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Preliminary Results Announcement
Year ended 31 December 2002
10 March 2003
2
Detailed Financials
Outlook and Issues
Operating Highlights
3
Operating Highlights
• EBIT (1) up 26% to £141.4m
• Further product/revenue diversification
• Encouraging income/cost movements post gross profit tax anniversary
(1) Pre exceptional items
4
EBIT (1) up 26% to £141.4m
£m 1999 2000 2001 2002
Turnover 1878 2042 2452 3365
Gross wins 417 452 503 527
EBIT(1) 74.4 84.6 112.0 141.4
+ 14% + 32% + 26%
Third consecutive year double digit growth
(1) Pre exceptional items
5
Further, significant, product/revenue diversification
Indicative proportion GW 1999
%
2001
%
2002
%
Horseracing 59 52 48
Greyhound racing 16 19 18
Football (inc World Cup) 7 11 14
Numbers (inc FOBT & virtual) 5 4 8
AWPs 7 7 6
Casino - 2 4
Other (inc stadia) 6 5 2
100 100 100
6
Favourable income/cost movements post GPT anniversary
Total Group gross win versus inflation
95.0
100.0
105.0
110.0
115.0
120.0
125.0
130.0
135.0
Dec
-99
Fe
b-0
0
Apr
-00
Jun-
00
Aug
-00
Oct
-00
Dec
-00
Fe
b-0
1
Apr
-01
Jun-
01
Aug
-01
Oct
-01
Dec
-01
Fe
b-0
2
Apr
-02
Jun-
02
Aug
-02
Oct
-02
Dec
-02
Fe
b-0
3
Rolling 12 months
Ind
ex t
o 1
999
= 1
00
Inflation Index
Gross WinIndex
21 wks Oct 6 – Mar 2
02/3 vs. 01/2
GW* + 17.7%
Expenses* + 7.8 %
* 13 weeks audited
* 8 weeks mgmt accounts
7
Operating Highlights
Detailed Financials
Outlook and Issues
8
Interpretation of Results
1H, 01 2H, 01 1H, 02 2H, 02
-Lost fixtures/weather and Foot & Mouth epidemic - 27 week period
- Introduction of GPT (6 October)
- Favourable results (1Q,02)- Horseracing Levy based on 10% GP (April)
- World Cup (June)- IPO (June)- Betting exchanges - Unfavourable horseracing
results (3Q, 02)- Acquire H&K chain and Sunderland greyhound stadium (September)
- FOBT rollout
9
Summary of Financial Results: FY02 v FY01(pre-exceptional items)
FY02
£m
FY01 (3)
£m
Mvmt
%
TURNOVER (1) 3,365.3 2,452.2 37.2%
GROSS WIN (2) 527.7 502.6 5.0%
GPT, Duty, Levy, Royalties and other related costs (111.7) (137.6) -18.8%
GROSS PROFIT (CONTRIBUTION) 416.0 365.0 14.0%
NET OPERATING EXPENSES (277.0) (257.9) 7.4%
ASSOCIATE INCOME 2.4 4.9 -51.0%
EBIT 141.4 112.0 26.3%
EBITDA 158.1 128.6 22.9%
(1) Includes Casino drop and AWP cash-in-box net of VAT(2) Includes Casino drop and AWP cash-in-box inclusive of VAT(3) 53 week financial period
10
Summary of Earnings and Dividends: FY02 v FY01 (pre-exceptional items)
FY02£m
FY01 (1)
£mMvmt
%
PROFIT BEFORE INTEREST AND TAXATION (EBIT) 141.4 112.0 26.3%
NET INTEREST PAYABLE (59.9) (84.7) -29.3%
TAXATION (22.9) (8.9) 157.3%
PROFIT AFTER TAXATION 58.6 18.4 218.5%
DIVIDEND
Interim (12.1) -
Final (24.2) -
RETAINED EARNINGS 22.3 18.4 21.2%
EARNINGS PER SHARE (pence)
Basic 16.9 6.9
Diluted 16.8 6.9
(1) 53 week financial period
11
Proforma v Actual Earnings: FY02 (pre-exceptional items)
Unaudited
Proforma
£m
Actual
£m
PROFIT BEFORE INTEREST AND TAXATION (EBIT) 141.4 141.4
NET INTEREST PAYABLE (35.4)(1) (59.9)
PROFIT BEFORE TAXATION 106.0 81.5
TAXATION (29.7)(2) (22.9)
PROFIT AFTER TAXATION 76.3 58.6
EARNINGS PER SHARE (pence) (3)
Basic 18.2 16.9
Diluted 18.1 16.8
(1) Assumes average net indebtedness of £525m and an interest rate of 6.75%
(2) Assumes an effective tax rate of 28%
(3) Assumes 418.4m and 421.3m shares in issue for basic and diluted EPS calculations, respectively
12
Analysis of Gross Win: FY02 v FY01
(1) Includes Traditional business, AWPs and FOBTs(2) Includes Sportsbook and Casino(3) 27 week financial period(4) Adjusted to eliminate effect of additional trading week in 2H,01
1H02
£m
1H01
£m
Mvmt
%
2H02
£m
2H01(3)
£m
Mvmt
%
Adjusted
Mvmt (4)
%
Retail (1) 215.7 211.8 1.8% 203.2 204.9 -0.8% 3.0%
Telephone 27.5 24.9 10.4% 23.4 23.1 1.3% 5.2%
Interactive (2) 29.3 14.0 109.3% 25.6 21.4 19.6% 24.2%
Other 1.2 1.5 -20.0% 1.8 1.0 80.0% 86.9%
Group 273.7 252.2 8.5% 254.0 250.4 1.4% 5.3%
13
Taxes and Duties: FY02 v FY01
FY02£m
FY01(1)
£mMvmt
% Explanation
RETAIL
GPT/Duty 57.8 95.1 -39.2% FY benefit of GPT
Levy 21.5 18.9 13.8% Changes in Levy arrangements (9 months)
FOBT royalties 1.0 - Roll out of FOBTs in 2H, 02
80.3 114.0 -29.6
AWP VAT/machine duty 7.1 7.0 1.4%
TELEPHONE
GPT/Duty 7.7 7.0 10.0% Net effect of GPT and repatriation of offshore business
Levy 3.7 1.9 94.7% Changes in Levy arrangements and repatriation of offshore business
11.4 8.9 28.1%
INTERACTIVE: SPORTSBOOK
GPT/Duty 6.3 3.2 96.9% Net effect of GPT and repatriation of offshore business
Levy/licence fee 0.8 0.1 Changes in Levy arrangements and repatriation of offshore business
INTERACTIVE: CASINO
Royalties 5.8 4.3 34.9%
12.9 7.6 69.7%
OTHER - 0.1
GROUP 111.7 137.6 -18.8%(1) 53 week financial period
14
Net Operating Expenses: FY02 v FY01
FY02£m
FY01(2)
£mMvmt
%
STAFF COSTS 143.0 129.2 10.7%
PROPERTY COSTS 41.5 39.4 5.3%
DEPRECIATION 16.7 16.6 0.6%
COMMUNICATIONS 15.9 14.1 12.8%
ADVERTISING AND SPONSORSHIP
Routine 13.4 12.8 4.7%
World Cup 2.1 -
AWP/FOBT RENTALS 7.5 6.2 21.0%
OTHER 36.9 39.6 -6.8%
OPERATING EXPENSES 277.0 257.9 7.4%
Less: Costs allocated to Trading Divisions (265.5) (247.7) 7.2%
CENTRAL COSTS (1) 11.5 10.2 12.7%
(1) Primarily central support functions and property costs(2) 53 week financial period
15
Underlying Growth in Operating Expenses:FY02 v FY01
1H01£m
2H01£m
1H02£m
2H02£m
TOTAL OPERATING EXPENSES 124.6 133.3 138.5 138.5
Less:
53rd week (4.8)
Repatriation costs (4.0)
Increase in staff costs due to recycling/extended trading hours (1.5) (2.8) (5.0) (3.3)
World Cup advertising (2.1)
H&K / Sunderland acquisitions (1.4)
FOBT rental (0.1) (0.3) (0.9)
ADJUSTED OPERATING EXPENSES 119.1 125.6 131.1 132.9
10.1%
5.8%
5.5% 4.4% 1.4%
16
418.9 416.7
111.993.2
Growth rate (Y on Y):
Gross win 0.5%
Operating profit 20.1%
Retail: Results FY02 v FY01
> Benefit of GPT regime/recycling
> Weak horseracing margins since Q2 02 coupled with unfavourable results in Q2/Q3 02 (normalised in Q4 02)
> Strong growth in Numbers (e.g. virtual racing, FOBTs) and Football betting
> Extended trading hours
> 7 new licenses for LBOs and 61 other development actions
> Acquisition of 40 LBOs
2002 2001(1)
Gross win Operating profit
(1) 53 week financial period
17
Growth rate (Y on Y):
Gross win 6.0%
Operating profit 11.6%
50.948.0
17.315.5
2002 2001
Telephone (1): Results FY02 v FY01
> 164,000 active customers (1 January 2002: 150,000)
> 2001 adversely impacted by Foot & Mouth epidemic
> Offshore business repatriated and gross win became subject to GPT and Levy
> Call centres Leeds and Sheffield (opened Jan 02); Athlone closed April 02
> Good World Cup in Q2, 2002
> Unfavourable horseracing results in Q3, 2002
Gross win Operating profit
(1) Aggregates onshore and offshore business(2) After repatriation provision of £3.1million(3) 53 week financial period
(2)
(3)
18
Growth rate (Y on Y):
Gross win 55.1%
Operating profit 122.8%
54.9
35.4
20.5
9.2
2002 2001
Gross win Operating profit
(1) Sportsbook and Casino(2) 53 week financial period
Interactive (1) : ResultsFY02 v FY01
Sportsbook
> Increase in active accounts on Sportsbook site (31 December 2002: 130,000; 1 January 2002: 100,000)
> Excellent World Cup
> Continuing growth in the market, with the focus on the UK
Casino
> Increase in active accounts on Casino site (31 December 2002: 43,000; 1 January 2002: 35,000)
> Cross selling to Sportsbook and Telephone customers
(2)
19
Cash Generation:FY01 v FY02 (Pre-exceptional items)
FY02 FY01(1)
EBIT 141.4 112.0
Associate income (2.4) (4.9)
Associate dividend 5.7 -
Depreciation 16.7 16.6
Working capital/Other (4.1) 9.5
Capital expenditure (routine) (20.4) (28.0)
Capital expenditure (acquisitions) (20.8) -
Taxation (9.5) (0.7)
FREE CASHFLOW 106.6 104.5
NET INDEBTEDNESS 481.4 792.1
(1) 53 week financial period
20
Current trading
Gross win up 20% in the nine weeks ended 4 March 2003 compared to the corresponding period due to:-
- Favourable sporting results
- Introduction of FOBTs
- Growth in Football and Numbers betting
Double digit growth in gross win across all three channels
21
Operating Highlights
Detailed Financials
Outlook and Issues
22
Fixed Odds Betting Terminals
• 1820 installed, will be over 2000 by June
• From inception, net profit/terminal/week averages £220
• Assume 50% of net profit substitutional - further research underway
• Contractual terms improving
• Gaming Board case – focus roulette
• DCMS focus proliferation – terminals and products in 4/shop
23
Horseracing Margins/Exchanges
WHAT’S THE PROBLEM
• YTD book margin 118.7 vs. LT average 121.3
- results & betting patterns determine actual margin
- recycling of ‘supernormal’ winnings unknowable
WHAT’S HAPPENING
• 10% levy/data charge from 1 April
• Application for judicial review denied
• Increasing pressure on NJPC to enforce rules
• Independent concerns re integrity issues
• Potential tax will mirror levy on exchange layers
24
Relationships with content providers
1. Greyhounds
* Brough Park and Sunderland give WH 15 % of BAGS fixtures
* 3 year BAGS contracts with seven tracks
* BGRB deadline extended
2. Horseracing
* Constructive collaboration on fixture planning
* Rule 14 expected soon
25
Other key areas of focus ‘03Retail
- Technology programme
- Machine optimisation
- Ongoing estate development
Telephone/Internet sports betting
- Single account
- Mobile
- Targeted marketing
- Alternative payment methods
On-Line Casino
- Hosted poker
- ‘Arcade’
- Supply chain
Questions?
Preliminary Results Announcement
Year ended 31 December 2002
10 March 2003
