Interim Results
Paddy Power plc
31 August 2005
Paddy Power plc
Interim results for the six months ended 30 June 2005
Paddy Power plc, trading as Paddy Power Bookmaker, Ireland's leading off-course
bookmaker, today announced interim results for the six months to 30 June 2005.
H1 2005 H1 2004*
€ €
Turnover 704.1m 554.1m
Operating profit 17.8m 18.2m
Profit before tax 18.4m 18.7m
Profit after tax 15.8m 16.0m
EPS 31.72c 33.30c
Cash balance 50.1m 51.6m
Interim dividend 7.75c 6.20c
*2004 comparatives have been restated in accordance with IFRS
Commenting on the results John O'Reilly, Chief Executive said:
'Despite a run of racing results in favour of the punters, we've delivered a
healthy operating profit, grown revenues and made very good progress in
diversifying the business through different channels and products. We remain
confident of meeting our expansion plans for the full year and the Group is very
well positioned for 2006 and beyond.'
Commenting on the results Ross Ivers, Finance Director said:
'We are now reaping the rewards of our strategy of investing upfront in our
start-up businesses with our online channel now generating record earnings and
set for continued expansion.'
Issued on behalf of Paddy Power plc by Drury Communications
For reference:
John O'Reilly Ross Ivers
Chief Executive Finance Director
Paddy Power plc Paddy Power plc
Tel: + 353 1 4045912 Tel: + 353 1 4045912
Mobile: + 353 87 254 1688 Mobile: + 353 87 668 8772
Oonagh Daly / Padraig McKeon Trevor Phillips
Drury Communications Ltd Holborn
Tel: + 353 1 260 5000 Tel: + 44 207 929 5599
Mobile: + 353 87 855 4406 Mobile: + 44 7889 153628
Interim results for the six months ended 30 June 2005
Chairman's Statement
I am delighted to report on another successful six months for your Company. The
very strong underlying growth seen in 2004 has continued into 2005, with
turnover growth of 27% in the period. This growth helped offset the impact of
the very favourable 'big race' results enjoyed by the punters in the first half
of this year. This contrasts with the same period last year when stellar
sporting results for the bookmakers drove record profits. Notwithstanding
this, operating profits at €17.8m for the period are only marginally behind the
2004 operating profits of €18.2m, a commendable performance given the run of
results.
H1 2005 H1 2004*
€ €
Turnover 704.1m 554.1m
Operating profit 17.8m 18.2m
Profit before tax 18.4m 18.7m
Profit after tax 15.8m 16.0m
EPS 31.72c 33.30c
Cash balance 50.1m 51.6m
Interim dividend 7.75c 6.20c
*2004 comparatives have been restated in accordance with IFRS
The first half of 2005 has seen the continued development of Paddy Power across
all business channels. The retail businesses in both Ireland and the United
Kingdom (UK) continue to expand through the organic growth of new outlets, while
our non retail business continues to grow both its traditional sportsbook
business and its new gaming business. The non retail business accounted for over
63% of operating profits in the six months to 30 June 2005 (2004:33%) and will
continue to be a major source of growth for us, together with the continued
retail expansion.
The external environment continues to change rapidly. We have seen consolidation
of significant retail operators through acquisitions in both the UK and Ireland
in the past six months, the emergence of poker as a significant global online
business, the review of Irish betting tax legislation together with continued
legislative change around the world, including the passing of the Gambling Act
in the UK. We see these changes as opportunities for Paddy Power and I am
confident that we are well positioned to take advantage of them.
The economic environment in which we operate continues to support our growth,
particularly in Ireland where the economy has been performing very well.
Overall consumer spending in the UK economy has been sluggish but it has had
little impact given our ability to organically grow the estate and like-for-like
sales.
Our commitment to customer service remains as strong as ever. This, combined
with continued investment in the brand, has helped ensure we remain the number
one bookmaker in Ireland and is driving our continued brand recognition growth
in the UK where, based on our most recent market research, we are now
established as one of the best known bookmakers. This, combined with a market
leading product range across all channels, leaves us well positioned for further
growth in these markets.
As the Company has evolved so has the Board and management team. In the first
half of 2005 we announced the retirement of John O'Reilly and the appointment of
Patrick Kennedy as Chief Executive Officer. This appointment will take effect
from 1 January 2006. I am sure that Patrick will bring his many talents to bear
in Paddy Power over the coming years thereby continuing the successful growth of
our Company. I would also like to once again welcome Brody Sweeney who joined
the Board on 16 February 2005 as a non-executive director. Further non-executive
Board appointments are in progress.
I remain upbeat about the prospects for Paddy Power and look forward to speaking
to you again in February.
Operations Review
Retail
Expansion of retail operations has continued in 2005, with new outlets being
opened in both Ireland and the UK. As of 30 June 2005 the Group operated 178
outlets (2004:161).
In Ireland, Paddy Power operated 145 outlets (2004:141) as of 30 June 2005, an
increase of two since 31 December 2004. In addition, a further three (2004:one)
outlets have been relocated, three (2004:three) have been extended and ten
(2004:11) refurbished in the six months to 30 June 2005, bringing the total
number of premises developed to 18 (2004:19). The development pipeline remains
strong and we expect to see a greater level of outlet growth in the second half
of 2005.
Expansion of the UK estate remains in line with plans, with a bias to openings
in the second half of 2005. As of 30 June 2005, Paddy Power operated 33 outlets,
an increase of two since 31 December 2004 and 13 since 30 June 2004. Unopened
licences at 30 June 2005 totalled 11. Since 30 June 2005, a further two outlets
have been opened, bringing the total operating outlets to 35, and we are 'on
site' in six others. Continued success in winning new licences means that, as of
29 August 2005, the Group now holds 14 unopened licences giving a potential
estate size of 49 outlets.
Fixed odds betting terminals (FOBTs) and amusement with prizes machines (AWPs)
are a feature throughout the UK estate, with a total of 107 machines installed
at 30 June 2005 (105 FOBTs and two AWPs). A reduction in the number of
suppliers, together with improved operating performance of the FOBT machines,
has driven average drop per machine per month over the period to €2,695 (2004:
€1,477).
The EPOS system development has continued with the system installed in nine test
outlets throughout Ireland and the UK. An expansion of the system to
approximately 30 test outlets is in progress, following which a final decision
is expected by year end on a full estate roll out.
Non Retail
The non retail division has experienced continued strong growth across all
channels and product lines in 2005, with gaming income becoming increasingly
significant to the Group.
The biggest new product launch in the period was poker which, unlike the
majority of our other products, does not require Paddy Power to take a risk
position in the transaction. We are very pleased with its development to date
and have seen strong growth through the summer months, a traditionally quiet
period for poker. We will continue to invest in people and marketing through
2006 as we build market share.
The other online businesses continue to grow strongly in both Ireland and the
UK. This is being driven by continued investment in the product range, site
functionality and brand.
The telephone business has continued to grow and the benefits of the
repositioning of this business, which commenced in 2004, are now very evident.
Higher average stake per call, higher average bets per customer and improved
staff efficiencies have continued into 2005 as we continue to refine the
customer base. Given the higher costs of this business, it remains essential to
focus on the higher staking customers within the mass market, even if it has a
short term impact on customer numbers.
Financial Review
International Financial Reporting Standards (IFRS)
The 2005 interim financial statements have been prepared in accordance with the
recognition and measurement principles of International Financial Reporting
Standards (IFRS) expected to be adopted for use in the European Union by 31
December 2005. The 2004 comparatives have been restated in accordance with the
prescribed conversion methodologies contained within the standards. All
discussion within the review is on IFRS based financial statements.
The impact of IFRS is set out in detail in note 1. There is no impact on
turnover and gross profit other than reclassifications between cost of sales and
operating costs. Operating costs are impacted by the different accounting
treatment for share-based payment schemes and goodwill. The total impact of
these adjustments in the six months to 30 June 2004 was to reduce operating
profit by only €14,000. There have also been a small number of reclassifications
within the balance sheet.
Turnover
Turnover growth for the six months to 30 June 2005 was 27.08% bringing turnover
to €704.1m (2004: €554.1m). This reflects strong growth across all three
divisions. Turnover in 2004 included approximately €12m on the Euro 2004
Football Championship. No replacement event took place in 2005.
- Retail
Retail turnover was €401.3m (2004: €340.4m) an increase of 17.89%. Retail
turnover growth in Ireland and the UK was 14.12% and 59.79% respectively.
Like-for-like turnover growth in Ireland was 10.5%. Average slip size for the
total estate grew by 3.8% to €18.53 from €17.85. Slip volumes grew by 13.6% from
19.1m to 21.7m
- Non Retail
Telephone betting turnover grew by 20.6% from €105.8m to €127.6m with very
strong growth in the Irish market. Growth rates in the UK were modest due to the
continued repositioning of the business as noted below. Average stake was €88.73
(2004:€77.02) an increase of 15.20%. Bet volumes increased by 4.7% to 1.44m
(2004:1.37m). The work that commenced in 2004 to refocus the telephone business
at the higher end of the mass market has resulted in strong underlying growth in
this business as we encourage the lower staking customers to use the internet
while focusing both our customer retention and acquisition efforts on higher
staking customers. Total active customers (those who have bet in the last three
months) were 21,433 (2004:21,607). Of these 12,474 (2004:12,539) were Irish and
8,959 (2004:9,068) were from the UK.
Online turnover increased by 62.5% to €175.2m from €107.8m, an outstanding
performance. In general, turnover on gaming product comprises the operators '
hold', which represents 2% to 3% of the amount staked, while turnover from the
peer-to-peer products, including poker, represents the commission income (rake).
The gross win percentage of this business is generally 100%. Conversely,
bookmaking product and fixed odds games turnover represents the total amount
staked by customers while the gross win reflects turnover less winnings paid
out. Consequently, turnover as a measure of growth, understates the underlying
growth of the overall business as the level of gaming activity increases within
the online division.
Turnover from the sportsbook was €153.8m (2004:€104.7m), an increase of 46.9%.
Turnover from gaming activities totalled €21.4m (2004:€3.1m), an increase of
588.7%. Gaming activity includes the casino, poker, peer-to-peer games and
various fixed odds games.
Average bet size in the sportsbook was €28.30 (2004:€25.63), an increase of
10.5%.
Total active online customers (those who have bet in the last three months) were
73,999 (2004:54,349) an increase of 36.2%. Of these, 69,097 bet on at least the
sportsbook. 59,132 were solely sportsbook customers, and 14,867 were both
sportsbook and gaming customers. Of the total customer base 26,818 (2004:
21,913) were Irish and 47,181 (2004:32,436) were from the UK.
Customer retention continues to improve across all the non retail businesses and
customer acquisition costs remain very competitive.
Gross Win and Gross Profit
Gross win is measured in sports betting and fixed odds games as amounts staked
(excluding betting taxes and levies) less the amount returned to customers as
winnings. For casino bets and poker rake the customer drop is recorded in both
turnover and gross win at 100% margin. Overall gross win rose by 12.1% to €80.9m
(2004: €72.2m).
The following gross win percentages were achieved:
Gross Win H1 2005 H2 2004 H1 2004
Retail 12.4% 11.6% 14.2%
Telephone 8.6% 6.7% 10.4%
Online 11.6% 9.7% 12.0%
Gross win percentages in the sportsbook were exceptionally strong in the first
six months of 2004 but reverted to their more normal levels in 2005, albeit
lower than expected. This was primarily due to the adverse horse racing results
throughout the period with a large number of big races being won by favourites.
These results had the greatest impact on the retail division which is most
exposed to horseracing.
Gross profit, measured as gross win less the cost of discounting bets, gross win
taxes, data rights and third party profit shares, rose by 11.4% to €68.7m from
€61.6m.
The following gross profit percentages were achieved:
Gross Profit H1 2005 H2 2004 H1 2004
Retail 10.9% 10.2% 12.6%
Telephone 7.4% 6.0% 8.8%
Online 8.9% 8.1% 8.7%
Operating Profit
Operating profit fell by 2.4% to €17.8m (2004:€18.2m) with a significant
increase in operating profit in the non retail business being offset by lower
operating profit in the retail division. The non retail profit improvements were
driven by the strong turnover growth in the sports betting business combined
with the strong growth in gaming products. These more than compensated for the
poor racing results and increased cost base. Non retail operating profit
comprised 63% of operating profits.
Notwithstanding the strong like-for-like sales increase, retail profits fell due
to the significantly poorer gross win percentages achieved in 2005 in comparison
to 2004, together with the cost of further expansion of the retail estate in
Ireland and the UK. This reflects the sensitivity of the retail business to
large changes in gross win percentages and does not indicate any structural
revenue or cost management issues.
Overall operating costs continue to grow with the expansion of the business and
the commitment to investing up front in new businesses.
Taxes
The corporation tax charge for the six months to 30 June 2005 was €2.6m (2004:
€2.7m), an effective rate of 14.0% (2004:14.5%). Paddy Power's effective rate
is 1.5% above the Irish statutory rate due to a number of non-deductible
expenses and its passive income which is taxed above the statutory rate.
Cash Flow
Net cash flow from operating activities for the six months ended 30 June 2005
fell by 21% to €25.0m from €31.6m in 2004. While operating profits were broadly
flat on 2004, the working capital contribution, while positive at €1.1m, was
lower than the €9.4m generated in 2004. This was largely due to high Euro 2004
antepost betting in June 2004 and changes in the timings of payments such as
taxes and other supplier payments between December 2003 and December 2004. The
cash was applied acquiring fixed assets of €11.5m comprising the fit-out of new
and relocated outlets as well as computer equipment. In addition, dividends of
€6.3m, the funding of share purchases by the trustees of the long-term incentive
plan of €2.6m and corporation taxes of €2.4m were paid during the period. Cash
received from the exercise of share options amounted to €0.1m. Cash balances at
30 June 2005 were €50.1m compared to €47.2m at 31 December 2004. This includes
cash balances held on behalf of customers of €6.9m (December 2004:€6.5m).
Dividend
The Board has decided to pay an interim dividend of 7.75c (2004: 6.2c) per
share, an increase of 25% payable on 23 September 2005 to shareholders on the
register at the close of business on 9 September 2005. This reflects the Board's
desire to have a progressive dividend policy that is not impacted by short-term
adverse sporting results.
Outlook
Since 30 June 2005 gross win percentages have been disappointing in the
sportsbook, with percentages at 11.4%, 8.0% and 5.1% for the retail, online and
telephone divisions respectively. Online gaming and poker have continued to
grow in line with expectations and the Group will continue to invest in people
and marketing to develop these products during the remainder of the year.
As ever, the outturn for the year will depend on gross win over the coming
months. The Group remains confident of meeting its expansion plans for the year
and is very well positioned for continued growth in 2006.
Consolidated Interim Income Statement
For the six months ended 30 June 2005 - unaudited
Note Six months ended 30 Six months ended 30 Year ended
June 2005 June 2004 31 December 2004
(Restated) (Restated)
€'000 €'000 €'000
Revenue 704,142 554,098 1,165,165
Cost of winning bets (635,491) (492,471) (1,049,532)
Net revenues from betting activities 68,651 61,627 115,633
Employee costs 24,243 20,539 40,212
Property expenses 8,489 7,037 14,406
Marketing expenses 5,975 4,400 7,485
Technology & communications 3,995 4,031 7,212
Depreciation & amortisation 5,318 3,584 8,624
Other expenses 2,877 3,847 6,591
Total operating expenses 50,897 43,438 84,530
Operating profit before financing costs 17,754 18,189 31,103
Financial income 613 512 1,060
Financial expenses - (36) (54)
Profit before tax 18,367 18,665 32,109
Income tax expense (2,571) (2,708) (4,662)
Profit for the period 15,796 15,957 27,447
Basic earnings per share 3 31.7c 33.3c 56.6c
Diluted earnings per share 3 31.0c 31.6c 54.2c
Proposed dividend per share for period 4 7.75c 6.20c 18.72c
Results for the half-year ended 30 June 2004 and for the year ended 31 December
2004 have been restated to reflect the recognition and measurement principles of
International Financial Reporting Standards expected to be adopted for use in
the European Union by 31 December 2005. See basis of preparation at note 1.
Consolidated Interim Statement of Movements in Equity
For the six months ended 30 June 2005 - unaudited
Six months ended 30 Six months ended 30 Year ended
June 2005 June 2004 31 December 2004
(Restated) (Restated)
€'000 €'000 €'000
Profit for the period 15,796 15,957 27,447
Dividends to shareholders (6,265) (4,113) (7,212)
Retained profit for the period 9,531 11,844 20,235
Shares purchased by employee trust (2,623) (2,306) (2,306)
Increase in employee share based 765 451 906
payments reserve
Share issues, net of costs 157 592 2,929
Opening Equity 78,144 56,380 56,380
Closing Equity 85,974 66,961 78,144
Movements in equity for the half-year ended 30 June 2004 and for the year ended
31 December 2004 have been restated to reflect the recognition and measurement
principles of International Financial Reporting Standards expected to be adopted
for use in the European Union by 31 December 2005. See basis of preparation at
note 1.
Consolidated Interim Balance Sheet
As at 30 June 2005 - unaudited
Note 30 June 2005 30 June 2004 31 December 2004
(Restated) (Restated)
Assets €'000 €'000 €'000
Property, plant and equipment 65,397 49,201 59,499
Intangible assets 3,175 1,832 3,032
Trade and other receivables 2,925 1,885 2,290
Cash and cash equivalents 50,107 51,611 47,206
Total assets 121,604 104,529 112,027
Equity
Issued capital 5,018 4,811 5,005
Share premium 6,824 4,537 6,680
Shares held by employee trust (4,929) (2,306) (2,306)
Reserves 2,618 1,398 1,853
Retained earnings 76,443 58,521 66,912
Total equity 85,974 66,961 78,144
Liabilities
Trade and other payables 34,828 36,643 33,007
Deferred tax liabilities 802 925 876
Total liabilities 35,630 37,568 33,883
Total equity and liabilities 121,604 104,529 112,027
The financial position as at 30 June 2004 and 31 December 2004 have been
restated to reflect the recognition and measurement principles of International
Financial Reporting Standards expected to be adopted for use in the European
Union by 31 December 2005. See basis of preparation at note 1.
Consolidated Cash Flow Statement
For the six months ended 30 June 2005 - unaudited
Six months ended 30 Six months ended 30 Year ended
June 2005 June 2004 31 December 2004
(restated) (restated)
Cash flows from operating activities €'000 €'000 €'000
Profit before tax 18,367 18,665 32,109
Financial income (613) (512) (1,060)
Financial expenses - 36 54
Depreciation and amortisation 5,318 3,584 8,624
Cost of employee share based payments 765 451 906
Gain/(loss) on disposal of fixed assets 90 9 (31)
Cash from operations before changes in working capital 23,927 22,233 40,602
(Increase)/ decrease in trade and other receivables (578) 167 (129)
Increase in trade and other payables 1,629 9,166 4,548
Cash generated from operations 24,978 31,566 45,021
Interest paid - (22) (54)
Income taxes paid (2,450) (1,801) (3,800)
Net cash from operating activities 22,528 29,743 41,167
Cash flows from investing activities
Purchase of property, plant and equipment (11,364) (12,281) (25,949)
Acquisitions of intangible assets and goodwill (176) (102) (1,330)
Proceeds from disposal of property, plant and equipment 88 19 69
Interest received 556 588 1,086
Net cash used in investing activities (10,896) (11,776) (26,124)
Cash flows from financing activities
Capital element of finance lease payments - (187) (421)
Proceeds from the issue of new shares 157 592 2,929
Purchase of shares by employee trust (2,623) (2,306) (2,306)
Dividends paid (6,265) (3,628) (7,212)
Net cash used in financing activities (8,731) (5,529) (7,010)
Net increase in cash and cash equivalents 2,901 12,438 8,033
Cash and cash equivalents at start of period 47,206 39,173 39,173
Cash and cash equivalents at end of period 50,107 51,611 47,206
The cashflows for the half-year ended 30 June 2004 and for the year ended 31
December 2004 have been restated to reflect the recognition and measurement
principles of International Financial Reporting Standards expected to be adopted
for use in the European Union by 31 December 2005. See basis of preparation at
note 1.
Notes to the Consolidated Interim Financial Statements
1 Basis of Preparation and Provisional Accounting Policies
The financial statements are prepared under the historical cost convention and
are presented in euro, rounded to the nearest thousand.
Further to IAS Regulation (EC1606/2002) ('Accounting standards adopted for use
in the EU'), EU law requires that the next annual consolidated financial
statements of the Group for the year ended 31 December 2005 be prepared in
accordance with accounting standards adopted for use in the European Union ('
EU').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of International Financial Reporting
Standards and International Accounting Standards (collective 'IFRS') in issue
that either are adopted for use in the EU and effective (or available for early
adoption) at 31 December 2005 or are expected to be adopted and effective (or
available for early adoption) at 31 December 2005, the Group's first annual
reporting date at which it is required to use accounting standards adopted for
use by the EU. Based on these recognition and measurement requirements
management has made assumptions about the accounting policies expected to be
applied when the first annual financial statements are prepared in accordance
with accounting standards adopted by the EU for the year ending 31 December
2005.
The accounting standards adopted for use in the EU that will be effective (or
available for early adoption) in the annual financial statements for the year
ending 31 December 2005 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly,
the accounting policies for that annual period will be determined finally only
when the annual financial statements are prepared for the year ending 31
December 2005.
The interim consolidated financial information was authorised for issue by the
Directors on 30 August 2005.
An explanation of how the transition to IFRS has affected the financial
information is outlined below:
First time adoption of International Financial Reporting Standards ('IFRS').
Up to and including the year ended 31 December 2004, the Group's financial
statements were prepared in accordance with generally accepted accounting
principles as promulgated by the Institute of Chartered Accountants in Ireland
(Irish GAAP).
IFRS 1 'First-time adoption of International Financial Reporting Standards'
(IFRS1), is the accounting standard governing the implementation of IFRS for the
first time. This standard allows or requires a number of exceptions to its
general principles that the standards in force at the reporting date should be
applied retrospectively. At the transition date 1 January 2004, the exemptions
to retrospective implementation availed of are that the Group has implemented
the requirements of IFRS 2 'Share Based Payments' to all equity settled share
based payments granted after 7 November 2002 that had not vested by 1 January
2005 and has not restated business combinations prior to the transition date in
accordance with IFRS3 'Business Combinations'.
The principal changes to the Group's financial statements resulting from the
implementation of IFRS are set out in the table and related notes below:
Restatement of Consolidated Income Statement under Irish Six months ended 30 Year ended
GAAP to IFRS June 2004 31 December 2004
€'000 €'000
Operating Profit - Irish GAAP 18,203 31,134
IFRS 2 - Share-based payments (74) (152)
IFRS 3 - Business combinations 60 121
Operating Profit - IFRS 18,189 31,103
Restatement of Consolidated Balance Sheet under Irish GAAP Six months ended 30 Year ended
to IFRS June 2004 31 December 2004
€'000 €'000
Total Assets - Irish GAAP 104,469 111,906
IFRS 3 - Business combinations 60 121
Total Assets - IFRS 104,529 112,027
Total Liabilities - Irish GAAP 40,551 40,117
IAS 10 - Events after the Balance Sheet date (2,983) (6,234)
Total Liabilities - IFRS 37,568 33,883
Total Equity - Irish GAAP 63,918 71,789
IFRS 3 - Business combinations 60 121
IFRS 2 - Share-based payments - -
IAS 10 - Events after the Balance Sheet date 2,983 6,234
Total Equity - IFRS 66,961 78,144
Total Equities and Liabilities - Irish GAAP 104,469 111,906
IFRS 3 - Business Combinations 60 121
IFRS 2 - Share-based payments - -
Total Equities and Liabilities - IFRS 104,529 112,027
IFRS 2 'Share-based payments'
The effect on the income statement of implementing IFRS2 to the various Group
share-based payment schemes is an increase in employee expenses of €74,000 and
€152,000 for the six months ended 30 June 2004 and the year ended 31 December
2004 respectively. This cost gives rise to a corresponding increase in a newly
created reserve for employee share-based payments. In addition to the income
statement effect, IFRS2 resulted in a reclassification of reserves from retained
earnings to the reserve for employee share-based payments. This resulted in
transfers of €25,000, €377,000 and €754,000 from retained earnings to the
reserve for employee share-based payments as at 1 January 2004, 30 June 2004 and
31 December 2004 respectively.
IFRS 3 'Business Combinations'
The effect on the income statement of implementing IFRS3 is a decrease in the
goodwill expense of €60,000 and €121,000 for the six months ended 30 June 2004
and the year ended 31 December 2004 respectively, due to the cessation of
goodwill amortisation in respect of acquisitions.
IAS 38 'Intangible Assets'
The Group has reviewed the requirements of IAS 38 'Intangible Assets' and has
reclassified assets, principally licence acquisition costs and computer
software, from property, plant and equipment to intangibles based on the
definition of an intangible outlined in the standard.
The effect on the income statement of implementing IAS38 is a reclassification
of depreciation expense to amortisation expense of €21,000 and €48,000 for the
six months ended 30 June 2004 and the year ended 31 December 2004 respectively.
The net overall effect on the income statement of the reclassification is nil.
The effect on the balance sheet is a reduction in the cost of property, plant &
equipment and an increase in the cost of intangible assets of €876,000, €978,000
and €1,228,000 as at 1 January 2004, 30 June 2004 and 31 December 2004
respectively. Similarly accumulated depreciation is reduced by €28,000, €49,000
and €76,000 as at 1 January 2004, 30 June 2004 and 31 December 2004 respectively
with corresponding increases in the accumulated amortisation of intangibles.
This gives an overall effect of a reduction in the net book value of property
plant and equipment and an increase in intangible assets of €848,000, €929,000
and €1,152,000 as at 1 January 2004, 30 June 2004 and 31 December 2004
respectively.
IAS 10 'Events after the Balance Sheet Date'
Under IAS 10 'Events after the Balance Sheet Date', dividends are provided for
in the period when they are approved by the directors (interim dividend) or
shareholders (final dividend). The effect on the balance sheet is a reduction in
trade and other payables and increase in retained earnings of €4,106,000,
€2,983,000 and €6,234,000 as at 1 January 2004, 30 June 2004 and 31 December
2004 respectively.
Provisional Accounting Policies
The accounting policies adopted by the Group under IFRS, in the preparation of
these interim statements and which are expected to apply for the year ended 31
December 2005, are set out below. Full details of the accounting policies
applied in previous periods under Irish GAAP can be found on page 41 of the 2004
Annual Report.
Basis of Consolidation
The Group's financial statements consolidate the financial statements of Paddy
Power plc and its subsidiary undertakings based on accounts made up to the end
of the financial period. Intra-group balances and any unrealised gains and
losses or income and expenses arising from intra-group transactions are
eliminated on consolidation.
Revenue
Revenue represents proceeds from sports betting and gaming activities. Sports
betting turnover represents amounts received in respect of bets placed on events
that occurred during the period. Gaming revenue comprises Games turnover and
Casino revenue. Games betting turnover, represents amounts received in respect
of bets on games completed during the period and Casino revenue is 'customer
drop' which is the amounts staked net of customer winnings. Revenue is
exclusive of betting taxes and levies.
Segment Reporting
Business segments are distinguishable components of the Group that provide
products and services that are subject to risks and returns that are different
from other business segments. Geographical segments provide services within a
particular economic environment that are subject to risks and rewards that are
different from those components operating in alternative economic environments.
The Group has determined that business segments are the primary reporting
segments.
Foreign Currency
The consolidated financial statements are presented in euro. Transactions
denominated in foreign currencies are translated at the exchange rates ruling at
the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are retranslated into euro at the
rates of exchange ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non monetary assets and
liabilities measured on a historical cost basis in a foreign currency are
translated using the exchange rate at the date of the original transaction. The
asset and liabilities of foreign operations, including goodwill arising on
consolidation, are translated to euro at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are
translated to euro at rates approximating to the foreign exchange rates ruling
at the dates of the transactions. Foreign exchange differences arising on
retranslation are recognised directly in a separate component of equity.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation and impairment losses. Where parts of an item of property, plant
and equipment have different useful lives, they are accounted for as separate
items. Depreciation is calculated to write off the cost less estimated residual
value of property, plant and equipment on a straight line basis over their
useful lives. Land is not depreciated. The estimated useful lives are as
follows:
Freehold buildings 50 years
Leasehold improvements unexpired term of the lease (including renewal period
where initial lease term is less than ten years)
Fixtures and fittings 5-7 years
Computer equipment 3 years
Motor vehicles 3 years
The residual value, if not insignificant, is reassessed annually.
Intangible Assets including Goodwill
Goodwill recognised under Irish GAAP prior to the date of transition to IFRS is
stated at net book value as at the transition date. Goodwill recognised
subsequent to 1 January 2004, representing the excess of purchase consideration
over fair value of net assets acquired defined in accordance with IFRS3 '
Business Combinations', is capitalised. Goodwill is not amortised but is
reviewed for impairment annually. Any impairment in the value of goodwill is
dealt with in the income statement in the period it which it arises.
Other acquired intangible assets, including licences and computer software are
capitalised at cost and amortised on a straight line basis over their estimated
useful economic lives. The estimated useful lives of intangible assets range
from 5 to 20 years.
Impairment
The carrying amounts of property, plant and equipment, and intangible assets are
reviewed at each balance sheet date to determine whether there is an indication
of impairment. If any such indication exists the recoverable amount of the
asset or its cash generating units is estimated. For intangible assets that are
not yet available for use, the recoverable amount is estimated at each annual
balance sheet date. An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Goodwill was tested for impairment at 1 January 2004, the date of transition to
IFRS, even though no indication of impairment existed.
The recoverable amount of other assets is the greater of their sales price or
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the business segment to which
the asset belongs.
Leases and Leased Assets
Leases, under the terms of which the Group assumes substantially all the risks
and rewards of ownership, are classified as finance leases. The assets acquired
by way of finance lease are stated at an amount equal to the lower of fair value
and the present value of the minimum lease payments at inception of the lease,
less accumulated depreciation and impairment loss. Finance lease payments are
apportioned between the finance charge and the reduction of the outstanding
liability and the charge is allocated to the income statement during the lease
term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
Operating lease rentals payable are recognised as an expense in the income
statement on a straight line basis over the lease term unless another systematic
basis is more appropriate.
Interest
Interest income is recognised in the income statement as it accrues, using the
effective interest rate method.
Income tax
Income tax in the income statement comprises current and deferred tax. Current
tax is the expected tax payable on the taxable income for the year, using tax
rates enacted or substantially enacted at the balance sheet date, and any
adjustment to tax payable in respect of the previous year.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: goodwill not deductible
for tax purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit, and differences relating to investments
in subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Pensions
The Group operates a number of defined contribution schemes. Obligations for
contributions are recognised as an expense in the income statement as incurred.
Employee Benefits
The Group operates equity-settled share option schemes for employees under which
employees acquire options over company shares. The fair value of share options
granted is recognised as employee benefit cost with a corresponding increase in
the employee share-based reserve. The fair value is measured at grant date and
spread over the period during which the employees become unconditionally
entitled to the options. The fair value of the options granted is measured using
a Black Scholes model, taking into account the terms and conditions upon which
the options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options that vest.
The Group operates an equity-settled share save scheme ('SAYE') for employees
under which employees acquire options over company shares at a discounted price
subject to the completion of a savings contract. The fair value of share
options granted is recognised as employee benefit cost with a corresponding
increase in the employee share-based reserve. The fair value is measured at
grant date and spread over the period of the savings contract. The fair value of
the options granted is measured using a Black Scholes model, taking into account
the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share
options that vest.
The Group operates an equity-settled long-term incentive scheme for selected
senior executives under which the executives are conditionally awarded shares
which vest upon the achievement of predetermined earnings targets. The fair
value is measured at the award date and is spread over the period during which
the employees become unconditionally entitled to the shares with a corresponding
increase in the employee share-based reserve. The fair value of the shares
conditionally awarded is measured using the market price of the shares at the
time of award.
Payments to the long term incentive plan's trustees to acquire company shares
which have been conditionally awarded to executives under the terms of the
long-term incentive plan are shown separately in equity in the consolidated
balance sheet.
Share Capital
Dividends on ordinary shares are recognised in equity in the period in which
they are approved by the Company's shareholders, or in the case of the interim
dividend, when it has been approved by the Board of Directors. Dividends
declared after the balance sheet date are disclosed in the subsequent events
note.
Cash and Cash Equivalents
Cash and cash equivalents for the purpose of the statement of cash flows
comprises cash balances, and call deposits.
2 Segmental Information
(a) By business segment
Retail Retail Retail Non Non Non Total Total Total
Retail Retail Retail
30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 401,342 340,438 688,651 302,800 213,660 476,514 704,142 554,098 1,165,165
Segment result 7,188 12,822 18,716 12,137 7,150 15,369 19,325 19,972 34,085
Unallocated group (1,571) (1,783) (2,982)
expenses
Operating profit 17,754 18,189 31,103
Financial income/expense 613 476 1,006
Taxation (2,571) (2,708) (4,662)
Profit after tax 15,796 15,957 27,447
Segment assets 65,878 47,238 59,313 8,124 7,371 7,381 74,002 54,609 66,694
Unallocated group assets 47,602 49,920 45,333
Total assets 121,604 104,529 112,027
Segment liabilities 7,240 9,484 9,675 11,044 11,002 10,218 18,284 20,486 19,893
Unallocated group 17,346 17,082 13,990
liabilities
Total liabilities 35,630 37,568 33,883
Capital expenditure 9,694 10,445 24,645 1,529 1,726 3,097 11,223 12,171 27,742
Depreciation 4,018 2,638 6,585 1,300 946 2,039 5,318 3,584 8,624
Non cash expenses other 401 235 440 454 225 435 855 460 875
than depreciation
(b) By geographical segment
Ireland & Ireland Ireland & UK UK UK Total Total Total
Other & Other Other
30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04 30/6/05 30/6/04 31/12/04
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 486,176 408,023 829,541 217,966 146,075 335,624 704,142 554,098 1,165,165
Segment assets 95,013 88,666 96,549 26,591 15,863 15,478 121,604 104,529 112,027
Capital 7,478 6,883 17,084 3,745 5,288 10,658 11,223 12,171 27,742
expenditure
Further analysis of the business segments by Six months ended 30 Six months ended 30 Year ended
channel shows: June 2005 June 2004 31 December 2004
(Restated) (Restated)
€'000 €'000 €'000
Turnover
Retail 401,342 340,438 688,651
Telephone 127,588 105,828 236,546
Online 175,212 107,832 239,968
704,142 554,098 1,165,165
Gross Win
Retail 49,628 48,284 88,701
Telephone 10,985 10,962 19,664
Online 20,319 12,945 25,745
80,932 72,191 134,110
Gross Profit
Retail 43,684 42,940 78,296
Telephone 9,448 9,258 17,151
Online 15,519 9,429 20,186
68,651 61,627 115,633
Operating Profit
Retail 6,653 12,238 17,727
Telephone 2,960 2,305 4,549
Online 8,141 3,646 8,827
17,754 18,189 31,103
3 Earnings per Share
Six months ended 30 Six months ended 30 Year ended
June 2005 June 2004 31 December 2004
(Restated) (Restated)
€'000 €'000 €'000
Profit attributable to ordinary shareholders 15,796 15,957 27,447
Weighted average number of shares in issue during 49,792 47,919 48,536
the period
Dilutive effect of options outstanding 1,135 2,631 2,054
Adjusted weighted average number of shares in issue 50,927 50,550 50,590
during the period
Basic earnings per share 31.7c 33.3c 56.6c
Diluted earnings per share 31.0c 31.6c 54.2c
4 Post Balance Sheet Event
Interim Dividend
On 30 August 2005, the Directors declared an interim dividend of 7.75c per
share. This will be paid on 23 September 2005 to shareholders on the Company's
register of members at the close of business on the record date of 9 September
2005.
Independent review report to Paddy Power plc
Introduction
We have been engaged by the company to review the financial information set out
on pages ... to ... and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Irish Stock Exchange and the UK Financial Services Authority. Our
review has been undertaken so that we might state to the company those matters
we are required to state to it in this report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
As disclosed in note 1 to the financial information, the next annual financial
statements of the Group will be prepared in accordance with International
Financial Reporting Standards ('IFRS') adopted for use in the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with those IFRSs adopted for use in the European Union.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in Ireland and the United Kingdom. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
KPMG
Chartered Accountants
Dublin
30 August 2005
This information is provided by RNS
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