Financial review

Revenue and profit before tax

	Year ended 31 December 2008		Restated (2) year ended 31 December 2007
	Revenue £m	Profit (1) £m	Revenue £m	Profit (1) £m
Continuing operations:
UK Retail	723.1	187.9	701.8	187.8
Other European Retail	151.2	20.6	102.7	21.7
eGaming	172.2	55.1	143.5	55.0
Telephone Betting	125.6	83.2	279.8	183.6
Other (3)	-	(8.0)	-	(6.3)
Corporate costs	-	(14.9)	-	(21.1)
	1,172.1	323.9	1,227.8	420.7
Net finance costs	-	(65.2)	-	(67.7)
Revenue and profit before tax	1,172.1	258.7	1,227.8	353.0
Discontinued operations:
Casino	6.6	(1.1)	7.2	(0.7)
Vernons	-	-	16.8	6.0
	6.6	(1.1)	24.0	5.3
Net finance costs	-	(0.6)	-	(1.5)
Revenue and profit before tax	6.6	(1.7)	24.0	3.8
Group revenue and profit before tax	1,178.7	257.0	1,251.8	356.8

1. ⁽¹⁾ Profit is before non-trading items.
2. ⁽²⁾ Refer to notes 2 and 39 of the consolidated financial statements for details of the restatement.
3. ⁽³⁾ Other includes international development costs and the start up of our Spanish joint venture.

Trading summary – Continuing operations

Revenue
Revenue for continuing operations decreased by £55.7 million (4.5%) to £1,172.1 million. Excluding High Rollers activity in Telephone Betting, revenue increased by £95.6 million (9.8%) to £1,073.8 million, mainly as a result of improved machine performance in the UK Retail estate, the net addition of 71 Irish shops in 2008 and growth in eGaming.

Profit before finance costs, tax and non-trading items
Profit before finance costs, tax and non-trading items decreased by £96.8 million (23.0%) to £323.9 million (2007: £420.7 million). Excluding High Rollers activity, profit before finance costs, tax and non-trading items increased 0.9% to £243.8 million (2007: £241.7 million) reflecting marginally higher profits in UK Retail and eGaming plus reduced corporate costs due to lower generic television advertising costs in 2008 compared to 2007.

Finance costs
The net finance costs of £65.2 million were £2.5 million lower than last year (2007: £67.7 million) and benefited from a lower overall weighted average interest rate. The 2009 blended interest rate is currently estimated to be approximately 6%.

Profit before tax
The decrease in trading profits partially offset by the lower finance costs in the year has resulted in a 26.7% decrease in profit for continuing operations before taxation and non-trading items to £258.7 million (2007: £353.0 million).

Non-trading items before tax
£8.5 million of non-trading losses before tax includes a £4.0 million profit arising on derecognition of deferred consideration originating from the Sponsio acquisition in 2007 and £0.1 million profit (2007: £6.7 million loss) relating to net unrealised gains on derivatives and on retranslation of foreign currency borrowings. This is offset by a £7.2 million loss on the closure of 61 UK Retail shops, a £1.1 million loss on closure of Other European Retail shops (Ireland) and £4.3 million of litigation and transaction costs.

Taxation
The Group taxation charge for continuing operations before non-trading items of £39.9 million represents an effective tax rate of 15.4% (2007: 15.6%).

Discontinued operations
The £1.1 million trading loss in discontinued operations relates to the loss before interest, tax and non-trading items of the Casino business in the year ended 31 December 2008 (2007: £0.7 million loss). A non-trading impairment charge of £7.5 million has been recognised against the carrying value of the Casino.

Earnings per share (EPS) – Continuing operations
EPS (before non-trading items) was 36.4 pence (2007: 47.6 pence) reflecting the decreased profit before tax partially offset by the reduced weighted average number of shares. EPS (including the impact of non-trading items) was 35.2 pence (2007: 46.7 pence). Fully diluted EPS was 35.0 pence (2007: 46.3 pence) after adjustment for outstanding share options.

Earnings per share (EPS) – Group
EPS (before non-trading items) decreased 24.6% to 36.2 pence (2007: 48.0 pence). EPS (including the impact of non-trading items) fell to 33.4 pence (2007: 54.4 pence), reflecting the decreased profit before tax partially offset by the reduced weighted average number of shares. Fully diluted EPS was 33.2 pence (2007: 54.0 pence) after adjustment for outstanding share options.

Dividend and capital structure
The Board has proposed a final dividend of 9.05 pence (2007: 9.05 pence) per share. The dividend will be payable on 1 June 2009 to shareholders on the register on the register on 27 February 2009.

As previously stated, the Board’s dividend target is about two times covered over the medium-term.

During the first quarter of 2008 the Group purchased 11.8 million shares at a cost of £34.8 million. Cumulatively, since the Board announced the start of the share buyback programme in August 2007, the Group has purchased 31.8 million shares at a cost of £105.2 million.

During 2008 the Group extended certain committed bank facilities and signed an additional £185 million of new committed bank facilities. The Group now has £410 million of committed bank facilities maturing in 2011 and £500 million maturing in 2013. Following the repayment of the £175 million 7.25% bond at the end of July, and having taken the opportunity in December to repurchase €35.5 million of our 2009 6.5% Eurobond, the Group had undrawn committed facilities of £510.4 million at 31 December 2008.

As previously stated the Board have a medium-term target net debt to EBITDA range of 3.5 to 3.75 times (excluding Telephone High Rollers).

The bank facilities have a net debt to EBITDA financial covenant of 4.25 times and an EBITDA to net interest financial covenant of 3.0 times.

Restatement of income statement and segment information note
The Group has restated its comparative year ended 31 December 2007 income statement to reflect the casino as a discontinued operation and to reflect UK Retail and Other European Retail as separate segments, following the acquisitions in Ireland and Italy. Details of these restatements can be found in note 39 to the consolidated financial statements.

Revenue recognition – reconciliation to gross win
The Group reports the gains and losses on all betting and gaming activities as revenue in accordance with IAS 39, which is measured at the fair value of the consideration received or receivable from customers less fair value adjustment for free bets, promotions and bonuses. Gross win includes free bets, promotions and bonuses, as well as VAT payable on machine income. A reconciliation of gross win to revenue for continuing operations is shown below.

Cash flow, capital expenditure and borrowings
Cash generated by operations was £414.7 million. After net finance costs and income taxes paid of £120.6 million and £213.0 million on capital expenditure, intangible additions and acquisitions, cash inflow was £81.1 million.

£85.0 million was paid out in dividends, £34.8 million was spent on the share buyback programme.

At 31 December 2008, gross borrowings of £1,117.5 million less cash and cash equivalents of £25.0 million and derivatives of £105.4 million have resulted in a total Group net debt of £987.1 million.

	Year ended 31 December 2008 £m	Year ended 31 December 2007 £m
Gross win	1,242.2	1,279.0
Free bets, promotions, bonuses	(27.4)	(14.4)
VAT	(42.7)	(36.8)
Revenue	1,172.1	1,227.8