28th Feb 2008 07:01
Ladbrokes PLC28 February 2008 Preliminary statement of results for the year ended 31 December 2007 Year ended Year ended 31 December 31 December 2007 2006 (1) £m £m Continuing operations Gross win 1,286.4 990.3 Net revenue 1,235.0 947.4 Operating profit (2) 420.0 262.2 Net finance costs (2) (68.0) (44.6) Interest income on hotels sale proceeds - 24.0 Profit before tax and non-trading items (2) 352.0 241.6 Loss on disposal of non-current assets (1.1) - Other non-trading items before tax (6.7) (3.5) Profit before tax 344.2 238.1 Tax (52.8) (46.2) Profit after tax - continuing operations 291.4 191.9 EBITDA (2) - continuing 470.4 304.4 Earnings per share (2) - continuing 47.4p 21.7p Proposed dividend per share 9.05p 8.60p (1) Restated - details of restatement explained in notes 2(d), 2(e) and 15 tothe financial statements.(2) Before non-trading items and discontinued operations. Non-trading itemscomprise profit/losses on disposal of non-current assets, unrealised gains/losses on derivatives, and litigation and transaction costs (Litigation andtransaction costs - 2006 only).(3) The full consolidated income statement is shown on page 19. Financial Highlights • Operating profit(1) from continuing operations increased by 60.2% to £420.0 million (2006: £262.2 million). • Operating profit(1) from continuing operations, excluding High Rollers, decreased by 4.4% to £241.0 million (2006: £252.0 million). • Total gross win increased by 29.9% to £1,286.4 million (2006: £990.3 million). Total gross win from continuing operations, excluding High Rollers, grew by 6.0% to £1,036.8 million (2006: £978.1 million). • Net debt of £917.0 million with cash generated by operations of £421.1 million. • Effective tax rate(2) of 15.6%. • Final dividend of 9.05 pence per share (up 5.2%). • During 2007, 19.9 million shares were purchased through Ladbrokes' share buy back programme. The buy back programme has continued in 2008, with a further 10.3 million shares purchased. • Profit on disposal of Vernons of £46.0 million. Ladbrokes Chief Executive, Christopher Bell, commented: "Ladbrokes has achieved record profitability(3) of £420.0 million, benefitingfrom a buoyant performance from Telephone Betting. Following a strong finish to2007, we have made a positive start to the year. We will continue to develop thebusiness through new products and channels, both in the UK and overseas and willpromote our brand and products through TV advertising, whilst remaining vigilanton costs." Dividend The Board has recommended a final dividend of 9.05 pence per share, representingan increase of 5.2%, payable on 2 June 2008 to shareholders on the register on 7March 2008. This final dividend, together with the interim dividend of 4.85pence, gives a total dividend of 13.90 pence. (1) Profit before tax, finance costs and non-trading items(2) Before non-trading items for continuing operations(3) Profit for continuing operations, before tax, finance costs and non-trading items Chief Executive's Statement Overview A strong performance from our Telephone Betting business has helped to driveLadbrokes' highest ever profit(1) of £420.0 million in 2007. Our establishedEuropean shop businesses produced solid overall performances against toughcomparatives and eGaming again saw double digit growth, following theacquisition of Sponsio in January 2007. International development plans areprimarily focused on the establishment of new businesses in Italy and Spain andopportunities in China and Vietnam. European Retail Total gross win in European Retail increased by 5.3%, including growth of 3.3%in UK Retail and 26.4% in Ireland. Over the Counter (OTC) gross win comparatives were tough in the UK, with afootball World Cup in 2006 and the start of the 2007 domestic football seasonhaving seen the worst run of results in six years. Additionally, 2007experienced the wettest July since 1766, with abnormally high horse andgreyhound racing cancellations. Overall OTC gross win declined by 3.8%. By October 2007, our 8,190 machines were completely renewed with the latest dualscreen Laras, which have proved very popular with our customers. The improvedreliability has also significantly reduced machine downtime and machine grosswin increased by 21.0%. Following the introduction of the Gambling Act inSeptember, our machines now feature £500 payout jackpots, Blackjack and Poker.In the last quarter of 2007, with the benefit of these machine developments andwinter evening opening, UK Retail gross win increased by 10.6%, with OTC andgaming machine gross win up by 1.2% and 33.6% respectively. Ladbrokes became the first bookmaker to advertise sports betting on TV inOctober 2007. We are encouraged by the customer response to the campaign, whichachieved a positive impact on customers' perception of brand values and theirchoice of brand. We will be launching further advertising campaigns during 2008,with the first two campaigns, supporting our online bingo and casino products,planned to commence in March and April respectively. A strong emphasis remains on cost control in 2008, with good progress made in2007, when costs increased by 7.9%, much less than the budgeted amount. Keyinitiatives in 2008 include the introduction of a new staff scheduling systemand rationalisation of certain areas of service provision. In order to ensurethat our customers can continue to watch all live horse racing in our UK andIrish shops we concluded a five year supply contract with Turf TV on 1 January2008, at significant incremental cost. Excluding Turf TV, 2008 UK Retail costgrowth is projected to be less than in 2007. (1) Profit before tax, finance costs and non-trading items, for continuingoperations During 2007, we relocated, refurbished and extended 103 UK shops, bringing thetotal to 1,089 over the past five years, representing approximately half of theUK estate. We also opened 22 new licences and closed 30 shops. Following the acquisition on 6 February 2008 of the Eastwood chain of 54 shopsin Northern Ireland for £117.5 million, we are now the market leaders in Irelandwith 271 shops. The Irish business performed well in 2007, growing operatingprofit by 43.6%. We have continued to invest in our Italian business following re-regulation ofthe betting and gaming environment in 2006 through the Bersani decree. We nowhave 26 shops and seven Bersani corner licences, which are trading in line withour expectations. In the short term, our Italian management team remains focusedon the challenging exercise of identifying and opening suitable premises for ourBersani licences and in making further shop acquisitions. Ladbrokes' Italianlanguage website began trading in November. Remote Betting and Gaming eGaming showed good profit growth for the seventh consecutive year, driven bygrowth in Sportsbook, Games and Casino products, with Sportsbook in particulardelivering a buoyant performance. The competitive landscape remains tough forPoker with high customer acquisition costs and margins squeezed by rakeback andother promotional offers. Unique active players across our range of productsincreased 9.4% to 601,000. The acquisition of Sponsio, our Nordic marketingpartner in January 2007 helped us to increase our profit conversion from 33.0%of net gaming revenue in 2006 to 38.3% in 2007. Our objective for eGaming remains the achievement of continued profit growththrough product innovation and market development, whilst respectingjurisdictional barriers. Moving forward, we intend to increase our investmentlevels in customer acquisition which will maintain profitability levels in theshort term but drive profit growth in future years. Our Telephone Betting business increased its profits from £17.3 million to£183.6 million, as we saw increased activity from our High Rollers for much ofthe year which contributed significantly to cash flow and profits. International development Preparations continue in Spain, where we expect to be awarded an operatinglicence in the Madrid region in the near future. Our Sportium business, a JointVenture between Ladbrokes and Cirsa Slot, has over 60 outlets which will beready to begin trading in the months following the award. We await furtherde-regulation in other regions during 2008. Ladbrokes continues to explore opportunities in Asia, particularly in Vietnamand China. Regulatory environment September 2007 saw the full implementation of the 2005 UK Gambling Act andfollowing comprehensive preparation, our UK shops have already incorporated manyof the changes allowed under the new legislation. On 20 February 2008, the Minister of State at DCMS announced his determinationof the Levy (the amount payable by UK bookmakers to horseracing via theHorserace Betting Levy Board). His decision was to leave the rate at 10% of UKhorseracing gross win. However, he has also called for discussions to take placebetween the racing and the betting industry to find a replacement for theoutdated horserace betting levy. With British racing now generating significantincome from commercial sources outside of the levy, including horseracing mediarights, Ladbrokes agrees that the time has come to replace the current system ofstatutory subsidies. Following an internal review and as previously reported, the decision was takennot to pursue any of the new 16 casinos which may be allowed under the 2005Gambling Act, as returns could not be expected prior to 2012. Capital structure In August 2007, the Board announced the start of a share buy back programme andit is intended that, over time, it will repurchase shares in order to movetowards its stated target net debt to EBITDA range of 3.5 to 3.75 times(excluding Telephone High Rollers), whilst continuing to invest in growthopportunities. At the year end, 19.9 million shares had been bought back underthis programme. Outlook The Board is mindful of general concerns about the state of the UK economy butis pleased to report that, following a strong finish in 2007, Ladbrokes has madea positive start to the year with gross win and operating profit ahead of lastyear in each of European Retail, eGaming and Telephone Betting. We areencouraged by the positive response to the initiatives which have beenimplemented in the UK Retail estate, whilst the Telephone High Rollers havemaintained their momentum from last year, with operating profit from TelephoneHigh Rollers of £36 million in the seven week period to 18 February 2008. Totalgross win excluding Telephone High Rollers for the same period increased by 16%. In eGaming, we are intent on maximising our brand and technology advantage inour key online markets and consequently, we are increasing the investment levelsin 2008 to accelerate the new customer acquisition rate. We expect to maintaineGaming profitability levels in 2008 but with an objective to reachprofitability of £80-90 million in 2010. Operating results Amount staked by business Year ended Year ended 31 December 2007 31 December 2006 (1) £m £m European Retail 11,712.5 10,189.1 eGaming 1,300.4 1,216.9 Telephone Betting 1,866.6 939.9 Other (2) 29.0 - Total 14,908.5 12,345.9 Gross win by business Year ended Year ended 31 December 2007 31 December 2006 (1) £m £m European Retail 842.4 799.8 eGaming 156.5 144.4 Telephone Betting 280.1 46.1 Other (2) 7.4 - Total 1,286.4 990.3 Net revenue by business Year ended Year ended 31 December 2007 31 December 2006 (1) £m £m European Retail 804.5 767.5 eGaming 143.5 134.1 Telephone Betting 279.8 45.8 Other (2) 7.2 - Total 1,235.0 947.4 Profit from operations by business Year ended Year ended (before non-trading items) 31 December 2007 31 December 2006 (1) £m £m European Retail 209.5 216.8 eGaming 55.0 44.3 Telephone Betting 183.6 17.3 Other (2) (7.0) (1.6) Corporate costs (21.1) (14.6) Total 420.0 262.2 (1) Restated - details of the restatement explained in notes 2(d), 2(e) and 15 of the financial statements.(2) Casino and international development operations Business Review European Retail • Total gross win increased by 5.3% to £842.4 million (2006: £799.8 million) with operating profit decreasing by 3.4% to £209.5 million (2006: £216.8 million). European Retail - UK • Total gross win increased by 3.3% to £739.3 million (2006: £715.8 million). Whilst 2007 saw challenging comparatives, which included a football World Cup in 2006, high levels of lost racing and periods of difficult sports margins, the gaming machine estate performed well and winter evening opening, which commenced for the first time on 1 September 2007, showed encouraging early signs. • Total gross win in the first half increased by 1.1%, whilst the second half delivered an increase of 5.6% in total gross win with a strong performance in the last two months of 2007. Following the introduction of the Gambling Act on 1 September, total gross win in the last four months of 2007 showed 11.1% growth, with an increase of 1.6% and 31.8% in OTC and gaming machine gross win respectively. The initial response to Ladbrokes' first TV advertising campaign for betting was positive and the experience has proven valuable in developing plans for 2008. • On a like for like shop basis (excluding acquisitions, new licences and closed shops but including extended opening hours), total gross win showed an increase of 2.9%. • OTC gross win decreased by 3.8% to £490.9 million (2006: £510.5 million), reflecting some substitution following the renewal of our gaming machine estate and a decline of 9.4% in horse racing amounts staked, whilst football saw an increase of 25.4% in amounts staked since the start of the 2007/08 Premiership season, buoyed by advertising and promotion. Focus has been placed upon enhancing the range and value of our football offering. • The horseracing product range has seen a number of developments, with the introduction of betting in play on major race meetings and the 'Nation's Favourite Bet' in partnership with The Sun newspaper. Ladbrokes Results Zone offers the most comprehensive results service on the high street. • The introduction of winter evening opening across more than 95% of shops has been enhanced by additional evening betting content for customers, including east coast US racing, live and exclusive greyhound racing from Ladbrokes' greyhound tracks and more virtual content. A greater range of betting opportunities than ever before is now screened in UK shops, including more exclusive high quality content than Ladbrokes' competitors. • Like for like OTC gross win fell by 4.1%. Gross win margin was 17.1% (2006: 16.9%). • Gaming machine gross win increased by 21.0% to £248.4 million (2006: £205.3 million), with average weekly gaming machine gross win of £585, compared to £481 for 2006, an increase of 21.6%. • All Fixed Odds Betting Terminals (FOBTs) were upgraded to dual screen B2/ B3 gaming machines during Q1 2007 and Amusements With Prizes (AWPs) were replaced with the same dual screen machines by October 2007. As well as significantly improved reliability across the machine estate, the new B3 content (£500 jackpots) now represents around 50% of all gaming machine transactions and contributed to an increase in overall margin in 2007. Second half gaming machine gross win growth was 26.9% (H1 2007: 15.5%), including the benefit of extended opening hours from September. • The replacement of the shop EPOS system was completed in the first half of 2007, enabling high street functionality which is bespoke to Ladbrokes, such as 'Boost Your Winnings'. Local communities now benefit from Dynamic Zoning technology, which tailors product and promotions to customers, based on local football teams. • Operating costs increased by 7.9% to £445.9 million (2006: £413.1 million). This increase was driven by additional opening hours from September and a full year of Amusement Machine Licence Duty (AMLD), which was introduced in August 2006. Like for like costs (excluding AMLD, winter evening opening hours, new licences and closed shops) increased by 3.0%, with cost control remaining a key area of focus throughout 2007. • Operating profit of £187.8 million decreased by 6.0% (2006: £199.8 million). • During 2007, a mystery shopper programme was rolled out across 600 UK shops, with a focus on standards and customer service. Given the importance of the relationship between shop profitability and service, increased emphasis will be placed on maintaining and enhancing customer service in our shops going forward. The programme will be extended to all UK shops during 2008. • At 31 December 2007, Ladbrokes had 2,133 shops in the UK. During 2007, 22 new licences were opened and 30 shops were closed. 41 shops were relocated during the year and 53 shops were refurbished. European Retail - Ireland • Gross win in Ireland increased by 26.4% to £61.8 million (2006: £48.9 million), driven by good growth from acquisitions and new licences and despite a difficult horseracing margin in the second half. • Operating costs increased by 25.5% as a result of the impact of a larger shop estate and related establishment costs. Operating profit increased by 43.6% to £20.1 million (2006: £14.0 million). • Shop numbers in Ireland increased from 195 at 31 December 2006 to 215 at the 2007 year end, with 13 acquisitions, nine new licences and two closures during the year. The acquisition of the 54 shop Eastwood chain in Northern Ireland was completed on 6 February 2008. European Retail - Belgium • Gross win in Belgium showed a decline of 0.9% with the marketplace remaining highly competitive, however operating profit increased 6.7% to £3.2 million (2006: £3.0 million) due to lower turnover tax and a reduction in operating costs. • The number of Belgian shops was 274 at 31 December 2007 (2006: 286). European Retail - Italy • The newly re-regulated Italian betting market presents a good opportunity for Ladbrokes. During 2007, 13 existing betting shops were acquired for a cost of £16.7 million, giving a total of 17 acquired shops by the year end. These shops traded in line with our expectations during 2007. Ladbrokes is now represented in the major cities of Rome, Milan, Turin, Naples and Genoa and since the year end has completed the acquisition of a further eight shops around Turin and Vicenza. • The rollout programme for the 142 new Bersani licences continues, following the licence award in March 2007, with the first shop and corners opened in December 2007. Whilst finding premises for new licences remains challenging, they are scheduled to be opened throughout 2008. • Our local language internet site, Ladbrokes.it, was launched in November. Our odds service provider, Pianetta Scommesse increased its customer numbers during the year. • We have established a head office in Milan which is focused on the expansion of the Italian business. • Gross win for the year was £6.5 million, with operational and administration costs of £7.3 million and duty of £0.8 million, resulting in a start-up loss of £1.6 million for the year. eGaming • eGaming increased its profitability by 24.2% to £55.0 million (2006: £44.3 million) with Ladbrokes now one of the world's most profitable online betting and gaming operators. Results benefited significantly from the acquisition in January 2007 of Sponsio, Ladbrokes' Nordic marketing partners since 2001. Net revenue conversion consequently improved to 38.3% (2006: 33.0%). • eGaming net revenue increased by 7.0% to £143.5 million (2006: £134.1 million), with unique active players of 601,000, 9.5% higher despite the impact of the World Cup in 2006. Yield per customer was down 2.0% at £239. • Sportsbook net revenue showed strong growth of 14.7% to £52.2 million, (2006: £45.5 million including £4.5 million from the World Cup), with a gross win margin of 7.2% (2006: 6.4%). Growth in the second half remained strong at 15.7% driven by continued expansion in the product offering, including betting in play, video streaming and other sports content. For the year, unique active players grew 5.8% to 421,000 and yield per unique active player grew 8.8% to £124. Our new UK sportsbook was launched for beta testing at the end of 2007 with encouraging initial feedback and full launch is scheduled for H1 2008. Further localisation of our international offering is also a focus, particularly in the key Nordic countries where new sportsbooks were launched in February 2008. • Casino net revenue of £43.1 million grew by 5.1%. Unique active players were up 16.7% at 105,000, with average monthly active player days up 13.9% and yield per unique active player down 9.7% at £411. Whilst the second half of the year saw a decline in yield, net revenue declined only marginally year on year due to the benefit of a 27.5% increase in active customers. The increase in active customers was driven by online marketing activity and continual improvements to our proposition, including new products (e.g. The Osbournes and Hitman branded slots) and further foreign language versions of the '1-click' suite of casino games. In 2008 a more rapid roll out of new products is planned, combined with geographically targeted new customer acquisition campaigns. • Poker net revenue declined by 11.4% to £31.0 million, impacted by increased competition in our key European markets. Unique active players for the year were down 1.9% at 151,000 and yield per unique active player was down 9.7% to £205. Net revenue for the second half declined year on year by 7.8% to £15.3 million. In the second half our customer loyalty programme was enhanced and 3D poker was soft launched in November. The popular Ladbrokes Poker Cruise took place early in 2008 and the coming year will see further developments to the site including multi-currency tables and a full launch of the new 3D application, complemented by a more aggressive affiliates programme. • Games net revenue showed significant growth of 36.5% to £17.2 million (2006: £12.6 million), with second half growth of 27.6% despite tougher comparatives. Average monthly active player days for the year were up 43.4% to 142,000, with unique active players up 17.5%. This performance benefited from the new Bingo product and supporting TV advertising campaigns together with a number of other new product launches during the year (including Deal or No Deal Jackpot and Who Wants to be a Millionaire Bingo). 2008 will see enhancements to Ladbrokes' bingo service, additional unique branded content and focus on localisation and affiliate growth. • 2007 saw continuous improvements and growth in Ladbrokes' mobile Sportsbook and gaming offerings and further developments are planned for 2008. Compared with the Internet, wireless revenues are small but are growing fast and Ladbrokes is positioned to take advantage as consumer acceptance of the technology grows. • eGaming's operating costs of £80.6 million were £2.3 million lower than 2006 compared to the 7.0% increase in net revenue, favourably impacted by the acquisition of Sponsio in January 2007. Like for like, excluding the impact of this acquisition, operating costs were up approximately 6.5%, with savings in banking and chargebacks offset by increased staff costs. Marketing costs overall increased by £2.8 million (16.2%), with real money sign-ups 4,000 higher than last year despite the impact of the World Cup. Adjusted cost per acquisition comparatives are not like for like, due to the impact of the acquisition of Sponsio in January 2007. However even after adjusting for this, the cost of £86 has risen, reflecting the higher level of competition in our key markets. • The regulatory environment outside of the UK and Ireland remains challenging but there are early signs that European Member States are beginning to accept the anachronism of protecting state monopoly betting service providers under European law. Nevertheless, Ladbrokes remains unable to accept bets from customers in a number of important European markets including, for example, Germany and the Netherlands and is prohibited from promoting its services in a significantly greater number of member states. 2007 has seen Ladbrokes acquire an Internet betting licence in Italy and it is hoped that further progress is made in terms of both free movement of services and freedom of establishment in 2008 through the assistance of the European Commission and through national courts and the European Court. Telephone Betting • Telephone Betting achieved operating profits of £183.6 million in 2007 (£17.3m in 2006) buoyed by high levels of activity from High Rollers. Excluding High Rollers, operating profit declined by 35.2% to £4.6 million (2006: £7.1 million). • Net revenue including High Rollers was £279.8 million (2006: £45.8 million). • Net revenue excluding High Rollers decreased by 10.1% to £30.2 million (2006: £33.6 million including £1.6 million from the World Cup) with gross win margins of 7.1%, slightly behind 2006 levels (7.2%). • Net revenue from High Rollers was £249.6 million (2006: £12.2 million). • Excluding provisions for doubtful debts, operating costs (excluding duty and levy) increased by 13.6% to £20.9 million, mainly due to additional costs relating to High Rollers. Agent cost per call was up 3.4% to 61 pence (H1 2007: up 14.5%), with efficiencies impacted by lost racing both at the beginning of the year and during the wet summer. • Excluding High Rollers, average monthly active player days declined by 7.6% and call volumes decreased by 8.5%, with yield down 2.8% at £263. Unique active players were down 7.6% at 115,000 (2006: 124,400). Other • The International development effort has focused mainly on opportunities in Asia, particularly in China, Vietnam and Taiwan, in addition to initial development activity in Italy and Spain. Whilst Ladbrokes was unsuccessful in its bid for the Taiwanese sports lottery, developments continue in China and Vietnam. Development costs totalled £4.5 million in 2007. • In Spain, Ladbrokes has applied for an operating licence in the Madrid region with our joint venture partner, Cirsa Slot. Ladbrokes' £0.9 million costs were incurred in setting up the new business during the year. • Casino losses of £1.6 million reflect the development costs of assessing the proposed new regional, large and small UK casinos and the operating results of Ladbrokes Casino and Sportsbar at Paddington Hilton. Discontinued operations - Vernons • The sale of Vernons to Sportech plc completed on 3 December 2007. Initial cash consideration was £40.8 million after working capital adjustments, with a further £3.2 million payable in 2008 and £3.0 million payable in 2009. Enquiries to: Brian Wallace, Group Finance Director (office +44 (0) 20 7355 0340)Julian Arlett, Head of Investor Relations (mobile +44 (0)7976 348 913)Ciaran O'Brien, Head of Public Relations (mobile +44 (0)7976 180 173)Switchboard +44 (0) 20 7355 0340 A live conference call of the analyst presentation will be available at 9.30am(UK time) by dialing +44 (0) 208 817 9301 and asking for the 'Ladbrokes plcPreliminary results'. In addition, a live videocast of the presentation withslides and questions, together with this news release, will be available onLadbrokes' corporate website which can be found at www.ladbrokesplc.com For further information on Ladbrokes plc, please visit our corporate website atwww.ladbrokesplc.com. High-resolution images are available to download from themedia centre section under the heading 'image library'. Executive images arealso available at www.vismedia.co.uk in the Ladbrokes section. Operating and Financial Review Financial review Revenue and profit before tax Year ended Restated year ended 31 December 2007 31 December 2006 Net revenue Profit Net revenue Profit Continuing operations: £m £m £m £m European Retail 804.5 209.5 767.5 216.8 eGaming 143.5 55.0 134.1 44.3 Telephone Betting 279.8 183.6 45.8 17.3 Other (1) 7.2 (7.0) - (1.6) Corporate costs - (21.1) - (14.6) 1,235.0 420.0 947.4 262.2 Net finance costs - (68.0) - (44.6) Interest income on the hotels sale proceeds - - - 24.0 Revenue and profit before tax 1,235.0 352.0 947.4 241.6 Discontinued operations: Vernons 16.8 4.8 18.6 4.9 Hotels - - 264.4 10.8 Revenue and profit before tax 16.8 4.8 283.0 15.7 Group revenue and profit before tax 1,251.8 356.8 1,230.4 257.3 (1) Casino and international development operations. Vernons was disposed in 2007. Profit is before non trading items and profit on disposal of the Vernons business and hotels business. Trading summary - Continuing operations Revenue Revenue for continuing operations increased by £287.6 million (30.4%) to£1,235.0 million, mainly as a result of High Rollers' activity in TelephoneBetting, the performance of the Irish shops in the European Retail estate, andgrowth in eGaming. Profit before finance costs, tax and non-trading items Profit before finance costs, tax and non-trading items increased 60.2% to £420.0million (2006: £262.2 million) reflecting increased profits in both TelephoneBetting and eGaming offset by a decline in European Retail. Corporate costsincreased due to the television advertising campaign in the second half of 2007. Finance costs The net finance costs of £68.0 million were £47.4 million greater than last year(2006: £20.6 million). 2006 benefited from interest income of £24.0 millionearned on the proceeds of the Hilton International disposal. Excluding thisincome net finance costs increased by £23.4 million reflecting a full period ofthe increased leverage implemented following the Hilton International disposal. Profit before tax - Continuing operations The increase in trading profits offset by the higher finance costs in the yearhas resulted in a 45.7% increase in profit for continuing operations beforetaxation and non-trading items to £352.0 million (2006: £241.6 million). Non-trading items before tax A non-trading loss of £1.1 million before interest and tax includes a £1.5million profit recognised upon disposal of shares in SIS reducing ourshareholding from 25.3% to 23.4%. This is offset by a £2.6 million loss onclosure of 30 shops in 2007 in the UK Retail estate. Other non-trading losses of£6.7 million (2006: £1.0 million loss) relate to unrealised losses onderivatives. Taxation The Group taxation charge for continuing operations before non-trading items of£54.8 million represents an effective tax rate of 15.6% (2006: 17.5%). Theeffective tax rate of 15.6% is lower than 2006 due in part to a reduction in therate of mainstream corporation tax rates. Discontinued operations The £4.8 million trading profit in discontinued operations relates to the profitbefore tax of the Vernons business up until 3 December 2007 when it was sold. A£46.0 million non-trading profit was recognised on disposal. Earnings per share (EPS) - Continuing operations EPS (before non-trading items) was 47.4 pence (2006: 21.7 pence). Comparisonwith the prior year is affected by the share consolidation and convertible bondconversion that took place in 2006. EPS (including the impact of non-tradingitems) was 46.5 pence (2006: 20.9 pence). Fully diluted EPS was 46.1 pence(2006: 20.4 pence) after adjustment for outstanding share options. Earnings per share (EPS) - Group EPS (before non-trading items) increased to 48.0 pence (2006: 22.8 pence). EPS(including the impact of non-trading items) fell to 54.4 pence (2006: 67.2pence), reflecting the profit on disposal of Hilton International in 2006. Fullydiluted EPS was 54.0 pence (2006: 64.7 pence) after adjustment for outstandingshare options. Dividend and capital structure The Board has proposed a final dividend of 9.05 pence per share (2006: 8.60pence). The dividend will be payable on 2 June 2008 to shareholders on theregister on 7 March 2008. In August 2007, the Board announced the start of a share buy back programme.This commenced on 10 August 2007 and up until 31 December 2007 the Group hadpurchased a total of 19.9 million shares at a total cost of £70.4 million. Itis intended that, over time, Ladbrokes will repurchase shares in order to movetowards its stated target net debt to EBITDA range of 3.5 to 3.75 times(excluding Telephone High Rollers). The purchase of shares will be dependent onmarket conditions and will also take into account the cash generated in thebusiness and other investment opportunities that may arise over time. Restatement of divisional operating profits, non-trading finance costs andincome, continuing operations and balance sheet reclassification Following a review, the allocation of shared costs has been adjusted in 2007 toreflect more accurately each division's activity. These adjustments have noimpact on reported Group profit, cash flows or net assets. In addition the Vernons business has been classified as discontinued operations. For comparative purposes, the segmental operating profit statement for the yearended 31 December 2006 has been restated to reflect these changes to reportedprofit and is shown in the table below: Profit before tax Year ended 31 Allocation of Restated before Vernons Restated Year and finance costs December 2006 shared costs Vernons disposal ended and before disposal 31 December non-trading items 2006 £m £m £m £m £mEuropean Retail 212.7 4.1 216.8 - 216.8eGaming 47.0 (2.7) 44.3 - 44.3Telephone Betting 17.7 (0.4) 17.3 - 17.3Other (1) 5.9 (1.6) 4.3 (5.9) (1.6)Corporate costs (15.2) 0.6 (14.6) - (14.6)Total 268.1 - 268.1 (5.9) 262.2 (1) Casino and international development operations. Vernons treated asdiscontinued 2006. Revenue for 2006 has also been restated to reclassify the share of results fromassociates from revenue to a separate line. Non-trading finance costs andfinance income has been restated to disclose the net impact of gains and lossesarising from fair value hedges within finance costs. The balance sheet for 31December 2006 has been restated for a reclassification of non-current liabilityprovisions and other financial liabilities, to current liability provisions andother financial liabilities. Revenue recognition - reconciliation to gross win The Group reports the gains and losses on all betting and gaming activities asrevenue in accordance with IAS 39, which is measured at the fair value of theconsideration received or receivable from customers less fair value adjustmentfor free bets, promotions and bonuses. Gross win includes free bets, promotionsand bonuses, as well as VAT payable on machine income. A reconciliation ofgross win to revenue for continuing operations is shown below. Year ended Year ended 31 December 2007 31 December 2006 H1 2005 £m £m Gross win 1,286.4 990.3 Free bets, promotions, bonuses (14.4) (12.3) VAT (37.0) (30.6) Revenue 1,235.0 947.4 Cash flow, capital expenditure and borrowings Cash generated by operations was £421.1 million. After net finance costs andincome taxes paid of £133.0 million and £155.1 million on capital expenditure,intangible additions and acquisitions, cash inflow was £133.0 million. £40.8 million cash was received from the sale of the Vernons business. Proceedsof £7.6 million were received on the exercise of share options and the issue ofshares and £84.6 million was paid out in dividends and £70.4 million was spenton the share buyback programme. At 31 December 2007, gross borrowings of £975.7 million less cash, deposits andshort term investments of £26.2 million and derivatives of £32.5 million haveresulted in a net debt of £917.0 million. Adoption of IFRS 7 Financial Instruments: Disclosures The Group has adopted IFRS 7 for the year ending 31 December 2007 as required bythe International Accounting Standards Board (IASB).IFRS 7 Financial Instruments: Disclosures has superseded IAS 32 FinancialInstruments: Disclosure and Presentation, adding certain new disclosures aboutfinancial instruments to those currently required by IAS 32, with the remainingparts of IAS 32 dealing only with financial instruments presentation matters. The new disclosures include additional information regarding the Group'sfinancial guarantee contracts in respect of lease liabilities of subsidiarieswithin the disposed hotels division. These are described in note 14. Consolidated income statement Year ended Restated year ended 31 December 2007 31 December 2006 Before Before non-trading non-trading items(1) Total items(1) Total £m £m £m £mContinuing operationsAmounts staked(2) 14,908.5 14,908.5 12,345.9 12,345.9 Revenue 1,235.0 1,235.0 947.4 947.4Cost of sales before depreciation and (684.5) (685.7) (569.7) (569.7)amortisationAdministrative expenses (83.9) (82.4) (77.3) (79.8)Share of results from joint venture and 3.8 3.8 4.0 4.0associatesEBITDA 470.4 470.7 304.4 301.9Depreciation and amounts written off (50.4) (51.8) (42.2) (42.2)non-current assetsProfit before tax and finance costs 420.0 418.9 262.2 259.7Finance costs (69.5) (108.5) (61.3) (70.7)Finance income 1.5 33.8 40.7 49.1Profit before taxation 352.0 344.2 241.6 238.1Income tax expense (54.8) (52.8) (42.4) (46.2)Profit for the year - continuing operations 297.2 291.4 199.2 191.9 Discontinued operationsProfit for the year from discontinued 3.4 49.4 10.4 425.3operationsProfit for the year 300.6 340.8 209.6 617.2 Attributable to:Equity holders of the parent 300.6 340.8 209.6 617.2Earnings per share from continuingoperations:- basic 47.4p 46.5p 21.7p 20.9p- diluted 47.0p 46.1p 21.2p 20.4pEarnings per share on profit for the year:- basic 48.0p 54.4p 22.8p 67.2p- diluted 47.6p 54.0p 22.2p 64.7pProposed dividends(3) 9.05p 9.05p 8.60p 8.60p (1) Non-trading items are profits/losses on disposal of non-current assets,unrealised gains and losses on derivatives, litigation and transaction costs andprofit on disposal of discontinued operations. Details on the non-trading itemsare given in notes 4 and 6 to the financial statements.(2) Amounts staked does not represent the Group's statutory revenue andcomprises the total amount staked by customers on betting and gaming activities.(3) A final year dividend of 9.05p per share (2006: 8.60p) amounting to a totaldividend of £54.4m (2006: £54.1m) was declared by the Directors on 28 February2008. These financial statements do not reflect this dividend payable. The2006 final dividend of 8.60p (£54.1m) and the 2007 interim dividend of 4.85p(£30.5m) were paid in 2007. Consolidated balance sheet Restated 31 December 31 December 2007 2006 £m £mASSETSNon-current assetsGoodwill and intangible assets 525.9 427.5Property, plant and equipment 263.8 243.1Interest in joint venture 0.4 -Interest in associates and other investments 10.0 11.0Other financial assets 7.4 8.5Deferred tax assets 28.1 13.1Derivatives 4.5 12.7Retirement benefit asset 33.6 22.6 873.7 738.5Current assetsTrade and other receivables 138.5 75.0Assets classified as held for sale - 2.2Derivatives 29.0 0.8Cash and short term deposits 37.8 36.4 205.3 114.4Total assets 1,079.0 852.9 LIABILITIESCurrent liabilitiesInterest bearing loans and borrowings (187.3) (36.7)Derivatives - (9.9)Trade and other payables (199.1) (173.4)Corporation tax liabilities (142.4) (161.6)Other financial liabilities (30.1) (1.0)Provisions (2.6) (2.9) (561.5) (385.5)Non-current liabilitiesInterest-bearing loans and borrowings (800.0) (952.2)Derivatives (1.0) -Other financial liabilities (14.5) (15.3)Deferred tax liabilities (142.3) (114.6)Provisions (10.5) (12.2) (968.3) (1,094.3)Total liabilities (1,529.8) (1,479.8) Net liabilities (450.8) (626.9) EQUITYIssued share capital 178.9 177.9Share premium account 2,134.2 2,126.8Treasury and own shares (80.0) (5.4)Foreign currency translation reserve 9.4 2.2Other reserves (30.0) -Retained earnings (2,663.3) (2,928.4)Equity shareholders' deficit (450.8) (626.9) Consolidated cash flow statement Year ended Year ended 31 December 2007 31 December 2006 £m £m Net cash flows from operating activities 285.5 156.5 Cash flows from investing activitiesInterest received 2.6 54.7Dividends received from associates 2.3 0.8Payments for intangible assets (31.8) (9.0)Purchase of property, plant and equipment (62.4) (91.9)Purchase of subsidiaries (60.9) (26.0)Proceeds from the sale of property, plant and equipment 3.2 1.0Proceeds from disposal of discontinued operations 40.8 3,241.4Costs of disposal of discontinued operations (0.7) (74.7)Cash disposed of with discontinued operations (1.4) (54.2)Cash obtained through acquisition of subsidiaries 3.7 -Purchase of interests in joint venture (0.6) -Purchase of interests in associates and other investments (0.1) (0.5)Proceeds from disposal of interest in associates 2.2 1.0 (103.1) 3,042.6Cash flows from financing activitiesProceeds from issue of shares 7.6 70.3Proceeds from borrowings - 179.6Proceeds from repayment of loans by associate - 7.8Purchase of ESOP shares (2.5) (5.0)Purchase of treasury shares (70.4) -Repayment of borrowings (40.4) (185.3)Payments of new loans to associate - (1.8)Dividends paid (84.6) (4,208.4) (190.3) (4,142.8) Net decrease in cash and cash equivalents (7.9) (943.7)Net foreign exchange difference 0.4 1.3Cash and cash equivalents at beginning of the year 33.4 975.8 Cash and cash equivalents at end of the year 25.9 33.4 Cash and cash equivalents comprise:Cash at bank and in hand and current asset investments 37.5 36.1Bank overdraft (11.6) (2.7) 25.9 33.4 Consolidated statement of recognised income and expense Year ended Year ended 31 December 31 December 2007 2006 £m £mCurrency translation differences 7.2 1.3Recycled foreign exchange - (3.8)Actuarial gains on defined benefit pension scheme 5.1 9.6Net (losses)/gains on cash flow hedges (0.5) 1.1Tax on items directly taken to equity (1.3) (2.9)Total income and expenses recognised directly in equity 10.5 5.3Profit for the year 340.8 617.2Total recognised income and expense for the year 351.3 622.5 Attributable to:Equity holders of the parent 351.3 622.5 Notes to the financial statements 1. Corporate information The consolidated financial statements of Ladbrokes plc for the year ended 31December 2007 were authorised for issue in accordance with a resolution of thedirectors on 28 February 2008. Ladbrokes plc is a limited company incorporated and domiciled in the UnitedKingdom whose shares are publicly traded. The principle activities of thecompany and its subsidiaries ("the Group") are described in Note 3. 2. Basis of preparation (a) The consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards (IFRS), as adoptedfor use in the European Union. The financial statements have been prepared inaccordance with the accounting policies followed in the preparation of theGroup's annual consolidated financial statements for the year ended 31 December2007. The financial information set out in this document does not constitute theGroup's statutory accounts for the year ended 31 December 2007 or 31 December2006. The annual report and accounts for the year ended 31 December 2007 wereapproved by the Board of Directors today, along with this preliminaryannouncement, but have not yet been delivered to the Registrar of Companies. Theauditor's report on the statutory accounts for 2007 was unqualified and did notcontain a statement under section 237 of the Companies Act 1985. Statutoryaccounts for 2006 have been delivered to the Registrar of Companies. Theauditor's report on the statutory accounts for 2006 was unqualified and did notcontain a statement under section 237 of the Companies Act 1985. The 2007 report and accounts, together with details of the dividend arrangementsand the annual general meeting, will be despatched to shareholders on 31 March2008. The Annual General Meeting will take place at the QE2 Conference Centreat 11am on 16 May 2008. (b) To assist in understanding the underlying performance, the Group has definedthe following items of income and expense as non-trading in nature: - Profits/losses on disposal of non-current assets;- Profits/losses on disposal of businesses and investments;- Unrealised gains/losses on derivative financial instruments arising from hedging interest rate and currency exposures; and- Litigation and transaction costs. The non-trading items have been included within the appropriate classificationin the consolidated income statement. 2. Basis of preparation (continued) The Group has restated its comparative year balance sheet and income statementto reflect: Vernons as a discontinued operation; to exclude from total revenuethe share of results from joint ventures and associates; to disclose the netimpact of gains and losses arising from fair value hedges within finance costs;for the reclassification of antepost liabilities and property provisions ascurrent liabilities; and the reallocation of shared costs between reportingsegments. Refer to note 15 for further details on the restatement of the prioryear (c) The changes in accounting policies are as follows IFRS 7 Financial Instruments: Disclosures has superseded the disclosurerequirements of IAS 32 Financial Instruments: Presentation and Disclosure, withthe remaining parts of IAS 32 dealing only with financial instrumentspresentation matters. Under the disclosure requirements of IFRS 7, financial instruments have beengrouped into classes of similar instruments and the required disclosures made byclass. The two main categories of disclosures required by IFRS 7 are: - information about the significance of financial instruments and- information about the nature and extent of risks arising from financial instruments and how the Group manages these risks. The new disclosures on market risk include a sensitivity analysis of each typeof market risk to which the Group is exposed. The Group has adopted IFRS 7 for the year ended 31 December 2007 and forcomparatives for the year ended 31 December 2006 as required by theInternational Accounting Standards Board (IASB). The Group has adopted IAS 1 Amendment - Presentation of Financial Statements forthe year ended 31 December 2007. This has had no effect on the financialposition of the Group but does, however, give rise to additional disclosures. The Group has applied the guidance under IFRIC 10 Interim Financial Reportingand Impairment for the year ended 31 December 2007, which concludes that wherean entity has recognised an impairment loss in an interim period in respect ofgoodwill or an investment in either an equity instrument or a financial assetcarried at cost, that impairment should not be reversed in subsequent interimfinancial statements nor in annual financial statements. This has had no impacton the financial statements for the years ended 31 December 2006 and 2007. The Group has early adopted the guidance under IFRIC 14 IAS 19 The Limit on aDefined Benefit Asset, Minimum Funding Requirements and their Interaction, forthe year ended 31 December 2007. IFRIC 14 provides general guidance on how toassess the limit on the amount of the surplus that can be recognised as an assetunder IAS 19 Employee Benefits. It also explains how the pensions asset orliability may be affected when there is a statutory or contractual minimumfunding requirement. The Interpretation standardises practices and ensures thatentities recognise an asset in relation to a surplus on a consistent basis. Thishas had no impact on the financial statements for the years ended 31 December2006 and 2007. (d) Discontinued operations The income statement for the year ended 31 December 2006 has been restated toreflect the disposal of the Vernons pools business. A reconciliation between thereported income statement and the restated income statement is given in note 15. (e) Segmental analysis The Group is organised and managed along three principal segments according tothe nature of the services provided - European Retail (which comprises allactivities connected with the UK and other European shop estate), eGaming andTelephone Betting. Following a review, the allocation of shared costs has been adjusted in 2007 toreflect more accurately each division's activity. The segmental information for the year ended 31 December 2006 has been restated to reflect this change toreported profit and is shown in the table below The adjustment has no impact on reported Group profit, cash flows or net assets. Profit before tax and Year ended 31 Allocation Restated Vernons Restated Year finance costs and December 2006 of shared before disposal ended before non-trading costs Vernons 31 December items disposal 2006 £m £m £m £m £mEuropean Retail 212.7 4.1 216.8 - 216.8eGaming 47.0 (2.7) 44.3 - 44.3Telephone Betting 17.7 (0.4) 17.3 - 17.3Other (1) 5.9 (1.6) 4.3 (5.9) (1.6)Corporate costs (15.2) 0.6 (14.6) - (14.6)Total 268.1 - 268.1 (5.9) 262.2 The Vernons pools business was disposed in 2007. Consequently, Vernons has beenreported as discontinued, thus reducing 2006 operating profit before non-tradingitems from £268.1 million to £262.2 million (1) Casino and international development operations. Vernons treated asdiscontinued 2006. 3. Segment information The Group's continuing operating businesses are organised and managed separatelyas three principal segments according to the nature of the services provided asoutlined below. The European Retail segment comprises all activities connected with the UK andother European shop estate. The eGaming segment comprises betting and gaming activities from onlineoperations. The Telephone Betting segment comprises activities relating to bets taken on thetelephone. The Other segment comprises Casino and International development operations. Thediscontinued operations for 2007 comprise the Vernons pools business and in 2006comprised Vernons and the ownership operations and management of hotels and healthclubs. 2007 Profit before Profit before taxation and non- taxation and after Revenue trading items non-trading items £m £m £m Continuing operations:European Retail 804.5 209.5 208.4eGaming 143.5 55.0 55.0Telephone Betting 279.8 183.6 183.6Other 7.2 (7.0) (7.0)Corporate costs - (21.1) (21.1)Total 1,235.0 420.0 418.9 Net finance costs - (68.0) (74.7) 1,235.0 352.0 344.2 Discontinued operations:Vernons 16.8 4.8 50.8 1,251.8 356.8 395.0 3. Segment information (continued) Restated 2006 Profit before Profit before taxation and taxation and after Revenue non-trading items non-trading items £m £m £m Continuing operations:European Retail 767.5 216.8 216.8eGaming 134.1 44.3 44.3Telephone Betting 45.8 17.3 17.3Other - (1.6) (1.6)Corporate costs - (14.6) (17.1)Total 947.4 262.2 259.7 Net finance costs - (20.6) (21.6) 947.4 241.6 238.1 Discontinued operations:Vernons 18.6 4.9 4.9Hotels 264.4 10.8 426.8 283.0 15.7 431.7 1,230.4 257.3 669.8 4. Non-trading items 2007 2006 £m £m Continuing operations:Profit on disposal of shares in associate 1.5 -Loss on closure of UK Retail shops (2.6) -Net unrealised gains and derivatives and (losses)/gainson retranslation of foreign currency borrowings (6.7) (1.0)Litigation and transaction costs - (2.5)Total non-trading items (7.8) (3.5)Non-trading tax credit/(charge) 2.0 (3.8)Non-trading items after taxation (5.8) (7.3) 5. Taxation The total tax charge on continuing operations was £52.8 million (Restated 2006:£46.2 million). The taxation charge relates to £52.3 million of UK tax and £0.5million of overseas tax. The £52.8 million total tax charge on continuingoperations, comprising £68.3 million (2006: £30.9 million) current income taxcharge offset by £15.5 million (2006: £15.3 million - charge) deferred incometax credit. 6. Discontinued operations On 3 December 2007 the Group completed the sale of the Vernons pools business toSportech plc. On 23 February 2006 the Group completed the sale of the hotelsdivision to Hilton Hotels Corporation. The effect of the disposals is as follows: 2007 2006 £m £mSales proceeds - cash consideration 40.8 3,241.4Sales proceeds - deferred consideration(1) 6.2 -Sales proceeds - total consideration 47.0 3,241.4Total net liabilities/(assets) sold 3.6 (2,765.9)Costs of disposal (4.6) (95.1)Recycled foreign exchange - 3.8Profit on disposal 46.0 384.2 The deferred consideration is payable in two instalments, £3.2 million in 2008and £3.0 million in 2009. Profit for discontinued operations comprises the following: 2007 2006 Vernons Vernons Hotels Total £m £m £m £mRevenue 16.8 18.6 264.4 283.0Expenses (10.8) (12.7) (253.2) (265.9)Profit from discontinued operations 6.0 5.9 11.2 17.1Net finance costs (1.2) (1.0) (0.4) (1.4)Profit from discontinued operations afterfinance costs before non-trading items 4.8 4.9 10.8 15.7Profit on disposal of Vernons to Sportech plc 46.0 - - -Profit on disposal of hotels division toHilton Hotels Corporation - - 384.2 384.2Profit on sale of non-current assets (1) - - 28.0 28.0Profit before tax and non-trading financecosts 50.8 4.9 423.0 427.9 Non-trading finance income - - 3.8 3.8Profit before tax from discontinued 50.8 4.9 426.8 431.7operationsTaxation: - related to pre tax profit (1.4) (1.5) (3.8) (5.3) - related to non-trading items - - (1.1) (1.1)Profit for the year from discontinuedoperations 49.4 3.4 421.9 425.3Profit for the year from discontinuedoperations before non-trading items 3.4 3.4 7.0 10.4 6. Discontinued operations (continued) (1) The profit on sale of non current assets in 2006 related to the sale of a40% interest in a Limited Partnership. The profit includes recognition of adeferred gain on disposal following the sale of ten hotels to the LimitedLiability Partnership in 2002. The major classes of assets and liabilities of the Vernons pools business heldfor sale as at disposal and of the hotels division held for sale as at disposalwere: 3 December 2007 23 February 2006 £m £m Vernons Hotels AssetsNon current assetsGoodwill and intangible assets - 1,375.0Property, plant and equipment 0.4 1,923.4Interests in associates and other investments - 72.8Other financial assets - 5.0Deferred tax asset - 27.6Retirement benefit asset - 0.4 0.4 3,404.2Current assetsInventories - 15.1Trade and other receivables 0.4 282.9Cash and cash equivalents 1.4 67.8 1.8 365.8Total assets held for sale 2.2 3,770.0LiabilitiesCurrent liabilitiesInterest bearing loans and borrowings - (43.6)Obligations under finance leases - (2.6)Trade and other payables (5.5) (427.9)Corporation tax liabilities (0.3) (37.9) (5.8) (512.0)Non current liabilitiesInterest bearing loans and borrowings - (12.3)Obligations under finance leases - (30.8)Other financial liabilities - (20.6)Deferred tax liabilities - (329.3)Retirement benefit obligation - (92.5)Provisions - (3.6) - (489.1)Total liabilities held for sale (5.8) (1,001.1) Net (liabilities)/assets held for resale (3.6) 2,768.9Minority equity interest - (3.0)Group's share of disposed net (liabilities)/assets (3.6) 2,765.9 6. Discontinued operations (continued) Cash flows relating to discontinued operations were: 2007 2006 £m £m Net cash flows from operating activities 3.4 8.1Investing activities (0.1) (5.5)Financing activities - 7.8Proceeds from disposal of discontinued operations 40.8 3,241.4Disposal costs of discontinued operations (0.7) (74.7)Cash disposed with discontinued operations (1.4) (54.2)Cash flows relating to discontinued operations 42.0 3,122.9 Income and expenses recognised directly in equity relating to the assets of thedisposal group were: 2007 2006 £m £mCurrency translation differences - 1.0Actuarial losses on defined benefit pension scheme - (3.8)Tax on items taken directly to equity - 1.1Total income and expenses recognised directly in equity - (1.7) 7. Dividends paid and proposed Proposed dividends 2007 2006Pence per share Pence Pence Interim 4.85 4.60Final (excluding special) 9.05 8.60 13.90 13.20 A final year end dividend of 9.05p per share (2006: 8.60p) amounting to a totaldividend of £54.4 million (2006: £54.1 million) was declared by the Directorson 28 February 2008. These financial statements do not reflect this dividendpayable. The 2006 final dividend of 8.60p (£54.1 million) and the 2007 interimdividend of 4.85p (£30.5 million) were paid in 2007. 8. Earnings per share The calculation of adjusted earnings per share before non-trading items isincluded as it provides a better understanding of the underlying performance ofthe Group. Total Group earnings per share in 2006 includes the profit ondisposal of the hotels business. A 6 for 17 share consolidation took place on13 April 2006, hence continuing earnings per share is not directly comparable. Continuing operations Diluted Basic EPS Diluted EPS2007 Earnings earnings pence per pence per £m £m share share Profit attributable toshareholders 291.4 291.4 46.5p 46.1pNon-trading items net of tax 5.8 5.8 0.9p 0.9pAdjusted profit attributable toshareholders 297.2 297.2 47.4p 47.0 Diluted Basic EPS Diluted EPSRestated 2006 Earnings earnings* pence per pence per £m £m share share Profit attributable toshareholders 191.9 195.0 20.9p 20.4pNon-trading items net of tax 7.3 7.3 0.8p 0.8pAdjusted profit attributable toshareholders 199.2 202.3 21.7p 21.2p 8. Earnings per share (continued) Discontinued operations Diluted Basic EPS Diluted EPS2007 Earnings earnings pence per pence per £m £m share share Profit attributable toshareholders 49.4 49.4 7.9p 7.9pNon-trading items net of tax (46.0) (46.0) (7.3)p (7.3)pAdjusted profit attributable toshareholders 3.4 3.4 0.6p 0.6p Diluted Basic EPS Diluted EPSRestated 2006 Earnings earnings* pence per pence per £m £m share share Profit attributable toshareholders 425.3 425.3 46.3p 44.3pNon-trading items net of tax (414.9) (414.9) (45.2)p (43.3)pAdjusted profit attributable toshareholders 10.4 10.4 1.1p 1.0p Total Group Diluted Basic EPS Diluted EPS Earnings earnings pence per pence per2007 £m £m Share share Profit attributable toshareholders 340.8 340.8 54.4p 54.0pNon-trading items net of tax (40.2) (40.2) (6.4)p (6.4)pAdjusted profit attributable toshareholders 300.6 300.6 48.0p 47.6p Diluted Basic EPS Diluted EPS2006 Earnings earnings* pence per pence per £m £m Share Share Profit attributable toshareholders 617.2 620.3 67.2p 64.7pNon-trading items net of tax (407.6) (407.6) (44.4)p (42.5)pAdjusted profit attributable toshareholders 209.6 212.7 22.8p 22.2p * Diluted earnings included an adjustment to the attributable profit to reflecta reduction in the interest charge net of tax of £3.1 million in 2006 whichwould have resulted from the conversion of the convertible bond to equity. 8. Earnings per share (continued) The number of shares used in the calculation is shown below: 2007 2006 Millions Millions Weighted average number of ordinary shares for the purposesof basic earnings per share 626.5 919.1 Effect of dilutive potential ordinary shares:Share options 3.6 7.9Issue of contingently issuable shares 1.4 1.2Convertible bond conversion to ordinary share capital - 30.0 Weighted average number of ordinary shares for the purposesof dilutive earnings per share 631.5 958.2 At 31 December 2007, excluding Treasury shares, there were 611.5 million 281/3pordinary shares in issue. Including Treasury shares there were 631.4 million281/3p ordinary shares in issue. At 31 December 2006, there were 627.8 million 281/3p ordinary shares in issue. 9. Property, plant and equipment During the year, the Group acquired assets with a cost of £63.6 million (2006:£84.7 million). In addition the Group acquired assets from businesscombinations at a cost of £4.3 million (2006: £0.2 million). Assets with a net book value of £5.9 million were disposed of by the Groupduring the year (2006: £2.4 million). 10. Net debt The Group's net debt structure is as follows: 2007 2006 Total - Continuing Continuing Discontinued operations operations operations Total £m £m £m £mNon-current assetsDerivatives 4.5 12.7 - 12.7 Current assetsDerivatives 29.0 0.8 - 0.8Cash and short term deposits 37.8 36.4 - 36.4 Current liabilitiesBank overdrafts (11.6) (2.7) - (2.7)Interest bearing loans and borrowings (175.7) (16.3) - (16.3)Derivatives - (9.9) - (9.9) Non-current liabilitiesInterest bearing loans and borrowings (800.0) (952.2) (17.7) (969.9)Derivatives (1.0) - - - Net debt per balance sheet (917.0) (931.2) (17.7) (948.9) 11. Reconciliation of profit to net cash inflow from operating activities 2007 2006 £m £m Profit before tax and finance costs - continuing (1) 420.0 262.2Profit before tax and finance costs -discontinued (1) 6.0 17.1Profit before tax and finance costs (1) 426.0 279.3 Depreciation 45.5 38.1Amortisation of intangible assets 5.0 4.3Costs of share-based payments 6.4 2.3Increase in other financial assets (0.2) -Increase in assets classified as held for sale - (6.3)Increase in trade and other receivables (63.2) (1.8)Decrease in other financial liabilties (1.7) -Increase in trade and other payables 15.7 3.2(Decrease)/increase in provisions (3.0) 5.7Contribution to retirement benefit scheme (6.1) (67.6)Share of results from joint ventures 0.2 -Share of results from associates (4.0) (3.3)Other items 0.5 10.8 Cash generated by operations 421.1 264.7Income taxes paid (65.8) (48.9)Finance costs paid (69.8) (59.3) Net cash inflow from operating activities 285.5 156.5 (1) Before non-trading items 11. Reconciliation of profit to net cash inflow from operating activities(continued) Cash and short term deposits in the balance sheet comprise: 2007 2006 £m £m Continuing operationsCash at bank and in hand 37.5 36.1Deposits with maturity greater than three months 0.3 0.3 37.8 36.4 Cash and cash equivalents in the cash flow statement comprise cash at bank andother short-term highly liquid investments with a maturity of three months orless and overdrafts: 2007 2006 £m £m Continuing operationsCash at bank and in hand 37.5 36.1Bank overdrafts (included in current liabilities) (11.6) (2.7) 25.9 33.4 12. Issued capital and reserves Treasury Convertible and Foreign Share Share bond Other own Retained currency Minority Total capital premium adjustment Reserve shares earnings translation Total interests equity £m £m £m £m £m £m £m £m £m £m At 1 January 2006 160.6 1,767.7 34.3 158.2 (16.0) 483.2 4.7 2,592.7 3.0 2,595.7 Total recognisedincome and expensefor the year - - - - - 625.0 (2.5) 622.5 - 622.5Issue of shares for cash 4.3 66.0 - - - - - 70.3 - 70.3Issue of shares on conversion ofconvertible bond 13.0 287.0 (25.8) - - - - 274.2 - 274.2Share-based payment awards - 6.1 - - - (0.7) - 5.4 - 5.4Reserves transfer - - (8.5) (158.2) - 166.7 - - - -Cost of share-basedpayments - - - - - 5.8 - 5.8 - 5.8Net increase dueto shares held inESOP trusts - - - - 10.6 - - 10.6 - 10.6Minority interests disposed - - - - - - - - (3.0) (3.0)Equity dividends - - - - - (4,208.4) - (4,208.4) - (4,208.4) At 31 December 177.9 2,126.8 - - (5.4) (2,928.4) 2.2 (626.9) - (626.9)2006 At 1 January 2007 177.9 2,126.8 - - (5.4) (2,928.4) 2.2 (626.9) - (626.9) Total recognised income and expensefor the year - - - - - 344.1 7.2 351.3 - 351.3Issue of shares for cash 0.9 6.7 - - - - - 7.6 - 7.6Share-based payment awards 0.1 0.7 - - - (0.8) - - - -Cost of share-basedpayments - - - - - 6.4 - 6.4 - 6.4Own shares purchased - - - - (70.4) - - (70.4) - (70.4)Provision for share buybacks - - - (30.0) - - - (30.0) - (30.0)Net increase due to shares held inESOP trusts - - - - (4.2) - - (4.2) - (4.2)Equity dividends - - - - - (84.6) - (84.6) - (84.6) At 31 December 178.9 2,134.2 - (30.0) (80.0) (2,663.3) 9.4 (450.8) - (450.8)2007 13. Business combinations In 2007, the Group acquired the following interests with net assets at fairvalue of £50.7 million, for a consideration of £64.9 million (cash paid of £60.9million, with a deferred consideration of £4.0 million), resulting in goodwillon acquisition of £14.2 million: Consideration £m Interest Date of acquisitionPaddington Casino Limited 10.7 65%* 3 January 2007Sponsio Limited 41.8 100% 18 January 2007 European Retail acquisitionsKeenan Sports and Leisure Limited 3.1 100% 28 February 2007Micheletto Agenzia Ippica Cuneo SRL 1.4 100% 27 June 2007Parco Del Lido SRL 4.3 100% 7 August 2007Montecarlo SRL 1.5 100% 10 August 2007Laura Bassi SRL 1.5 100% 29 August 2007Ace Racing Limited 0.6 100% 30 November 2007 * The acquisition of the 65% during 2007 took the Group's shareholding to 100%.At 31 December 2006, the Group held a 35% shareholding which it accounted for asan investment in associate. Sponsio Limited Sponsio Limited is a Swedish service provider for the Group's eGaming operationsand has formed part of the Group's eGaming segment. The acquisition and fair value balance sheet of Sponsio Limited is as follows: 13. Business combinations (continued) Acquiree's Fair carrying amount Value Total before combination adjustments £m £m £m Non-current assetsIntangible assets - customer relationship - 40.5 40.5Current assetsTrade and other receivables 0.7 - 0.7Cash and cash equivalents 1.9 - 1.9Total assets 2.6 40.5 43.1 Current liabilitiesTrade and other payables (1.3) - (1.3)Total liabilities (1.3) - (1.3) Fair value of net assets acquired 1.3 40.5 41.8 ConsiderationCash consideration 37.4 - 37.4Acquisition costs 0.4 - 0.4Deferred consideration 4.0 - 4.0Total consideration 41.8 - 41.8 The cash outflow on acquisition is as follows: Net cash acquired with subsidiaries (1.9) - (1.9)Cash paid (including costs) 37.8 - 37.8Net cash outflow 35.9 - 35.9 The customer relationships of £40.5 million relate to the fair value ofcontracted relationships that Sponsio Limited held at the acquisition date. From the date of acquisition, Sponsio Limited has contributed £nil to revenueand £2.3 million of operating profit to the Group. Paddington Casino Limited Paddington Casino Limited is a land based casino based in London, England andhas formed part of the Group's Other segment. The acquisition and fair value balance sheet of Paddington Casino Limited is asfollows: 13. Business combinations (continued) Paddington Casino Limited £m Non-current assets Intangible assets 0.5Property, plant and equipment 4.3Current assetsTrade and other receivables 0.1Cash and cash equivalents 0.5Total assets 5.4 Current liabilitiesTrade and other payables (1.3)Interest bearing loans and borrowings (4.1)Total liabilities (5.4) Fair value share of net assets acquired -Goodwill arising on acquisition 10.7 ConsiderationCash consideration 10.6Acquisition costs 0.1Total consideration 10.7 The cash outflow on acquisition is as follows: Net cash acquired with subsidiaries (0.5)Cash paid (including costs) 10.7Net cash outflow 10.2 The goodwill of £10.7 million comprises a customer list, which is not separatelyrecognised. The customer list is not contracted and therefore does not needrecognition criteria under IAS 38 Intangible Assets. From the date of acquisition, Paddington Casino Limited has contributed £7.2million to revenue and £0.7 million of operating loss to the Group. European Retail statutory acquisitions The Group made six acquisitions, which have formed part of its European Retailsegment: - Keenan Sport and Leisure Limited (based in Ireland)- Ace Racing Limited (based in Ireland)- Micheletto Agenzia Ippica Cuneo SRL (based in Italy)- Parco Del Lido SRL (based in Italy)- Montecarlo SRL (based in Italy)- Laura Bassi SRL (based in Italy) 13. Business combinations (continued) As shown in the table below, these acquisitions have been disclosed inaggregate, as they are not considered individually material to the Group. Acquiree's Fair value Fair value carrying amount adjustments before combination £m £m £m Non-current assetsGoodwill and intangible assest 0.3 12.1 12.4Property, plant and equipment 0.7 (0.7) -Other financial assets 0.1 - 0.1 Current assetsTrade and other receivables 0.2 - 0.2Cash and cash equivalents 1.3 - 1.3Total assets 2.6 11.4 14.0 Current liabilitiesTrade and other payables (1.6) - (1.6)Deferred income tax liability - (3.5) (3.5)Total liabilities (1.6) (3.5) (5.1) Fair value of net assets acquired 8.9Goodwill arising on acquisition 3.5 ConsiderationCash consideration 11.8Acquisition costs 0.6Total consideration 12.4 The cash outflow on acquisition is as follows: Net cash acquired with subsidiaries (1.3)Cash paid (including costs) 12.4Net cash outflow 11.1 From the date of acquisitions, the European Retail acquisitions have contributed£2.5 million to revenue and £0.6 million of operating profit to the Group. If the Sponsio Limited, Paddington Casino Limited and European Retail statutoryacquisitions has been completed on the first day of the financial year, Grouprevenues for the year would have been £5.4 million higher and the Group profitattributable to the equity holders of the parent company would have been £1.3million higher than that disclosed in the Income Statement. 13. Business combinations (continued) 2006 Acquisitions In 2006, the Group acquired the following interests with net assets at fairvalue of £19.3 million (including licences of £27.6 million), for aconsideration of £28.6 million (cash paid of £26.0 million, with a deferredconsideration of £2.6 million), resulting in goodwill of £9.3 million. Consideration Interest Date of acquisition £m %Harney Bookmaker Limited 6.2 100.0% 26 April 2006MD Betting Limited 4.8 100.0% 15 September 2006North West Boomakers Limited 12.8 100.0% 29 September 2006Nuova Pianeta Scommesse SRL 0.7 51.0% 18 September 2006Mantovani SRL and Better SRL 4.1 100.0% 1 December 2006 From the date of these acquisitions to 31 December 2006, the European Retailacquisitions contributed £1.7 million to the net profit of the Group. If theseacquisitions had been completed on the first day of 2006, profit from theseacquisitions in 2006 would have been £4.4 million. 14. Financial guarantee contracts The Group has given guarantees to third parties in respect of lease liabilitiesof subsidiaries within the disposed hotels division. The Group has an indemnityreceived from Hilton Hotels Corporation (HHC), at the time of the hotelsdivision disposal, in relation to any loss the Group may subsequently incurunder these third party guarantees. The maximum liability exposure in respect of the guarantees is £1,228.1 million(2006: £1,288.9 million), with a maximum indemnity receivable of the sameamount. The maximum liability represents the total of all guaranteed rentalsunder the non-cancellable agreements into which the Group has entered. Theseguarantees expire between 2009 and 2042 and the net present value of the maximumexposure at 31 December 2007 is £635.8 million (2006: £658.9 million). The Groupmonitors its exposure under these guarantees on a regular basis and seeks tonovate its obligations. At 31 December 2007 the Group has recognised a financial liability of £10.0million (2006: £14.0 million) in respect of these guarantees together with afinancial asset of £3.0 million (2006: £7.0 million) in relation to theindemnity. The financial guarantees liability has been valued using a probability basedmodel to estimate the net present value of the liabilities payable in the eventof a default by the hotels covered by the guarantees, and the probability ofsuch a default and new leases being identified. 14. Financial guarantee contracts (continued) The key assumption in the probability model is the hotel default rate. A rate of1.2 per cent has been used as at 31 December 2007 (2006: 1.7 per cent). A 0.25percentage point increase in the default rate would increase the financialliability by £2.0 million. The financial guarantee asset has been valued on a similar basis to theliability, taking account of historic default data from internationallyrecognised credit-rating agencies and the credit profile of the counter party,HHC, to assess the likelihood of HHC continuing to be solvent at the time of anyfuture potential claim under the indemnity. 15. Restatement of income statement and balance sheet for prior year Year ended 31 December 2006 Reported Adjustment Adjustment Restated Before Discontinued Revenue Before non-trading operations - non-trading Items Vernons Items £m £m £m £m Amounts Staked(1) 12,383.8 (37.9) - 12,345.9 Continuing operationsRevenue 966.0 (18.6) - 947.4Share of results from associates 4.0 - (4.0) -Total revenue 970.0 (18.6) (4.0) 947.4Cost of sales before depreciation (573.3) 3.6 - (569.7)Administrative expenses (86.2) 8.9 - (77.3)Share of results from joint ventures and associates - - 4.0 4.0EBITDA 310.5 (6.1) - 304.4Depreciation and amounts written off non - current assets (42.4) 0.2 - (42.2)Profit before tax and finance costs 268.1 (5.9) - 262.2Finance costs (62.3) 1.0 - (61.3)Finance income 40.7 - - 40.7Profit before taxation 246.5 (4.9) - 241.6Income tax expense (43.9) 1.5 - (42.4)Profit for the year - continuing operations 202.6 (3.4) - 199.2 Discontinued operationsProfit for the year from discontinued operations 7.0 3.4 - 10.4Profit for the year 209.6 - - 209.6 Attributable to:Minority interests - - - -Equity holders of the parent 209.6 - - 209.6 209.6 - - 209.6Earnings per share from continuing operations:- basic 22.0p (0.3)p - 21.7p- diluted 21.5p (0.3)p - 21.2pEarnings per share on profit for the year:- basic 22.8p - - 22.8p- diluted 22.2p - - 22.2p (1) Amounts staked does not represent the Group's statutory revenue andcomprises the total amount staked by customers on betting and gaming activities. 15. Restatement of income statement and balance sheet for prior year(continued) Non-trading finance costs and finance income has been restated to disclose thenet impact of gains and losses arising from fair value hedges within financecosts. The balance sheet for 31 December 2006 has been restated for reclassificationsof £2.9 million non-current liability provisions to current liability provisionsand £1.0 million of non-current financial liabilities to current financialliabilities. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ladbrokes Coral