Interim Results
Paddy Power plc
06 September 2006
Paddy Power plc
Interim Results for the 6 Months Ended 30 June 2006
Paddy Power plc today announces its interim results for the six months ended 30
June 2006.
Financial highlights included:
• Turnover up 27% to €878m with growth across all channels. World Cup finals
generated turnover of €48m, €37m of which related to matches played by 30
June.
• Gross win up 30% to €105m boosted by 83% increase in win from online gaming
and FOBTs.
• Operating profit up 11% to €19.6m after inclusion of a once-off cost of €4m
relating to our decision to introduce 'tax-free' betting into our Irish
shops early. Profit before tax up 12% to €20.5m.
• Interim dividend up 22% reflecting intention to increase the full year
dividend payout ratio to 40%.
Business highlights included:
• Continued expansion and promotion of our online gaming businesses as
exemplified by our sponsorship of the Irish Open poker tournament,
Ireland's first ever guaranteed €1m poker event.
• Launch of three new online businesses: 'reverse auctions' in January, a
German language sportsbook in April and bingo in July.
• Exceeded 200 retail outlets with four new opening in Ireland and six in the
UK taking the total estate to 205.
Commenting on the results Patrick Kennedy, Chief Executive, Paddy Power plc
said:
'Our business has grown substantially in the first six months of the year.
Turnover, gross win and profits have grown in each of our three divisions and,
in addition, we have launched three more new businesses. We look forward to the
rest of the year and beyond with confidence.'
ENDS
6 September 2006
Issued on behalf of Paddy Power plc by Drury Communications Ltd
For reference:
Patrick Kennedy Jack Massey
Chief Executive Finance Director
Paddy Power plc Paddy Power plc
Tel: + 353 1 404 5912 Tel: + 353 1 404 5912
Billy Murphy / Sarah Ryan Trevor Phillips
Drury Communications Ltd Holborn PR
Tel: + 353 1 260 5000 Tel: + 44 20 7929 5599
Mobile: + 353 87 6767452 (SR) Mobile: + 44 7889 153 628
2006 Interim Financial Highlights
For the six months ended 30 June 2006- unaudited
Six Months ended 30 Six Months ended % Change
June 2006 30 June 2005
€m €m
Amounts staked by customers
Retail 474.7 401.3 +18%
Telephone 155.0 127.6 +22%
Online 247.9 161.2 +54%
Total staked * 877.6 690.1 +27%
€'000 €'000
Revenue
Retail 61,841 49,628 +25%
Telephone 12,369 10,985 +13%
Online 30,757 20,319 +51%
Total revenue* 104,967 80,932 +30%
Operating profit
Retail 6,721 6,653 +1%
Telephone 3,203 2,960 +8%
Online 9,696 8,141 +19%
Total operating profit 19,620 17,754 +11%
Profit for the period 17,496 15,796 +11%
Basic earnings per share 34.8c 31.7c +10%
Interim dividend per share 9.43c 7.75c +22%
* Amounts staked by customers (or 'turnover') represent amounts received in
respect of bets placed on sporting events that occurred during the period and
net winnings on gaming activities. Revenue (or 'gross win') represents the net
gain on sports betting transactions (stake less payout) and net winnings on
gaming activities.
Interim Statement
I am pleased to report on a successful six months for Paddy Power. The Group
has continued to grow strongly, with the launch of three new businesses and good
growth across all of our existing businesses. During the period to 30 June 2006,
the amounts staked with the Group across our three channels increased by 27% to
€878m. Gross win increased by 30% to €105m. Operating costs grew 29% in line
with our expectations, as a result of both turnover growth and continued upfront
investment for future turnover growth. Operating profits increased 11% to
€19.6m and basic earnings per share increased by 10% to 34.8c.
This profit growth is particularly strong in the context of a bonanza for Irish
punters in the six months. They benefited from our decision to introduce '
tax-free' betting into the Irish shops early, with a once-off cost to us in the
period of €4m. Patriotic punters were also rubbing their hands, with a record
haul of ten Irish winners at Cheltenham, an Irish winner at the Grand National,
Ireland winning the Triple Crown, and last, but certainly not least, Munster
finally fulfilling their destiny to win the Heineken Cup! The summer's World
Cup finals helped dull the pain for us, with total bets of €48m, €37m of which
related to matches played by 30 June.
The following review not only highlights our financial results but also our
commitment to what makes us different: our people, our brand and our innovative
product range.
The Retail Division
The amounts staked grew by 18.0% to €475m. The average stake per slip increased
9.6% to €20.22, while the number of slips grew 7.6% to 23.3m. Gross win,
including income from fixed odds betting terminals (FOBTs) in our UK estate,
increased by 24.6% to €61.8m. The gross win percentage in the retail sportsbook
was 12.5% compared to 12.0% in 2005. The guided range remains 11% to 13%.
The gross win percentage in the period benefited from several favourable factors
specific to the retail division. These included the anticipated positive impact
of our Electronic Point of Sale (EPOS) system, an increase in multiples within
the mix and slightly higher than average horse racing and greyhound margins.
Operating costs increased by 19.5% reflecting the growth in the number of retail
outlets and continued upgrading of the retail estate, including EPOS. Operating
profit increased €0.1m to €6.7m, impacted by the €4m one off cost relating to
the early introduction of 'tax-free' betting.
EPOS has been rolled out to 185 of the 205 shops we had across Ireland and the
UK as at 30 June 2006. Total capital expenditure on this project remains in line
with our estimate of approximately €10.6m with €5.1m spent during the period
taking the cumulative spend to €9.3m. The gradual deployment across the estate,
supported by extensive training and feedback, successfully met our priorities
for an optimised product and seamless customer service. We expect to have the
remainder of the estate installed with EPOS by the end of 2006. EPOS has
already improved the quality of our customer service, by enhancing the speed and
accuracy of payout, and enabling us to expand our product range. Value is also
being derived in risk, security and marketing. We look forward to realising the
system's full benefits in 2007.
Our trademark product and service innovation continues to improve the Paddy
Power customer experience. In horse racing, we now provide early prices for
every UK and Irish horse race. In addition, we launched several new products
including race insurance, with the punter being refunded if his horse is placed;
we are the only bookmaker offering place-only betting on all UK races daily (and
most of the Irish races); and we now lead the market in
betting-without-the-favourite, match betting and distance betting in horse
racing. We also expanded our betting-in-running product, with more markets
added in football and rugby.
(i) Irish Retail
The amounts staked within Irish retail grew by 16.2% to €414m. Like-for-like
growth in amounts staked was 11.9%. Gross win grew by 20.8% to €51.6m.
Operating profit of €9.7m was €1.1m or 13.2% up on the comparable period in
2005.
Our brand, the quality of our people, and our innovative product range drive
this growth, as they do in all our channels. In addition, the growth in our
Irish retail estate is driven by:
- The very significant investment we have made in the estate in the
last four years
- The continuing positive economic and demographic backdrop in Ireland
- The move to 'tax-free' betting in December 2005
When the Irish Government announced in the budget last December that it was
eliminating the 2% customer based betting tax and replacing it with a 1% tax
levied on the bookmaker from 1 July 2006, we decided not to wait; instead we
offered our customers a discount equal to the tax from the morning after the
budget. The cost of absorbing the 2% charge resulted in discounts of €8.3m, an
increase of €4.4m and €3.9m compared to the first and second half of 2005
respectively, when such discounts were offered within parts, rather than all, of
the estate. In the second half of 2006, the reduction in the tax rate from 2%
to 1% will halve this cost, returning it to levels comparable with 2005, and
save the Group approximately €4m.
Paddy Power has continued to expand in the Irish retail market opening four new
outlets in the six months under review, taking our total number of outlets in
Ireland to 154. We expect to open at least another six outlets by year end. We
have also continued to enhance our existing estate, with two outlets extended
and five refitted.
We noted with interest the decision of the Minister for Justice, Equality and
Law Reform this summer to introduce regulated casinos into Ireland and will
consider opportunities that this might provide to Paddy Power.
(ii) UK Retail
We have continued to make substantial progress in our UK retail estate:
- We operated 51 outlets as at the end of June, an increase of six
since December 2005 and 18 since June 2005
- Our FOBT gross income grew by 112% to €3.6m, and by 50.8% on a
like-for-like basis
- The combined group of 30 shops we opened in 2003 and 2004 moved into
the generation of positive EBITDA in the period
- Our brand continues to grow strongly, with recognition of 21% amongst
all adults in London, up from 16% in 2005
- Market research indicates that our customers rate us much more highly, on
all key attributes, than those of our key competitors, and are more loyal
and less likely to switch. It also indicates that customers of local
competitors who would consider switching are, by a distance, most likely to
switch to Paddy Power
We look forward to deregulation next year in the UK, which will feature extended
shop opening hours, the installation of higher payout gaming machines and
improved shop opening opportunities. Our priority is to optimise our
proposition in anticipation of this deregulated market and, in this regard, our
overriding focus is to continue to improve the performance of our existing
estate. While we intend to grow the estate organically to a total of up to 60
shops by the end of the year, performance will take priority over further shop
openings.
In the 6 months ended 30 June 2006, amounts staked over-the-counter ('OTC') grew
by 33.2% or €14m, to €57m. Gross win, including FOBTs, increased by 56.2% to
€10.7m. Like-for-like gross win grew by 13.2%, with OTC growth of 1.0% and FOBT
growth of 50.8%. The OTC growth was adversely affected by the very strong FOBT
growth with some punters switching their stakes between these products. The
average gross drop per FOBT machine per month increased 29.6% to €3,500 and
there were 186 machines installed as at 30 June 2006. Whilst like-for-like shop
financial performance improved, operating losses increased to €3.0m as compared
to €2.0m during the comparative period last year, reflecting the 18 new shops
opened and necessary increased investment in the central operational
infrastructure for the enlarged estate.
We brought our creative strengths to the fore during the World Cup attracting UK
retail and online customers. Specific initiatives such as offering the best
price amongst all bookmakers on England in the quarter-finals and the Money-Back
Special refunding punters whose teams were knocked out in penalty shootouts,
served to emphasise the Paddy Power brand and difference. Unfortunately, if
somewhat predictably, England exited on penalties!
In fact, our penalty refund specials have bailed Paddy Power punters out
continuously in the last year. Last year's FA Cup final and Champions League
final and this year's FA Cup final were all decided by penalties, as well as the
exit of Argentina, France and Switzerland, in addition to England, from the
World Cup. You'd think we'd have learnt our lesson!
Looking forward, we expect improving financial results from continuing momentum
in the existing UK retail estate although there will be some offset from
additional shop openings and the imposition of Amusement Machine Licence Duty
from August 2006, which will cost the Group approximately €0.6m annually based
on current FOBT numbers.
The Non Retail Division
The non retail division comprises telephone betting, online betting and games.
Operating profit from the division increased by 16.2% to €12.9m, comprising
€3.2m from the telephone channel, an increase of 8.2%, and €9.7m from the online
channel, an increase of 19.1%. Both channels successfully utilised the World
Cup to achieve particularly significant growth in active customers during the
period.
The gross win percentage in both channels was below expectations, at the bottom
of the guided range in the telephone channel and outside the range in the online
sports book. Nonetheless, the overall sportsbook gross win within non retail
grew 26.1% compared to the six months ended 30 June 2005, driven by exceptional
sportsbook turnover growth of 38.6% in the same period. This compares with
growth in sportsbook gross win of 14.5% and turnover of 20.6% for the year ended
31 December 2005.
There were several reasons for this margin performance. We experienced strong
growth but lower margins in the period in betting-in-running; we will continue
to evaluate the interplay between turnover growth opportunities and margin. In
addition, football margins were lower than expected, based on results in the six
months. Strong performance by the fancied teams in the Premiership was followed
by what at that stage was the highest football turnover match in our history -
unfortunately a late Barcelona goal had not just Arsenal supporters crying into
their beer. In the World Cup, we achieved our absolute profit target, but on
higher than expected turnover, as the punters won a fortune early on with 18 of
the first 22 matches being won by the favourite.
(i) The Telephone Channel
The amounts staked within the telephone channel grew by 21.5% to €155m. We
continue to seek a greater average bet size in the telephone channel where the
cost of delivery is higher, while encouraging lower staking customers to switch
to the online channel. Good progress has been made in the period in this regard
with the average stake per bet increasing 11.6% to €99.06, while bets grew 8.8%
to 1.57m. The average gross win percentage during the six months was 8.0%
compared to 8.6% in 2005 and a guided range of 8.0% to 9.0%. Gross win grew
from €11.0m to €12.4m reflecting the strong turnover growth.
Telephone Channel Active Customers 2006 2005 % Change
Ireland and Rest Of World 13,709 12,474 9.9%
UK 11,709 8,959 30.7%
Total 25,418 21,433 18.6%
(Active customers are defined as those who have bet in the last three months)
Our call centre was successfully relocated to a new building beside our existing
headquarters in Dublin in May 2006. The move was handled seamlessly and
operational efficiencies continue to be achieved following the move. The new
building increased the call centre capacity by an initial 25% and also offers
additional capacity as needed over the next few years.
Operating costs within the telephone channel increased by 23.2% to €8.0m
reflecting volume growth and the investment in the new call centre location,
partially offset by savings from operational efficiencies and reductions
negotiated on third party charges.
(ii) The Online Channel
There has been strong growth in active customers of the Paddy Power online
channel during the six months under review. The growing customer base has also
demonstrated a developing propensity towards multi-product usage.
Online Channel Active Customers 2006 2005 % Change
Ireland and Rest Of World 46,564 26,818 73.6%
UK 86,810 47,181 84.0%
Total 133,374 73,999 80.2%
Online Customers Product Usage 2006 2005 % Change
Sportsbook only 95,950 59,132 62.3%
Gaming only 15,411 3,983 286.9%
Multi product customers 22,013 10,884 102.3%
Total 133,374 73,999 80.2%
(Active customers are defined as those who have bet in the last three months)
Our investment in the targeted recruitment of dedicated management teams for our
online business has been an important factor in the development of the business.
We have attracted and retained high quality, dedicated individuals from a
range of e-commerce backgrounds which bodes well for future performance.
Operating costs within the online channel increased by €6.0m to €13.4m. The
major drivers of this increase were:
- The launch of new businesses and expansion of businesses recently launched
- Volume driven promotional spend and marketing spend on initiatives
such as the Irish Open poker tournament
- Growth in customer and transaction volumes
(a) Sportsbook
The amounts staked online on the sportsbook increased by 52.7% to €235.0m.
Within this, bet volumes grew 56.6% to 8.5m while the average bet value
decreased 2.5% to €27.60, consistent with our objective of encouraging lower
staking telephone customers to switch to the online channel.
The average gross win percentage during the six months fell to 7.6% compared to
8.4% in the comparable period in 2005 and a guided range of 8.0% to 9.0%.
Nonetheless as a consequence of the very high turnover growth the overall gross
win was up 37.5% to €17.8m.
The German language online sportsbook launched in April has been progressing in
line with plan and the expectation for a small loss in 2006. Our product range
has been expanded to meet continental European preferences with the inclusion of
ice-hockey, basketball and additional soccer coverage. We have also introduced
the German speaking punter to our fun approach to betting with topical novelty
bets such as the number of streakers during the World Cup, the majority of
punters correctly predicting none at odds of 4/6!
We have made several improvements to our online sportsbook product including a
revamp to the look and feel of the web site, the addition of 'select-your-own'
handicaps for Gaelic games and, of course, more fun bets including which team
the Pope would support in the World Cup and which commentary cliches would be
trotted out first!
(b) Gaming
The online channel also generates gaming revenues from casino products, gaming
products and poker. Revenue from these sources, representing the operator's net
'hold' or commission income ('rake'), increased by 75.8% to €12.9m. Growth was
achieved across all three product categories, with the growth particularly
marked in poker, given it was only launched during the comparative period.
Against the more recent trading period of the six months ended 31 December 2005,
gaming revenues rose 31.6%.
Our commitment to poker and the ongoing promotion of our brand led to our
sponsorship of the 2006 Irish Open poker tournament. The Irish Open is the
longest running poker tournament in Europe, but its 25th anniversary set new
landmarks for the tournament as Ireland's first ever guaranteed €1m event and
Ireland's largest ever poker event. The final was broadcast live across Europe
on Sky Sports and was hailed as a tremendous success by commentators, the poker
media and players alike. Plans are already being hatched for next year when
Paddy Power will guarantee a €2m event, reflecting both the growth of our own
poker business and the poker market overall.
Product expansion in the gaming area also continued with the launch of 'reverse
auctions' in January and online bingo in July. Both these products encapsulate
the Paddy Power brand values of fun, fair and friendly and give us particular
potential to attract new types of customers to Paddy Power.
The occasionally 'cheeky' face of our brand was exemplified this summer when we
ran the first World Strip Poker Championship with 195 participants in London. On
1 April Paddy Power issued a press release stating we were going to try and
break the world record for the largest strip poker tournament. It was an April
Fool's joke but within minutes we were receiving phone calls and emails from
individuals and organisations from all over the world wanting to know more
details about this notional event. That got us thinking......the rest is
history!
Taxes
The corporation tax charge for the six months to 30 June 2006 was €3.0m, an
effective tax rate of 14.6%. This compares with an effective tax rate of 14.0%
in the prior year comprised of a 14.7% charge for 2005 and a 0.7% credit due to
an over provision in relation to 2004. No corporation tax is payable in the UK
due to tax losses. The Group's effective tax rate is 2.1% above the Irish
statutory rate due to the impact of a number of non-deductible expenses. All
other things being equal, the Group expects an increase in its effective tax
rate from July 2006 as a result of the non-deductibility of the revised 1%
revenue based tax on amounts staked within Irish retail. Based on the amounts
staked within Irish retail in the period under review, this change would have
added €0.5m to the tax charge for the half year. While the Group welcomes the
1% reduction in the rate of this tax, it will continue, along with other
industry participants, to seek to have this genuine business expense made
allowable as a corporation tax deduction.
International Financial Reporting Standards (IFRS)
As noted in our 31 December 2005 financial statements, the accounting treatment
of sportsbook bets has been under discussion within the betting industry given
that they have many of the characteristics of a derivative transaction as
defined by IAS 39 'Financial Instruments: Recognition and Measurement'. In line
with the emerging industry practice, the Group has concluded that a sportsbook
bet is a financial instrument and is now therefore accounting for sportsbook
bets in accordance with that accounting standard. The main effect of this is
that the revenue from betting is reported as gross win rather than the gross
amount staked, and bets received at period end in relation to events that have
not occurred, are included within gross win at their fair value rather than
treated as deferred revenue. This change has had no impact on reported profits
and we have continued to disclose the amounts staked on the sportsbook and the
net revenue from gaming.
One other accounting presentation change arises due to a change in the tax
regime for FOBTs, whereby UK gross profits tax has been replaced by VAT. While
the amount of tax levied is broadly unchanged, accounting practice requires that
income is included within revenue net of VAT, whereas previously the income was
included gross with the gross profits tax being deducted in arriving at gross
profit. To prevent distortions in the comparisons of FOBT income between
periods, we have continued to disclose FOBT income for the six months ended 30
June 2006 gross of VAT of €0.5m in the above UK Retail commentary.
Cash Flow
Cash balances at 30 June 2006 were €68.3m compared to €52.3m at 31 December
2005, an increase of €16.0m. This includes cash balances held on behalf of
customers of €12.9m compared to €10.0m at 31 December 2005. Net cashflow from
operating activities for the six months ended 30 June 2006 increased by 46.3% or
€11.6m to €36.5m from €25.0m in 2005. While profit before tax growth of €2.1m
or 11.5% was a significant driver, the main factor was the positive working
capital contribution of €8.8m compared to €1.1m in the first six months of 2005.
This was largely due to high World Cup antepost betting at 30 June 2006, growth
in non retail customer balances and growth in business volumes. Cash was
applied acquiring tangible and intangible assets of €12.6m comprising the fit
out of new and upgraded retail outlets and the roll out of EPOS. In addition,
dividends of €6.5m, the funding of share purchases by the trustees of the
long-term incentive plan of €3.7m and corporation taxes of €1.0m were paid
during the period. Cash received from the exercise of share options amounted to
€1.6m.
Dividend
Our industry is very fast moving with new opportunities continuously emerging.
We will continue to expand aggressively, and whilst historically our growth has
been self financing, it is possible that this may not always be the case.
Nonetheless, the Board is committed to a progressive dividend policy, and
intends to increase the dividend payout ratio to 40% in the current year. It
has decided to pay an interim dividend of 9.43c per share, an increase of 21.7%
on the 2005 interim dividend, resulting in a total expected payment of €4.8m.
This dividend is payable on 29 September 2006 to shareholders on the register at
the close of business on 15 September 2006.
Outlook
The business continues to grow strongly in the second half of the year, although
as is often the case in the months of July and August gross win percentages have
been somewhat weaker than in the first half. Subject to the volatility that
could arise from sporting results, the Group remains on track to deliver its
targeted operating profit for the year, in line with consensus markets
forecasts, which would represent around 40% growth on last year.
Fintan Drury
Chairman
5 September 2006
Consolidated Interim Income Statement
For the six months ended 30 June 2006 - unaudited
Note Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
€'000 €'000 €'000
Amounts staked by customers 877,625 690,144 1,371,710
Revenue 2 104,967 80,932 160,848
Cost of Sales (19,745) (12,281) (25,278)
Gross profit 85,222 68,651 135,570
Employee costs (30,395) (24,243) (51,076)
Property expenses (10,048) (8,489) (17,398)
Marketing expenses (9,277) (5,975) (11,346)
Technology & communications (5,366) (3,995) (8,171)
Depreciation & amortisation (6,476) (5,318) (11,295)
Other expenses (4,040) (2,877) (6,166)
Total operating expenses (65,602) (50,897) (105,452)
Operating profit before financing income 19,620 17,754 30,118
Financial income 867 613 1,226
Profit before tax 20,487 18,367 31,344
Income tax expense (2,991) (2,571) (4,390)
Profit for the period - attributable to 17,496 15,796 26,954
equity shareholders
Basic earnings per share 3 34.8c 31.7c 54.1c
Diluted earnings per share 3 34.5c 31.0c 52.9c
Proposed dividend per share for period 4 9.43c 7.75c 20.59c
Consolidated Interim Statement of Recognised Income and Expense
For the six months ended 30 June 2006 - unaudited
Six months ended 30 Six months Year ended
June 2006 ended 30 June 31 December 2005
2005
€'000 €'000 €'000
Group profit for the period 17,496 15,796 26,954
Currency translation effects - - (1)
Total recognised income and expense 17,496 15,796 26,953
Recognised income and expense is entirely attributable to the equity holders of
the Company.
Consolidated Interim Balance Sheet
As at 30 June 2006 - unaudited
30 June 2006 30 June 2005 31 December 2005
€'000 €'000 €'000
Assets
Property, plant and equipment 72,739 65,397 72,400
Intangible assets 10,669 3,175 5,495
Deferred tax asset 370 - 167
Total non current assets 83,778 68,572 78,062
Trade and other receivables 4,592 2,925 2,134
Cash and cash equivalents 68,281 50,107 52,318
Total current assets 72,873 53,032 54,452
Total assets 156,651 121,604 132,514
Equity
Issued capital 5,106 5,018 5,040
Share premium 9,121 6,824 7,548
Shares held by employee trust (8,137) (4,929) (4,929)
Reserves 5,249 2,618 4,142
Retained earnings 95,276 76,443 84,250
Total equity 106,615 85,974 96,051
Liabilities
Deferred tax liabilities 752 802 843
Total non current liabilities 752 802 843
Trade and other payables 40,842 30,154 32,796
Trading financial liabilities 5,369 1,669 2,077
Current tax payable 3,073 3,005 747
Total current liabilities 49,284 34,828 35,620
Total equity and liabilities 156,651 121,604 132,514
Consolidated Interim Cash Flow Statement
For the six months ended 30 June 2006 - unaudited
Six months ended 30 Six months ended 30 Year ended
June 2006 June 2005 31 December 2005
€'000 €'000 €'000
Cash flows from operating activities
Profit before tax 20,487 18,367 31,344
Financial income (867) (613) (1,226)
Depreciation and amortisation 6,476 5,318 11,295
Cost of employee share based payments 1,646 765 2,289
Loss on disposal of property, plant and equipment 45 90 267
Cash from operations before changes in working capital 27,787 23,927 43,969
(Increase)/ decrease in trade and other receivables (2,422) (578) 222
Increase in trade and other payables 11,180 1,629 3,320
Cash generated from operations 36,545 24,978 47,511
Income taxes paid (959) (2,450) (6,101)
Net cash from operating activities 35,586 22,528 41,410
Cash flows from investing activities
Purchase of property, plant and equipment (6,471) (11,364) (23,925)
Acquisition of intangible assets (6,105) (176) (2,068)
Proceeds from disposal of property, plant and equipment 700 88 329
Interest received 831 556 1,254
Net cash used in investing activities (11,045) (10,896) (24,410)
Cash flows from financing activities
Proceeds from the issue of new shares 1,639 157 903
Purchase of shares by employee trust (3,741) (2,623) (2,623)
Dividends paid (6,476) (6,265) (10,168)
Net cash used in financing activities (8,578) (8,731) (11,888)
Net increase in cash and cash equivalents 15,963 2,901 5,112
Cash and cash equivalents at start of period 52,318 47,206 47,206
Cash and cash equivalents at end of period 68,281 50,107 52,318
Notes to the Consolidated Interim Financial Statements
1. Basis of Preparation and Accounting Policies
The interim financial statements are prepared on the historical cost basis
except for betting transactions, which are recorded as financial instruments,
and share based payments both of which are stated at fair value. The financial
statements are presented in euro, rounded to the nearest thousand. The
statements have been prepared in accordance with the recognition and measurement
principles of International Financial Reporting Standards as adopted by the EU
at 30 June 2006. The accounting policies applied in the preparation of these
interim financial statements are consistent with those set out in the Annual
Report for the year ended 31 December 2005 except for a change in the Group's
revenue recognition policy which is outlined below.
In 2006, as a result of a change in industry practice, the Group has concluded
that a sportsbook bet is a financial instrument. As a result the Group now
accounts for betting transactions as trading financial instruments in accordance
with IAS 39 'Financial Instruments: Recognition and Measurement'. The
implications of classifying betting transactions as trading financial
instruments are twofold:
1. Firstly, in relation to sports betting activities, revenue now represents
the net gain/ (loss) on betting transactions (stake less payout) from
customers whereas previously revenue represented amounts staked by
customers and the payout was shown separately in cost of winning bets. In
previous financial statements this gain/ (loss) on betting transactions was
reported by the Group as 'Gross Win'.
2. Secondly, under IAS 39 amounts received from customers on events that have
not occurred by period end are measured at fair value. Thus at period end
open positions in respect of sports betting activities are carried at fair
market value and gains and losses arising on this valuation are recognised
in revenue, as well as gains and losses realised on positions that have
closed. In previous financial statements, amounts received from customers
on events that had not occurred by period end were treated as deferred
income.
The income statements for the six months ended 30 June 2005 and the year ended
31 December 2005 have been restated to reflect the change in reported revenue.
The changes had no impact on reported profits, cashflows and total equity for
periods ending 30 June 2005 and 31 December 2005.
The consolidated income statement of the Group will continue to show amounts
staked by customers but this is for information purposes only. Amounts staked
represent amounts received in respect of bets placed on sporting events in the
period and net winnings from gaming. The presentation of Group turnover for the
six months ended 30 June 2005 has been revised to include all gaming at net
winnings rather than amounts staked. This is consistent with the presentation
of turnover in the periods ended 31 December 2005 and 30 June 2006.
Revenue Recognition Policy
The services provided by the Group comprise sports betting, fixed odds games
betting, online casino and games and peer to peer games, including online poker.
Revenue is stated exclusive of value-added taxes and certain promotional
bonuses.
Retail, telephone and online sportsbook betting activities are classified as
financial instruments. Revenue from these activities represents the net gain or
loss from betting activities in the period plus the gain or loss on the
revaluation of open positions at period end.
Revenue from fixed odds games and online casino represents net winnings ('
customer drop') being amounts staked net of customer winnings. Revenue from
peer to peer games (including online poker) represents commission income ('
rake') and tournament fees earned from games completed by the period end.
Interest income is recognised on an accruals basis by reference to the principal
outstanding and the effective rate of interest.
2. Segmental Information
(a) By business segment
Business segment information for the six months ended 30 June 2006
Retail Non Retail Other Unallocated Total
€'000 €'000 €'000 €'000
Revenue 61,841 43,126 - 104,967
Gross profits tax, duty, royalties,
profit shares and other cost of sales (10,856) (8,889) - (19,745)
Gross profit 50,985 34,237 - 85,222
Depreciation and amortisation (4,834) (1,625) (17) (6,476)
Other operating costs (38,452) (17,745) (2,929) (59,126)
Operating profit 7,699 14,867 (2,946) 19,620
Financial income - - 867 867
Profit before tax 7,699 14,867 (2,079) 20,487
Total assets 82,672 9,329 64,650 156,651
Segment liabilities 12,240 21,077 16,719 50,036
Capital expenditure 10,616 2,115 2 12,733
Business segment information for the six months ended 30 June 2005
Retail Non Retail Other Unallocated Total
€'000 €'000 €'000 €'000
Revenue 49,628 31,304 - 80,932
Gross profits tax, duty, royalties,
profit shares and other cost of sales (5,944) (6,337) - (12,281)
Gross profit 43,684 24,967 - 68,651
Depreciation and amortisation (4,018) (1,300) - (5,318)
Other operating costs (32,478) (11,530) (1,571) (45,579)
Operating profit 7,188 12,137 (1,571) 17,754
Financial income - - 613 613
Profit before tax 7,188 12,137 (958) 18,367
Total assets 65,878 8,124 47,602 121,604
Segment liabilities 7,240 11,044 17,346 35,630
Capital expenditure 9,694 1,529 - 11,223
2. Segmental Information (continued)
Business segment information for the year ended 31 December 2005
Retail Non Retail Other Unallocated Total
€'000 €'000 €'000 €'000
Revenue 98,460 62,388 - 160,848
Gross profits tax, duty, royalties,
profit shares and other cost of sales (13,484) (11,794) - (25,278)
Gross profit 84,976 50,594 - 135,570
Depreciation and amortisation (8,481) (2,814) - (11,295)
Other operating costs (64,348) (23,737) (6,072) (94,157)
Operating profit 12,147 24,043 (6,072) 30,118
Financial income - - 1,226 1,226
Profit before tax 12,147 24,043 (4,846) 31,344
Total assets 67,346 9,141 56,027 132,514
Segment liabilities 10,432 12,165 13,866 36,463
Capital expenditure 24,302 3,166 - 27,468
(b) By geographical segment
Ireland & Ireland & Ireland & UK UK UK Total Total Total
Other Other Other
30/6/06 30/6/05 31/12/05 30/6/06 30/6/05 31/12/05 30/6/06 30/6/05 31/12/05
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 72,840 56,960 112,338 32,127 23,972 48,510 104,967 80,932 160,848
Segment 110,608 95,013 106,623 46,043 26,591 25,891 156,651 121,604 132,514
assets
Capital 8,994 7,478 18,598 3,739 3,745 8,870 12,733 11,223 27,468
expenditure
Further analysis of the business segments by channel shows:
Six months ended 30 Six months ended 30 Year ended
June 2006 June 2005 31 December 2005
€'000 €'000 €'000
Amounts Staked
Retail 474,699 401,342 794,321
Telephone 155,033 127,588 249,871
Online 247,893 161,214 327,518
877,625 690,144 1,371,710
Six months ended 30 Six months ended 30 Year ended
June 2006 June 2005 31 December 2005
Revenue €'000 €'000 €'000
Retail 61,841 49,628 98,460
Telephone 12,369 10,985 19,454
Online 30,757 20,319 42,934
104,967 80,932 160,848
Gross Profit
Retail 50,985 43,684 84,976
Telephone 11,192 9,448 17,151
Online 23,045 15,519 33,443
85,222 68,651 135,570
Operating Profit
Retail 6,721 6,653 9,480
Telephone 3,203 2,960 3,649
Online 9,696 8,141 16,989
19,620 17,754 30,118
3. Earnings per Share
Six months ended 30 Six months ended 30 Year ended
June 2006 June 2005 31 December 2005
€'000 €'000 €'000
Profit attributable to equity shareholders 17,496 15,796 26,954
Weighted average number of shares in issue during 50,235 49,792 49,840
the period
Dilutive effect of options outstanding 543 1,135 1,127
Adjusted weighted average number of shares in 50,778 50,927 50,967
issue during the period
Basic earnings per share 34.8c 31.7c 54.1c
Diluted earnings per share 34.5c 31.0c 52.9c
The basic weighted average number of shares excludes shares held by the Paddy
Power Employee Benefit Trust. The effect of this is to reduce the average
number of shares in the 26 weeks to 30 June 2006 by 439,543 shares.
4. Dividends paid and proposed
Six months ended 30 Six months ended 30 Year ended
June 2006 June 2005 31 December 2005
€'000 €'000 €'000
Final Dividend of 12.52c per share for year ended 6,265 6,265
31 December 2004
Interim dividend of 7.75c per share for period 3,903
ended 30 June 2005
Final Dividend of 12.84c per share for year ended 6,476
31 December 2005
6,476 6,265 10,168
The Directors propose an interim dividend of 9.43c per share which will be paid
on 29 September 2006 to shareholders on the Company's register of members at the
close of business on the record date of 15 September 2006. This dividend has
not been included as a liability at 30 June 2006.
5. Movement in equity
Share Share Other Shares held Share Retained Total
Capital Premium Reserves by long term based Earnings
incentive payment
plan trust reserve
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Balance at 1 January 2005 5,005 6,680 923 (2,306) 931 67,464 78,697
Recognised income and expense (1) 26,954 26,953
Dividends to shareholders (10,168) (10,168)
Share issues, net of costs 35 868 903
Shares purchased by (2,623) (2,623)
employee trust
Increase in share based reserve 2,289 2,289
Balance at 31 December 2005 5,040 7,548 922 (4,929) 3,220 84,250 96,051
Recognised income and expense 17,496 17,496
Dividends to shareholders (6,476) (6,476)
Share issues, net of costs 66 1,573 1,639
Shares purchased by (3,741) (3,741)
employee trust
Increase in share based 1,646 1,646
payment reserve
Transfers on vesting of 533 (539) 6 -
employee shares and options
Balance at 30 June 2006 5,106 9,121 922 (8,137) 4,327 95,276 106,615
6. Statutory financial statements
This interim report does not comprise full statutory financial statements. Full
statutory financial statements for the year ended 31 December 2005, prepared in
accordance with International Financial Reporting Standards as adopted by the EU
together with an unqualified audit report thereon are available from the
Company, from the website www.paddypowerplc.com and from the Registrar of
Companies.
7. Board approval
This interim report was approved by the Board of Directors of Paddy Power plc on
5 September 2006.
Independent review report to Paddy Power plc
Introduction
We have been engaged by the Company to review the financial information for the
six months ended 30 June 2006 which comprises the consolidated interim income
statement, consolidated interim balance sheet, consolidated interim statement of
recognised income and expense, consolidated interim cash flow statement and
related notes. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Irish Stock Exchange and the UK Financial Services Authority. Our
review has been undertaken so that we might state to the Company those matters
we are required to state to it in this report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
This interim report, including the financial information contained therein, is
the responsibility of and has been approved by the Directors. The Directors are
responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in Ireland and the United Kingdom. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
KPMG
Chartered Accountants
Dublin
5 September 2006
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