Final Results

Power Leisure PLC 19 February 2002 POWER LEISURE PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 December 2001 Power Leisure plc, trading as Paddy Power Bookmaker, Ireland's leading off-course bookmaker, today announced its preliminary results for the year ended 31 December 2001. Highlights - Turnover: €461.1m, up 27% (2000: €362.8m) - Licensed Betting Offices (LBOs) turnover grew 17.7 % to €370.7m,Operating profit increased by 30.5% to €16.6m - Telephone betting turnover grew to €55.5m up 40.9%. Operating profit increased 10.9% to €1.0m - On-line turnover rose 410% to €34.8m. Gross margin improved to 7.7% in H2 from 4.5% in H1. On-line operating loss in line with expectations. - Operating profit (excluding on-line trading): €17.6m, up 29.4% (2000: €13.6m) - Operating profit (including on-line trading): €8.5m, down 19.8% (2000: €10.6m) - EPS fully diluted (excluding on-line trading): €0.3222 (2000: €0.2317) - EPS fully diluted (including on-line trading): €0.1437 (2000: €0.1687) - Total Dividend: €0.0510 (2000: €0.0392) Mr Stewart Kenny, Chief Executive Officer, Power Leisure plc commented: 'The development of all channels in 2001 has been excellent. Our Irish LBO business reached record turnover and profits while the success of our UK LBOs is encouraging and will lead to further exploration of this market. The Dial-a-Bet business continues to grow in Ireland and the UK, generating substantial numbers of new customers. We are also very pleased with the development of our on-line business which we expect to break even over 2003.' Commenting on the results, Mr Ross Ivers, Chief Financial Officer, Power Leisure plc said: 'We are very pleased with the Group's financial performance in 2001. With the conclusion of the foot and mouth crisis that impacted turnover in the first six months of 2001, the second six months saw turnover increase by 35% over 2001 with strong growth in all channels. The LBO and Dial-a-Bet margins were within their expected range while the on-line gross margin improved from 4.5% to 7.7% in the second half of the year.' 19th February 2002 Issued on behalf of Power Leisure plc by Drury Communications For reference contact: Stewart Kenny Ross Ivers Chief Executive, Group Finance Director, Power Leisure plc Power Leisure plc Tel: +353 1 459 8811 Tel: +353 1 4045931 Mobile: +353 86 255 6770 Mobile: + 353 87-66 88772 Mark Cahalane/Maire-Therese Duffy Trevor Phillips Drury Communications Ltd Holborn Public Relations Ltd Tel: 353 1 260 5000 Tel: 020 7929 5599 Mobile: + 353 87 230 2737 POWER LEISURE PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001 CHAIRMAN'S STATEMENT I am pleased to report on a very successful year for Power Leisure plc, as your Company completes its first full year as a public company. Turnover grew by €98.3m to a record €461.1m, an increase of 27%. Operating profit of €8.5m reflects the excellent profits in our Licensed Betting Office (LBO) and Telephone Betting Divisions of €17.6m offset by the start-up losses of €9.1 on our on-line operations. This includes costs incurred with our on-line expansion in the UK of €3.7m. The Board will be recommending a Final Dividend of 3.4 cent per share payable on 29 April 2002 to all shareholders at the close of business on 27 February 2002. This makes a total dividend of 5.1cent in 2001. Customers of Paddy Power Bookmaker continue to enjoy an experience which is very different to that offered by our competitors. Our obsession with providing value to customers is possibly best illustrated by our highly successful moneyback offers which enhanced entertainment and gave punters a better run for their money during 2001. Our customer driven ethos will continue to be the focus of our business development. Significant progress has been made across all divisions of your Group. The Irish LBO business continues to grow market share and profits and provides an excellent platform for growth across the entire business. The two shops opened in the United Kingdom ('UK') are performing better than expected and bode well for further moderate expansion. The telephone business has seen exceptional turnover growth in 2001 and has recently been successfully launched in the UK. The on-line division, which expanded into the UK in April 2001, is developing in line with expectations with steady improvement in both turnover and margin. We expect this division to break even over 2003. I plan to retire as Chairman of the Board over the coming year but will remain as a Non-Executive Director. Our current Chief Executive, Mr. Stewart Kenny, will assume the position of Chairman upon my retirement. In that capacity he will remain actively involved in the business, focusing in particular on strategic development and marketing. The process of recruiting a new CEO is already underway. These changes will take effect when the new Chief Executive is in place. It is also intended that there will be further appointments to the Board over the coming year to ensure the optimum balance of relevant experience is in place to guide the business through its next phase of development. I would also like to welcome Mr Ross Ivers, as our new Chief Financial Officer, and to the Board. Mr Ivers was co-opted to the Board on 4th September 2001 and I strongly recommend his election at the forthcoming shareholders meeting. Mr Ivers brings significant international business and listed company experience to Power Leisure plc and I have no doubt that he will add great value to the Board and management. Operating Review Paddy Power remains focused as a small-stake, fixed-odds sports bookmaker. Distribution is primarily in the Republic of Ireland through Licensed Betting Offices ('LBOs'), telephone betting and on-line betting. The development of all channels in 2001 has been excellent. The Irish LBO business reached record turnover and profits while the success of the UK LBOs is encouraging and will lead to further exploration of this market. The Dial-a-Bet business continues to grow in Ireland and the UK, generating substantial numbers of new customers. Our on-line business has also exceeded our forecasts and we expect it to break even over 2003. Licensed Betting Offices The Group continued to expand its LBO operation during 2001 with the addition of eight new outlets, seven in the Republic of Ireland and one in the United Kingdom, bringing the total estate to 126 outlets (2000: 118). Our relocation program continued during the year with two LBOs (2000: 2) relocated to larger and better-positioned premises. A further seven LBOs (2000: 8) were refurbished. At the year end the Group had no surplus property leases. Turnover in the LBOs increased in 2001 through growth in both slip volume and average slip value. Average slip value increased by 13 % from €12.15 to €13.70 during 2001 (note: a slip may contain more than one bet) while slip volumes increased by 4%. We have continued to expand our Sunday opening with over half of our LBOs now open on Sundays, from only 20 in 2000. A second shop was opened in the UK in 2001. Our two UK shops, both in London, have continued to trade above expectations and we will continue to explore the UK market through further openings of a small number of additional LBOs as appropriate opportunities arise. We continue to develop our customer offering through our LBO channel. During 2000 we commenced the installation of air-conditioning systems to regulate the temperature within all our LBOs. As of 31 December 2001, installations were complete in 123 out of the 126 LBOs. A new upgraded shop fit is in development and will be rolled out in 2002. We continue to enhance our in-shop broadcasting and display systems in line with our obsession to deliver enhanced customer satisfaction. Telephone Betting Our telephone betting service ('Dial-a-Bet') continued its expansion during the year and ended the year with 25,582 (2000:19,967) registered customers and 9,227 (2000:7,390) active customers. (Note: active customers are defined as those that have bet with us in the previous three months.) Turnover increased by 41% to €55.5m. Average transaction size per bet increased by 7% from €82.3 in 2000 to €87.64. The Dial-a-Bet service was launched into the UK during October 2001, opening 1,043 accounts by year end. Paddy Power prices are now available in the UK via teletext on Channel 4, Sky and the Racing Channel as well as paddypower.com. We continue to enhance customer service levels through improving our call handling. In December 2000 and January 2001, Dial-a-Bet operations were successfully relocated to the Group's new offices in Dublin. The new facility originally comprised 60 operator terminals servicing 120 incoming digital telephone lines. This was further expanded in 2001 giving a total capacity of 90 operators and is currently being enhanced to take 180 digital telephone lines together with a new software platform. The combined impact of these actions continues to improve customer service through reduced queuing time. In October 2001, Dial-a-Bet was restructured to avail of the new betting tax regime in the UK. This enabled Dial-a-Bet to offer subsidised tax-free betting to Irish customers. While the Irish betting tax rate will reduce from 5% to 2% in May 2002, the rate will continue to be too high to offer subsidised tax-free betting from Ireland. We will continue to review alternative locations to the UK to further reduce the tax cost to the Group. On-line Division At 31 December 2001, the on-line division had a total of 42,431 (2000: 12,433) registered customers of which 14,758 (2000:5,064) are active. On-line activities continued to expand in 2001 with the launch of paddypower.co.uk in May 2001 and the interactive television services. UK customers totalled 15,302 (2000: 2,069 ) at the year end. Bets are now being taken from over 70 countries as the Group accesses the Irish diaspora. We do not take bets from US residents. Total turnover for the year was €34.8m (2000:€8.5m) On average, active customers bet 9.0 (2000: 7.3) times a month. An active customer is one who has bet in the last three months. Average stake for the year was €28.2 (2000: €31.4) a decrease of 10%. The progress of the interactive TV channels, with both NTL and Telewest has been disappointing in 2001 following their launch in March 2001 and April 2001 respectively. While our relative positioning on these platforms is satisfactory, the pace and extent of their penetration in the UK market remains uncertain. We continue to improve the services offered via our on-line division and commenced taking WAP bets in September 2001 and SMS bets in October 2001. The on-line brand presence has grown in the UK through advertising, public relations and joint marketing/affiliate deals including with The Times newspaper, Big Brother and (This Is London). In addition, we have continually updated and improved the Paddy Power sites expanding both the range of events and the types of bets offered. We continue to focus on customer service and are the only on-line site offering a customer loyalty program to selected customers. British Horseracing Board (BHB) The simultaneous change in the Irish betting tax rate on 1 May 2002 (a reduction from 5% to 2%) and the as yet undecided changes to the media rights for British Horseracing remain open issues. The proposed BHB turnover charge of 2.5% plus VAT is unacceptable and Power Leisure together with the rest of the bookmaking industry will resist such a charge. Power Leisure will continue to seek an equitable fee that reflects the reality of Irish bookmaking. Until such time as these fees are visible it is not possible to make a decision on the level of charges which will be passed on to the customer. Financial Review We are very pleased with the Group's performance in 2001. With the conclusion of the foot and mouth crisis that impacted turnover in the first six months of 2001, the second six months saw turnover increase by 35 % over 2000, with strong growth in all channels. The LBO and Dial-a-Bet margins were within their expected normal range while the on-line gross margin, which was disappointing in the first six months of 2001 at 4.51 %, recovered to 7.7 %. Turnover Turnover increased by 27% to €461.1m in 2001, (2000: €362.8m) with excellent growth across all channels. Overall growth in the LBO channel was 18% with like for like growth of 10%. This has been driven by growth in average slip values of 13% and slip volumes of 4%. Growth has been achieved by the continued expansion of the LBOs which saw eight new LBOs in 2001, seven refurbishments and two relocations. In addition, we continued to increase the number of Sunday openings in 2001 with 70 LBOs now opening on Sundays compared to 20 in 2000. The LBO portfolio comprised 126 premises at year-end. Telephone betting has seen extremely strong growth of 41% in 2001, with turnover reaching €55.5m (2000: €39.4m). The decision to offer tax-free betting on the telephones from 6 October 2001 has contributed to this growth. Total registered customers at 31 December 2001 was 25,582 (2000:19,967) with total active customers at the same date of 9,227 (2000: 7,390). On-line turnover was €34.8m in 2001 (2000: €8.5m). Turnover levels have now reached in excess of €800,000 per week, with total registered customers of 42,431 (2000:12,433) and total active customers of 14,758 (2000: 5,064). Gross Margin Gross margin, measured as amount staked (excluding betting duty and levies) less winnings, returned to customers increased by 21.9 % to €56.5m (2000: €46.3m). Gross margin percentages in the LBO and phone divisions for 2001 were 13.36% and 8.42% respectively. While margins fluctuated over the year, the total margins for 2001 were in line with the normal trading range. The on-line division, which disappointed in the first half, with margins of 4.51%, recovered to 7.7% for the second six months as management implemented various actions to improve margin. Gross Margins% Year Year to 31/12/01 to 31/12/01 LBOs 13.36 13.38 Telephone betting 8.42 8.89 On-line 6.42 8.12 Betting Taxes and Levies There were a number of significant changes in the betting taxes and levies in 2001. The Irish horseracing levy of 0.3% of turnover was abolished from 28 July 2001. This levy had been subsidised by the Group throughout 2001 costing € 0.8m. From 6 October 2001, the United Kingdom changed its betting tax structure from a turnover-based tax paid by the customer, to a 15% gross profits tax paid by the bookmaker. From this date, the Group moved its telephone and on-line betting to the UK. This achieved a tax saving for the on-line division which was previously subsidising Irish Betting Tax at 5% of turnover. It also allowed the Group to offer tax-free betting on our telephone betting service. The Irish Government announced a reduction in Irish betting tax to 2% of turnover effective from 1 May 2002. Given the low gross margins of the telephone and on-line business this rate remains higher than the UK effective rate. As we stated at the time of the Irish Budget, the Group will not be relocating telephone and internet betting back to Ireland and will be continuing to seek the optimum location from which to operate. Operating Profit Operating Profit 6 months 6 months year to to to 31/12/01 30/06/01 31/12/00 LBO 7,286 9,363 12,758 Telephone 481 480 866 On-line (3,270) (5,833) (2,995) Total 4,497 4,010 10,629 LBO operating profit increased by 30.5 % reflecting the increased turnover offset by lower gross margin percentage compared to 2000. Telephone operating profits increased by 11 % due to increased turnover offset by lower margin and the impact of UK gross margin taxes. The on-line division incurred losses of €9.1m in line with expectations with losses in the second six months of 2001 reducing due to increased volumes and gross margin. In addition, marketing expenditure was significantly lower than in the first six months. Total year operating costs of €47.8 m (2000: €35.7m) were in line with expectations. Tax Rate The corporation tax charge for the year was €1.8m (2000: €2.9m) representing an effective tax rate of 19.3 %. The reduction in the effective rate is a consequence of the reduction in the statutory rate from 24% to 20%. In addition, tax planning on asset purchases during the year enabled the Group to accelerate its effective deductions and bring the Group rate below the statutory rate. Historically, the Group rate was in excess of the statutory rate. Cash Flow and Liquid Resources Net cashflow from operating activities was €11.5m (2000: €20.1m). This includes a net inflow of € 1.4m on customer balances, which totalled €2.6m at 31 December 2001 (2000: €1.2m). Fixed asset investments were €6.4m, primarily made up of fit out costs of € 2.7m for the LBO estate, expanded call centre capacity, €1.9m and computer equipment for both the internet and general use. Net cash balances at 31 December 2001 totalled €18.3m (2000: €16.0m). These were substantially invested in short-term bank deposits, all of which mature in less than six months. The Group has no borrowings. Employees The average number of persons employed by the Group during 2000 was 757 (2000: 665). At year-end total employees numbered 799 (2000: 676). Share Price The Group's shares traded in the range of €2.98 to €4.07 (Stg£1.81 to Stg£2.56) with the year high reached on 17 December 2001. The year-end share price was €4.00/stg£2.55 (2000: €2.98 /Stg£1.88) giving a market capitalisation of €189m/ Stg£120m (2000: €140m/Stg£87m). The year-end free float is 42% (2000: 30%) the increase arising from the sale of 2.34m shares by certain Directors and other connected parties on 31 July 2001. These sales were permitted under the terms of a lock-in deed agreed when the Company's shares commenced trading on the Irish and London Stock Exchanges in December 2000. The shares trade on the Irish and London Stock Exchanges with 82% and 18% of the trades during the year in Dublin and London respectively. Risk Management The Group manages betting risk through a central risk management team whose responsibility is to compile and monitor the odds throughout the life of an event. The Group does not offer credit and customers pay either in cash, via electronic payment or from monies held in a pre-funded client account. Foreign exchange risk is minimal as the vast bulk of transactions are undertaken in local currency. The Group does not use any derivative financial instruments. Surplus cash is held on short-term deposit with various banks approved by the Board. Euro The Group undertook significant work in preparation for the introduction of the Euro in January 2002. The transition has been very successful with no significant issues encountered. The Group continues to evaluate the impact of the switch from the Punt to the Euro on average staking patterns and slip volumes. For example, turnover for the LBO division for the first six weeks of 2002 has increased by 20.1% year on year, with average slip volumes and values increasing by 14.8% and 4.6% respectively. It is too early to determine the contribution of the switch to the Euro to these results. Dividends The 2001 interim and proposed final dividend total € 2.4m an increase of 37 % on 2000 (€1.8m) This reflects the Board's continuing optimism for the business while being mindful of the short-term cash requirements to fund continued growth. Outlook The Irish Licensed Betting Office market remains our core market and we continue to see further growth opportunities within it. Due in large to the success of our initial experience, we are currently planning a small number of additional openings in the U.K. Power Leisure has a proven track record of competing in a fully deregulated market having done so successfully in Ireland against most of the major U.K. betting chains. The release of the Budd Report on the UK gaming and betting market is encouraging as it moves towards deregulation of the UK market and increased competition. Power Leisure plc fully supports any move to remove the so called ' demand test' for LBO licences thereby allowing open competition. The telephone business is well positioned for further growth, both in Ireland and the UK. The on-line business, which is another channel supporting the Paddy Power brand, is in line to meet expectations in 2003. We are encouraged by the take-up to date in on-line betting. As indicated, trading in the early part of this year has been positive and we look forward to another year of growth in 2002. John Corcoran Chairman 18 February 2001 Consolidated Profit and Loss Account Year Ended 31 December 2001 Year Ended Year Ended 31 December 2001 31 December 2000 €'000 €'000 Turnover 461,075 362,825 Cost of winning bets paid (404,624) (316,511) Gross Profit 56,451 46,314 Operating Expenses (47,944) (35,685) Operating Profit 8,507 10,629 Interest Payable and similar charges (71) (15) Interest receivable and similar income 656 336 Profit on ordinary activities before taxation 9,092 10,950 Tax on profit on ordinary activities (1,763) (2,937) Profit on ordinary activities after taxation 7,329 8,013 Dividends (2,404) (1,756) Retained profit for the year 4,925 6,257 Retained profit brought forward 16,867 10,610 Retained profit carried forward 21,792 16,867 Earnings per Share Basic €0.1555 €0.1820 Diluted €0.1437 €0.1687 Consolidated Balance Sheet 31 December 2001 31 December 31 December 2001 2000 €'000 €'000 Fixed Assets 22,749 21,336 Tangible Assets 1,146 1,267 Intangible Assets 23,895 22,603 Current Assets Debtors 1,110 671 Cash at bank in hand 18,307 16,054 19,417 16,725 Creditors (amounts falling due within one year) 11,786 13,240 Net Current Assets 7,631 3,485 Total assets less current liabilities 31,526 26,088 Creditors (amounts falling due after one year) 793 - Net assets 30,733 26,088 Capital and reserves Called up share capital 4,714 4,714 Share premium 3,305 3,585 Capital redemption reserve fund 662 662 Capital conversion reserve fund 260 260 Profit and loss account 21,792 16,867 Shareholders' funds-all equity interests 30,733 26,088 Consolidated Cash Flow Statement Year ended 31 December 2001 Year Ended Year Ended 31 December 2001 30 December 2000 €'000 €'000 €'000 €'000 Net cash inflow from operating activities 11,461 20,104 Returns on investments and servicing of finance Interest received 656 336 Interest element of finance lease payments (71) (15) 585 321 Taxation Corporation tax paid (2,840) (2,216) Capital expenditure and financial investments Acquisition of tangible fixed assets (6,398) (9,612) Sale proceeds on disposal of fixed assets 70 61 (6,328) (9,551) Equity dividends paid (1,351) (1,650) Net cash inflow before financing 1,527 7,008 Financing Capital element of finance lease payments 1,006 (418) Issue of new shares including share premium less (280) 3,624 cost of issue Net cash inflow 2,253 10,214 Accounting Policies Year ended 31 December 2001 The principal accounting policies, all of which have been applied consistently through out the year and the preceding year, are summarised below. Basis of Preparation The financial statements have been prepared in Euro in accordance with applicable accounting principals (under the historical cost convention) Basis of Consolidation The Group financial statements consolidate the financial statements of the Company and all its subsidiary undertakings. Turnover Turnover, which is exclusive of betting tax, represents amounts received in respect of bets placed on events, which occurred during the year. Tangible Assets - Goodwill Goodwill arising on the acquisition of subsidiary undertakings, representing the excess of cost over the fair value of the Group share of the identifiable assets and liabilities acquired, is capitalised and amortised by equal annual instalments against profit over its expected useful life. Goodwill is written off in equal annual instalments over a 20-year period. Provision is made for any impairment Tangible Fixed Assets and Depreciation Tangible fixed assets are stated at original cost less accumulated depreciation. Depreciation is calculated so as to write off the cost of tangible fixed assets on a straight- line basis over their estimated useful lives, as follows: - Freehold property and improvements - 50 years. - Leasehold property and improvements - unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease, if there is a right of renewal. - Fixtures, fittings and equipment - 5/7 years - Computer equipment - 3 years - Motor vehicles - 5 years - Equipment screens - 5 years - Leased equipment screens - 3 years Leases Assets held under finance leases, which transfer substantially all the risks and rewards of ownership to the Group, are included in the balance sheet at their capital value and are depreciated over the shorter of the lease term and their useful lives. The corresponding liabilities are recorded as a creditor and the interest element of the finance lease rentals is charged to the profit and loss account over the term of the lease to produce a constant rate of charge on the balance of capital repayment outstanding. Operating lease rentals are charged to the profit and loss account on a straight line basis over the lease term. Pensions The Company operates a number of defined contribution schemes for certain employees and executive directors. Contributions are charged to the profit and loss account as incurred. Any differences between amounts charged in the profit and loss account and contributions paid to the pension scheme is included in debtors or creditors in the balance sheet. Foreign Currency Transactions denominated in foreign currencies are translated at the exchange rates ruling at each quarter end. Monetary assets and liabilities denominated in foreign currencies are translated into Euro at the rates of exchange ruling at the balance sheet date. The resulting profits and losses are dealt with in the profit and loss account as an exchange gain or loss. Taxation Current tax is provided on taxable profit at current rates. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions that result in an obligation to pay more tax in the future have occurred at the balance sheet date. It is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reserve. Notes to the Financial Statements Year Ended 31 December 2001 1. Turnover and Segmental Information The turnover, operating profit and net assets of the Group relate to the provision of betting services, substantially all of which are conducted in the Republic of Ireland. Year Ended Year Ended 31 December 2001 31 December 2000 €'000 €'000 Turnover by Delivery Channel Licensed betting offices 370,698 314,876 Telephone betting 55,544 39,432 Internet betting 34,833 8,517 461,075 362,825 Gross Profit by delivery channel Licensed betting offices 49,539 42,118 Telephone betting 4,677 3,504 Internet betting 2,235 692 56,451 46,314 Operating Profit/(Loss) by delivery channel Licensed betting offices 16,649 12,758 Telephone betting 961 866 Internet betting (9,103) (2,995) 8,507 10,629 This information is provided by RNS The company news service from the London Stock Exchange
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