Interim Results - Part 1

6th Aug 2009 07:00



Ladbrokes plc ("the Group") today announces its results for the half year ended 30 June 2009 ("the period").

Financial Results:

(1) Continuing operations excluding High Rollers (Discontinued operations comprise: Italian Retail and Paddington Casino).

(2) Profit before tax, finance costs and non-trading items for continuing operations. 

(3) Before non-trading items for continuing operations.

Business Highlights:

Christopher Bell, Chief Executive, commented: 

"Since we updated the market in mid-May, the deterioration in staking levels has been partially mitigated by lower costs. Our priorities are to continue to vigorously reduce costs, drive revenues and thereby improve profitability.

"In the period from 1 July to 4 August Group net revenue (excluding High Rollers) fell by 11.3%.  The fall in UK OTC amount staked of 8.0% was in line with our latest expectations but net revenue was adversely impacted by a weak margin. The economic and trading environment remains challenging and continuing uncertainty makes forecasting difficult. Given the revised cost guidance for UK Retail and phasing of marketing costs in the eGaming business, the Group still aims to meet its full year expectations.

"The Board has decided that it would be appropriate to pay a reduced dividend of 3.50 pence given the results to date and the current uncertain outlook. The full year dividend will be decided at the time of the final results in February, taking into account all the circumstances at the time."

Management is focused upon the following cost reduction and revenue enhancement measures:

Improving operating margins and further reducing costs. Cost reduction remains a key priority for the Group. For example, we are reducing our full year UK Retail cost guidance from a 4% increase to 1%. Additionally, we have bought out premium pay on Sundays and bank holidays which will produce annualised savings of £12 million effective from Q4 2010. In eGaming second half costs will fall reflecting lower marketing spend as we focus on CRM and maximise the yield from our increased number of customers.

Driving machine revenues through an improved portfolio of machines and games. During Q4 all of our Cyberview/IGT machines will utilise a new software platform which will provide improved graphics, functionality and 20 new games, of which nine will be exclusive to Ladbrokes. We are also testing new machines and software from Global Draw and Inspired Gaming to improve the competitiveness of our offering.

Maximising revenues through the use of the OddsOn! programme. £9.6 million was invested during the first half in securing a very high level of participation in the programme. The take up has surpassed our expectations and we now have over 300,000 customers using the card every month, with 50% of OTC stakes being taken through the programme. We will use this new depth of knowledge and dialogue with our customers to strengthen their loyalty to Ladbrokes.

Selling the Italian Retail business. Revenue growth has been below our expectations reflecting the continued presence of illegal shops, the increased competition in the market place and the withdrawal of the protective distance rule. This, combined with the investment required for the estate to achieve critical mass and the risk attached to achieving an acceptable return from that investment, has led to the decision to sell and focus fully on our online offering in Italy. The estate is of a high quality and we are committed to selling it within the next 12 months.

Relocating Ladbrokes online sportsbook to Gibraltar by the end of the year. This move will materially improve the competitiveness and operating margin of the eGaming business.

Strengthening the market leading position of our UK online sportsbook with the launch of our new website in Q4 which will offer improved functionality, site navigation and content. 

Maintaining a strong balance sheet. Given the conditions in the financing markets, the Board has decided it would be prudent to pursue, over time, a reduction in the Group's debt levels. Ladbrokes remains a highly cash generative business so will naturally de-lever over time. 

Regulation:

- As predicted, DCMS and the Gambling Commission announced their ongoing review of research into the high stake/high prize machines, confirming that there is very little consensus from the available research about the extent to which gaming machines cause gamblers to become problem gamblers. The Government's new Responsible Gambling Strategy Board will now identify priorities for problem gambling research, education and treatment moving forward.

- The Irish Department of Justice announced a review of betting and gaming regulatory and fiscal policy which is due to be reported upon at the end of this year and consequently the Department of Finance's proposed increase of betting tax from 1 May 2009 was postponed.

- In Europe the regulatory environment continues to be challenging. Ten infringement proceedings against Member States have thus far not resulted in a case being brought before the European Court of Justice. Following Italy's lead some Member States, notably France and Sweden, are moving to regulated and taxed regimes where current intentions make the commercial viability questionable.

Enquiries to:

Chris Bell, Chief Executive

Brian Wallace, Group Finance Director

Kate Postans (nee Elliott), Head of Investor Relations 

Ciaran O'Brien, Head of Public Relations 

Switchboard +44 (0) 20 7355 0340

Notes to editors:

The company will be hosting an analyst presentation at the Deutsche Bank Auditorium (Winchester House, 75 London Wall, EC2N 2DB) at 9.00am this morning. This will be available to listen into by dialing +44 (0)203 037 9093 and asking for the 'Ladbrokes plc Interim Results.' Alternatively a live webcast of the presentation, with slides, will be available at the 'Investor Centre' on www.ladbrokesplc.com.

A recording of the webcast will be available, at the same location, from 12pm (UK time) the same day.

For further information on Ladbrokes plc, please visit our corporate website at www.ladbrokesplc.com. High-resolution images are available to download from the media centre section under the heading 'image library'. Executive images are also available at www.vismedia.co.uk in the Ladbrokes section. 

Unaudited interim results for the half year ended 30 June 2009 

	Continuing operations	Half year ended 30 June 2009		Half year ended 30 June 2008(1)		Year ended 31 December 2008(1)
		£m		£m		£m
	Net revenue (excluding High Rollers)	504.4		539.8		1,052.9
	Net revenue from High Rollers	60.7		65.0		98.3
	Net revenue	565.1		604.8		1,151.2
	Operating profit(2) (excluding High Rollers)	98.6		132.6		250.7
	Operating profit(2) from High Rollers	58.4		40.0		80.1
	Operating profit(2)(3)	157.0		172.6		330.8
	Net finance costs(3)	(25.7)		(36.0)		(65.2)
	Profit before tax and non-trading items(3)	131.3		136.6		265.6
	Non-trading items before tax	(1.3)		(7.0)		(8.1)
	Profit before tax	130.0		129.6		257.5
	Tax	(19.3)		(24.8)		(37.3)
	Profit after tax - continuing operations	110.7		104.8		220.2
	EBITDA(3) - continuing	184.2		199.1		383.8
	Basic earnings per share(3) - continuing	18.6p		18.5p		37.8p
	Proposed dividend per share(4)	3.50p		5.10p		9.05p

(1) Restated - details of restatement explained in notes 2(c) and 15 to the financial statements.

(2) Profit before tax, finance costs and  non-trading items.

(3) Before non-trading items and discontinued operations. Non-trading items are profit/losses on disposal and impairment of non-current assets, profits and losses on disposal of businesses and investments, unrealised gains and losses on derivative financial instruments arising from hedging interest rate and currency exposure, litigation and transaction costs and derecognition of deferred consideration on acquisitions. Discontinued operations comprise: Italy Retail and the Paddington Casino (see note 6).

(4) The proposed interim dividend for the half year ended 30 June 2009 is 3.50p (30 June 2008: 5.10p). 2008 full year figure includes a proposed final dividend of 9.05 pence, which was paid on 1 June 2009.

Business Review

UK Retail

UK	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
- OTC amount staked	1,375.6	1,492.1	(7.8)	2,860.1
- Machine amount staked	4,526.6	4,722.7	(4.2)	9,343.0
Amounts staked	5,902.2	6,214.8	(5.0)	12,203.1
- OTC gross win	231.6	251.8	(8.0)	487.8
- Machine gross win	143.8	142.5	0.9	286.1
Gross win	375.4	394.3	(4.8)	773.9
Adjustments to GW (1)	(31.8)	(23.2)	(37.1)	(50.8)
- OTC net revenue	219.8	249.8	(12.0)	479.2
- Machine net revenue	123.8	121.3	2.1	243.9
Net revenue	343.6	371.1	(7.4)	723.1
Operating profit*	82.1	98.3	(16.5)	187.9
* Before non-trading items (1) Fair value adjustments, free bets and VAT (2) Dog tracks account for £5.0 million of amount staked and £3.2 million of gross win in H1 2009 (H1 2008: £5.4 million of amount staked and £3.2 million of gross win; FY 2008 £10.7 million of amount staked and £6.6 million of gross win)

The economic conditions have become increasingly challenging and UK Retail net revenue fell by 7.4% over the period to £343.6 million.

Amounts staked for the OTC business declined 7.8% year on year, in part reflecting the absence of the European Football Championship competition this year and the horse race fixture cancellations experienced in the first six weeks. Excluding these two impacts, the OTC amount staked declined 4.6% over the prior period with this softness increasing since mid-May.

OTC gross win for the period declined by 8.0% to £231.6 million with a flat gross win margin for the period of 16.7%. The poor horse margin experienced in March improved as the half year progressed, although this was offset in May by the first ever loss making month on football with a margin of -7.1% owing to the success of the top four Premier League teams at the end of the season.

OTC net revenue declined 12.0% to £219.8 million. The lower gross win performance was magnified by the incremental free bets made during the period. In June 2008 the Group launched its OddsOn! loyalty card. The focus for the first year of operation was upon card distribution and active use, and its take up has surpassed expectations with 300,000 regular users accounting for 50% of OTC transactions. The knowledge of customer transaction history has now improved markedly and the card allows our staff to tailor their service levels. 

 

High levels of promotional activity in the first half, around major events like the Grand National and Royal Ascot, meant that OTC customers have enjoyed £11.8 million of free bets versus £2.0 million in H1 2008. The associated free bets will fall to a level of c£5 million in the second half as the business focuses the reward programme.

The average gross win per gaming machine per week was up 4.0% to £703 in the first half.  During the period there were on average 7,897 terminals versus 8,104 terminals last year. Total machine gross win grew 0.9% during the period to £143.8 million. The proportion of B3 (£1 stake: £500 jackpot) content being played has increased to more than 20% and there has been a corresponding uplift in margin from 3.0% to 3.2%. The corollary of the increased B3 content is a natural dilution in machine amounts staked, down 4.2% over the period.

Over the past six months six new B2 and B3 games have been introduced. To further improve the machines performance Cyberview/IGT have committed to launch upgraded software associated with the operating platform for their Cyberview terminals in Q4. This will offer improved graphics, customer interaction and 20 games, nine of which will be exclusive to Ladbrokes. In addition agreements have been reached with Global Draw and Inspired Gaming to supply terminals on a trial basis.

Total costs (excluding gross profits tax) fell 3.4% in the period to £229.2 million driven primarily by staff efficiencies from the continued implementation of the staff scheduling system. The Group also bought out premium pay which will deliver approximately £12 million of cost savings per annum effective from Q4 2010. The cost comparatives in the second half of the year become more challenging as H2 2008 already benefited from improvements in staff scheduling and content cost rebates associated with the lost racing. However, the Group remains confident in reducing guidance for the full year from 4% growth to 1% growth.

Operating profit for the period was down 16.5% at £82.1 million.

At 30 June 2009 there were 2,093 shops and 48 on-site trading outlets in Great Britain, representing six openings, four closures, 11 relocations and 27 shops refurbishments, and closed four on-site outlets. At the end of the first half there were 7,897 machines.

Other European Retail - Ireland

Ireland	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
Gross win	45.6	47.6	(4.2)	91.5
Net revenue	42.3	47.2	(10.4)	90.6
Operating profit*	5.4	15.5	(65.2)	24.4
* Before non-trading items

The environment in Ireland is particularly challenging and 36 shops have closed across the industry so far this year.

Overall gross win in Ireland was down 4.2% at £45.6 million with the benefit of the Eastwood acquisition and favourable exchange rates more than offset by a much lower gross win margin. Like for like amounts staked at constant currency declined 7.9%. The gross win margin was down 1.7 percentage points and consequently the like for like gross win at constant currency fell 17.9%. In March 2009 the OddsOn! programme was introduced to the Irish shop estate with plenty of promotional activity around Cheltenham and Royal Ascot. Following the successful recruitment campaign (now more than 30% of turnover through the card) free bets are expected to fall in the second half as the business focuses the reward programme.

In response to the challenging environment, the business continues to maintain a tight focus on cost control. Like for like constant currency costs fell 3.1% in the first half. Sterling operating costs in Ireland rose by 14.0% to £32.5 million (H1 2008: £28.5 million) due to foreign exchange appreciation and the additional costs of the Eastwood and McCartan acquired shops.

At 30 June 2009 there were 208 shops in the Republic of Ireland and 78 shops in Northern Ireland. Five unprofitable shops will be closed in the second half of the year.

In April the Department of Justice announced a complete review of the betting and gaming industry and as a result the Department of Finance postponed the doubling of turnover tax which remains at 1%, saving the business approximately €3 million of additional tax burden this year.

Other European Retail - Belgium

Belgium	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
Gross win	24.8	19.4	27.8	39.7
Net revenue	24.8	19.4	27.8	39.7
Operating profit*	1.8	1.8	-	3.1
* Before non-trading items

Gross win in Belgium showed a rise of 27.8% owing to the net addition of 33 shops which brings the estate total to 304 at 30 June 2009. Operating profit was flat at £1.8 million largely reflecting the increased costs associated with the higher amount staked in the estate and the legal requirement to index employee costs, which this year rose 4.6%. 

Other European Retail - Spain

Spain	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
Operating loss*	(2.1)	(1.6)	(31.3)	(3.1)
* Before non-trading items

Bet volumes and amount staked are running ahead of expectations however the margin in the first six months has been poor. At 30 June 2009 the estate numbered 68 corners and two stand alone shops. By the year end Sportium expects to have circa 100 outlets open and trading in Madrid.

Despite the difficult economic environment in Spain, performance is encouraging and Sportium is now the clear market leader. The long term success of the business remains dependent on regulatory change in other regions.

eGaming 

eGaming	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
Net revenue	84.6	86.6	(2.3)	172.2
- Sportsbook	30.5	32.1	(5.0)	61.7
- Casino	26.8	26.6	0.8	53.1
- Poker	12.7	14.7	(13.6)	29.0
- Games	8.5	8.5	-	17.6
- Bingo	6.1	4.7	29.8	10.8
Operating profit*	20.8	26.2	(20.6)	55.1
* Before non-trading items

eGaming has shown good growth in customer numbers with sign-ups growing 5.1% and active customers up 9.4% as a result of some very successful recruitment activity. This positive performance was offset by a poor gross win margin for the sportsbook, softer yields in the casino business, particularly from the high staking players, and a very competitive and difficult poker market. Net revenue fell by 2.3% to £84.6 million with average player yield down from £160 to £143.

The amount staked on the sportsbook increased 11.1% with active players up 4.1% in the first half, despite the absence of the European Football Championship. Excluding the Euros, the amount staked rose 17.2%, with betting in play up 48% over H1 2008. As the 7.2% margin suggests (H1 2008: 8.1%), the sports results were not in the bookmakers' favour and net revenue fell by 5.0% to £30.5 million.  A key development for the second half is the launch of Ladbrokes' new sportsbook which will strengthen its appeal, particularly to younger players, with a deeper product range, video streamed sports action, form, stats and other content as well as easy to use betting functionality.

Casino active players grew 31.3% in the first half on the back of an effective TV campaign in the UK.  However, net revenue grew by only 0.8% to £26.8 million owing to declining yields from the high staking customers. During the period, the site recruited 36,000 new casino customers creating a much larger audience from which to stimulate increased revenue in the second half.

The poker marketplace in Europe remains very challenging given the liquidity advantage enjoyed by those sites which continue to take US customers. Poker net revenue fell 13.6% during the period to £12.7 million. Having successfully joined the Microgaming network in February, active player numbers grew 2.9% to 107,000, but average monthly active player days were down 17.0% and player yields were down 16.3%. The key areas of focus in the second half include a series of product and service enhancements for the existing player base and the rollout of the Italian poker service.

Bingo net revenues have grown 29.8% to £6.1 million driven by successful TV advertising, sponsorship of the Australian soap, Neighbours, and the supporting promotional programme. Bingo in the UK is a crowded marketplace but player loyalties look strong and the business expects to see continued player and revenue growth in the second half. Games net revenue of £8.5 million was flat year on year.  

Operating costs of £58.9 million represent a 6.1% increase over H1 2008, mainly reflecting the phasing of advertising investment. Marketing spend was 12.2% higher than in 2008 delivering 249,000 new player sign-ups, although at a higher adjusted cost per acquisition of £91 versus £88 in 2008. There were also additional costs associated with the live streaming content and the roll-out of seven new European language sites. The operating margin is expected to rise in the second half as marketing spend is lowered and the business maximises the yield from the enlarged customer base through CRM activity supported with efficient online marketing.

Operating profit of £20.8 million was down 20.6%.

Ladbrokes intends to operate its sportsbook from Gibraltar by the end of 2009. The Group's preference to date has been to operate its online sportsbook from its UK base, but intense competitive pressures have forced this move, which will materially improve competitiveness and, in 2010, eGaming's operating margins. Ladbrokes has today introduced "Best Odds Guaranteed" on all UK and Irish horseracing.

In Europe the regulatory environment remains challenging. Despite infringement proceedings having commenced against 10 Member States, there remains no indication that an Article 49 case will be brought by the European Commission before the European Court of Justice in the near future. France and some other Member States appear to be moving towards regulated and taxed regimes but the commercial viability remains uncertain. Elsewhere states such as Norway are strengthening protections for state monopoly operators with transaction blocking measures. The Group continues to have international eGaming aspirations, however real opportunities require genuine movement to liberalise betting and gaming markets.

Telephone Betting 

Telephone	Half year ended 30 June 2009	Half year ended 30 June 2008	Year on year change	Year ended 31 December 2008
	£m	£m	%	£m
Net revenue
- High Rollers	60.7	65.0	(6.6)	98.3
- Excluding High Rollers	9.1	15.5	(41.3)	27.3
- Total	69.8	80.5	(13.3)	125.6
Operating profit*
- High Rollers	58.4	40.0	46.0	80.1
- Excluding High Rollers	(1.4)	2.2	(163.6)	3.1
- Total	57.0	42.2	35.1	83.2
* Before non-trading items

Profit from High Rollers was up 46.0% on the first half 2008 at £58.4 million.

The core telephone business has had a challenging first six months with the increasing difficulty of competing with offshore low tax operators magnified by the poor sports results.

Excluding High Rollers, net revenue was down 41.3% at £9.1 million with a gross win margin of just 6.0% compared to 8.4% in H1 2008. Unique active customers numbered 79,500 (H1 2008: 90,200), with average monthly active player days down by 10.2% and call volumes down by 11.1%. 

Operationally, the management remain focused on mitigating actions as the call volumes decline. Excluding High Rollers, operating costs of £9.0 million fell 18.2% with agent cost per call flat at 62 pence despite the material drop in call volumes. In pursuit of further cost savings, a programme of redundancies in the call centre operations was announced in July which will deliver additional cost savings in the second half.

Discontinued operations

During 2009 the focus in Italy has been upon revenue growth. However, this has been below expectations due to the continued presence of a number of illegal shops, the increased competition in the market place and the withdrawal of the protective distance rule. This, combined with the investment required for the estate to achieve critical mass and the risk attached to achieving an acceptable return from that investment, has led to the decision to sell the Italian retail business and to focus on growing the Italian-based Internet site www.ladbrokes.it. The estate is well invested and the Group are committed to selling it within the next 12 months.

The Group remains committed to selling the Paddington Casino and is in discussions with potential buyers. 

Capital structure 

Following the repayment of the €464.5 million (£351.0 million) Eurobond in July 2009, Ladbrokes has undrawn committed facilities of £200.1 million and unused credit facilities extending to 2011 sufficient for all its expected requirements. However, given the current conditions in the financing markets including tighter covenants and increased financing costs, the Board has decided it would be prudent to pursue, over time, a reduction in the Group's debt levels.

Ladbrokes remains a highly cash generative business and the Board are comfortable that this reduction in overall debt can be effected whilst maximising long-term shareholder returns. 

Following approval by shareholders at the 2009 Annual General Meeting, the cancellation of the Company's share premium account was confirmed by the Court and became effective on 31 July 2009.

Dividend 

The Board has decided that it would be appropriate to pay a reduced dividend of 3.50 pence given the results to date and the current uncertain outlook. The full year dividend will be decided early in the New Year taking into account all the circumstances at the time.

The dividend will be payable on 1 December 2009 to shareholders on the register on 14 August 2009.

Principal risks and uncertainties

Key risks are reviewed by the executive committee and the Board of Ladbrokes plc on a regular basis and where appropriate, actions are taken to mitigate the key risks that are identified.

The principal risks and uncertainties which could impact the Group for the remainder of the current financial year remain largely unchanged from those detailed on page 13 of the Group's Annual Report and Accounts 2008 and are as follows:

	Description
Market risk	• Economic, consumer and environmental factors within key markets reducing customers' disposable income. • Changing consumer trends and opportunities for product development in betting and gaming.  • Competition from existing competitors or new entrants.
Industry/ regulatory/ legislative risk	• Regulatory, legislative and fiscal regimes for betting and gaming in key markets around the world can change, sometimes at short notice. Such changes could benefit or have an adverse effect on the Group's results and additional costs might be incurred in order to comply with any new laws or regulations.
Bookmaking risk	• Revenue and operating results may vary significantly from period to period. • Customer betting patterns, particularly with regard to those who bet large stakes, the outcome of individual events or a prolonged period of good or bad results could have a material effect on results.
Technology risk	• A failure in the infrastructure and operation of core systems could have an adverse impact on operations and financial results. • The integrity and availability of systems is vital to deliver a high quality service to customers.

 

Financial Review

	Revenue and profit before tax	Half year ended 30 June 2009			Restated half year ended 30 June 2008(1)			Restated year ended 31 December 2008(1)
		Net revenue	Profit		Net revenue	Profit		Net revenue	Profit
	Continuing operations:	£m	£m		£m	£m		£m	£m
	UK Retail	343.6	82.1		371.1	98.3		723.1	187.9
	Other European Retail (2)	67.1	5.1		66.6	15.7		130.3	24.4
	eGaming	84.6	20.8		86.6	26.2		172.2	55.1
	Telephone Betting	69.8	57.0		80.5	42.2		125.6	83.2
	International development costs	-	(1.1)		-	(2.2)		-	(4.9)
	Corporate costs	-	(6.9)		-	(7.6)		-	(14.9)
		565.1	157.0		604.8	172.6		1,151.2	330.8
	Net finance costs	-	(25.7)		-	(36.0)		-	(65.2)
	Revenue and profit before tax	565.1	131.3		604.8	136.6		1,151.2	265.6
	Discontinued operations:
	Italy	14.8	(4.4)		10.0	(2.6)		20.9	(6.9)
	Casino	3.0	(0.3)		3.7	(0.3)		6.6	(1.1)
		17.8	(4.7)		13.7	(2.9)		27.5	(8.0)
	Net finance costs	-	(0.3)		-	(0.3)		-	(0.6)
	Revenue and loss before tax	17.8	(5.0)		13.7	(3.2)		27.5	(8.6)
	Group revenue and profit before tax	582.9	126.3		618.5	133.4		1,178.7	257.0
Profit is before non-trading items.

(1) Refer to notes 2(c) and 15 of the financial statements for details of the restatement.

(2) Other European Retail comprises Retail operations in Ireland, Belgium and Spain.

Trading summary - Continuing operations

Revenue 

Revenue from continuing operations decreased by £39.7 million (6.6%) to £565.1 million (H1 2008: £604.8 million). Excluding High Rollers activity in Telephone Betting, revenue decreased by £35.4 million (6.6%) to £504.4 million (H1 2008: £539.8 million) mainly as a result of reduced OTC performance in the UK Retail estate.

Profit before finance costs, tax and non-trading items 

Profit before finance costs, tax and non-trading items decreased by £15.6 million (9.0%) to £157.0 million (H1 2008: £172.6 million). Excluding High Rollers activity, profit before finance costs, tax and non-trading items decreased by £34.0 million (25.6%) to £98.6 million (H1 2008: £132.6 million) reflecting decreased profits across all channels. 

Finance costs 

The net finance costs of £25.7 million were £10.3 million lower than last year (H1 2008: £36.0 million) mainly reflecting both lower interest rates and lower average net debt.

 

Profit before tax 

The decrease in trading profits partially offset by lower finance costs in the period has resulted in a 3.9% decrease in first half profit for continuing operations before taxation and non-trading items to £131.3 million (H1 2007: £136.6 million).

Non-trading items before tax

Non-trading losses of £1.3 million (H1 2008: £2.4 million) relate to net unrealised losses on derivatives and on retranslation of foreign currency borrowings. In the half year ended 30 June 2008 other non-trading losses of £4.6 million related to a £3.0 million loss on the closure of 26 UK retail shops and £1.6 million principally related to litigation costs.

Taxation

The Group taxation charge for continuing operations before non-trading items of £19.7 million represents an effective tax rate of 15.0% (H1 2008: 18.7%; year ended 31 December 2008: 14.5%). The effective tax rate of 15.0% is a best estimate of the annual tax rate for 2009.

Discontinued operations

The £4.7 million trading loss in discontinued operations includes the loss before interest, tax and non-trading items from Italy of £4.4 million (H1 2008: £2.6 million) and from the Casino business of £0.3 million (H1 2008: £0.3 million). A total non-trading impairment charge of £31.1 million has been recognised against the carrying value of both the Italy and Casino businesses of which £27.8 million relates to Italy and £3.3 million relates to the Casino.

Earnings per share (EPS) - Continuing operations

EPS (before non-trading items) increased 0.5% to 18.6 pence (H1 2008: 18.5 pence), reflecting the decreased profit before tax offset by the reduced tax rate. EPS (including the impact of non-trading items) was 18.4 pence (H1 2008: 17.4 pence). Fully diluted EPS (including the impact of non-trading items) was 18.3 pence (H1 2008: 17.3 pence) after adjustment for outstanding share options. 

Earnings per share (EPS) - Group

EPS (before non-trading items) decreased 1.7% to 17.7 pence (H1 2008: 18.0 pence), reflecting the decreased profit before tax partially offset by the reduced tax rate. EPS (including the impact of non-trading items) was 12.4 pence (H1 2008: 15.6 pence). Fully diluted EPS (including the impact of non-trading items) was 12.4 pence (H1 2008: 15.5 pence) after adjustment for outstanding share options.

Share premium reduction

Following approval by shareholders at the 2009 Annual General Meeting, the cancellation of the Company's share premium account was confirmed by the Court and became effective on 31 July 2009.

Restatement of income statement and segment information note 

The Group has restated its comparative year ended 31 December 2008 and half year ended 30 June 2008 income statements to reflect Italy Retail as a discontinued operation and for the adoption of IFRS 8 Operating Segments.

Details of these restatements can be found in note 2(c) and 15 to the financial statements.

Revenue recognition - reconciliation to gross win

The Group reports the gains and losses on all betting and gaming activities as revenue in accordance with IAS 39, which is measured at the fair value of the consideration received or receivable from customers less fair value adjustment for free bets, promotions and bonuses. Gross win includes free bets, promotions and bonuses, as well as VAT payable on machine income.

A reconciliation of gross win to revenue for continuing operations is shown below.

		Half year ended 30 June 2009		Restated half year ended 30 June 2008(1)		Restated year ended 31 December 2008(1)
		£m		£m		£m
	Gross win	614.9		638.3		1,221.3
	Free bets, promotions, bonuses	(30.8)		(12.3)		(27.4)
	VAT	(19.0)		(21.2)		(42.7)
	Revenue	565.1		604.8		1,151.2

(1) Refer to notes 2(c) and 15 of the financial statements for details of the restatement

The table below sets out the gross win for each division.

Gross win	Half year ended 30 June 2009		Restated half year ended 30 June 2008		Restated year ended 31 December 2008
	£m		£m		£m
UK Retail	375.4		394.3		773.9
Other European Retail	70.4		67.0		131.2
eGaming	98.2		96.0		190.1
Telephone Betting	70.9		81.0		126.1
Total	614.9		638.3		1,221.3

The table below sets out the net revenue for each division.

Net revenue	Half year ended 30 June 2009		Restated half year ended 30 June 2008(1)		Restated year ended 31 December 2008(1)
	£m		£m		£m
UK Retail	343.6		371.1		723.1
Other European Retail	67.1		66.6		130.3
eGaming	84.6		86.6		172.2
Telephone Betting	69.8		80.5		125.6
Total	565.1		604.8		1,151.2

(1) Refer to notes 2(c) and 15 of the financial statements for details of the restatement

Cash flow, capital expenditure and borrowings

Cash generated by operations was £140.0 million. After net finance costs of £21.5 million, income taxes paid of £23.8 million and £21.9 million on capital expenditure and intangible additions, cash inflow was £72.8 million.

Proceeds of £0.3 million were received on the exercise of share options and the issue of shares and £54.4 million was paid out in dividends.

At 30 June 2009, gross borrowings of £1,020.8 million and cash, deposits and short term investments of £20.9 million and derivatives of £37.9 million have resulted in a net debt of £962.0 million.

ENDIR ZGGGRGKMGLZZ

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