Interim Results
Paddy Power plc
04 September 2007
Paddy Power plc
2007 Interim Results Announcement
Paddy Power plc today announces its interim results for the six months ended
30 June 2007.
Highlights:
- Operating profit growth of 108% to €40.8m;
- A marked improvement in the performance of our UK Retail business
which traded profitably compared to a full year loss of €6.0m in 2006;
- Operating profit growth of 131% in our Irish Retail business;
- Operating profit growth of 53% and 27% in our online and telephone
businesses respectively;
- Continued investment to drive future growth, including the introduction of
online financial spread betting and online Spanish language betting
businesses in the summer;
- The acquisition of four shops in Ireland and an additional four since the
period end;
- Cash returns to shareholders of €59.3m through a combination of dividends
and share buybacks;
- Last, but not least, an exceptionally favourable run of sporting
results.
Commenting on the results Patrick Kennedy, Chief Executive, Paddy Power plc said:
'We have grown our business very substantially in the first six months of 2007.
Profitability has increased by in excess of 100%, with very strong growth in
every division, helped by favourable sporting results.
Our retail operations performed particularly well, with 131% growth in Irish
Retail profitability, whilst our UK shops traded profitably for the first time.
We also continue to invest in the future, with two new businesses being launched
since the start of the year - our financial spread betting business, and our
Spanish language online business.
Strong trading has continued into the second half of the year, and we look
forward to the remainder of 2007 and beyond with confidence.'
ENDS
4 September 2007
Issued on behalf of Paddy Power plc by Drury Communications Ltd
For reference:
Patrick Kennedy Jack Massey
Chief Executive Finance Director
Paddy Power plc Paddy Power plc
Tel: + 353 1 404 5912 Tel: + 353 1 404 5912
Billy Murphy / Oonagh Daly Trevor Phillips
Drury Communications Ltd Holborn PR
Tel: + 353 1 260 5000 Tel: + 44 20 7929 5599
Mobile: + 353 87 855 4406 (OD) Mobile: + 44 7889 153 628
2007 Interim Financial Highlights
For the six months ended 30 June 2007 - unaudited
Six months ended Six months ended
30 June 2007 30 June 2006 % Change
€m €m
Amounts staked by customers
Irish Retail 461 415 +11%
UK Retail 83 60 +38%
Retail Division 544 475 +15%
Online 297 248 +20%
Telephone 153 155 -2%
Total amounts staked * 994 878 +13%
€'000 €'000
Revenue
Irish Retail 67,716 51,584 +31%
UK Retail 15,106 10,257 +47%
Retail Division 82,822 61,841 +34%
Online 45,600 30,757 +48%
Telephone 15,340 12,369 +24%
Total revenue * 143,762 104,967 +37%
Operating profit / (loss)
Irish Retail 22,497 9,751 +131%
UK Retail (526) (3,030) n/a
Retail Division 21,971 6,721 +227%
Online 14,811 9,696 +53%
Telephone 4,056 3,203 +27%
Total operating profit 40,838 19,620 +108%
Profit for the period 35,458 17,496 +103%
Basic earnings per share 70.6c 34.8c +103%
Interim dividend per share 16.00c 9.43c +70%
* Amounts staked by customers (or 'turnover') represents amounts received in
respect of bets placed on sporting events that occurred during the period and
net winnings and commissions earned on gaming activities. Revenue (or 'gross
win') represents the net gain on sports betting transactions (stake less payout)
and net winnings and commissions earned on gaming activities.
Interim Statement
I am delighted to report on an outstanding first half of 2007 for Paddy Power
with the following highlights:
- Operating profit growth of 108% to €40.8m;
- A marked improvement in the performance of our UK Retail business
which traded profitably compared to a full year loss of €6.0m in 2006;
- Operating profit growth of 131% in our Irish Retail business;
- Operating profit growth of 53% and 27% in our online and telephone
businesses respectively;
- Continued investment to drive future growth, including the introduction of
online financial spread betting and online Spanish language betting
businesses in the summer;
- The acquisition of four shops in Ireland and an additional four since the
period end;
- Cash returns to shareholders of €59.3m through a combination of dividends
and share buybacks;
- Last, but not least, an exceptionally favourable run of sporting results...
While the summer weather was poor it was nothing compared to the 'perfect storm'
experienced by many punters during the first half of 2007! Whether it was in
horse racing, soccer, rugby or golf, a stream of apparently unlikely and,
certainly lightly backed, results came to pass. The 'luck of the Irish' was
little in evidence with a succession of fancied Irish horses beaten at
Cheltenham, Ascot and in the Classics. This resulted in gross win percentages
above the expected ranges in all our sportsbook channels, with the largest
positive variances in those channels with the highest exposure to Irish punters.
When the going gets tough some people grow a beard and hide in a bunker but we
went for the get going approach. We ran some of our most generous 'specials'
during the period building our brand and customer loyalty for the future.
Despite the run of bookmaker-friendly results inevitably impacting turnover
growth (so called 'negative recycling'), and the absence of the World Cup, we
also achieved double digit turnover growth in both our Retail and Non Retail
divisions.
Historically the second half of the year tends to produce a lower gross win
percentage for Paddy Power than the first half, as more predictable ground
conditions deliver fewer upsets in racing. However in July and August this year
the variable weather conditions have resulted in gross win percentages close to
the mid-point of the guided ranges which serves to remind us of the potential
for our short-term financial performance to be influenced by sporting results
and other factors, all outside our control. We know from long experience the
old adage of 'what goes around comes around' applies to sporting results.
The Retail Division
The gross win percentages in the first half of the year within Irish and UK
Retail were 14.7% and 12.6% respectively, compared to 12.4% and 12.5% in the
comparable period. This performance was driven by a set of results that even
our most wizened and experienced colleagues regarded as unprecedented. In the
last five reporting periods prior to this, our Retail division's gross win
percentage has averaged 12.0%, in line with the mid-point of our ongoing guided
range of 11.0% to 13.0%. Equally, UK Retail (and business from UK customers
within Non Retail) had gross win percentages in the current period near the
mid-point of their guided ranges. The divergence in the Irish and UK Retail
percentages highlights the impact of the different performance of the favoured
selections amongst Irish and UK punters. Picking a winner was difficult;
picking an Irish winner seemed nigh impossible. We tried to cushion the blow
for our punters with our trademark Money-Back Specials including the Cheltenham
special refunding all losing bets on any horse that finished second to a
favourite; this was offered on one race on each of the first three days and
expanded to every race by the Friday. We continue to monitor closely current
gross win percentages and expectations for the future; however recycling,
negative and positive, does counterbalance some of the impact of gross win
percentage movements.
The launch of Turf TV was a significant development in the supply of pictures
from racecourses to shops, as well as a graphic illustration of our commitment
to giving customers what they want. Since April, Turf TV has had the picture
rights from six UK racecourses, with a further 25 of the UK's 59 racecourses
committed to join the service in January 2008. Paddy Power was the first major
chain of bookmakers to sign up for Turf TV, ensuring our customers could
continue to watch live racing from every racecourse in the UK and Ireland
without interruption. Our infrared shop television control technology and
central production studio also ensures that the SIS and Turf TV pictures are
seamlessly integrated. Despite the incremental cost, we are confident this
approach will be rewarded, particularly by focussing on the opportunity it gives
us to win customers from competitors without this service. Significantly, 80%
of betting shops in the UK do not currently have Turf TV. In recent months, we
have therefore complemented this differentiation with a traditional Paddy Power
Money-Back Special, but taken to a whole new level - money back on all losers -
for three selected races over the day, announced immediately after the off. We
can't think of a better way to showcase to a new customer the Paddy Power
commitment to customer service, product quality and our brand values of fun,
fair and friendly.
The benefits of the Electronic Point of Sale ('EPOS') system rolled out last
year continue to accrue in a range of areas. This year's Cheltenham Festival
and Grand National were the first for many shops with EPOS and we were pleased
with the improvement in customer service from speedier bet placement and
collection, including the benefit of EPOS readable 'mark sense' dockets for shop
coupons and press promotions. We are also extracting more benefits by
continuously refining and acting upon information from the system for
operational management, marketing, risk and security.
(i) Irish Retail
€m H1 2007 H1 2006 % Change
Amounts staked 460.9 414.4 +11%
Gross win 67.7 51.6 +31%
Gross profit 62.9 43.0 +46%
Operating costs (40.4) (33.3) +22%
Operating profit 22.5 9.7 +131%
The amounts staked within Irish Retail grew by 11% to €461m with a 31% increase
in gross win to €68m, as compared to increases of 16% and 21% respectively in
the first half of 2006. Excluding the impact of new shops, like-for-like
amounts staked and gross win increased by 5% and 25% respectively, as compared
to 12% and 16% during the first half of 2006. Operating costs increased by 22%
driven by a 9% increase in average shop numbers, increased depreciation
(primarily related to EPOS) and growth in divisional and central variable costs
due to increased levels of activity.
Gross profit in the first half of 2007 versus 2006 benefited from the change in
Irish retail betting tax. From July 2006, the Irish government introduced a 1%
turnover tax levied on the bookmaker in place of the previous 2% tax paid by the
customer. Of course Paddy Power had given its customers the benefits of tax
free betting the morning after the change was announced in December 2005. This
meant incurring an additional cost of 1% of turnover or €4m in the first half of
2006 which did not arise in the first half of 2007.
During the first half of the year, we opened four new shops and expect to
continue to open in line with our medium term guidance of six to 10 shops per
annum. In addition, we acquired four shops from other operators: a small chain
of three shops within Dublin and one shop in Mullingar. Since 30 June, we have
also acquired a chain of four shops in North Dublin. While we continue to
prefer the economics of organic expansion in the Republic of Ireland, these
small acquisitions offered: prime locations in areas in which we have wished to
expand for some time but where suitable retail units have not become available;
an excellent fit with our existing estate; and significant potential to increase
the units' profitability with the Paddy Power brand, product and customer
service. We have been pleased with the trading of the units since acquisition.
The eight additional shops trading during the first half took our total Irish
estate to 168 as at 30 June 2007.
(ii) UK Retail
€m H1 2007 H1 2006 % Change
Amounts staked 83.0 60.3 +38%
Gross win* 15.1 10.3 +47%
Gross profit 12.7 8.0 +58%
Operating costs (13.2) (11.0) +20%
Operating loss** (0.5) (3.0) n/a
(*FOBT gross win above excludes VAT; ** The operating loss in 2007 is shown
after a €0.6m provision for shop closure costs.)
UK Retail achieved its first trading profit in the first half of 2007,
generating €0.1m prior to a provision for shop closure costs of €0.6m. This
compares to ongoing losses since the initial openings in 2002 and a loss of
€3.0m in the comparable period last year. We announced last year that we would
prioritise enhancing the performance of our existing estate, rather than further
shop openings, in the period prior to deregulation of the UK market this month.
As a result, we implemented a range of initiatives to increase revenues and
reduce costs which came to fruition in the current period resulting in a once
off step change increase in profitability.
From a revenue perspective, turnover grew by 38% to €83m. Gross win growth of
47% to €15.1m was comprised of 72% growth in Fixed Odds Betting Terminal ('
FOBT') gross win to €5.3m, and 37% growth in over-the-counter ('OTC') gross win
to €9.8m. Like-for-like gross win grew by 24%, with OTC growth of 19% and FOBT
growth of 37%. There were 231 FOBT machines installed as at 30 June, an
increase of 24% compared to 30 June last year. The average gross win per
machine per week including VAT was £716, an increase of 28% compared to £558 in
the first six months of 2006.
An aggressive review of the cost base of our UK Retail estate delivered
substantial savings in the first half of 2007 where, amongst other things, we
successfully leveraged the growth in our estate and the increased levels of
activity within each shop to achieve economies. Excluding the shop closure
provision of €0.6m, operating cost growth was restricted to 14%, despite a 23%
increase in the average number of shops and a 3% increase from the imposition of
Amusement Machine License Duty. The adequacy of the shop closure provision will
be reviewed at the end of the year.
This progress on costs and revenues has resulted in each of the group of shops
we opened in each of the last four years achieving an EBIT positive result in
the first half of 2007. This compares with only the combined group of shops
opened in 2003 and 2004 achieving an EBITDA positive result in the first six
months of last year.
Looking forward, we welcome the implementation of the Gambling Act this month
which provides improved shop opening prospects, enhanced gaming machines and
longer shop opening hours. The removal of the 'demand test' for openings also
gives us important additional flexibility in the format and size of new shops.
The gaming machine changes allow for the introduction of higher payout and more
varied content on machines. There will however be an offset from the impact of
the smoking ban implemented in England in July, and machine regulatory changes
being made as part of the implementation of the Act. In April we completed our
pre-deregulation opening programme, with one additional shop, taking our estate
to 59. We will open a small number of additional shops in London this year but
are also currently undertaking a detailed review of the potential for expansion
elsewhere in the UK.
The Non Retail Division
The Non Retail division comprises online betting and gaming and telephone
betting. Operating profit from the division increased by 46% to €18.9m,
comprising €4.1m from the telephone channel, an increase of 27%, and €14.8m from
the online channel, an increase of 53%. Betting on football represents a
greater proportion of turnover in the Non Retail division than the Retail
division; hence this was a satisfying performance as last year's comparatives
included the World Cup.
Sportsbook turnover within the Non Retail division is broadly an even mix from
Irish and UK based customers. This influenced the average gross win percentage
achieved in the first half of 2007 of 9.9%, compared to 7.7% in the comparable
period and our mid-point expectation of 8.0%, with an exceptionally high
percentage achieved from Irish customers being partially diluted by a percentage
modestly above the mid-point of the range from UK customers.
As a result of recent tax developments, which come into effect from September
2007, we now expect to incur less betting tax within the Non Retail division
going forward, as long as the new tax situation continues to exist. While tax
legislation may change in the future, the impact of these changes based on
current levels of activity is to increase Non Retail gross profit by
approximately €5m in a full year.
(i) The Online Channel
€m H1 2007 H1 2006 % Change
Amounts staked 297.3 247.9 +20%
Gross win 45.6 30.7 +48%
Gross profit 35.4 23.1 +53%
Operating costs (20.6) (13.4) +54%
Operating profit 14.8 9.7 +53%
The online channel continues to be characterised by strong growth, combined with
a significant level of investment to drive future growth. Operating profits
increased by 53% or €5.1m in the first half of 2007, notwithstanding the ongoing
investment being made to expand online activities into new geographies through
the German and Spanish language betting businesses, and into new product markets
such as bingo and financial spread betting. The major drivers of the increase
in operating costs from €13.4m to €20.6m were:
- The launch of new businesses and expansion of businesses recently launched;
- Investment in people to drive further development and growth;
- Volume driven promotional spend and marketing spend; and
- Growth in variable costs due to increased activity levels.
Customer numbers in the online channel continued to grow strongly with an 18%
increase at the end of the half year relative to June 2006, despite slower
growth in sportsbook customers without the World Cup. Online competition
remains intense but we are confident that our brand, product range and top class
customer service, as well as our continuous drive to increase our marketing
efficiency, means we are well positioned for growth. From a marketing
perspective, we continue to invest in people and technology to optimise our
customer acquisition, through both affiliate and non-affiliate sources, and our
customer retention. For example, we added our newly developed affiliate
management system to paddypower.com during the period, automating the process
for other web site operators to promote our products on their websites. An
Irish general election micro site also attracted political punters and media to
our site and gave them a taste of Paddy Power early payouts when we paid out on
Bertie Ahern to lead the incoming government before the count commenced.
Online Channel Active Customers 30 June 2007 30 June 2006 % Change
Ireland and Rest Of World 58,619 46,564 +26%
UK 98,791 86,810 +14%
Total 157,410 133,374 +18%
Online Customers Product Usage 30 June 2007 30 June 2006 % Change
Sportsbook only 96,632 95,950 +1%
Gaming only 26,375 15,411 +71%
Multi product customers 34,403 22,013 +56%
Total 157,410 133,374 +18%
(Active customers are defined as those who have bet in the last three months)
(a) Sportsbook
The amounts staked on the online sportsbook increased by 19% to €279m. Within
this, bet volumes grew 16% to 9.8m while the average bet value increased by 3%
to €28.36. Gross win in the sportsbook increased by 53% to €27.2m, helped by a
9.8% gross win percentage as compared to 7.6% in the comparative period and our
mid-point expectation of 8.0%.
Sports punters benefited from a range of refunds and early payouts. Following
the disappointment for Irish rugby backers of the team's last minute defeat to
France, we reacted with a high profile early payout on bets on Ireland to beat
England and win the Triple Crown, the day before the historic encounter with
England at Croke Park, and two weeks before the trip to Murrayfield. Equally,
we refunded backers of Lewis Hamilton following concerns that team orders cost
him victory at his maiden Monaco Grand Prix, as well as making an early payout
on him to be the 2007 BBC Sports Personality of the Year. We also took the
unprecedented decision in a Classic to return losing bets on heavy favourite
Teofilo when he was withdrawn from the 2,000 Guineas. We believe consistent
fair action, complemented by media interest, creates differentiation, loyalty
and ultimately turnover.
Our trademark product innovation continues to give more choice to the customer.
In horse racing, we introduced betting-in-running for all races on terrestrial
TV and expanded 'bet-and-watch' to all races in the UK and Ireland. We also
expanded football betting-in-running with new markets on whether there will be a
goal and who will win in the next 10 minute period.
We remain encouraged by our prospects in the medium term for expansion in
continental Europe, both as a result of countries that have already moved
towards liberalisation and by enforcement action of EU Law by the European
Commission. We have continued to develop our German language online sportsbook
and were pleased to be already rated third out of over 30 bookmakers for both
Homepage and Customer Service quality in a survey by a large German betting
forum. We also launched our Spanish language online betting site in August.
Both businesses represent investments for the medium term, as we tackle the
significant challenge of attempting to replicate our successful penetration of
the UK online market, in the face of regulatory, competitive and cultural
hurdles.
(b) Gaming
The online channel generates gaming revenues from casino, games, poker and
bingo. Revenue from these sources, representing the operator's 'hold' or
commission income, increased by 42% to €18.4m, aided to some extent by the
absence of the distractions for players in June of the World Cup and sunshine!
During March, we migrated our poker customers from the software of our network
supplier to that of another network, Playtech, which had acquired our supplier.
Since then we have implemented a range of initiatives to counter the negative
impact of the change in software, as well as the loss of liquidity from
customers of other members of the previous network. These initiatives included
leveraging relative strengths of the new software such as the availability of
side card games and a smoother download process for customers; working with the
supplier to implement changes to improve the customer experience; and focussing
hard on our normal growth drivers to offset the impact of the peak in customer
churn at the time of the migration. This work is continuing.
While the poker business has therefore faced new challenges in the last six
months, our commitment is underlined by our sponsorship of the Irish Open poker
tournament. The 2007 event set a further landmark as Europe's largest ever
tournament with over 700 players. Given the growth of our poker business, and
the market overall, Paddy Power is guaranteeing the 2008 event with a €3 million
prize fund, an additional €1 million over 2007.
Gaming gross win was also driven by a strong performance from our games channel,
where an online version of the popular TV game show 'Deal Or No Deal' proved all
the rage with both existing and new customers. Bingo also contributed to gross
win growth with more expected in the future. Its potential is clear with good
punter interest aroused by our guaranteed jackpot of €75,000 over the weekend of
the UK Grand National, as well as by more subtle promotional techniques such as
Paddy's Passion Wagon bingo on Friday nights!
We also launched paddypowertrader.com, an online financial spread betting
business, in July. Paddy Power Trader markets spread betting opportunities on
equities, commodities and indices with a differentiating emphasis on education,
value and, of course, entertainment. We are satisfied with the initial
performance and plan to increase our level of investment over time in this
attractive market.
(ii) The Telephone Channel
€m H1 2007 H1 2006 % Change
Amounts staked 152.5 155.0 -2%
Gross win 15.3 12.4 +24%
Gross profit 13.9 11.2 +24%
Operating costs (9.8) (8.0) +23%
Operating profit 4.1 3.2 +27%
The amounts staked within the telephone channel fell by 2% to €152m influenced
by negative recycling as a result of the high gross win percentage of 10.1%
(compared to 8.0% in the comparable period), the absence of the World Cup and
continued competition in the market. Within the 2% turnover fall, bet volumes
fell 2% to 1.5m while the average stake per bet increased slightly to €99.25.
We continue to prioritise profitability ahead of growth in customer numbers or
market share in the telephone channel, and were pleased to achieve growth in
operating profit of 27% in the first half of 2007.
Telephone Channel Active Customers 30 June 2007 30 June 2006 % Change
Ireland and Rest Of World 13,651 13,709 -0%
UK 11,545 11,709 -1%
Total 25,196 25,418 -1%
(Active customers are defined as those who have bet in the last three months)
We took advantage of the additional capacity of our new call centre during March
and April by arranging extra temporary staff for the peak periods of activity
around Cheltenham and the Irish and English Grand Nationals. This reduced call
waiting times and enabled new account openings to be dealt with even during
these peak demand periods.
Taxation
The corporation tax charge for the period was €7.3m, an effective tax rate of
17.0%. As anticipated, this represents an increase on the 14.6% effective rate
in the first half of 2006 as a result of the non-deductibility of the 1% of
turnover betting tax in Irish Retail. No corporation tax is currently payable
in the UK due to tax losses. The Group's effective tax rate is above the
standard rate of Irish corporation tax due to the impact of non-deductible
expenses and passive interest income which is taxed above the standard rate.
Profit After Tax and Earnings Per Share
Profit after tax for the period was €35.5m, an increase of 103%. Diluted
earnings per share grew 101% to 69.5 cent.
Share Buyback Programme and Cash Flow
During the six month period, we returned a total of €59.3m of cash to
shareholders through a combination of dividends and share buybacks. The final
dividend paid to shareholders in respect of 2006 was €11.7m, an increase of 80%
over the final 2005 dividend payment. In addition, further to the programme
announced on 3 March 2007, €48.2m was spent on returning cash to shareholders
via a share buyback programme. This reflected purchases of 2.14m shares or 4.2%
of the company's share capital at an average price of €22.25. It is the Board's
current intention to consider further share buybacks in the period to the next
AGM in line with the approval granted by shareholders. The timing and amount of
shares bought back will depend on the Group's pipeline of development
opportunities as well as equity market conditions.
Cash balances at 30 June were €72.6m compared to €87.1m at 31 December 2006, a
decrease of €14.5m. This included cash balances held on behalf of customers of
€14.5m compared to €13.4m at 31 December 2006. Net cash generated from
operating activities in the first half of 2007 was €58.3m compared to €35.6m in
the comparable period in 2006, an increase of 64% or €22.7m. This was driven by
operating profit growth of 108% or €21.2m. Capital expenditure on tangible and
intangible assets, comprising primarily the fit out and upgrading of retail
outlets, together with the acquisition of four retail units, was €10.2m.
Dividend
The Board has decided to pay an interim dividend of 16.00 cent per share, an
increase of 70% on the 2006 interim dividend, resulting in a total expected
payment of €7.9m. This dividend is payable on 5 October 2007 to shareholders on
the register at the close of business on 14 September.
Outlook
During July and August, gross win percentages have reverted to close to the
mid-point of the guided ranges in each channel; nonetheless these levels are
above our expectations for this time of year. In addition, we continue to
experience good momentum in overall gaming gross win and also expect to benefit
from a reduction in direct betting taxes in our Non Retail division. We expect
operating profit for the full year of approximately €68m versus our previous
guidance of approximately €62m, clearly subject to the volatility that could
arise from sporting results. Compared to 2006 operating profit pre exceptional
items, this result would represent growth of approximately 50%.
Fintan Drury
Chairman
3 September 2007
Consolidated Interim Income Statement
For the six months ended 30 June 2007 - unaudited
Six months Six months
ended ended Year ended
30 June 2007 30 June 2006 31 December 2006
Before
exceptional
Total Total item Exceptional Total
item (Note 3)
Note €'000 €'000 €'000 €'000 €'000
Amounts staked by customers 993,663 877,625 1,795,090 - 1,795,090
Continuing Operations
Revenue 143,762 104,967 218,706 - 218,706
Direct betting costs (18,892) (19,745) (35,090) - (35,090)
Gross profit 124,870 85,222 183,616 - 183,616
Employee costs (39,002) (30,395) (64,227) - (64,227)
Property expenses (11,696) (10,048) (21,174) - (21,174)
Marketing expenses (11,653) (9,277) (17,309) - (17,309)
Technology and communications (6,214) (5,366) (11,537) - (11,537)
Depreciation and amortisation (10,882) (6,476) (15,512) - (15,512)
Other expenses (4,585) (4,040) (8,395) 2,098 (6,297)
Total operating expenses (84,032) (65,602) (138,154) 2,098 (136,056)
Operating profit before financial
income 40,838 19,620 45,462 2,098 47,560
Financial income 1,908 867 2,139 - 2,139
Profit before tax 42,746 20,487 47,601 2,098 49,699
Income tax expense (7,288) (2,991) (8,033) (421) (8,454)
Profit for the period from
continuing operations 35,458 17,496 39,568 1,677 41,245
Basic earnings per share 4 70.6c 34.8c 81.9c
Diluted earnings per share 4 69.5c 34.5c 81.1c
Proposed dividend per share for
period 5 16.00c 9.43c 32.20c
Consolidated Interim Statement of Recognised Income and Expense
For the six months ended 30 June 2007 - unaudited
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
€'000 €'000 €'000
Group profit for the period 35,458 17,496 41,245
Foreign exchange translation difference - - 1
Total recognised income and expense 35,458 17,496 41,246
The total recognised income and expense for the period is entirely attributable
to the equity holders of the Company.
Consolidated Interim Balance Sheet
As at 30 June 2007 - unaudited
30 June 2007 30 June 2006 31 December 2006
Note €'000 €'000 €'000
Assets
Property, plant and equipment 72,110 72,739 76,240
Intangible assets 8,419 8,789 9,260
Goodwill 4,292 1,880 1,880
Deferred tax asset 282 370 195
Total non current assets 85,103 83,778 87,575
Trade and other receivables 4,141 4,592 4,203
Cash and cash equivalents 72,595 68,281 87,061
Total current assets 76,736 72,873 91,264
Total assets 161,839 156,651 178,839
Equity
Issued capital 6 4,918 5,106 5,124
Share premium 6 10,614 9,121 10,163
Shares held by long term incentive plan 6 (11,752) (8,137) (8,137)
trust
Other reserves 6 7,593 5,249 6,536
Retained earnings 6 90,081 95,276 114,445
Total equity 101,454 106,615 128,131
Liabilities
Deferred tax liabilities - 752 -
Total non current liabilities - 752 -
Trade and other payables 48,246 40,842 46,263
Derivative financial instruments 7 3,740 5,369 2,877
Current tax payable 8,399 3,073 1,568
Total current liabilities 60,385 49,284 50,708
Total equity and liabilities 161,839 156,651 178,839
Consolidated Interim Cash Flow Statement
For the six months ended 30 June 2007 - unaudited
Six months ended 30 Six months ended 30 Year ended
June 2007 June 2006 31 December 2006
€'000 €'000 €'000
Cash flows from operating activities
Profit before tax 42,746 20,487 49,699
Financial income (1,908) (867) (2,139)
Depreciation and amortisation 10,882 6,476 15,512
Cost of employee share-based payments 2,379 1,646 3,184
Loss / (gain) on disposal of property, plant and 22 45 (1,183)
equipment
Cash from operations before changes in working capital 54,121 27,787 65,073
Decrease / (increase) in trade and other receivables 124 (2,422) (2,013)
Increase in trade and other payables and derivative
financial instruments 4,578 11,180 13,209
Cash generated from operations 58,823 36,545 76,269
Income taxes paid (558) (959) (8,526)
Net cash from operating activities 58,265 35,586 67,743
Cash flows from investing activities
Purchase of property, plant and equipment (6,309) (6,471) (17,855)
Acquisition of intangible assets (1,212) (6,105) (7,921)
Purchase of new businesses (2,634) - -
Proceeds from disposal of property, plant and equipment 100 700 3,028
Interest received 2,002 831 2,084
Net cash used in investing activities (8,053) (11,045) (20,664)
Cash flows from financing activities
Proceeds from the issue of new shares 327 1,639 2,699
Purchase of own shares (48,193) - -
Purchase of shares by long term incentive plan trust (5,138) (3,741) (3,742)
Dividends paid (11,674) (6,476) (11,293)
Net cash used in financing activities (64,678) (8,578) (12,336)
Net (decrease) / increase in cash and cash equivalents (14,466) 15,963 34,743
Cash and cash equivalents at start of period 87,061 52,318 52,318
Cash and cash equivalents at end of period 72,595 68,281 87,061
Notes to the Consolidated Interim Financial Statements
1. Basis of preparation and accounting policies
The interim financial statements are prepared on the historical cost basis
except for betting transactions, which are recorded as derivative financial
instruments, and share-based payments, both of which are stated at fair value.
The financial statements are presented in euro, rounded to the nearest thousand.
The statements have been prepared in accordance with the recognition and
measurement principles of International Financial Reporting Standards as adopted
by the EU at 30 June 2007. The accounting policies applied in the preparation
of these interim financial statements are consistent with those set out in the
Annual Report for the year ended 31 December 2006.
2. Segmental information
The revenue, operating profit and net assets of the Group relate to the
provision of betting and gaming activities, substantially all of which are
conducted in the Republic of Ireland and the United Kingdom.
(a) By business segment
The Group considers its primary business segments to be 'Retail' and 'Non
Retail'. The Retail business segment comprises the Group's Irish and UK
licensed bookmaking shop estates. The Non Retail business segment comprises the
Group's online and telephone sports betting businesses and its online gaming
businesses, primarily casino, games, poker and bingo.
Business segment information for the six months ended 30 June 2007:
Retail Non Retail Other unallocated Total
30/06/2007 30/06/2007 30/06/2007 30/06/2007
€'000 €'000 €'000 €'000
Revenue 82,822 60,940 - 143,762
Direct betting costs (7,228) (11,664) - (18,892)
cost of sales
Gross profit 75,594 49,276 - 124,870
Depreciation and amortisation (8,534) (2,337) (11) (10,882)
Other operating costs (43,346) (24,691) (5,113) (73,150)
Operating profit 23,714 22,248 (5,124) 40,838
Financial income - - 1,908 1,908
Profit before tax 23,714 22,248 (3,216) 42,746
Total assets 86,862 10,883 64,094 161,839
Segment liabilities 12,212 27,627 20,546 60,385
Capital expenditure 4,219 1,814 - 6,033
2. Segmental information (continued)
Business segment information for the six months ended 30 June 2006:
Retail Non Retail Other unallocated Total
30/06/2006 30/06/2006 30/06/2006 30/06/2006
€'000 €'000 €'000 €'000
Revenue 61,841 43,126 - 104,967
Direct betting costs (10,856) (8,889) - (19,745)
cost of sales
Gross profit 50,985 34,237 - 85,222
Depreciation and amortisation (4,834) (1,625) (17) (6,476)
Other operating costs (38,452) (17,745) (2,929) (59,126)
Operating profit 7,699 14,867 (2,946) 19,620
Financial income - - 867 867
Profit before tax 7,699 14,867 (2,079) 20,487
Total assets 82,672 9,329 64,650 156,651
Segment liabilities 12,240 21,077 16,719 50,036
Capital expenditure 10,616 2,115 2 12,733
Business segment information for the year ended 31 December 2006:
Retail Non Retail Other unallocated Total
31/12/2006 31/12/2006 31/12/2006 31/12/2006
€'000 €'000 €'000 €'000
Revenue 126,783 91,923 - 218,706
Direct betting costs (17,250) (17,840) - (35,090)
Gross profit 109,533 74,083 - 183,616
Depreciation and amortisation (12,035) (3,449) (28) (15,512)
Other operating costs (79,258) (36,911) (6,473) (122,642)
Operating profit before property gain 18,240 33,723 (6,501) 45,462
Property gain 2,098 - - 2,098
Operating profit 20,338 33,723 (6,501) 47,560
Financial income - - 2,139 2,139
Profit before tax 20,338 33,723 (4,362) 49,699
Total assets 87,970 12,350 78,519 178,839
Segment liabilities 14,559 22,466 13,683 50,708
Capital expenditure 22,422 4,421 2 26,845
The amounts shown in the 'Other unallocated' category above, representing items
that cannot be allocated to either the Retail or Non Retail segments, are
primarily in respect of management costs relating to the Group as a whole, cash
deposits held centrally and certain accounts payable, tax and accrual balances.
2. Segmental information (continued)
(b) By geographical segment
The Group considers that its primary geographic segments are 'Ireland & Other'
and 'UK'. The Ireland & Other geographic segment is composed of the Irish
Retail bookmaking business, online and telephone sports betting from non-UK
customers (principally in Ireland), and online gaming from non-UK customers.
The UK geographic segment consists of the UK Retail bookmaking business, online
and telephone sports betting from UK customers, and online gaming from UK
customers.
Ireland & Ireland & Ireland & UK UK UK Total Total Total
Other Other Other
30/06/07 30/06/06 31/12/06 30/06/07 30/06/06 31/12/06 30/06/07 30/06/06 31/12/06
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 97,055 72,840 148,462 46,707 32,127 70,244 143,762 104,967 218,706
Segment assets 115,236 110,608 131,269 46,603 46,043 47,570 161,839 156,651 178,839
Capital expenditure 5,771 8,994 14,369 262 3,739 12,476 6,033 12,733 26,845
Further analysis of the business segments by channel shows:
Six months ended 30 Six months ended 30 Year ended
June 2007 June 2006 31 December 2006
€'000 €'000 €'000
Amounts staked by customers
Irish Retail 460,871 414,410 833,125
UK Retail 83,008 60,289 129,936
Retail Division 543,879 474,699 963,061
Online 297,332 247,893 525,425
Telephone 152,452 155,033 306,604
993,663 877,625 1,795,090
Revenue
Irish Retail 67,716 51,584 104,385
UK Retail 15,106 10,257 22,398
Retail Division 82,822 61,841 126,783
Online 45,600 30,757 67,404
Telephone 15,340 12,369 24,519
143,762 104,967 218,706
Gross profit
Irish Retail 62,920 42,975 91,510
UK Retail 12,674 8,010 18,023
Retail Division 75,594 50,985 109,533
Online 35,384 23,045 51,731
Telephone 13,892 11,192 22,352
124,870 85,222 183,616
Operating profit / (loss) before exceptional item
Irish Retail 22,497 9,751 22,025
UK Retail (526) (3,030) (5,995)
Retail Division 21,971 6,721 16,030
Online 14,811 9,696 23,428
Telephone 4,056 3,203 6,004
40,838 19,620 45,462
3. Exceptional item
Six months ended 30 Six months ended 30 Year ended
June 2007 June 2006 31 December 2006
€'000 €'000 €'000
Gain on disposal of Irish Retail shop property - - 2,098
During the 2006 financial year, the Group disposed of a shop property. This
property, which formed part of the Group's Irish Retail licensed bookmaking
operations, was originally held under an operating lease. The Group exercised a
purchase option contained in the lease and subsequently sold the property at
arm's length to a third party, simultaneously entering into a leaseback
agreement at arm's length with that third party.
4. Earnings per share
Six months ended 30 Six months ended 30 Year ended
June 2007 June 2006 31 December 2006
Numerator in respect of basic and diluted earnings
per share (€'000):
Profit attributable to equity holders of the Company 35,458 17,496 41,245
Numerator in respect of adjusted basic and diluted
earnings per share (€'000):
Profit attributable to equity holders of the Company 35,458 17,496 41,245
Less: Property gain after tax - - (1,677)
Profit for adjusted earnings per share calculation 35,458 17,496 39,568
Denominator in respect of basic earnings per share
(in '000s):
Weighted average number of shares in issue during
the period 50,245 50,235 50,344
Adjustments to derive denominator in respect of
diluted earnings per share:
Dilutive effect of share option schemes, sharesave
scheme, shares held by long term incentive plan
trust and long term incentive plan 764 543 501
Adjusted weighted average number of shares in issue
during the period 51,009 50,778 50,845
Basic earnings per share 70.6c 34.8c 81.9c
Adjusted earnings per share 70.6c 34.8c 78.6c
Diluted earnings per share 69.5c 34.5c 81.1c
Adjusted diluted earnings per share 69.5c 34.5c 77.8c
The basic weighted average number of shares excludes shares held by the Paddy
Power Employee Benefit Trust. The effect of this is to reduce the average
number of shares in the six months to 30 June 2007 by 717,817 (2006: 439,543)
shares.
5. Dividends paid and proposed
Six months ended 30 Six months ended 30 Year ended
June 2007 June 2006 31 December 2006
€'000 €'000 €'000
Final dividend of 12.84c per share for year ended 31
December 2005 - 6,476 6,476
Interim dividend of 9.43c per share for period ended
30 June 2006 - - 4,817
Final dividend of 22.77c per share for year ended 31
December 2006 11,674 - -
11,674 6,476 11,293
The Directors propose an interim dividend of 16.00c per share which will be paid
on 5 October 2007 to shareholders on the Company's register of members at the
close of business on the record date of 14 September 2007. This dividend has
not been included as a liability at 30 June 2007.
6. Movement in equity
Shares
held by
Number of long term Share-
ordinary Own incentive based
shares in Share Share Other shares plan payment Retained
issue capital premium reserves held trust reserve earnings Total
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Balance at 1 January 50,397,168 5,040 7,548 922 - (4,929) 3,220 84,250 96,051
2006
Shares issued 841,269 84 2,663 - - - - - 2,747
Share issue costs - - (48) - - - - - (48)
Own shares acquired:
280,000 ordinary shares - - - - - (3,742) - - (3,742)
Total recognised income
and expense - - - 1 - - - 41,245 41,246
Equity-settled - - - - - 534 2,636 - 3,170
transactions
Transfer to retained
earnings on exercise of
share options - - - - - - (243) 243 -
Dividends to - - - - - - - (11,293) (11,293)
shareholders (Note 5)
Balance at 31 December 51,238,437 5,124 10,163 923 - (8,137) 5,613 114,445 128,131
2006
Shares issued 84,000 8 451 - - - - - 459
Own shares acquired:
By long term incentive
plan trust - 260,000
ordinary shares - - - - - (5,138) - - (5,138)
By the Company -
2,139,443 ordinary shares - - - - (48,193) - - - (48,193)
Cancellation of own
shares acquired (2,139,443) (214) - 214 48,193 - - (48,193) -
Total recognised income
and expense - - - - - - - 35,458 35,458
Equity-settled
transactions - - - - - 1,523 927 (39) 2,411
Transfer to retained
earnings on exercise of
share options - - - - - - (84) 84 -
Dividends to shareholders - - - - - - - (11,674) (11,674)
(Note 5)
Balance at 30 June 2007 49,182,994 4,918 10,614 1,137 - (11,752) 6,456 90,081 101,454
7. Derivative financial instruments
Derivative financial instruments represent the fair value of sports betting open
positions at the period end.
8. Statutory financial statements
This interim report does not comprise full statutory financial statements. Full
statutory financial statements for the year ended 31 December 2006, prepared in
accordance with International Financial Reporting Standards as adopted by the EU
together with an unqualified audit report thereon, are available from the
Company, from the website www.paddypowerplc.com and from the Registrar of
Companies.
9. Board approval
This interim report was approved by the Board of Directors of Paddy Power plc on
3 September 2007.
Independent Review Report to Paddy Power plc
Introduction
We have been engaged by the Company to review the financial information for the
six months ended 30 June 2007 which comprises the consolidated interim income
statement, consolidated interim balance sheet, consolidated interim statement of
recognised income and expense, consolidated interim cash flow statement and
related notes. 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
This 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.
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 excludes audit
procedures such as tests of control and verification of assets, liabilities and
transactions. It 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 2007.
KPMG
Chartered Accountants
Dublin
3 September 2007
Additional Information for Shareholders
Listings
Paddy Power plc is an Irish registered Company. Its ordinary shares are quoted
on the Irish Stock Exchange and the London Stock Exchange.
Registrar
Enquiries concerning shareholdings should be addressed to the Company's
Registrar:
Computershare Investor Services (Ireland) Limited,
Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland.
Telephone: +353-1-216 3100
Facsimile: +353-1-216 3151
Website: www.computershare.com
Payment of Dividends Direct to a Bank Account
Dividends are paid by cheque; however shareholders resident in Ireland or in the
UK may have their dividends paid by electronic transfer direct to a designated
bank account. Shareholders who wish to avail of this facility should contact
the Company's Registrar (see above).
Payment of Dividends in Euro
Dividend payments are made in euro by default. However, shareholders wishing to
opt for payments in Pounds Sterling either by cheque or direct to their bank
account may do so by contacting the Registrar (see above).
Crest
Transfer of the Company's shares takes place through the CREST settlement
system. Shareholders have the choice of holding their shares in electronic form
or in the form of share certificates.
Dividend Withholding Tax ('DWT')
With certain exceptions, dividends paid by Irish resident companies on or after
6 April 2000 are subject to DWT at the standard rate of income tax of 20%. DWT,
where applicable, is deducted by the Company from all dividends. Each
shareholder receives a statement showing the shareholder's name and address, the
dividend payment date, the amount of the dividend, and the amount of DWT, if
any, deducted there from. In accordance with the requirements of legislation,
this information is also furnished to the Irish Revenue Commissioners.
Shareholders should take professional advice if they are in any doubt about
their individual tax positions. Further information concerning DWT may be
obtained from:
DWT Section, Collector General's Division, Government Offices,
Nenagh, Co. Tipperary, Ireland.
Telephone: +353-67-63400
Facsimile: +353-67-33822
E-mail: infodwt@revenue.ie
Electronic Communications
Paddy Power offers shareholders the ability to receive their communications from
the Company electronically. This is obviously an efficient means of
communication that is more environmentally friendly and gives cost and time
savings for the Company which in turn benefits the shareholders.
To register for Electronic Shareholder Communications go to
www.computershare.com/register/ie. Scroll down on 'Company Selection' and
select 'Paddy Power plc' from the drop down menu. Click on 'Submit'. Complete
the shareholder details including the SRN number which is on the share
certificate or dividend counterfoil. Once the request is processed a
confirmation e-mail will be returned.
2007 Financial Calendar
Announcement of interim results for 2007 4 September 2007
Ex-dividend date for interim dividend 12 September 2007
Record date for interim dividend 14 September 2007
Interim dividend payment date 5 October 2007
This information is provided by RNS
The company news service from the London Stock Exchange
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