Both Paddy Power and Betfair were achieving double digit growth ahead of their merger last month – Paddy Power had grown its revenues by 24% to €1.1bn in 2015, while Betfair’s final quarter as an independent company saw revenues increase by 21%.
However both firms also had their figures blunted by taxation. Over 2015 Paddy Power’s operating profit increased 10% to €180m, but the growth would have been 50% were it not for the impact of new taxes. In the same period, Betfair increased revenues by 17% and operating profit increased 9%, or 63% before new taxes.
Breon Corcoran, Chief Executive at Paddy Power Betfair plc, commented: “We were very pleased to complete the merger of Paddy Power and Betfair, creating one of the world’s largest online betting and gaming companies with enlarged scale, enhanced capability and distinctive complementary brands. These results show that both businesses entered this merger on the back of strong trading momentum.
“Our belief in the strategic rationale for the deal has only been strengthened following our early days as a combined operator. The combination of two industry leading operators, with aligned strategies and a strong cultural fit, is hugely exciting and the enhanced efficiency from operating at greater scale means we are well positioned to compete in both existing and new markets.”
He added: “The integration of the two businesses is progressing well and we look forward to capitalising on the opportunity we have to drive future profitable growth.”
While the enlarged company is working hard on integration, the new leadership team is wary about making too many changes to the business ahead of the big revenue earners. Corcoran explained: “Detailed work has commenced on delivering the previously announced synergy cost savings of £50m per annum and we remain confident that this target will be achieved.
“While it is important to act quickly to bring the best attributes of each business together to create a stronger combined operation, it is crucial that we don’t disrupt the momentum of the existing businesses. This is particularly relevant as the merger completed at the start of a key trading period that encompasses the Cheltenham Festival, Aintree and the Euro 2016 football championships.”
Paddy Power’s UK Retail business saw revenue up 15% with operating profits of €23m up 12% before €5m of additional Machine Gaming Duty. Irish Retail revenue was up 14% with operating profit of €20m up 44%. Online saw revenue growth of 23%, with sportsbook up 28% and eGaming up 10%. Operating profit was up 11% to €152m.
Interestingly Australia has become the biggest market it terms of operating profit for the Paddy Power business. It provided 44% of group profits €79.5m, up from 32% in 2014, while the UK dropped from 56% to provide 40% of the group’s profits.
Paddy Power’s Italian business underwent a strategic review in early 2015 prompting the firm to make substantial operational improvements. The firm explained: “We restructured our cost base to levels appropriate to the current market opportunity, and whilst growing net revenue by 18%, we reduced operating costs by 19% and took cost of sales as a percentage of net revenue down by 14%. The operating loss reduced by €6.8m to €7.9m.
“The review also highlighted that inconsistent investment in marketing had resulted in limited awareness of our brand. Accordingly, we undertook detailed market research to develop a new marketing campaign to build sustainable brand awareness, build association of the brand with key consideration attributes and ultimately drive profitable revenue growth.”