Paddy Power Betfair may return excess cash to shareholders

Paddy Power Betfair, which delivered 12 per cent gross profit growth last year following creation by merger, may return excess cash to shareholders if it is unable to find suitable acquisition opportunities in the coming years, according to its chief executive officer.

Breon Corcoran, the former Betfair CEO who has led the combined group since the merger in February 2016, said the bookmaker and gaming company has "an appetite to further internationalise the business", as more opportunities emerge in the US and across continental Europe in the coming years.

“In the absence of M&A [merger and acquisitions], we’ll return cash to shareholders,” he said on Tuesday. “The right deal has to come along at the right price. If it doesn’t, we’ll continue to grow the business.”

Costs

While Paddy Power Betfair generates almost two-thirds of its £1.5 billion (€1.7 billion) of revenues in the UK and Ireland, almost £400 million comes from Australia and the US, with the remaining 9 per cent spread mainly across Italy, Bulgaria, Denmark, Gibraltar, Malta, Romania and Spain.

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The comments came after the company revealed merger costs left it with a £5.7 million loss last year. However, the company said that last year’s €66 million restructuring charge, including costs tied to cutting 650 of its 7,000-plus combined workforce, was a once-off. No further costs will be incurred this year as synergies from the deal reach £65 million.

"We've been hiring consistently since then," Mr Corcoran said, adding that the staff numbers have rebounded to a "similar" level to before the layoffs. "Internally, we've moved from integration back to growth."

The £272.3 million bill for the merger included £35.5 million in fees, £65.7 million in restructuring costs and a £21.9 million non-cash charge to replace share options granted to executives under Betfair’s incentive scheme.

The single biggest item was a £174.1 million charge to account for the fall in value of some of the merged group’s assets.

Full-year results show that it won £1.55 billion from its customers in 2016. Operating profits from its businesses were £330 million, 44 per cent more than the £296 million they earned in 2015.

Earnings per share also grew 44 per cent to 330.9 pence. The group is proposing to pay a dividend of 165p per share.

Its online business, made up mainly of the Paddy Power and Betfair websites, which operate in the Republic, UK and parts of Europe, grew operating profits by 11 per cent to £255 million.

Profits

A 25 per cent jump in customers to 956,000 drove a 38 per cent increase in profits at its Australian Sportsbet operation to £84 million.

The group’s 613 bookie shops in Ireland and Britain had operating profits of £45 million.

Profits in the US, where the group operates the TVG horse racing and betting channel, as well as a number of casinos, rose 39 per cent to £4 million.

Paddy Power Betfair said that it is trading in line with expectations, with stakes up 22 per cent.

Chief executive Mr Corcoran, described 2016 as a transformational year for the group.

“We have created a business with considerable scale that is stronger and better able to compete than either of the individual legacy companies,” he said.

“The group is well positioned to deliver sustainable, profitable growth.”

However, shares in the group fell as much as 6.3 per cent to £82.35, as analysts were disappointed by a slowdown in onling gaming, which it first flagged in the fourth quarter.

"With no improvement year-to-date, we are minded to assume no gaming growth in 2017, particularly given the lack of a major summer football tournament," said David Jennings, an analyst at Davy.

Mr Corcoran said the group is “happy” it can return the gaming division to where it was.

“It may take some time,” he said, adding that the industry is quite fragmented.