Preliminary Results
Paddy Power plc
25 February 2004
Paddy Power plc
2003 Preliminary Results Announcement
Record Results
Paddy Power plc, trading as Paddy Power Bookmaker, Ireland's leading off-course
bookmaker, today announced record turnover, operating profit and earnings per
share for the year ended 31 December 2003.
2003 2002
€ € Change
Turnover 913.6m 673.8m +36%
Operating Profit 19.6m 17.1m +15%
Profit Before Tax 20.4m 17.8m +15%
Profit After Tax 17.6m 14.8m +19%
EPS 36.97c 31.38c 18%
Cash Balance 39.2m 36.4m + 8%
Final Dividend 8.59c 6.80c +26%
Commenting on the results, John O'Reilly, Chief Executive Paddy Power plc said:
'Our development strategy for Ireland and the UK is very much on track. Our
core business, the Irish shops, has grown significantly through new openings,
relocations and extensions. Similarly, the rollout of our UK shops continues
apace. Paddypower.com and our Dial-a-Bet divisions have exceeded targets and
should continue to generate solid returns. Overall, we are very pleased with
these results.'
Ross Ivers, Finance Director, Paddy Power plc said: 'The business remains highly
cash generative. Organic growth was achieved through prudent management and
on-going cost control. We continue to ensure that we have the financial
capacity to fund further growth while delivering strong shareholder returns.'
25th February 2004
Issued on behalf of Paddy Power plc by Drury Communications
For reference:
John O'Reilly Ross Ivers
Chief Executive Finance Director
Paddy Power plc Paddy Power plc
Tel: + 353 1 4045936 Tel: 353 1 4045912
Mobile: + 353 87 254 1688 Mobile: 353 1 87 668 8772
Mark Cahalane /Oonagh Daly Trevor Phillips
Drury Communications Ltd Holborn
Tel: + 353 1 260 5000 Tel: + 44 207 929 5599
Mobile: + 353 87 855 4406 Mobile: + 44 7889 153628
Chairman's Statement
Dear Shareholder,
I assumed the position of Chairman on May 26 2003. It is the norm to say how
honoured you are, but in truth, being so involved with a bookie had never been
high on my list of life ambitions. Now, having been on the Board of Paddy Power
for over a year and Chairman for nine months, I realise how wrong I was! It's a
dynamic industry and Paddy Power, thanks to the efforts of its staff, management
and Board over the past 16 years, is an excellent business with great potential.
What a year to become Chairman! Record results (as set out below) were achieved
despite a series of horse racing results (at the Cheltenham Festival in March
and to a lesser extent at the Aintree Grand National meeting in April) that were
so pro-punter as to make you weep. Well, weep if you are already Ireland's
largest and most fun loving pro-punter bookmaker that does so much for its
customers without favourite after favourite romping home during the biggest
festival of the lot!
• Turnover €913.6m (+ 36%)
• Pre Tax Profits €20.4m (+ 14.5%)
• EPS 36.97c (+ 17.8%)
• Dividend 12.89c (+26.4%)
• Cash Balances 39.2m (+7.7%)
Operations
Even allowing for Cheltenham and the Grand National, 2003 was an excellent year
for Paddy Power when results once again demonstrated that our customer focused
business model works. The ups and downs of results are an integral part of
betting. While as bookmakers, we prefer more ups than downs, we live in the
knowledge of what goes around comes around as we saw in the second half of 2003.
Customer focus continues to drive record turnover across all divisions with
Retail, Telephone and Online divisions growing by 23%, 44%, and 80%
respectively. Our commitment given in 2000 that the Online division would break
even in 2003, has been exceeded with it generating €1.4m in operating profit
whilst the expansion of the Irish and UK shop estate continued as promised. The
Telephone (Dial-a-Bet) division also continues to play a key role in the Group
and showed a marked improvement in performance in 2003, particularly in the
second half as scale increased.
Strategy
This time last year we committed ourselves to the continued development of the
Irish shop estate through new outlets, relocations and refurbishments. We also
said we would have a 12 shop 'test bed' in the UK and would have established a
dedicated management team for the UK. Our objectives were to break even in our
Online business and improve Dial-a-Bet as we developed critical mass in the UK.
All of these commitments have been met or exceeded.
The future is of more interest to Paddy Power shareholders and it is full of
promise. While we will continue to enhance the brand in Ireland, the UK market
holds great opportunity for us. The brand continues to grow in the UK and a
management team is now in place in London. Given the success of the initial 12
shops and the pipeline of properties in place, we remain confident of success.
We support the inexorable move towards deregulation in the UK as demonstrated
through the issue of the Draft Gambling Bill in November 2003 and, while its
impact will not be immediate, we believe it will benefit Paddy Power in the
medium term. Our focus on the UK was demonstrated in December 2003 when the
Board met in London over two days. As well as reviewing the plans of our UK
management team, we visited a number of our shops and those of our competitors.
Some of the Board even took advantage of the 'facilities' in our competitors'
shops to make the day a profitable one.
Ireland has been and, of course, will remain for some time the engine of Paddy
Power. While we close 2003 with 137 outlets and over 23,000 active non-retail
customers there remain many opportunities for expansion. I have no doubt that
2004 and beyond will see further significant increases in business as we
strengthen our leadership position with Irish customers. As has been proven
time and again, Irish punters prefer to punt with Paddy Power. The growth in
the industry is helped by the sensible attitude of the Government which has
progressively brought in a low tax betting regime and resisted the pressure to
increase taxes in the recent budget. Given the availability of offshore
betting, they rightly saw that any increase would drive higher staking punters
offshore, thereby only hitting the lower spending shop customers, a patently
inequitable solution.
The Board spent considerable time working with senior management reviewing their
long term strategic plans during the course of this year. This culminated in
the presentation of a five-year business plan to the Board that is currently
being refined and will be concluded by April 2004. This plan brings no
significant changes to the overall strategy that has already been articulated to
the markets. However, it has reinforced the need to strengthen the depth of the
senior management team. This process has already commenced, as detailed in John
O'Reilly's Operations Review.
We continue to see organic growth as the driver of expansion, although we will
not rule out sensible acquisitions where opportunities arise. As the scale of
operations and the management infrastructure grows, our ability to absorb any
acquisition improves. It is a case of steady as she goes.
People
The business has become more complex and multi-faceted. The demands on the
organisation have increased and with them the need to strengthen the management
team.
One of our key assets has been people. We talk a lot about our brand qualities.
The market loves them but their delivery is wholly dependent on the
exceptional 1,032 staff who work in Paddy Power. Our success is wholly down to
them. From Betty McGuinness, a shop manager who has been with us since 1978
(originally with Corcoran's which became part of Paddy Power), to Emma Clinton
who joined us in 2002 as a cashier and has embraced the Paddy Power way, to Paul
Ryan who has been with us since 1990 as the voice of Paddy Power in the shops,
to Maria Dempsey who joined in 1988 at Head Office in the first days of Paddy
Power and Aidan McCarthy who has been with us since 1992 and, as part of
Dial-a-Bet, has seen us grow from two phone stations to well over 100.
These people - all 1,032 of them - are the single most important factor in our
continuing success. They personify the Paddy Power difference and under John
O'Reilly's leadership, they have built on the success of the past to make 2003
another excellent year for Paddy Power. They all deserve our thanks.
Board
The Board has also undergone significant change since the flotation in December
2000. As you will see below, more is to come.
We want to be able to attract the best. The appointment (announced on 22 July
2003) of Nigel Northridge, Chief Executive of Gallaher plc to our Board as a
non-executive Director was part of that process. His strategic capability,
commercial acumen and knowledge of the development of brand-led organisations
will provide us with an exceptional and influential resource.
It should be remembered that Paddy Power is a very young public company. In
2002 we saw the start of a reduction in the roles of the founder directors who
had established the business and contributed greatly to its success. In
Ireland, Stewart Kenny came to personify, not just Paddy Power, but bookmaking.
Last year's Annual Report acknowledged his decision to retire as CEO and during
the year under review, while he remains a non-executive director, he stood down
as Chairman. Stewart's contribution could not be properly acknowledged in a
page, never mind in a paragraph, so I will resist the temptation to do so.
Anyway, he is too easily embarrassed!
As part of the continuing evolution of the Board, I would like to take this
opportunity to announce that Eddie McDaid and Ian Armitage will both be stepping
down from the Board at the 2004 AGM on June 1. Both have given great service to
Paddy Power during their tenure. Eddie represented ICC Bank for many years and
continued his involvement with Paddy Power after he left that organisation. Ian
has brought wise counsel to the Board having joined it in 2000 on Hg Capital's
investment. I thank them both on behalf of the Board and shareholders.
I also would like to take this opportunity to acknowledge in advance the
contribution from John Corcoran, a founder, former Chairman and guiding
influence. John will reach his 75th birthday during the coming year and, under
our Articles of Association, will cease to be a Director at that point. What
more can I say about John other than that Paddy Power would not be where it is
without him.
Dividend
The Board is recommending a final dividend of 8.59 cent per share payable to
shareholders on the register at 5 March 2004, bringing the total for the year to
12.89 cent per share, an increase of 26.4% on 2002. This highlights the desire
of the Board to increase its dividend payout over time, reflecting the cash
generative nature of the business and existing cash resources.
I remain confident in the prospects for Paddy Power and look forward to updating
you at the Annual General Meeting in June.
Operations Review
Paddy Power remains a small stake fixed-odds bookmaker. The Group operates a
total of 149 shops, with 137 shops in Ireland and 12 in the UK, as at 31
December 2003. In addition, it offers betting via the internet, telephone and
interactive television.
Overall, it has been a very busy year across all divisions. Continued growth in
the Irish and UK economies together with increased brand recognition, new
products and distribution capacity has meant continued development across the
business. As discussed in the Financial Review, this has led to record
turnover, earnings and cashflow across the business.
Customer service continues to be a key focus for each division, whether it is
the average time taken to answer a call in the call centre, the time taken to
respond to an e-mail query or making a price on an unusual market. We remain
fanatical about customer service. The Group took over 41 million bets in the
year and continues to seek to eliminate any errors or disputes providing a
better service for our customers every time.
The Retail Division - Betting Offices
It has been an extremely busy year for retail operations, with record levels of
activity in both Ireland and the UK, as the Group continues to expand and
refurbish its retail estate as well as introducing both new and enhanced
technology into retail operations. As a result, capital expenditure for the
year was a record €18.2m (2002: €5.1m). At 31 December 2003, the Group had 137
outlets in Ireland (2002: 129). Eight (2002:five) new outlets were opened in
Ireland during the year with ten (2002:two) relocations, three (2002:one)
extensions and ten (2002:nil) refits representing a total of 31 outlets that
were developed during the year in one way or another. This is by far the
largest development programme of any bookmaker in Ireland. The Group also
continues to operate four (2002: four) racecourse shops as well as the stadium
shops at Lansdowne Road. There were five (2002: nil) surplus property leases at
year end.
The roll-out of the test bed of shops in the UK has been very successful with 21
licences held at 31 December (2002: six). Of these, 12 (2002: three) shops were
open at year end. Trading in these shops has progressed well with Over the
Counter (OTC) turnover, Fixed Odds Betting Terminal revenue (FOBT) and
Amusements With Prizes (AWP) income all developing. FOBT income only commenced
late in the year. The Paddy Power ethos of customer service is as popular with
UK customers as with Irish ones. The appointment of a Head of Retail Operations
in the UK, together with the localisation of other operational roles in 2004
previously undertaken from Dublin, will add to the quality of the UK operations.
This includes areas such as site finding, shop fitting, security and training
as well as point of sale marketing.
Since 31 December, one extension and four refits have been completed in Ireland
and an additional two shops have opened in the UK. The pipeline of properties
in both Ireland and the UK remains strong. We remain confident of rolling out
between eight and ten new shops in Ireland and approximately 18 in the UK in
2004. The extensive programme of refits, relocations and extensions in Ireland
will continue into 2004 and beyond.
A number of retail technology projects were commenced in 2003. These will
continue well into 2004 and include the upgrading of the existing screens system
and the installation of new control systems in Head Office that allow improved
management of all data and TV pictures in the shops. A full-time team is now
engaged in the evaluation of the latest generation EPOS (Electronic Point of
Sale) systems with shop trials scheduled for mid 2004. A final decision on the
installation of a full estate roll-out will not be made until the second half of
2004.
Non-retail
Non-retail comprises the Online division (Internet betting, Interactive TV
betting, Online Casino) and the Telephone division. These operations were
combined under a single management group in 2003. A key part of this single
management team is the dedicated customer service group which now services
clients of all non-retail channels.
Active Customers Online Telephone
2003 2002 2003 2002
Ireland and rest of 14,026 10,501 9,601 8,600
world
UK 22,174 19,159 8,361 5,974
(Registered customers are no longer disclosed as this is not considered to be a
relevant statistic.
*Active customers are those that have bet in the last three months).
The Online Division
The Online betting division has continued to see significant growth in 2003 with
active customers increasing by 22.0% to 36,200. This has been driven from
further expansion into the UK market as well as continued growth in the Irish
market. Active customers now bet on average 21 times a month (2002:13).
The product offering has continued to develop over 2003 with a wide number of
enhancements being made to both site functionality and the range of betting
opportunities. Given the nature of online customers and the easy access to
multiple betting opportunities, constant development of the product offering is
essential in this area. Enhancements, which include items such as increased
betting-in-running, increased coverage of American racing and technical
improvements to increase performance, generate both customer loyalty and
increased revenue opportunities. In addition to these enhancements, the site
was re-skinned in the second half of 2003 to improve its visual impact. We
remain confident that the Paddypower.com offering can compete at the highest
level in the online space.
Interactive TV continues to be a part of the product offering of this division
and Paddy Power continues to trade on NTL and Telewest. We consider the scope
for material growth in this area to be limited in the short-term.
In the early part of 2004, the division soft-launched its Online Casino on
paddypowercasino.com. Performance to date has been good and we are confident
that it will be a profit contributor in 2004.
The Telephone Division
The telephone betting operations have continued to see significant expansion in
2003 in both the Irish and UK markets. Ongoing investment in both tactical and
brand spending in both markets continues to drive business growth. The total
active customers for this are set out above. As noted, 2003 saw excellent
growth in active customers.
We continue to develop the product offering within this channel and 2003 saw
further expansion of opening hours until 1am for American racing and sport.
During the Rugby World Cup the call centre was open for every match, with 4.30am
starts for early matches. As with the Online division, betting-in-running has
expanded greatly in 2003 and we now take betting-in-running on all Premiership
matches. Operationally, increased capacity has been put in place by using our
back-up centre for handling the peaks on very busy days, thereby improving asset
utilisation, whilst developments in both call volume forecasting and our phone
system have improved service reliability. Segmentation of the customer base is
ongoing and allows us to quickly identify and focus on our high value customers.
Marketing
As the fun, friendly and fair bookmaker, Paddy Power continues to invest in an
extensive variety of marketing opportunities in both the Irish and UK markets.
These comprise both brand related activities designed to drive overall awareness
of the Paddy Power brand and tactical activities designed to promote either
individual betting opportunities and/or certain betting channels. As always, a
strong element of our marketing activity will be opportunistic, innovative and
fun. Brand awareness has continued to improve with almost 90% national brand
recognition in Ireland and an excellent 10% in the UK, up from under 4% in 2002.
Our marketing activities cover a wide variety of events and use a combination of
both in-house and external resources. This generally involves extensive use of
public relations activities as part of any individual event.
In the early part of 2003, an outdoor brand campaign was undertaken in London.
Significant brand building was also undertaken through our successful snooker,
darts and greyhound sponsorships. In horse racing, sponsorship of the Paddy
Power Chase continues to be our biggest Irish sponsorship event, while we
commenced horse racing sponsorship in the UK in 2003 with a five year deal to
sponsor the Paddy Power Gold Cup at the Open Festival in Cheltenham.
Significant value was also extracted from our innovative sponsorship of hurleys
during the All Ireland Hurling Championships. This multi faceted approach will
continue into 2004.
Management and Staff
Paddy Power cannot meet its growth potential without first rate people. 2003 has
been a year of significant development in people as the organisation has
expanded to keep pace with the growing complexity and scale of operations.
Turnover for 2003 has risen almost threefold from 1999 and, with continued
investment, is set to expand further. It is essential that the Group invests in
new talent as well as developing the talent that already exists.
To this end, a number of senior appointments have been made in 2003. These
include the appointment of Ian Price as a London-based Head of Retail Operations
for the UK. Ian joins us from Victor Chandler International where he was
Managing Director. Prior to this, he held several senior positions with William
Hill. A new development team reporting to the Head of Retail Operations was
also set up in London over 2003 under the leadership of Dave Hatt who joined us
from Corals. The UK operations team will grow over 2004 as the scale of
operations increase and certain responsibilities are transferred from Head
Office in Dublin.
In Ireland, Dermot Golden was appointed as Head of Risk in late 2003 and has
taken over full responsibility for all aspects of trading and risk. Dermot
joins us from the investment industry where he has held a number of senior
trading positions. There have also been a number of other appointments made
within both operations and support services in 2003.
No less important than the investment in new staff is the ability to grow our
existing pool of talent so that they can take advantage of the expanding Group.
This is equally important whether it allows promotion opportunities for our shop
staff due to the opening of new outlets, the creation of additional team leaders
and supervisors in a call centre, or any one of the central service roles. To
this end we continue to promote staff internally where possible. In order to
further develop this talent we will be making additional investment in our human
resources capabilities in 2004, with particular focus on training and
development throughout the organisation.
In tandem with the appointment of new staff we have streamlined internal
reporting structures to ensure that we have the correct balance of
responsibilities and clear reporting lines.
Looking Forward
As the Group enters 2004, operating plans are clearly established across all
divisions and will see a continuation of the successful strategies adopted in
2003. We will continue to focus on our customers, rolling out our Irish and the
UK retail estate, building volume through the non-retail infrastructure now in
place, improving brand recognition and continuing to invest in people.
Financial Review
The Group has no discontinued operations and all activities are considered core.
Turnover
Turnover for the year ended 31 December 2003 was €913.6m (2002:€673.8m) an
increase of 35.6% and reflects excellent growth in all channels.
Growth rates in the shops remained very strong during 2003 with turnover
increasing by 23% to €551.1m from €448.1m. Like-for-like growth was 16%.
In Ireland like-for-like growth was augmented by the turnover growth from the
eight new outlets opened in 2003, the relocation and refit programme together
with the carry-forward impact of the five new outlets opened in 2002. Although
there were some differences in the sporting calendar over the two years, most
noticeably the Football World Cup and the Ryder Cup, which took place in 2002
and the Rugby World Cup which took place in 2003, these do not have any
significant impact on the overall trend in turnover levels.
Turnover levels in the UK shops have been developing very well as the estate
grows and brand recognition improves. Given the small size of the estate and
the installation dates for Fixed Odds Betting Terminals (FOBT) the income from
FOBT's was immaterial to the retail estate in 2003. As the estate develops in
2004, it is expected that this revenue stream will grow significantly.
The Online division continued to see excellent growth in turnover as its
expansion in both the Irish and the UK markets continued. This has been driven
by both a significant increase in brand recognition, referred to in the
operations review, together with continued developments in the product offering
including the usability of the site, quality of customer service and the betting
opportunities offered. Turnover grew by 80% to €185.1m from €102.8m. The UK now
accounts for 61% of active customers.
The Telephone division grew 44% across both the Irish and UK markets as it
reached €177.4m for the year (2002: €122.9m). We continue to see strong growth
in both markets and the UK market now accounts for 37% of turnover (2002: 31%).
Average slip/bet values by 2003 2002 Change
channel € € %
Retail 16.98 15.29 +11.1%
Telephone 67.64 68.31 -1.0%
Online 27.18 26.63 +2.1%
(Note: Shop slips can contain more than one bet per slip, while other channels
are a single bet per slip. Telephone bet statistics for 2002 have been
recalculated on the same basis as Online to reflect the common system in
operation in 2003)
Average bet sizes continue to develop well with continued growth in the retail
estate. The move into the mass market on the telephone and internet has lowered
the average stake in these channels as planned. The overall pattern between the
channels remains consistent with the prior year.
Bet Volumes
2003 2002 Change
'000 '000 %
Retail 32,464 29,313 +10.8%
Telephone 2,623 1,799 +45.8%
Online 6,808 3,861 +76.3%
(Note: Shop volumes refer to the number of slips processed while other channels
refer to the number of bets processed. Telephone bet statistics for 2002 have
been recalculated on the same basis as the Online to reflect the common system
in 2003)
Gross Win and Gross Profit
Given the growth of the UK business and, in order to provide a consistent basis
of accounting between different geographic markets and different products, the
Group now separately identifies Gross Win and Gross Profit. Gross Win is
measured as the amounts staked (excluding betting tax and levies) less the
amount returned to customers as winnings. Customer drop from AWP's and FOBT's
is included in Gross Win at 100% margin. The income from AWP's and FOBT's is
immaterial in 2003 and 2002 but will grow as the retail estate in the UK grows.
Gross Profit is measured as Gross Win less discount on bets and Gross Win taxes.
Gross Win percentages by channel are set out in the table below.
Gross Win % 2003 2003 2003 2002
12 Months 6 Months to 6 months to 12 months
31 Dec 31 Dec 30 June 31 Dec
% % % %
Retail 12.32 13.04 11.58 13.54
Telephone 7.43 8.58 6.26 7.93
Online 7.31 8.64 6.00 8.18
The Gross Win percentages fluctuated over the course of the year driven by the
pattern of results and business mix. For the year as a whole, Gross Win
percentages were greatly influenced by the exceptionally poor results at the
Cheltenham Festival and the Grand National in March and April of 2003, resulting
in a profit warning as referred to in the Chairman's Statement. Outside of
these events results fell in their normal ranges with a strong Gross Win
percentage in the second half of 2003. Absolute Gross Win for the year increased
by 20% to €94.6m reflecting the strong turnover growth offset by the lower Gross
Win percentage.
Gross Win 2003 2002 Change
€'000 €'000 %
Retail 67,907 60,697 +11.9%
Telephone 13,179 9,743 +35.3%
Online 13,524 8,407 +60.9%
Total 94,610 78,848 +20.0%
The Gross Win percentage in the UK shops is developing well as our customer base
grows and has had only a slightly dilutive impact on overall shop Gross Win
percentage. The Gross Win percentage in the UK, when combined with the turnover
levels, will allow the profitable growth of the UK business and we remain
confident that it will match the Irish shops over time.
Gross Profit reflects the application of UK betting taxes to the Gross Win and
discounting of bets in Ireland. For business conducted under a UK betting
licence, 15% of the bookmaker's gross win is paid in betting tax.
Gross Profit 2003 2002
Retail Telephone Online Retail Telephone Online
€'000 €'000 €'000 €'000 €'000 €'000
Gross Win 67,907 13,179 13,524 60,698 9,743 8,407
Disc./Betting 2,231 2,083 2,101 1,917 1,411 1,313
Taxes
Gross Profit 65,676 11,096 11,423 58,781 8,332 7,094
Gross Profit % 11.92% 6.25% 6.17% 13.12% 6.78% 6.90%
Gross Profit in the year grew by 19% to €88.2m. This reflects the increased
turnover and change in turnover mix by channel. This was offset by a lower
Gross Win percentage together with an increased level of discounted bets in
Ireland. There was no change in the Gross Win tax rate in the UK.
Operating Profit
Operating profit grew by 14.9% to a record €19.6m reflecting the strong Gross
Profit increase by channel, offset by a 20.0% growth in operating costs.
Operating Profit by 2003 2002 Change
Channel €'000 €'000 €'000
Retail 17,402 19,167 -1,765
Telephone 861 312 +549
Online 1,369 (2,396) +3,765
Total 19,632 17,083 +2,549
Operating profit movement by channel varied significantly reflecting the
different stages of development of each channel, the impact of gross margin
movements and the relationships between costs and revenue growth.
Operating profit in the shops decreased by €1.8m. While Gross Profit increased
by €6.9m, the Gross Profit percentage decreased to 11.92% from 13.12%. Due to
the increase in the relatively fixed cost base of the division by €8.7m to
€48.3m (resulting from the expansion of the Irish shop estate, start-up costs
for the UK business and inflation) this division saw a net decrease of €1.8m in
operating profit.
The Telephone channel saw significant improvement in earnings to €0.9m, an
increase of 176%, as growth in the Irish telephone business continued and the UK
business started to develop critical mass in the second half of the year. The
combined impact of this growth was to improve asset utilisation.
The Online business saw a significant move into profitability in 2003, achieving
€1.4m operating profit for 2003 as gross margin and turnover targets were
achieved ahead of schedule. The relatively fixed nature of this cost base
allows excellent leverage of operating profit with incremental volumes and
improved gross margin.
Tax Rate
The corporation tax charge for the year was €2.9m (2002: €3.0m) representing an
effective tax rate of 14% (2002:17%). 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 2004 due to tax losses.
The Group's effective tax rate remains above the statutory rate due to the
disallowance of certain expenses and is likely to do so going forward.
Cash Flow, Cash Balances and Foreign Exchange Risk
Cash balances at 31 December 2003 were €39.2m (2002: €36.4) an increase of
€2.8m. This includes cash held in customer accounts of €4.8m (2002: €3.4m).
Cash from operating activities totalled €32.1m, an increase of €1.7m from 2002.
Cash from operating activities included net cash inflow from customer accounts
of €1.4m. Interest income was €0.9m, an increase of €0.2m, reflecting the
higher average cash balances offset by lower average interest rates. Capital
expenditure increased by 164% to €21.4m from €8.1m in 2002. This reflects the
very significant increase in property activity in both Ireland and the UK,
together with the expansion of the Head Office and the Online and Call Centre
facility in Dublin.
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 and within any category
of institutions and the term of deposits. Cash balances are substantially
invested in short term bank deposits with maturities of 90 days or less.
The Group has no borrowings other than finance leases. 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 of the retail estate together with
continued investment in the non-retail division. On determination of the scale
of expansion in the UK, which is partly dependent on the timing of deregulation,
a decision will be made on surplus cash. Should the Group not require its cash
reserves, the Board will determine the best method of returning it to
shareholders. In order to allow the Board the flexibility to choose the optimum
process, a resolution is proposed for the Annual General Meeting to allow the
Company 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 gross margin generated in Sterling from the Online and
Telephone divisions that have primarily 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 functional currency is the Euro and translation risk exists with its
Sterling subsidiaries.
Employees
The average number of employees of the Group during 2003 was 913 (2002: 856).
At the year-end, the total number of employees was 1,032 (2002: 904).
Share Price
The Group's share price traded in the range of € 4.87 to €7.26 (stg3.31 to
stg5.085) in 2003 with a year high reached on 12th December 2003. The share
price on 31 December 2003 was €7.15 /stg4.98 (2002: €5.08/£3.23) giving a market
capitalisation of €342m/stg238m (2002: €240m/stg151m).
The year end free float (shares not held by the Directors or related parties)
was 78.74% (2002:68%).
Risk Management
The Group manages its betting risk through a central risk management team whose
role is to compile the initial odds and, subsequently, manage the odds and risk
exposures through the life of the event. The Group does not offer credit
betting.
A betting risk management sub committee of the Board was established in 2003
under the Chairmanship of David Power, a non-executive Director, and sets
overall policy for betting risk.
Dividend
The 2003 Interim and proposed Final Dividend total €6.2m (2002: €4.8m), an
increase of 28.0% on 2002. This represents dividend cover of 2.85 times (2002:
3.07). The increase represents the Board's intention to have a progressive
dividend policy and not to let short-term negative volatility impact the
dividend rate.
International Financial Reporting Standards (IFRS)
The Group is preparing for the implementation of IFRS in 2005. A review has
been completed on the differences between current standards and the IFRS. To
date, the outcome of this review is that the impact will be limited to a small
number of areas. A final determination of the impact cannot be made until the
International Accounting Standards Board issues the complete list of applicable
standards. Of particular relevance will be the treatment of the Group's
property leases.
It is intended that the Group will complete the review by mid-year and that
quantification of the adjustments needed to the 31 December 2003 balance sheet
will be made by the end of 2004.
Outlook
Trading for the year to date has been in line with expectations.
The Irish betting office market remains our core business and we are confident
it will continue to grow through a programme of new shop openings, relocations
and extensions together with underlying organic growth. The UK LBO estate will
grow in 2004 and beyond to become a significant part of the Group.
Further growth in our Telephone business is expected in both Ireland and the UK.
The Online business continues to develop it's sports book offering and further
expansion is expected in 2004. It also successfully soft-launched its Online
Casino in January 2004.
The outlook remains positive across the business.
Consolidated Profit and Loss Account
Year ended 31 December 2003
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Turnover 913,624 673,788
Cost of sales (825,429) (599,581)
Gross profit 88,195 74,207
Operating expenses (68,563) (57,124)
Operating profit 19,632 17,083
Interest receivable and similar income 883 895
Interest payable and similar charges (105) (156)
Profit on ordinary activities before taxation 20,410 17,822
Tax on profit on ordinary activities (2,859) (3,029)
Profit on ordinary activities after taxation 17,551 14,793
Dividends on equity shares
- paid (2,053) (1,603)
- proposed (4,107) (3,206)
(6,160) (4,809)
Retained profit for the year 11,391 9,984
Profit and loss account, start of year
As originally stated 31,205 21,792
Prior year adjustment - (571)
Restated 31,205 21,221
Profit and loss account, end of year 42,596 31,205
Earnings per share
Basic €0.3697 €0.3138
Diluted €0.3502 €0.2900
Consolidated Balance Sheet
Year ended 31 December 2003
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Fixed assets
Intangible assets - goodwill 904 1,025
Tangible assets 41,571 24,994
42,475 26,019
Current assets
Debtors 2,188 1,570
Cash at bank and in hand 39,173 36,373
41,361 37,943
Creditors (amounts falling due within one year) (30,585) (22,159)
Net current assets 10,776 15,784
Total assets less current liabilities 53,251 41,803
Creditors (amounts falling due after one year) - (480)
Provision for liabilities and charges (977) (1,177)
Net Assets 52,274 40,146
Capital and reserves
Called up share capital 4,781 4,714
Share premium 3,975 3,305
Capital redemption reserve fund 662 662
Capital conversion reserve fund 260 260
Profit and loss account 42,596 31,205
Shareholders' funds - all equity interests 52,274 40,146
Consolidated Cash Flow Statement
Year ended 31 December 2003
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Net cash inflow from operating activities 32,144 30,435
Returns on investments and servicing of finance
Interest received 865 717
Interest element of finance lease payments (106) (149)
759 568
Taxation
Corporation tax paid (3,923) (1,466)
Capital expenditure and financial investments
Acquisition of tangible fixed assets (21,439) (8,083)
Sale proceeds on disposal of tangible fixed assets 96 31
(21,343) (8,052)
Equity dividends paid (5,262) (3,206)
Net cash inflow before financing 2,375 18,279
Financing
Capital element of finance lease payments (312) (213)
Proceeds from the issue of new shares 737 -
425 (213)
Net cash inflow 2,800 18,066
Accounting Policies
Year ended 31 December 2003
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Group's financial
statements.
Basis of Preparation
The financial statements have been prepared in accordance with generally
accepted accountancy principles under the historical cost convention and comply
with financial reporting standards of the Accounting Standards Boards, as
promulgated by the Institute of Chartered Accountants in Ireland. The financial
statements are stated in euro.
Basis of Consolidation
The Group financial statements consolidate the financial statements of the
Company and all its subsidiary undertakings based on financial statements at the
year end date.
Turnover
Turnover, which is exclusive of betting tax and levies, represents amounts
received in respect of bets placed on events which occurred during the year.
Pensions
The Company operates a number of defined contribution schemes for certain
employees and executive Directors. Contributions are charged to the profit and
loss account as incurred.
Foreign Currency
Transactions denominated in foreign currencies are translated at the exchange
rates ruling at each quarter end. Monetary assets and liabilities denominated in
foreign currencies are translated into euro at the rates of exchange ruling at
the balance sheet date. The resulting profits and losses are dealt with in the
profit and loss account.
For the purposes of consolidation of subsidiaries, the closing rate method is
used, under which translation gains or losses are shown as movement on reserves.
Profit and loss accounts of overseas subsidiaries are translated at average
exchange rates.
Financial Fixed Assets
Interests in subsidiary undertakings are stated in the Company balance sheet at
cost less, where necessary, provisions for impairment.
Intangible Assets - Goodwill
Goodwill arising on the acquisition of subsidiary undertakings, representing the
excess of cost over the fair value of the Group share of the identifiable assets
and liabilities acquired, is capitalised and amortised by equal annual
instalments against profit over its expected useful life. Goodwill is written
off in equal annual instalments over a 20 year period. Provision is made for any
impairment.
Tangible Fixed Assets and Depreciation
Tangible fixed assets are stated at historical cost less accumulated
depreciation.
Depreciation is calculated so as to write off the cost less estimated residual
value of tangible fixed assets on a straight line basis over their estimated
useful lives, as follows:
• Freehold property - 50 years.
• Leasehold property and improvements - unexpired term of the lease, except for
leases with an initial term of ten or less years, which are depreciated over
the unexpired term of the lease plus the renewal length of the lease, if
there is a right of renewal.
• Fixtures, fittings and equipment - 5/7 years
• Computer equipment - 3 years
• Equipment screens - 5 years
• Leased equipment screens - 3 years
• Motor vehicles - 5 years
Leases
Assets held under finance leases are included in the balance sheet at their
capital value and are depreciated over the term of the lease. The corresponding
liabilities are recorded as a creditor and the interest element of the finance
lease rentals is charged to the profit and loss account over the term of the
lease to produce a constant rate of charge on the balance of capital repayment
outstanding.
Operating lease rentals are charged to the profit and loss account on a straight
line basis over the lease term.
Taxation
Corporation tax is calculated based on the taxable profits for the year.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more, or a right to pay less tax in
the future have occurred at the balance sheet date.
Deferred tax is measured on a non-discounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse, based on
tax rates and laws enacted or substantively enacted at the balance sheet date.
Share Options
In accordance with UITF Abstract 17 (revised) 'Employee Share Schemes', the
excess of the fair market value of the related shares over the exercise price of
the share option on the option grant date is charged to the employees'
remuneration over the period to which employee performance relates. A
corresponding amount is transferred to the profit and loss account.
Statutory Financial Statements
The financial information set out above does not constitute the statutory
financial statements of the Company for the year to 31 December 2003. The
statutory financial statements, upon which the auditors have given an
unqualified audit report will be delivered to the Registrar of Companies in due
course.
Notes to the Financial Statements
Year ended 31 December 2003
1. Turnover and Segmental Information
The turnover, operating profit and net assets of the Group relate to the
provision of betting services, substantially all of which are conducted in the
Republic of Ireland and the UK.
Turnover by Delivery Channel
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Licensed betting offices 551,136 448,096
Telephone betting 177,418 122,892
Online betting 185,070 102,800
913,624 673,788
Turnover by Region
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Ireland & other 702,240 570,564
UK 211,384 103,224
913,624 673,788
Gross Win by Delivery Channel
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Licensed betting offices 67,907 60,698
Telephone betting 13,179 9,743
Online betting 13,524 8,407
94,610 78,848
Note: Gross Win is defined in the Financial Review
Gross Profit by Delivery Channel
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Licensed betting offices 65,676 58,781
Telephone betting 11,096 8,332
Online betting 11,423 7,094
88,195 74,207
Operating Profit/(Loss) by Delivery Channel
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Licensed betting offices 17,402 19,167
Telephone betting 861 312
Online betting 1,369 (2,396)
19,632 17,083
Profit before tax and net assets by delivery channel and geographic segment are
not disclosed as in the opinion of the directors, this disclosure would be
seriously prejudicial to the interests of the Group.
2. Prior year adjustment
During the prior year, the Group adopted FRS 19 - Deferred Tax, and thereby
changed its accounting policy in relation to accounting for deferred taxation.
3. Earnings per Share
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Profit for the financial year 17,551 14,793
'000 '000
Weighted average number of shares in issue 47,479 47,144
Dilutive effect of options outstanding 2,638 3,856
Diluted weighted average number of shares 50,117 51,000
Basic earnings per share €0.3697 €0.3138
Diluted earnings per share €0.3502 €0.2900
4. Cash Flows
(a) Reconciliation of Operating Profit to Net Cash Inflow from Operating
Activities
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Operating profit 19,632 17,083
Depreciation 6,405 5,805
Amortisation of goodwill 121 121
Increase in debtors and prepayments (597) (282)
Increase in creditors 6,549 7,706
Loss on disposal of tangible fixed assets 34 2
Net cash inflow from operating activities 32,144 30,435
(b) Analysis of Changes in Cash During the Year
Year ended Year ended
31/12/2003 31/12/2002
€'000 €'000
Balance at 1 January 2003 36,373 18,307
Net cash inflow 2,800 18,066
Balance at 31 December 2003 39,173 36,373
(c) Analysis of Net Funds
Year ended Cash Year ended
31/12/2002 Flows 31/12/2003
€'000 €'000 €'000
Cash at bank and in hand 36,373 2,800 39,173
Finance leases (734) 313 (421)
Total 35,639 3,113 38,752
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