Shares in Paddy Power fell 5.59 per cent on Wednesday after the company announced a drop in operating profit of 12 per cent after “bookmaker-friendly sports results” as well as poor weather conditions drove customers away.
Shares on the company’s Dublin listing had fallen as much as 8 per cent to €75.70 earlier in the day.
In a trading update for the three-month period ended March 31st, Paddy Power Betfair informed the Irish Stock Exchange that profits fell from £91 million in the first quarter of 2017 to £80 million during the same period this year.
“Customer activity in the UK and Ireland [was] adversely affected by the sustained period of bookmaker-friendly sports results from November to February and a high level of racing fixture cancellations,” it said.
Group revenue at £408 million was 2 per cent lower than last year. “Overall, sports results were in line with our expectations for the quarter, with favourable sports margins in the first half of the period offset by customer-friendly results in March,” it said.
Earnings before interest, taxes, depreciation, and amortisation (ebitda) fell by 8 per cent to £102 million, excluding a £3 million adverse impact from foreign-exchange translation.
The cost of sales was adversely impacted by about £5 million from the annualisation of new betting taxes and levies implemented during 2017. Sales and marketing spend was up 4 per cent while other operating costs were flat year on year.
The company had £330 million of net cash at March 31st excluding customer balances.
Share buy-back
It also announced its intention to return £500 million of cash to shareholders over the next 12 to 18 months.
“Our current preference is to fulfil this through a series of share buy-back programmes, which will commence shortly with an initial £200 million tranche,” it said.
“This is in addition to our existing dividend payout policy, which is unchanged at 50 per cent of profit after tax.”
In terms of outlook, the firm is expecting full year ebitda to be between £470 million and £495 million.
“This expectation reflects the increased investment in Australia and assumes no new taxes become payable in Australia in 2018,” it said. “It is also before any potential additional investment which may arise in the event of positive regulatory changes in the USA.”
In terms of online, revenue was down 2 per cent to £219 million. Sports revenue was down 1 per cent, with football growth offset by weakness in horse racing, which was adversely impacted by the high level of weather-related cancellations. Some 14 per cent of total UK and Irish races were cancelled compared with 4 per cent last year.
Retail revenue was down 4 per cent to £79 million. Excluding the impact of new shops and currency movements, like-for-like revenue was down 6 per cent. This comprised 3 per cent machine gaming growth offset by a 10 per cent decline in sportsbook revenues.
Shop closures
Sportsbook revenues were “affected by weather-related shop closures” in the Republic, where shops were closed for two full days, as well as racing cancellations. “We opened three shops in the UK and two in Ireland during the quarter, taking our total estate to 631 shops,” it said.
Paddy Power Betfair chief executive Peter Jackson, who took the helm of the gambling giant at the start of this year, said "good progress" had been made in relation to the company's "strategic priorities".
“In Europe, the successful completion of our platform integration has resulted in a meaningful improvement to the Paddy Power product,” he said.
“This has seen the brand’s gaming revenue returning to growth from February and a significant uplift in Cash Out usage and in-running betting during the Cheltenham Festival.
“In Australia, Sportsbet continues to perform well and is targeting further market share growth, with additional investment planned to take advantage of any disruption arising from market consolidation and the introduction of increased taxes. Good underlying growth in Australia [was] partially offset by adverse sports results.”
