4th Sep 2007 07:01
Paddy Power plc04 September 2007 Paddy Power plc 2007 Interim Results Announcement Paddy Power plc today announces its interim results for the six months ended 30 June 2007. Highlights: - Operating profit growth of 108% to €40.8m; - A marked improvement in the performance of our UK Retail business which traded profitably compared to a full year loss of €6.0m in 2006; - Operating profit growth of 131% in our Irish Retail business; - Operating profit growth of 53% and 27% in our online and telephone businesses respectively; - Continued investment to drive future growth, including the introduction of online financial spread betting and online Spanish language betting businesses in the summer; - The acquisition of four shops in Ireland and an additional four since the period end; - Cash returns to shareholders of €59.3m through a combination of dividends and share buybacks; - Last, but not least, an exceptionally favourable run of sporting results. Commenting on the results Patrick Kennedy, Chief Executive, Paddy Power plc said: "We have grown our business very substantially in the first six months of 2007.Profitability has increased by in excess of 100%, with very strong growth inevery division, helped by favourable sporting results. Our retail operations performed particularly well, with 131% growth in IrishRetail profitability, whilst our UK shops traded profitably for the first time.We also continue to invest in the future, with two new businesses being launchedsince the start of the year - our financial spread betting business, and ourSpanish language online business. Strong trading has continued into the second half of the year, and we lookforward to the remainder of 2007 and beyond with confidence." ENDS 4 September 2007 Issued on behalf of Paddy Power plc by Drury Communications Ltd For reference: Patrick Kennedy Jack MasseyChief Executive Finance DirectorPaddy Power plc Paddy Power plcTel: + 353 1 404 5912 Tel: + 353 1 404 5912 Billy Murphy / Oonagh Daly Trevor PhillipsDrury Communications Ltd Holborn PRTel: + 353 1 260 5000 Tel: + 44 20 7929 5599Mobile: + 353 87 855 4406 (OD) Mobile: + 44 7889 153 628 2007 Interim Financial HighlightsFor the six months ended 30 June 2007 - unaudited Six months ended Six months ended 30 June 2007 30 June 2006 % Change •m •m Amounts staked by customers Irish Retail 461 415 +11% UK Retail 83 60 +38% Retail Division 544 475 +15% Online 297 248 +20% Telephone 153 155 -2% Total amounts staked * 994 878 +13% •'000 •'000 Revenue Irish Retail 67,716 51,584 +31% UK Retail 15,106 10,257 +47% Retail Division 82,822 61,841 +34% Online 45,600 30,757 +48% Telephone 15,340 12,369 +24% Total revenue * 143,762 104,967 +37% Operating profit / (loss) Irish Retail 22,497 9,751 +131% UK Retail (526) (3,030) n/a Retail Division 21,971 6,721 +227% Online 14,811 9,696 +53% Telephone 4,056 3,203 +27% Total operating profit 40,838 19,620 +108% Profit for the period 35,458 17,496 +103% Basic earnings per share 70.6c 34.8c +103% Interim dividend per share 16.00c 9.43c +70% * Amounts staked by customers (or 'turnover') represents amounts received inrespect of bets placed on sporting events that occurred during the period andnet winnings and commissions earned on gaming activities. Revenue (or 'grosswin') represents the net gain on sports betting transactions (stake less payout)and net winnings and commissions earned on gaming activities. Interim Statement I am delighted to report on an outstanding first half of 2007 for Paddy Powerwith the following highlights: - Operating profit growth of 108% to €40.8m; - A marked improvement in the performance of our UK Retail business which traded profitably compared to a full year loss of €6.0m in 2006; - Operating profit growth of 131% in our Irish Retail business; - Operating profit growth of 53% and 27% in our online and telephone businesses respectively; - Continued investment to drive future growth, including the introduction of online financial spread betting and online Spanish language betting businesses in the summer; - The acquisition of four shops in Ireland and an additional four since the period end; - Cash returns to shareholders of €59.3m through a combination of dividends and share buybacks; - Last, but not least, an exceptionally favourable run of sporting results... While the summer weather was poor it was nothing compared to the 'perfect storm'experienced by many punters during the first half of 2007! Whether it was inhorse racing, soccer, rugby or golf, a stream of apparently unlikely and,certainly lightly backed, results came to pass. The 'luck of the Irish' waslittle in evidence with a succession of fancied Irish horses beaten atCheltenham, Ascot and in the Classics. This resulted in gross win percentagesabove the expected ranges in all our sportsbook channels, with the largestpositive variances in those channels with the highest exposure to Irish punters.When the going gets tough some people grow a beard and hide in a bunker but wewent for the get going approach. We ran some of our most generous 'specials'during the period building our brand and customer loyalty for the future.Despite the run of bookmaker-friendly results inevitably impacting turnovergrowth (so called 'negative recycling'), and the absence of the World Cup, wealso achieved double digit turnover growth in both our Retail and Non Retaildivisions. Historically the second half of the year tends to produce a lower gross winpercentage for Paddy Power than the first half, as more predictable groundconditions deliver fewer upsets in racing. However in July and August this yearthe variable weather conditions have resulted in gross win percentages close tothe mid-point of the guided ranges which serves to remind us of the potentialfor our short-term financial performance to be influenced by sporting resultsand other factors, all outside our control. We know from long experience theold adage of 'what goes around comes around' applies to sporting results. The Retail Division The gross win percentages in the first half of the year within Irish and UKRetail were 14.7% and 12.6% respectively, compared to 12.4% and 12.5% in thecomparable period. This performance was driven by a set of results that evenour most wizened and experienced colleagues regarded as unprecedented. In thelast five reporting periods prior to this, our Retail division's gross winpercentage has averaged 12.0%, in line with the mid-point of our ongoing guidedrange of 11.0% to 13.0%. Equally, UK Retail (and business from UK customerswithin Non Retail) had gross win percentages in the current period near themid-point of their guided ranges. The divergence in the Irish and UK Retailpercentages highlights the impact of the different performance of the favouredselections amongst Irish and UK punters. Picking a winner was difficult;picking an Irish winner seemed nigh impossible. We tried to cushion the blowfor our punters with our trademark Money-Back Specials including the Cheltenhamspecial refunding all losing bets on any horse that finished second to afavourite; this was offered on one race on each of the first three days andexpanded to every race by the Friday. We continue to monitor closely currentgross win percentages and expectations for the future; however recycling,negative and positive, does counterbalance some of the impact of gross winpercentage movements. The launch of Turf TV was a significant development in the supply of picturesfrom racecourses to shops, as well as a graphic illustration of our commitmentto giving customers what they want. Since April, Turf TV has had the picturerights from six UK racecourses, with a further 25 of the UK's 59 racecoursescommitted to join the service in January 2008. Paddy Power was the first majorchain of bookmakers to sign up for Turf TV, ensuring our customers couldcontinue to watch live racing from every racecourse in the UK and Irelandwithout interruption. Our infrared shop television control technology andcentral production studio also ensures that the SIS and Turf TV pictures areseamlessly integrated. Despite the incremental cost, we are confident thisapproach will be rewarded, particularly by focussing on the opportunity it givesus to win customers from competitors without this service. Significantly, 80%of betting shops in the UK do not currently have Turf TV. In recent months, wehave therefore complemented this differentiation with a traditional Paddy PowerMoney-Back Special, but taken to a whole new level - money back on all losers -for three selected races over the day, announced immediately after the off. Wecan't think of a better way to showcase to a new customer the Paddy Powercommitment to customer service, product quality and our brand values of fun,fair and friendly. The benefits of the Electronic Point of Sale ('EPOS') system rolled out lastyear continue to accrue in a range of areas. This year's Cheltenham Festivaland Grand National were the first for many shops with EPOS and we were pleasedwith the improvement in customer service from speedier bet placement andcollection, including the benefit of EPOS readable 'mark sense' dockets for shopcoupons and press promotions. We are also extracting more benefits bycontinuously refining and acting upon information from the system foroperational management, marketing, risk and security. (i) Irish Retail •m H1 2007 H1 2006 % ChangeAmounts staked 460.9 414.4 +11%Gross win 67.7 51.6 +31%Gross profit 62.9 43.0 +46%Operating costs (40.4) (33.3) +22%Operating profit 22.5 9.7 +131% The amounts staked within Irish Retail grew by 11% to €461m with a 31% increasein gross win to €68m, as compared to increases of 16% and 21% respectively inthe first half of 2006. Excluding the impact of new shops, like-for-likeamounts staked and gross win increased by 5% and 25% respectively, as comparedto 12% and 16% during the first half of 2006. Operating costs increased by 22%driven by a 9% increase in average shop numbers, increased depreciation(primarily related to EPOS) and growth in divisional and central variable costsdue to increased levels of activity. Gross profit in the first half of 2007 versus 2006 benefited from the change inIrish retail betting tax. From July 2006, the Irish government introduced a 1%turnover tax levied on the bookmaker in place of the previous 2% tax paid by thecustomer. Of course Paddy Power had given its customers the benefits of taxfree betting the morning after the change was announced in December 2005. Thismeant incurring an additional cost of 1% of turnover or €4m in the first half of2006 which did not arise in the first half of 2007. During the first half of the year, we opened four new shops and expect tocontinue to open in line with our medium term guidance of six to 10 shops perannum. In addition, we acquired four shops from other operators: a small chainof three shops within Dublin and one shop in Mullingar. Since 30 June, we havealso acquired a chain of four shops in North Dublin. While we continue toprefer the economics of organic expansion in the Republic of Ireland, thesesmall acquisitions offered: prime locations in areas in which we have wished toexpand for some time but where suitable retail units have not become available;an excellent fit with our existing estate; and significant potential to increasethe units' profitability with the Paddy Power brand, product and customerservice. We have been pleased with the trading of the units since acquisition.The eight additional shops trading during the first half took our total Irishestate to 168 as at 30 June 2007. (ii) UK Retail •m H1 2007 H1 2006 % ChangeAmounts staked 83.0 60.3 +38%Gross win* 15.1 10.3 +47%Gross profit 12.7 8.0 +58%Operating costs (13.2) (11.0) +20%Operating loss** (0.5) (3.0) n/a (*FOBT gross win above excludes VAT; ** The operating loss in 2007 is shownafter a €0.6m provision for shop closure costs.) UK Retail achieved its first trading profit in the first half of 2007,generating €0.1m prior to a provision for shop closure costs of €0.6m. Thiscompares to ongoing losses since the initial openings in 2002 and a loss of€3.0m in the comparable period last year. We announced last year that we wouldprioritise enhancing the performance of our existing estate, rather than furthershop openings, in the period prior to deregulation of the UK market this month.As a result, we implemented a range of initiatives to increase revenues andreduce costs which came to fruition in the current period resulting in a onceoff step change increase in profitability. From a revenue perspective, turnover grew by 38% to €83m. Gross win growth of47% to €15.1m was comprised of 72% growth in Fixed Odds Betting Terminal ('FOBT') gross win to €5.3m, and 37% growth in over-the-counter ('OTC') gross winto €9.8m. Like-for-like gross win grew by 24%, with OTC growth of 19% and FOBTgrowth of 37%. There were 231 FOBT machines installed as at 30 June, anincrease of 24% compared to 30 June last year. The average gross win permachine per week including VAT was £716, an increase of 28% compared to £558 inthe first six months of 2006. An aggressive review of the cost base of our UK Retail estate deliveredsubstantial savings in the first half of 2007 where, amongst other things, wesuccessfully leveraged the growth in our estate and the increased levels ofactivity within each shop to achieve economies. Excluding the shop closureprovision of €0.6m, operating cost growth was restricted to 14%, despite a 23%increase in the average number of shops and a 3% increase from the imposition ofAmusement Machine License Duty. The adequacy of the shop closure provision willbe reviewed at the end of the year. This progress on costs and revenues has resulted in each of the group of shopswe opened in each of the last four years achieving an EBIT positive result inthe first half of 2007. This compares with only the combined group of shopsopened in 2003 and 2004 achieving an EBITDA positive result in the first sixmonths of last year. Looking forward, we welcome the implementation of the Gambling Act this monthwhich provides improved shop opening prospects, enhanced gaming machines andlonger shop opening hours. The removal of the 'demand test' for openings alsogives us important additional flexibility in the format and size of new shops.The gaming machine changes allow for the introduction of higher payout and morevaried content on machines. There will however be an offset from the impact ofthe smoking ban implemented in England in July, and machine regulatory changesbeing made as part of the implementation of the Act. In April we completed ourpre-deregulation opening programme, with one additional shop, taking our estateto 59. We will open a small number of additional shops in London this year butare also currently undertaking a detailed review of the potential for expansionelsewhere in the UK. The Non Retail Division The Non Retail division comprises online betting and gaming and telephonebetting. Operating profit from the division increased by 46% to €18.9m,comprising €4.1m from the telephone channel, an increase of 27%, and €14.8m fromthe online channel, an increase of 53%. Betting on football represents agreater proportion of turnover in the Non Retail division than the Retaildivision; hence this was a satisfying performance as last year's comparativesincluded the World Cup. Sportsbook turnover within the Non Retail division is broadly an even mix fromIrish and UK based customers. This influenced the average gross win percentageachieved in the first half of 2007 of 9.9%, compared to 7.7% in the comparableperiod and our mid-point expectation of 8.0%, with an exceptionally highpercentage achieved from Irish customers being partially diluted by a percentagemodestly above the mid-point of the range from UK customers. As a result of recent tax developments, which come into effect from September2007, we now expect to incur less betting tax within the Non Retail divisiongoing forward, as long as the new tax situation continues to exist. While taxlegislation may change in the future, the impact of these changes based oncurrent levels of activity is to increase Non Retail gross profit byapproximately €5m in a full year. (i) The Online Channel •m H1 2007 H1 2006 % ChangeAmounts staked 297.3 247.9 +20%Gross win 45.6 30.7 +48%Gross profit 35.4 23.1 +53%Operating costs (20.6) (13.4) +54%Operating profit 14.8 9.7 +53% The online channel continues to be characterised by strong growth, combined witha significant level of investment to drive future growth. Operating profitsincreased by 53% or €5.1m in the first half of 2007, notwithstanding the ongoinginvestment being made to expand online activities into new geographies throughthe German and Spanish language betting businesses, and into new product marketssuch as bingo and financial spread betting. The major drivers of the increasein operating costs from €13.4m to €20.6m were: - The launch of new businesses and expansion of businesses recently launched; - Investment in people to drive further development and growth; - Volume driven promotional spend and marketing spend; and - Growth in variable costs due to increased activity levels. Customer numbers in the online channel continued to grow strongly with an 18%increase at the end of the half year relative to June 2006, despite slowergrowth in sportsbook customers without the World Cup. Online competitionremains intense but we are confident that our brand, product range and top classcustomer service, as well as our continuous drive to increase our marketingefficiency, means we are well positioned for growth. From a marketingperspective, we continue to invest in people and technology to optimise ourcustomer acquisition, through both affiliate and non-affiliate sources, and ourcustomer retention. For example, we added our newly developed affiliatemanagement system to paddypower.com during the period, automating the processfor other web site operators to promote our products on their websites. AnIrish general election micro site also attracted political punters and media toour site and gave them a taste of Paddy Power early payouts when we paid out onBertie Ahern to lead the incoming government before the count commenced. Online Channel Active Customers 30 June 2007 30 June 2006 % ChangeIreland and Rest Of World 58,619 46,564 +26%UK 98,791 86,810 +14%Total 157,410 133,374 +18% Online Customers Product Usage 30 June 2007 30 June 2006 % ChangeSportsbook only 96,632 95,950 +1% Gaming only 26,375 15,411 +71% Multi product customers 34,403 22,013 +56%Total 157,410 133,374 +18% (Active customers are defined as those who have bet in the last three months) (a) Sportsbook The amounts staked on the online sportsbook increased by 19% to €279m. Withinthis, bet volumes grew 16% to 9.8m while the average bet value increased by 3%to €28.36. Gross win in the sportsbook increased by 53% to €27.2m, helped by a9.8% gross win percentage as compared to 7.6% in the comparative period and ourmid-point expectation of 8.0%. Sports punters benefited from a range of refunds and early payouts. Followingthe disappointment for Irish rugby backers of the team's last minute defeat toFrance, we reacted with a high profile early payout on bets on Ireland to beatEngland and win the Triple Crown, the day before the historic encounter withEngland at Croke Park, and two weeks before the trip to Murrayfield. Equally,we refunded backers of Lewis Hamilton following concerns that team orders costhim victory at his maiden Monaco Grand Prix, as well as making an early payouton him to be the 2007 BBC Sports Personality of the Year. We also took theunprecedented decision in a Classic to return losing bets on heavy favouriteTeofilo when he was withdrawn from the 2,000 Guineas. We believe consistentfair action, complemented by media interest, creates differentiation, loyaltyand ultimately turnover. Our trademark product innovation continues to give more choice to the customer.In horse racing, we introduced betting-in-running for all races on terrestrialTV and expanded 'bet-and-watch' to all races in the UK and Ireland. We alsoexpanded football betting-in-running with new markets on whether there will be agoal and who will win in the next 10 minute period. We remain encouraged by our prospects in the medium term for expansion incontinental Europe, both as a result of countries that have already movedtowards liberalisation and by enforcement action of EU Law by the EuropeanCommission. We have continued to develop our German language online sportsbookand were pleased to be already rated third out of over 30 bookmakers for bothHomepage and Customer Service quality in a survey by a large German bettingforum. We also launched our Spanish language online betting site in August.Both businesses represent investments for the medium term, as we tackle thesignificant challenge of attempting to replicate our successful penetration ofthe UK online market, in the face of regulatory, competitive and culturalhurdles. (b) Gaming The online channel generates gaming revenues from casino, games, poker andbingo. Revenue from these sources, representing the operator's 'hold' orcommission income, increased by 42% to €18.4m, aided to some extent by theabsence of the distractions for players in June of the World Cup and sunshine! During March, we migrated our poker customers from the software of our networksupplier to that of another network, Playtech, which had acquired our supplier.Since then we have implemented a range of initiatives to counter the negativeimpact of the change in software, as well as the loss of liquidity fromcustomers of other members of the previous network. These initiatives includedleveraging relative strengths of the new software such as the availability ofside card games and a smoother download process for customers; working with thesupplier to implement changes to improve the customer experience; and focussinghard on our normal growth drivers to offset the impact of the peak in customerchurn at the time of the migration. This work is continuing. While the poker business has therefore faced new challenges in the last sixmonths, our commitment is underlined by our sponsorship of the Irish Open pokertournament. The 2007 event set a further landmark as Europe's largest evertournament with over 700 players. Given the growth of our poker business, andthe market overall, Paddy Power is guaranteeing the 2008 event with a €3 millionprize fund, an additional €1 million over 2007. Gaming gross win was also driven by a strong performance from our games channel,where an online version of the popular TV game show 'Deal Or No Deal' proved allthe rage with both existing and new customers. Bingo also contributed to grosswin growth with more expected in the future. Its potential is clear with goodpunter interest aroused by our guaranteed jackpot of €75,000 over the weekend ofthe UK Grand National, as well as by more subtle promotional techniques such asPaddy's Passion Wagon bingo on Friday nights! We also launched paddypowertrader.com, an online financial spread bettingbusiness, in July. Paddy Power Trader markets spread betting opportunities onequities, commodities and indices with a differentiating emphasis on education,value and, of course, entertainment. We are satisfied with the initialperformance and plan to increase our level of investment over time in thisattractive market. (ii) The Telephone Channel •m H1 2007 H1 2006 % ChangeAmounts staked 152.5 155.0 -2%Gross win 15.3 12.4 +24%Gross profit 13.9 11.2 +24%Operating costs (9.8) (8.0) +23%Operating profit 4.1 3.2 +27% The amounts staked within the telephone channel fell by 2% to €152m influencedby negative recycling as a result of the high gross win percentage of 10.1%(compared to 8.0% in the comparable period), the absence of the World Cup andcontinued competition in the market. Within the 2% turnover fall, bet volumesfell 2% to 1.5m while the average stake per bet increased slightly to €99.25.We continue to prioritise profitability ahead of growth in customer numbers ormarket share in the telephone channel, and were pleased to achieve growth inoperating profit of 27% in the first half of 2007. Telephone Channel Active Customers 30 June 2007 30 June 2006 % ChangeIreland and Rest Of World 13,651 13,709 -0%UK 11,545 11,709 -1%Total 25,196 25,418 -1% (Active customers are defined as those who have bet in the last three months) We took advantage of the additional capacity of our new call centre during Marchand April by arranging extra temporary staff for the peak periods of activityaround Cheltenham and the Irish and English Grand Nationals. This reduced callwaiting times and enabled new account openings to be dealt with even duringthese peak demand periods. Taxation The corporation tax charge for the period was €7.3m, an effective tax rate of17.0%. As anticipated, this represents an increase on the 14.6% effective ratein the first half of 2006 as a result of the non-deductibility of the 1% ofturnover betting tax in Irish Retail. No corporation tax is currently payablein the UK due to tax losses. The Group's effective tax rate is above thestandard rate of Irish corporation tax due to the impact of non-deductibleexpenses and passive interest income which is taxed above the standard rate. Profit After Tax and Earnings Per Share Profit after tax for the period was €35.5m, an increase of 103%. Dilutedearnings per share grew 101% to 69.5 cent. Share Buyback Programme and Cash Flow During the six month period, we returned a total of €59.3m of cash toshareholders through a combination of dividends and share buybacks. The finaldividend paid to shareholders in respect of 2006 was €11.7m, an increase of 80%over the final 2005 dividend payment. In addition, further to the programmeannounced on 3 March 2007, €48.2m was spent on returning cash to shareholdersvia a share buyback programme. This reflected purchases of 2.14m shares or 4.2%of the company's share capital at an average price of €22.25. It is the Board'scurrent intention to consider further share buybacks in the period to the nextAGM in line with the approval granted by shareholders. The timing and amount ofshares bought back will depend on the Group's pipeline of developmentopportunities as well as equity market conditions. Cash balances at 30 June were €72.6m compared to €87.1m at 31 December 2006, adecrease of €14.5m. This included cash balances held on behalf of customers of€14.5m compared to €13.4m at 31 December 2006. Net cash generated fromoperating activities in the first half of 2007 was €58.3m compared to €35.6m inthe comparable period in 2006, an increase of 64% or €22.7m. This was driven byoperating profit growth of 108% or €21.2m. Capital expenditure on tangible andintangible assets, comprising primarily the fit out and upgrading of retailoutlets, together with the acquisition of four retail units, was €10.2m. Dividend The Board has decided to pay an interim dividend of 16.00 cent per share, anincrease of 70% on the 2006 interim dividend, resulting in a total expectedpayment of €7.9m. This dividend is payable on 5 October 2007 to shareholders onthe register at the close of business on 14 September. Outlook During July and August, gross win percentages have reverted to close to themid-point of the guided ranges in each channel; nonetheless these levels areabove our expectations for this time of year. In addition, we continue toexperience good momentum in overall gaming gross win and also expect to benefitfrom a reduction in direct betting taxes in our Non Retail division. We expectoperating profit for the full year of approximately €68m versus our previousguidance of approximately €62m, clearly subject to the volatility that couldarise from sporting results. Compared to 2006 operating profit pre exceptionalitems, this result would represent growth of approximately 50%. Fintan Drury Chairman3 September 2007 Consolidated Interim Income StatementFor the six months ended 30 June 2007 - unaudited Six months Six months ended ended Year ended 30 June 2007 30 June 2006 31 December 2006 Before exceptional Total Total item Exceptional Total item (Note 3) Note •'000 •'000 •'000 •'000 •'000Amounts staked by customers 993,663 877,625 1,795,090 - 1,795,090 Continuing OperationsRevenue 143,762 104,967 218,706 - 218,706Direct betting costs (18,892) (19,745) (35,090) - (35,090)Gross profit 124,870 85,222 183,616 - 183,616Employee costs (39,002) (30,395) (64,227) - (64,227)Property expenses (11,696) (10,048) (21,174) - (21,174)Marketing expenses (11,653) (9,277) (17,309) - (17,309)Technology and communications (6,214) (5,366) (11,537) - (11,537)Depreciation and amortisation (10,882) (6,476) (15,512) - (15,512)Other expenses (4,585) (4,040) (8,395) 2,098 (6,297)Total operating expenses (84,032) (65,602) (138,154) 2,098 (136,056)Operating profit before financialincome 40,838 19,620 45,462 2,098 47,560Financial income 1,908 867 2,139 - 2,139Profit before tax 42,746 20,487 47,601 2,098 49,699Income tax expense (7,288) (2,991) (8,033) (421) (8,454)Profit for the period fromcontinuing operations 35,458 17,496 39,568 1,677 41,245 Basic earnings per share 4 70.6c 34.8c 81.9cDiluted earnings per share 4 69.5c 34.5c 81.1cProposed dividend per share forperiod 5 16.00c 9.43c 32.20c Consolidated Interim Statement of Recognised Income and ExpenseFor the six months ended 30 June 2007 - unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 •'000 •'000 •'000Group profit for the period 35,458 17,496 41,245Foreign exchange translation difference - - 1Total recognised income and expense 35,458 17,496 41,246 The total recognised income and expense for the period is entirely attributableto the equity holders of the Company. Consolidated Interim Balance SheetAs at 30 June 2007 - unaudited 30 June 2007 30 June 2006 31 December 2006 Note •'000 •'000 •'000AssetsProperty, plant and equipment 72,110 72,739 76,240Intangible assets 8,419 8,789 9,260Goodwill 4,292 1,880 1,880Deferred tax asset 282 370 195Total non current assets 85,103 83,778 87,575Trade and other receivables 4,141 4,592 4,203Cash and cash equivalents 72,595 68,281 87,061Total current assets 76,736 72,873 91,264Total assets 161,839 156,651 178,839 EquityIssued capital 6 4,918 5,106 5,124Share premium 6 10,614 9,121 10,163Shares held by long term incentive plan 6 (11,752) (8,137) (8,137)trustOther reserves 6 7,593 5,249 6,536Retained earnings 6 90,081 95,276 114,445Total equity 101,454 106,615 128,131 LiabilitiesDeferred tax liabilities - 752 -Total non current liabilities - 752 -Trade and other payables 48,246 40,842 46,263Derivative financial instruments 7 3,740 5,369 2,877Current tax payable 8,399 3,073 1,568Total current liabilities 60,385 49,284 50,708 Total equity and liabilities 161,839 156,651 178,839 Consolidated Interim Cash Flow StatementFor the six months ended 30 June 2007 - unaudited Six months ended 30 Six months ended 30 Year ended June 2007 June 2006 31 December 2006 •'000 •'000 •'000Cash flows from operating activitiesProfit before tax 42,746 20,487 49,699Financial income (1,908) (867) (2,139)Depreciation and amortisation 10,882 6,476 15,512Cost of employee share-based payments 2,379 1,646 3,184Loss / (gain) on disposal of property, plant and 22 45 (1,183)equipmentCash from operations before changes in working capital 54,121 27,787 65,073Decrease / (increase) in trade and other receivables 124 (2,422) (2,013)Increase in trade and other payables and derivativefinancial instruments 4,578 11,180 13,209Cash generated from operations 58,823 36,545 76,269Income taxes paid (558) (959) (8,526)Net cash from operating activities 58,265 35,586 67,743 Cash flows from investing activitiesPurchase of property, plant and equipment (6,309) (6,471) (17,855)Acquisition of intangible assets (1,212) (6,105) (7,921)Purchase of new businesses (2,634) - -Proceeds from disposal of property, plant and equipment 100 700 3,028Interest received 2,002 831 2,084Net cash used in investing activities (8,053) (11,045) (20,664) Cash flows from financing activitiesProceeds from the issue of new shares 327 1,639 2,699Purchase of own shares (48,193) - -Purchase of shares by long term incentive plan trust (5,138) (3,741) (3,742)Dividends paid (11,674) (6,476) (11,293)Net cash used in financing activities (64,678) (8,578) (12,336) Net (decrease) / increase in cash and cash equivalents (14,466) 15,963 34,743Cash and cash equivalents at start of period 87,061 52,318 52,318Cash and cash equivalents at end of period 72,595 68,281 87,061 Notes to the Consolidated Interim Financial Statements 1. Basis of preparation and accounting policies The interim financial statements are prepared on the historical cost basisexcept for betting transactions, which are recorded as derivative financialinstruments, and share-based payments, both of which are stated at fair value.The financial statements are presented in euro, rounded to the nearest thousand. The statements have been prepared in accordance with the recognition andmeasurement principles of International Financial Reporting Standards as adoptedby the EU at 30 June 2007. The accounting policies applied in the preparationof these interim financial statements are consistent with those set out in theAnnual Report for the year ended 31 December 2006. 2. Segmental information The revenue, operating profit and net assets of the Group relate to theprovision of betting and gaming activities, substantially all of which areconducted in the Republic of Ireland and the United Kingdom. (a) By business segment The Group considers its primary business segments to be 'Retail' and 'NonRetail'. The Retail business segment comprises the Group's Irish and UKlicensed bookmaking shop estates. The Non Retail business segment comprises theGroup's online and telephone sports betting businesses and its online gamingbusinesses, primarily casino, games, poker and bingo. Business segment information for the six months ended 30 June 2007: Retail Non Retail Other unallocated Total 30/06/2007 30/06/2007 30/06/2007 30/06/2007 •'000 •'000 •'000 •'000Revenue 82,822 60,940 - 143,762Direct betting costs (7,228) (11,664) - (18,892) cost of salesGross profit 75,594 49,276 - 124,870Depreciation and amortisation (8,534) (2,337) (11) (10,882)Other operating costs (43,346) (24,691) (5,113) (73,150)Operating profit 23,714 22,248 (5,124) 40,838Financial income - - 1,908 1,908Profit before tax 23,714 22,248 (3,216) 42,746Total assets 86,862 10,883 64,094 161,839Segment liabilities 12,212 27,627 20,546 60,385Capital expenditure 4,219 1,814 - 6,033 2. Segmental information (continued) Business segment information for the six months ended 30 June 2006: Retail Non Retail Other unallocated Total 30/06/2006 30/06/2006 30/06/2006 30/06/2006 •'000 •'000 •'000 •'000Revenue 61,841 43,126 - 104,967Direct betting costs (10,856) (8,889) - (19,745) cost of salesGross profit 50,985 34,237 - 85,222Depreciation and amortisation (4,834) (1,625) (17) (6,476)Other operating costs (38,452) (17,745) (2,929) (59,126)Operating profit 7,699 14,867 (2,946) 19,620Financial income - - 867 867Profit before tax 7,699 14,867 (2,079) 20,487Total assets 82,672 9,329 64,650 156,651Segment liabilities 12,240 21,077 16,719 50,036Capital expenditure 10,616 2,115 2 12,733 Business segment information for the year ended 31 December 2006: Retail Non Retail Other unallocated Total 31/12/2006 31/12/2006 31/12/2006 31/12/2006 •'000 •'000 •'000 •'000 Revenue 126,783 91,923 - 218,706Direct betting costs (17,250) (17,840) - (35,090)Gross profit 109,533 74,083 - 183,616Depreciation and amortisation (12,035) (3,449) (28) (15,512)Other operating costs (79,258) (36,911) (6,473) (122,642)Operating profit before property gain 18,240 33,723 (6,501) 45,462 Property gain 2,098 - - 2,098Operating profit 20,338 33,723 (6,501) 47,560Financial income - - 2,139 2,139Profit before tax 20,338 33,723 (4,362) 49,699Total assets 87,970 12,350 78,519 178,839Segment liabilities 14,559 22,466 13,683 50,708Capital expenditure 22,422 4,421 2 26,845 The amounts shown in the 'Other unallocated' category above, representing itemsthat cannot be allocated to either the Retail or Non Retail segments, areprimarily in respect of management costs relating to the Group as a whole, cashdeposits held centrally and certain accounts payable, tax and accrual balances. 2. Segmental information (continued) (b) By geographical segment The Group considers that its primary geographic segments are 'Ireland & Other'and 'UK'. The Ireland & Other geographic segment is composed of the IrishRetail bookmaking business, online and telephone sports betting from non-UKcustomers (principally in Ireland), and online gaming from non-UK customers.The UK geographic segment consists of the UK Retail bookmaking business, onlineand telephone sports betting from UK customers, and online gaming from UKcustomers. Ireland & Ireland & Ireland & UK UK UK Total Total Total Other Other Other 30/06/07 30/06/06 31/12/06 30/06/07 30/06/06 31/12/06 30/06/07 30/06/06 31/12/06 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue 97,055 72,840 148,462 46,707 32,127 70,244 143,762 104,967 218,706Segment assets 115,236 110,608 131,269 46,603 46,043 47,570 161,839 156,651 178,839Capital expenditure 5,771 8,994 14,369 262 3,739 12,476 6,033 12,733 26,845 Further analysis of the business segments by channel shows: Six months ended 30 Six months ended 30 Year ended June 2007 June 2006 31 December 2006 •'000 •'000 •'000Amounts staked by customersIrish Retail 460,871 414,410 833,125UK Retail 83,008 60,289 129,936Retail Division 543,879 474,699 963,061Online 297,332 247,893 525,425Telephone 152,452 155,033 306,604 993,663 877,625 1,795,090RevenueIrish Retail 67,716 51,584 104,385UK Retail 15,106 10,257 22,398Retail Division 82,822 61,841 126,783Online 45,600 30,757 67,404Telephone 15,340 12,369 24,519 143,762 104,967 218,706Gross profitIrish Retail 62,920 42,975 91,510UK Retail 12,674 8,010 18,023Retail Division 75,594 50,985 109,533Online 35,384 23,045 51,731Telephone 13,892 11,192 22,352 124,870 85,222 183,616Operating profit / (loss) before exceptional itemIrish Retail 22,497 9,751 22,025UK Retail (526) (3,030) (5,995)Retail Division 21,971 6,721 16,030Online 14,811 9,696 23,428Telephone 4,056 3,203 6,004 40,838 19,620 45,462 3. Exceptional item Six months ended 30 Six months ended 30 Year ended June 2007 June 2006 31 December 2006 •'000 •'000 •'000 Gain on disposal of Irish Retail shop property - - 2,098 During the 2006 financial year, the Group disposed of a shop property. Thisproperty, which formed part of the Group's Irish Retail licensed bookmakingoperations, was originally held under an operating lease. The Group exercised apurchase option contained in the lease and subsequently sold the property atarm's length to a third party, simultaneously entering into a leasebackagreement at arm's length with that third party. 4. Earnings per share Six months ended 30 Six months ended 30 Year ended June 2007 June 2006 31 December 2006 Numerator in respect of basic and diluted earningsper share (•'000):Profit attributable to equity holders of the Company 35,458 17,496 41,245 Numerator in respect of adjusted basic and dilutedearnings per share (•'000):Profit attributable to equity holders of the Company 35,458 17,496 41,245Less: Property gain after tax - - (1,677)Profit for adjusted earnings per share calculation 35,458 17,496 39,568 Denominator in respect of basic earnings per share(in '000s):Weighted average number of shares in issue duringthe period 50,245 50,235 50,344Adjustments to derive denominator in respect ofdiluted earnings per share:Dilutive effect of share option schemes, sharesavescheme, shares held by long term incentive plantrust and long term incentive plan 764 543 501Adjusted weighted average number of shares in issueduring the period 51,009 50,778 50,845 Basic earnings per share 70.6c 34.8c 81.9cAdjusted earnings per share 70.6c 34.8c 78.6cDiluted earnings per share 69.5c 34.5c 81.1cAdjusted diluted earnings per share 69.5c 34.5c 77.8c The basic weighted average number of shares excludes shares held by the PaddyPower Employee Benefit Trust. The effect of this is to reduce the averagenumber of shares in the six months to 30 June 2007 by 717,817 (2006: 439,543)shares. 5. Dividends paid and proposed Six months ended 30 Six months ended 30 Year ended June 2007 June 2006 31 December 2006 •'000 •'000 •'000Final dividend of 12.84c per share for year ended 31December 2005 - 6,476 6,476Interim dividend of 9.43c per share for period ended30 June 2006 - - 4,817Final dividend of 22.77c per share for year ended 31December 2006 11,674 - - 11,674 6,476 11,293 The Directors propose an interim dividend of 16.00c per share which will be paidon 5 October 2007 to shareholders on the Company's register of members at theclose of business on the record date of 14 September 2007. This dividend hasnot been included as a liability at 30 June 2007. 6. Movement in equity Shares held by Number of long term Share- ordinary Own incentive based shares in Share Share Other shares plan payment Retained issue capital premium reserves held trust reserve earnings Total •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Balance at 1 January 50,397,168 5,040 7,548 922 - (4,929) 3,220 84,250 96,0512006 Shares issued 841,269 84 2,663 - - - - - 2,747 Share issue costs - - (48) - - - - - (48) Own shares acquired: 280,000 ordinary shares - - - - - (3,742) - - (3,742) Total recognised incomeand expense - - - 1 - - - 41,245 41,246 Equity-settled - - - - - 534 2,636 - 3,170transactions Transfer to retainedearnings on exercise ofshare options - - - - - - (243) 243 - Dividends to - - - - - - - (11,293) (11,293)shareholders (Note 5) Balance at 31 December 51,238,437 5,124 10,163 923 - (8,137) 5,613 114,445 128,1312006 Shares issued 84,000 8 451 - - - - - 459 Own shares acquired: By long term incentiveplan trust - 260,000ordinary shares - - - - - (5,138) - - (5,138) By the Company -2,139,443 ordinary shares - - - - (48,193) - - - (48,193) Cancellation of ownshares acquired (2,139,443) (214) - 214 48,193 - - (48,193) - Total recognised incomeand expense - - - - - - - 35,458 35,458 Equity-settled transactions - - - - - 1,523 927 (39) 2,411 Transfer to retainedearnings on exercise ofshare options - - - - - - (84) 84 - Dividends to shareholders - - - - - - - (11,674) (11,674)(Note 5) Balance at 30 June 2007 49,182,994 4,918 10,614 1,137 - (11,752) 6,456 90,081 101,454 7. Derivative financial instruments Derivative financial instruments represent the fair value of sports betting openpositions at the period end. 8. Statutory financial statements This interim report does not comprise full statutory financial statements. Fullstatutory financial statements for the year ended 31 December 2006, prepared inaccordance with International Financial Reporting Standards as adopted by the EUtogether with an unqualified audit report thereon, are available from theCompany, from the website www.paddypowerplc.com and from the Registrar ofCompanies. 9. Board approval This interim report was approved by the Board of Directors of Paddy Power plc on3 September 2007. Independent Review Report to Paddy Power plc Introduction We have been engaged by the Company to review the financial information for thesix months ended 30 June 2007 which comprises the consolidated interim incomestatement, consolidated interim balance sheet, consolidated interim statement ofrecognised income and expense, consolidated interim cash flow statement andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies 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 This 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. 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 excludes auditprocedures such as tests of control and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with Auditing Standards and therefore provides a lower level ofassurance than an audit. Accordingly, we do not express an audit opinion on thefinancial 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 2007. KPMGChartered AccountantsDublin3 September 2007 Additional Information for Shareholders Listings Paddy Power plc is an Irish registered Company. Its ordinary shares are quotedon the Irish Stock Exchange and the London Stock Exchange. Registrar Enquiries concerning shareholdings should be addressed to the Company'sRegistrar: Computershare Investor Services (Ireland) Limited,Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland.Telephone: +353-1-216 3100Facsimile: +353-1-216 3151Website: www.computershare.com Payment of Dividends Direct to a Bank Account Dividends are paid by cheque; however shareholders resident in Ireland or in theUK may have their dividends paid by electronic transfer direct to a designatedbank account. Shareholders who wish to avail of this facility should contactthe Company's Registrar (see above). Payment of Dividends in Euro Dividend payments are made in euro by default. However, shareholders wishing toopt for payments in Pounds Sterling either by cheque or direct to their bankaccount may do so by contacting the Registrar (see above). Crest Transfer of the Company's shares takes place through the CREST settlementsystem. Shareholders have the choice of holding their shares in electronic formor in the form of share certificates. Dividend Withholding Tax ('DWT') With certain exceptions, dividends paid by Irish resident companies on or after6 April 2000 are subject to DWT at the standard rate of income tax of 20%. DWT,where applicable, is deducted by the Company from all dividends. Eachshareholder receives a statement showing the shareholder's name and address, thedividend payment date, the amount of the dividend, and the amount of DWT, ifany, deducted there from. In accordance with the requirements of legislation,this information is also furnished to the Irish Revenue Commissioners. Shareholders should take professional advice if they are in any doubt abouttheir individual tax positions. Further information concerning DWT may beobtained from: DWT Section, Collector General's Division, Government Offices,Nenagh, Co. Tipperary, Ireland.Telephone: +353-67-63400Facsimile: +353-67-33822E-mail: [email protected] Electronic Communications Paddy Power offers shareholders the ability to receive their communications fromthe Company electronically. This is obviously an efficient means ofcommunication that is more environmentally friendly and gives cost and timesavings for the Company which in turn benefits the shareholders. To register for Electronic Shareholder Communications go towww.computershare.com/register/ie. Scroll down on 'Company Selection' andselect 'Paddy Power plc' from the drop down menu. Click on 'Submit'. Completethe shareholder details including the SRN number which is on the sharecertificate or dividend counterfoil. Once the request is processed aconfirmation e-mail will be returned. 2007 Financial Calendar Announcement of interim results for 2007 4 September 2007Ex-dividend date for interim dividend 12 September 2007Record date for interim dividend 14 September 2007Interim dividend payment date 5 October 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Flutter Entertainment