Figures released by Ireland\’s largest betting company show a 2.5 per cent dip in pre-tax profits down to €31.3million, despite revenues were up 18.3 per cent at €1.371 billion.
Paddy Power\’s retail arm, which operates 195 betting shops (150 in Ireland and 45 in the UK), was hit hardest. Operating profits slumped by 46 per cent to €9.5m on revenues up 15.3% to €794.3m. Telephone betting also suffered, with operating profits dropping 22 per cent to €3.6m on revenues of €249.8m.
The company endured a poor run of results in 2005, with a large number of favourites winning high-profile horse races, including nine Irish winners at Cheltenham and an Irish winner at the Aintree Grand National.
Newly-appointed Chief Executive Patrick Kennedy said the yearly gross win percentage was also impacted by a structural change in the Irish marketplace, where lawmakers decided to eliminate customer based betting taxes from July 2006, replacing them with a 1% revenue-based levy on the bookmaker. Paddy Power immediately offered tax-free betting and absorbed the full 2% charge itself ahead of the new laws coming into effect.
On the plus side, the operating profit from the online business increased 92 per cent up to €17m, accounting for 56% of group earnings compared to 28% in 2004. Online revenues increased by 39.7 per cent up to €327.5m, while gross win was up 67 per cent at €43 million.
As of 31 December 2005, the group had more than 73,600 active online players, 48,137 of them playing with the sportsbook, which reported a 35% growth. The company\’s internet poker and casino games experienced a strong growth that provided some insulation against the volatility of the sportsbook. Gross win was up 192% to €17.2m.
Average bet sizes were in line with expectations. Given the different cost dynamics of handling bets through each channel, telephone betting continued to experience a higher average bet size of €91, compared to €32 for online betting and €19 for the retail channel.
In a statement to the stock market, Paddy Power said that in the last five years, since its floatation, the business has been transformed from an Irish betting shop operator to a multi-channel, multi-national betting and gaming company with over 29% of revenue coming from outside the Irish market. Paddy Power has remained the number one betting and gaming company in Ireland and has now established itself as a significant player in the considerably larger UK market.
The expansion has diversified the income sources, with non bookmaking income becoming an increasingly significant revenue stream. This in turn has allowed the company to broaden its customer base, both by customer type and geographic market, providing various cross selling opportunities that will fuel further growth. 2006 should see an expansion of the online channel into continental Europe with at least one European language being added.
During 2005, the firm captured the headlines when it launched a Paddy Power Papal Elections website, and when in September, after only seven matches of the season, it paid out all bets on Chelsea winning the English Premiership.
Chief Executive Patrick Kennedy said that trading in the first two months of 2006 has been satisfactory and that he looks forward to the future with confidence.
“Lastyear\’s results went in the punters favour,” he said. “Overall, whilst there are challenges facing all of our businesses, they are far outweighed by the opportunities that our market position and our own capabilities present. The strategy that has led to the successful development of Paddy Power to date is set to continue and I look forward to the future with confidence.”
Paddy Power expects the annual bookmaking gross win percentages in 2006 to be between 11 and 13% for the retail operation and between 8 and 9% for the internet and phone betting operation.
The firm also said that “strategic acquisitions at the right price that bring new product, technology or geographic expansion are possible.”
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