Ladbrokes PLC
28 February 2008
Preliminary statement of results
for the year ended 31 December 2007
Year ended Year ended
31 December 31 December
2007 2006 (1)
£m £m
Continuing operations
Gross win 1,286.4 990.3
Net revenue 1,235.0 947.4
Operating profit (2) 420.0 262.2
Net finance costs (2) (68.0) (44.6)
Interest income on hotels sale proceeds - 24.0
Profit before tax and non-trading items (2) 352.0 241.6
Loss on disposal of non-current assets (1.1) -
Other non-trading items before tax (6.7) (3.5)
Profit before tax 344.2 238.1
Tax (52.8) (46.2)
Profit after tax - continuing operations 291.4 191.9
EBITDA (2) - continuing 470.4 304.4
Earnings per share (2) - continuing 47.4p 21.7p
Proposed dividend per share 9.05p 8.60p
(1) Restated - details of restatement explained in notes 2(d), 2(e) and 15 to
the financial statements.
(2) Before non-trading items and discontinued operations. Non-trading items
comprise profit/losses on disposal of non-current assets, unrealised gains/
losses on derivatives, and litigation and transaction costs (Litigation and
transaction costs - 2006 only).
(3) The full consolidated income statement is shown on page 19.
Financial Highlights
• Operating profit(1) from continuing operations increased by 60.2% to £420.0
million (2006: £262.2 million).
• Operating profit(1) from continuing operations, excluding High Rollers,
decreased by 4.4% to £241.0 million (2006: £252.0 million).
• Total gross win increased by 29.9% to £1,286.4 million (2006: £990.3
million). Total gross win from continuing operations, excluding High
Rollers, grew by 6.0% to £1,036.8 million (2006: £978.1 million).
• Net debt of £917.0 million with cash generated by operations of £421.1
million.
• Effective tax rate(2) of 15.6%.
• Final dividend of 9.05 pence per share (up 5.2%).
• During 2007, 19.9 million shares were purchased through Ladbrokes' share buy
back programme. The buy back programme has continued in 2008, with a further
10.3 million shares purchased.
• Profit on disposal of Vernons of £46.0 million.
Ladbrokes Chief Executive, Christopher Bell, commented:
'Ladbrokes has achieved record profitability(3) of £420.0 million, benefiting
from a buoyant performance from Telephone Betting. Following a strong finish to
2007, we have made a positive start to the year. We will continue to develop the
business through new products and channels, both in the UK and overseas and will
promote our brand and products through TV advertising, whilst remaining vigilant
on costs.'
Dividend
The Board has recommended a final dividend of 9.05 pence per share, representing
an increase of 5.2%, payable on 2 June 2008 to shareholders on the register on 7
March 2008. This final dividend, together with the interim dividend of 4.85
pence, gives a total dividend of 13.90 pence.
(1) Profit before tax, finance costs and non-trading items
(2) Before non-trading items for continuing operations
(3) Profit for continuing operations, before tax, finance costs and
non-trading items
Chief Executive's Statement
Overview
A strong performance from our Telephone Betting business has helped to drive
Ladbrokes' highest ever profit(1) of £420.0 million in 2007. Our established
European shop businesses produced solid overall performances against tough
comparatives and eGaming again saw double digit growth, following the
acquisition of Sponsio in January 2007. International development plans are
primarily focused on the establishment of new businesses in Italy and Spain and
opportunities in China and Vietnam.
European Retail
Total gross win in European Retail increased by 5.3%, including growth of 3.3%
in UK Retail and 26.4% in Ireland.
Over the Counter (OTC) gross win comparatives were tough in the UK, with a
football World Cup in 2006 and the start of the 2007 domestic football season
having seen the worst run of results in six years. Additionally, 2007
experienced the wettest July since 1766, with abnormally high horse and
greyhound racing cancellations. Overall OTC gross win declined by 3.8%.
By October 2007, our 8,190 machines were completely renewed with the latest dual
screen Laras, which have proved very popular with our customers. The improved
reliability has also significantly reduced machine downtime and machine gross
win increased by 21.0%. Following the introduction of the Gambling Act in
September, our machines now feature £500 payout jackpots, Blackjack and Poker.
In the last quarter of 2007, with the benefit of these machine developments and
winter evening opening, UK Retail gross win increased by 10.6%, with OTC and
gaming machine gross win up by 1.2% and 33.6% respectively.
Ladbrokes became the first bookmaker to advertise sports betting on TV in
October 2007. We are encouraged by the customer response to the campaign, which
achieved a positive impact on customers' perception of brand values and their
choice of brand. We will be launching further advertising campaigns during 2008,
with the first two campaigns, supporting our online bingo and casino products,
planned to commence in March and April respectively.
A strong emphasis remains on cost control in 2008, with good progress made in
2007, when costs increased by 7.9%, much less than the budgeted amount. Key
initiatives in 2008 include the introduction of a new staff scheduling system
and rationalisation of certain areas of service provision. In order to ensure
that our customers can continue to watch all live horse racing in our UK and
Irish shops we concluded a five year supply contract with Turf TV on 1 January
2008, at significant incremental cost. Excluding Turf TV, 2008 UK Retail cost
growth is projected to be less than in 2007.
(1) Profit before tax, finance costs and non-trading items, for continuing
operations
During 2007, we relocated, refurbished and extended 103 UK shops, bringing the
total to 1,089 over the past five years, representing approximately half of the
UK estate. We also opened 22 new licences and closed 30 shops.
Following the acquisition on 6 February 2008 of the Eastwood chain of 54 shops
in Northern Ireland for £117.5 million, we are now the market leaders in Ireland
with 271 shops. The Irish business performed well in 2007, growing operating
profit by 43.6%.
We have continued to invest in our Italian business following re-regulation of
the betting and gaming environment in 2006 through the Bersani decree. We now
have 26 shops and seven Bersani corner licences, which are trading in line with
our expectations. In the short term, our Italian management team remains focused
on the challenging exercise of identifying and opening suitable premises for our
Bersani licences and in making further shop acquisitions. Ladbrokes' Italian
language website began trading in November.
Remote Betting and Gaming
eGaming showed good profit growth for the seventh consecutive year, driven by
growth in Sportsbook, Games and Casino products, with Sportsbook in particular
delivering a buoyant performance. The competitive landscape remains tough for
Poker with high customer acquisition costs and margins squeezed by rakeback and
other promotional offers. Unique active players across our range of products
increased 9.4% to 601,000. The acquisition of Sponsio, our Nordic marketing
partner in January 2007 helped us to increase our profit conversion from 33.0%
of net gaming revenue in 2006 to 38.3% in 2007.
Our objective for eGaming remains the achievement of continued profit growth
through product innovation and market development, whilst respecting
jurisdictional barriers. Moving forward, we intend to increase our investment
levels in customer acquisition which will maintain profitability levels in the
short term but drive profit growth in future years.
Our Telephone Betting business increased its profits from £17.3 million to
£183.6 million, as we saw increased activity from our High Rollers for much of
the year which contributed significantly to cash flow and profits.
International development
Preparations continue in Spain, where we expect to be awarded an operating
licence in the Madrid region in the near future. Our Sportium business, a Joint
Venture between Ladbrokes and Cirsa Slot, has over 60 outlets which will be
ready to begin trading in the months following the award. We await further
de-regulation in other regions during 2008.
Ladbrokes continues to explore opportunities in Asia, particularly in Vietnam
and China.
Regulatory environment
September 2007 saw the full implementation of the 2005 UK Gambling Act and
following comprehensive preparation, our UK shops have already incorporated many
of the changes allowed under the new legislation.
On 20 February 2008, the Minister of State at DCMS announced his determination
of the Levy (the amount payable by UK bookmakers to horseracing via the
Horserace Betting Levy Board). His decision was to leave the rate at 10% of UK
horseracing gross win. However, he has also called for discussions to take place
between the racing and the betting industry to find a replacement for the
outdated horserace betting levy. With British racing now generating significant
income from commercial sources outside of the levy, including horseracing media
rights, Ladbrokes agrees that the time has come to replace the current system of
statutory subsidies.
Following an internal review and as previously reported, the decision was taken
not to pursue any of the new 16 casinos which may be allowed under the 2005
Gambling Act, as returns could not be expected prior to 2012.
Capital structure
In August 2007, the Board announced the start of a share buy back programme and
it is intended that, over time, it will repurchase shares in order to move
towards its stated target net debt to EBITDA range of 3.5 to 3.75 times
(excluding Telephone High Rollers), whilst continuing to invest in growth
opportunities. At the year end, 19.9 million shares had been bought back under
this programme.
Outlook
The Board is mindful of general concerns about the state of the UK economy but
is pleased to report that, following a strong finish in 2007, Ladbrokes has made
a positive start to the year with gross win and operating profit ahead of last
year in each of European Retail, eGaming and Telephone Betting. We are
encouraged by the positive response to the initiatives which have been
implemented in the UK Retail estate, whilst the Telephone High Rollers have
maintained their momentum from last year, with operating profit from Telephone
High Rollers of £36 million in the seven week period to 18 February 2008. Total
gross win excluding Telephone High Rollers for the same period increased by 16%.
In eGaming, we are intent on maximising our brand and technology advantage in
our key online markets and consequently, we are increasing the investment levels
in 2008 to accelerate the new customer acquisition rate. We expect to maintain
eGaming profitability levels in 2008 but with an objective to reach
profitability of £80-90 million in 2010.
Operating results
Amount staked by business Year ended Year ended
31 December 2007 31 December 2006 (1)
£m £m
European Retail 11,712.5 10,189.1
eGaming 1,300.4 1,216.9
Telephone Betting 1,866.6 939.9
Other (2) 29.0 -
Total 14,908.5 12,345.9
Gross win by business Year ended Year ended
31 December 2007 31 December 2006 (1)
£m £m
European Retail 842.4 799.8
eGaming 156.5 144.4
Telephone Betting 280.1 46.1
Other (2) 7.4 -
Total 1,286.4 990.3
Net revenue by business Year ended Year ended
31 December 2007 31 December 2006 (1)
£m £m
European Retail 804.5 767.5
eGaming 143.5 134.1
Telephone Betting 279.8 45.8
Other (2) 7.2 -
Total 1,235.0 947.4
Profit from operations by business Year ended Year ended
(before non-trading items) 31 December 2007 31 December 2006 (1)
£m £m
European Retail 209.5 216.8
eGaming 55.0 44.3
Telephone Betting 183.6 17.3
Other (2) (7.0) (1.6)
Corporate costs (21.1) (14.6)
Total 420.0 262.2
(1) Restated - details of the restatement explained in notes 2(d), 2(e) and 15
of the financial statements.
(2) Casino and international development operations
Business Review
European Retail
• Total gross win increased by 5.3% to £842.4 million (2006: £799.8 million)
with operating profit decreasing by 3.4% to £209.5 million (2006: £216.8
million).
European Retail - UK
• Total gross win increased by 3.3% to £739.3 million (2006: £715.8 million).
Whilst 2007 saw challenging comparatives, which included a football World
Cup in 2006, high levels of lost racing and periods of difficult sports
margins, the gaming machine estate performed well and winter evening
opening, which commenced for the first time on 1 September 2007, showed
encouraging early signs.
• Total gross win in the first half increased by 1.1%, whilst the second half
delivered an increase of 5.6% in total gross win with a strong performance
in the last two months of 2007. Following the introduction of the Gambling
Act on 1 September, total gross win in the last four months of 2007 showed
11.1% growth, with an increase of 1.6% and 31.8% in OTC and gaming machine
gross win respectively. The initial response to Ladbrokes' first TV
advertising campaign for betting was positive and the experience has proven
valuable in developing plans for 2008.
• On a like for like shop basis (excluding acquisitions, new licences and
closed shops but including extended opening hours), total gross win showed
an increase of 2.9%.
• OTC gross win decreased by 3.8% to £490.9 million (2006: £510.5 million),
reflecting some substitution following the renewal of our gaming machine
estate and a decline of 9.4% in horse racing amounts staked, whilst football
saw an increase of 25.4% in amounts staked since the start of the 2007/08
Premiership season, buoyed by advertising and promotion. Focus has been
placed upon enhancing the range and value of our football offering.
• The horseracing product range has seen a number of developments, with the
introduction of betting in play on major race meetings and the 'Nation's
Favourite Bet' in partnership with The Sun newspaper. Ladbrokes Results Zone
offers the most comprehensive results service on the high street.
• The introduction of winter evening opening across more than 95% of shops has
been enhanced by additional evening betting content for customers, including
east coast US racing, live and exclusive greyhound racing from Ladbrokes'
greyhound tracks and more virtual content. A greater range of betting
opportunities than ever before is now screened in UK shops, including more
exclusive high quality content than Ladbrokes' competitors.
• Like for like OTC gross win fell by 4.1%. Gross win margin was 17.1%
(2006: 16.9%).
• Gaming machine gross win increased by 21.0% to £248.4 million
(2006: £205.3 million), with average weekly gaming machine gross win of
£585, compared to £481 for 2006, an increase of 21.6%.
• All Fixed Odds Betting Terminals (FOBTs) were upgraded to dual screen B2/ B3
gaming machines during Q1 2007 and Amusements With Prizes (AWPs) were
replaced with the same dual screen machines by October 2007. As well as
significantly improved reliability across the machine estate, the new B3
content (£500 jackpots) now represents around 50% of all gaming machine
transactions and contributed to an increase in overall margin in 2007.
Second half gaming machine gross win growth was 26.9% (H1 2007: 15.5%),
including the benefit of extended opening hours from September.
• The replacement of the shop EPOS system was completed in the first half of
2007, enabling high street functionality which is bespoke to Ladbrokes, such
as 'Boost Your Winnings'. Local communities now benefit from Dynamic Zoning
technology, which tailors product and promotions to customers, based on
local football teams.
• Operating costs increased by 7.9% to £445.9 million (2006: £413.1 million).
This increase was driven by additional opening hours from September and a
full year of Amusement Machine Licence Duty (AMLD), which was introduced in
August 2006. Like for like costs (excluding AMLD, winter evening opening
hours, new licences and closed shops) increased by 3.0%, with cost control
remaining a key area of focus throughout 2007.
• Operating profit of £187.8 million decreased by 6.0% (2006: £199.8 million).
• During 2007, a mystery shopper programme was rolled out across 600 UK shops,
with a focus on standards and customer service. Given the importance of the
relationship between shop profitability and service, increased emphasis will
be placed on maintaining and enhancing customer service in our shops going
forward. The programme will be extended to all UK shops during 2008.
• At 31 December 2007, Ladbrokes had 2,133 shops in the UK. During 2007, 22
new licences were opened and 30 shops were closed. 41 shops were relocated
during the year and 53 shops were refurbished.
European Retail - Ireland
• Gross win in Ireland increased by 26.4% to £61.8 million (2006: £48.9
million), driven by good growth from acquisitions and new licences and
despite a difficult horseracing margin in the second half.
• Operating costs increased by 25.5% as a result of the impact of a larger
shop estate and related establishment costs. Operating profit increased by
43.6% to £20.1 million (2006: £14.0 million).
• Shop numbers in Ireland increased from 195 at 31 December 2006 to 215 at the
2007 year end, with 13 acquisitions, nine new licences and two closures
during the year. The acquisition of the 54 shop Eastwood chain in Northern
Ireland was completed on 6 February 2008.
European Retail - Belgium
• Gross win in Belgium showed a decline of 0.9% with the marketplace remaining
highly competitive, however operating profit increased 6.7% to £3.2 million
(2006: £3.0 million) due to lower turnover tax and a reduction in operating
costs.
• The number of Belgian shops was 274 at 31 December 2007 (2006: 286).
European Retail - Italy
• The newly re-regulated Italian betting market presents a good opportunity
for Ladbrokes. During 2007, 13 existing betting shops were acquired for a
cost of £16.7 million, giving a total of 17 acquired shops by the year end.
These shops traded in line with our expectations during 2007. Ladbrokes is
now represented in the major cities of Rome, Milan, Turin, Naples and Genoa
and since the year end has completed the acquisition of a further eight
shops around Turin and Vicenza.
• The rollout programme for the 142 new Bersani licences continues, following
the licence award in March 2007, with the first shop and corners opened in
December 2007. Whilst finding premises for new licences remains challenging,
they are scheduled to be opened throughout 2008.
• Our local language internet site, Ladbrokes.it, was launched in November.
Our odds service provider, Pianetta Scommesse increased its customer numbers
during the year.
• We have established a head office in Milan which is focused on the expansion
of the Italian business.
• Gross win for the year was £6.5 million, with operational and administration
costs of £7.3 million and duty of £0.8 million, resulting in a start-up loss
of £1.6 million for the year.
eGaming
• eGaming increased its profitability by 24.2% to £55.0 million (2006: £44.3
million) with Ladbrokes now one of the world's most profitable online
betting and gaming operators. Results benefited significantly from the
acquisition in January 2007 of Sponsio, Ladbrokes' Nordic marketing partners
since 2001. Net revenue conversion consequently improved to 38.3% (2006:
33.0%).
• eGaming net revenue increased by 7.0% to £143.5 million (2006: £134.1
million), with unique active players of 601,000, 9.5% higher despite the
impact of the World Cup in 2006. Yield per customer was down 2.0% at £239.
• Sportsbook net revenue showed strong growth of 14.7% to £52.2 million,
(2006: £45.5 million including £4.5 million from the World Cup), with a
gross win margin of 7.2% (2006: 6.4%). Growth in the second half remained
strong at 15.7% driven by continued expansion in the product offering,
including betting in play, video streaming and other sports content. For
the year, unique active players grew 5.8% to 421,000 and yield per unique
active player grew 8.8% to £124. Our new UK sportsbook was launched for beta
testing at the end of 2007 with encouraging initial feedback and full launch
is scheduled for H1 2008. Further localisation of our international offering
is also a focus, particularly in the key Nordic countries where new
sportsbooks were launched in February 2008.
• Casino net revenue of £43.1 million grew by 5.1%. Unique active players were
up 16.7% at 105,000, with average monthly active player days up 13.9% and
yield per unique active player down 9.7% at £411. Whilst the second half of
the year saw a decline in yield, net revenue declined only marginally year
on year due to the benefit of a 27.5% increase in active customers. The
increase in active customers was driven by online marketing activity and
continual improvements to our proposition, including new products (e.g. The
Osbournes and Hitman branded slots) and further foreign language versions of
the '1-click' suite of casino games. In 2008 a more rapid roll out of new
products is planned, combined with geographically targeted new customer
acquisition campaigns.
• Poker net revenue declined by 11.4% to £31.0 million, impacted by increased
competition in our key European markets. Unique active players for the year
were down 1.9% at 151,000 and yield per unique active player was down 9.7%
to £205. Net revenue for the second half declined year on year by 7.8% to
£15.3 million. In the second half our customer loyalty programme was
enhanced and 3D poker was soft launched in November. The popular Ladbrokes
Poker Cruise took place early in 2008 and the coming year will see further
developments to the site including multi-currency tables and a full launch
of the new 3D application, complemented by a more aggressive affiliates
programme.
• Games net revenue showed significant growth of 36.5% to £17.2 million
(2006: £12.6 million), with second half growth of 27.6% despite tougher
comparatives. Average monthly active player days for the year were up 43.4%
to 142,000, with unique active players up 17.5%. This performance benefited
from the new Bingo product and supporting TV advertising campaigns together
with a number of other new product launches during the year (including Deal
or No Deal Jackpot and Who Wants to be a Millionaire Bingo). 2008 will see
enhancements to Ladbrokes' bingo service, additional unique branded content
and focus on localisation and affiliate growth.
• 2007 saw continuous improvements and growth in Ladbrokes' mobile Sportsbook
and gaming offerings and further developments are planned for 2008. Compared
with the Internet, wireless revenues are small but are growing fast and
Ladbrokes is positioned to take advantage as consumer acceptance of the
technology grows.
• eGaming's operating costs of £80.6 million were £2.3 million lower than 2006
compared to the 7.0% increase in net revenue, favourably impacted by the
acquisition of Sponsio in January 2007. Like for like, excluding the impact
of this acquisition, operating costs were up approximately 6.5%, with
savings in banking and chargebacks offset by increased staff costs.
Marketing costs overall increased by £2.8 million (16.2%), with real money
sign-ups 4,000 higher than last year despite the impact of the World Cup.
Adjusted cost per acquisition comparatives are not like for like, due to the
impact of the acquisition of Sponsio in January 2007. However even after
adjusting for this, the cost of £86 has risen, reflecting the higher level
of competition in our key markets.
• The regulatory environment outside of the UK and Ireland remains challenging
but there are early signs that European Member States are beginning to
accept the anachronism of protecting state monopoly betting service
providers under European law. Nevertheless, Ladbrokes remains unable to
accept bets from customers in a number of important European markets
including, for example, Germany and the Netherlands and is prohibited from
promoting its services in a significantly greater number of member states.
2007 has seen Ladbrokes acquire an Internet betting licence in Italy and it
is hoped that further progress is made in terms of both free movement of
services and freedom of establishment in 2008 through the assistance of the
European Commission and through national courts and the European Court.
Telephone Betting
• Telephone Betting achieved operating profits of £183.6 million in 2007
(£17.3m in 2006) buoyed by high levels of activity from High Rollers.
Excluding High Rollers, operating profit declined by 35.2% to £4.6 million
(2006: £7.1 million).
• Net revenue including High Rollers was £279.8 million (2006: £45.8 million).
• Net revenue excluding High Rollers decreased by 10.1% to £30.2 million
(2006: £33.6 million including £1.6 million from the World Cup) with gross
win margins of 7.1%, slightly behind 2006 levels (7.2%).
• Net revenue from High Rollers was £249.6 million (2006: £12.2 million).
• Excluding provisions for doubtful debts, operating costs (excluding duty and
levy) increased by 13.6% to £20.9 million, mainly due to additional costs
relating to High Rollers. Agent cost per call was up 3.4% to 61 pence (H1
2007: up 14.5%), with efficiencies impacted by lost racing both at the
beginning of the year and during the wet summer.
• Excluding High Rollers, average monthly active player days declined by 7.6%
and call volumes decreased by 8.5%, with yield down 2.8% at £263. Unique
active players were down 7.6% at 115,000 (2006: 124,400).
Other
• The International development effort has focused mainly on opportunities in
Asia, particularly in China, Vietnam and Taiwan, in addition to initial
development activity in Italy and Spain. Whilst Ladbrokes was unsuccessful
in its bid for the Taiwanese sports lottery, developments continue in China
and Vietnam. Development costs totalled £4.5 million in 2007.
• In Spain, Ladbrokes has applied for an operating licence in the Madrid
region with our joint venture partner, Cirsa Slot. Ladbrokes' £0.9 million
costs were incurred in setting up the new business during the year.
• Casino losses of £1.6 million reflect the development costs of assessing the
proposed new regional, large and small UK casinos and the operating results
of Ladbrokes Casino and Sportsbar at Paddington Hilton.
Discontinued operations - Vernons
• The sale of Vernons to Sportech plc completed on 3 December 2007. Initial
cash consideration was £40.8 million after working capital adjustments, with
a further £3.2 million payable in 2008 and £3.0 million payable in 2009.
Enquiries to:
Brian Wallace, Group Finance Director (office +44 (0) 20 7355 0340)
Julian Arlett, Head of Investor Relations (mobile +44 (0)7976 348 913)
Ciaran O'Brien, Head of Public Relations (mobile +44 (0)7976 180 173)
Switchboard +44 (0) 20 7355 0340
A live conference call of the analyst presentation will be available at 9.30am
(UK time) by dialing +44 (0) 208 817 9301 and asking for the 'Ladbrokes plc
Preliminary results'. In addition, a live videocast of the presentation with
slides and questions, together with this news release, will be available on
Ladbrokes' corporate website which can be found at www.ladbrokesplc.com
For further information on Ladbrokes plc, please visit our corporate website at
www.ladbrokesplc.com. High-resolution images are available to download from the
media centre section under the heading 'image library'. Executive images are
also available at www.vismedia.co.uk in the Ladbrokes section.
Operating and Financial Review
Financial review
Revenue and profit before tax Year ended Restated year ended
31 December 2007 31 December 2006
Net revenue Profit Net revenue Profit
Continuing operations: £m £m £m £m
European Retail 804.5 209.5 767.5 216.8
eGaming 143.5 55.0 134.1 44.3
Telephone Betting 279.8 183.6 45.8 17.3
Other (1) 7.2 (7.0) - (1.6)
Corporate costs - (21.1) - (14.6)
1,235.0 420.0 947.4 262.2
Net finance costs - (68.0) - (44.6)
Interest income on the hotels sale
proceeds - - - 24.0
Revenue and profit before tax 1,235.0 352.0 947.4 241.6
Discontinued operations:
Vernons 16.8 4.8 18.6 4.9
Hotels - - 264.4 10.8
Revenue and profit before tax 16.8 4.8 283.0 15.7
Group revenue and profit before tax 1,251.8 356.8 1,230.4 257.3
(1) Casino and international development operations. Vernons was disposed in 2007.
Profit is before non trading items and profit on disposal of the Vernons business and hotels business.
Trading summary - Continuing operations
Revenue
Revenue for continuing operations increased by £287.6 million (30.4%) to
£1,235.0 million, mainly as a result of High Rollers' activity in Telephone
Betting, the performance of the Irish shops in the European Retail estate, and
growth in eGaming.
Profit before finance costs, tax and non-trading items
Profit before finance costs, tax and non-trading items increased 60.2% to £420.0
million (2006: £262.2 million) reflecting increased profits in both Telephone
Betting and eGaming offset by a decline in European Retail. Corporate costs
increased due to the television advertising campaign in the second half of 2007.
Finance costs
The net finance costs of £68.0 million were £47.4 million greater than last year
(2006: £20.6 million). 2006 benefited from interest income of £24.0 million
earned on the proceeds of the Hilton International disposal. Excluding this
income net finance costs increased by £23.4 million reflecting a full period of
the increased leverage implemented following the Hilton International disposal.
Profit before tax - Continuing operations
The increase in trading profits offset by the higher finance costs in the year
has resulted in a 45.7% increase in profit for continuing operations before
taxation and non-trading items to £352.0 million (2006: £241.6 million).
Non-trading items before tax
A non-trading loss of £1.1 million before interest and tax includes a £1.5
million profit recognised upon disposal of shares in SIS reducing our
shareholding from 25.3% to 23.4%. This is offset by a £2.6 million loss on
closure of 30 shops in 2007 in the UK Retail estate. Other non-trading losses of
£6.7 million (2006: £1.0 million loss) relate to unrealised losses on
derivatives.
Taxation
The Group taxation charge for continuing operations before non-trading items of
£54.8 million represents an effective tax rate of 15.6% (2006: 17.5%). The
effective tax rate of 15.6% is lower than 2006 due in part to a reduction in the
rate of mainstream corporation tax rates.
Discontinued operations
The £4.8 million trading profit in discontinued operations relates to the profit
before tax of the Vernons business up until 3 December 2007 when it was sold. A
£46.0 million non-trading profit was recognised on disposal.
Earnings per share (EPS) - Continuing operations
EPS (before non-trading items) was 47.4 pence (2006: 21.7 pence). Comparison
with the prior year is affected by the share consolidation and convertible bond
conversion that took place in 2006. EPS (including the impact of non-trading
items) was 46.5 pence (2006: 20.9 pence). Fully diluted EPS was 46.1 pence
(2006: 20.4 pence) after adjustment for outstanding share options.
Earnings per share (EPS) - Group
EPS (before non-trading items) increased to 48.0 pence (2006: 22.8 pence). EPS
(including the impact of non-trading items) fell to 54.4 pence (2006: 67.2
pence), reflecting the profit on disposal of Hilton International in 2006. Fully
diluted EPS was 54.0 pence (2006: 64.7 pence) after adjustment for outstanding
share options.
Dividend and capital structure
The Board has proposed a final dividend of 9.05 pence per share (2006: 8.60
pence). The dividend will be payable on 2 June 2008 to shareholders on the
register on 7 March 2008.
In August 2007, the Board announced the start of a share buy back programme.
This commenced on 10 August 2007 and up until 31 December 2007 the Group had
purchased a total of 19.9 million shares at a total cost of £70.4 million. It
is intended that, over time, Ladbrokes will repurchase shares in order to move
towards its stated target net debt to EBITDA range of 3.5 to 3.75 times
(excluding Telephone High Rollers). The purchase of shares will be dependent on
market conditions and will also take into account the cash generated in the
business and other investment opportunities that may arise over time.
Restatement of divisional operating profits, non-trading finance costs and
income, continuing operations and balance sheet reclassification
Following a review, the allocation of shared costs has been adjusted in 2007 to
reflect more accurately each division's activity. These adjustments have no
impact on reported Group profit, cash flows or net assets.
In addition the Vernons business has been classified as discontinued operations.
For comparative purposes, the segmental operating profit statement for the year
ended 31 December 2006 has been restated to reflect these changes to reported
profit and is shown in the table below:
Profit before tax Year ended 31 Allocation of Restated before Vernons Restated Year
and finance costs December 2006 shared costs Vernons disposal ended
and before disposal 31 December
non-trading items 2006
£m £m £m £m £m
European Retail 212.7 4.1 216.8 - 216.8
eGaming 47.0 (2.7) 44.3 - 44.3
Telephone Betting 17.7 (0.4) 17.3 - 17.3
Other (1) 5.9 (1.6) 4.3 (5.9) (1.6)
Corporate costs (15.2) 0.6 (14.6) - (14.6)
Total 268.1 - 268.1 (5.9) 262.2
(1) Casino and international development operations. Vernons treated as
discontinued 2006.
Revenue for 2006 has also been restated to reclassify the share of results from
associates from revenue to a separate line. Non-trading finance costs and
finance income has been restated to disclose the net impact of gains and losses
arising from fair value hedges within finance costs. The balance sheet for 31
December 2006 has been restated for a reclassification of non-current liability
provisions and other financial liabilities, to current liability provisions and
other financial liabilities.
Revenue recognition - reconciliation to gross win
The Group reports the gains and losses on all betting and gaming activities as
revenue in accordance with IAS 39, which is measured at the fair value of the
consideration received or receivable from customers less fair value adjustment
for free bets, promotions and bonuses. Gross win includes free bets, promotions
and bonuses, as well as VAT payable on machine income. A reconciliation of
gross win to revenue for continuing operations is shown below.
Year ended Year ended
31 December 2007 31 December 2006
H1 2005
£m £m
Gross win 1,286.4 990.3
Free bets, promotions, bonuses (14.4) (12.3)
VAT (37.0) (30.6)
Revenue 1,235.0 947.4
Cash flow, capital expenditure and borrowings
Cash generated by operations was £421.1 million. After net finance costs and
income taxes paid of £133.0 million and £155.1 million on capital expenditure,
intangible additions and acquisitions, cash inflow was £133.0 million.
£40.8 million cash was received from the sale of the Vernons business. Proceeds
of £7.6 million were received on the exercise of share options and the issue of
shares and £84.6 million was paid out in dividends and £70.4 million was spent
on the share buyback programme.
At 31 December 2007, gross borrowings of £975.7 million less cash, deposits and
short term investments of £26.2 million and derivatives of £32.5 million have
resulted in a net debt of £917.0 million.
Adoption of IFRS 7 Financial Instruments: Disclosures
The Group has adopted IFRS 7 for the year ending 31 December 2007 as required by
the International Accounting Standards Board (IASB).
IFRS 7 Financial Instruments: Disclosures has superseded IAS 32 Financial
Instruments: Disclosure and Presentation, adding certain new disclosures about
financial instruments to those currently required by IAS 32, with the remaining
parts of IAS 32 dealing only with financial instruments presentation matters.
The new disclosures include additional information regarding the Group's
financial guarantee contracts in respect of lease liabilities of subsidiaries
within the disposed hotels division. These are described in note 14.
Consolidated income statement
Year ended Restated year ended
31 December 2007 31 December 2006
Before Before
non-trading non-trading
items(1) Total items(1) Total
£m £m £m £m
Continuing operations
Amounts staked(2) 14,908.5 14,908.5 12,345.9 12,345.9
Revenue 1,235.0 1,235.0 947.4 947.4
Cost of sales before depreciation and (684.5) (685.7) (569.7) (569.7)
amortisation
Administrative expenses (83.9) (82.4) (77.3) (79.8)
Share of results from joint venture and 3.8 3.8 4.0 4.0
associates
EBITDA 470.4 470.7 304.4 301.9
Depreciation and amounts written off (50.4) (51.8) (42.2) (42.2)
non-current assets
Profit before tax and finance costs 420.0 418.9 262.2 259.7
Finance costs (69.5) (108.5) (61.3) (70.7)
Finance income 1.5 33.8 40.7 49.1
Profit before taxation 352.0 344.2 241.6 238.1
Income tax expense (54.8) (52.8) (42.4) (46.2)
Profit for the year - continuing operations 297.2 291.4 199.2 191.9
Discontinued operations
Profit for the year from discontinued 3.4 49.4 10.4 425.3
operations
Profit for the year 300.6 340.8 209.6 617.2
Attributable to:
Equity holders of the parent 300.6 340.8 209.6 617.2
Earnings per share from continuing
operations:
- basic 47.4p 46.5p 21.7p 20.9p
- diluted 47.0p 46.1p 21.2p 20.4p
Earnings per share on profit for the year:
- basic 48.0p 54.4p 22.8p 67.2p
- diluted 47.6p 54.0p 22.2p 64.7p
Proposed dividends(3) 9.05p 9.05p 8.60p 8.60p
(1) Non-trading items are profits/losses on disposal of non-current assets,
unrealised gains and losses on derivatives, litigation and transaction costs and
profit on disposal of discontinued operations. Details on the non-trading items
are given in notes 4 and 6 to the financial statements.
(2) Amounts staked does not represent the Group's statutory revenue and
comprises the total amount staked by customers on betting and gaming activities.
(3) A final year dividend of 9.05p per share (2006: 8.60p) amounting to a total
dividend of £54.4m (2006: £54.1m) was declared by the Directors on 28 February
2008. These financial statements do not reflect this dividend payable. The
2006 final dividend of 8.60p (£54.1m) and the 2007 interim dividend of 4.85p
(£30.5m) were paid in 2007.
Consolidated balance sheet
Restated
31 December 31 December
2007 2006
£m £m
ASSETS
Non-current assets
Goodwill and intangible assets 525.9 427.5
Property, plant and equipment 263.8 243.1
Interest in joint venture 0.4 -
Interest in associates and other investments 10.0 11.0
Other financial assets 7.4 8.5
Deferred tax assets 28.1 13.1
Derivatives 4.5 12.7
Retirement benefit asset 33.6 22.6
873.7 738.5
Current assets
Trade and other receivables 138.5 75.0
Assets classified as held for sale - 2.2
Derivatives 29.0 0.8
Cash and short term deposits 37.8 36.4
205.3 114.4
Total assets 1,079.0 852.9
LIABILITIES
Current liabilities
Interest bearing loans and borrowings (187.3) (36.7)
Derivatives - (9.9)
Trade and other payables (199.1) (173.4)
Corporation tax liabilities (142.4) (161.6)
Other financial liabilities (30.1) (1.0)
Provisions (2.6) (2.9)
(561.5) (385.5)
Non-current liabilities
Interest-bearing loans and borrowings (800.0) (952.2)
Derivatives (1.0) -
Other financial liabilities (14.5) (15.3)
Deferred tax liabilities (142.3) (114.6)
Provisions (10.5) (12.2)
(968.3) (1,094.3)
Total liabilities (1,529.8) (1,479.8)
Net liabilities (450.8) (626.9)
EQUITY
Issued share capital 178.9 177.9
Share premium account 2,134.2 2,126.8
Treasury and own shares (80.0) (5.4)
Foreign currency translation reserve 9.4 2.2
Other reserves (30.0) -
Retained earnings (2,663.3) (2,928.4)
Equity shareholders' deficit (450.8) (626.9)
Consolidated cash flow statement
Year ended Year ended
31 December 2007 31 December 2006
£m £m
Net cash flows from operating activities 285.5 156.5
Cash flows from investing activities
Interest received 2.6 54.7
Dividends received from associates 2.3 0.8
Payments for intangible assets (31.8) (9.0)
Purchase of property, plant and equipment (62.4) (91.9)
Purchase of subsidiaries (60.9) (26.0)
Proceeds from the sale of property, plant and equipment 3.2 1.0
Proceeds from disposal of discontinued operations 40.8 3,241.4
Costs of disposal of discontinued operations (0.7) (74.7)
Cash disposed of with discontinued operations (1.4) (54.2)
Cash obtained through acquisition of subsidiaries 3.7 -
Purchase of interests in joint venture (0.6) -
Purchase of interests in associates and other investments (0.1) (0.5)
Proceeds from disposal of interest in associates 2.2 1.0
(103.1) 3,042.6
Cash flows from financing activities
Proceeds from issue of shares 7.6 70.3
Proceeds from borrowings - 179.6
Proceeds from repayment of loans by associate - 7.8
Purchase of ESOP shares (2.5) (5.0)
Purchase of treasury shares (70.4) -
Repayment of borrowings (40.4) (185.3)
Payments of new loans to associate - (1.8)
Dividends paid (84.6) (4,208.4)
(190.3) (4,142.8)
Net decrease in cash and cash equivalents (7.9) (943.7)
Net foreign exchange difference 0.4 1.3
Cash and cash equivalents at beginning of the year 33.4 975.8
Cash and cash equivalents at end of the year 25.9 33.4
Cash and cash equivalents comprise:
Cash at bank and in hand and current asset investments 37.5 36.1
Bank overdraft (11.6) (2.7)
25.9 33.4
Consolidated statement of recognised income and expense
Year ended Year ended
31 December 31 December
2007 2006
£m £m
Currency translation differences 7.2 1.3
Recycled foreign exchange - (3.8)
Actuarial gains on defined benefit pension scheme 5.1 9.6
Net (losses)/gains on cash flow hedges (0.5) 1.1
Tax on items directly taken to equity (1.3) (2.9)
Total income and expenses recognised directly in equity 10.5 5.3
Profit for the year 340.8 617.2
Total recognised income and expense for the year 351.3 622.5
Attributable to:
Equity holders of the parent 351.3 622.5
Notes to the financial statements
1. Corporate information
The consolidated financial statements of Ladbrokes plc for the year ended 31
December 2007 were authorised for issue in accordance with a resolution of the
directors on 28 February 2008.
Ladbrokes plc is a limited company incorporated and domiciled in the United
Kingdom whose shares are publicly traded. The principle activities of the
company and its subsidiaries ('the Group') are described in Note 3.
2. Basis of preparation
(a) The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS), as adopted
for use in the European Union. The financial statements have been prepared in
accordance with the accounting policies followed in the preparation of the
Group's annual consolidated financial statements for the year ended 31 December
2007.
The financial information set out in this document does not constitute the
Group's statutory accounts for the year ended 31 December 2007 or 31 December
2006. The annual report and accounts for the year ended 31 December 2007 were
approved by the Board of Directors today, along with this preliminary
announcement, but have not yet been delivered to the Registrar of Companies. The
auditor's report on the statutory accounts for 2007 was unqualified and did not
contain a statement under section 237 of the Companies Act 1985. Statutory
accounts for 2006 have been delivered to the Registrar of Companies. The
auditor's report on the statutory accounts for 2006 was unqualified and did not
contain a statement under section 237 of the Companies Act 1985.
The 2007 report and accounts, together with details of the dividend arrangements
and the annual general meeting, will be despatched to shareholders on 31 March
2008. The Annual General Meeting will take place at the QE2 Conference Centre
at 11am on 16 May 2008.
(b) To assist in understanding the underlying performance, the Group has defined
the following items of income and expense as non-trading in nature:
- Profits/losses on disposal of non-current assets;
- Profits/losses on disposal of businesses and investments;
- Unrealised gains/losses on derivative financial instruments arising from
hedging interest rate and currency exposures; and
- Litigation and transaction costs.
The non-trading items have been included within the appropriate classification
in the consolidated income statement.
2. Basis of preparation (continued)
The Group has restated its comparative year balance sheet and income statement
to reflect: Vernons as a discontinued operation; to exclude from total revenue
the share of results from joint ventures and associates; to disclose the net
impact of gains and losses arising from fair value hedges within finance costs;
for the reclassification of antepost liabilities and property provisions as
current liabilities; and the reallocation of shared costs between reporting
segments. Refer to note 15 for further details on the restatement of the prior
year
(c) The changes in accounting policies are as follows
IFRS 7 Financial Instruments: Disclosures has superseded the disclosure
requirements of IAS 32 Financial Instruments: Presentation and Disclosure, with
the remaining parts of IAS 32 dealing only with financial instruments
presentation matters.
Under the disclosure requirements of IFRS 7, financial instruments have been
grouped into classes of similar instruments and the required disclosures made by
class. The two main categories of disclosures required by IFRS 7 are:
- information about the significance of financial instruments and
- information about the nature and extent of risks arising from financial
instruments and how the Group manages these risks.
The new disclosures on market risk include a sensitivity analysis of each type
of market risk to which the Group is exposed.
The Group has adopted IFRS 7 for the year ended 31 December 2007 and for
comparatives for the year ended 31 December 2006 as required by the
International Accounting Standards Board (IASB).
The Group has adopted IAS 1 Amendment - Presentation of Financial Statements for
the year ended 31 December 2007. This has had no effect on the financial
position of the Group but does, however, give rise to additional disclosures.
The Group has applied the guidance under IFRIC 10 Interim Financial Reporting
and Impairment for the year ended 31 December 2007, which concludes that where
an entity has recognised an impairment loss in an interim period in respect of
goodwill or an investment in either an equity instrument or a financial asset
carried at cost, that impairment should not be reversed in subsequent interim
financial statements nor in annual financial statements. This has had no impact
on the financial statements for the years ended 31 December 2006 and 2007.
The Group has early adopted the guidance under IFRIC 14 IAS 19 The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction, for
the year ended 31 December 2007. IFRIC 14 provides general guidance on how to
assess the limit on the amount of the surplus that can be recognised as an asset
under IAS 19 Employee Benefits. It also explains how the pensions asset or
liability may be affected when there is a statutory or contractual minimum
funding requirement. The Interpretation standardises practices and ensures that
entities recognise an asset in relation to a surplus on a consistent basis. This
has had no impact on the financial statements for the years ended 31 December
2006 and 2007.
(d) Discontinued operations
The income statement for the year ended 31 December 2006 has been restated to
reflect the disposal of the Vernons pools business. A reconciliation between the
reported income statement and the restated income statement is given in note 15.
(e) Segmental analysis
The Group is organised and managed along three principal segments according to
the nature of the services provided - European Retail (which comprises all
activities connected with the UK and other European shop estate), eGaming and
Telephone Betting.
Following a review, the allocation of shared costs has been adjusted in 2007 to
reflect more accurately each division's activity. The segmental information
for the year ended 31 December 2006 has been restated to reflect this change to
reported profit and is shown in the table below
The adjustment has no impact on reported Group profit, cash flows or net assets.
Profit before tax and Year ended 31 Allocation Restated Vernons Restated Year
finance costs and December 2006 of shared before disposal ended
before non-trading costs Vernons 31 December
items disposal 2006
£m £m £m £m £m
European Retail 212.7 4.1 216.8 - 216.8
eGaming 47.0 (2.7) 44.3 - 44.3
Telephone Betting 17.7 (0.4) 17.3 - 17.3
Other (1) 5.9 (1.6) 4.3 (5.9) (1.6)
Corporate costs (15.2) 0.6 (14.6) - (14.6)
Total 268.1 - 268.1 (5.9) 262.2
The Vernons pools business was disposed in 2007. Consequently, Vernons has been
reported as discontinued, thus reducing 2006 operating profit before non-trading
items from £268.1 million to £262.2 million
(1) Casino and international development operations. Vernons treated as
discontinued 2006.
3. Segment information
The Group's continuing operating businesses are organised and managed separately
as three principal segments according to the nature of the services provided as
outlined below.
The European Retail segment comprises all activities connected with the UK and
other European shop estate.
The eGaming segment comprises betting and gaming activities from online
operations.
The Telephone Betting segment comprises activities relating to bets taken on the
telephone.
The Other segment comprises Casino and International development operations. The
discontinued operations for 2007 comprise the Vernons pools business and in 2006
comprised Vernons and the ownership operations and management of hotels and healthclubs.
2007 Profit before Profit before
taxation and non- taxation and after
Revenue trading items non-trading items
£m £m £m
Continuing operations:
European Retail 804.5 209.5 208.4
eGaming 143.5 55.0 55.0
Telephone Betting 279.8 183.6 183.6
Other 7.2 (7.0) (7.0)
Corporate costs - (21.1) (21.1)
Total 1,235.0 420.0 418.9
Net finance costs - (68.0) (74.7)
1,235.0 352.0 344.2
Discontinued operations:
Vernons 16.8 4.8 50.8
1,251.8 356.8 395.0
3. Segment information (continued)
Restated 2006 Profit before Profit before
taxation and taxation and after
Revenue non-trading items non-trading items
£m £m £m
Continuing operations:
European Retail 767.5 216.8 216.8
eGaming 134.1 44.3 44.3
Telephone Betting 45.8 17.3 17.3
Other - (1.6) (1.6)
Corporate costs - (14.6) (17.1)
Total 947.4 262.2 259.7
Net finance costs - (20.6) (21.6)
947.4 241.6 238.1
Discontinued operations:
Vernons 18.6 4.9 4.9
Hotels 264.4 10.8 426.8
283.0 15.7 431.7
1,230.4 257.3 669.8
4. Non-trading items
2007 2006
£m £m
Continuing operations:
Profit on disposal of shares in associate 1.5 -
Loss on closure of UK Retail shops (2.6) -
Net unrealised gains and derivatives and (losses)/gains
on retranslation of foreign currency borrowings (6.7) (1.0)
Litigation and transaction costs - (2.5)
Total non-trading items (7.8) (3.5)
Non-trading tax credit/(charge) 2.0 (3.8)
Non-trading items after taxation (5.8) (7.3)
5. Taxation
The total tax charge on continuing operations was £52.8 million (Restated 2006:
£46.2 million). The taxation charge relates to £52.3 million of UK tax and £0.5
million of overseas tax. The £52.8 million total tax charge on continuing
operations, comprising £68.3 million (2006: £30.9 million) current income tax
charge offset by £15.5 million (2006: £15.3 million - charge) deferred income
tax credit.
6. Discontinued operations
On 3 December 2007 the Group completed the sale of the Vernons pools business to
Sportech plc. On 23 February 2006 the Group completed the sale of the hotels
division to Hilton Hotels Corporation.
The effect of the disposals is as follows:
2007 2006
£m £m
Sales proceeds - cash consideration 40.8 3,241.4
Sales proceeds - deferred consideration(1) 6.2 -
Sales proceeds - total consideration 47.0 3,241.4
Total net liabilities/(assets) sold 3.6 (2,765.9)
Costs of disposal (4.6) (95.1)
Recycled foreign exchange - 3.8
Profit on disposal 46.0 384.2
The deferred consideration is payable in two instalments, £3.2 million in 2008
and £3.0 million in 2009.
Profit for discontinued operations comprises the following:
2007 2006
Vernons Vernons Hotels Total
£m £m £m £m
Revenue 16.8 18.6 264.4 283.0
Expenses (10.8) (12.7) (253.2) (265.9)
Profit from discontinued operations 6.0 5.9 11.2 17.1
Net finance costs (1.2) (1.0) (0.4) (1.4)
Profit from discontinued operations after
finance costs before non-trading items 4.8 4.9 10.8 15.7
Profit on disposal of Vernons to Sportech plc 46.0 - - -
Profit on disposal of hotels division to
Hilton Hotels Corporation - - 384.2 384.2
Profit on sale of non-current assets (1) - - 28.0 28.0
Profit before tax and non-trading finance
costs 50.8 4.9 423.0 427.9
Non-trading finance income - - 3.8 3.8
Profit before tax from discontinued 50.8 4.9 426.8 431.7
operations
Taxation:
- related to pre tax profit (1.4) (1.5) (3.8) (5.3)
- related to non-trading items - - (1.1) (1.1)
Profit for the year from discontinued
operations 49.4 3.4 421.9 425.3
Profit for the year from discontinued
operations before non-trading items 3.4 3.4 7.0 10.4
6. Discontinued operations (continued)
(1) The profit on sale of non current assets in 2006 related to the sale of a
40% interest in a Limited Partnership. The profit includes recognition of a
deferred gain on disposal following the sale of ten hotels to the Limited
Liability Partnership in 2002.
The major classes of assets and liabilities of the Vernons pools business held
for sale as at disposal and of the hotels division held for sale as at disposal
were:
3 December 2007 23 February 2006
£m £m
Vernons Hotels
Assets
Non current assets
Goodwill and intangible assets - 1,375.0
Property, plant and equipment 0.4 1,923.4
Interests in associates and other investments - 72.8
Other financial assets - 5.0
Deferred tax asset - 27.6
Retirement benefit asset - 0.4
0.4 3,404.2
Current assets
Inventories - 15.1
Trade and other receivables 0.4 282.9
Cash and cash equivalents 1.4 67.8
1.8 365.8
Total assets held for sale 2.2 3,770.0
Liabilities
Current liabilities
Interest bearing loans and borrowings - (43.6)
Obligations under finance leases - (2.6)
Trade and other payables (5.5) (427.9)
Corporation tax liabilities (0.3) (37.9)
(5.8) (512.0)
Non current liabilities
Interest bearing loans and borrowings - (12.3)
Obligations under finance leases - (30.8)
Other financial liabilities - (20.6)
Deferred tax liabilities - (329.3)
Retirement benefit obligation - (92.5)
Provisions - (3.6)
- (489.1)
Total liabilities held for sale (5.8) (1,001.1)
Net (liabilities)/assets held for resale (3.6) 2,768.9
Minority equity interest - (3.0)
Group's share of disposed net (liabilities)/assets (3.6) 2,765.9
6. Discontinued operations (continued)
Cash flows relating to discontinued operations were:
2007 2006
£m £m
Net cash flows from operating activities 3.4 8.1
Investing activities (0.1) (5.5)
Financing activities - 7.8
Proceeds from disposal of discontinued operations 40.8 3,241.4
Disposal costs of discontinued operations (0.7) (74.7)
Cash disposed with discontinued operations (1.4) (54.2)
Cash flows relating to discontinued operations 42.0 3,122.9
Income and expenses recognised directly in equity relating to the assets of the
disposal group were:
2007 2006
£m £m
Currency translation differences - 1.0
Actuarial losses on defined benefit pension scheme - (3.8)
Tax on items taken directly to equity - 1.1
Total income and expenses recognised directly in equity - (1.7)
7. Dividends paid and proposed
Proposed dividends 2007 2006
Pence per share Pence Pence
Interim 4.85 4.60
Final (excluding special) 9.05 8.60
13.90 13.20
A final year end dividend of 9.05p per share (2006: 8.60p) amounting to a total
dividend of £54.4 million (2006: £54.1 million) was declared by the Directors
on 28 February 2008. These financial statements do not reflect this dividend
payable. The 2006 final dividend of 8.60p (£54.1 million) and the 2007 interim
dividend of 4.85p (£30.5 million) were paid in 2007.
8. Earnings per share
The calculation of adjusted earnings per share before non-trading items is
included as it provides a better understanding of the underlying performance of
the Group. Total Group earnings per share in 2006 includes the profit on
disposal of the hotels business. A 6 for 17 share consolidation took place on
13 April 2006, hence continuing earnings per share is not directly comparable.
Continuing operations
Diluted Basic EPS Diluted EPS
2007 Earnings earnings pence per pence per
£m £m share share
Profit attributable to
shareholders 291.4 291.4 46.5p 46.1p
Non-trading items net of tax 5.8 5.8 0.9p 0.9p
Adjusted profit attributable to
shareholders 297.2 297.2 47.4p 47.0
Diluted Basic EPS Diluted EPS
Restated 2006 Earnings earnings* pence per pence per
£m £m share share
Profit attributable to
shareholders 191.9 195.0 20.9p 20.4p
Non-trading items net of tax 7.3 7.3 0.8p 0.8p
Adjusted profit attributable to
shareholders 199.2 202.3 21.7p 21.2p
8. Earnings per share (continued)
Discontinued operations
Diluted Basic EPS Diluted EPS
2007 Earnings earnings pence per pence per
£m £m share share
Profit attributable to
shareholders 49.4 49.4 7.9p 7.9p
Non-trading items net of tax (46.0) (46.0) (7.3)p (7.3)p
Adjusted profit attributable to
shareholders 3.4 3.4 0.6p 0.6p
Diluted Basic EPS Diluted EPS
Restated 2006 Earnings earnings* pence per pence per
£m £m share share
Profit attributable to
shareholders 425.3 425.3 46.3p 44.3p
Non-trading items net of tax (414.9) (414.9) (45.2)p (43.3)p
Adjusted profit attributable to
shareholders 10.4 10.4 1.1p 1.0p
Total Group
Diluted Basic EPS Diluted EPS
Earnings earnings pence per pence per
2007 £m £m Share share
Profit attributable to
shareholders 340.8 340.8 54.4p 54.0p
Non-trading items net of tax (40.2) (40.2) (6.4)p (6.4)p
Adjusted profit attributable to
shareholders 300.6 300.6 48.0p 47.6p
Diluted Basic EPS Diluted EPS
2006 Earnings earnings* pence per pence per
£m £m Share Share
Profit attributable to
shareholders 617.2 620.3 67.2p 64.7p
Non-trading items net of tax (407.6) (407.6) (44.4)p (42.5)p
Adjusted profit attributable to
shareholders 209.6 212.7 22.8p 22.2p
* Diluted earnings included an adjustment to the attributable profit to reflect
a reduction in the interest charge net of tax of £3.1 million in 2006 which
would have resulted from the conversion of the convertible bond to equity.
8. Earnings per share (continued)
The number of shares used in the calculation is shown below:
2007 2006
Millions Millions
Weighted average number of ordinary shares for the purposes
of basic earnings per share 626.5 919.1
Effect of dilutive potential ordinary shares:
Share options 3.6 7.9
Issue of contingently issuable shares 1.4 1.2
Convertible bond conversion to ordinary share capital - 30.0
Weighted average number of ordinary shares for the purposes
of dilutive earnings per share 631.5 958.2
At 31 December 2007, excluding Treasury shares, there were 611.5 million 281/3p
ordinary shares in issue. Including Treasury shares there were 631.4 million
281/3p ordinary shares in issue.
At 31 December 2006, there were 627.8 million 281/3p ordinary shares in issue.
9. Property, plant and equipment
During the year, the Group acquired assets with a cost of £63.6 million (2006:
£84.7 million). In addition the Group acquired assets from business
combinations at a cost of £4.3 million (2006: £0.2 million).
Assets with a net book value of £5.9 million were disposed of by the Group
during the year (2006: £2.4 million).
10. Net debt
The Group's net debt structure is as follows:
2007 2006
Total -
Continuing Continuing Discontinued
operations operations operations Total
£m £m £m £m
Non-current assets
Derivatives 4.5 12.7 - 12.7
Current assets
Derivatives 29.0 0.8 - 0.8
Cash and short term deposits 37.8 36.4 - 36.4
Current liabilities
Bank overdrafts (11.6) (2.7) - (2.7)
Interest bearing loans and borrowings (175.7) (16.3) - (16.3)
Derivatives - (9.9) - (9.9)
Non-current liabilities
Interest bearing loans and borrowings (800.0) (952.2) (17.7) (969.9)
Derivatives (1.0) - - -
Net debt per balance sheet (917.0) (931.2) (17.7) (948.9)
11. Reconciliation of profit to net cash inflow from operating activities
2007 2006
£m £m
Profit before tax and finance costs - continuing (1) 420.0 262.2
Profit before tax and finance costs -discontinued (1) 6.0 17.1
Profit before tax and finance costs (1) 426.0 279.3
Depreciation 45.5 38.1
Amortisation of intangible assets 5.0 4.3
Costs of share-based payments 6.4 2.3
Increase in other financial assets (0.2) -
Increase in assets classified as held for sale - (6.3)
Increase in trade and other receivables (63.2) (1.8)
Decrease in other financial liabilties (1.7) -
Increase in trade and other payables 15.7 3.2
(Decrease)/increase in provisions (3.0) 5.7
Contribution to retirement benefit scheme (6.1) (67.6)
Share of results from joint ventures 0.2 -
Share of results from associates (4.0) (3.3)
Other items 0.5 10.8
Cash generated by operations 421.1 264.7
Income taxes paid (65.8) (48.9)
Finance costs paid (69.8) (59.3)
Net cash inflow from operating activities 285.5 156.5
(1) Before non-trading items
11. Reconciliation of profit to net cash inflow from operating activities
(continued)
Cash and short term deposits in the balance sheet comprise:
2007 2006
£m £m
Continuing operations
Cash at bank and in hand 37.5 36.1
Deposits with maturity greater than three months 0.3 0.3
37.8 36.4
Cash and cash equivalents in the cash flow statement comprise cash at bank and
other short-term highly liquid investments with a maturity of three months or
less and overdrafts:
2007 2006
£m £m
Continuing operations
Cash at bank and in hand 37.5 36.1
Bank overdrafts (included in current liabilities) (11.6) (2.7)
25.9 33.4
12. Issued capital and reserves
Treasury
Convertible and Foreign
Share Share bond Other own Retained currency Minority Total
capital premium adjustment Reserve shares earnings translation Total interests equity
£m £m £m £m £m £m £m £m £m £m
At 1 January 2006 160.6 1,767.7 34.3 158.2 (16.0) 483.2 4.7 2,592.7 3.0 2,595.7
Total recognised
income and expense
for the year - - - - - 625.0 (2.5) 622.5 - 622.5
Issue of shares
for cash 4.3 66.0 - - - - - 70.3 - 70.3
Issue of shares on
conversion of
convertible bond 13.0 287.0 (25.8) - - - - 274.2 - 274.2
Share-based
payment awards - 6.1 - - - (0.7) - 5.4 - 5.4
Reserves transfer - - (8.5) (158.2) - 166.7 - - - -
Cost of
share-based
payments - - - - - 5.8 - 5.8 - 5.8
Net increase due
to shares held in
ESOP trusts - - - - 10.6 - - 10.6 - 10.6
Minority interests
disposed - - - - - - - - (3.0) (3.0)
Equity dividends - - - - - (4,208.4) - (4,208.4) - (4,208.4)
At 31 December 177.9 2,126.8 - - (5.4) (2,928.4) 2.2 (626.9) - (626.9)
2006
At 1 January 2007 177.9 2,126.8 - - (5.4) (2,928.4) 2.2 (626.9) - (626.9)
Total recognised
income and expense
for the year - - - - - 344.1 7.2 351.3 - 351.3
Issue of shares
for cash 0.9 6.7 - - - - - 7.6 - 7.6
Share-based
payment awards 0.1 0.7 - - - (0.8) - - - -
Cost of
share-based
payments - - - - - 6.4 - 6.4 - 6.4
Own shares
purchased - - - - (70.4) - - (70.4) - (70.4)
Provision for
share buybacks - - - (30.0) - - - (30.0) - (30.0)
Net increase due
to shares held in
ESOP trusts - - - - (4.2) - - (4.2) - (4.2)
Equity dividends - - - - - (84.6) - (84.6) - (84.6)
At 31 December 178.9 2,134.2 - (30.0) (80.0) (2,663.3) 9.4 (450.8) - (450.8)
2007
13. Business combinations
In 2007, the Group acquired the following interests with net assets at fair
value of £50.7 million, for a consideration of £64.9 million (cash paid of £60.9
million, with a deferred consideration of £4.0 million), resulting in goodwill
on acquisition of £14.2 million:
Consideration
£m Interest Date of acquisition
Paddington Casino Limited 10.7 65%* 3 January 2007
Sponsio Limited 41.8 100% 18 January 2007
European Retail acquisitions
Keenan Sports and Leisure Limited 3.1 100% 28 February 2007
Micheletto Agenzia Ippica Cuneo SRL 1.4 100% 27 June 2007
Parco Del Lido SRL 4.3 100% 7 August 2007
Montecarlo SRL 1.5 100% 10 August 2007
Laura Bassi SRL 1.5 100% 29 August 2007
Ace Racing Limited 0.6 100% 30 November 2007
* The acquisition of the 65% during 2007 took the Group's shareholding to 100%.
At 31 December 2006, the Group held a 35% shareholding which it accounted for as
an investment in associate.
Sponsio Limited
Sponsio Limited is a Swedish service provider for the Group's eGaming operations
and has formed part of the Group's eGaming segment.
The acquisition and fair value balance sheet of Sponsio Limited is as follows:
13. Business combinations (continued)
Acquiree's Fair
carrying amount Value Total
before combination adjustments
£m £m £m
Non-current assets
Intangible assets - customer relationship - 40.5 40.5
Current assets
Trade and other receivables 0.7 - 0.7
Cash and cash equivalents 1.9 - 1.9
Total assets 2.6 40.5 43.1
Current liabilities
Trade and other payables (1.3) - (1.3)
Total liabilities (1.3) - (1.3)
Fair value of net assets acquired 1.3 40.5 41.8
Consideration
Cash consideration 37.4 - 37.4
Acquisition costs 0.4 - 0.4
Deferred consideration 4.0 - 4.0
Total consideration 41.8 - 41.8
The cash outflow on acquisition is as follows:
Net cash acquired with subsidiaries (1.9) - (1.9)
Cash paid (including costs) 37.8 - 37.8
Net cash outflow 35.9 - 35.9
The customer relationships of £40.5 million relate to the fair value of
contracted relationships that Sponsio Limited held at the acquisition date.
From the date of acquisition, Sponsio Limited has contributed £nil to revenue
and £2.3 million of operating profit to the Group.
Paddington Casino Limited
Paddington Casino Limited is a land based casino based in London, England and
has formed part of the Group's Other segment.
The acquisition and fair value balance sheet of Paddington Casino Limited is as
follows:
13. Business combinations (continued)
Paddington
Casino Limited
£m
Non-current assets
Intangible assets 0.5
Property, plant and equipment 4.3
Current assets
Trade and other receivables 0.1
Cash and cash equivalents 0.5
Total assets 5.4
Current liabilities
Trade and other payables (1.3)
Interest bearing loans and borrowings (4.1)
Total liabilities (5.4)
Fair value share of net assets acquired -
Goodwill arising on acquisition 10.7
Consideration
Cash consideration 10.6
Acquisition costs 0.1
Total consideration 10.7
The cash outflow on acquisition is as follows:
Net cash acquired with subsidiaries (0.5)
Cash paid (including costs) 10.7
Net cash outflow 10.2
The goodwill of £10.7 million comprises a customer list, which is not separately
recognised. The customer list is not contracted and therefore does not need
recognition criteria under IAS 38 Intangible Assets.
From the date of acquisition, Paddington Casino Limited has contributed £7.2
million to revenue and £0.7 million of operating loss to the Group.
European Retail statutory acquisitions
The Group made six acquisitions, which have formed part of its European Retail
segment:
- Keenan Sport and Leisure Limited (based in Ireland)
- Ace Racing Limited (based in Ireland)
- Micheletto Agenzia Ippica Cuneo SRL (based in Italy)
- Parco Del Lido SRL (based in Italy)
- Montecarlo SRL (based in Italy)
- Laura Bassi SRL (based in Italy)
13. Business combinations (continued)
As shown in the table below, these acquisitions have been disclosed in
aggregate, as they are not considered individually material to the Group.
Acquiree's Fair value Fair value
carrying amount adjustments
before
combination
£m £m £m
Non-current assets
Goodwill and intangible assest 0.3 12.1 12.4
Property, plant and equipment 0.7 (0.7) -
Other financial assets 0.1 - 0.1
Current assets
Trade and other receivables 0.2 - 0.2
Cash and cash equivalents 1.3 - 1.3
Total assets 2.6 11.4 14.0
Current liabilities
Trade and other payables (1.6) - (1.6)
Deferred income tax liability - (3.5) (3.5)
Total liabilities (1.6) (3.5) (5.1)
Fair value of net assets acquired 8.9
Goodwill arising on acquisition 3.5
Consideration
Cash consideration 11.8
Acquisition costs 0.6
Total consideration 12.4
The cash outflow on acquisition is as follows:
Net cash acquired with subsidiaries (1.3)
Cash paid (including costs) 12.4
Net cash outflow 11.1
From the date of acquisitions, the European Retail acquisitions have contributed
£2.5 million to revenue and £0.6 million of operating profit to the Group.
If the Sponsio Limited, Paddington Casino Limited and European Retail statutory
acquisitions has been completed on the first day of the financial year, Group
revenues for the year would have been £5.4 million higher and the Group profit
attributable to the equity holders of the parent company would have been £1.3
million higher than that disclosed in the Income Statement.
13. Business combinations (continued)
2006 Acquisitions
In 2006, the Group acquired the following interests with net assets at fair
value of £19.3 million (including licences of £27.6 million), for a
consideration of £28.6 million (cash paid of £26.0 million, with a deferred
consideration of £2.6 million), resulting in goodwill of £9.3 million.
Consideration Interest Date of acquisition
£m %
Harney Bookmaker Limited 6.2 100.0% 26 April 2006
MD Betting Limited 4.8 100.0% 15 September 2006
North West Boomakers Limited 12.8 100.0% 29 September 2006
Nuova Pianeta Scommesse SRL 0.7 51.0% 18 September 2006
Mantovani SRL and Better SRL 4.1 100.0% 1 December 2006
From the date of these acquisitions to 31 December 2006, the European Retail
acquisitions contributed £1.7 million to the net profit of the Group. If these
acquisitions had been completed on the first day of 2006, profit from these
acquisitions in 2006 would have been £4.4 million.
14. Financial guarantee contracts
The Group has given guarantees to third parties in respect of lease liabilities
of subsidiaries within the disposed hotels division. The Group has an indemnity
received from Hilton Hotels Corporation (HHC), at the time of the hotels
division disposal, in relation to any loss the Group may subsequently incur
under these third party guarantees.
The maximum liability exposure in respect of the guarantees is £1,228.1 million
(2006: £1,288.9 million), with a maximum indemnity receivable of the same
amount. The maximum liability represents the total of all guaranteed rentals
under the non-cancellable agreements into which the Group has entered. These
guarantees expire between 2009 and 2042 and the net present value of the maximum
exposure at 31 December 2007 is £635.8 million (2006: £658.9 million). The Group
monitors its exposure under these guarantees on a regular basis and seeks to
novate its obligations.
At 31 December 2007 the Group has recognised a financial liability of £10.0
million (2006: £14.0 million) in respect of these guarantees together with a
financial asset of £3.0 million (2006: £7.0 million) in relation to the
indemnity.
The financial guarantees liability has been valued using a probability based
model to estimate the net present value of the liabilities payable in the event
of a default by the hotels covered by the guarantees, and the probability of
such a default and new leases being identified.
14. Financial guarantee contracts (continued)
The key assumption in the probability model is the hotel default rate. A rate of
1.2 per cent has been used as at 31 December 2007 (2006: 1.7 per cent). A 0.25
percentage point increase in the default rate would increase the financial
liability by £2.0 million.
The financial guarantee asset has been valued on a similar basis to the
liability, taking account of historic default data from internationally
recognised credit-rating agencies and the credit profile of the counter party,
HHC, to assess the likelihood of HHC continuing to be solvent at the time of any
future potential claim under the indemnity.
15. Restatement of income statement and balance sheet for prior year
Year ended 31 December 2006
Reported Adjustment Adjustment Restated
Before Discontinued Revenue Before
non-trading operations - non-trading
Items Vernons Items
£m £m £m £m
Amounts Staked(1) 12,383.8 (37.9) - 12,345.9
Continuing operations
Revenue 966.0 (18.6) - 947.4
Share of results from associates 4.0 - (4.0) -
Total revenue 970.0 (18.6) (4.0) 947.4
Cost of sales before depreciation (573.3) 3.6 - (569.7)
Administrative expenses (86.2) 8.9 - (77.3)
Share of results from joint ventures and
associates - - 4.0 4.0
EBITDA 310.5 (6.1) - 304.4
Depreciation and amounts written off non -
current assets (42.4) 0.2 - (42.2)
Profit before tax and finance costs 268.1 (5.9) - 262.2
Finance costs (62.3) 1.0 - (61.3)
Finance income 40.7 - - 40.7
Profit before taxation 246.5 (4.9) - 241.6
Income tax expense (43.9) 1.5 - (42.4)
Profit for the year - continuing operations 202.6 (3.4) - 199.2
Discontinued operations
Profit for the year from discontinued
operations 7.0 3.4 - 10.4
Profit for the year 209.6 - - 209.6
Attributable to:
Minority interests - - - -
Equity holders of the parent 209.6 - - 209.6
209.6 - - 209.6
Earnings per share from continuing operations:
- basic 22.0p (0.3)p - 21.7p
- diluted 21.5p (0.3)p - 21.2p
Earnings per share on profit for the year:
- basic 22.8p - - 22.8p
- diluted 22.2p - - 22.2p
(1) Amounts staked does not represent the Group's statutory revenue and
comprises the total amount staked by customers on betting and gaming activities.
15. Restatement of income statement and balance sheet for prior year
(continued)
Non-trading finance costs and finance income has been restated to disclose the
net impact of gains and losses arising from fair value hedges within finance
costs.
The balance sheet for 31 December 2006 has been restated for reclassifications
of £2.9 million non-current liability provisions to current liability provisions
and £1.0 million of non-current financial liabilities to current financial
liabilities.
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