31st Aug 2005 07:00
Paddy Power plc31 August 2005 Paddy Power plc Interim results for the six months ended 30 June 2005 Paddy Power plc, trading as Paddy Power Bookmaker, Ireland's leading off-coursebookmaker, today announced interim results for the six months to 30 June 2005. H1 2005 H1 2004* • • Turnover 704.1m 554.1mOperating profit 17.8m 18.2mProfit before tax 18.4m 18.7mProfit after tax 15.8m 16.0mEPS 31.72c 33.30cCash balance 50.1m 51.6mInterim dividend 7.75c 6.20c *2004 comparatives have been restated in accordance with IFRS Commenting on the results John O'Reilly, Chief Executive said: "Despite a run of racing results in favour of the punters, we've delivered ahealthy operating profit, grown revenues and made very good progress indiversifying the business through different channels and products. We remainconfident of meeting our expansion plans for the full year and the Group is verywell positioned for 2006 and beyond." Commenting on the results Ross Ivers, Finance Director said: "We are now reaping the rewards of our strategy of investing upfront in ourstart-up businesses with our online channel now generating record earnings andset for continued expansion." Issued on behalf of Paddy Power plc by Drury Communications For reference: John O'Reilly Ross Ivers Chief Executive Finance Director Paddy Power plc Paddy Power plc Tel: + 353 1 4045912 Tel: + 353 1 4045912 Mobile: + 353 87 254 1688 Mobile: + 353 87 668 8772 Oonagh Daly / Padraig McKeon Trevor Phillips Drury Communications Ltd Holborn Tel: + 353 1 260 5000 Tel: + 44 207 929 5599 Mobile: + 353 87 855 4406 Mobile: + 44 7889 153628 Interim results for the six months ended 30 June 2005 Chairman's Statement I am delighted to report on another successful six months for your Company. Thevery strong underlying growth seen in 2004 has continued into 2005, withturnover growth of 27% in the period. This growth helped offset the impact ofthe very favourable 'big race' results enjoyed by the punters in the first halfof this year. This contrasts with the same period last year when stellarsporting results for the bookmakers drove record profits. Notwithstandingthis, operating profits at €17.8m for the period are only marginally behind the2004 operating profits of €18.2m, a commendable performance given the run ofresults. H1 2005 H1 2004* • • Turnover 704.1m 554.1mOperating profit 17.8m 18.2mProfit before tax 18.4m 18.7mProfit after tax 15.8m 16.0mEPS 31.72c 33.30cCash balance 50.1m 51.6mInterim dividend 7.75c 6.20c *2004 comparatives have been restated in accordance with IFRS The first half of 2005 has seen the continued development of Paddy Power acrossall business channels. The retail businesses in both Ireland and the UnitedKingdom (UK) continue to expand through the organic growth of new outlets, whileour non retail business continues to grow both its traditional sportsbookbusiness and its new gaming business. The non retail business accounted for over63% of operating profits in the six months to 30 June 2005 (2004:33%) and willcontinue to be a major source of growth for us, together with the continuedretail expansion. The external environment continues to change rapidly. We have seen consolidationof significant retail operators through acquisitions in both the UK and Irelandin the past six months, the emergence of poker as a significant global onlinebusiness, the review of Irish betting tax legislation together with continuedlegislative change around the world, including the passing of the Gambling Actin the UK. We see these changes as opportunities for Paddy Power and I amconfident that we are well positioned to take advantage of them. The economic environment in which we operate continues to support our growth,particularly in Ireland where the economy has been performing very well.Overall consumer spending in the UK economy has been sluggish but it has hadlittle impact given our ability to organically grow the estate and like-for-likesales. Our commitment to customer service remains as strong as ever. This, combinedwith continued investment in the brand, has helped ensure we remain the numberone bookmaker in Ireland and is driving our continued brand recognition growthin the UK where, based on our most recent market research, we are nowestablished as one of the best known bookmakers. This, combined with a marketleading product range across all channels, leaves us well positioned for furthergrowth in these markets. As the Company has evolved so has the Board and management team. In the firsthalf of 2005 we announced the retirement of John O'Reilly and the appointment ofPatrick Kennedy as Chief Executive Officer. This appointment will take effectfrom 1 January 2006. I am sure that Patrick will bring his many talents to bearin Paddy Power over the coming years thereby continuing the successful growth ofour Company. I would also like to once again welcome Brody Sweeney who joinedthe Board on 16 February 2005 as a non-executive director. Further non-executiveBoard appointments are in progress. I remain upbeat about the prospects for Paddy Power and look forward to speakingto you again in February. Operations Review Retail Expansion of retail operations has continued in 2005, with new outlets beingopened in both Ireland and the UK. As of 30 June 2005 the Group operated 178outlets (2004:161). In Ireland, Paddy Power operated 145 outlets (2004:141) as of 30 June 2005, anincrease of two since 31 December 2004. In addition, a further three (2004:one)outlets have been relocated, three (2004:three) have been extended and ten(2004:11) refurbished in the six months to 30 June 2005, bringing the totalnumber of premises developed to 18 (2004:19). The development pipeline remainsstrong and we expect to see a greater level of outlet growth in the second halfof 2005. Expansion of the UK estate remains in line with plans, with a bias to openingsin the second half of 2005. As of 30 June 2005, Paddy Power operated 33 outlets,an increase of two since 31 December 2004 and 13 since 30 June 2004. Unopenedlicences at 30 June 2005 totalled 11. Since 30 June 2005, a further two outletshave been opened, bringing the total operating outlets to 35, and we are "onsite" in six others. Continued success in winning new licences means that, as of29 August 2005, the Group now holds 14 unopened licences giving a potentialestate size of 49 outlets. Fixed odds betting terminals (FOBTs) and amusement with prizes machines (AWPs)are a feature throughout the UK estate, with a total of 107 machines installedat 30 June 2005 (105 FOBTs and two AWPs). A reduction in the number ofsuppliers, together with improved operating performance of the FOBT machines,has driven average drop per machine per month over the period to €2,695 (2004:€1,477). The EPOS system development has continued with the system installed in nine testoutlets throughout Ireland and the UK. An expansion of the system toapproximately 30 test outlets is in progress, following which a final decisionis expected by year end on a full estate roll out. Non Retail The non retail division has experienced continued strong growth across allchannels and product lines in 2005, with gaming income becoming increasinglysignificant to the Group. The biggest new product launch in the period was poker which, unlike themajority of our other products, does not require Paddy Power to take a riskposition in the transaction. We are very pleased with its development to dateand have seen strong growth through the summer months, a traditionally quietperiod for poker. We will continue to invest in people and marketing through2006 as we build market share. The other online businesses continue to grow strongly in both Ireland and theUK. This is being driven by continued investment in the product range, sitefunctionality and brand. The telephone business has continued to grow and the benefits of therepositioning of this business, which commenced in 2004, are now very evident.Higher average stake per call, higher average bets per customer and improvedstaff efficiencies have continued into 2005 as we continue to refine thecustomer base. Given the higher costs of this business, it remains essential tofocus on the higher staking customers within the mass market, even if it has ashort term impact on customer numbers. Financial Review International Financial Reporting Standards (IFRS) The 2005 interim financial statements have been prepared in accordance with therecognition and measurement principles of International Financial ReportingStandards (IFRS) expected to be adopted for use in the European Union by 31December 2005. The 2004 comparatives have been restated in accordance with theprescribed conversion methodologies contained within the standards. Alldiscussion within the review is on IFRS based financial statements. The impact of IFRS is set out in detail in note 1. There is no impact onturnover and gross profit other than reclassifications between cost of sales andoperating costs. Operating costs are impacted by the different accountingtreatment for share-based payment schemes and goodwill. The total impact ofthese adjustments in the six months to 30 June 2004 was to reduce operatingprofit by only €14,000. There have also been a small number of reclassificationswithin the balance sheet. Turnover Turnover growth for the six months to 30 June 2005 was 27.08% bringing turnoverto €704.1m (2004: €554.1m). This reflects strong growth across all threedivisions. Turnover in 2004 included approximately €12m on the Euro 2004Football Championship. No replacement event took place in 2005. - Retail Retail turnover was €401.3m (2004: €340.4m) an increase of 17.89%. Retailturnover growth in Ireland and the UK was 14.12% and 59.79% respectively.Like-for-like turnover growth in Ireland was 10.5%. Average slip size for thetotal estate grew by 3.8% to €18.53 from €17.85. Slip volumes grew by 13.6% from19.1m to 21.7m - Non Retail Telephone betting turnover grew by 20.6% from €105.8m to €127.6m with verystrong growth in the Irish market. Growth rates in the UK were modest due to thecontinued repositioning of the business as noted below. Average stake was €88.73(2004:€77.02) an increase of 15.20%. Bet volumes increased by 4.7% to 1.44m(2004:1.37m). The work that commenced in 2004 to refocus the telephone businessat the higher end of the mass market has resulted in strong underlying growth inthis business as we encourage the lower staking customers to use the internetwhile focusing both our customer retention and acquisition efforts on higherstaking customers. Total active customers (those who have bet in the last threemonths) were 21,433 (2004:21,607). Of these 12,474 (2004:12,539) were Irish and8,959 (2004:9,068) were from the UK. Online turnover increased by 62.5% to €175.2m from €107.8m, an outstandingperformance. In general, turnover on gaming product comprises the operators "hold", which represents 2% to 3% of the amount staked, while turnover from thepeer-to-peer products, including poker, represents the commission income (rake).The gross win percentage of this business is generally 100%. Conversely,bookmaking product and fixed odds games turnover represents the total amountstaked by customers while the gross win reflects turnover less winnings paidout. Consequently, turnover as a measure of growth, understates the underlyinggrowth of the overall business as the level of gaming activity increases withinthe online division. Turnover from the sportsbook was €153.8m (2004:€104.7m), an increase of 46.9%.Turnover from gaming activities totalled €21.4m (2004:€3.1m), an increase of588.7%. Gaming activity includes the casino, poker, peer-to-peer games andvarious fixed odds games. Average bet size in the sportsbook was €28.30 (2004:€25.63), an increase of10.5%. Total active online customers (those who have bet in the last three months) were73,999 (2004:54,349) an increase of 36.2%. Of these, 69,097 bet on at least thesportsbook. 59,132 were solely sportsbook customers, and 14,867 were bothsportsbook and gaming customers. Of the total customer base 26,818 (2004:21,913) were Irish and 47,181 (2004:32,436) were from the UK. Customer retention continues to improve across all the non retail businesses andcustomer acquisition costs remain very competitive. Gross Win and Gross Profit Gross win is measured in sports betting and fixed odds games as amounts staked(excluding betting taxes and levies) less the amount returned to customers aswinnings. For casino bets and poker rake the customer drop is recorded in bothturnover and gross win at 100% margin. Overall gross win rose by 12.1% to €80.9m(2004: €72.2m). The following gross win percentages were achieved: Gross Win H1 2005 H2 2004 H1 2004 Retail 12.4% 11.6% 14.2%Telephone 8.6% 6.7% 10.4%Online 11.6% 9.7% 12.0% Gross win percentages in the sportsbook were exceptionally strong in the firstsix months of 2004 but reverted to their more normal levels in 2005, albeitlower than expected. This was primarily due to the adverse horse racing resultsthroughout the period with a large number of big races being won by favourites.These results had the greatest impact on the retail division which is mostexposed to horseracing. Gross profit, measured as gross win less the cost of discounting bets, gross wintaxes, data rights and third party profit shares, rose by 11.4% to €68.7m from€61.6m. The following gross profit percentages were achieved: Gross Profit H1 2005 H2 2004 H1 2004 Retail 10.9% 10.2% 12.6%Telephone 7.4% 6.0% 8.8%Online 8.9% 8.1% 8.7% Operating Profit Operating profit fell by 2.4% to €17.8m (2004:€18.2m) with a significantincrease in operating profit in the non retail business being offset by loweroperating profit in the retail division. The non retail profit improvements weredriven by the strong turnover growth in the sports betting business combinedwith the strong growth in gaming products. These more than compensated for thepoor racing results and increased cost base. Non retail operating profitcomprised 63% of operating profits. Notwithstanding the strong like-for-like sales increase, retail profits fell dueto the significantly poorer gross win percentages achieved in 2005 in comparisonto 2004, together with the cost of further expansion of the retail estate inIreland and the UK. This reflects the sensitivity of the retail business tolarge changes in gross win percentages and does not indicate any structuralrevenue or cost management issues. Overall operating costs continue to grow with the expansion of the business andthe commitment to investing up front in new businesses. Taxes The corporation tax charge for the six months to 30 June 2005 was €2.6m (2004:€2.7m), an effective rate of 14.0% (2004:14.5%). Paddy Power's effective rateis 1.5% above the Irish statutory rate due to a number of non-deductibleexpenses and its passive income which is taxed above the statutory rate. Cash Flow Net cash flow from operating activities for the six months ended 30 June 2005fell by 21% to €25.0m from €31.6m in 2004. While operating profits were broadlyflat on 2004, the working capital contribution, while positive at €1.1m, waslower than the €9.4m generated in 2004. This was largely due to high Euro 2004antepost betting in June 2004 and changes in the timings of payments such astaxes and other supplier payments between December 2003 and December 2004. Thecash was applied acquiring fixed assets of €11.5m comprising the fit-out of newand relocated outlets as well as computer equipment. In addition, dividends of€6.3m, the funding of share purchases by the trustees of the long-term incentiveplan of €2.6m and corporation taxes of €2.4m were paid during the period. Cashreceived from the exercise of share options amounted to €0.1m. Cash balances at30 June 2005 were €50.1m compared to €47.2m at 31 December 2004. This includescash balances held on behalf of customers of €6.9m (December 2004:€6.5m). Dividend The Board has decided to pay an interim dividend of 7.75c (2004: 6.2c) pershare, an increase of 25% payable on 23 September 2005 to shareholders on theregister at the close of business on 9 September 2005. This reflects the Board'sdesire to have a progressive dividend policy that is not impacted by short-termadverse sporting results. Outlook Since 30 June 2005 gross win percentages have been disappointing in thesportsbook, with percentages at 11.4%, 8.0% and 5.1% for the retail, online andtelephone divisions respectively. Online gaming and poker have continued togrow in line with expectations and the Group will continue to invest in peopleand marketing to develop these products during the remainder of the year. As ever, the outturn for the year will depend on gross win over the comingmonths. The Group remains confident of meeting its expansion plans for the yearand is very well positioned for continued growth in 2006. Consolidated Interim Income Statement For the six months ended 30 June 2005 - unaudited Note Six months ended 30 Six months ended 30 Year ended June 2005 June 2004 31 December 2004 (Restated) (Restated) •'000 •'000 •'000 Revenue 704,142 554,098 1,165,165Cost of winning bets (635,491) (492,471) (1,049,532) Net revenues from betting activities 68,651 61,627 115,633 Employee costs 24,243 20,539 40,212Property expenses 8,489 7,037 14,406Marketing expenses 5,975 4,400 7,485Technology & communications 3,995 4,031 7,212Depreciation & amortisation 5,318 3,584 8,624Other expenses 2,877 3,847 6,591 Total operating expenses 50,897 43,438 84,530 Operating profit before financing costs 17,754 18,189 31,103 Financial income 613 512 1,060Financial expenses - (36) (54) Profit before tax 18,367 18,665 32,109Income tax expense (2,571) (2,708) (4,662) Profit for the period 15,796 15,957 27,447 Basic earnings per share 3 31.7c 33.3c 56.6cDiluted earnings per share 3 31.0c 31.6c 54.2cProposed dividend per share for period 4 7.75c 6.20c 18.72c Results for the half-year ended 30 June 2004 and for the year ended 31 December2004 have been restated to reflect the recognition and measurement principles of International Financial Reporting Standards expected to be adopted for use in the European Union by 31 December 2005. See basis of preparation at note 1. Consolidated Interim Statement of Movements in EquityFor the six months ended 30 June 2005 - unaudited Six months ended 30 Six months ended 30 Year ended June 2005 June 2004 31 December 2004 (Restated) (Restated) •'000 •'000 •'000 Profit for the period 15,796 15,957 27,447Dividends to shareholders (6,265) (4,113) (7,212) Retained profit for the period 9,531 11,844 20,235Shares purchased by employee trust (2,623) (2,306) (2,306)Increase in employee share based 765 451 906payments reserveShare issues, net of costs 157 592 2,929Opening Equity 78,144 56,380 56,380 Closing Equity 85,974 66,961 78,144 Movements in equity for the half-year ended 30 June 2004 and for the year ended 31 December 2004 have been restated to reflect the recognition and measurementprinciples of International Financial Reporting Standards expected to be adoptedfor use in the European Union by 31 December 2005. See basis of preparation at note 1. Consolidated Interim Balance SheetAs at 30 June 2005 - unaudited Note 30 June 2005 30 June 2004 31 December 2004 (Restated) (Restated)Assets •'000 •'000 •'000 Property, plant and equipment 65,397 49,201 59,499Intangible assets 3,175 1,832 3,032Trade and other receivables 2,925 1,885 2,290Cash and cash equivalents 50,107 51,611 47,206 Total assets 121,604 104,529 112,027 EquityIssued capital 5,018 4,811 5,005Share premium 6,824 4,537 6,680Shares held by employee trust (4,929) (2,306) (2,306)Reserves 2,618 1,398 1,853Retained earnings 76,443 58,521 66,912 Total equity 85,974 66,961 78,144 LiabilitiesTrade and other payables 34,828 36,643 33,007Deferred tax liabilities 802 925 876 Total liabilities 35,630 37,568 33,883 Total equity and liabilities 121,604 104,529 112,027 The financial position as at 30 June 2004 and 31 December 2004 have beenrestated to reflect the recognition and measurement principles of International Financial Reporting Standards expected to be adopted for use in the European Union by 31 December 2005. See basis of preparation at note 1. Consolidated Cash Flow StatementFor the six months ended 30 June 2005 - unaudited Six months ended 30 Six months ended 30 Year ended June 2005 June 2004 31 December 2004 (restated) (restated) Cash flows from operating activities •'000 •'000 •'000Profit before tax 18,367 18,665 32,109Financial income (613) (512) (1,060)Financial expenses - 36 54Depreciation and amortisation 5,318 3,584 8,624Cost of employee share based payments 765 451 906Gain/(loss) on disposal of fixed assets 90 9 (31) Cash from operations before changes in working capital 23,927 22,233 40,602(Increase)/ decrease in trade and other receivables (578) 167 (129)Increase in trade and other payables 1,629 9,166 4,548 Cash generated from operations 24,978 31,566 45,021Interest paid - (22) (54)Income taxes paid (2,450) (1,801) (3,800) Net cash from operating activities 22,528 29,743 41,167 Cash flows from investing activitiesPurchase of property, plant and equipment (11,364) (12,281) (25,949)Acquisitions of intangible assets and goodwill (176) (102) (1,330)Proceeds from disposal of property, plant and equipment 88 19 69Interest received 556 588 1,086 Net cash used in investing activities (10,896) (11,776) (26,124) Cash flows from financing activitiesCapital element of finance lease payments - (187) (421)Proceeds from the issue of new shares 157 592 2,929Purchase of shares by employee trust (2,623) (2,306) (2,306)Dividends paid (6,265) (3,628) (7,212) Net cash used in financing activities (8,731) (5,529) (7,010) Net increase in cash and cash equivalents 2,901 12,438 8,033Cash and cash equivalents at start of period 47,206 39,173 39,173 Cash and cash equivalents at end of period 50,107 51,611 47,206 The cashflows for the half-year ended 30 June 2004 and for the year ended 31 December 2004 have been restated to reflect the recognition and measurementprinciples of International Financial Reporting Standards expected to be adoptedfor use in the European Union by 31 December 2005. See basis of preparation at note 1. Notes to the Consolidated Interim Financial Statements 1 Basis of Preparation and Provisional Accounting Policies The financial statements are prepared under the historical cost convention andare presented in euro, rounded to the nearest thousand. Further to IAS Regulation (EC1606/2002) ('Accounting standards adopted for usein the EU'), EU law requires that the next annual consolidated financialstatements of the Group for the year ended 31 December 2005 be prepared inaccordance with accounting standards adopted for use in the European Union ('EU'). This interim financial information has been prepared on the basis of therecognition and measurement requirements of International Financial ReportingStandards and International Accounting Standards (collective 'IFRS') in issuethat either are adopted for use in the EU and effective (or available for earlyadoption) at 31 December 2005 or are expected to be adopted and effective (oravailable for early adoption) at 31 December 2005, the Group's first annualreporting date at which it is required to use accounting standards adopted foruse by the EU. Based on these recognition and measurement requirementsmanagement has made assumptions about the accounting policies expected to beapplied when the first annual financial statements are prepared in accordancewith accounting standards adopted by the EU for the year ending 31 December2005. The accounting standards adopted for use in the EU that will be effective (oravailable for early adoption) in the annual financial statements for the yearending 31 December 2005 are still subject to change and to additionalinterpretations and therefore cannot be determined with certainty. Accordingly,the accounting policies for that annual period will be determined finally onlywhen the annual financial statements are prepared for the year ending 31December 2005. The interim consolidated financial information was authorised for issue by theDirectors on 30 August 2005. An explanation of how the transition to IFRS has affected the financialinformation is outlined below: First time adoption of International Financial Reporting Standards ('IFRS'). Up to and including the year ended 31 December 2004, the Group's financialstatements were prepared in accordance with generally accepted accountingprinciples as promulgated by the Institute of Chartered Accountants in Ireland(Irish GAAP). IFRS 1 'First-time adoption of International Financial Reporting Standards'(IFRS1), is the accounting standard governing the implementation of IFRS for thefirst time. This standard allows or requires a number of exceptions to itsgeneral principles that the standards in force at the reporting date should beapplied retrospectively. At the transition date 1 January 2004, the exemptionsto retrospective implementation availed of are that the Group has implementedthe requirements of IFRS 2 'Share Based Payments' to all equity settled sharebased payments granted after 7 November 2002 that had not vested by 1 January2005 and has not restated business combinations prior to the transition date inaccordance with IFRS3 'Business Combinations'. The principal changes to the Group's financial statements resulting from theimplementation of IFRS are set out in the table and related notes below: Restatement of Consolidated Income Statement under Irish Six months ended 30 Year endedGAAP to IFRS June 2004 31 December 2004 •'000 •'000 Operating Profit - Irish GAAP 18,203 31,134IFRS 2 - Share-based payments (74) (152)IFRS 3 - Business combinations 60 121 Operating Profit - IFRS 18,189 31,103 Restatement of Consolidated Balance Sheet under Irish GAAP Six months ended 30 Year endedto IFRS June 2004 31 December 2004 •'000 •'000 Total Assets - Irish GAAP 104,469 111,906IFRS 3 - Business combinations 60 121 Total Assets - IFRS 104,529 112,027 Total Liabilities - Irish GAAP 40,551 40,117IAS 10 - Events after the Balance Sheet date (2,983) (6,234) Total Liabilities - IFRS 37,568 33,883 Total Equity - Irish GAAP 63,918 71,789IFRS 3 - Business combinations 60 121IFRS 2 - Share-based payments - -IAS 10 - Events after the Balance Sheet date 2,983 6,234 Total Equity - IFRS 66,961 78,144 Total Equities and Liabilities - Irish GAAP 104,469 111,906IFRS 3 - Business Combinations 60 121IFRS 2 - Share-based payments - - Total Equities and Liabilities - IFRS 104,529 112,027 IFRS 2 'Share-based payments' The effect on the income statement of implementing IFRS2 to the various Groupshare-based payment schemes is an increase in employee expenses of €74,000 and€152,000 for the six months ended 30 June 2004 and the year ended 31 December2004 respectively. This cost gives rise to a corresponding increase in a newlycreated reserve for employee share-based payments. In addition to the incomestatement effect, IFRS2 resulted in a reclassification of reserves from retainedearnings to the reserve for employee share-based payments. This resulted intransfers of €25,000, €377,000 and €754,000 from retained earnings to thereserve for employee share-based payments as at 1 January 2004, 30 June 2004 and31 December 2004 respectively. IFRS 3 'Business Combinations' The effect on the income statement of implementing IFRS3 is a decrease in thegoodwill expense of €60,000 and €121,000 for the six months ended 30 June 2004and the year ended 31 December 2004 respectively, due to the cessation ofgoodwill amortisation in respect of acquisitions. IAS 38 'Intangible Assets' The Group has reviewed the requirements of IAS 38 'Intangible Assets' and hasreclassified assets, principally licence acquisition costs and computersoftware, from property, plant and equipment to intangibles based on thedefinition of an intangible outlined in the standard. The effect on the income statement of implementing IAS38 is a reclassificationof depreciation expense to amortisation expense of €21,000 and €48,000 for thesix months ended 30 June 2004 and the year ended 31 December 2004 respectively.The net overall effect on the income statement of the reclassification is nil.The effect on the balance sheet is a reduction in the cost of property, plant &equipment and an increase in the cost of intangible assets of €876,000, €978,000and €1,228,000 as at 1 January 2004, 30 June 2004 and 31 December 2004respectively. Similarly accumulated depreciation is reduced by €28,000, €49,000and €76,000 as at 1 January 2004, 30 June 2004 and 31 December 2004 respectivelywith corresponding increases in the accumulated amortisation of intangibles.This gives an overall effect of a reduction in the net book value of propertyplant and equipment and an increase in intangible assets of €848,000, €929,000and €1,152,000 as at 1 January 2004, 30 June 2004 and 31 December 2004respectively. IAS 10 'Events after the Balance Sheet Date' Under IAS 10 'Events after the Balance Sheet Date', dividends are provided forin the period when they are approved by the directors (interim dividend) orshareholders (final dividend). The effect on the balance sheet is a reduction intrade and other payables and increase in retained earnings of €4,106,000,€2,983,000 and €6,234,000 as at 1 January 2004, 30 June 2004 and 31 December2004 respectively. Provisional Accounting Policies The accounting policies adopted by the Group under IFRS, in the preparation ofthese interim statements and which are expected to apply for the year ended 31December 2005, are set out below. Full details of the accounting policiesapplied in previous periods under Irish GAAP can be found on page 41 of the 2004Annual Report. Basis of Consolidation The Group's financial statements consolidate the financial statements of PaddyPower plc and its subsidiary undertakings based on accounts made up to the endof the financial period. Intra-group balances and any unrealised gains andlosses or income and expenses arising from intra-group transactions areeliminated on consolidation. Revenue Revenue represents proceeds from sports betting and gaming activities. Sportsbetting turnover represents amounts received in respect of bets placed on eventsthat occurred during the period. Gaming revenue comprises Games turnover andCasino revenue. Games betting turnover, represents amounts received in respectof bets on games completed during the period and Casino revenue is 'customerdrop' which is the amounts staked net of customer winnings. Revenue isexclusive of betting taxes and levies. Segment Reporting Business segments are distinguishable components of the Group that provideproducts and services that are subject to risks and returns that are differentfrom other business segments. Geographical segments provide services within aparticular economic environment that are subject to risks and rewards that aredifferent from those components operating in alternative economic environments.The Group has determined that business segments are the primary reportingsegments. Foreign Currency The consolidated financial statements are presented in euro. Transactionsdenominated in foreign currencies are translated at the exchange rates ruling atthe dates of the transactions. Monetary assets and liabilities denominated inforeign currencies at the balance sheet date are retranslated into euro at therates of exchange ruling at that date. Foreign exchange differences arising ontranslation are recognised in the income statement. Non monetary assets andliabilities measured on a historical cost basis in a foreign currency aretranslated using the exchange rate at the date of the original transaction. Theasset and liabilities of foreign operations, including goodwill arising onconsolidation, are translated to euro at foreign exchange rates ruling at thebalance sheet date. The revenues and expenses of foreign operations aretranslated to euro at rates approximating to the foreign exchange rates rulingat the dates of the transactions. Foreign exchange differences arising onretranslation are recognised directly in a separate component of equity. Property, Plant and Equipment Property, plant and equipment is stated at historical cost less accumulateddepreciation and impairment losses. Where parts of an item of property, plantand equipment have different useful lives, they are accounted for as separateitems. Depreciation is calculated to write off the cost less estimated residualvalue of property, plant and equipment on a straight line basis over theiruseful lives. Land is not depreciated. The estimated useful lives are asfollows: Freehold buildings 50 years Leasehold improvements unexpired term of the lease (including renewal period where initial lease term is less than ten years) Fixtures and fittings 5-7 years Computer equipment 3 years Motor vehicles 3 years The residual value, if not insignificant, is reassessed annually. Intangible Assets including Goodwill Goodwill recognised under Irish GAAP prior to the date of transition to IFRS isstated at net book value as at the transition date. Goodwill recognisedsubsequent to 1 January 2004, representing the excess of purchase considerationover fair value of net assets acquired defined in accordance with IFRS3 'Business Combinations', is capitalised. Goodwill is not amortised but isreviewed for impairment annually. Any impairment in the value of goodwill isdealt with in the income statement in the period it which it arises. Other acquired intangible assets, including licences and computer software arecapitalised at cost and amortised on a straight line basis over their estimateduseful economic lives. The estimated useful lives of intangible assets rangefrom 5 to 20 years. Impairment The carrying amounts of property, plant and equipment, and intangible assets arereviewed at each balance sheet date to determine whether there is an indicationof impairment. If any such indication exists the recoverable amount of theasset or its cash generating units is estimated. For intangible assets that arenot yet available for use, the recoverable amount is estimated at each annualbalance sheet date. An impairment loss is recognised whenever the carryingamount of an asset or its cash-generating unit exceeds its recoverable amount.Impairment losses are recognised in the income statement. Goodwill was tested for impairment at 1 January 2004, the date of transition toIFRS, even though no indication of impairment existed. The recoverable amount of other assets is the greater of their sales price orvalue in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset. For an asset that does not generate largely independent cashinflows, the recoverable amount is determined for the business segment to whichthe asset belongs. Leases and Leased Assets Leases, under the terms of which the Group assumes substantially all the risksand rewards of ownership, are classified as finance leases. The assets acquiredby way of finance lease are stated at an amount equal to the lower of fair valueand the present value of the minimum lease payments at inception of the lease,less accumulated depreciation and impairment loss. Finance lease payments areapportioned between the finance charge and the reduction of the outstandingliability and the charge is allocated to the income statement during the leaseterm so as to produce a constant periodic rate of interest on the remainingbalance of the liability. Operating lease rentals payable are recognised as an expense in the incomestatement on a straight line basis over the lease term unless another systematicbasis is more appropriate. Interest Interest income is recognised in the income statement as it accrues, using theeffective interest rate method. Income tax Income tax in the income statement comprises current and deferred tax. Currenttax is the expected tax payable on the taxable income for the year, using taxrates enacted or substantially enacted at the balance sheet date, and anyadjustment to tax payable in respect of the previous year. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: goodwill not deductiblefor tax purposes, the initial recognition of assets or liabilities that affectneither accounting nor taxable profit, and differences relating to investmentsin subsidiaries to the extent that they will probably not reverse in theforeseeable future. The amount of deferred tax provided is based on the expectedmanner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Pensions The Group operates a number of defined contribution schemes. Obligations forcontributions are recognised as an expense in the income statement as incurred. Employee Benefits The Group operates equity-settled share option schemes for employees under whichemployees acquire options over company shares. The fair value of share optionsgranted is recognised as employee benefit cost with a corresponding increase inthe employee share-based reserve. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. The fair value of the options granted is measured usinga Black Scholes model, taking into account the terms and conditions upon whichthe options were granted. The amount recognised as an expense is adjusted toreflect the actual number of share options that vest. The Group operates an equity-settled share save scheme ('SAYE') for employeesunder which employees acquire options over company shares at a discounted pricesubject to the completion of a savings contract. The fair value of shareoptions granted is recognised as employee benefit cost with a correspondingincrease in the employee share-based reserve. The fair value is measured atgrant date and spread over the period of the savings contract. The fair value ofthe options granted is measured using a Black Scholes model, taking into accountthe terms and conditions upon which the options were granted. The amountrecognised as an expense is adjusted to reflect the actual number of shareoptions that vest. The Group operates an equity-settled long-term incentive scheme for selectedsenior executives under which the executives are conditionally awarded shareswhich vest upon the achievement of predetermined earnings targets. The fairvalue is measured at the award date and is spread over the period during whichthe employees become unconditionally entitled to the shares with a correspondingincrease in the employee share-based reserve. The fair value of the sharesconditionally awarded is measured using the market price of the shares at thetime of award. Payments to the long term incentive plan's trustees to acquire company shareswhich have been conditionally awarded to executives under the terms of thelong-term incentive plan are shown separately in equity in the consolidatedbalance sheet. Share CapitalDividends on ordinary shares are recognised in equity in the period in whichthey are approved by the Company's shareholders, or in the case of the interimdividend, when it has been approved by the Board of Directors. Dividendsdeclared after the balance sheet date are disclosed in the subsequent eventsnote. Cash and Cash EquivalentsCash and cash equivalents for the purpose of the statement of cash flowscomprises cash balances, and call deposits. 2 Segmental Information (a) By business segment Retail Retail Retail Non Non Non Total Total Total Retail Retail Retail 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue 401,342 340,438 688,651 302,800 213,660 476,514 704,142 554,098 1,165,165Segment result 7,188 12,822 18,716 12,137 7,150 15,369 19,325 19,972 34,085Unallocated group (1,571) (1,783) (2,982)expensesOperating profit 17,754 18,189 31,103Financial income/expense 613 476 1,006Taxation (2,571) (2,708) (4,662)Profit after tax 15,796 15,957 27,447Segment assets 65,878 47,238 59,313 8,124 7,371 7,381 74,002 54,609 66,694Unallocated group assets 47,602 49,920 45,333Total assets 121,604 104,529 112,027Segment liabilities 7,240 9,484 9,675 11,044 11,002 10,218 18,284 20,486 19,893Unallocated group 17,346 17,082 13,990liabilitiesTotal liabilities 35,630 37,568 33,883Capital expenditure 9,694 10,445 24,645 1,529 1,726 3,097 11,223 12,171 27,742Depreciation 4,018 2,638 6,585 1,300 946 2,039 5,318 3,584 8,624Non cash expenses other 401 235 440 454 225 435 855 460 875than depreciation (b) By geographical segment Ireland & Ireland Ireland & UK UK UK Total Total Total Other & Other Other 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue 486,176 408,023 829,541 217,966 146,075 335,624 704,142 554,098 1,165,165Segment assets 95,013 88,666 96,549 26,591 15,863 15,478 121,604 104,529 112,027Capital 7,478 6,883 17,084 3,745 5,288 10,658 11,223 12,171 27,742expenditure Further analysis of the business segments by Six months ended 30 Six months ended 30 Year endedchannel shows: June 2005 June 2004 31 December 2004 (Restated) (Restated) •'000 •'000 •'000TurnoverRetail 401,342 340,438 688,651Telephone 127,588 105,828 236,546Online 175,212 107,832 239,968 704,142 554,098 1,165,165 Gross WinRetail 49,628 48,284 88,701Telephone 10,985 10,962 19,664Online 20,319 12,945 25,745 80,932 72,191 134,110 Gross ProfitRetail 43,684 42,940 78,296Telephone 9,448 9,258 17,151Online 15,519 9,429 20,186 68,651 61,627 115,633Operating ProfitRetail 6,653 12,238 17,727Telephone 2,960 2,305 4,549Online 8,141 3,646 8,827 17,754 18,189 31,103 3 Earnings per Share Six months ended 30 Six months ended 30 Year ended June 2005 June 2004 31 December 2004 (Restated) (Restated) •'000 •'000 •'000 Profit attributable to ordinary shareholders 15,796 15,957 27,447Weighted average number of shares in issue during 49,792 47,919 48,536the periodDilutive effect of options outstanding 1,135 2,631 2,054 Adjusted weighted average number of shares in issue 50,927 50,550 50,590during the period Basic earnings per share 31.7c 33.3c 56.6cDiluted earnings per share 31.0c 31.6c 54.2c 4 Post Balance Sheet Event Interim Dividend On 30 August 2005, the Directors declared an interim dividend of 7.75c pershare. This will be paid on 23 September 2005 to shareholders on the Company'sregister of members at the close of business on the record date of 9 September2005. Independent review report to Paddy Power plc Introduction We have been engaged by the company to review the financial information set outon pages ... to ... and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Irish Stock Exchange and the UK Financial Services Authority. Ourreview has been undertaken so that we might state to the company those matterswe are required to state to it in this report and for no other purpose. To thefullest extent permitted by law, we do not accept or assume responsibility toanyone other than the company for our review work, for this report, or for theconclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. As disclosed in note 1 to the financial information, the next annual financialstatements of the Group will be prepared in accordance with InternationalFinancial Reporting Standards ('IFRS') adopted for use in the European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those IFRSs adopted for use in the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in Ireland and the United Kingdom. A review consists principally ofmaking enquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. KPMG Chartered Accountants Dublin 30 August 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Flutter Entertainment