Paddy Power plc
2003 Preliminary Results
Announcement
Record Results
Paddy Power
plc, trading as Paddy Power Bookmaker, Ireland’s leading off-course bookmaker,
today announced record turnover, operating profit and earnings per share for the
year ended 31 December 2003.
2003
2002
€
€
Change
Turnover
913.6m
673.8m
+36%
Operating
Profit
19.6m
17.1m
+15%
Profit
Before Tax
20.4m
17.8m
+15%
Profit After Tax
17.6m
14.8m
+19%
EPS
36.97c
31.38c
+18%
Cash
Balance
39.2m
36.4m
+ 8%
Final
Dividend
8.59 c
6.80c
+26%
Commenting on the results, John O’Reilly, Chief Executive
Paddy Power plc said: “Our development strategy for Ireland and the UK is
very much on track. Our core
business, the Irish shops, has grown significantly through new openings,
relocations and extensions.
Similarly, the rollout of our UK shops continues apace. Paddypower.com and our Dial-a-Bet
divisions have exceeded targets and should continue to generate solid
returns. Overall, we are very
pleased with these results.”
Ross Ivers, Finance Director, Paddy Power plc said:
“The business remains highly cash generative. Organic growth was achieved through
prudent management and on-going cost control. We continue to ensure that we have the
financial capacity to fund further growth while delivering strong shareholder
returns.”
25th
February 2004
Issued
on behalf of Paddy Power plc by Drury Communications
For
reference:
|
John
O’Reilly Chief
Executive Paddy
Power plc Tel:
+ 353 1 4045912 Mobile: + 353 87 254
1688
|
Ross
Ivers Finance
Director Paddy
Power plc Tel:
+ 353 1 4045912 Mobile:
+ 353 87 668 8772 |
|
Mark
Cahalane /Oonagh Daly Drury
Communications Ltd Tel:
+ 353 1 260 5000 Mobile:
+ 353 87 855 4406 |
Trevor
Phillips
Holborn Tel: + 44 207 929
5599
Mobile:
+ 44 7889 153628 |
Chairman’s
Statement
Dear
Shareholder,
I assumed the position of Chairman on May 26
2003. It is the norm to say how
honoured you are, but in truth, being so involved with a bookie had never been
high on my list of life ambitions.
Now, having been on the Board of Paddy Power for over a year and Chairman
for nine months, I realise how wrong I was! It’s a dynamic industry and Paddy
Power, thanks to the efforts of its staff, management and Board over the past 16
years, is an excellent business with great potential.
What a year to
become Chairman! Record results (as
set out below) were achieved despite a series of horse racing results (at the
Cheltenham Festival in March and to a lesser extent at the Aintree Grand
National meeting in April) that were so pro-punter as to make you weep. Well, weep if you are already Ireland’s
largest and most fun loving pro-punter bookmaker that does so much for its
customers without favourite after favourite romping home during the biggest
festival of the lot!
Ÿ
Turnover €913.6m (+ 36%)
Ÿ
Pre Tax
Profits €20.4m (+ 14.5%)
Ÿ
EPS 36.97c (+
17.8%)
Ÿ
Dividend 12.89c
(+26.4%)
Ÿ
Cash Balances
39.2m (+7.7%)
Even allowing for
Cheltenham and the Grand National, 2003 was an excellent year for Paddy Power
when results once again demonstrated that our customer focused business model
works. The ups and downs of results
are an integral part of betting.
While as bookmakers, we prefer more ups than downs, we live in the
knowledge of what goes around comes around as we saw in the second half of
2003.
Customer focus
continues to drive record turnover across all divisions with Retail, Telephone
and Online divisions growing by 23%, 44%, and 80% respectively. Our commitment given in 2000 that the
Online division would break even in 2003, has been exceeded with it generating
€1.4m in operating profit whilst the expansion of the Irish and UK shop estate
continued as promised. The
Telephone (Dial-a-Bet) division also continues to play a key role in the Group
and showed a marked improvement in performance in 2003, particularly in the
second half as scale increased.
This time last year
we committed ourselves to the continued development of the Irish shop estate
through new outlets, relocations and refurbishments. We also said we would have a 12 shop
“test bed” in the UK and would have established a dedicated management team for
the UK. Our objectives were to
break even in our Online business and improve Dial-a-Bet as we developed
critical mass in the UK. All of
these commitments have been met or exceeded.
The future is of
more interest to Paddy Power shareholders and it is full of promise. While we
will continue to enhance the brand in Ireland, the UK market holds great
opportunity for us. The brand
continues to grow in the UK and a management team is now in place in
London. Given the success of the
initial 12 shops and the pipeline of properties in place, we remain confident of
success. We support the inexorable
move towards deregulation in the UK as demonstrated through the issue of the
Draft Gambling Bill in November 2003 and, while its impact will not be
immediate, we believe it will benefit Paddy Power in the medium term. Our focus
on the UK was demonstrated in December 2003 when the Board met in London over
two days. As well as reviewing the
plans of our UK management team, we visited a number of our shops and those of
our competitors. Some of the Board
even took advantage of the “facilities” in our competitors’ shops to make the
day a profitable one.
Ireland has been
and, of course, will remain for some time the engine of Paddy Power. While we
close 2003 with 137 outlets and over 23,000 active non-retail customers there
remain many opportunities for expansion.
I have no doubt that 2004 and beyond will see further significant
increases in business as we strengthen our leadership position with Irish
customers. As has been proven time
and again, Irish punters prefer to punt with Paddy Power. The growth in the industry is helped by
the sensible attitude of the Government which has progressively brought in a low
tax betting regime and resisted the pressure to increase taxes in the recent
budget. Given the availability of
offshore betting, they rightly saw that any increase would drive higher staking
punters offshore, thereby only hitting the lower spending shop customers, a
patently inequitable solution.
The Board spent
considerable time working with senior management reviewing their long term
strategic plans during the course of this year. This culminated in the presentation of a
five-year business plan to the Board that is currently being refined and will be
concluded by April 2004. This plan
brings no significant changes to the overall strategy that has already been
articulated to the markets.
However, it has reinforced the need to strengthen the depth of the senior
management team. This process has
already commenced, as detailed in John O’Reilly’s Operations
Review.
We continue to see
organic growth as the driver of expansion, although we will not rule out
sensible acquisitions where opportunities arise. As the scale of operations and the
management infrastructure grows, our ability to absorb any acquisition
improves. It is a case of steady as
she goes.
The business has
become more complex and multi-faceted.
The demands on the organisation have increased and with them the need to
strengthen the management team.
One of our key
assets has been people. We talk a
lot about our brand qualities. The
market loves them but their delivery is wholly dependent on the exceptional
1,032 staff who work in Paddy Power.
Our success is wholly down to them.
From Betty McGuinness, a shop manager who has been with us since 1978
(originally with Corcoran’s which became part of Paddy Power), to Emma Clinton
who joined us in 2002 as a cashier and has embraced the Paddy Power way, to Paul
Ryan who has been with us since 1990 as the voice of Paddy Power in the shops,
to Maria Dempsey who joined in 1988 at Head Office in the first days of Paddy
Power and Aidan McCarthy who has been with us since 1992 and, as part of
Dial-a-Bet, has seen us grow from two phone stations to well over
100.
These people - all
1,032 of them - are the single most important factor in our continuing
success. They personify the Paddy
Power difference and under John O’Reilly’s leadership, they have built on the
success of the past to make 2003 another excellent year for Paddy Power. They all deserve our thanks.
The Board has also
undergone significant change since the flotation in December 2000. As you will see below, more is to
come.
We want to be able
to attract the best. The
appointment (announced on 22 July 2003) of Nigel Northridge, Chief Executive of
Gallaher plc to our Board as a non-executive Director was part of that
process. His strategic capability,
commercial acumen and knowledge of the development of brand-led organisations
will provide us with an exceptional and influential resource.
It should be
remembered that Paddy Power is a very young public company. In 2002 we saw the start of a reduction
in the roles of the founder directors who had established the business and
contributed greatly to its success.
In Ireland, Stewart Kenny came to personify, not just Paddy Power, but
bookmaking. Last year’s Annual
Report acknowledged his decision to retire as CEO and during the year under
review, while he remains a non-executive director, he stood down as
Chairman. Stewart’s contribution
could not be properly acknowledged in a page, never mind in a paragraph, so I
will resist the temptation to do so.
Anyway, he is too easily embarrassed!
As part of the
continuing evolution of the Board, I would like to take this opportunity to
announce that Eddie McDaid and Ian Armitage will both be stepping down from the
Board at the 2004 AGM on June 1. Both have given great service to Paddy Power
during their tenure. Eddie
represented ICC Bank for many years and continued his involvement with Paddy
Power after he left that organisation.
Ian has brought wise counsel to the Board having joined it in 2000 on Hg
Capital’s investment. I thank them
both on behalf of the Board and shareholders.
I also would like to
take this opportunity to acknowledge in advance the contribution from John
Corcoran, a founder, former Chairman and guiding influence. John will reach his 75th
birthday during the coming year and, under our Articles of Association, will
cease to be a Director at that point.
What more can I say about John other than that Paddy Power would not be
where it is without him.
The Board is recommending a
final dividend of 8.59 cent per share payable to shareholders on the register at
5 March 2004, bringing the total for the year to 12.89 cent per share, an
increase of 26.4% on 2002. This
highlights the desire of the Board to increase its dividend payout over time,
reflecting the cash generative nature of the business and existing cash
resources.
I remain confident in the
prospects for Paddy Power and look forward to updating you at the Annual General
Meeting in June.
Paddy Power
remains a small stake fixed-odds bookmaker. The Group operates a total of 149 shops,
with 137 shops in Ireland and 12 in the UK, as at 31 December 2003. In addition, it offers betting via the
internet, telephone and interactive television.
Overall, it
has been a very busy year across all divisions. Continued growth in the Irish and UK
economies together with increased brand recognition, new products and
distribution capacity has meant continued development across the business. As discussed in the Financial Review,
this has led to record turnover, earnings and cashflow across the business.
Customer
service continues to be a key focus for each division, whether it is the average
time taken to answer a call in the call centre, the time taken to respond to an
e-mail query or making a price on an unusual market. We remain fanatical about customer
service. The Group took over 41
million bets in the year and continues to seek to eliminate any errors or
disputes providing a better service for our customers every
time.
It has been
an extremely busy year for retail operations, with record levels of activity in
both Ireland and the UK, as the Group continues to expand and refurbish its
retail estate as well as introducing both new and enhanced technology into
retail operations. As a result,
capital expenditure for the year was a record €18.2m (2002: €5.1m). At 31 December 2003, the Group had 137
outlets in Ireland (2002: 129).
Eight (2002:five) new outlets were opened in Ireland during the year with
ten (2002:two) relocations, three (2002:one) extensions and ten (2002:nil)
refits representing a total of 31 outlets that were developed during the year in
one way or another. This is by far
the largest development programme of any bookmaker in Ireland. The Group also continues to operate four
(2002: four) racecourse shops as well as the stadium shops at Lansdowne
Road. There were five (2002: nil)
surplus property leases at year end.
The
roll-out of the test bed of shops in the UK has been very successful with 21
licences held at 31 December (2002: six).
Of these, 12 (2002: three) shops were open at year end. Trading in these shops has progressed
well with Over the Counter (OTC) turnover, Fixed Odds Betting Terminal revenue
(FOBT) and Amusements With Prizes (AWP) income all developing. FOBT income only
commenced late in the year. The
Paddy Power ethos of customer service is as popular with UK customers as with
Irish ones. The appointment of a
Head of Retail Operations in the UK, together with the localisation of other
operational roles in 2004 previously undertaken from Dublin, will add to the
quality of the UK operations. This
includes areas such as site finding, shop fitting, security and training as well
as point of sale marketing.
Since 31
December, one extension and four refits have been completed in Ireland and an
additional two shops have opened in the UK. The pipeline of properties in both
Ireland and the UK remains strong.
We remain confident of rolling out between eight and ten new shops in
Ireland and approximately 18 in the UK in 2004. The extensive programme of refits,
relocations and extensions in Ireland will continue into 2004 and
beyond.
A number of
retail technology projects were commenced in 2003. These will continue well into 2004 and
include the upgrading of the existing screens system and the installation of new
control systems in Head Office that allow improved management of all data and TV
pictures in the shops. A full-time
team is now engaged in the evaluation of the latest generation EPOS (Electronic
Point of Sale) systems with shop trials scheduled for mid 2004. A final decision on the installation of
a full estate roll-out will not be made until the second half of 2004.
Non-retail
comprises the Online division (Internet betting, Interactive TV betting, Online
Casino) and the Telephone division.
These operations were combined under a single management group in
2003. A key part of this single
management team is the dedicated customer service group which now services
clients of all non-retail channels.
Active
Customers*
Online
Telephone
2003 2002
2003
2002
Ireland and
rest of world
14,026 10,501
9,601
8,600
UK
22,174
19,159
8,361 5,974
(Registered
customers are no longer disclosed as this is not considered to be a relevant
statistic.
*Active
customers are those that have bet in the last three
months).
The Online
betting division has continued to see significant growth in 2003 with active
customers increasing by 22.0% to 36,200.
This has been driven from further expansion into the UK market as well as
continued growth in the Irish market.
Active customers now bet on average 21 times a month
(2002:13).
The product
offering has continued to develop over 2003 with a wide number of enhancements
being made to both site functionality and the range of betting
opportunities. Given the nature of
online customers and the easy access to multiple betting opportunities, constant
development of the product offering is essential in this area. Enhancements,
which include items such as increased betting-in-running, increased coverage of
American racing and technical improvements to increase performance, generate
both customer loyalty and increased revenue opportunities. In addition to these enhancements, the
site was re-skinned in the second half of 2003 to improve its visual
impact. We remain confident that
the Paddypower.com offering can compete at the highest level in the online
space.
Interactive
TV continues to be a part of the product offering of this division and Paddy
Power continues to trade on NTL and Telewest. We consider the scope for material
growth in this area to be limited in the short-term.
In the
early part of 2004, the division soft-launched its Online Casino on
paddypowercasino.com. Performance
to date has been good and we are confident that it will be a profit contributor
in 2004.
The
telephone betting operations have continued to see significant expansion in 2003
in both the Irish and UK markets.
Ongoing investment in both tactical and brand spending in both markets
continues to drive business growth.
The total active customers for this are set out above. As noted, 2003 saw excellent growth in
active customers.
We continue
to develop the product offering within this channel and 2003 saw further
expansion of opening hours until 1am for American racing and sport. During the Rugby World Cup the call
centre was open for every match, with 4.30am starts for early matches. As with the Online division,
betting-in-running has expanded greatly in 2003 and we now take
betting-in-running on all Premiership matches. Operationally, increased capacity
has been put in place by using our back-up centre for handling the peaks on very
busy days, thereby improving asset utilisation, whilst developments in both call
volume forecasting and our phone system have improved service reliability. Segmentation of the customer base is
ongoing and allows us to quickly identify and focus on our high value
customers.
As the fun,
friendly and fair bookmaker, Paddy Power continues to invest in an extensive
variety of marketing opportunities in both the Irish and UK markets. These comprise both brand related
activities designed to drive overall awareness of the Paddy Power brand and
tactical activities designed to promote either individual betting opportunities
and/or certain betting channels. As
always, a strong element of our marketing activity will be opportunistic,
innovative and fun. Brand awareness
has continued to improve with almost 90% national brand recognition in Ireland
and an excellent 10% in the UK, up from under 4% in 2002.
Our
marketing activities cover a wide variety of events and use a combination of
both in-house and external resources.
This generally involves extensive use of public relations activities as
part of any individual event.
In the
early part of 2003, an outdoor brand campaign was undertaken in London.
Significant brand building was also undertaken through our successful snooker,
darts and greyhound sponsorships.
In horse racing, sponsorship of the Paddy Power Chase continues to be our
biggest Irish sponsorship event, while we commenced horse racing sponsorship in
the UK in 2003 with a five year deal to sponsor the Paddy Power Gold Cup at the
Open Festival in Cheltenham.
Significant value was also extracted from our innovative sponsorship of
hurleys during the All Ireland Hurling Championships. This multi faceted approach will
continue into 2004.
Paddy Power
cannot meet its growth potential without first rate people. 2003 has been a year
of significant development in people as the organisation has expanded to keep
pace with the growing complexity and scale of operations. Turnover for 2003 has risen almost
threefold from 1999 and, with continued investment, is set to expand
further. It is essential that the
Group invests in new talent as well as developing the talent that already
exists.
To this
end, a number of senior appointments have been made in 2003. These include the appointment of Ian
Price as a London-based Head of Retail Operations for the UK. Ian joins us from Victor Chandler
International where he was Managing Director. Prior to this, he held several senior
positions with William Hill. A new
development team reporting to the Head of Retail Operations was also set up in
London over 2003 under the leadership of Dave Hatt who joined us from
Corals. The UK operations team will
grow over 2004 as the scale of operations increase and certain responsibilities
are transferred from Head Office in Dublin.
In Ireland,
Dermot Golden was appointed as Head of Risk in late 2003 and has taken over full
responsibility for all aspects of trading and risk. Dermot joins us from the investment
industry where he has held a number of senior trading positions. There have also been a number of other
appointments made within both operations and support services in 2003.
No less
important than the investment in new staff is the ability to grow our existing
pool of talent so that they can take advantage of the expanding Group. This is equally important whether it
allows promotion opportunities for our shop staff due to the opening of new
outlets, the creation of additional team leaders and supervisors in a call
centre, or any one of the central service roles. To this end we continue to promote staff
internally where possible. In order
to further develop this talent we will be making additional investment in our
human resources capabilities in 2004, with particular focus on training and
development throughout the organisation.
In tandem
with the appointment of new staff we have streamlined internal reporting
structures to ensure that we have the correct balance of responsibilities and
clear reporting lines.
As the
Group enters 2004, operating plans are clearly established across all divisions
and will see a continuation of the successful strategies adopted in 2003. We will continue to focus on our
customers, rolling out our Irish and the UK retail estate, building volume
through the non-retail infrastructure now in place, improving brand recognition
and continuing to invest in people.
The Group has no discontinued operations and
all activities are considered core.
Turnover for the year ended 31 December 2003
was €913.6m (2002:€673.8m) an increase of 35.6% and reflects excellent growth in
all channels.
Growth rates in the shops remained very strong
during 2003 with turnover increasing by 23% to €551.1m from €448.1m. Like-for-like growth was 16%.
In Ireland like-for-like growth was augmented
by the turnover growth from the eight new outlets opened in 2003, the relocation
and refit programme together with the carry-forward impact of the five new
outlets opened in 2002. Although
there were some differences in the sporting calendar over the two years, most
noticeably the Football World Cup and the Ryder Cup, which took place in 2002
and the Rugby World Cup which took place in 2003, these do not have any
significant impact on the overall trend in turnover levels.
Turnover levels in the UK shops have been
developing very well as the estate grows and brand recognition improves. Given the small size of the estate and
the installation dates for Fixed Odds Betting Terminals (FOBT) the income from
FOBT’s was immaterial to the retail estate in 2003. As the estate develops in 2004, it is
expected that this revenue stream will grow significantly.
The Online division continued to see excellent
growth in turnover as its expansion in both the Irish and the UK markets
continued. This has been driven by
both a significant increase in brand recognition, referred to in the operations
review, together with continued developments in the product offering including
the usability of the site, quality of customer service and the betting
opportunities offered. Turnover
grew by 80% to €185.1m from €102.8m. The UK now accounts for 61% of active
customers.
The Telephone division grew 44% across both the
Irish and UK markets as it reached €177.4m for the year (2002: €122.9m). We continue to see strong growth in both
markets and the UK market now accounts for 37% of turnover (2002: 31%).
Average slip/bet values by channel
2003
2002
Change
€
€
%
Retail
16.98
15.29
+11.1%
Telephone
67.64
68.31
-1.0%
Online
27.18
26.63
+2.1%
(Note: Shop slips can contain more than one bet per slip, while other channels are a single bet per slip. Telephone bet statistics for 2002 have been recalculated on the same basis as Online to reflect the common system in operation in 2003)
Average bet sizes continue to develop well with
continued growth in the retail estate. The move into the mass market on the
telephone and internet has lowered the average stake in these channels as
planned. The overall pattern
between the channels remains consistent with the prior
year.
2003
2002
Change
‘000
‘000
%
Retail
32,464
29,313
+10.8%
Telephone
2,623
1,799
+45.8%
Online
6,808
3,861
+76.3%
(Note: Shop volumes refer to the number of slips processed while other channels refer to the number of bets processed. Telephone bet statistics for 2002 have been recalculated on the same basis as the Online to reflect the common system in 2003)
Given the growth of the UK business and, in
order to provide a consistent basis of accounting between different geographic
markets and different products, the Group now separately identifies Gross Win
and Gross Profit. Gross Win is measured as the amounts staked (excluding betting
tax and levies) less the amount returned to customers as winnings. Customer drop from AWP’s and FOBT’s is
included in Gross Win at 100% margin.
The income from AWP’s and FOBT’s is immaterial in 2003 and 2002 but will
grow as the retail estate in the UK grows.
Gross Profit is measured as Gross Win less
discount on bets and Gross Win taxes.
Gross Win percentages by channel are set out in the table below.
Gross Win %
2003
2003
2003
2002
12
months 6 months to 6 months to 12 months
31 Dec
31 Dec
30 June
31 Dec
%
%
%
%
Retail
12.32
13.04
11.58
13.54
Telephone
7.43
8.58
6.26
7.93
Online
7.31
8.64
6.00
8.18
The Gross Win percentages fluctuated over the
course of the year driven by the pattern of results and business mix. For the year as a whole, Gross Win
percentages were greatly influenced by the exceptionally poor results at the
Cheltenham Festival and the Grand National in March and April of 2003, resulting
in a profit warning as referred to in the Chairman’s Statement. Outside of these events results fell in
their normal ranges with a strong Gross Win percentage in the second half of
2003. Absolute Gross Win for the year increased by 20% to €94.6m reflecting the
strong turnover growth offset by the lower Gross Win
percentage.
Gross Win
2003
2002
Change
€’000
€’000
%
Retail
67,907
60,698
+11.9%
Telephone
13,179
9,743
+35.3%
Online
13,524
8,407
+60.9%
Total
94,610
78,848
+20.0%
The Gross Win percentage in the UK shops is
developing well as our customer base grows and has had only a slightly dilutive
impact on overall shop Gross Win percentage. The Gross Win percentage in the UK, when
combined with the turnover levels, will allow the profitable growth of the UK
business and we remain confident that it will match the Irish shops over time.
Gross Profit reflects the application of UK
betting taxes to the Gross Win and discounting of bets in Ireland. For business conducted under a UK
betting licence, 15% of the bookmaker’s gross win is paid in betting tax.
Gross Profit
2003
2002
Retail
Telephone Online
Retail
Telephone Online
€’000
€’000
€’000
€’000
€’000
€’000
Gross Win
67,907
13,179
13,524
60,698 9,743
8,407
Disc./Betting Taxes 2,231 2,083 2,101
1,917
1,411
1,313
Gross Profit
65,676
11,096
11,423
58,781
8,332
7,094
Gross Profit %
11.92%
6.25%
6.17%
13.12%
6.78%
6.90%
Gross Profit in the year grew by 19% to
€88.2m. This reflects the increased
turnover and change in turnover mix by channel. This was offset by a lower Gross Win
percentage together with an increased level of discounted bets in Ireland. There was no change in the Gross Win tax
rate in the UK.
Operating profit grew by 14.9% to a record
€19.6m reflecting the strong Gross Profit increase by channel, offset by a 20.0%
growth in operating costs.
Operating Profit by Channel
2003
2002
Change
€’000
€’000
€’000
Retail
17,402
19,167
-1,765
Telephone
861
312
+549
Online
1,369
(2,396)
+3,765
Total
19,632
17,083
+2,549
Operating profit movement by channel varied
significantly reflecting the different stages of development of each channel,
the impact of gross margin movements and the relationships between costs and
revenue growth.
Operating profit in the shops decreased by
€1.8m. While Gross Profit increased
by €6.9m, the Gross Profit percentage decreased to 11.92% from 13.12%. Due to the increase in the relatively
fixed cost base of the division by €8.7m to €48.3m (resulting from the expansion
of the Irish shop estate, start-up costs for the UK business and inflation) this
division saw a net decrease of €1.8m in operating profit.
The Telephone channel saw significant
improvement in earnings to €0.9m, an increase of 176%, as growth in the Irish
telephone business continued and the UK business started to develop critical
mass in the second half of the year.
The combined impact of this growth was to improve asset utilisation.
The Online business saw a significant move into
profitability in 2003, achieving €1.4m operating profit for 2003 as gross margin
and turnover targets were achieved ahead of schedule. The relatively fixed nature of this cost
base allows excellent leverage of operating profit with incremental volumes and
improved gross margin.
The corporation tax charge for the year was
€2.9m (2002: €3.0m) representing an effective tax rate of 14% (2002:17%). This compares with the statutory rate in
Ireland of 12.5% and the UK statutory rate of 30%. No corporation tax is payable in the UK
in 2004 due to tax losses.
The Group’s effective tax rate remains above
the statutory rate due to the disallowance of certain expenses and is likely to
do so going forward.
Cash balances at 31 December 2003 were €39.2m
(2002: €36.4) an increase of €2.8m.
This includes cash held in customer accounts of €4.8m (2002:
€3.4m).
Cash from operating activities totalled €32.1m,
an increase of €1.7m from 2002.
Cash from operating activities included net cash inflow from customer
accounts of €1.4m. Interest income
was €0.9m, an increase of €0.2m, reflecting the higher average cash balances
offset by lower average interest rates.
Capital expenditure increased by 164% to €21.4m from €8.1m in 2002. This reflects the very significant
increase in property activity in both Ireland and the UK, together with the
expansion of the Head Office and the Online and Call Centre facility in
Dublin.
Cash balances are invested in accordance with
defined treasury policies approved by the Board. These policies limit the risk rating of
institutions that can be used, the concentration of risk with any one
institution and within any category of institutions and the term of
deposits. Cash balances are
substantially invested in short term bank deposits with maturities of 90 days or
less.
The Group has no borrowings other than finance
leases. Interest rate exposure is
thereby limited to interest income on deposits and the impact of the economy in
general.
The Group remains highly cash generative and
this, together with existing cash balances, will be used to fund expansion of
the retail estate together with continued investment in the non-retail
division. On determination of the
scale of expansion in the UK, which is partly dependent on the timing of
deregulation, a decision will be made on surplus cash. Should the Group not require its cash
reserves, the Board will determine the best method of returning it to
shareholders. In order to allow the
Board the flexibility to choose the optimum process, a resolution is proposed
for the Annual General Meeting to allow the Company to buy back its own shares.
Foreign exchange risk in the business is
small. As the Group expands in the
UK, it will require Sterling to fund its capital expenditure. Much of this can be naturally hedged
from the gross margin generated in Sterling from the Online and Telephone
divisions that have primarily a Euro cost base and so generate surplus
Sterling. Group policy allows the
Group to hedge the foreign exchange exposure for up to six months. At the year end, no foreign exchange
contracts were open.
The Group’s functional currency is the Euro and
translation risk exists with its Sterling subsidiaries.
The average number of employees of the Group
during 2003 was 913 (2002: 856). At
the year-end, the total number of employees was 1,032 (2002:
904).
The Group’s share
price traded in the range of € 4.87 to €7.26 (stg3.31 to stg5.085) in 2003 with
a year high reached on 12th December 2003.
The share price on 31 December 2003 was €7.15 /stg4.98 (2002:
€5.08/£3.23) giving a market capitalisation of €342m/stg238m (2002:
€240m/stg151m).
The year end free
float (shares not held by the Directors or related parties) was 78.74%
(2002:68%).
The Group manages its betting risk through a
central risk management team whose role is to compile the initial odds and,
subsequently, manage the odds and risk exposures through the life of the
event. The Group does not offer
credit betting.
A betting risk management sub committee of the
Board was established in 2003 under the Chairmanship of David Power, a
non-executive Director, and sets overall policy for betting
risk.
The 2003
Interim and proposed Final Dividend total €6.2m (2002: €4.8m), an increase of
28.0% on 2002. This represents dividend cover of 2.85 times (2002:3.07). The increase represents the Board’s
intention to have a progressive dividend policy and not to let short-term
negative volatility impact the dividend rate.
International Financial Reporting Standards
(IFRS)
The Group is preparing for the implementation
of IFRS in 2005. A review has been
completed on the differences between current standards and the IFRS. To date, the outcome of this review is
that the impact will be limited to a small number of areas. A final determination of the impact
cannot be made until the International Accounting Standards Board issues the
complete list of applicable standards.
Of particular relevance will be the treatment of the Group’s property
leases.
It is intended that the Group will complete the
review by mid-year and that quantification of the adjustments needed to the 31
December 2003 balance sheet will be made by the end of
2004.
Trading for the year to date has been in line with expectations.
The Irish betting office market remains our core business and we are confident it will continue to grow through a programme of new shop openings, relocations and extensions together with underlying organic growth. The UK LBO estate will grow in 2004 and beyond to become a significant part of the Group.
Further growth in our Telephone business is expected in both Ireland and the UK. The Online business continues to develop it’s sports book offering and further expansion is expected in 2004. It also successfully soft-launched its Online Casino in January 2004.
The outlook remains positive
across the business.
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
|
|
|
|
Turnover |
913,624 |
673,788 |
|
Cost of sales |
(825,429) |
(599,581) |
|
Gross profit |
88,195 |
74,207 |
|
Operating expenses |
(68,563) |
(57,124) |
|
Operating profit |
19,632 |
17,083 |
|
Interest receivable and similar income |
883 |
895 |
|
Interest payable and similar charges |
(105) |
(156) |
|
Profit on ordinary activities before taxation |
20,410 |
17,822 |
|
Tax on profit on ordinary activities |
(2,859) |
(3,029) |
|
Profit on ordinary activities after taxation |
17,551 |
14,793 |
|
Dividends on equity shares |
|
|
|
- paid |
(2,053) |
(1,603) |
|
- proposed |
(4,107) |
(3,206) |
|
|
(6,160) |
(4,809) |
|
Retained profit for the year |
11,391 |
9,984 |
|
Profit and loss account, start of year |
|
|
|
As originally stated |
31,205 |
21,792 |
|
Prior year adjustment |
- |
(571) |
|
Restated |
31,205 |
21,221 |
|
Profit and loss account, end of year |
42,596 |
31,205 |
|
Earnings per share |
|
|
|
Basic |
€0.3697 |
€0.3138 |
|
Diluted |
€0.3502 |
€0.2900 |
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
Fixed
assets |
|
|
Intangible
assets - goodwill |
904 |
1,025 |
Tangible
assets |
41,571 |
24,994 |
|
|
42,475 |
26,019 |
Current
assets |
|
|
Debtors |
2,188 |
1,570 |
Cash
at bank and in hand |
39,173 |
36,373 |
|
|
41,361 |
37,943 |
|
|
|
|
Creditors
(amounts falling due within one year) |
(30,585) |
(22,159) |
Net
current assets |
10,776 |
15,784 |
Total
assets less current liabilities
|
53,251 |
41,803 |
Creditors
(amounts falling due after one year) |
- |
(480) |
Provision
for liabilities and charges |
(977) |
(1,177) |
Net
Assets |
52,274 |
40,146 |
Capital
and reserves |
|
|
Called
up share capital |
4,781 |
4,714 |
Share
premium |
3,975 |
3,305 |
Capital
redemption reserve fund |
662 |
662 |
Capital
conversion reserve fund |
260 |
260 |
Profit
and loss account |
42,596 |
31,205 |
Shareholders’
funds - all equity interests |
52,274 |
40,146 |
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 | ||||
Net
cash inflow from operating activities |
|
32,144 |
|
30,435 | ||
|
|
|
|
|
| ||
Returns
on investments and servicing of finance |
|
|
|
| ||
Interest
received |
|
865 |
|
717 | ||
Interest
element of finance lease payments |
|
(106) |
|
(149) | ||
|
|
|
759 |
|
568 | ||
Taxation |
|
|
|
| ||
Corporation
tax paid |
|
(3,923) |
|
(1,466) | ||
|
|
|
|
|
| ||
Capital
expenditure and financial investments |
|
|
|
| ||
Acquisition
of tangible fixed assets |
|
(21,439) |
|
(8,083) | ||
Sale
proceeds on disposal of tangible fixed assets |
|
96 |
|
31 | ||
|
|
|
(21,343) |
|
(8,052) | ||
|
|
|
|
|
| ||
Equity
dividends paid |
|
(5,262) |
|
(3,206) | ||
|
|
|
|
|
| ||
Net
cash inflow before financing |
|
2,375 |
|
18,279 | ||
|
|
|
|
|
| ||
|
Financing |
|
|
|
| ||
|
Capital element of finance lease payments |
|
(312) |
|
(213) | ||
|
Proceeds from the issue of new shares |
|
737 |
|
- | ||
|
|
|
425 |
|
(213) | ||
|
|
|
|
|
| ||
|
Net cash inflow |
|
2,800 |
|
18,066 | ||
Accounting
Policies
The following accounting policies have been applied
consistently in dealing with items which are considered material in relation to
the Group’s financial statements.
Basis of Preparation
The financial statements have been prepared in accordance with generally accepted accountancy principles under the historical cost convention and comply with financial reporting standards of the Accounting Standards Boards, as promulgated by the Institute of Chartered Accountants in Ireland. The financial statements are stated in euro.
The Group financial statements consolidate the financial statements of the Company and all its subsidiary undertakings based on financial statements at the year end date.
Turnover, which is exclusive of betting tax and levies, represents amounts received in respect of bets placed on events which occurred during the year.
The Company operates a number of defined contribution schemes for certain employees and executive Directors. Contributions are charged to the profit and loss account as incurred.
Transactions denominated in foreign currencies are translated at the exchange rates ruling at each quarter end. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date. The resulting profits and losses are dealt with in the profit and loss account.
For the purposes of consolidation of subsidiaries, the closing rate method is used, under which translation gains or losses are shown as movement on reserves. Profit and loss accounts of overseas subsidiaries are translated at average exchange rates.
Financial Fixed Assets
Goodwill arising on the acquisition of subsidiary undertakings, representing the excess of cost over the fair value of the Group share of the identifiable assets and liabilities acquired, is capitalised and amortised by equal annual instalments against profit over its expected useful life. Goodwill is written off in equal annual instalments over a 20 year period. Provision is made for any impairment.
Tangible fixed assets are stated at historical cost less accumulated depreciation.
Depreciation is calculated so as to write off the cost less estimated residual value of tangible fixed assets on a straight line basis over their estimated useful lives, as follows:
• Freehold property - 50 years.
• Leasehold property and improvements - unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease, if there is a right of renewal.
• Fixtures, fittings and equipment - 5/7 years
• Computer equipment - 3 years
• Equipment screens - 5 years
• Leased equipment screens - 3 years
• Motor vehicles - 5 years
Assets held under finance leases are included in the balance sheet at their capital value and are depreciated over the term of the lease. The corresponding liabilities are recorded as a creditor and the interest element of the finance lease rentals is charged to the profit and loss account over the term of the lease to produce a constant rate of charge on the balance of capital repayment outstanding.
Operating lease rentals are charged to the profit and loss account on a straight line basis over the lease term.
Corporation tax is calculated based on the taxable profits for the year.
Deferred tax is recognised in respect of all timing
differences that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay more, or a
right to pay less tax in the future have occurred at the balance sheet date.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
In accordance with UITF Abstract 17 (revised) “Employee Share Schemes”, the excess of the fair market value of the related shares over the exercise price of the share option on the option grant date is charged to the employees’ remuneration over the period to which employee performance relates. A corresponding amount is transferred to the profit and loss account.
The turnover, operating profit and net assets of the Group relate to the provision of betting services, substantially all of which are conducted in the Republic of Ireland and the UK.
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
Licensed betting offices |
551,136 |
448,096 |
|
Telephone betting |
177,418 |
122,892 |
|
Online betting |
185,070 |
102,800 |
|
|
913,624 |
673,788 |
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
Ireland & other |
702,240 |
570,564 |
|
UK |
211,384 |
103,224 |
|
|
913,624 |
673,788 |
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
Licensed betting offices |
67,907 |
60,698 |
|
Telephone betting |
13,179 |
9,743 |
|
Online betting |
13,524 |
8,407 |
|
|
94,610 |
78,848 |
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
Licensed betting offices |
65,676 |
58,781 |
|
Telephone betting |
11,096 |
8,332 |
|
Online betting |
11,423 |
7,094 |
|
|
88,195 |
74,207 |
Operating Profit/(Loss) by Delivery Channel
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 | |
|
Licensed betting offices |
17,402 |
19,167 | |
|
Telephone betting |
861 |
312 | |
|
Online betting |
1,369 |
(2,396) | |
|
|
19,632 |
17,083 | |
Profit
before tax and net assets by delivery channel and geographic segment are not
disclosed as in the opinion of the directors, this disclosure would be seriously
prejudicial to the interests of the Group.
2. Prior year
adjustment
During the prior year, the Group adopted FRS 19 – Deferred Tax, and thereby changed its accounting policy in relation to accounting for deferred taxation.
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 | |
|
Profit for the financial year |
17,551 |
14,793 | |
|
|
|
| |
|
|
’000 |
’000 | |
|
Weighted average number of shares in issue |
47,479 |
47,144 | |
|
Dilutive effect of options outstanding |
2,638 |
3,856 | |
|
Diluted weighted average number of shares |
50,117 |
51,000 | |
|
Basic earnings per share |
€0.3697 |
€0.3138 | |
|
Diluted earnings per share |
€0.3502 |
€0.2900 | |
(a) Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 | |
|
Operating profit |
19,632 |
17,083 | |
|
Depreciation |
6,405 |
5,805 | |
|
Amortisation of goodwill |
121 |
121 | |
|
Increase in debtors and prepayments |
(597) |
(282) | |
|
Increase in creditors |
6,549 |
7,706 | |
|
Loss on disposal of tangible fixed assets |
34 |
2 | |
|
Net cash inflow from operating activities |
32,144 |
30,435 | |
|
|
|
| |
(b) Analysis of Changes in Cash During the Year
|
|
Year ended 31/12/2003 €’000 |
Year ended 31/12/2002 €’000 |
|
Balance at 1 January 2003 |
36,373 |
18,307 |
|
Net cash inflow |
2,800 |
18,066 |
|
Balance at 31 December 2003 |
39,173 |
36,373 |
(c) Analysis of Net Funds
|
|
Year ended 31/12/2002 €’000 |
Cash €’000 |
Year ended 31/12/2003 €’000 |
|
Cash at bank and in hand |
36,373 |
2,800 |
39,173 |
|
Finance leases |
(734) |
313 |
(421) |
|
Total |
35,639 |
3,113 |
38,752 |