Interim Results
Paddy Power plc
01 September 2004
Strictly Embargoed until 7.00 am on September 1st 2004
Paddy Power plc
Interim results for the six months ended 30 June 2004
Paddy Power plc, trading as Paddy Power Bookmaker, Ireland's leading off-course
bookmaker, today announced record interim results for the six months to 30 June
2004.
H1 2004 H1 2003 Change
euro euro %
Turnover 554.1m 453.4m +22%
Operating Profit 18.2m 6.8m +168%
Profit Before Tax 18.7m 7.2m +158%
Profit After Tax 16.0m 6.2m +158%
EPS 33.3c 13.1c +154%
Cash Balance 51.6m 35.1m +47%
Interim Dividend 6.2c 4.3c +44%
Commenting on the results John O'Reilly, Chief Executive said:
' It's been an excellent six months for Paddy Power on the back of an unusually
favourable set of sporting results.
On an underlying basis our Irish retail operation continues to grow strongly and
we are now seeing the payback from our investment in our non-retail activities
which have become significant profit contributors to the Group. Our United
Kingdom retail operation, while still small, is on track to meet its expansion
plans and we remain confident of our ability to grow in this market. '
Commenting on the results Ross Ivers, Finance Director said:
' The business has benefited from an unusually strong gross win percentage in
the first half of 2004 which, given normal fluctuations, is unlikely to continue
through the second half of the year. We would expect gross win to move towards
the midpoint of its historical range within each channel for the year as a
whole.
Trading for the second half to date has been satisfactory. As ever, the outturn
for the year will depend on the sporting results over the coming months. We
remain confident of meeting our growth plans for the year.'
1 September 2004
Issued on behalf of Paddy Power plc by Drury Communications
For reference:
John O'Reilly Ross Ivers
Chief Executive Finance Director
Paddy Power plc Paddy Power plc
Tel: + 353 1 4045936 Tel: + 353 1 4045912
Mobile: + 353 87 254 1688 Mobile: + 353 87 668 8772
Mark Cahalane/Anne-Marie Curran Trevor Phillips
Drury Communications Ltd Holborn
Tel: + 353 1 260 5000 Tel: + 44 207 929 599
Mobile: + 353 87 230 2737 Mobile: + 44 7889 153628
Interim results for the six months ended 30 June 2004
Chairman's Statement
A year is a long time in bookmaking! In early 2003 punters had an unprecedented
run at the expense of the bookies and Paddy Power's results for this period last
year were 'hit' as a result. In the 2003 Annual Report, I suggested that the
tide would turn in our favour and, over the corresponding period this year, it
did. An excellent all round performance across our business combined with
exceptional sporting results (from the bookies' perspective) means we are
reporting record financial results for the first half of 2004.
H1 2004 H1 2003 Change
euro euro %
Turnover 554.1m 453.4m +22%
Operating Profit 18.2m 6.8m +168%
Profit Before Tax 18.7m 7.2m +158%
Profit After Tax 16.0m 6.2m +158%
EPS 33.3c 13.1c +154%
Cash Balance 51.6m 35.1m +47%
Interim Dividend 6.2c 4.3c +44%
There is a very serious underlying point to be made about the fluctuating
fortunes associated with bookmaking in that short term patterns in sporting
results can heavily influence operating profits. So, while our financial
performance for the first six months of 2003 suffered due to an unprecedented
set of pro punter results, the corresponding period this year has benefited from
good results in our favour. Given these short-term swings, it remains essential
to look at the underlying performance in order to truly assess the health of the
business.
Paddy Power is in good shape. The first half of 2004 has seen continued
development across all areas of the business. Turnover growth continues in
double digits across all channels. The Irish retail estate continues to expand
in line with expectations and now operates from 141 outlets. In the United
Kingdom we have 20 outlets trading and a further eight licences have been
secured. The non-retail business continues to grow and penetrate the mass
market whilst continuing to expand its product range. While gross win
percentages were strong during the period, we see no underlying change in their
expected annual ranges. Operating costs, while expanding, are in line with
plans.
Customer service has always been our priority. Allied to our distinctive brand
qualities, it is this that distinguishes Paddy Power from the pack. The six
months under review once again demonstrated our commitment to customer service
and the continued investment in the brand. Be it the payment of a €427,220
record payout to Catherine Egan, on going through the card in Fairyhouse on 18
January 2004 (where in addition to paying out in excess of the amount required
under our rules we also extracted significant public relations value),
sponsoring horse racing coverage on Irish television for three years or the
myriad of money back specials, humorous promotions and 'edgy' novelty bets,
Paddy Power continues to set the standard that others attempt to follow.
At the heart of this work is our staff. At 30 June 2004 the Group employed 1100
staff representing an increase of 14% in the past year and over 40% in the past
three years. We have continued to invest in new people throughout the
organisation as well as continuing to develop the internal reporting lines and
management processes to handle the growth in scale and complexity of the
business. On 17 May 2004, Claire Bolger joined the senior management team as
Head of Human Resources from Dell. One of her key responsibilities is staff
development to ensure that the best talent within the organisation is recognised
and actively developed.
Any sensible assessment of our performance must consider the external
environment. The Irish economy has returned to more robust growth rates while
the move towards deregulation of the United Kingdom betting market is also
beneficial. This benign environment together with the new products under
development and the pipeline of properties in both Ireland and the United
Kingdom, positions the Group well for continued expansion.
I have spoken before about the importance of the Board. Ian Armitage and Edward
McDaid retired at the Annual General Meeting in June 2004. As required by our
Articles of Association, John Corcoran will be stepping down in December 2004 on
reaching his 75th birthday. The Nominations Committee is considering the
appointment of new non-executive directors who can add value to the Group. I am
pleased to welcome Breon Corcoran (no relation to John Corcoran) to the Board as
an executive director. Breon, who was appointed to the Board on 31 August 2004,
has been responsible for the development of our non-retail business over the
past three years having joined Paddy Power from a career in J.P.Morgan and
Bankers Trust. A graduate of Trinity College with an MBA from INSEAD, Breon will
bring an additional perspective of these fast-developing markets to the Board.
I wish him every success.
The Board has decided to pay an interim dividend of 6.2c per share, an increase
of 44% on the 2003 interim dividend. This will be paid on 24 September 2004 to
shareholders on the register at the close of business on 10 September 2004. It
remains the Board's policy to have a progressive dividend policy with average
dividend cover of approximately three times.
I remain upbeat about the prospects for your company and look forward to
reporting to you again in February 2005 on the full year results.
Operations Review
Retail
Expansion of the retail estate continued apace in the first half of 2004 in both
Ireland and the United Kingdom. At 30 June 2004 the Group operated a total of
161 outlets (2003:139).
In Ireland, Paddy Power operated 141 outlets as at 30 June 2004, an increase of
four in comparison to 31 December 2003, and seven in comparison to 30 June 2003.
In addition to the opening of these new premises a further one (2003: five)
premises has been relocated, three (2003: nil) premises have been extended and
11 (2003: one) premises have been refurbished in the six months to 30 June 2004.
This brings the total number of premises developed during the period to 19 and,
in the 18 months to 30 June 2004, to 50. The development pipeline remains in
line with expectations.
Expansion of the United Kingdom retail estate is in line with expectations. As
at 30 June 2004 Paddy Power operated 20 outlets (December 2003: 12) in the
United Kingdom from a total of 25 (December 2003: 21) licences held. A total of
28 licences are held at the date of this report of which 20 are open. A further
six outlets are scheduled to open before the end of October 2004. The pipeline
of properties and licence hearings remains in line with expectations for the
second half of the year and into 2005.
We are pleased with progress to date in our United Kingdom retail estate. Slip
volumes and margins continue to improve as the estate grows and matures. The
increased number of outlets will reduce overall margin volatility as the impact
of any unusual performance from any one shop has less impact. The operational
infrastructure is developing and three district manager positions have now been
created and filled to manage the expanding estate. In addition, the fit-out of a
United Kingdom operational headquarters is in progress. This will provide
greater stability and improved facilities for the management team. We continue
to see organic growth as the prime source of growth.
Fixed Odds Betting Terminals (FOBTs) have been installed throughout the United
Kingdom estate in addition to Amusement With Prizes Machines (AWPs). A total of
four suppliers are being currently used as the Group evaluates the increased
number of options now available for FOBT supply. It is intended to reduce the
number of suppliers as the evaluation process is completed. 45 FOBTs and 12 AWPs
were installed at the date of this report.
The Group has continued its review, which started in 2003, of an Electronic
Point of Sale (EPOS) system for the retail estate in Ireland and the United
Kingdom. A pilot project, with Finsoft Limited, will commence in the fourth
quarter of 2004 to undertake detailed evaluation of the system. No decision will
be made on further testing or a full estate roll out until completion of this
pilot.
Non-retail
The six months to 30 June 2004 have seen further significant growth of the
non-retail activities through expansion of existing products and markets as well
as the introduction of new products and services.
The Online division achieved profitability in 2003 through the development of
traditional betting products. Having proved the business model the division will
further develop its Online offering driving incremental revenues streams through
its infrastructure. This process started with our Online casino which commenced
operation in early 2004.
Significant enhancements have also been made to the Paddypower.com site over the
past six months. Paddy Power was the first bookmaker to offer Java based mobile
betting, through our new service Paddy Power Mobile. Expansion of the product
range, through the addition of virtual sports betting as well as 'peer to peer'
games, will continue over 2004 and beyond. These improvements increase both
customer retention and generate new revenue streams.
Single account functionality has been enabled and launched. The use of common
technology, processes and a single customer base has led to the integration of a
number of the operating departments that support the non-retail activities.
These include customer service, event management and product development.
The telephone business continued to develop on the back of the strong existing
Paddy Power brand in Ireland and the growth of the brand in the United Kingdom.
We outlined earlier in the year that as the brand developed in the United
Kingdom our customer acquisition practices would evolve. Given the cost dynamics
of a phone betting business the emphasis is on higher bet frequency customers
rather than the occasional punter. This results in improved back office
efficiency, higher levels of productive calls, improved asset utilisation,
improved gross win per customer and greater customer loyalty.
Financial Review
Turnover
Turnover for the six months ended 30 June 2004 increased by 22.2% to €554.1m
(2003: €453.4m) with strong growth recorded by all divisions. The growth rates
achieved must also be viewed in light of several factors;
the high turnover levels in 2003 due to recycling of winnings in the first half,
changes in customer acquisition practices of the telephone division,
the loss of daily televised horse racing for several months which impacted the
non-retail channels.
Turnover in the betting outlets was €340.4m (2003: €272.1m) an increase of
25.1%. Like for like turnover growth was 12.8% with turnover increasing from
€272.1m in 2003 to €306.9m in 2004. Average slip size increased from €16.55 in
2003 to €17.85 in 2004 an increase of 7.9%. Slips volume growth was 16%
increasing to 19.1m from 16.4m in 2003.
Telephone betting turnover grew by 20.4% to €105.8m (2003: €87.9m). Average bet
size was €77.02 (2003: €65.92) an increase of 16.8%. Active customers (those who
have bet in the last three months) were 12,539 (2003: 11,503) and 9,068 (2003:
10,534) in Ireland and the United Kingdom respectively at 30 June 2004. The
average number of bets per customer grew from 49 to 57.
The movement in active customers in the telephone business belies an underlying
improvement in the customer mix. A significant reduction in the number of 'one
off' (small stake) promotion driven customers and their replacement with a more
loyal customer base due to a change in promotions strategy has improved the
customer mix. This suits the economics of the telephone business. This can be
seen through the increase in average bet size as outlined above and an
improvement in the number of average bets per customer.
Online turnover has continued to grow with total turnover increasing by 15.4% to
€107.8m (2003: €93.4m). Average bet size was €25.77 (2003: €27.16), a decrease
of 5.1%. Customer numbers continue to grow with active customers (those who have
bet in the last three months) increasing to 54,349 from 42,730 at 30 June 2003.
Active Euro customers are 21,913 (2003: 16,497) and active Sterling customers
are 32,436 (2003: 26,233).
Other than the European Championships in June 2004 which accounted for
approximately €12m of turnover there were no material events in the first six
months of the year that impacted year-on-year turnover comparisons.
Gross Win and Gross Profit
Gross win, measured as amounts staked (excluding betting taxes and levies) less
the amount returned to customers as winnings, rose by 69.4% to €72.2m (2003:
€42.6m). For casino bets taken through Paddypowercasino.com the customer drop is
recorded in both turnover and gross win at 100% win.
The following gross win percentages were achieved:
Gross Win H1 2004 H2 2003 H1 2003
Retail 14.18% 13.04% 11.58%
Telephone 10.36% 8.58% 6.26%
Online 12.00% 8.64% 6.00%
Gross profit, measured as gross win less the cost of discounting bets and gross
win taxes, rose by 64.6%.
The following gross profits were achieved:
Gross Profit H1 2004 H2 2003 H1 2003
Retail 13.10% 12.51% 11.31%
Telephone 9.47% 7.25% 5.24%
Online 10.60% 7.27% 5.09%
Gross win and gross profit percentages were strong throughout the first six
months of 2004 reflecting the exceptional sporting results together with the
impact of the casino. We continue to see no change in the underlying annual
expected gross win ranges.
Operating Profit
Operating profit rose by €11.4m to €18.2m from €6.8m for the same period in
2003. An analysis of operating profit is given below;
Operating Profit/(loss) H1 2004 H1 2003 Increase/ (Decrease)
€'000 €'000 €'000
Retail 12,247 7,772 4,475
Telephone 2,308 (597) 2,905
Online 3,648 (373) 4,021
Total 18,203 6,802 11,401
The growth in operating profits has been contributed to by all divisions. This
was due to both improved turnover levels but in particular to the improved gross
win percentages. Given the revenue and cost relationships of the business model,
particularly in the Retail and Online divisions, excellent operating profit
leverage is generated from an improved gross win percentage. Operating costs
have continued to grow, primarily driven by the growth in the retail estate, by
British Horse Racing data rights charges which are a paid as percentage of gross
win, and by general cost inflation.
The casino contributed approximately €1m of operating profit during the period
as it has benefited from the existing Paddy Power customer base without
incremental marketing costs. A United Kingdom launch for the casino is planned
in the second half of 2004. This may limit operating profit growth in the second
half of 2004 in this channel.
Investment in the United Kingdom retail estate will increase in the second half
of 2004 as the number of outlets grows and the operational and management
infrastructure is put in place ahead of the revenue generation.
Taxes
The corporation tax charge for the six months to 30 June 2004 was €2.7m (2003:
€1.1m) an effective rate of 14.5% (2003:14.5%). Paddy Power's effective rate is
2% above the Irish statutory rate due to a number of non-deductible expenses and
its high passive income which is taxed above the statutory rate.
Cash Flow
Net cash flow from operating activities for the six months ended 30 June 2004
increased by 133% to €31.6m from €13.5m in 2003. The increase was primarily as a
consequence of higher operating profit together with an increase in trade
creditors. The cash was applied acquiring fixed assets of €12.4m comprising the
fit-out of new and relocated outlets as well as computer equipment. In
addition, dividends of €3.6m, the funding of share purchases by the trustees of
the long-term incentive plan of €2.3m, and corporation taxes of €1.8m were paid
during the period. Cash received from the exercise of share options amounted to
€0.6m. Cash balances at 30 June 2004 were €51.6m compared to €39.2m at 31
December 2003. This includes cash balances held on behalf of customers of €5.3m
(December 2003:€4.8m).
Dividends
The Board has decided to pay an interim dividend of 6.2c (2003: 4.3c) per share
on 24 September 2004 to shareholders on the register at the close of business on
10 September 2004.
Outlook
The business has benefited from an unusually strong gross win percentage in the
first half of 2004 which, given normal fluctuations, is unlikely to continue
through the second half of the year. We would expect gross win to move towards
the midpoint of its historical range within each channel for the year as a
whole.
Trading for the second half to date has been satisfactory. As ever, the outturn
for the year will depend on the sporting results over the coming months. The
Group remains confident of meeting its growth plans for the year.
Consolidated Profit and Loss Account
Six months ended 30 June 2004 - unaudited
Six months Six months Year ended 31
ended 30 June ended 30 June December 2003
2004 2003
€'000 €'000 €'000
Notes (unaudited) (unaudited) (audited)
Turnover 2(a) 554,098 453,403 913,624
Cost of sales (488,063) (413,278) (825,429)
Gross profit 2(d) 66,035 40,125 88,195
Operating expenses (47,832) (33,323) (68,563)
Operating profit 2(e) 18,203 6,802 19,632
Interest receivable and similar income 512 487 883
Interest payable and similar charges (36) (55) (105)
Profit on ordinary activities before 18,679 7,234 20,410
taxation
Tax on profit on ordinary activities (2,708) (1,049) (2,859)
Profit on ordinary activities after 15,971 6,185 17,551
taxation
Dividends (2,990) (2,053) (6,160)
Retained profit for the period 12,981 4,132 11,391
Transfer in respect of
long term incentive plan 377 - -
Profit & Loss account, start of period 42,596 31,205 31,205
Profit & Loss account, end of period 55,954 35,337 42,596
Earnings per share
Basic 33.3c 13.1c 37.0c
Diluted 31.6c 12.4c 35.0c
Dividend per share 6.2c 4.3c 12.9c
Consolidated Balance Sheet
30 June 2004 - unaudited
Six months Six months Year ended 31
ended 30 June ended 30 June December 2003
2004 2003
€'000 €'000 €'000
(unaudited) (unaudited) (audited)
Fixed assets
Intangible assets - goodwill 843 964 904
Tangible assets 50,130 32,092 41,571
50,973 33,056 42,475
Current assets
Debtors 1,885 2,421 2,188
Cash at bank and in hand 51,611 35,122 39,173
53,496 37,543 41,361
Creditors (amounts falling due within one year) (39,626) (24,400) (30,585)
Net current assets 13,870 13,143 10,776
Total assets less current liabilities 64,843 46,199 53,251
Creditors (amounts falling due after one year) - (282) -
Provision for liabilities and charges (925) (942) (977)
Net assets 63,918 44,975 52,274
Capital and reserves
Called up share capital 4,811 4,775 4,781
Share premium 4,537 3,941 3,975
Capital redemption reserve fund 662 662 662
Capital conversion reserve fund 260 260 260
Shares held by long-term incentive plan trust (2,306) - -
Profit and loss account 55,954 35,337 42,596
Shareholders' funds - all equity interests 63,918 44,975 52,274
Consolidated Cash Flow Statement
Six months ended 30 June 2004 - unaudited
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
€'000 €'000 €'000
(unaudited) (unaudited) (audited)
Notes
Net cash inflow from 3 (a) 31,566 13,517 32,144
operating activities
Returns on investments and
servicing of finance
Interest received 588 553 865
Interest element of finance (22) (35) (106)
lease payments
566 518 759
Taxation
Corporation tax paid (1,801) (2,420) (3,923)
Capital expenditure and
financial investments
Acquisition of tangible (12,383) (10,205) (21,439)
fixed assets
Sale proceeds on disposal 19 22 96
of tangible fixed assets
(12,364) (10,183) (21,343)
Equity dividends paid (3,628) (3,206) (5,262)
Net cash inflow/(outflow) 14,339 (1,774) 2,375
before financing
Financing
Capital element of finance (187) (174) (312)
lease payments
Purchase of shares by long (2,306) - -
-term incentive plan trust
Proceeds from issue of new 592 697 737
shares
Net cash inflow/(outflow) 3 (b) 12,438 (1,251) 2,800
Basis of Preparation
The financial statements have been prepared in accordance with generally
accepted accountancy principles under the historical cost convention and comply
with financial reporting standards of the Accounting Standards Boards, as
promulgated by the Institute of Chartered Accountants in Ireland. The financial
statements are stated in euro.
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 and the United Kingdom.
(a) Turnover by Delivery Channel
Six months Six months Year ended 31
ended 30 June ended 30 June December 2003
2004 2003
€'000 €'000 €'000
(unaudited) (unaudited) (audited)
Retail 340,438 272,120 551,136
Telephone betting 105,828 87,875 177,418
Online betting 107,832 93,408 185,070
554,098 453,403 913,624
(b) Turnover by Region
Ireland and Other 408,023 348,917 702,240
United Kingdom 146,075 104,486 211,384
554,098 453,403 913,624
(c) Gross Win by Delivery Channel
Retail 48,284 31,498 67,907
Telephone betting 10,962 5,500 13,179
Online betting 12,945 5,608 13,524
72,191 42,606 94,610
(d) Gross Profit by Delivery Channel
Retail 44,586 30,765 65,676
Telephone betting 10,022 4,604 11,096
Online betting 11,427 4,756 11,423
66,035 40,125 88,195
(e) Operating Profit/(Loss) by Delivery Channel
Retail 12,247 7,772 17,402
Telephone betting 2,308 (597) 861
Online betting 3,648 (373) 1,369
18,203 6,802 19,632
1. Notes to the Cash Flow Statement
(a) Reconciliation of Operating Profit to Net Cash Inflow from Operating
Activities
Six months Six months Year ended 31
ended 30 June ended 30 June December 2003
2004 2003
€'000 €'000 €'000
(unaudited) (unaudited) (audited)
Operating profit 18,203 6,802 19,632
Depreciation 3,584 3,035 6,405
Charge in respect of long-term incentive 377 - -
plan
Amortisation of goodwill 61 61
121
Decrease/(Increase) in debtors 167 (915) (597)
Increase/(decrease) in creditors 9,165 4,484 6,549
Loss on disposal of fixed assets 9 50 34
31,566 13,517 32,144
(b) Analysis of Changes in Cash During the Period
Six months Six months Year ended 31
ended 30 June ended 30 June December 2003
2004 2003
€'000 €'000 €'000
(unaudited) (unaudited) (audited)
Balance at beginning of period 39,173 36,373 36,373
Net cash inflow/(outflow) 12,438 (1,251) 2,800
Balance at end of period 51,611 35,122 39,173
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 7 hours ago Alphawave IP Group
- 8 hours ago WH Smith
- 9 hours ago Staffline Group
- 9 hours ago Manchester & London Investment Trust
- 9 hours ago Associated British Foods