financial results 4 march 2004. david harding chief executive 2
TRANSCRIPT
Financial Results
4 March 2004
David Harding
Chief Executive
2
Highlights, 52 weeks to 30 December 2003
Fourth consecutive year double digit earnings growth
Product diversification and increased betting opportunities
Fixed odds betting terminals
IT and estate development
Government and regulation
3
Earnings growth – gross wins
£m %
1999 2000 2001 2002 2003 03/02 CAGR
Retail 368 384 417 419 505 21 8.3
Telephone 44 48 48 51 57 11 6.4
Interactive 1 17 35 55 85 55 244.9
Group * 417 452 503 528 654 24 11.9
* Includes other
4
Earnings growth – EBIT
£m %
1999 2000 2001 2002 2003 03/02 5 yr CAGR
Retail 72 82 93 112 152 36 20.6
Telephone 10 16 16 17 22 28 21.8
Interactive (3) (8) 9 21 37 81 -
Group * 74 85 112 141 202 43 28.3
* Net of other and central costs
5
Product diversification – indicative share of gross wins 2003
Retail Telephone Sportsbook & Arcade
Horses45%
Dogs21%
Terminals/AWPs20%
Football7%
Numbers7%
Other sports
*
Horses73%
Football18%
Dogs5%
Othersports
4%
Horses36%
Football31%
Other Sports
19%
Numbers7%
Dogs6%
6
Increased betting opportunities & extended opening - Retail
Betting opportunities
November Thursday
69
92
128
2000 2002 2003
20 UK Horses
30 Dogs
12 Numbers
18 Numbers
40 Dogs
14 O/seas horses7 O/seas
horses
20 UK Horses 20 UK Horses
14 O/seas horses
46 Dogs
48 Numbers 47 UK racing Sundays 100 % increase
105 UK racing evenings 50 % increase
20047
Fixed odds betting terminals
At end December we had 3239 FOBTs and 2454 AWPs in the estate
Average installed base throughout the year 2400 FOBTs, 2700 AWPs
Average weekly net profitability per terminal £380
Planning assumption for 2004, 3600 FOBTs and 1900 AWPs by mid year
Factors influencing average profitability:-
Negative Positive
Code of Conduct Density optimisation
Competitor rollout Extended opening
Roll out to smaller shops New product development
8
Estate development
Forecast Completed
New licences 14 13
Resites 33 28
Extensions 17 14
Facelifts/upgrades 56 70
120 125
* 20 Target new licence openers ‘04
* 47 New license applications in process
9
IT development
Retail technology programme
- Electronic bet capture and settlement (EPOS)
- New text information systems
Central bookmaking/single account
10
Government and regulation
Pre-legislative scrutiny
Gambling Commission
Gaming issues
Bookmaking issues
Definitions
Terminals
Exchanges
Bureaucracy
11
Tom Singer
Group Finance Director
12
Presentation in four parts
13
1. Financial results FY2003
2. Return of capital
3. Guidance FY2004
4. Current trading
Summary of Financial ResultsFY03 v FY02 (pre-exceptional items)
14
FY03£m
FY02£m
Mvmt%
Turnover (1) 5945.8 3365.3 76.7
Gross win (2) 654.3 527.7 24.0
Gross win % betting business 9.9% 14.3% -4.4%
GPT, duties, levies, royalties and other related costs (143.2) (111.7) -28.2
Gross profit (contribution) 511.1 416.0 22.9
Net operating expenses (312.3) (277.0) 12.7
Associate income 2.9 2.4
EBIT 201.7 141.4 42.6
EBITDA 221.7 158.8 39.6
(1) Includes casino drop and AWP cash-in-box net of VAT(2) Includes casino drop and AWP cash-in-box inclusive of VAT
Summary of Earnings and DividendsFY03 v FY02 (pre-exceptional items)
15
FY03£m
FY02£m
Mvmt%
Profit before interest and taxation (EBIT) 201.7 141.4 42.6
Net interest payable (30.9) (59.9) 48.4
Taxation (45.2) (22.9) -97.4
Profit after taxation 125.6 58.6 114.3
Dividend
- Interim (14.6) (12.1)
- Final (37.6) (24.2)
(52.2) (36.3) 43.8
Retained earnings 73.4 22.3 229.1
Earnings per share (pence)
Basic 30.0 16.9 77.5
Diluted 29.6 16.8 76.2
Analysis of Gross WinFY03 v FY02
16
1H03£m
1H02£m
Mvmt%
2H03£m
2H02£m
Mvmt%
YoY mvmt%
Retail (1) 253.7 215.7 +18 251.9 203.2 +24 +21
Telephone 28.3 27.5 +3 28.2 23.4 +21 +11
Interactive (2) 38.6 29.3 +32 46.3 25.6 +81 +55
Other (3) 3.4 1.2 +183 3.9 1.8 +117 +143
Group 324.0 273.7 +18 330.3 254.0 30.0 +24
(1) Includes traditional OTC business, AWPs and FOBTs(2) Includes Sportsbook, Casino and Poker(3) Includes greyhound stadia, Course and Group Promotions
Taxes and DutiesFY03 v FY02
17
FY03£m
FY02£m
Mvmt%
GPT 86.7 70.8 22
Levies 27.7 27.0 3
Royalties 22.2 6.8 226
VAT/machine duty/other 6.6 7.1 -7
143.2 111.7 28
Net Operating ExpensesFY03 v FY02
18
FY03£m
FY02£m
Mvmt%
Staff costsProperty costsDepreciationPictures and dataAdvertising and Sponsorship
Routine Retail/Telephone/GroupInteractive
World CupAWP/FOBT rentalFinance charges (incl chargebacks)CommunicationsOther (1)
155.247.318.418.2
6.413.3
-8.77.05.2
32.6
143.041.516.716.4
5.67.82.17.54.14.0
28.3
8.514.010.211.1
15.669.4
16.668.630.015.2
Operating expensesLess: costs allocated to Trading Divisions
312.3(298.5)
277.0(265.5)
12.7%12.4%
Central costs (2) 13.8 11.5 20.0%
(1) Includes printing and stationery, legal, consultancy, cleaning and miscellaneous other costs(2) Primarily central support functions and property costs
Underlying Growth in Operating ExpensesFY03 v FY02
19
FY03£m
FY02£m
Mvmt%
Total operating expenses 312.3 277.0 13
Less: Extended trading Increase in Casino/Poker advertising World Cup advertising H & K shops/stadia acquisitions FOBT installation/infrastructure costs FOBT/AWP rental Retail Technology Programme Assets write offs and other non recurring costs PLC costs including management incentivisation
(4.8)(5.5)
-(7.5)(2.2)(2.4)(1.1)(1.1)
(10.1)
--
(2.1)(1.4)
-(1.2)
--
(6.1)
Adjusted operating expenses 277.6 266.2 4
Profit Conversion (trading profit as a % of gross win)FY03 v FY02
20
FY03
%
FY02
%
Retail 30.1 26.7
Telephone 39.3 34.0
Interactive 43.7 37.3
Retail: ResultsFY03 v FY02
21
505.6
418.9
152.4
111.9
2003 2002
Gross win +21 %
Operating profit +36 %
Growth rate (Y on Y)
Continuing benefit of GPT regime/recycling
Continuing strong growth in Numbers (virtual racing, FOBTs) betting
Extended trading hours
13 new licences for LBOs and
112 other development actions
Telephone: ResultsFY03 v FY02
22
171,000 active accounts
(31 December 2002: 164,000)
Good growth despite poor Cheltenham Festival, no major football championship and betting exchanges
Costs down by £0.6m due to closure of Athlone call centre (April 2002) and improving efficiency in Leeds/Sheffield call centres
56.5
50.9
22.2
17.3
2003 2002
Gross win +11 %
Operating profit +28 %
Growth rate (Y on Y)
Interactive (1): ResultsFY03 v FY02
23
84.9
54.9
37.1
20.5
2003 2002(1) Sportsbook, Casino and Poker
247,000 active accounts (31 December 2002 :173,000)
Sportsbook Focus switching back to UK/selected European markets Growing contribution from Arcade games No major football championship in 2003
Casino and Poker Launch of hosted poker (January 2003) Launch of integrated sportsbook/casino account and language/Euro casinos in Autumn 2003 Multi-supplier strategy
Gross win +55 %
Operating profit +81 %
Growth rate (Y on Y)
Cash Generation:FY03 v FY02 (pre-exceptional items)
24
FY03£m
FY02£m
EBIT 201.7 141.4
Associate income (2.9) (2.4)
Associate dividend - 5.7
Depreciation/amortisation 20.0 16.7
Working capital/other (1) 7.8 (4.1)
Capital expenditure
- routine (18.5) (20.4)
- acquisitions (4.9) (20.8)
Cash taxes (33.4) (9.5)
Free cashflow 169.8 106.6 +59%
Net indebtedness 366.1 481.4
(1) Working capital benefit in FY2003 due to increase in GPT and PAYE creditors and client balances
Presentation in four parts
25
1. Financial results FY 2003
2. Return of capital
3. Guidance FY2004
4. Current trading
Return of Capital
26
Returning value to shareholders v flexibility for acquisitions
Share buy back is but one possible solution
Shareholder authority for:
- Buy back of up to 10% of issued share capital
- Hold in treasury up to 2.5% of issued share capital
Board to keep method, timing and quantum under review
Presentation in four parts
27
1. Financial results FY 2003
2. Return of capital
3. Guidance FY2004
4. Current trading
Guidance FY2004
28
3600 FOBTs and 1900 AWPs by June 2004
LBO extended trading
Cheltenham/Euro 2004
Retail Technology Programme (RTP) – revenue costs £3m in FY2004
Capex – RTP: £10m; ‘Routine’: £23m
Effective interest rate: 6.5%
Effective tax rate: 29%
Presentation in four parts
29
1. Financial results FY 2003
2. Return of capital
3. Guidance FY2004
4. Current trading
Current Trading
30
Encouraging start to the current year
Group gross win up 17%; double-digit growth all three channels
Operating expenses up 13%
All three channels well positioned with clear strategies for growth
Q & A