Paddy Power-owner's profits wiped out by mega-merger costs

TAMPA, FLORIDA - FEBRUARY 07: Tom Brady #12 of the Tampa Bay Buccaneers yells as he takes the field against the Kansas City Chiefs in Super Bowl LV at Raymond James Stadium on February 07, 2021 in Tampa, Florida. (Photo by Patrick Smith/Getty Images)
Flutter said Super Bowl LV, which was won by Tom Brady's Tampa Bay Buccaneers, led to more new customer sign-ups in one week than the entire of 2019. Photo: Patrick Smith/Getty Images

Flutter Entertainment (FLTR.L), the gambling group behind brands like Paddy Power, PokerStars, and Betfair, hailed a "transformational" year in 2020 as it reported surging sales but sinking profits

Flutter said its revenue rose by 106% last year to £4.3bn ($6bn). Sales were up 27% in the 12 months to 31 December 2020 when the impact of Flutter's $11bn merger with The Stars Group, which completed last May, was factored in.

Gross profits rose 92% to £2.8bn and adjusted earnings were up 109% to £889m. However, pre-tax profits sunk 99% to £1m due to costs associated with the mega merger.

Exceptional costs rose over 300% to £565m. Flutter blamed "an increase in the amortisation of acquired intangibles from £113m to £432m associated with the combination with TSG [The Stars Group] and deal costs associated with the TSG merger and the initial delivery of synergies."

Debt costs rose over 670% to £110m due to the "significant increase in debt" post-merger. Net debt rose to £2.8bn.

Flutter cancelled its final dividend for the year, compared to a 200p payout per share in 2019.

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"2020 was an historic year for the Group as we completed our merger with TSG, commenced the integration of our two businesses and increased our ownership of FanDuel in the US, whilst at the same time navigating the challenges presented by the Covid-19 pandemic," chief executive Peter Jackson said in a statement.

Greg Johnson, an analyst at stockbroker Shore Capital, said the results were ahead of forecasts thanks to "a strong end to the year". He said the company was a "best-in-class operator" but faced "numerous headwinds this year including Germany, compliance, and exceptionally tough comparatives, especially for Pokerstars and Australia, which benefited in particular from the lockdown during 2020."

Germany is proposing a 5.3% turnover tax on online poker and slots, which Flutter said would "effectively make the German online gaming market commercially unviable". The tax could cost Flutter £15m to £25m.

Flutter said it had seen "strong momentum" so far this year, with group revenue up 36% in the first seven weeks of 2021. The company has benefited from favourable sports results in the US and Ireland.

Flutter also enjoyed a record-breaking Super Bowl last month, signing up 350,000 new customers in just a week. That exceeded the company's entire new customer sign-up total for 2019. Johnson said attention would be focused on Flutter's operations in the fast-growing US legal gambling market.

Shares rose half a percent on Tuesday morning in London.

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