Final Results

Paddy Power plc
01 March 2006

                                Paddy Power plc

                     2005 Preliminary Results Announcement

Paddy Power plc, Ireland's largest betting and gaming company, today (1 March
2006) announced strong financial results for the year ended 31 December 2005.



                             2005                    2004
                                €                       €                 Change

Revenue                  1,371.7m                1,159.7m                  18.3%
Operating Profit            30.1m                   31.1m                  -3.2%
Profit Before Tax           31.3m                   32.1m                  -2.5%
Profit After Tax            27.0m                   27.5m                  -1.8%
EPS                        54.08c                  56.55c                  -4.4%
Cash Balance                52.3m                   47.2m                  10.8%
Dividend                   20.59c                  18.72c                  10.0%



Commenting on the results, Patrick Kennedy, Chief Executive, Paddy Power plc
said:

'While the run of results and structural change in the Irish marketplace
impacted our gross win percentages during the year, 2005 saw strong revenue
growth across all our channels - a key indicator of the health of the business.'

Our online operations, which accounted for 56% of Group earnings in the period,
performed particularly well, delivering a 92% increase in operating profit.

Trading in the first two months of the year has been satisfactory and we look
forward to another year of growth'.



                                      ENDS



1 March 2006



Issued on behalf of Paddy Power plc by Drury Communications Ltd



For reference:

Patrick Kennedy                                     Ross Ivers
Chief Executive                                     Chief Financial Officer
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
Tel: + 353 1 260 5000                               Tel: + 44 207 929 5599
Mobile: + 353 87 855 4406 (OD)                      Mobile: + 44 7889 153628



Chairman's Statement



Dear Shareholder



I am pleased to report on another year of progress in Paddy Power.

Revenue                       €1,371.7m (+18.3%)

Pre tax profit                €31.3 m (-2.5%)

EPS                           54.08 cent (-4.4%)

Dividend                      20.59 cent (+10%)

Cash balances                 €52.3m (+10.8%)



2005 was a challenging year.  I have talked before about how a run of sporting
results can favour one side or the other of the betting equation; last year
certainly did not advantage bookmakers. That is not a moan.  It's just a fact of
life in this business. 2005 also witnessed structural change in the Irish retail
betting market. These two factors meant that, despite record revenue, the
results were off where we would have hoped such a strong performance would have
placed us.



The structural shift in the Irish retail market place gave rise to a revision of
the expected gross win percentages in our domestic retail business. While this
is undoubtedly a disappointment, we remain very confident that Paddy Power is
best placed to take advantage of the opportunities associated with this
structural shift. Our position as market leader, together with the introduction
of tax free betting in the Irish retail market, offers the opportunity for
profitable growth in 2006 and beyond.



We have made considerable progress on business development since my Statement in
last year's Annual Report.  Much of the benefits of these advances will start to
come through over the coming year and into 2007. The business is innovating
constantly and I am confident that this will enhance shareholder value in the
medium term.



Strategy



On this, our fifth anniversary as a public company, I believe it is worth taking
the time to reflect on the strength of the Company and the significant growth
opportunities available.



The past five years has seen revenue grow from €362m to €1,372m an average
annual growth rate of approximately 31%, while operating profit has grown by an
average annual growth rate of approximately 30% to €30m. In that time, the
business has been transformed from an Irish betting shop operator to a
multi-channel, multi-national betting and gaming company with over two thirds of
its operating profits coming from non retail activities and 29% of revenue
coming from outside the Irish market. Paddy Power, through its continued
customer focus, has remained the number one betting and gaming company in
Ireland and has now established itself as a significant player in the
considerably larger United Kingdom (UK) market.



Our expansion has diversified our income sources, with non bookmaking income
becoming an increasingly significant revenue stream. This in turn has allowed us
to broaden our customer base, both by customer type and geographic market, and
provides various cross selling opportunities that will fuel further growth.



Paddy Power is a growth company. We have a track record of growing start up
businesses organically while at the same time growing overall earnings and this
is set to continue. The online channel has strong short and long term earnings
growth potential in Ireland and the UK as the online betting market grows and we
capture more market share. 2006 should also see us commence online operations
targeting continental Europe where there are significant opportunities. We will
also continue to invest in the roll out of our UK estate where significant long
term potential remains.



Regulation



2005 saw some significant regulatory changes. In the UK, the Gambling Act was
passed which, amongst many other provisions, has finally eliminated the demand
test for betting shop licenses. It remains unclear as to when the relevant
provisions will be enacted, but the formal consultative period has commenced and
we remain hopeful for significant progress this year.



In Ireland, the 2005 Budget eliminated customer based betting taxes from July
2006, replacing them with a 1% revenue based tax levied on the bookmaker. In
true Paddy Power fashion we decided not to wait; instead we offered our
customers tax free betting from the morning after the Budget, with Paddy Power
absorbing the full 2% charge until July 2006. Both we and our customers welcome
the Budget change which now gives retail customers the same tax free betting
that Irish based telephone and internet customers have enjoyed for some time.



People



This year marked the end of John O'Reilly's tenure as Chief Executive. It is
accepted that John, together with his predecessor Stewart Kenny, forged an
extraordinary position within the betting industry for Paddy Power. Finding a
new CEO is a big challenge for any Board. Finding someone to follow Stewart and
John was acutely so. I believe that during my time as Chairman it is unlikely
that I will oversee a process as important for the shareholders than the
selection of the right CEO to follow John.



The Board believes that in Patrick Kennedy we have got the right man to take
this business forward and deliver shareholder value. I want to wish Patrick well
in that quest.



I have said it before and I continue to believe that one of Paddy Power's
strengths is the quality of its people. Under John O'Reilly's leadership, the
strength in depth of the team has been substantially enhanced. Maintaining the
commitment to recruiting the very best talent available will remain a priority
under Patrick Kennedy's stewardship.


The Board


As the business has evolved so too has the Board. In 2005, two executive
directors retired from the Board. John O'Reilly retired on 31 December having
been with the Company from its inception. John served the Company in a variety
of roles and was Chief Executive for the past three and a half years. His
contribution was immense and on your behalf I thank him once again for his
extraordinary commitment to Paddy Power. In early 2006, Ross Ivers is leaving
the company having been Finance Director since 2001. We greatly appreciate his
significant contribution to Paddy Power and wish him well in his future career.



We have announced this morning the appointment of Jack Massey as Finance
Director. Jack joins us from ITG Europe, the European division of the NYSE
quoted Investment Technology Group, where he has been Chief Operating Officer
since 2002 and previously Finance Director. I know that Jack will make a very
substantial contribution to the company and look forward to working with him.



We were very pleased to announce, in January 2006, the appointment of Tom Grace
as a non-executive director. Tom retired as a Partner in PricewaterhouseCoopers
in December of last year and I have no doubt that he will make a significant
contribution to Paddy Power over the coming years. As noted in the 2004 Annual
Report, Brody Sweeney joined the Board in February 2005 and we have already
benefited from his contribution.

Dividends


The Board is recommending a final dividend of 12.84 cent per share payable to
shareholders on the register at 10 March 2006, bringing the total dividend for
the year to 20.59 cent per share, an increase of 10 % on 2004 (18.72 cent).



Outlook



2006 promises to be another exciting year for Paddy Power as we expand in both
new and existing markets. Trading for the year to date has been satisfactory and
I look forward to updating you on progress at our AGM in May.



Chief Executive's Statement



I am delighted as Paddy Power's new Chief Executive to outline my views on the
Company.



The growth of Paddy Power in its five years as a public company, and indeed in
the 18 years since its inception, has been tremendous. Equally impressive has
been the fact that our culture today remains exactly as it has been throughout
that period, characterised by a total focus on our customers and staff alike, on
innovation and on our brand.



Our Business



The business today is very well positioned across each of its principal
channels:



(i) Irish Retail



The Irish retail market has very strong growth prospects underpinned by
continued population and economic growth. These prospects have been reinforced
by the industry's move to tax free betting which was led by Paddy Power in
December.



Strong growth encourages new entrants and competitive trading.  Nonetheless, as
the market leader with a 27 % share and with consistent brand recognition of
close to 90%, Paddy Power will continue to drive this market. Our brand, our
people and our investment in innovative new products will support this.



In addition, growth in the Irish retail market will be supported by the very
significant investment we have made in our estate in the last number of years:
80% of our estate has been opened, extended, relocated or refurbished in the
last four years. Our organic rollout plan of six to ten new outlets per annum
will continue and the enlarged estate should be fully supported by an Electronic
Point of Sale (EPOS) system by the end of the year.



(ii) UK Retail



The attractions of the UK market to Paddy Power that we identified when we
originally targeted it remain in place. It is a very substantial market with in
excess of 9,000 outlets. It is close to our home market and is about to
deregulate. It has a similar product and customer profile, which allows us to
take advantage of our existing capabilities. Importantly, it is open to the
brand-led, customer-led Paddy Power proposition.



We have made substantial progress in this market:

- At the end of last year, we had 45 shops open, compared with 12 at the end of
  2003

- Our market share in the areas where we have shops continues to grow

- Our brand awareness, in London and in the UK, continues to increase, with
  research showing Paddy Power to be the fourth most recognised bookmaking brand
  in London

- Our product mix is improving, with the proportion of non-racing revenue
  continuing to increase



The UK retail expansion continues to be 'work-in-progress' for Paddy Power, with
a material contribution to Group earnings some way off yet. We are still moving
towards critical mass: 30 shops have now been open for at least 12 months, and
we recognise that it takes longer for a new entrant to develop a shop to 'steady
state' than it does for a market leader. It is our intention to continue our
organic rollout in the UK at its current rate of up to 15 outlets per annum,
although we will review this rate in light of market developments, including the
new legislative environment.



(iii) Non Retail



The growth in the last few years in our non retail channel has been truly
impressive. The business has moved from losses in excess of €8 million in 2001
on revenue of €90 million to operating profit of €21 million in 2005 on revenue
of €577 million. In addition to our sportsbook offering through both telephone
and internet channels, we have successfully introduced casino products, gaming
products and poker. Well-resourced and ambitious competitors continue to enter
these markets, attracted by the growth prospects. However, prospects for all of
our businesses remain very strong. In addition, they are likely to be
complemented by both additional product and additional language websites in the
short term. We will continue to use organic growth to expand online, although
strategic acquisitions at the right price that bring new product, technology or
geographic expansion are possible.



The same three factors will support the strong growth prospects of each of these
sectors: our people, our brand and our innovative product range.



Our Resources



(i) Our People



Today we employ more than 1,400 people in Ireland and the UK, and this team is
the single greatest reason for my confidence in the future of Paddy Power. As I
spend time with people throughout the organisation, I am constantly impressed by
the same qualities: energy, pride in our company and in our brand, coupled with
an absolute focus on our customers.



In the last year, we have grown by close to 200 people. More than half of this
growth has come directly from our new shop openings in Ireland and the UK, plus
our team to support the EPOS rollout. In addition, we have increased our
telephone operators, our customer service team and our IT team to support the
very strong growth in non retail. We have also recruited dedicated management
teams for poker, casino and our European sportsbook rollout. Furthermore, as the
organisation overall has continued to grow apace, we have strengthened key
central functions, including marketing, human resources, risk management and
finance. As has historically been the case, we will continue to hire in
anticipation of growth.



(ii) Our Brand



Our brand embodies our approach to our customers and is a key point of
differentiation versus our competitors across all our channels. We will continue
to position the brand as fun, friendly - and occasionally cheeky and irreverent
- but also, critically, fair. Whether through our broader range of products or
our early payouts, innovative specials, double result payouts or the many other
imaginative refunds that we regularly offer to our customers, we will continue
to focus on being different from the competition.



Paddy Power's brand recognition consistently runs at almost 90% in Ireland. In
the UK, where we have been operating for only four years, nationwide brand
recognition among adults is 12%, 16% in London and over 60% amongst regular
punters across the UK. This is a testament to the energy and imagination we
invest in continually reinforcing our points of difference.



(iii) Our Products



The breadth of our product range is also a key source of differentiation from
both other bookmakers and betting exchanges. It reinforces the brand quality of
fairness to the customer, while also helping to drive revenue. For example, in
leading live football matches, we will typically offer up to 55 markets, between
pre-match and in-running, versus 25 on average for our largest competitors.



'Betting in Running' has been expanded significantly in the last 12 months with
more comprehensive product offerings particularly in football, golf, Formula 1,
snooker, tennis and baseball. It now accounts for over a quarter of all non
retail sports bets.  Other recent products that have been launched include
hourly financial markets, 'select-your-own' handicaps in rugby, golf handicap
betting, betting without the favourite and place-only-betting in racing and
mythical matches in football.



Conclusion



Overall, whilst there are challenges facing all of our businesses, they are far
outweighed by the opportunities that our market position and our own
capabilities present. The strategy that has led to the successful development of
Paddy Power to date is set to continue and I look forward to the future with
confidence.



Operations Review



Paddy Power is Ireland's largest betting and gaming company and has a
significant UK operation. It operates through two main divisions; the retail
division, which operates bookmaking shops in both Ireland and the UK, and the
non retail division, which provides telephone bookmaking services in Ireland and
the UK together with an online service that provides both bookmaking and gaming
services in both markets.



2005 has seen continued expansion of each of the divisions. The retail estate
has expanded in both countries. Active customer growth has continued in the
existing non retail division, fuelled in part by the addition of significant new
products and services in the online channel.



The Retail Division



2005 saw the continued implementation of our retail organic growth strategy in
both Ireland and the UK. At 31 December 2005, the estate comprised 195 shops
(2004:174), with 150 (2004:143) in Ireland and 45 (2004:31) in the UK.



New openings in both countries were in line with plans, with a bias to the
second half of the year in both locations. In addition to the new shop openings,
our refurbishment plan has continued throughout the year in Ireland as we
improve the physical quality of the estate, the average size and the audio/
visual facilities. Total capital investment across the retail estate was €24.3m
(2004: €24.6m).



In Ireland, seven (2004: six) new shops were opened. In addition we also
relocated six (2004: four) shops, extended four (2004: four) and refurbished 16
(2004: 27). The total number of premises developed in Ireland in the year was 33
(2004:41). As we move through 2006, the level of the redevelopment work on the
existing estate will decrease as the major shop fit upgrade programme that we
have undertaken over the past three years is completed. The level of expenditure
on maintenance capital is expected to decrease for two to three years before the
next estate upgrade. We continue to operate four racecourse shops as well as the
stadium facilities at Lansdowne Road. There were seven (2004: five) surplus
property leases at the year end.



Expansion of the UK estate continued with 15 new shops being opened during the
year. We also closed our oldest shop during the year. This had been acquired in
2000 in order for Paddy Power to undertake UK based advertising and did not form
part of our UK roll out plan.



We enter 2006 with 45 shops open, nine unopened licenses and a healthy pipeline
of license applications across London. We plan to open up to 15 additional shops
in London in 2006, assuming no changes to the existing legal process take effect
in 2006. The management team is focused on achieving an improved financial
performance in 2006 as the benefits of both scale and the maturity of the estate
flow through.



The Group has been testing a new EPOS solution for some time. There are
currently 72 test shops in operation in both Ireland and the UK and we are very
pleased with the results of the testing. Subject to the satisfactory delivery of
a small piece of remaining code in the next few weeks, it is intended to
commence the full roll out soon thereafter. It is our intention to have the vast
majority, if not the entire estate, installed by the end of 2006. Total capital
expenditure on this project will be approximately €10.6m, €4m to cover the
central system and €6.6m to cover the shops. €4.2m had been spent by 31 December
2005.



While there are many potential benefits of EPOS to both our customers and to
Paddy Power, our intention is to use it to improve the quality of customer
service by increasing the speed and accuracy of payout and expanding the product
range. The improved availability of risk information from the retail estate
should also help manage the gross win percentage over time. The technology
infrastructure to support EPOS should also allow other benefits as it will
provide an intranet communications infrastructure within the estate allowing
e-mail communication and local printing of marketing material and coupons. It
will also provide an infrastructure for customer facing information terminals or
even internet access. While we expect to see some benefits immediately in risk,
security and marketing, it will be 2007 before the full benefits are realised.



2005 saw the completion of the roll out of a new screen system which provides a
greatly improved experience for the customer. In addition to enhanced graphics
it now supports 24 information screens, increased from 16, allowing us to add
dedicated sports gantries across the majority of the estate. This in turn allows
us to offer vastly improved betting options on sports particularly on 'Betting
in Running'. The new system also supports customer information terminals giving
the customer full access to all current prices and results. In addition, it
allows grouping of shops which enables the tailoring of the screen content for
local preferences.



New InfraRed technology has also been fully rolled out in 2005 and allows us to
control all live television pictures from a central production studio. This
enables us to coordinate the audio, information screens and the television
screens in the shops, thus greatly improving the in-shop experience for
customers.



Non Retail Division



The non retail division comprises telephone betting, online and interactive
television operations.


Active Customers                                Online                        Telephone
                                          2005            2004            2005            2004
Ireland and Rest Of World                25,646          16,721          10,783          10,207
UK                                       48,015          29,982          10,148           8,326
Total                                    73,661          46,703          20,931          18,533

(Active customers are defined as those who have bet in the last three months)



The Online Channel



The significant expansion of the online operation seen over the previous four
years continued in 2005 with record levels of activity throughout the business.
The gradual shift of this channel away from bookmaking into online betting and
gaming accelerated in 2005 as the take up of the new products launched in 2004
grew significantly. These were supplemented in 2005 by the launch of poker,
which has performed very well in its first year of operation. Ongoing
development of the core sportsbook product has continued with a range of
ancillary features being added to increase the overall attractiveness of the
site.


Online Active Customers                    2005                             2004
Sportsbook only                          48,137                           35,321
Gaming only                              11,277                            2,338
Multi product customers                  14,247                            9,044
Total                                    73,661                           46,703



The development of the management team has been a major feature of the non
retail division over the year. The addition of new product lines and the speed
of their growth required that responsibilities for individual product lines be
split into separate management teams. We are delighted with the calibre of the
individuals that we have attracted, who have come from a wide range of leading
e-commerce companies.



2006 will see an expansion of the online channel into continental Europe with at
least one European language being added. We recruited a dedicated European team
in 2005 to manage this project initially based in Dublin. We expect to be
operational in quarter two and to run at a small loss for 2006.



The Telephone Channel



2005 was another year of significant development for the telephone business.



Over the past three years we have been actively engaged in increasing the
average telephone stake size to reflect the higher delivery costs of this
channel in comparison to both the online and retail channels. As part of this
process we encouraged lower staking customers to switch to the online channel.
We have also made a number of improvements to the telephone service during the
year.



The changing profile of our telephone customers, together with the service
changes and improved operational efficiencies, greatly improved the
profitability of the business.



However, notwithstanding the changes we have made, the underlying growth in the
business means that our current facility in Dublin is reaching capacity. We will
therefore be moving the call centre in 2006 to a new building beside our
existing headquarters in Dublin. This will increase the call centre capacity by
an initial 25% and also offers additional capacity as needed over the next few
years. It also frees up space in our head office to facilitate the expansion of
our other businesses.



Trading and Risk Management



Trading and risk management is at the heart of a bookmaking business and 2005
has seen continued development of this function.  It is responsible for the
creation and pricing of all markets and the trading of those markets through
their life.



Betting has become more sophisticated as the number of events and the number of
markets on each event increase. The increasing promotional capabilities in the
retail business through its expanded screens system, together with the almost
unlimited ability to promote product on the internet, requires an ever expanding
product range. At the same time the speed of information flows is greater,
requiring greater management of the betting markets offered.



These changes in the speed and quantum of information also provide additional
opportunities to create markets. Live sport together with improved technology
allows 'Betting in Running' to be offered through the internet and telephones.
With the advent of EPOS it can also be done effectively through the shops.



The ability to hedge markets has substantially changed over the past few years
as betting exchanges have grown. While providing a previously unavailable method
of hedging, their growth has also led to a gradual change in the way that the on
track bookmakers manage risk. This change impacts the value and role of the
track based starting price system as it no longer fully reflects the weight of
money bet at the track. The debate on the role of an off track starting price is
set to continue and is an area that Paddy Power will watch with interest. Paddy
Power has used, and will continue to use, both the on and off track market and
the betting exchanges as appropriate to manage risk.



The levels of changes noted above mean that continued investment in risk
management is essential and has been ongoing through 2005. This investment takes
several forms. The need to monitor price movements in the market place requires
increased technology to ensure that our relative position in the market is
clearly understood in detail at all times. Investment in back office efficiency
is essential to ensure that pricing and trading decisions are implemented across
all the business channels as quickly as possible and with minimum risk of error.
Increased headcount is needed as more sports are covered and specialist traders
are put in place in each area. However, increased automation and sophisticated
mathematical model allows greater productivity from individual traders who can
cover more markets with greater accuracy. Some of the solutions noted above come
from the EPOS implementation while others require separate solutions. 2006 will
see continued investment in risk as Paddy Power further develops its market
leading risk management operation.



These actions will improve the overall quality and productivity of the risk
management operation and help generate incremental revenue through new products
launches. They will however have a limited impact on gross win percentages given
the need to operate within a very competitive market place.



Marketing



2005 was another very productive year for the marketing team as they reinforced
Paddy Power's brand recognition and positioning in Ireland while building on the
brand growth achieved in 2004 in the UK.



Our approach to our brand has remained consistent. Small stake betting is about
entertainment and Paddy Power continues to position itself as fun, fair and
friendly. Our approach to marketing can be best illustrated through highlighting
some key marketing events in 2005.



The Papal elections in April generated significant media and customer interest.
A quick decision was taken to send a team to Rome for the conclave with
specially prepared marketing materials, backed up by a Paddy Power Papal
Elections website. It was a risk that paid off handsomely, generating global
coverage of Paddy Power, significant revenue and increasing the brand awareness
of both our customers and investors.



In September, after only seven matches, we declared Chelsea 'winners' of the
English Premiership and paid out all winning bets. As well as delighting many
customers and demonstrating the Paddy Power difference, it generated substantial
media coverage.



Both of these events illustrate Paddy Power's core principles of being creative
and fast moving. This willingness to make quick decisions enables us to gain
first mover advantage. They also show that we are prepared to take risks in
areas that clearly demonstrate our brand values.



Our Irish outdoor brand campaign in September emphasised that Paddy Power was no
longer just about sports betting but encompassed a whole selection of online
games. As our posters said 'there's a place for fun and games' and
paddypower.com is it. While the campaign generated unexpected debate it was very
successful in reinforcing the notion that Paddy Power is about fun and
entertainment.



These high profile 'one off' events are balanced with a whole range of more
traditional sponsorship deals covering sports, horse racing and entertainment
using television, radio and print media. In 2005, we also increased our online
sponsorships, becoming official online betting partner to both Arsenal and
Liverpool football clubs to add to our Charlton Athletic and Aston Villa deals.
In addition, as official betting partner to the Big Brother TV show, we
generated significant exposure in the UK, capturing an audience that we would
not normally reach through the more traditional sporting sponsorships.



As always, novelty betting is a great source of entertainment for customers and
is another area where Paddy Power's sense of fun can be demonstrated. It can
also generate very significant commentary and discussion especially when it goes
'wrong.' In June 2005 it went 'wrong' when betting on the colour of the Queen's
hat at Ascot. Who would have thought a brown hat at 12/1 would be a winner?
Well, one 'lucky' customer did as, only two hours before the Queen appeared at
Ascot, a four thousand pound bet was placed with the price already having closed
to 8/11.



The willingness to take risks continues in 2006.  As early as the second week of
January, we took short term sponsorship deals for Burton Albion FC in their FA
Cup match against Manchester United and for Roy Keane's debut match for Celtic.
Upset results in both games delivered excellent exposure for us.



People



Staff numbers increased significantly to 1,374 from 1,199 by the year end as the
organisation grew both in Ireland and the UK. Having the right people is
fundamental to the success of Paddy Power and, as we continue to grow and
change, there is a constant need for more people and new skills. Some of these
will be hired from outside the organisation and some will be developed in house.



As planned, 2005 has seen significant investment in the training and development
of staff throughout the organisation. Working through our own human resources
team and with the aid of external specialists, we have developed a series of
very successful in-house training courses covering a variety of management
skills. In addition, a significant number of new staff have joined us and, as
mentioned earlier, we are delighted with the calibre of the staff we have
attracted to the online channel and to the organisation as a whole.



Financial Review



The group has no discontinued operations and all activities are considered core.



Revenue



Sports betting revenue represents the amount staked (excluding revenue based
betting taxes or levies) by the customer including the revenue from free bets.
Gaming revenue represents net customer losses. Poker revenue represents the
commission ('rake') earned by Paddy Power. For gaming and poker, revenue is
equal to the gross win (see below).



Revenue for the year to 31 December 2005 was €1,371.7m (2004: €1,159.7m), an
increase of 18.3 % on 2004. Revenue growth has been strong across all three
channels ranging from 5.6 % to 39.7 %.



Retail revenue grew by 15.3% in 2005 from €688.7m to €794.3m. Irish retail
revenue grew by 12.1% to €703.7m from €628.1m in 2004. Like-for-like growth
rates within Ireland were 8.65%, reflecting the continued market growth and
Paddy Power's strong position within it. Like-for-like growth includes the
impact of our continuing refurbishment programme referred to in the operations
review, but excludes the impact of the seven new outlets opened during the year.
We continue to invest in new in-shop display systems as detailed in the
operations review which, through the display of additional product, will
continue to drive revenue growth. There were no significant changes in opening
hours of the estate during the year.

UK retail revenue grew by 49.4% to €90.5m (2004: €60.6m).We are pleased with the
revenue growth in the UK, which has been driven by growth in the number of
shops, an increase in brand recognition, continued product development and
improved display systems.

The online channel continued to see strong growth, with revenue increasing by
39.7% to €327.5m (2004: €234.4m). Growth in the sportsbook was 35%, which was
driven by continued improvement in the online product offering, growth in the
Paddy Power brand and continued growth in the online betting market. Casino and
gaming products grew strongly with revenue from non bookmaking product totalling
€17.2m (2004: €5.9m).This includes the rake income from Poker, which commenced
in February 2005. 67% (2004:69%) of revenue in the online channel comes from the
UK, with the vast majority of the balance from Ireland.

2005 saw an acceleration in the repositioning of the telephone business that
commenced in 2004 as we increasingly focus on higher stake customers. As
expected, 2005 saw some loss of lower value business, particularly in the second
half of the year where we made a number of significant product changes. We
remain very happy with the development of the business and, as noted in the
operations review, we will be moving into an expanded call centre in 2006.
Revenue for the year grew to €249.8m (2004: €236.5m). The UK now accounts for
36.4% of revenue (2004:46.7%) with the balance from Ireland.

Average slip/bet values by channel

                                     2005                      2004                     Change
                                       €                         €                         %
Retail                               19.03                     18.21                      4.5
Telephone                            91.79                     83.45                     10.0
Online                               32.59                     27.09                     20.3



(Note: Retail slips can contain more than one bet per slip, while other channels
are a single bet per slip. Online comprises the sportsbook only).



Average bet sizes are in line with expectations. Average bet size in the Irish
retail business has continued to increase. As expected, we have seen a welcome
reduction in the UK average as the shops start to mature. Given the different
cost dynamics of handling bets through each channel, we continue to seek a
higher average bet size in the telephone channel where the cost of delivery is
higher, while encouraging lower staking customers to use the internet.



Fixed odds betting terminals (FOBTs) income has grown in our UK estate with 172
machines installed at year end. Average gross drop per machine per month was
€2.5k (2004: €2.5k). Gaming machines are not permitted in Ireland.



Bet volumes
                                     2005                      2004                     Change
                                     '000                      '000                        %
Retail                              41,744                    37,811                     10.4
Telephone                            2,722                     2,835                     -4.0
Online                               9,522                     8,363                     13.9



(Note: Retail volumes refer to the number of slips processed while other
channels refer to the number of bets processed. Online comprises the sportsbook
only).



Gross Win and Gross Profit



Gross win represents the gross betting or gaming profit (the difference between
the amount staked and the amount paid in winnings) to Paddy Power before any
other deductions. For poker and gaming income the gross win is equal to the
revenue i.e.100% margin.



Gross profit is the gross win less betting taxes and levies, discounted bets,
direct software supplier costs and data rights.



Gross win percentages by channel


                          2005                       2005                      2004
                          12 months to 31 Dec        6 months to 31 Dec        12 months to 31 Dec
                          %                          %                         %
Retail                    12.40                      12.43                     12.88
Telephone                 7.79                       6.93                      8.31
Online                    13.11                      14.85                     10.98



Gross win by channel
                           2005                      2004                      Change
                           €'000                     €'000                     %
Retail                     98,460                    88,701                    11.0
Telephone                  19,454                    19,664                    -1.1
Online                     42,934                    25,745                    66.8
Total                      160,848                   134,110                   19.9



Gross profit by channel
                           2005                      2004                      Change
                           €'000                     €'000                     %
Retail                     84,976                    78,296                    8.5
Telephone                  17,151                    17,151                    0
Online                     33,443                    20,186                    65.7
Total                      135,570                   115,633                   17.2



(Note: These numbers include FOBT and gaming income).



Total gross win increased by 19.9% to €160.8m (2004: €134.1m) while gross profit
increased by 17.2% to €135.6m (2004: €115.6m) Bookmaking gross win percentages
were poor in 2005. Over the course of the year results favoured the punter with
the big horse racing results being particularly good for the customers. In
addition, retail trading conditions in Ireland were tough as the level of tax
free betting and other concessions increased though the course of the year. The
increased competition levels, combined with further expectations of a complete
move to tax free betting, gave rise to a revision to the expected annual gross
win percentages in November. This reduced both the retail and phone gross win
percentage range by 1% and 0.5% respectively, while increasing the online
sportsbook gross win percentage range by 0.5%.



We now expect the annual bookmaking gross win percentages (i.e. excluding FOBT
and gaming income) to be as follows:

Retail               11%-13%

Non Retail          8% -9%



Bookmaking gross win percentages will continue to be influenced by the level of
pricing and trading concessions in the marketplace as well as bet type mix,
sports mix, customer mix, risk management and, as always, the run of results. We
continue to expect volatility in gross win percentages from year to year.



Gross win from online gaming was €17.2m (2004: €5.9m), comprising gross win from
the casino, poker and fixed odds games. This is an increase of 192% and reflects
the strong growth we have seen in our casino and games business together with
the impact of the new poker business in 2005. In addition to generating absolute
earnings growth, the increase in gaming revenue will continue to provide some
insulation against the inherent volatility of the sportsbook.



Fixed odds betting terminals generated €4.3m (2004: €1.4m) of gross win, an
increase of 217%.



Gross profit grew by 19.9%, reflecting the movement in gross win offset by the
changes in the mix of betting taxes/discounts, software supplier costs, and data
rights. Gross profit was 84% of gross win (2004:86%). Further change is expected
in 2006 as a result of the changes in the Irish betting tax rules and the drop
in BHB data rights charges.



Overall the business remains highly leveraged to small changes in the gross
profit percentage.



Operating Profit



Operating profit decreased in the year by 3.2%. This reflects the strong growth
rates achieved across the business, the leverage impact of the changes in the
gross win percentages, continued investment in the business and the growth of
new products.



In the retail division operating profit declined by 47% as the higher revenue
was offset by the poorer gross win percentages. Costs grew in line with
expectations, reflecting the growth of both the Irish and UK estates.



In the telephone business operating profit declined by 20%. Despite continued
revenue growth, this was also more than offset by the poor gross win
percentages.



The online sportsbook saw continued growth in revenue which compensated for the
lower gross win percentages. This was enhanced by the growth in the newer gaming
products, giving an overall increase in operating profits of 92%.

The online channel now accounts for 56% of group earnings compared to 28% in
2004, while the total non retail division accounts for over 66% (2004:43%).



Tax Rate



The corporation tax charge for the year was €4.4m (2004: €4.7m) representing an
effective tax rate of 14% (2004: 14.5%). This compares with the statutory rate
in Ireland of 12.5% and the UK statutory rate of 30%. No corporation tax is
payable in the UK in respect of 2005 due to tax losses. The Group's effective
tax rate remains above the statutory rate due to the disallowance of certain
expenses and this is likely to continue going forward.



Cash Flow, Cash Balances and Foreign Exchange Risk



Cash balances at 31 December 2005 were €52.3m (2004: €47.2m), an increase of
€5.1m. This includes cash held in customer accounts of €10m (2004: €6.5m).



Cash from operating activities totalled €41.4m, an increase of €0.2m from 2004.
Cash from operating activities included net cash inflow from customer accounts
of €3.5m. Interest income was €1.2m, an increase of €0.2m, reflecting higher
average cash balances. Capital expenditure decreased by 7% to €25.7m from €27.7m
in 2004.



The significant capital expenditure reflects the high levels of property
activity in both Ireland and the UK due to the expansion and refurbishment of
the retail estate. We expect this to continue as we expand at similar rates in
the future, although we should see a short term reduction as the refurbishment
programme in Ireland temporarily slows down.



Cash balances are invested in accordance with defined treasury policies approved
by the Board. These policies limit the risk rating of institutions that can be
used, the concentration of risk with any one institution or within any category
of institutions and the term of deposits. Cash balances are substantially
invested in short-term bank deposits with maturities of 120 days or less. At
year end, all deposits were available at twenty four hour notice.



The Group has no borrowings. Interest rate exposure is thereby limited to
interest income on deposits and the impact of the economy in general. The Group
remains highly cash-generative and this, together with existing cash balances,
will be used to fund expansion. Only on determination of the scale of expansion
in the UK, which is partly dependent on the timing of deregulation and the
potential for strategic acquisition to enhance our online business, can the
Board clearly identify potential surplus cash. Should the Group not require any
of its cash reserves, the Board will determine the best method of returning it
to shareholders. The Company has the ability to buy back its own shares.



Foreign exchange risk in the business is small. As the Group expands in the UK
it will require sterling to fund its capital expenditure. Much of this can be
naturally hedged from the sterling gross profit generated in sterling from the
online and telephone divisions, as these divisions primarily have a euro cost
base and so generate surplus sterling. Group policy allows the Group to hedge
the foreign exchange exposure for up to six months. At the year end, no foreign
exchange contracts were open. The Group's presentation currency is the euro and
translation risk exists with its sterling subsidiaries.



Employees



The average number of employees in the Group during 2005 was 1,255 (2004:
1,076). At the year end, the total number of employees was 1,374 (2004: 1,199).



Share Price



The Company's daily closing share price ranged between €10.37 and  €15.95 in
2005. The share price at 31 December 2005 was €12.10 (2004: €10.85) giving a
market capitalisation of €609m (2004: €543m). The year end free float (shares
not held by the Directors or related parties) was 89.02% (2004: 88.03%).



Trading and Risk Management



The Group manages its betting risk through a central risk management and trading
team whose role it is to compile the initial odds and, subsequently, to manage
the odds and risk exposures throughout the life of the event. Risk limits are in
place within the trading room and compliance with limits is reported daily to
senior management and internal audit. Internal audit also carries out reviews of
the risk function.



A betting risk management sub-committee of the Board operates under the
chairmanship of David Power, a non-executive director. This Committee sets
overall policy for betting risk.  Limits are agreed with the Committee and set
annually but are subject to review by the Committee at any time.



The Group does not offer credit betting.



Transition to International Financial Reporting Standards (IFRS)



There has been no material impact on the financial results by the transition
from Irish GAAP to IFRS as detailed in the notes to the financial statements.



Dividend



The 2005 interim and proposed final dividend total is 20.59 cent per share
(2004: 18.72 cent per share), amounting to €10.3m (2004: €9.3m), an increase of
10% on 2004. This represents dividend cover of 2.63 times (2004: 2.94).



CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2005


                                               Note               31 December 2005            31 December 2004
                                                                             €'000                       €'000
Gross revenue                                    3                       1,371,710                   1,159,658

Cost of winning bets                             4                     (1,236,140)                 (1,044,025)

Net revenue from betting activities                                        135,570                     115,633

Employee expenses                                                         (51,076)                    (40,212)
Property expenses                                                         (17,398)                    (14,406)
Marketing expenses                                                        (11,346)                     (7,485)
Technology and communications                                              (8,171)                     (7,212)
Depreciation and amortisation                                             (11,295)                     (8,624)
Other expenses                                                             (6,166)                     (6,591)

Total operating expenses                                                 (105,452)                    (84,530)

Operating profit                                                            30,118                      31,103

Financial income                                                             1,226                       1,060
Financial expense                                                                -                        (54)

Profit before tax                                                           31,344                      32,109

Income tax expense                                                         (4,390)                     (4,662)

Profit for the year                                                         26,954                      27,447

Earnings per Share
Basic                                            5                          €0.541                      €0.565
Diluted                                          5                          €0.529                      €0.543






The profit for the year is entirely attributable to equity holders of the
Company.





CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Year ended 31 December 2005




                                                                         31 December 2005    31 December 2004
                                                                                    €'000               €'000
Profit for the year                                                                26,954              27,447
Foreign exchange translation difference                                               (1)                   1
Total recognised income and expense                                                26,953              27,448







The total recognised income and expense for the year is entirely attributable to
equity holders of the Company.





CONSOLIDATED BALANCE SHEET

As at 31 December 2005




                                                                  31 December 2005    31 December 2004
                                                                             €'000               €'000
Assets
Property, plant and equipment                                               72,400              57,707
Intangible assets                                                            3,615               2,944
Goodwill                                                                     1,880               1,880
Deferred tax assets                                                            167                  73
Total non current assets                                                    78,062              62,604
Trade and other receivables                                                  2,134               2,290
Cash and cash equivalents                                                   52,318              47,206
Total current assets                                                        54,452              49,496
Total assets                                                               132,514             112,100

Equity
Issued capital                                                               5,040               5,005
Share premium                                                                7,548               6,680
Shares held by long-term incentive plan trust                              (4,929)             (2,306)
Other reserves                                                               4,142               1,854
Retained earnings                                                           84,250              67,464

Total equity                                                                96,051              78,697

Liabilities
Deferred tax liabilities                                                       843                 397

Total non current liabilities                                                  843                 397

Trade and other payables                                                    34,873              30,197
Current tax payable                                                            747               2,809

Total current liabilities                                                   35,620              33,006

Total liabilities                                                           36,463              33,403

Total equity and liabilities                                               132,514             112,100





CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2005




                                                                           31 December 2005    31 December 2004

                                                                                      €'000               €'000
Cash flows from operating activities
Profit before taxation                                                               31,344              32,109
Financial income                                                                    (1,226)             (1,060)
Financial expense                                                                         -                  54
Depreciation and amortisation                                                        11,295               8,624
Cost of employee share-based payments                                                 2,289                 906
Loss / (Gain) on disposal of fixed assets                                               267                (31)
Cash from operations before changes in working capital                               43,969              40,602
Decrease / (Increase) in trade and other receivables                                    222               (129)
Increase in trade and other payables                                                  3,320               4,548
Cash generated from operations                                                       47,511              45,021
Interest paid                                                                             -                (54)
Income taxes paid                                                                   (6,101)             (3,800)
Net cash from operating activities                                                   41,410              41,167


Cash flows from investing activities
Purchase of property, plant and equipment                                          (23,925)            (25,949)
Purchase of intangible assets and goodwill                                          (2,068)             (1,330)
Proceeds from disposal of property, plant and equipment                                 329                  69
Interest received                                                                     1,254               1,086
Net cash used in investing activities                                              (24,410)            (26,124)


Cash flows from financing activities
Capital element of finance lease payments                                                 -               (421)
Proceeds from the issue of new shares                                                   903               2,929
Purchase of shares by employee trust                                                (2,623)             (2,306)
Dividends paid                                                                     (10,168)             (7,212)
Net cash used in financing activities                                              (11,888)             (7,010)
Net increase in cash and cash equivalents                                             5,112               8,033
Cash and cash equivalents at start of year                                           47,206              39,173

Cash and cash equivalents at end of year                                             52,318              47,206







NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



1.  General information

Paddy Power plc (the 'Company') and its subsidiaries (together referred to as
the 'Group') provide sports betting services through a chain of licensed betting
offices ('Paddy Power Bookmaker') together with telephone betting ('Dial-a-Bet')
and online interactive betting services ('paddypower.com'). The Group also
provides online gaming services through 'paddypower.com', 'paddypowerpoker.com'
and 'paddypowercasino.com'.  It provides these services principally in Ireland
and the United Kingdom.



The Company is a public limited company, incorporated and domiciled in the
Republic of Ireland, and has its primary listing on the Irish Stock Exchange.



The consolidated financial statements of the Group for the year ended 31
December 2005 comprise the financial statements of the Company and its
subsidiary undertakings and were authorised for issue by the Board of Directors
on 28 February 2006.



2.  Basis of preparation and summary of significant accounting policies

The consolidated financial statements are prepared on the historical cost basis
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 annual consolidated financial statements
of the Group for the year ended 31 December 2005 be prepared in accordance with
International Financial Reporting Standards ('IFRSs') adopted by the European
Union ('EU').



The consolidated financial statements have been prepared on the basis of IFRSs
adopted by the EU and effective at 31 December 2005. These are the Group's first
consolidated financial statements prepared on this basis and IFRS 1 has been
applied.  The accounting policies set out below have been applied consistently
throughout the year and the prior year in all Group entities.



An explanation of how the transition to IFRS affected the financial position and
the results of the Group, together with details of the transitional exemptions
availed of, is provided in Note 8.



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 year.  Intra-group balances and any unrealised gains and losses
or income and expenses arising from intra-group transactions are eliminated on
consolidation except to the extent that unrealised losses provide evidence of
impairment.



Recent accounting pronouncements

The IFRSs adopted by the EU applied by the Group in the preparation of these
financial statements are those that were effective at 31 December 2005, together
with the early adoption of the Amendment to IAS 39 - The Fair Value Option.  The
IFRSs set out below have been adopted by the EU prior to 28 February 2006, are
not yet effective and have not been early adopted in these financial statements.
  The Directors have formed the opinion that the adoption of these
pronouncements will not have a significant effect on the Group's financial
statements.



•          Amendment to IAS 1 - Capital disclosures (effective 1 January 2007)

•          Amendment to IAS 19 - Actuarial Gains and Losses, Group Plans and
           Disclosures (effective 1 January 2006)

•          Amendments to IAS 39  - Cash Flow Hedge Accounting of Forecast
           Intragroup Transactions (effective 1 January 2006)

•          Amendments to IAS 39 and IFRS 4: Financial Guarantee Contracts
           (effective 1 January 2006)

•          IFRS 6 - Exploration for and Evaluation of Mineral Resources
           (effective 1 January 2006)

•          IFRS 7 - Financial Instruments: Disclosures (effective 1 January
           2007)

•          IFRIC 4 - Determining Whether an Arrangement Contains a Lease
           (effective 1 January 2006)

•          IFRIC 5 - Rights to Interests arising from Decommissioning
           Restoration and Environmental Rehabilitation Funds (effective 
           1 January 2006)



Judgements and estimates
The preparation of financial statements in conformity with IFRS adopted by the
EU requires certain critical accounting estimates. It also requires management
to make judgements, estimates and assumptions that affect the application of
accounting policies and reported amounts of assets and liabilities, income and
expenses.  The estimates and underlying assumptions are based on historical
experience and various other factors, including expectations of future events
that are believed to be reasonable and appropriate under the circumstances, the
results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.



The estimates and underlying assumptions are continually reviewed and evaluated
to reflect the Group's view of current conditions.  New events or additional
information may result in a revision of these estimates over time. Revisions to
accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods.  It is possible that actual results may differ from these estimates.



Judgements made by management in the application of IFRS's that have a high
degree of complexity or a significant effect on the financial statements, and
estimates with a significant risk of material adjustment in the forthcoming year
are discussed in Note 7.



Revenue

Revenue is measured at the fair value of the consideration received or
receivable from customers and represents amounts receivable for services that
the Group provides as set out below.  Revenue is stated exclusive of value-added
taxes, betting taxes and levies.



The services provided by the Group comprise sports betting, fixed odds games
betting, online casino and games and peer to peer games (including online
poker).



Sports betting revenue represents the gross takings receivable from customers in
respect of individual bets placed on events that have occurred by the period
end.  Amounts collected from customers in respect of bets placed on events that
have not occurred by the year end are subject to uncertainty and are treated as
a liability, deferred income, until the actual events occur.



Fixed odds games betting and online casino and games revenues represent net
winnings ('customer drop' being amounts staked net of customer winnings) from
customers on activities completed by the year end.



In the case of peer to peer games (including online poker), revenue represents
commission income ('rake') and tournament fees earned from peer to peer games,
completed by the year end.



Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective rate of interest.



Rental income in respect of the subletting of certain retail premises is
recognised on a straight line basis as a credit to operating expenses.



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 into the functional currency at
the exchange rates ruling at the dates of the transactions. Non monetary assets
are not subsequently translated as they are carried at historical cost. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet
date are retranslated into the functional currency at the rates of exchange
ruling at that date. Foreign exchange differences arising on such translations
are recognised in the income statement. The assets and liabilities of foreign
operations, including goodwill arising on consolidation, are translated into
euro at foreign exchange rates ruling at the balance sheet date. The revenues
and expenses of foreign operations are translated into euro at rates
approximating the foreign exchange rates ruling at the dates of the
transactions. Foreign exchange differences arising after 1 January 2004, the
date of the transition to IFRS, on retranslation of opening net assets and
results for the year 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:



Buildings: Freehold                          50 years

Buildings: Leasehold improvements            unexpired term of the lease, except 
                                             for leases with an initial term of 
                                             ten or less years, which are
                                             depreciated over the unexpired term 
                                             of the lease plus the renewal length 
                                             of the lease, if there is an 
                                             unconditional right of renewal.

Fixtures and fittings                        5 - 7 years

Computer equipment                           3 years

Motor vehicles                               3 years



The residual value, if not insignificant, is reassessed annually.



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 identifiable assets acquired defined in accordance with
IFRS 3 '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.



Intangible assets

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 are as follows:



Computer software                                                 3 - 5 years

Licences                                                          20 years



Impairment

The carrying amounts of property, plant and equipment, intangible assets and
goodwill 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 the cash generating units to which it relates, is
estimated.  For intangible assets that are not yet available for use and
goodwill, the recoverable amount is estimated at each annual balance sheet date,
regardless of whether any indication of the impairment exists. 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.



The recoverable amount of such assets or cash generating units 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.



Cash and cash equivalents

Cash and cash equivalents for the purpose of the statement of cash flows
comprises cash balances and call deposits.



Leases

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.



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 service is
received from the respective employees.



Share based payments

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 share-based payment 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 an employee benefit cost with a corresponding
increase in the share-based payment 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 granted shares
which vest upon the achievement of predetermined earnings targets.  The fair
value is measured at the grant date and is spread over the period during which
the employees become unconditionally entitled to the shares with a corresponding
increase in the share-based payment reserve.  The fair value of the shares
conditionally granted is measured using the market price of the shares at the
time of grant.



Own shares held

Purchases of the Company's shares by the long term incentive plan's trust, 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.



Dividends

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 and paid.
Dividends declared after the balance sheet date are disclosed in Note 6.





3. Segment reporting



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 UK.



(a)           By business segment

The retail segment comprises a chain of licensed betting offices in Ireland and
the United Kingdom.  The non retail segment represents the Group's telephone
betting, online sports betting, online casino and games and peer to peer games
(including online poker).




                                    Retail        Retail     Non Retail     Non Retail          Total          Total
                                  31/12/05      31/12/04       31/12/05       31/12/04       31/12/05       31/12/04
                                     €'000         €'000          €'000          €'000          €'000          €'000
Revenue                            794,321       688,651        577,389        471,007      1,371,710      1,159,658
Segment result                      12,147        18,716         24,043         15,369         36,190         34,085
Unallocated group expenses

                                                                                              (6,072)        (2,982)
Operating profit                                                                               30,118         31,103
Financial income/expense                                                                        1,226          1,006
Income tax expense                                                                            (4,390)        (4,662)
Profit after tax                                                                               26,954         27,447

Segment assets                      67,346        59,313          9,141          7,381         76,487         66,694
Unallocated group assets                                                                       56,027         45,406
Total assets                                                                                  132,514        112,100

Segment liabilities                 10,432         9,675         12,165         10,218         22,597         19,893
Unallocated group
liabilities
                                                                                               14,250         13,990
Total liabilities                                                                              36,847         33,883

Capital expenditure                 24,303        24,645          3,166          3,097         27,469         27,742
Depreciation/amortisation            8,481         6,585          2,814          2,039         11,295          8,624
Non cash expenses other than
depreciation                         1,103           440          1,453            435          2,556            875





(b)           By geographic segment


                                  Ireland &      Ireland &
                                      Other          Other
                                                                      UK            UK          Total          Total
                                   31/12/05       31/12/04      31/12/05      31/12/04       31/12/05       31/12/04
                                      €'000          €'000         €'000         €'000          €'000          €'000
Revenue                             960,548        827,465       411,162       332,193      1,371,710      1,159,658
Segment assets                      106,623         96,622        25,891        15,478        132,514        112,100
Capital expenditure                  18,599         17,084         8,870        10,658         27,469         27,742








                                                    Year ended        Year ended

Further analysis of the business segments by  31 December 2005  31 December 2004
channel is as follows:

                                                         €'000             €'000
Revenue
Retail                                                 794,321           688,651
Telephone                                              249,871           236,546
Online                                                 327,518           234,461
                                                     1,371,710         1,159,658
Gross win
Retail                                                  98,460            88,701
Telephone                                               19,454            19,664
Online                                                  42,934            25,745
                                                       160,848           134,110


Gross win represents the gross betting or gaming profit (the difference between the amount staked
and the amount paid in winnings) to Paddy Power before any other deductions. For poker and gaming
income the gross win is equal to the revenue.


Gross profit
Retail                                                  84,976            78,296
Telephone                                               17,151            17,151
Online                                                  33,443 20,186







                                                       135,570           115,633
Operating profit
Retail                                                   9,480            17,727
Telephone                                                3,649             4,549
Online                                                  16,989             8,827
                                                        30,118            31,103





4. Cost of winning bets


Cost of winning bets comprises:                                       Year ended            Year ended
                                                                31 December 2005      31 December 2004
                                                                           €'000                 €'000
Cost of winning bets paid                                              1,210,862             1,025,548
Software supplier costs                                                    5,552                 2,846
Data rights                                                                3,603                 4,732
Other cost of sales                                                       16,123                10,899
                                                                       1,236,140             1,044,025







Software supplier costs comprise direct costs incurred under supplier agreements
in the provision of online casino and fixed odds gaming services and fixed odds
betting terminals.



Data rights mainly comprise costs incurred in respect of British Horseracing
Board and UK statutory levies.



Other cost of sales comprises discounts on bets and taxes paid in relation to
gross win.





5. Earnings per Share



Earnings per share is calculated by dividing the profit attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the year as follows:


                                                                              Year ended          Year ended
                                                                        31 December 2005    31 December 2004
Profit attributable to equity holders of the Company (€'000)                      26,954              27,447

The basic weighted average number of ordinary shares in issue
(thousands) is calculated as follows:

In issue at beginning of year
                                                                              50,045,581          47,807,120
Adjustments for  - shares issued during year                                     152,251             853,907
                 - own shares held                                              (357,952)           (124,590)
Weighted average number of ordinary shares                                    49,839,880          48,536,437
Basic earnings per share                                                          €0.541              €0.565



The weighted average number of ordinary shares for diluted earnings
per share (thousands) is calculated as follows:



Basic weighted average number of shares in issue during year                  49,839,880          48,536,437
Adjustments for - share option scheme                                            872,641           1,989,469
                           - share save scheme                                    56,360              64,688
                           - shares held by long term incentive plan trust       (71,948)           (115,410)
                           - long term incentive plan                            270,199              78,912

Weighted average number of ordinary shares                                    50,967,132          50,554,096

Diluted earnings per share                                                        €0.529              €0.543







6. Events after the balance sheet date

In respect of the current year, the directors propose that a final dividend of
12.84c per share (2004: 12.52c per share) will be paid to shareholders on 19 May
2006.  This dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.  The proposed dividend is payable to all shareholders on the
Register of Members on 10 March 2006.  The total estimated dividend to be paid
amounts to €6,416,000 (2004: €6,266,000).



7. Accounting estimates and judgements

Key sources of estimation uncertainty and critical accounting judgements in
applying the Group's accounting policies

Costs incurred during the year in respect of an Electronic Point of Sale system
amounting to €3.0 million (2004: €1.2 million) have been capitalised in
accordance with the Group's accounting policy, and are included at cost, within
property, plant and equipment, at 31 December 2005.  This system is currently
nearing the completion of its final development and testing phase and the
directors believe that it will be implemented throughout the Group during the
year ending 31 December 2006.



Trade and other payables includes €2,072,000 (2004: €1,727,000) which relates to
amounts collected from customers in respect of bets placed on events that have
not occurred by the year end, which are subject to uncertainty and are treated
as deferred revenue, until the actual events occur.



Goodwill of €1.9 million (2004: €1.9 million) continues to be carried in the
Group Balance Sheet as the directors believe that there has been no impairment
in the fair value of the net identifiable assets of the acquired businesses.



The share based payment reserve, which includes amounts in relation to the Long
Term Incentive Plan and various share option schemes, amounted to €3,220,000 at
31 December 2005. The fair value of share options granted after 7 November 2002
has been determined using a Black Scholes valuation model. The significant
inputs into the model include certain management assumptions with regard to the
standard deviation of expected share price returns, expected option life and
annual risk free rates.



8. Explanation of transition to IFRS

An explanation of how the transition to IFRS has affected the financial
information is outlined below:



First time adoption of International Financial Reporting Standards ('IFRSs').

Up to and including the year ended 31 December 2004, the Group's financial
statements were prepared in accordance with Irish Company Law and accounting
standards issued by the Accounting Standards Board as promulgated by the
Institute of Chartered Accountants in Ireland (Irish GAAP).



IFRS 1 'First-time adoption of International Financial Reporting Standards'
(IFRS 1), 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 principle 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; has set the
cumulative transition reserve to zero and has not restated business combinations
prior to the transition date in accordance with IFRS 3 '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 Retained Earnings under Irish GAAP to IFRS                                 1 January 2004
                                                                                                   €'000
Retained earnings - Irish GAAP                                                                    42,596
IFRS 2 - Share-based payment                                                                        (25)
IAS 12 - Income taxes                                                                                552
IAS 10 - Events after the balance sheet date                                                       4,106
Retained earnings - IFRS                                                                          47,229




Restatement of Consolidated Income Statement under Irish GAAP to IFRS                  31 December 2004

                                                                                                  €'000

Operating Profit - Irish GAAP                                                                    31,134
IFRS 2 - Share-based payment                                                                      (152)
IFRS 3 - Business combinations: non amortisation of goodwill                                        121
Operating Profit - IFRS                                                                          31,103



Restatement of Consolidated Balance Sheet under Irish GAAP to IFRS                     31 December 2004

                                                                                                  €'000

Total Assets - Irish GAAP                                                                       111,906
IFRS 3 - Business combinations: non amortisation of goodwill                                        121
IAS 12 - Income taxes                                                                                73
Total Assets - IFRS                                                                             112,100

Total Liabilities - Irish GAAP                                                                   40,116
IAS 10 - Events after the balance sheet date                                                    (6,234)
IAS 12 - Income taxes                                                                             (479)
Total Liabilities - IFRS                                                                         33,403

Total Equity - Irish GAAP                                                                        71,790
IFRS 3 - Business combinations                                                                      121
IFRS 2 - Share-based payment                                                                          -
IAS 10 - Events after the balance sheet date                                                      6,234
IAS 12  - Income taxes                                                                              552
Total Equity - IFRS                                                                              78,697

Total Equities and Liabilities - Irish GAAP                                                     111,906
IFRS 3 - Business combinations                                                                      121
IFRS 2 - Share-based payment                                                                          -
IAS 12 - Income taxes                                                                                73
Total Equities and Liabilities - IFRS                                                           112,100





IFRS 2 'Share-based Payment'

The effect on the income statement of implementing IFRS 2 to the various Group
share-based payment schemes is an increase in employee expenses €152,000 for the
year ended 31 December 2004.  This cost gives rise to a corresponding increase
in a newly created reserve for share-based payments.  In addition to the income
statement effect, IFRS 2 resulted in a reclassification of reserves from
retained earnings to the reserve for share-based payments.  This resulted in
transfers of €25,000, and €754,000 from retained earnings to the reserve for
share-based payments as at 1 January 2004 and 31 December 2004 respectively.



IFRS 3 'Business Combinations'

The effect on the income statement of implementing IFRS 3 is a decrease in the
goodwill expense of €121,000 for 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 asset outlined in the standard.



The effect on the income statement of implementing IAS 38 is a reclassification
of depreciation expense to amortisation expense of €1,022,000 for the year ended
31 December 2004.  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 €4,380,000, and €6,210,000 as at 1 January 2004 and 31 December 2004
respectively.  Similarly accumulated depreciation is reduced by €2,244,000, and
€3,266,000 as at 1 January 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 €2,136,000, and €2,944,000
as at 1 January 2004 and 31 December 2004 respectively.



IAS 10 'Events after the Balance Sheet Date'

Under IAS 10 'Events after the Balance Sheet Date', interim dividends are
provided for in the period when they are approved by the directors and paid,
with final dividends being provided for in the period in which they are approved
by shareholders and paid.  The effect on the balance sheet is a reduction in
trade and other payables and increase in retained earnings of €4,106,000 and
€6,234,000 as at 1 January 2004 and 31 December 2004 respectively.



IAS 12 'Income Taxes'

In accordance with IAS 12 'Income Taxes', the Group has recognised deferred tax
on interests in freehold land and buildings as at 1 January 2004 and 31 December
2004.  This resulted in the recognition of additional deferred tax assets of
€73,000; a reduction in deferred tax liabilities of €479,000; and an increase in
retained earnings of €552,000 as at 1 January 2004 and 31 December 2004.




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