25th Aug 2005 07:01
Hilton Group PLC25 August 2005 Hilton Group unaudited interim results for the six months ended 30 June 2005 Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m Total Revenue 6,599.4 5,635.0 11,897.1 Profit from operations (1) Betting 143.6 153.3 272.8 Hotels 72.6 65.6 159.2 Central costs and income (8.9) (6.5) (14.3) 207.3 212.4 417.7 Net finance costs (1) (15.2) (21.1) (41.0) Profit before taxation adjusted for non-trading items(2) 192.1 191.3 376.7 Non-trading income/(charges) before taxation 9.8 2.4 (0.6) Profit before taxation 201.9 193.7 376.1 EBITDA (1) 275.3 278.4 549.4 Earnings per share adjusted for non-trading items(2) 9.6p 10.2p 20.2p Earnings per share 10.0p 10.9p 20.7p Dividend per share 3.8p 3.6p 9.6p (1) Before non-trading items. Non-trading items comprise profit/losses ontangible fixed assets, unrealised gains on derivatives relating to short-termfluctuations in market value and a one-off tax credit in 2004. (2) Profit adjusted for non-trading items (adjusted profit) and earningsadjusted for non-trading items (adjusted earnings) are calculated excludingnon-trading items to assist in understanding the underlying performance. Group Highlights • Profit before tax(2) has increased to £192.1 million.• Worldwide Revpar increased by 8.4%, with occupancy up 3.5 percentage points, and rate up by 2.7%.• Ladbrokes gross win increased by 2.7%, however profits fell by 6.3%, reflecting poor horse margins, no European Football Championships and additional costs.• Adjusted net debt reduced by £155.5 million to £816.4 million since 31 December 2004.• Adjusted earnings per share of 9.6 pence is down 5.9% due to an unusually low tax rate in 2004 (20% in 2005).• Interim dividend of 3.8 pence - up 5.6%.• Hotel disposals progressing well. David Michels, Group Chief Executive, commented: Overall profit in the first six months of this year has improved on last year'srecord first half and, looking forward the trends in both Ladbrokes and Hiltonremain positive. Whilst the first half of the year proved tough for Ladbrokes compared with lastyear, Retail, Telephone and eGaming all grew revenue. It was also encouragingthat overall gross win increased despite a fall in margin due mainly tounfavourable horse racing results and tough Euro 2004 comparatives. eGaming continued its rapid growth and in Retail the total number of bettingshops rose by 194 to date in 2005, including the recent acquisition of 141shops from Jack Brown Ltd in Wales last month. The business has also increasedits investment in product development. In addition, we continue to pursuevigorously opportunities presented by the Gambling Act, particularly the licencefor a regional casino in Blackpool. Worldwide Revpar increased by 8.4% as the performance in the hotel divisioncontinued to improve across the globe. Following the successful disposal of seven UK hotels earlier in the year, thesale of a further 18 UK properties, with a preference to maintain managementcontracts, is progressing well. Our commitment to expanding the Hilton, Scandic and Conrad brands remains strongand during the first six months, a total of seven hotels were opened. The newlyrefurbished Hilton Sydney opened in July, and a further eight properties are dueto open in the remainder of this year, including locations such as Italy andSaudi Arabia. Outlook The outlook for the Group remains strong with Ladbrokes and Hilton both enjoyingsteady growth. The disposal of 18 UK hotel assets is progressing well. Dividend The Board has recommended an interim dividend of 3.8 pence per share payable on1 December 2005 to shareholders on the register on 9 September 2005, reflectingthe Board's confidence in the Group's prospects going forward. 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) Telephone: +44 (0)20 7856 8109 A live audiocast of the presentation to analysts, including the question andanswer session, together with this news release and slide presentation, will beavailable on Hilton Group's corporate website which may be found atwww.hiltongroup.com. High-resolution print quality images to accompany this announcement can bedownloaded free of charge on www.vismedia.co.uk. Betting and Gaming Business Review Ladbrokes has successfully continued its long term plan to invest in its peopleand customers, based upon providing leading shop service, technology and bettingopportunities. In April of this year the Gambling Act was passed, bringing the biggest changeto the marketplace since the introduction of the National Lottery in 1994. Webelieve this legislation offers many positive opportunities for both theLadbrokes and Hilton brands. We continue to invest in our UK and Irish shop estates, with 142 shops beingrefurbished, extended or relocated at the end of June, and 175 by mid-August. Atotal of 194 shops have been added to the estate to date in 2005, 141 of whichwere purchased in July from Jack Brown. Ladbrokes now has 2,123 shops in theUK, 143 in Eire, and 305 in Belgium. We have further extended our shop opening hours in the UK to 9.30pm on summerevenings, and we very much look forward to longer opening hours during thewinter from 2007 as envisaged by the Gambling Act. This will greatly enhance thelevel of service we can offer our customers by enabling a move to a 12 hour, 7day week. By mid-October, 800 of our shops will be installed with the broadcasting abilityof Ladbrokes Xtra, Ladbrokes' exclusive new in-shop TV channel. Each shop willhave eight Xtra screens, presenting Xtra product and betting opportunities -such as all French horse racing and a full range of pari-mutual bets that willonly be available to customers in Ladbrokes shops in the UK. All 2,266Ladbrokes shops in UK and Eire will have Ladbrokes Xtra by mid 2006. We now have 6,505 Fixed Odds Betting Terminals (FOBTs) installed in our shopestate (6,232 at the end of June), and 1,546 Amusement With Prizes (AWP)machines. The Gambling Act will allow for Jackpot slot machines, currently witha maximum pay out of £500 per play, to be available in our shops from 2007. We continue to invest in customer service improvements in our Telephone Bettingbusiness; in June we introduced new technology that will allow us to ensurecustomer calls are answered quickly and more importantly in a way that ispersonal to our customers' betting needs. We will continue to focus oninnovation to deliver ever better service to our growing number of customers. We have enjoyed a very good start to the year across our eGaming activities.Customer numbers registering and playing with us - on the Sportsbook, Casino,Poker room and Games are at an all time high. We have run theLadbrokespoker.com European Online Championship of Poker and are currentlyfilling places for the Ladbrokes Poker Cruise, which this year is in theCaribbean. Furthermore, we have just completed the televised Ladbrokes PokerMillion, with the biggest added prize money in televised Poker. Moving to new areas of growth, Hilton and Ladbrokes have registered theirinterest to run 'the' one resort casino announced by the Government in theGambling Act - which we believe should be in Blackpool. As the only Britishcompany with world leading brands plus leisure and gaming experience we are wellplaced to make Blackpool's resort casinos a huge success for the UK, Blackpooland its visitors. It is one of our key strategic aims to grow our business around the world in thecoming years, primarily through the provision of services and expertise ratherthan capital. Operating Results Revenue by business Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m UK Retail 4,750.9 4,065.1 8,555.4 Ireland & Belgium Retail 180.4 160.9 321.7 Telephone Betting 341.4 266.0 628.1 eGaming 424.6 281.9 591.8 Vernons 14.5 15.2 28.7 Betting & Gaming 5,711.8 4,789.1 10,125.7 Gross win by business Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m UK Retail 342.1 338.0 652.5 Ireland & Belgium Retail 35.6 35.9 69.0 Telephone Betting 21.6 25.9 46.1 eGaming 58.0 44.7 89.3 Vernons 9.9 10.6 20.2 Betting & Gaming 467.2 455.1 877.1 Profit from operations by business Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m UK Retail 108.8 119.2 214.7 Ireland & Belgium Retail 5.7 7.0 13.2 Telephone Betting 8.5 11.8 17.8 eGaming 17.5 12.1 21.3 Vernons 3.1 3.2 5.8 Betting & Gaming 143.6 153.3 272.8 Profit is before non-trading items. Revenue of £5.7 billion has increased by 19% reflecting growth in the number ofFOBTs and increases in Telephone Betting and eGaming. Gross win increased by 3% to £467.2 million with growth in UK Retail and eGamingpartially offset by a decline in Telephone Betting. As such, after deductinggross profits tax and VAT, gross profit grew 3% to £399.8 million. Operating costs increased by 9%, mainly as a result of our increased estatesize, increased opening hours in the UK shops and the growth in our eGamingbusiness. Operating profit decreased by 6% to £143.6 million. UK Retail • Gross win increased by £4.1 million to £342.1 million. • Over-the-counter (OTC) gross win declined by 5% on the back of a poor run of results at major events including Aintree and Epsom as well as the effect of tough comparatives versus the European Football Championships last year. Slippage grew 1% with stake per slip up £0.17 to £8.54, an increase of 2%. • FOBTs gross win has increased by 28%. The average number of terminals in the first half was 6,087, a 40% increase on the first half of 2004. As at 30 June 2005, there were 6,232 terminals and 1,410 AWPs. The average weekly gross win per FOBT for the period was £576. • Like for like operating costs grew by 3.4% to £168 million. Total costs grew by 8.4% to £183 million, mainly as a consequence of increased shop trading hours, more shops and increased development. • Operating profit of £108.8 million was down 9%. Ireland and Belgium Retail • Ireland and Belgium combined gross win declined by 1% with operating profit decreasing by 19% to £5.7 million. • Ireland revenue was up 19%, although gross win declined by 2%. Like for like costs decreased by 6% following the rollout of EPOS with total costs up 9% due to the increase in estate size. Operating profit was down 30% • In Belgium, revenue and operating profits were level. Telephone Betting • Gross win declined 17% to £21.6 million with the margin declining from 9.7% to 6.3%, as a result of unfavourable horseracing margins and no European Football Championships. • The number of calls handled increased by 13% to 3.8 million. The number of active customers in the period increased 1% to 103,000. Average stake per call increased 14% to £91. • Operating profit decreased 28% to £8.5 million. eGaming • Total gross win increased by 30% to £58.0 million with strong growth across all channels. • Poker gross win grew by 92% with 93,000 active players; an increase of 182%. • Sportsbook gross win benefited, despite a 1% decrease in active customers to 228,000, however the frequency of customer activity has increased with average weekly active customer numbers increasing by 13%. • Casino gross win growth was 11%. • Gross win from internet games increased by 77%. • Operating costs grew 25%, reflecting increased transactional costs, payments to partners and affiliates and an increase in marketing investment. • Operating profit increased by 45% to £17.5 million. Vernons • Traditional pools betting continued to decline, with gross win down 7% on last year. • Operating profit was slightly down on last year at £3.1 million. Hotels Business Review The first half of the year saw a continuation of the encouraging signs, withinboth corporate and leisure business, experienced in the second half of 2004. Allareas of the world saw healthy Revpar growth compared to the first half of 2004with the exception of the UK, where Revpar performance was less satisfactory.However, despite the short-term impact of the recent London bombings, the secondhalf is showing signs of improvement. Capital expenditure remains under tight control. The redevelopment of the SydneyHilton is now complete and the hotel re-opened in mid July. The corporate andconference markets in Sydney are strong and the hotel is ideally placed to takeadvantage of the trading climate. There are now no major refurbishment orredevelopments ongoing within the owned estate. An increasing emphasis is being placed on the growth of all our brands (Hilton,Scandic and Conrad) under both franchise and management agreements. Over thelast six months contracts have been signed for 16 franchise and managementproperties including Hilton Ushuaia (Argentina), Scandic Beijing and ConradBimini (Bahamas). In the second half of the year, we expect to open a total ofeight hotels including Hiltons in Italy and Saudi Arabia. Our strategy to reduce the capital intensity of the business continues to makegood progress. The sale of seven UK hotels for £79 million was completed in thefirst half. A further 18 UK hotels have recently been placed on the market, withthe intention being to retain management contracts at these properties. The Hilton HHonors loyalty programme, run with Hilton Hotels Corp., continues togrow with the strengthening of member benefits and targeted acquisition of newmembers. During the first six months international membership has grown 4% to6.9 million. Our focus on electronic distribution continues. Compared to the first half of2004, Hilton's brand websites booked revenue increased by 62% and now represent5.8% of all revenue booked. We will continue to develop our websites in order toimprove upon both content and functionality. Continued strong growth was made inour Global Distribution Systems business, where bookings for comparableproperties increased by 12%. Our commitment to training and development is ongoing through the HiltonUniversity. In the first half of this year 20,000 programmes have been completedand there are now 5,000 registered "students". In addition, all senior managershave now completed an executive development programme at the IMD Business Schoolin Switzerland. The trading environment for LivingWell remains challenging. The businessincreased the number of members during the period although there was continuingpressure on yield. New openings this year include the health club and spa atMount Wolseley Hilton and the LivingWell club at the Sydney Hilton. In additionsix new "LivingWell Express" clubs have been added this year. The disposal ofthree small loss making clubs in Australia was completed earlier this month. Operating Results Revenue and profit from Half year to Half year to Year to operations by region 30 June 2005 30 June 2004 31 December 2004 Revenue Profit Revenue Profit Revenue Profit £m £m £m £m £m £m United Kingdom 303.9 30.1 318.7 38.9 655.7 88.3 Europe & Africa 601.7 31.3 541.3 20.2 1,138.3 58.2 Middle East & Asia Pacific 326.9 8.5 309.1 6.3 652.7 18.5 The Americas 122.4 10.9 113.0 7.6 236.0 18.9 LivingWell 26.8 1.9 24.8 2.7 50.0 6.3 1,381.7 82.7 1,306.9 75.7 2,732.7 190.2 Central and non-operating items - (10.1) - (10.1) - (31.0) 1,381.7 72.6 1,306.9 65.6 2,732.7 159.2 Memo: Scandic acquired 257.2 9.0 241.2 2.9 503.1 17.6 Revenue is that of all hotels whether owned or managed. Profit is before non-trading items and includes acontribution from franchise, management contracts and contingent lease hotels of £36.7 million (June 2004: £28.0million; December 2004: £77.4 million). Revenue per available room (Revpar) by Half year to Half year to Change region (like for like, constant exchange 30 June 2005 30 June 2004 rates) £ £ Hilton Branded: United Kingdom - London 77.06 73.57 4.7% - Provinces 50.42 50.81 (0.8)% Total United Kingdom 61.75 60.46 2.1% Europe & Africa 51.59 47.43 8.8% Middle East & Asia Pacific - Middle East 38.87 34.29 13.4% - Asia Pacific 48.84 44.00 11.0% Total Middle East & Asia Pacific 43.69 39.16 11.6% The Americas 46.08 40.57 13.6% Total Hilton Branded 51.04 47.09 8.4% Scandic Branded 35.12 32.53 8.0% Total Hotels Division Revpar 47.14 43.50 8.4% Occupancy 68.3% 64.8% 3.5% pts Average room rate 69.01 67.19 2.7% The hotel division operating profit increased by 10.7% to £72.6m. Underlyingprofit after adjusting for property changes, one off charges and exchange ratemovements increased by 9.7%. On a worldwide basis (like for like properties at constant exchange rates)Revpar increased by 8.4%. The increase was driven by higher occupancy for theperiod of 68.3%, a movement on the prior year of 3.5 percentage points. Ratehas increased by 2.7% on a worldwide basis. United Kingdom & Ireland • Profit in the United Kingdom and Ireland fell by 22.6% to £30.1m. After adjusting for property changes, underlying profit fell by 17.0%. Whilst overall Revpar has increased, five major owned hotels showed decline, which has impacted UK profits. However, forward bookings for 2006 already look more positive. • Overall like for like Revpar increased by 2.1% driven in the main by an increase in rate of 4.3%. • London continued to experience high levels of occupancy at 77.3%. Rate also improved, an increase of 4.7%, as demand increased during peak trading periods. • Trading in the provincial market was more difficult. A Revpar decrease of 0.8% driven by a 2.7 percentage point decrease in occupancy reflected difficult leisure and conference business, notably at the Birmingham Metropole. Europe & Africa • Overall profit rose by 55% to £31.3m with a continuation of the encouraging growth seen during the later stages of 2004. • Hilton branded Revpar was up by 8.8%, with Germany up 2.3%, Paris up 10.5% and Sweden up 12.6%. • The owned and leased estate saw Revpar up 7.8% with trading improving in Barcelona, Zurich and Amsterdam. • Revpar in Scandic branded properties improved by 8% reflecting an improvement in both rate (up 0.7%) and occupancy (up 4.1 percentage points). • Both Stockholm (Revpar up 13.4%) and Copenhagen (Revpar up 21.3%) saw encouraging growth in trading conditions as corporate volume improved. • Management contract development continues to be actively pursued with four new hotels already signed this year. Middle East and Asia Pacific • High demand in the Middle East and Asia Pacific region saw profits rise by 34.9% to £8.5m. • Overall Revpar increased by 11.6% with both rate (up 5.8%) and occupancy (up 4.0 percentage points) performing strongly. • The Middle East was particularly strong with Revpar up 13.4% reflecting buoyant trading in Dubai and Kuwait as demand continues to be strong. • Japan saw some recovery with Revpar up 6.5% as consumer confidence began to return. • The opening of the Sydney Hilton is expected to have a positive effect on the Hilton brand in Australia. The country is seeing strong levels of demand with Revpar up 11.6%. The Americas • The region saw profits rise by 43.4% to £10.9m. • A 6.0% growth in rate and 4.6 percentage point increase in occupancy drove Revpar 13.6% higher. • The Caribbean properties (Revpar up 9.1%) experienced improved leisure business, most notably the Caribe Hilton our only owned property in the area. • Trading in Latin America continued to improve with Revpar up 28.2% most notably in Sao Paulo up 26.8%. • Canada, with Revpar growth of 4.5%, was held back by a slightly disappointing conference market, which kept rates flat. LivingWell • Revenue increased 8% to £26.8 million as continuing pressure on yield was offset by the increase in member numbers and ancillary revenue. • Membership of 154,398 shows an increase of 6% versus last year and reflects the increased sales effort that has been made within the business. • Focus on member retention has continued with retention increased to 68.5% compared to 67.8% at December 2004 and 66.3% in June 2004. • Operating profit of £1.9m was down £0.8m compared to June 2004 due partially to restructuring costs of £0.4m. Operating and Financial Review Financial review Revenue and profit Half year to Half year to Year to before tax 30 June 2005 30 June 2004 31 December 2004 Revenue Profit Revenue Profit Revenue Profit £m £m £m £m £m £m Retail Betting 4,945.8 117.6 4,241.2 129.4 8,905.8 233.7 Other Betting 766.0 26.0 547.9 23.9 1,219.9 39.1 Total Betting 5,711.8 143.6 4,789.1 153.3 10,125.7 272.8 Hotels 887.6 72.6 845.9 65.6 1,771.4 159.2 Central costs - (8.9) - (6.5) - (14.3) 6,599.4 207.3 5,635.0 212.4 11,897.1 417.7 Net finance costs - (15.2) - (21.1) - (41.0) 6,599.4 192.1 5,635.0 191.3 11,897.1 376.7 Profit is before non-trading items. Trading summary Revenue for the Group increased by £964.4 million (17%) to £6,599.4 million,mainly as a result of higher FOBTs in Retail and growth in both eGaming andTelephone revenue in Other Betting. Hotels increased £41.7 million (4.9%) to£887.6 million. Central costs have increased by £2.4 million predominantly due to share awardcosts. Profit before finance costs and non-trading items decreased 2% to £207.3 million(2004: £212.4 million) reflecting a decrease in Betting profits of £9.7 million(6%) to £143.6 million and an increase in Hotels profits of £7.0 million (11%)to £72.6 million. Exchange translation favourably impacted profit by £0.5million, mainly in Hotels. Finance costs The net finance costs of £15.2 million were 28% below last year (£21.1 million)reflecting lower average debt and the favourable impact of lower interest ratesoffset by amortisation charges on the £300 million convertible bond followingthe adoption of IAS 39 on 1 January 2005. Profit before tax Reduced trading profits offset by lower financing costs have resulted in a 0.4%increase in first half profit before taxation and non-trading items to £192.1million (2004: £191.3 million). Non-Trading items The £9.8 million non-trading profit arose on disposal of non-core fixed assets(£4.9 million) and the unrealised gain on derivatives (£4.9 million). There isa related tax charge of £3.9 million on these non-trading items. Taxation The taxation charge of £38.4 million represents an effective tax rate of 20.0%(2004: 15.5%) before non-trading items. The effective rate of 20.0% is a bestestimate of the annual tax rate for 2005, which is higher than 2004 due to therecognition of deferred tax assets in respect of tax losses in that year. Earnings per share (EPS) EPS (before non-trading items) fell 6% to 9.6 pence (2004: 10.2 pence),reflecting the increased tax rate. EPS (including the impact of non-tradingitems) was 10.0 pence (2004: 10.9 pence). Fully diluted EPS was 9.5 pence(2004: 10.8 pence) after adjustment for outstanding share options and theconvertible bond. Dividend The Board has proposed an interim dividend of 3.8 pence per share, a 5.6%increase compared to the equivalent period last year (2004: 3.6 pence). Thisdividend will be payable on 1 December 2005 to shareholders on the register on 9September 2005. Cash flow, capital expenditure and borrowings Net cash flows from operating activities of £192.2 million was down £21.5million due to the £3.1 million decrease in EBITDA coupled with adverse workingcapital movements (decreased creditors due to timing of payments). Capital expenditure on operating assets of £82.6 million decreased by £2.8million, and included £14.6 million of acquisition linked development in hotelsrelating to the now completed major refurbishment in the Sydney and Dusseldorfproperties. Proceeds from disposal of plant, property and equipment of £104.3million include £103.5 million relating to hotel disposals. Finance, tax and equity dividend outflows amounted to £128.1 million compared to£126.6 million in 2004 as lower net finance payments (down £2.7 million) andlower tax payments (down £4.3 million) are more than offset by a higher dividendcash outflow (up £8.5 million). At 30 June 2005, the Group had gross borrowings of £1,386.1 million and cash,deposits and short-term investments of £569.7 million, resulting in adjusted netdebt of £816.4 million (31 December 2004: £971.9 million). The £155.5 milliondecrease in net debt includes a favourable exchange translation impact of £38.7million. Unaudited financial statements Consolidated income statement Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 Before Before Before non-trading non-trading non-trading items* Total items* Total items* Total £m £m £m £m £m £m Revenue - continuing operations 6,598.9 6,598.9 5,634.1 5,634.1 11,893.4 11,893.4 Share of results from associated 0.5 0.5 0.9 0.9 3.7 3.7undertakings Total revenue 6,599.4 6,599.4 5,635.0 5,635.0 11,897.1 11,897.1 Cost of sales before depreciation (6,271.1) (6,271.1) (5,308.8) (5,308.8) (11,249.1) (11,249.1) Administrative expenses (53.0) (53.0) (47.8) (47.8) (98.6) (98.6) Net gain /(loss) on sale of tangible - 4.9 - 2.4 - (0.6)fixed assets EBITDA 275.3 280.2 278.4 280.8 549.4 548.8 Depreciation and amounts written off (68.0) (68.0) (66.0) (66.0) (131.7) (131.7)fixed assets Profit before tax and finance costs 207.3 212.2 212.4 214.8 417.7 417.1 Finance costs (25.1) (25.1) (45.7) (45.7) (83.1) (83.1) Finance income 9.9 14.8 24.6 24.6 42.1 42.1 Profit before taxation 192.1 201.9 191.3 193.7 376.7 376.1 Income tax expense (38.4) (38.4) (29.8) (29.8) (57.1) (57.1) Tax on non-trading items - (3.9) - - - - Non-trading tax credit - - - 9.0 - 9.0 Profit for the year - continuing 153.7 159.6 161.5 172.9 319.6 328.0operations Attributable to: Minority interests 0.1 0.1 0.1 0.1 0.1 0.1 Equity holders of the parent 153.6 159.5 161.4 172.8 319.5 327.9 153.7 159.6 161.5 172.9 319.6 328.0 Earnings per share: - basic 9.6p 10.0p 10.2p 10.9p 20.2p 20.7p - diluted 9.2p 9.5p 10.1p 10.8p 19.0p 19.5p * Non-trading items are profit/losses on tangible fixed assets, one-off taxcredits and gains on derivatives (see note 3). Consolidated balance sheet 30 June 2005 30 June 2004 31 December 2004 £m £m £mASSETS Non-current assets Goodwill 1,143.7 1,152.1 1,184.4Intangible assets 574.2 517.8 537.6Property, plant and equipment 2,451.7 2,490.2 2,528.9Interests in associates 59.9 71.6 57.1Other financial assets 9.4 15.7 7.9Deferred tax asset 40.7 30.5 39.1Derivatives 69.7 - -Retirement benefit asset 0.5 4.8 1.8 4,349.8 4,282.7 4,356.8Current assets Inventories 15.4 14.8 15.8Trade and other receivables 372.7 359.3 327.2Assets classified as held for sale 2.9 2.8 2.8Derivatives 20.9 - -Cash and cash deposits 569.7 617.4 483.3 981.6 994.3 829.1Total assets 5,331.4 5,277.0 5,185.9 LIABILITIES Current liabilities Interest-bearing loans and borrowings (95.7) (271.9) (115.6)Obligations under finance leases (2.3) (16.5) (17.6)Derivatives (28.3) - -Trade and other payables (611.7) (581.8) (582.7)Corporation tax liabilities (177.5) (153.7) (172.6) (915.5) (1,023.9) (888.5)Non-current liabilities Interest-bearing loans and borrowings (993.5) (1,021.1) (987.5)Obligations under finance leases (31.9) (34.0) (34.5)Convertible bond (280.2) (300.0) (300.0)Derivatives (18.0) - -Other financial liabilities (22.6) (22.9) (16.5)Deferred tax liabilities (447.7) (449.1) (433.6)Retirement benefit obligation (136.0) (109.6) (130.4)Provisions (13.6) (19.7) (18.4) (1,943.5) (1,956.4) (1,920.9) Total liabilities (2,859.0) (2,980.3) (2,809.4) Net assets 2,472.4 2,296.7 2,376.5 EQUITY Called up share capital 160.1 158.4 158.6Share premium account 1,758.4 1,725.6 1,729.6Equity component of convertible bond 34.3 - -Own shares (16.3) (7.6) (14.5)Foreign currency translation (8.5) (28.6) 7.1Other reserves 158.2 158.2 158.2Retained earnings 383.2 287.0 334.6Equity shareholders' funds 2,469.4 2,293.0 2,373.6 Equity minority interests 3.0 3.7 2.9Total Equity 2,472.4 2,296.7 2,376.5 Consolidated cash flow Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m Net cash flows from operating activities 192.2 213.7 407.8 Cash flows from investing activitiesInterest received 14.8 5.2 43.2Dividends received from associates 1.3 1.2 2.3Payments for intangible assets (40.4) (19.5) (40.7)Purchase of plant, property and equipment (82.6) (85.4) (174.9)Proceeds from the sale of property, plant and equipment 104.3 12.6 38.6Purchase of interests in associates (5.7) - -Proceeds from return of capital in associates 1.1 - -Proceeds on disposal of investments - 1.1 1.5 (7.2) (84.8) (130.0) Cash flows from financing activities Proceeds from issue of shares 30.3 3.6 7.8Proceeds from borrowings 3.5 23.8 15.3Proceeds from associates repayment of loans 1.4 2.4 17.9Payments of finance lease liabilities (15.9) (0.8) (1.9)Repayment of borrowings (27.7) (48.4) (287.5)Payments of new loans to associates (0.2) (1.1) (1.1)(Increase)/decrease in deposits - maturity greater thanthree months (254.3) 103.4 103.5Dividends paid (95.9) (87.4) (144.5) (358.8) (4.5) (290.5) Net (decrease)/increase in cash and cash equivalents (173.8) 124.4 (12.7) Net foreign exchange difference 0.7 (8.0) (2.1)Cash and cash equivalents at beginning of period 459.5 474.3 474.3 Cash and cash equivalents at end of period 286.4 590.7 459.5 Cash and cash equivalents comprise: Cash at bank and in hand and current asset investments 310.3 612.2 478.2Bank overdraft (23.9) (21.5) (18.7) 286.4 590.7 459.5 Consolidated statement of changes in equity Convertible Share Share bond Other Own Retained Minority Total capital premium adjustment Reserve shares earnings Total interests equity £m £m £m £m £m £m £m £m £m At 1 January 2004 158.2 1,722.2 - 158.2 (7.9) 165.8 2,196.5 3.6 2,200.1Currency translationdifferences - - - - - (2.2) (2.2) (0.6) (2.8) Actuarial losses ondefined benefit pensionscheme - - - - - (10.6) (10.6) - (10.6) Tax on items takendirectly to equity - - - - - 3.1 3.1 - 3.1 Total income andexpense recogniseddirectly in equity - - - - - (9.7) (9.7) (0.6) (10.3)Profit for the year - - - - - 328.0 328.0 (0.1) 327.9Total income andexpense for the year - - - - - 318.3 318.3 (0.7) 317.6 Exercise of options 0.4 7.4 - - - - 7.8 - 7.8Net decrease due toshares held in ESOPtrusts - - - - (6.6) - (6.6) - (6.6)Equity dividends - - - - - (144.4) (144.4) - (144.4)Cost of share based - - - - - 2.0 2.0 - 2.0payments At 31 December 2004 158.6 1,729.6 - 158.2 (14.5) 341.7 2,373.6 2.9 2,376.5 Effect of adoptingIAS 39 - - 34.3 - - (22.5) 11.8 - 11.8 At 1 January 2005 158.6 1,729.6 34.3 158.2 (14.5) 319.2 2,385.4 2.9 2,388.3 Currency translationdifferences - - - - - (5.5) (5.5) 0.2 (5.3) Actuarial losses ondefined benefit pensionscheme - - - - - (7.4) (7.4) - (7.4) Tax on items takendirectly to equity - - - - - 1.6 1.6 - 1.6 Total income andexpense recogniseddirectly in equity - - - - - (11.3) (11.3) 0.2 (11.1)Profit for the period - - - - - 159.6 159.6 (0.1) 159.5Total income andexpense for the period - - - - - 148.3 148.3 0.1 148.4 Exercise of options 1.5 28.8 - - - - 30.3 - 30.3Net decrease due toshares held in ESOPtrusts - - - - (1.8) - (1.8) - (1.8)Equity dividends - - - - - (95.9) (95.9) - (95.9)Cost of share based - - - - - 3.1 3.1 - 3.1payments At 30 June 2005 160.1 1,758.4 34.3 158.2 (16.3) 374.7 2,469.4 3.0 2,472.4 Notes to the accounts 1. Basis of preparation (a) The interim financial report has been prepared in accordance with theaccounting policies that the directors anticipate will be adopted in the annualfinancial statements as expected to be in issue at 31 December 2005. These willbe based on the accounting policies as required on transition to InternationalFinancial Reporting Standards (IFRS) available on the Group's websitewww.hiltongroup.com. These accounting policies comply with the amendment to IAS19 that was published in December 2004 which the Group expects to early adopt inits first IFRS financial statements. As permitted by IFRS 1, the Group hasapplied IAS 32 and 39 from 1 January 2005. Reconciliations between UK GAAP andIFRS for both the six months to 30 June 2004 and the full year to 31 December2004 can be found in the Group's 2004 statutory accounts. The interim financialinformation was approved by a duly appointed and authorised committee of theBoard of Directors on 25 August 2005 and is unaudited. The auditors have carriedout a review and their report is set out on page 27. (b) To assist in understanding of underlying performance the Group hasdefined the 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 derivatives arising from hedging interest rate and currency exposures- Discontinued operations- Litigation settlements The non-trading items have been included within the appropriate classificationin the consolidated income statement. (c) The financial information set out in this document in respect of the yearended 31 December 2004 does not constitute the Group's statutory accounts forthe year ended 31 December 2004. The auditors' report on the statutory accountsfor 2004 was unqualified and did not contain a statement under section 237 ofthe Companies Act 1985. Statutory accounts for 2004 have been delivered to theRegistrar of Companies. 2. Revenue and profit by activity Half year to 30 June 2005 Profit before Profit before taxation and taxation and after Revenue non-trading items non-trading items £m £m £mContinuing operations: Retail Betting 4,945.8 117.6 117.6Other Betting 766.0 26.0 26.0Total Betting 5,711.8 143.6 143.6Hotels 887.6 72.6 77.5Central costs and income - (8.9) (8.9) 6,599.4 207.3 212.2Net finance costs - (15.2) (10.3) 6,599.4 192.1 201.9 Half year to 30 June 2004 Profit before Profit after Revenue non-trading items non-trading items £m £m £m Continuing operations: Retail Betting 4,241.2 129.4 129.4Other Betting 547.9 23.9 23.9Total Betting 4,789.1 153.3 153.3Hotels 845.9 65.6 68.0Central costs and income - (6.5) (6.5) 5,635.0 212.4 214.8Net finance costs - (21.1) (21.1) 5,635.0 191.3 193.7 Year to 31 December 2004 Profit before Profit after Revenue non-trading items non-trading items £m £m £m Continuing operations: Retail Betting 8,905.8 233.7 233.7Other Betting 1,219.9 39.1 39.1Total Betting 10,125.7 272.8 272.8Hotels 1,771.4 159.2 158.6Central costs and income - (14.3) (14.3) 11,897.1 417.7 417.1Net finance costs - (41.0) (41.0) 11,897.1 376.7 376.1 3. Non-Trading items Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £m £m £m Continuing operations:Profit on sale of tangible fixed assets 9.6 2.5 5.9Losses on sale of tangible fixed assets (a) (4.7) (0.1) (6.5)Total non-trading profit before finance costs 4.9 2.4 (0.6)Unrealised gains on derivatives 4.9 - -Total non-trading profit before taxation 9.8 2.4 (0.6)Taxation thereon (b) (3.9) - -Non-trading tax credit (c) - 9.0 9.0Non-trading items after taxation 5.9 11.4 8.4 (a) The loss on tangible fixed assets in 2005 and 2004 relates to disposal of non-core assets. (b) There is no tax on the 2004 profit/losses on fixed assets. (c) The £9.0 million non-trading tax credit in 2004 relates to a specific case settled during the period where related losses were previously treated as non-trading items. 4. Taxation The total tax charge of £42.3 million (June 2004: £20.8 million; December 2004:£48.1 million), includes a non-trading tax credit of £nil (June 2004: £9.0million; December 2004 £9.0 million). The taxation charge relates to £29.7million of UK tax and £12.6 million of overseas tax. 5. Dividends Half year to Half year to Year toPence per share 30 June 2005 30 June 2004 31 December 2004 pence pence pence Interim 3.80 3.60 3.60Final - - 6.00 3.80 3.60 9.60 The dividends paid in June 2005 and June 2004 were £95.9 million (6.00p pershare) and £87.4 million (5.52p per share) respectively. An interim dividendof 3.80p per share (2004: 3.60p) amounting to a total dividend of £60.9 million(2004: £57.0 million) was declared by the Directors at their meeting on 25August 2005. These financial statements do not reflect this dividend payable. 6. 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. Earnings Diluted Basic EPS Diluted EPSHalf year to 30 June 2005 earnings* pence per pence per £m £m share share Profit attributable to shareholders 159.5 164.6 10.0p 9.5pNon-trading items net of tax (5.9) (5.9) (0.4)p (0.3)pAdjusted profit attributable to shareholders 153.6 158.7 9.6p 9.2p Earnings Diluted Basic EPS Diluted EPSHalf year to 30 June 2004 earnings* pence per pence per £m £m share share Profit attributable to shareholders 172.8 172.8 10.9p 10.8pNon-trading items net of tax (11.4) (11.4) (0.7)p (0.7)pProfit attributable to shareholders 161.4 161.4 10.2p 10.1p Earnings Diluted Basic EPS Diluted EPSYear to 31 December 2004 earnings* pence per pence per £m £m share share Profit attributable to shareholders 327.9 335.0 20.7p 19.5pNon-trading items net of tax (8.4) (8.4) (0.5)p (0.5)pProfit attributable to shareholders 319.5 326.6 20.2p 19.0p *Diluted earnings includes an adjustment to the attributable profit to reflect areduction in the interest charge net of tax of £5.1 million (June 2004: £nil,December 2004: £7.1 million) which would result from the conversion of theconvertible bond to equity. The number of shares used in the calculation is shown below: Half year to 30 Half year to 30 Full year to 31 June 2005 June 2004 December 2004 millions millions millions Weighted average number of ordinary shares for thepurposes of basic earnings per share 1,595.1 1,583.0 1,584.2 Effect of dilutive potential ordinary shares:Share options 13.5 11.0 12.5Convertible bond conversion to ordinary share capital 115.4 - 115.4Issue of contingently issuable shares 2.5 4.2 3.4 Weighted average number of ordinary shares for thepurposes of dilutive earnings per share 1,726.5 1,598.2 1,715.5 7. Net debt The Group's net debt structure is as follows: 30 June 2005 30 June 2004 31 December 2004 £m £m £mNon current assetsDerivative financial instruments 69.7 - - Current assets Derivative financial instruments 20.9 - -Cash and cash equivalents 569.7 617.4 483.3 Current liabilitiesInterest-bearing loans and borrowings (95.7) (271.9) (115.6)Related Shares:
Ladbrokes Coral