24th Feb 2005 07:02
Hilton Group PLC24 February 2005 Preliminary statement of results for the year to 31 December 2004 Year to Year to 31 December 2004 31 December 2003 £m £m Turnover 11,893.4 8,930.5 Operating Profit* Hotels 171.3 146.5 Betting and Gaming 273.4 214.1 Central costs and income (14.5) (13.6) 430.2 347.0 Interest (47.1) (74.6) Profit before taxation* 383.1 272.4 Exceptional charges before taxation (0.6) (29.0) Profit before taxation, after goodwill amortisation and exceptional items 311.3 171.2 EBITDA* 561.9 485.3 Earnings per share* 20.4p 13.4p Earnings per share, after goodwill amortisation and exceptional items 16.5p 7.1p Diluted earnings per share* 19.3p 13.4p Dividend per share 9.60p 8.92p * Before goodwill amortisation and exceptional items Group Highlights • Group profit before taxation, goodwill amortisation and exceptional items up 41% to £383.1 million. • Earnings per share before goodwill amortisation and exceptional items up 52% to 20.4 pence. • Net borrowings reduced by £175.8 million to £971.9 million since 31 December 2003. • Final dividend of 6.0 pence (up 8.7%) making a total of 9.6 pence for 2004. • The Group intends to raise £300 million to £400 million of proceeds from the disposal of hotel assets during the next 12 months, a substantial part of which, is expected to be returned to shareholders. Betting and Gaming Highlights • Ladbrokes' profit up 28% to a record £273.4 million with strong growth in all channels despite some adverse racing and football results towards the end of the year. • UK Retail profits up 24% to £215.3 million reflecting year on year 'over-the-counter' growth and increased machine profitability. • eGaming profits up 50% to £21.3 million with particularly strong growth from the poker site. Hotels Highlights • Hotel profits up 17% to £171.3 million as the overall recovery in hotel trading continues. • On a worldwide basis, overall like for like revpar at constant exchange rates was up 7%, with an increase in occupancy of 4.3 percentage points and an increase in rate of 0.2%. • Profit in the UK and Ireland increased by 15% to £95.1 million. • Profit in Europe and Africa increased 28% to £58.2 million with some countries seeing encouraging growth towards the end of the year. Sir Ian Robinson, Chairman, commented: "Hilton Group enjoyed one of its best performances in recent years and the Boardis pleased to present a strong set of financial results with earnings per sharerising by 52%. The final dividend for the year will be 6.0 pence, up 8.7% onlast year, giving a full year total dividend of 9.6 pence; an increase of 7.6%. The increasing profitability of Ladbrokes, up 28%, is just reward for itsinnovative and professional approach to the betting and gaming business; it isworthy of its pole position in the sector. The hotel division has seen signs of recovery and increased its profitability by17% in 2004. We continue to open new hotels under management contract and thisprogramme is set to continue. We were pleased to announce the appointment ofIan Carter as Chief Executive of Hilton International, his internationalexperience of marketing quality brands will help consolidate and grow our marketleading position. I am very proud of the brands we own and in the year ahead we will build furtheron their strengths." David Michels, Group Chief Executive, commented: "Continuing success in our betting and gaming businesses and the steadyimprovement in the hotel division resulted in a good performance by the Groupoverall, in what was an eventful but also encouraging year. The appointment of Ian Carter at the end of the year as Chief Executive ofHilton International marked an important stage for the Group. His approach tothe hotels business will, I believe, offer a fresh insight to the opportunitiesthat lie ahead. 2004 was the first uninterrupted year of hotel recovery for some time. Revparrose steadily and more Hilton and Scandic properties were added during thecourse of the year. On a less positive note we felt the impact of increasingcost pressures and while many remain outwith our control, we will nonethelessseek to mitigate these costs where possible. Our brand remains our greatestasset and this was reinforced in the latest BDRC research, which measures ourbrand position in terms of awareness, usage and performance; in most places wecontinue to lead in our particular market. The advent of the Gambling Bill has subjected the betting and gaming industry tounprecedented scrutiny with casinos, Fixed Odds Betting Terminals and bettingexchanges all receiving widespread news coverage. We believe, however, that thecore betting shop business will continue to grow and our online businesses willexpand further afield with ever more innovative products. We will also seek totake advantage of Regional casino opportunities, assuming the Gambling Bill isenacted. The Group intends to raise £300 million to £400 million of proceeds from thedisposal of hotel assets during the next 12 months, a substantial part of whichis expected to be returned to shareholders." Outlook The Group has had a satisfactory start to 2005. Hotel trading is improving inmost parts of the world and the acceleration of development at Ladbrokes willfurther reinforce our leading position in the UK betting sector. Enquiries to: David Michels, Group Chief ExecutiveBrian Wallace, Deputy Group Chief Executive and Finance DirectorAlex Pagett, Director Group Corporate Affairs (mobile +44 (0)7974 229888) James Mason, Head of Investor Relations (mobile +44 (0)7974 229462) Telephone: +44 (0)20 7856 8109 A live audiocast of the presentation to analysts, together with this newsrelease and slide presentation, will be available on Hilton Group's corporatewebsite which may be found at www.hiltongroup.com. High-resolution print quality images to accompany this announcement can bedownloaded free of charge on www.vismedia.co.uk. Overview of Results Group profit before taxation, goodwill amortisation and exceptional items rose41% to £383.1 million. Betting and Gaming gross win increased by 16% to £877.1 million with growth inall channels. With operating costs increasing by 11%, mainly due to increasedopening hours in the expanding UK and Irish shop estate and transactional growthin our eGaming and Telephone betting businesses, operating profit increased by28% to a record £273.4 million. The hotel division saw operating profit rise by 17% to £171.3 million as thesteady recovery in overall trading continued, driven mainly by an encouragingperformance in London and, in the second half, Europe. Underlying profit, afteradjusting for property changes, one off charges and exchange movements,increased by 20%. The Group is currently progressing the disposal of 11 UK hotels, which withoutconsiderable capital investment, would not have met Hilton brand standards.Additionally, the Group is examining the possibility of further asset disposalsduring the next 12 months either through outright sales or through 'sale andmanage' arrangements. Should these disposals be achieved, it is envisaged thatthe related proceeds from all asset sales would total £300 million to £400million. It is currently the Group's intention to return a substantial part ofthese proceeds to shareholders although the mechanism of this return of capitalhas yet to be determined. Further asset disposals will be considered in subsequent periods, subject tomarket conditions. The Board Ian Carter was appointed Chief Executive of Hilton International and a directorof Hilton Group plc on 1 February 2005. Ian was formerly officer and Presidentof Black and Decker Corporation, Europe, Middle East, Africa and Asia and hasbroad international management and marketing experience gained through 11 yearswith General Electric and Low & Bonar plc. On 1 June 2004 Pippa Wicks was appointed as a non-executive director of HiltonGroup plc. Pippa was appointed Managing Director of AlixPartners, theperformance improvement and turnaround specialist advisory firm, in 2003. Shepreviously held senior positions with Pearson plc and was Group Finance Directorat Courtaulds Textiles plc from 1993 to 1999. Dividend The Board has recommended a final dividend of 6.0 pence per share payable on 1June 2005 to shareholders on the register on 4 March. This final dividend,together with the interim dividend of 3.6 pence, gives a total dividend of 9.6pence and represents an increase of 7.6% on last year's dividend. Betting and Gaming Business Review Ladbrokes continued to improve its product and service offer to customers acrossall channels. Our lead in technology, shop design, product development andcustomer service continued to be the catalyst for growth, with record levels ofgross win and profit in 2004. The UK shop business completed the installation of Fixed Odds Betting Terminals(FOBTs) in June, faster than any other company. At the end of 2004, 5,995terminals and 1,482 Amusements With Prizes (AWP) machines were in place.Ladbrokes leads the industry in FOBT product development and fully complies withthe FOBT Code of Practice agreed with the Department of Culture, Media & Sport(DCMS) and the Gaming Board, which became applicable on 1 April 2004. Inaddition, Ladbrokes was proud to be the first company to gain a complianceaccreditation from Gamcare, the organisation which supports problem gamblers andtheir families. Ladbrokes' staff won the 'Young Customer Services Professional' and 'RetailCustomer Services Team' titles at the prestigious National Customer ServicesAwards 2004, confirming our staff to be the best and most knowledgeable in theindustry and key to our continuing success. We have continued to invest in theshop estate with the acquisition of 44 shops and the opening of 8 new locations.In addition 63 shops were relocated or extended and 90 refurbished. Thisactivity continues to improve the quality and size of the estate and at the endof 2004 there were 1,921 Ladbrokes shops. We will accelerate this level ofactivity in 2005. Shop opening hours increased by 9% and the number of shop trading days by 2.7%.Just as importantly, we increased the number of betting events available to ourcustomers by 14%, examples being virtual reality horse and dog racing andbetting-in-running on football matches and other sporting tournaments. Thesenew events were underpinned by the increasing number of live horse and greyhoundraces taking place each day. Our focus on technology allows us to present thisexpanding array of products in an efficient and exciting manner. Betting and Gaming (continued) Ladbrokes is the only betting company able to offer a total betting servicewhich allows its customers to bet whenever and wherever they want - using theirone customer account. Launched early in 2004, customers can place bets anddeposit or withdraw betting funds through any of Ladbrokes' distribution channels - shops, internet, telephone and interactive TV. Telephone betting active customers increased by 7% and call volumes by 11%.Investment in technology continued with the introduction of intelligenttelephone call routing and an improved call recording system; both have improvedcustomer service and operational efficiency. Our ambition to increase marketshare, and simultaneously, profitability is delivering the desired results. The rapid growth of eGaming continued with another strong performance. Thepoker site, Ladbrokespoker.com, is the leader within Europe. Revenues fromtable rake and tournaments more than doubled in 2004, with active customersexceeding 60,000. Ladbrokes runs some of the biggest poker tournaments in theworld, including Pokermillion - the finals of which generate large televisionaudiences and in 2005 will provide a $1 million first prize. Ladbrokes' sportsbook continues to grow both in terms of active customers andthe depth and breadth of product offering. A significant area of development in2004 has been betting-in-play. The increasingly live nature of the sportsbookis proving beneficial both in terms of customer numbers and their usage of thesite. Ladbrokesgames.com increased its offer to over 20 games, whilstLadbrokescasino.com continued to grow both active customers and gross win in avery competitive market. Vernons, using its well known brand, continued to develop its online and postalgames products to offset the decline in the traditional weekly pools bettingbusiness. Total sales in 2004 remained constant. Ladbrokes continues to evaluate the opportunity presented by the Gambling Billto develop a Regional casino, where and when the legislation defines theopportunity. Such a venture would bring together the Group's unique set ofoperational skills and world beating brands. Betting and Gaming (continued) We have been encouraged by progress made with Government to seek an equitablesolution to the taxation of betting exchanges and will continue these efforts. Betting and Gaming (continued) Operating Results Gross win by business Year to Year to 31 December 2004 31 December 2003 £m £m UK Retail 652.5 575.1 Ireland & Belgium 69.0 67.6 Telephone Betting 46.1 28.9 eGaming 89.3 63.7 Vernons 20.2 20.2 Betting and Gaming 877.1 755.5 Operating profit by business Year to Year to 31 December 2004 31 December 2003 £m £m UK Retail 215.3 173.1 Ireland & Belgium 13.2 11.5 Telephone Betting 17.8 9.4 eGaming 21.3 14.2 Vernons 5.8 5.9 Betting and Gaming 273.4 214.1 Operating profit is before goodwill amortisation and exceptional items Betting and Gaming (continued) Gross win increased by 16% to £877.1 million with growth in all channels. Afterdeducting gross profits tax and VAT, gross profit grew 17% to £748.6 million. Operating costs increased by 11%, mainly due to increased opening hours in theexpanding UK and Irish shop estate, plus the transactional growth in our eGamingand Telephone betting business. Consequently, operating profit increased by 28% to a record £273.4 million. UK Retail • Shop numbers increased from 1,875 to 1,921 with 52 shops acquired oropened. In addition, 153 shops were relocated, extended or refurbished. • Gross win increased by 13% to £652.5 million. Excluding machines,over-the-counter (OTC) increased by 6%. In the first half OTC growth was 14%helped by good results at Cheltenham, the Grand National and Greece's success atEuro 2004. However, poor horse and football results, notably in the EuropeanChampions League and UEFA Cup tournaments, led to a 2.5% decline in the secondhalf of the year. Slippage grew by 5% in 2004 and average stake per slipincreased by 1% to £8.47. • Gross win from FOBTs and AWPs grew by 41%. Having completed theinstallation programme for FOBTs in June, we ended the year with 5,995 terminalsand 1,482 AWPs. The average weekly gross win per FOBT for the year was £584. • Operating costs increased by 7% to £340.8 million resulting mainly fromthe greater number of shops and increased shop trading days. Our horse racelevy payments increased as a direct consequence of our success at increasing UKhorse racing gross win. • Operating profit was £215.3 million representing a 24% increase. European Retail • Gross win in Ireland and Belgium increased by 2% and operating profitincreased by 15% to £13.2 million. • Ireland benefited from an aggressive shop development programme with 14shops acquired or opened, and a further 6 relocated and refurbished. We havealso completed the £2 million introduction of an Electronic Point of Sale systemand new screen systems. Betting and Gaming (continued) Telephone Betting • Gross win increased by 60% to £46.1 million, generated by increasedcall volumes and a good run of results in the year improving margin from 6.1% to7.3%. Excluding results from high rollers, underlying gross win grew by 30%. • Call volumes increased 11% to 6.7 million due to an ever improvingservice and product offering. The number of active customers in the period grew7% to 125,000. • Operating costs grew by 41% reflecting the growth in call volumes,banking transactions and increased UK horserace betting levy. Average operatorcost per call increased by 2% in the year. • Operating profit increased 89% to £17.8 million. eGaming • Gross win increased by 40% to £89.3 million with particularly stronggrowth in Poker and Sportsbook. • Poker gross win more than doubled with 64,000 active players, anincrease of 156%. Sportsbook gross win benefited from a 49% increase in activecustomers to 306,000 and good results in Euro 2004. Sportsbook registrationsincreased by 34% to 357,000, and remain a focal point for recruitment for ourgaming products. In spite of the casino market remaining highly competitive, wecontinued to grow and achieved a 7% increase in gross win. Gross win from gamesincreased by 79% and is an increasingly important area for us. • Operating costs grew 36%, due mainly to higher transaction volumes andmarketing costs. • Operating profit increased by 50% to £21.3 million. Vernons • Notwithstanding the continuing decline in traditional pools betting,gross win remained level, with 2004 generating an operating profit of £5.8million. Hotels Business Review Encouraging signs emerged in 2004 with both corporate and leisure businessimproving. The potential impact of war, terrorism and other natural disastersremain, but appear to have lessened, and the prospects for the sector are betterthan they have been for several years. As trading improves we continue to focus on mitigating the impact of cost risesin certain areas, notably wages, energy and business rates. Capital expenditure remains under tight control. Excluding the Hilton Sydneyredevelopment, which is due for completion in the second half of this year, 2004capital expenditure was £102 million. The importance of technology and the growth of internet bookings continues. Ourdistribution strategy, to guarantee the best price through our own brandedwebsites, remains. 2004 was also a year of strong growth in our GlobalDistribution Systems (GDS) business and there was an increase of 94% inreservations through our branded websites. Overall, electronic reservationsrevenue from GDS and branded websites represented 24% of all rooms booked acrossour hotels. By 2008, we estimate half of all reservations will come fromelectronic channels. The brands continue to expand with 17 new Hilton hotels opened in 2004 includingthe Arc de Triomphe, Paris, and Shenzhen, China, with a further 28 due to openover the course of the next two years. Although still in its infancy,franchising of the Hilton and Scandic brands is now underway. The interest infranchising is encouraging and future plans for this business are beingexplored. Hilton Worldwide Resorts continued its success during 2004 with significantgrowth, strong tour operator partnerships, increased online package bookings anda high number of repeat guests. The total upscale resort portfolio increased to59 properties located in exotic places around the world. In November, HiltonWorldwide Resorts won the coveted 'Marketing Strategy of the Year Award' at theprestigious National Business Awards in the UK and expansion is set to continue. Hotels (continued) The luxury Conrad brand, a joint venture with Hilton Hotels Corporation, had asuccessful year. Improved trading performance was achieved in all regions andsuccessful new hotels enjoyed high profile openings in Asia and the US. Theprospects of further new development opportunities in Tokyo, Phuket,Indianapolis, Las Vegas and Dubai, have helped to create a greater sense ofmomentum for Conrad. The strength of the Hilton brand was recognised with numerous awards over thelast year. Hilton International won 'Best International Hotel Chain' at the12th annual Grand Travel Awards 2004, 'Best Hotel Loyalty Scheme' for HiltonHHonors at the Business Traveller Reader Awards 2004, 'Europe's Leading HotelGroup' at the World Travel Awards 2004 and two awards at the WorldwideHospitality Awards 2004 in Paris. Hilton University - the global forum for learning and development - had anothersuccessful year in 2004. Every hotel participates in the University and learnerscompleted over 45,000 e-learning programmes. In addition, a range of otherdevelopment opportunities were offered including executive education programmesfor senior managers with the IMD Business School in Switzerland and onlineEnglish language learning. The University is continuing to make an importantcontribution to our ability to attract and develop the best human talent in theindustry. LivingWell performed well in a difficult UK market and increased membership overthe period. Two new clubs were opened in Australia (Willoughby, north Sydneyand the Gold Coast) bringing the total overseas to 14. The hotel based concept"LivingWell Express" continued to flourish with 14 new clubs being added to theexisting ten. New contracts were secured to manage the Corporate health clubsat the new offices for Barclays in London and Sage in Newcastle. Sadly, in October, the Hilton resort hotel in Taba, Egypt, suffered at the handsof terrorists and we lost 31 guests and staff. Following the terrible Tsunamievents in the Far East at the end of 2004, Hilton hotels were fortunate toescape largely unscathed and the five Hilton properties we operate in theregions affected remained operational. Despite these tragic events, the Groupremains fully committed to working in these locations and we believe thathelping to achieve economic recovery through tourism is, perhaps, the mostimportant contribution. Hotels (continued) Operating Results Turnover and operating profit by Year to 31 December 2004 Year to 31 December 2003 region Operating Operating Turnover profit* Turnover profit* £m £m £m £m United Kingdom 655.1 95.1 621.4 82.6 Europe & Africa 1,138.3 58.2 1,134.5 45.6 Middle East & Asia Pacific 652.7 18.5 675.8 16.4 The Americas 236.0 18.9 229.7 12.9 LivingWell 50.0 6.3 50.2 7.4 2,732.1 197.0 2,711.6 164.9 Central and non-operating items - (25.7) - (18.4) 2,732.1 171.3 2,711.6 146.5 Memo: Scandic acquired 503.1 17.6 500.0 19.8 ** * Operating profit is before goodwill amortisation and exceptional items ('profit') ** Includes £5.9 million Pandox associate income, the investment was disposed of in December 2003 Revenue per available room ('revpar') by Year to Year to Change region (like for like, constant exchange 31 December 2004 31 December 2003 rates) £ £ Hilton Branded: United Kingdom - London 76.19 67.74 12.5% - Provinces 51.53 49.87 3.3% Total United Kingdom 61.53 57.11 7.7% Europe & Africa 51.20 48.74 5.0% Middle East & Asia Pacific - Middle East 41.36 34.66 19.3% - Asia Pacific 48.46 45.75 5.9% Total Middle East & Asia Pacific 45.24 40.77 11.0% The Americas 44.50 39.04 14.0% Total Hilton Branded 50.81 46.84 8.5% Scandic Branded 34.50 33.98 1.5% Total Hotels Division Revpar 46.65 43.58 7.0% Occupancy 67.2% 62.9% 4.3% pts Average room rate 69.46 69.31 0.2% Hotels (continued) Profit in the year rose by £24.8 million (16.9%) to £171.3 million. Underlyingprofit after adjusting for property changes, the disposal of Pandox in 2003, oneoff charges and exchange rate movements increased by 20.4%. On a worldwide basis (like for like properties at constant exchange rates)revpar increased by 7.0%. The revpar increase was primarily occupancy driven(up by 4.3 percentage points) with a slight increase in rate of 0.2%. Maintaining tight control on capital expenditure remains a priority. There-development of the Sydney Hilton is continuing and the property is nowexpected to open in the second half of 2005 and is the only major ongoingproject within the owned estate. Four non-core UK properties have been disposed of during the last twelve monthswith a further eleven currently on the market. United Kingdom and Ireland • Profit in the United Kingdom and Ireland increased by 15.1% to £95.1 million. After adjusting for property acquisitions and disposals, underlying profit increased by 16.0%. • Overall like for like revpar was up 7.7% driven by both rate (up 5.0%) and occupancy (up 1.9 percentage points). • London saw a good improvement in revpar throughout the year with occupancies remaining high and rate improving, especially in the fourth quarter. • Performance in the provincial estate was more mixed. However the larger conference hotels experienced an improvement in Corporate and meetings business. • We continue to sign management contracts for new properties. The previously announced Hiltons at Dublin airport and Manchester are scheduled to open in 2005 and 2006 respectively. Hotels (continued) Europe and Africa • Overall profit rose by 27.6% to £58.2 million, with some countries seeing encouraging growth, especially in the later part of the second half. • Hilton branded Europe & Africa revpar was up 5.0% with Germany seeing some signs of recovery as revpar rose by 6.4% - primarily occupancy driven. • Paris continued to experience difficult trading conditions, however properties in Central and Eastern Europe, notably Czech Republic and Romania performed well. • Recovery in the Hilton branded owned and leased estate continued throughout the year with revpar increasing by 4.1%. • Revpar in the Scandic properties increased by 1.5%. The second half saw some encouraging levels of business return into the key markets of Stockholm and Helsinki. Middle East and Asia Pacific • The bounce back from the Iraqi conflict and SARS in 2003 saw profits rise by 12.8% to £18.5 million. • The effect of the Tsunami in December on our properties in Phuket, Colombo and the Maldives was minimal and little or no damage was suffered. • Growth in China was strong with revpar up 48.1%. However, the Japanese market remains difficult with significant downward pressure on rates. • Overall, the Middle East saw good performances with revpar growing by 19.3%, particularly Egypt with revpar up 32.2%. • Eight properties in India have been co-branded as Trident Hilton under a franchise arrangement. Hotels (continued) The Americas • The area saw profit rise by 46.5% to £18.9 million as economic stability in Latin America and the recovery post SARS in Canada helped results. • Revpar for the year saw a growth of 14.0%, with a 10.5% growth in the owned and fixed leased estate. • The resort properties in the Caribbean had an excellent year and saw profits increase by 28.3%, as successful marketing campaigns increased demand. • Latin America saw revpar increase by 36.1% with Venezuela (up 91.0%) and Brazil (up 23.9%) seeing the highest levels of improvement. LivingWell • LivingWell saw profit fall by 14.9% to £6.3 million. After excluding pre-opening costs for the new clubs in Australia, profit fell by 8.1%. • Following a very difficult start to the year membership overall rose by 10,195 (7.5%) with strong sales in the last six months. • Significant pricing pressure exists in the market place and yields are down as a result. • During the year significant focus has been placed on member retention, resulting in a 3.6 percentage point improvement to 67.8% an all-time member retention high for LivingWell. Operating and Financial ReviewFinancial review Turnover and profit before Year to Year to tax 31 December 2004 31 December 2003 Turnover Profit Turnover Profit £m £m £m £m Hotels 1,770.8 171.3 1,663.4 146.5 Betting and Gaming 10,122.6 273.4 7,267.1 214.1 Central costs - (14.5) - (13.6) 11,893.4 430.2 8,930.5 347.0 Interest - (47.1) - (74.6) 11,893.4 383.1 8,930.5 272.4 Profit is before goodwill amortisation and exceptional items. Trading summary Turnover for the Group was £11,893.4 million an increase of £2,962.9 million(33%), mainly as a result of higher Fixed Odds Betting Terminal (FOBT) revenuein the Betting and Gaming division. Hotels increased £107.4 million to £1,770.8million (after the impact of £53 million adverse exchange). Second-half Groupturnover of £6,259.3 million was up £1,297.7 million, again largely as a resultof FOBT revenue. Operating profit before goodwill amortisation and exceptional items rose 24.0%to £430.2 million (2003: £347.0 million) including a £4.2 million adverseexchange impact mainly in Hotels. Betting and Gaming profits increased by £59.3million (27.7%) to £273.4 million and Hotel profits rose £24.8 million (16.9%)to £171.3 million. Second-half Group operating profit was up 10.5% to £216.2million, with a 6.6% increase in Betting and Gaming and a 15.3% increase inHotels. Interest The interest charge for the year of £47.1 million is 36.9% lower than last year(£74.6 million). This reduction was due to the full year impact from repaymentof the £125 million of 8.875% bonds in August 2003 and the £300 million 3.375%convertible bonds issued October 2003 combined with lower bank interest rates,lower average debt levels and disposal of the Pandox associate at the end of2003. EBITDAR interest cover (after adjusting for payments under fixed leasesand minimum guarantees, excluding associates) of 5.6 times (2003: 4.0 times). Profit Before Tax The 24.0% increase in operating profit combined with the 36.9% reduction ininterest charge resulted in a 40.6% increase in profit before taxation,exceptional items and goodwill amortisation to £383.1 million (2003: £272.4million). Exceptional items The £0.6 million exceptional charge for the year is due to net losses ondisposal of non-core fixed assets, including provisions for future disposals.There is no related tax charge or credit. The £9.0 million exceptional taxcredit relates to a specific case settled during the year in respect of whichrelated losses were previously treated as exceptional items. Taxation The taxation charge in 2004 was £59.4 million, before exceptional items. Thisrepresents an effective tax rate of 15.5% on profits before goodwillamortisation and exceptional items (2003: 22.0%). This rate reflects thesatisfactory resolution of a number of issues with tax authorities, therecognition of deferred tax assets in respect of tax losses and continuinginitiatives to reduce the underlying rate. The 2005 rate is expected to be 20%. Earnings per share (EPS) EPS (before the impact of goodwill amortisation and exceptional items) grew52.2% to 20.4 pence (2003: 13.4 pence) reflecting the increase in profit beforetax and lower effective tax rate. EPS (including the impact of goodwillamortisation and exceptional items) was 16.5 pence (2003: 7.1 pence). Fullydiluted EPS was 15.6 pence (2003: 7.1 pence) after adjustment for outstanding share options and the convertible bond issued in October 2003. Dividend The Board has proposed a final dividend of 6.0 pence per share, an increase of8.7%, bringing the total dividend for the year to 9.6 pence per share (2003:8.92 pence per share), covered 2.1 times (2003: 1.5 times) by EPS (before theimpact of goodwill amortisation and exceptional items). The total cost of thedividend is £152.3 million (2003: £141.1 million) and is covered 2.1 times byearnings before goodwill amortisation and exceptional items (2003: 1.5 times)and 1.7 times by profit attributable to shareholders (2003: 0.8 times). Cash flow, capital expenditure and borrowings Cash Flow Year to Year to 31 December 2004 31 December 2003 £m £mOperating Activities 546.8 501.9Capital Expenditure (189.6) (189.9)Operating Cash Flow 357.2 312.0Disposals 40.1 63.1Other 19.1 0.5Interest & Tax (98.6) (120.5)Free Cash Flow 317.8 255.1Acquisitions (23.2) (5.4)Dividends (144.5) (141.0)Net Cash Flow 150.1 108.7 Cash flow from operating activities in 2004 was £546.8 million, £44.9 millionbetter than in 2003 (£501.9 million), mainly due to higher EBITDA offset byworking capital movements. Capital expenditure on operating assets of £189.6 million was £0.3 million below2003 (£189.9 million), with £39.1 million of acquisition linked development inhotels including the major refurbishment in the Sydney and Dusseldorfproperties. Planned capital expenditure for 2005, excluding Sydney, is £190million, with £120 million for Hotels and £70 million for Betting and Gaming(excluding shop acquisitions). Interest and tax outflows amounted to £98.6 million compared to £120.5 millionin 2003, due primarily to lower interest payments. Free cash flow beforeacquisitions and dividends increased £62.7 million to £317.8 million.Acquisitions in the year of £23.2 million related to Betting and Gaming. Cash inflow from operating activities for the second half is £291.2 million,£15.8 million higher than last year. The increase is mainly due to the increasein EBITDA and working capital movements. Capital expenditure on operating forthe second half was £100.8 million compared to £88.1 million in 2003. At 31 December 2004, the Group had gross borrowings of £1,455.2 million and cashand short-term investments of £483.3 million, resulting in net debt of £971.9million (2003: £1,147.7 million). The £175.8 million decrease in borrowings isafter a favourable exchange translation impact of £17.8 million. International Financial Reporting Standards (IFRS) From 2005 the Group will prepare its consolidated accounts in accordance withIFRS. Reconciliations of UK GAAP to IFRS for 2004 profit before tax and 2004 and2003 net assets are shown in Note 8 to the accounts. More details of the impactof IFRS on the Group's financial statements are available atwww.hiltongroup.com. Consolidated profit and loss account Year to Year to 31 December 2004 31 December 2003 Before Before exceptional exceptional items and items and goodwill goodwill amortisation Total amortisation Total £m £m £m £m Turnover - continuing operations 11,893.4 11,893.4 8.930.5 8.930.5Cost of sales before goodwill amortisation and depreciation (11,247.6) (11,247.6) (8,351.7) (8,354.0)Goodwill amortisation - (71.2) - (71.8)Depreciation and amounts written off tangible and intangible fixed assets (131.7) (131.7) (138.3) (147.3) Cost of sales (11,379.3) (11,450.5) (8,490.0) (8,573.1) Gross profit 514.1 442.9 440.5 357.4Administrative expenses (96.9) (96.9) (113.0) (113.0) Group operating profit - continuing operations 417.2 346.0 327.5 244.4 Share of results from associated undertakings 13.0 13.0 19.5 19.5Share of goodwill amortisation of associated undertakings - - - (0.4) Total operating profit 430.2 359.0 347.0 263.5Continuing operations:Profit / (loss) on fixed assets - (0.6) - (17.7) Profit before interest 430.2 358.4 347.0 245.8 EBITDA 561.9 561.3 485.3 465.3 Interest (47.1) (47.1) (74.6) (74.6) Profit on ordinary activities before taxation 383.1 311.3 272.4 171.2Tax on profit on ordinary activities (59.4) (50.4) (59.9) (59.0) Profit on ordinary activities after taxation 323.7 260.9 212.5 112.2Equity minority interests (0.1) (0.1) (0.2) (0.2) Profit attributable to shareholders 323.6 260.8 212.3 112.0Dividends (152.3) (152.3) (141.1) (141.1) Transferred to / (from) reserves 171.3 108.5 71.2 (29.1) Earnings per share:- basic 20.4p 16.5p 13.4p 7.1p- diluted 19.3p 15.6p 13.4p 7.1p Consolidated balance sheet 31 December 2004 31 December 2003 £m £m Intangible assets 1,616.4 1,633.2Operating assets 2,561.0 2,568.6Investments 57.1 77.4 4,234.5 4,309.2Assets held for resale 2.8 2.7Stocks 15.8 16.9Debtors 368.1 346.7Cash at bank and in hand 483.3 600.6 870.0 966.9Creditors less than one year (988.0) (1,150.2)Net current liabilities (118.0) (183.3)Creditors greater than one year (1,354.8) (1,458.5)Provisions (207.6) (220.1) 2,554.1 2,447.3 Capital and reservesCalled up share capital 158.6 158.2Share premium account 1,729.6 1,722.2Revaluation reserve 243.3 241.5Other reserves 143.7 150.3Profit and loss account 276.0 171.5Equity shareholders' funds 2,551.2 2,443.7Equity minority interests 2.9 3.6 2,554.1 2,447.3 Statement of total recognised gains and losses Year to Year to 31 December 2004 31 December 2003 £m £m Profit attributable to shareholders 260.8 112.0Currency translation differences onforeign currency net investments (2.2) 6.5 Total recognised gains and losses relating to the period 258.6 118.5 Consolidated cash flow Year to Year to 31 December 2004 31 December 2003 £m £m Cash inflow from operating activities 546.8 501.9Dividends received from associated undertakings 2.3 4.0 Returns on investments and servicing of financeNet interest paid (44.0) (63.4)Net cash outflow from returns on investments andservicing of finance (44.0) (63.4) TaxationUK corporation tax paid (34.2) (27.6)Overseas tax paid (20.4) (29.5)Taxation paid (54.6) (57.1) Capital expenditure and financial investmentPayments for operating assets (189.6) (189.9)Payments for intangible assets (23.2) (5.4)Payments for fixed asset investments - (1.1)Receipts from sales of intangible and operating assets 38.6 20.0Receipts from sales of other investments 1.5 -Net cash outflow for capital expenditure and financialinvestment (172.7) (176.4) Acquisitions and disposalsRepayment of loans from associates 17.9 -Disposals of associates - 43.1Loans to associates (1.1) (2.0)Purchase of interests in associates - (0.4)Net cash inflow from acquisitions and disposals 16.8 40.7 Total equity dividends paid (144.5) (141.0) Cash inflow before use of liquid resources andfinancing 150.1 108.7 Opening net borrowings (1,147.7) (1,164.8)Net cash inflow 150.1 108.7Exchange movements 17.8 (96.0)Issue of ordinary share capital 7.8 3.9Other non-cash movements 0.1 0.5Closing net borrowings (971.9) (1,147.7) Reconciliation of movements in shareholders' funds Year to Year to 31 December 2004 31 December 2003 £m £m Opening shareholders' funds 2,443.7 2,465.8Total recognised gains and losses 258.6 118.5Dividends (152.3) (141.1)New share capital subscribed 7.8 3.9Net decrease due to shares held in ESOP trusts (6.6) (3.4)Closing shareholders' funds 2,551.2 2,443.7 Note of historical cost profits and losses Year to Year to 31 December 2004 31 December 2003 £m £m Reported profit on ordinary activities before taxation 311.3 171.2Adjustment for previously recognised revaluation (losses)/ gains (4.5) 3.2 Historical cost profit on ordinary activities beforetaxation 306.8 174.4 Transfer from profit and loss reserve after taxation,minority interest and dividends 104.0 (25.9) Notes to the accounts 1. Turnover and profit by activity Year to 31 December 2004 Profit before Profit after exceptionals exceptionals & goodwill & goodwill Turnover amortisation amortisation £m £m £mContinuing operations:Hotels 1,770.8 171.3 99.5Betting and Gaming 10,122.6 273.4 273.4Central costs and income - (14.5) (14.5) 11,893.4 430.2 358.4Interest - (47.1) (47.1) 11,893.4 383.1 311.3 Year to 31 December 2003 Profit before Profit after exceptionals exceptionals & goodwill & goodwill Turnover amortisation amortisation £m £m £mContinuing operations:Hotels 1,663.4 146.5 45.3Betting and Gaming 7,267.1 214.1 214.1Central costs and income - (13.6) (13.6) 8,930.5 347.0 245.8Interest - (74.6) (74.6) 8,930.5 272.4 171.2 Notes to the accounts 2. Exceptional items Year to Year to 31 December 2004 31 December 2003 £m £m Operating itemsAmounts written off tangible and intangiblefixed assets and investments (a) - (11.3)Total operating exceptional items - (11.3) Non-operating itemsContinuing operations:Net loss on tangible fixed assets includingprovisions (b) (0.6) (17.7)Total non-operating exceptional items (0.6) (17.7)Exceptional items before taxation (0.6) (29.0)Taxation thereon (c) - 0.9Exceptional tax credit (d) 9.0 -Exceptional items after taxation 8.4 (28.1) (a) Amounts written off tangible and intangible fixed assets and investmentsin 2003 comprise impairment in the value of hotels across the estate andinvestments. (b) The net loss on tangible fixed assets in 2004 relates to disposal ofnon-core assets and also includes provisions for losses on certain non-corehotels. The loss in 2003 included provisions for losses on certain non-corehotels and £3.2m profit on disposal of the Pandox associate. (c) There is no tax relief on the 2004 exceptional loss, the tax credit for2003 related to operating exceptional items. (d) The £9.0m exceptional tax credit in 2004 relates to a specific casesettled in the period where related losses were historically expensed throughexceptional items. 3. Interest The interest charge is net of interest receivable of £42.0m (2003: £34.2m) andincludes a share of interest charge from associated undertakings of £8.0m (2003:£10.3m). The interest charge, excluding associate interest, is covered 5.6times (2003: 4.0 times) by profit before depreciation, goodwill amortisation andexceptional items (adjusted for payments under fixed leases and minimumguarantees). Notes to the accounts 4. Analysis of total tax charge Year to Year to 31 December 2004 31 December 2003 £m £m UK corporation tax based on the taxable profit forthe year at a rate of 30.0% (2003: 30.0%) 48.7 38.9Double taxation relief - (5.9) 48.7 33.0 Prior year adjustments (9.0) -Overseas tax 19.8 19.3Associated undertakings 1.3 0.7Current tax charge 60.8 53.0Deferred tax charge (10.4) 6.0Total tax charge 50.4 59.0 5. Earnings per share The calculation of basic and diluted earnings per share before and afterRelated Shares:
Ladbrokes Coral