investor - gvc holdings · vs. expected €28.7m removed €50m of cost and returned to...

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


Unregulated


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


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


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


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


29

UK Retail


30

European Retail


31

Other and Corporate


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

investor - gvc holdings · vs. expected €28.7m removed €50m of cost and returned to...

Documents