +16%)
H1: Group NGR +8% (cc2 +8%) Online NGR +18% (cc2 +20%) UK Retail LFL3 NGR -3% European Retail NGR +29% (cc2 +26%)
Key highlights (proforma basis1):
21
Combined Results – Q1 2018 Trading Update
Strong start to 2018; synergies upgraded
Overall good start to 2018 Online strong with double-digit growth across both GVC legacy and Ladbrokes Coral Strong European Retail performance UK Retail impacted by weather Synergy work ongoing; interim upgrade to minimum of £130m cost synergies Well placed for US opportunity
[1] The Group’s proforma results are presented as if the current Group, post the acquisition of Ladbrokes Coral, had always existed. As such, it excludes the results of the Turkish business which was discontinued during 2017, the 360 shops that the Ladbrokes Coral Group were required to divest on merger and the previously discontinued Ladbrokes Coral High Roller segment
Total NGR Total NGR CC Sports Wagers Sports MarginChange in
Margin
Online
Sports Brands 16% 18% 4% 10.4% 1.2pp
Games Brands 16% 18%
B2B 46% 48%
Total Online 17% 18%
UK Retai l
(Like-for-like)(5%) n/a (9%) 18.3% 0.2pp
European Retai l 32% 28% 4% 18.1% 3.8pp
Other (26%) (26%)
Total Group 7% 7%
Year to date growth (1 Jan 2018 to 20 May 2018)1
22
FY18 Guidance
Guidance:
• Capex – underlying1 c£125m post acquisition2, c£160m annualised • Capex - EPOS 21 c£27m post acquisition2 • Depreciation and Amortisation Subject to IFRS 3 adjustments
Guidance to be provided at H1 • Integration costs – previous deals3 c£15m P&L charge post acquisition2
£45m cash cost post acquisition2 • Opening gross debt4 £2,160m • Opening net debt4 £1,860m • Opening net debt / EBITDA4 2.7x (LTM proforma EBITDA) • Share based payments c£10m – £15m • Interest costs c4% on gross debt c60m P&L charge5 post acquisition2, c£85m annualised c50m cash cost post acquisition2, c£85m annualised • Tax rate (% of adjusted PBT) c13%, annualised cash tax in-line with historic blended rates
Triennial Impact:
• Fully mitigated impact of c£120m on Group EBITDA by end of the second year post implementation, with
an expected adverse impact of c£145m in UK Retail and positive impact of c£25m in Online • In the first full year the impact on Group EBITDA is anticipated to be in the region of £160m
[1] Pre Triennial Review [2] Period 28 March 2018 to 31 December 2018 [3] GVC Holdings plc acquisition of bwin.party and Ladbrokes PLC merger with the Coral Group [4] 28 March 2018 [5] P&L cost of interest that will be paid in cash
Appendix:
Historic Proforma Numbers
24
Historic Proforma: Overview
• The following slides provide proforma results for GVC Holdings Plc (“The Group”) for the 24 months ended 31 December 2017
• The Group’s proforma results are presented as if the current Group, post the acquisition of Ladbrokes Coral, had always existed. As such, it excludes the results of the Turkish business which was discontinued during 2017, the 360 shops that the Ladbrokes Coral Group were required to divest on merger and the previously discontinued Ladbrokes Coral High Roller segment
• The Group has changed its reporting currency to GBP and therefore the proforma information is also presented in GBP. As GVC previously reported in Euros, historic information has been translated into GBP using a rate of €1.14:£1 in 2017 and €1.24:£1 in 2016
• The proforma information has separated out “Corporate” costs from the legacy GVC Digital business. These will continue to be reported under Corporate costs going forward
• Reporting segments and accounting policies have been aligned across GVC and Ladbrokes Coral for the proforma period. The way in which these results are presented is consistent with the reporting format which will be adopted by the Group going forward
• The proforma results depict actual historical trading performance and do not reflect any increases in profit anticipated from the delivery of synergies, nor do they account for the impact on the future depreciation and amortisation charge resulting from the IFRS 3 fair value exercise which is being undertaken on the Ladbrokes Coral business
• Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
• Contribution is defined as statutory gross profit less marketing costs and underlying EBITDA is stated as operating profit before the deduction of depreciation, amortisation, changes in fair value of financial instruments and IFRS 2 “share based payments” charges
25
Historic Proforma: Basis
Included:
bwin Included for the period post acquisition (1 Feb 2016) and proforma adjustments made to include pre acquisition trading (January 2016). As such, both 2016 and 2017 include a full 12 months of trading for bwin
Corporate costs Legacy GVC costs have been split between those relating to the Online business and those which are true "Corporate" costs. The latter of these is now reported under the Corporate costs segment
Kalixa Included for the period until disposal (31 May 2017)
Excluded:
Turkey Proforma adjustments to remove the trading of the disposed Turkish business in both 2016 and 2017
360 divested shops Proforma adjustments to remove the trading of the 360 shops that the Ladbrokes Coral Group were required to divest on the merger of Ladbrokes and Coral
Share based payment charges
Share based payment charges previously reported in Ladbrokes Coral have been removed from underlying EBITDA in line with previously reported GVC "Clean EBITDA"
Amortisation of acquired intangibles
The amortisation of acquired intangibles will now be a separately disclosed item (formerly exceptional) and is therefore excluded from underlying profit and also from the proforma numbers presented
High Rollers The High Rollers business which the legacy Ladbrokes Coral Group discontinued in 2016 has been excluded from the proforma information
Crystalbet The 2018 acquisition in Georgia is not included in the historic proforma numbers
26
Historic Proforma: Segmentation
[1] Costs which were previously reported as Corporate Costs in GVC have now been split between the Online segment and those which are true Corporate Costs which remain in Corporate
27
Total Group
[1] Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
28
Online
[1] Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
29
UK Retail
[1] Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
30
European Retail
[1] Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
31
Other and Corporate
[1] Operating profit is shown before all items requiring separate disclosure (previously called exceptional items), the impact of changes in the fair value of financial instruments and the amortisation of acquired intangible assets
Appendix:
Other
33
Triennial Review
Triennial Review Outcome Announced UK Government announced on 17 May that stakes on B2 content should be cut to a
maximum of £2 per spin Expected Financial Impact Fully mitigated impact of c£120m on Group EBITDA by end of the 2nd year post
implementation, with an expected adverse impact of c£145m in UK Retail and positive impact of c£25m in Online
In the first full year the impact on Group EBITDA is anticipated to be c£160m Contingent Value Right (CVR) As part of the consideration paid for the acquisition of Ladbrokes Coral (LCL), GVC
issued each LCL shareholder a CVR for each LCL share held The value of each CVR is directly linked to the outcome of the Triennial Review The CVR instrument envisages that if the legislation is enacted prior to 28 March
2019 reducing maximum stakes to £2 as announced, this will result in CVR having a zero value
Tracy Crouch (Minster of Sports) verbally stated in Parliament that the legislation will be enacted “this year”
34
Greek Tax Assessment
On 25 January 2018, GVC announced that its subsidiary, Sportingodds Limited, received a tax audit assessment notice from the Greek Audit Centre for Large Enterprises in respect of the fiscal years 2010 and 2011
At that time Sportingodds was owned by Sportingbet, prior to GVC’s acquisition of Sportingbet in 2013
The audit assessment claims that Greek corporate income tax, Greek gaming tax and withheld player winnings tax plus surcharges are owed to the Greek Audit Centre for Large Enterprises
The total assessment amount is €186.77m
The GVC Board believes that Sportingodds has strong grounds for appeal and on 29 January 2018 an appeal was filed
Sportingodds is in discussions with the Greek Audit Centre for Large Enterprises to enter a payment scheme of approximately €7.8m per month over a 24 month period
Entrance into the payment scheme is not an admission that the assessment is correct
Background
Entrance into the payment scheme ensures that Greek authorities cannot seize assets of Sportingodds situated in Greece and reduces the risk of major disruption to the Greek business
In the event that Sportingodds is wholly or partially unsuccessful in its appeal, it is likely that it will need to pay all or part of the assessment (which includes surcharges), less amounts already paid under the payment scheme
Impact
35
German Regulatory Update
The German business operates against the backdrop of significant regulatory uncertainty
− The uncertainty stems from the Interstate Gambling Treaty of 1 July 2012, which effectively introduced a ban on online casino and online poker
Online casino and poker are subject to a total ban under the Interstate Treaty, however, a license tender for online sports betting commenced in 2012
− Each of the GVC Group and the Ladbrokes Coral Group were successful applicants in the tender process for one of the 20 available Germany-wide sports betting licenses
− Due to ongoing legal challenges, no such license has been granted so far
GVC was separately granted an online sports betting, casino and poker license by the state of Schleswig-Holstein (one state that rejected the treaty)
Sports betting is permitted under 2012 State Gaming Treaty (licensing regime yet to be finalised)
Background
It remains unclear whether Germany’s prohibition of online casino and online poker is compliant with EU law
Amendments to the Interstate Treaty had been scheduled to enter into force on 1 January 2018
− They have not been ratified by all 16 German states, as required
− It is likely that the legislative debate will recommence in the second half of 2018
Tax is paid on all German revenues
German poker/casino NGR is c4% of Group NGR
Current position
Opening Gross debt - £2,160m1
Opening Net debt - £1,860m1
Opening net debt/EBITDA – 2.7x (LTM proforma EBITDA) 1
Interest costs
‐ c4% on gross debt ‐ c60m P&L charge2 post acquisition3, c£85m annualised ‐ c50m cash cost post acquisition3, c£85m annualised
36
Capital Structure & Leverage
(1) 28 March 2018 (2) P&L cost of interest that will be paid in cash (3) Period 28 March 2018 to 31 December 2018
Debt Facility Amount
New TLB £1,400m
Existing GVC TLB £260m
Existing LCL Bond £400m
Existing LCL Bond £100m
Total £2,160m
37
Geographic Revenue Split
Of which: UK Retail – 43.4% UK Online – 19.6%
Of which: Sports – 3.3% Gaming – 4.1%
Basis: FY17 Proforma Net Revenue