Flutter Entertainment PLC (FLUT) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Paddy Power Interim Results call hosted by Patrick Kennedy. My name's Ian. I'm your event manager on the telephone today.

During the presentation, your lines will remain on listen-only. (Operator Instructions). I'd like to advise all parties that the conference is being recorded for replay purposes.

Now your conference call's going to go ahead with Patrick.

Morning, everybody. You're very welcome to Paddy Power's 2011 Interim Results. Joining me is Breon Corcoran, our Chief Operating Officer; and Jack Massey, our Chief Financial Officer.

Let me start with the highlights on page 3. It's been a record first half for Paddy Power, with operating profit up by 14% to EUR56.2 million, notwithstanding the 2010 World Cup comparative and adverse sporting results in the period.

Over 80% of our profits came from our Online activities in the UK, Australia and Ireland, which grew very strongly with Online active customers up by 42% to 833,000 in the first half.

Our interim dividend is up 20%, which is an indication of confidence in our future and on that theme, looking forward, the second half of 2011 has started well.

One further highlight that I'm particularly happy about is that we have created another 300 jobs in the Group so far this year, including 200 here in Ireland; and there are some themes that I will expand further upon later in the presentation. But now let me pass to Jack to talk through the financials.

Thanks, Patrick. First up, we've the consolidated P&L where, as you can see, we'd strong double-digit growth, notwithstanding, as Patrick said, the 2010 World Cup being within the comparative period. We'd also a second headwind from adverse sporting results in the latter part of H1, '11, although as you can see on the right to the page, Sportsbook revenue was still up 13% year on year.

Of course, Gaming and Machine revenue is unaffected by such factors and they continued their track record of extremely growth of 34% in H1 '11.

At the bottom line, earnings per share were up 18% year on year.

Moving onto operating costs, these were up 20% year on year and we split out here on this slide the main components of that growth. So on the first box, within Retail, we operated 40 more shops than a year earlier; that's 13% growth in the estate.

Then moving onto the next box of marketing costs, they were up 17% and that was primarily driven by Online, where the cost growth was less -- was well below, for example, the level of growth in new customers acquired.

Similarly, in the next box, other variable type costs grew with the strong growth in the volume of customers and bets. And then finally, you can see we made significant investments, particularly Online in our products, our technology and in business development. Despite this ongoing investment, Online costs growth was maintained as expected in line with top line growth.

Turning now to look at the overall financial performance by division, you can see we'd a strong top line performance with the amounts staked up in every division. The adverse sports results referred to earlier, they fell disproportionately within racing and at Cheltenham and therefore, they hit both Retail channels and most particularly Irish Retail and you can therefore see, as a result, it had lower year-on-year gross win and operating profit.

Overall though, the 25% plus profit growth that we experienced in our largest divisions, Online, more than offset this and they drove the bottom line operating profit growth of EUR6.8 million.

Moving now to look at cash, you'll see that our profit continues to convert strongly into cash flow. In H1, operating cash inflows after tax were 92% of EBITDA. You can see that we've significantly increased investment in the period. The largest item was EUR95 million expended on the buyout of the minority in Australia.

We also spent EUR16 million across maintenance and enhancement CapEx in the first half of 2011 and we'd expect H2 spend to be approximately EUR10 million higher, taking 2011 CapEx to early to mid EUR40 millions.

That will put us broadly EUR10 million above our normal expectations, more than half of which related to the investments in a new technology platform in Australia. That CapEx is all external third party costs with no internal labor capitalized.

Overall, notwithstanding this level of investment, the Group continues to have a strong balance sheet, with net cash of EUR91 million at the end of June. That cash will be further strengthened by the once-off tax gain in Australia that we announced in August, which will see approximately EUR13 million being received by way of an upfront cash refund in H2.

This balance sheet gives us good flexibility for further investment and cash returns for shareholders as shown with the 20% increase in the interim dividend to EUR0.30 per share.

So I'll pass you back to Patrick for the divisional review.

Thanks, Jack. Let me review each of our divisions and I'm going to start with Online, which accounted for over 80% of our Group profitability in the period.

On page 10, starting with the Online operations, excluding Australia, so paddypower.com, very strong top line growth. Sportsbook, active customer numbers were up by 46% and bet volumes up by 54%. That was, in my opinion, an outstanding performance from our Online team, given the substantially higher customer base, remember we grew our sportsbetting customers last year by 45%, and also the absence of a World Cup.

Our mobile performance, mobile and tablet performance, stood out. 35% of our Online Sportsbook customers transacted with us via mobile in the first half and that had increased to 37% last month.

We had, as Jack mentioned, another very strong performance from Gaming, revenue growth of 26% in the period and particular growth in games, casino and bingo, as well as B2B revenues where our partnership with PMU is progressing well.

Online operating cost growth of 44% was, as Jack mentioned, in line with top line growth and at the bottom line, operating profits grew by 26% to EUR36.5 million.

On page 11, our other Online division in Australia grew its profits by 15% in constant currency, 25% overall, but 15% in constant currency, with operating profits of EUR9.8 million.

Once again, good top line growth at our mass market Online brand, sportsbet.com.au, with turnover up 22% and active customers at Sportsbet Online up 20%.

That growth came despite the headwinds of widespread flooding at the start of the year, again a World Cup in the comparative period and the substantial focus over the last 12 months on the technology migration of both Sportsbet and IAS to a new operating platform. That migration was finally executed in early July and has gone very well.

We bought out the minority shareholders of our Australian operations in March and that has enabled us to accelerate our investment in people, in product, technology and brand for the long-term growth of the business and more on that later in the presentation.

On page 12, the online world is becoming more regulated and more taxed, which presents opportunities and threats for Paddy Power. Just going through the various geographies in which we operate, in the UK, the DCMS intends to license all online operators selling into the UK and the Treasury has said it will review the case for taxing all such operators.

The impact of any tax would be a function, in our opinion, of four different issues. The first is timing. Given consultation and given legislative timetables in any case and given the complexity of this issue, we don't expect any tax to be in place before 2014.

The second issue is the rate. The rate must reflect the ability of responsible and rational operators to absorb the tax. Currently GPT in the UK is 15%, but the EBIT of pure online operators in many cases, is less than 15% of gross win, so all and more of their profit would go to pay a 15% tax. So rate is important.

Enforcement is the third key factor. Past experience has shown how difficult it is to enforce effectively. But without that, rogue operators will be advantaged.

And the final factor, and a key factor, is mitigation. Some of our costs will reduce, either directly or due to reduced customer profitability, whilst higher costs for less profitable operators may see them exit at the market.

In Ireland the 1% turnover tax has been sent for approval to Europe. We expect its implementation before the end of the year.

Some good news in Australia on a number of fronts. The Federal Government has announced a review of the Interactive Gambling Act which prohibits online betting and running and online gaming. There is undoubtedly increased questioning around the appropriateness and effectiveness of these restrictions. The prevalence of online casino and games for example is greater per capita in Australia, where they are illegal, than in the UK where they are legal.

Also in Australia, the High Court granted us leave to appeal Racing New South Wales' appeal within the Federal Court, the hearing of which started actually this morning. Our counsel believes this High Court victory augurs well for us and a decision is expected by the end of the year.

And we in other markets continue to review, regulating markets at least, for opportunities that may emerge. So net net, some positives, I think some negatives; in all cases we are working very closely with the relevant authorities.

Let me move to our Retail operations and start with Ireland. Our Irish Office has never been busier. Bet count, like-for-like bet count was up another 8%, but the recession continues to impact average stake size and that was down by 8% to EUR17. So the top line net net was flat, so bet volumes up 8%, average stake for bet, down 8%.

We continue to manage costs very tightly, a further 4% reduction in direct operating costs per shop in the period. That takes the cumulative reduction in operating costs per shop to 20% over the last four years.

We had unusually poor horse racing results, Jack mentioned them earlier. That gave us a gross win percentage of 10.5%, more than 1% below last year's level which pre-recycling, cost us over EUR5 million. And therefore at the bottom line you see a reduction in operating profit to EUR5.1 million.

But if I look at the market in Ireland overall on page 14, competitors have closed 245 shops since August 2008, in the last three years, with more closures in the first half of 2011 than in any prior six month period. Every operator of any size other than Paddy Power has closed shops. And some high profile names have exited entirely, leading to increased concentration around the top three chains.

As we've said before, our turnover per shop is more than twice the average of the rest of the industry and that enables us to give better value and better service than any of our competitors.

Turning to UK Retail; it was a record half from both the trading and development perspective. From the trading perspective, profits up by 59% to EUR4.7 million. From a development perspective, we opened a record 18 shops in the period.

Our new shops are performing very well and our existing shops continue to grow faster than the rest of the industry. The consumer environment in the UK is tough, but we offer our customers better value and I think our shops are better located. And as a consequence we grew our like-for-like stakes by 6% and our like-for-like machine gross win by 16%, which more than compensated for the same poor sports results that we saw in Irish Retail.

From a development perspective, in addition to the 18 shops opened in half one, we've opened a further nine in half two to date, bringing our total to 151 shops in the UK. This beats the target we set three years ago to have 150 shops by the end of 2011 and we expect to open a further 35 to 40 shops going forward.

Our overall presence in the UK is growing very strongly. For example, we now have shops in 32 cities and towns across the UK. We were the largest advertiser from any industry on Sky Sports in the first half of the year. We are the number one mobile and tablet betting provider in the UK. And all of these positions and all of these investments are mutually reinforcing.

If I move to page 16, this is an advance on a chart that we showed six months ago. On the left-hand side at the top, you can see the accelerated rate of openings in UK Retail and at the bottom you can see EBITDA per shop, which remains very strong at around GBP140,000 in the context of shop opening costs of GBP200,000 to GBP250,000.

But the key point on this chart is on the right-hand side, the box on the right-hand side. Having covered our central costs and as our profit per shop has improved and as we accelerate the number of openings, we have kicked through to a new level of profitability in the UK as exemplified here.

Page 17 is our final division, our Telephone division. Rate, recent years, in this business has been a story of two very different geographic performances. Ireland remains very difficult, turnover down 5% in the first half; down 25% versus the first half of 2007. So our Irish business here has been severely impacted by the recession driven by reductions in the average size of bet.

However, we managed to recoup that by continuing to take market share in the UK, helped by a materially better value offer than the competition. And our UK active customers were up by 8% and amount staked up by 5%, despite the absence of the World Cup.

Costs increased due to increased customer numbers and bet volumes and the business made, as you can see, a modest profit. There is ongoing cannibalization from the phones and the Internet, but we continue to grow our share of the market.

Turning to outlook on page 19; we have given a feel for the prospects for the individual retail channels, for Irish Retail and UK Retail, in our divisional review. But we have similar levels of confidence in the prospects for our Online activities which account for the line share of our profits and for the group overall.

And we have that confidence for four particular reasons. Firstly; the markets that we are in are growing and will continue to grow. Secondly, I think we've got very strong positions in those markets. Thirdly, we have a track record, a track record of growing our share in those growing markets. And fourthly, we are investing more substantially than ever before to ensure that that remains the case.

Let me give a little color on each of these four points. Starting with market growth on page 20; the online market in the UK on the left-hand side continues to grow strongly, driven by a variety of factors including mobile and tablet growth, live sport on the Internet, over 50% of bettors watch live sports online. That of course is helped by increased broadband penetration and we do see some migration from Retail.

As you can see here, the online sports bettors in the UK overall, the industry grew by 26% in the 12 months to March, helped by the World Cup. Our own customer numbers in the UK grew substantially more than that, by 58%. But the market growth clearly remains strong.

On the right-hand side from a global perspective, the betting and gaming market is worth $374 billion. But only 8% of that, the small piece of pie there, is online. That overall pie will continue to grow, but the online proportion in our view will grow dramatically in the coming years as more and more countries regulate and tax online gambling. And it is those who are investing now who will win.

The second reason for our confidence looking forward is our own market positions. We have very strong positions in our respective markets. From an overall perspective in the UK betting market, which is what we have on this page here, working from left to right, we have 2% of the shop market, the mature market. We have something up to 15% of the online market which is today's growing market. And we estimate 27% to 30% of tomorrow's market of the mobile and tablet market. I think our position and potential in each of these markets is notable. I think in retail, our revenue per shop is 30% above the average of our quoted competitors.

In online, despite our growth, which in the main comes from winning existing bettors who are with competitors, 86% of UK online gamblers did not bet with Paddy Power last year. And in mobile and tablet, I think we're the clear market leader. Our revenues in the first half were 15% above our two quoted competitors in the UK combined.

On page 22, I think it's important; it's not just the size of our positions in these markets. I think it's the distinctiveness, as exemplified by our Paddy Power brand. Paddy Power, in green on this page, is the only brand in our view that has a real personality and is rated number one versus the competition by online bettors on all key measures; entertainment, modernity, value for money, fun, coolness. So I think you can say it's a strong position but we also have, I believe, distinctive positions.

The third reason for our confidence in our prospects is our track record. The Company has a track record of growing its share in growing markets. And whether you look at the short term or long term, Paddy Power's growth has been ahead of the market. For example, our 48% growth in Online customers in H1 compared to 4% growth in our peers.

Another perspective on our growth, by mid-July of this year, paddypower.com had acquired more new customers than through all of last year as we continue to invest in our online expertise and our brand becomes truly mass market in the UK.

If you look over six years rather than six months, you look to the long term box at the bottom of the page, the results are the same; faster growth than peers, and therefore market share growth.

On page 24, there has been a consistent track record of increased shareholder returns, both in earnings and dividends. In the 10 years since flotation, half one earnings per share has grown by an average annual growth rate of 30% and the half one interim dividend by, on average, 33% a year.

Turning to page 25, the fourth reason for our confidence is our continued investment. We are investing more than ever to grow the scale of the group and ensure we continue to outperform. We continue to invest heavily in online and technology expertise. Today's headcount in these areas is up almost 50% in the last 18 months.

Our social media investments in Facebook, Twitter, YouTube, continues to grow strongly. We had more views on YouTube than our next four competitors combined, as we continued to invest in our own TV production capability.

In marketing, we had our largest Money-Back-Special ever, Click, money back if Barcelona won in 90 minutes, in the Champions League final, with over EUR3 million, pretty much on the nose, GBP3 million returned to customers; with great PR and brand support from our work with Imogen Thomas the prior week, which is on the cover of the -- with the results.

And we've a proven track record of taking our capabilities and applying them elsewhere, as exemplified by our agreements with PMU.

That's our continued investment in the UK and Ireland, but there's a similar team in Australia. We have a great position in Australia. If you look at page 26, at the chart in the bottom left-hand corner, we have, on the one hand, clearly the strongest brand of the corporates. But on the other hand, a lot to go after, given Tabcorp's legacy awareness.

Our competitors are spending more, but the buyout of the minority shareholders in Australia, has enabled us to accelerate our investments.

For example, we're recruiting aggressively. We've over 75 new hires so far this year. We're filling out the senior team. Our Marketing Director in Paddy Power in the last 10 years is moving there this week, in fact, to take up the same role with Sportsbet, and there are now 14 former Paddy Power staff in the management in Australia.

We have improved our mobile offer substantially. 20% of our Online customers transacted with us via mobile in July, and with an iPhone app and android website to come next month, I think that figure is going to increase.

As I mentioned earlier, we have moved Sportsbet and IAS to a new upgraded technology platform, as used by paddypower.com. That's been a major investment, in terms of money, but also in terms of organizational focus, and it will improve product range and improve the experience of our customers. It'll improve risk management, it'll improve many areas across the Group, across Australia.

And finally, there's a screen grab there of Zac Smith, in the top-right hand corner; but we've become Fox Sports' betting partner for Aussie Rules, for rugby union, with the World Cup coming, and tennis. Fox is the sports broadcasting channel in Australia, and as you can see from the page there, will deliver excellent integrated brand exposure.

And finally, being on one platform, should the Interactive Gambling Act review introduce betting and running online, we could now give all of our in running products and all of our Paddy Power models to Australia, which I think would give our business a very clearly competitive advantage.

In conclusion ladies and gentlemen, I think the business is better positioned than ever. We have strong positions in growing markets. We have great capabilities, having substantially increased our scale in the last two years, and our Investment In People product, and what we think is the best brand in the sector.

We have a balance sheet, as Jack mentioned earlier, which gives us great financial flexibility, both to continue to increase cash returns to shareholders, and also to grow our business.

The second half of the year has started well, and we look forward to the balance of 2011, and indeed beyond, with confidence.

So thank you very much for sitting through the presentation, ladies and gentlemen. We'd be delighted to take questions, either on the line, or in the room. And we might start in the room. Whoever asks questions, you might just state your name in advance, thanks.

Just a couple of quick questions if I may. Could you give some guidance on where gross win margins across divisions are, in H2 so far?

In terms of bet volume growth in Online, in the first half, you seem to be ahead of active customer growth. Could you just give some color on what is driving the implied increased frequency of betting? Is it mobile, or are you also seeing it in the Online customers?

In terms of Retail in the UK, could you give some guidance on the machine growth in H2, and maybe beyond, what you'd expect? And in Irish Retail, can you give some guidance on what the amount staked is looking like in H2 so far?

Okay, in terms of machine growth in UK Retail, the level of performance, the level of growth that we've seen last year, and in the first half of this year, is not going to continue. It's been driven by strong execution, but it's also been driven by the introduction of the Storm terminals and Storm cabinets. And it's also been helped, to some modest extent, by longer opening hours in the shops on Sundays, which we introduced in June of last year.

But to give some sense, Gavin, since the anniversary, the full anniversary of the Storm introduction, which -- it was fully rolled out by the end of May last year, so from the start of June this year, machine gross win is up by approximately 8%; so that growth has continued.

But I don't think that's -- I think over time, that figure is going to come down somewhat. I think obviously we'd hope it continues to grow, and we position our shops to try and ensure that. But I think those are rates that would be difficult to continue. Jack, you might deal with gross win margins, and Irish Retail?

Sure. Yes, gross win percentages in the second half, they've been decent, but not massive. Overall, probably we might finish up, up to 10 basis points ahead, by the end of the year, if it was to continue. But as I say, it's early days.

As usual, it's a little bit mixed -- expectations. So as usual a little bit mixed. Irish Retail for example, has been positive, which has been nice to see, after they had a difficult H1. Australia, a little bit negative, with the AFL and NRL continuing not to be too kind to bookmakers during August. But as I say, it's not material in terms of our full-year expectation, particularly.

We go onto amount staked in Irish Retail, I'll put aside July, because of course the World Cup was in the comparatives there, and maybe we'll focus on August, where we're negative, like-for-likes, mid single digit.

We do expect to have a particularly good December, if we have some decent weather this year. You might recall the weather last year was very badly affected by snow, and we saw extremely negative like-for-likes. So if that happens, and allowing for the fact that the gross win percentage, of course, was decent in August too, if we're normal we get a little bit of recycling. So all-in-all you'd expect negative in H2, low to mid single digit, that's like-for-like.

And Breon, net volumes online?

So Gavin, (microphone inaccessible) things going on, average stake was down, gross win percentage was probably the same. So you might expect that the frequency would pick up slightly, I think. Mobile is helping, but even separate from that, there's still an investment in product and there's more matches over betting and running than ever before. So on the Internet customer base, frequency is absolutely fine as well.

Of course, the average [housing] spend helps, and our retention stats are better than before, and improving. So that in itself means customers stay longer, with the opportunity then to bet more over the period as well. So it's an amalgam of many small things.

Okay, thanks Gavin.

Just a couple of questions. Firstly, in terms of mobile versus what you might call traditional online, I just wondered, in terms of acquisition costs, and I suppose profitability per customer acquired via the two channels.

Second of all, just in terms of the potential development pipeline, and I suppose your history in terms of always running a net cash position, is that still the case, or how happy would you be to, say, go into a net debt position for the right deal? Do you see a [possibly] deferred interim dividend, on the basis of the opportunities you face, or lying ahead? And with the rush towards consolidation, that is expected to continue. So (inaudible).

Paraic, I'll let Breon deal with the first question, but in relation to our development pipeline, and in relation to our cash position, as we showed in one of the latter charts, we've grown our dividend per share on average, by 33%, since we floated 10 years ago.

And cash returns to shareholders, and increasing and improving cash returns to shareholders, is very, very important for us, it's what we do. And that has happened with the dividend. And also occasionally through buybacks; I think over the last three years, we've spent at around EUR85 million on buybacks.

That said, we have a cash position to a point where we've no debt. We're in a stronger cash position. I think, had we a view that in the long run, that that was going to be our cash position, that the business could effectively finance itself, going forward, and development could be financed out of the business, we'd be dealing with the cash position. I think we like the flexibility. I think that we think that over time there may be opportunities to invest that money, and if there aren't, then we'll return it to shareholders.

So we're not going to run indefinitely at a surplus cash position. All of that said however, we are a conservative Company from a financial structure point of view. We always have been. I think it's paid off over time. And so I could see Paddy Power having an amount of indebtedness but it will be a modest amount of indebtedness. Breon, the mobile?

Yes, so we really can't be drawn at this stage, on acquisition costs for mobile versus the Internet, and I think we were fortunate to have the right product available early. So we were the first bookmakers with the iPhone, iPad apps, android app in the market place, globally.

We pushed it then, the products, on TV, so a lot of the TV ads are mobile focused, as you know. And that, in addition to the benefit for the mobile channel, allows us to reinforce the brand as being a 21st century digital brand, if you will.

But at this stage, we just -- it's too early to say, really, about the long-term economics of mobile customers versus Internet. In many ways, the customer groups are converging. We now have 37% of Internet customers also transacting, or transacting at least in part, on mobile.

But this is still a very immature market, and customer behavior is varying between the use of mobile Internet and using applications. So we're very happy with our market share. We think we're well positioned to continue to grow that. We think it reinforces the brand across all the other channels, but we still see this as a work in progress, and really too early to draw any firm conclusions about value or cost.

Could you just please say a couple, a few more words on the tax review in the UK? You headlined there the timing and rate and some of the different elements. Maybe you could talk to us about, let's say, a worst case scenario and a best case scenario, for the rate and for the timing? Thanks.

Well, the best case scenario on the rate is that nothing happens. So -- and the worst case scenario I think is 15%.

I think on the one hand, in relation to rate, I think the point about the margins that are made by online only operators, is a key point. On the other hand, obviously the Government in the UK will have pressure because they have a GPT rate that exists, which they apply to all bettors based in the UK, all operators based in the UK.

So I think this is a -- what that points to is -- your point about timing, it is a complex issue. Our discussions to date with the Treasury will point to that fact. And that's why we made the point that we don't think there'll be anything in place here before 2014.

In the legislative process, in any case, something that was introduced in the UK budget in February, March of year 1, typically only has affected the tax in September of year 2, just given the process.

As I say, when you layer on top of that, the complexity that we've alluded to and the overall complexity there is in this space, and most particularly, the complexity around enforcement, which is a key issue, that's why I think that we won't have a tax at whatever rate, in effect before 2014.

That enforcement point is something that the Treasury is focused on, and realizing the complexity of it, so that will be something to -- that will be a key issue. And we've seen that here in Ireland also.

Just one question. Obviously several countries are planning to -- European countries are planning to regulate their market in the next 12 months. Have you decided which markets, if any, you will be entering?

No, we haven't David. I'm sorry, I'm not being glib, but we're evaluating -- if your strategy is, as ours is, to only play in legal regulated markets, then that's great. But it's also incumbent upon you to look at every market that is becoming legal and that is regulating, and we do that. And we look at it -- what we do in future geographies will be a function of how attractive we think those geographies are going to be.

And some of the points we just discussed in relation to the UK. So what the tax rate will be and whether or not the operators in that market will be disadvantage, because of a lack of enforcement.

For example, in France at the moment, Bwin are on the records a number of months ago, saying that, by their estimates only 30% of the French market today is actually legal and regulated. 70% of it is still offshore. Arjel, the French regulator, have estimated that almost 300 websites are still operating illegally and not paying tax in France.

So there are complexities in terms of tax, complexities in terms of enforcement, complexities in terms of the number of licenses and the cost per license, and the existing players.

And I think also a key issue is whether or not historic illegals will be allowed to continue to play in those markets, and if so, whether they have to purge their databases. So it's a complex evaluation, market by market.

Just on Australia guys, your margin assumptions for the second half of this year, obviously you can move to the OpenBet platform for gross win margin assumptions for 2012.

And then just going back to the regulations there Patrick, on the Interactive Gambling Act, is there any sense of timing on that, when all going positively, that you might get betting and running for online operators, and obviously gaming as well, is there a sense of the timing for that decision?

Yes, so we updated, I think it was six months ago, in relation to our expected gross win percentage in Australia. And we updated positively, given for example, process changes we were making, in anticipation of OpenBet.

And that was -- the guidance was that with normal results we'd expect the gross win percentage in Australia, to be around the same as we achieved in 2010, which was 7.9%. And that normal guidance hasn't changed.

As I said, we were conscious of OpenBet's benefits within that. We were also conscious of the potential for the market to become more competitive, the potential for us to want to trade aggressively, as we do, and offer great value. So there's no change in the normal guidance, with normal results, for Australia.

So there's, I think -- subject to the cross-party committee, which is looking at this, reporting back by the end of 2011. And they are working hard, they've met with our team, they've actually spent time in our offices over the last three weeks. They will report back, hopefully by the end of 2011, in which case I believe the review will be concluded by the middle of 2012.

Just going back to one of the areas you were talking about, and that was the tablet versus PC. We see in the IT sector, there's been a fundamental shift away from PCs to acquisition of tablets and mobiles in the last year or so. I was just wondering if you could give us a sense of your -- when you said 37% of customers are using both these, is it a large percentage in online and a small percentage in the tablet? Or is it starting to see an increasing percentage of the bets coming through on the tablet platform?

And on the back of that, maybe an idea of what your plans are over the next year or so for the relative development of the different applications?

So the 37% number means that 37% of our digital customers are having some or all of their transactions on mobile devices, be they mobile phones or tablets. We haven't split out the tablets from the phones in particular; and most of the traffic is still going through the iPhone. After that it's androids, and then probably iPad is next.

Ian, we've been reasonably [early] with our [equipment] partner called Mobenga, a Stockholm-based software company. We're doing product releases every six to eight weeks, and we have a roadmap going out into the New Year. We launched Blackberry in the last few weeks, and we're doing a Nokia handset-focused product soon. And we will continue to drill in and focus on what the customer wants, and we think increasingly that's about personalization, so that you get exactly what you want on the small screen device. But as I said earlier, it's really too early to say where this ends up, as to whether this is a top-up device, or whether this is a device that will cannibalize the Internet.

The other part of this is the emerging offer for mobile games, which is -- at the moment lags the sportsbetting offer in terms of customer take-up; but we would expect a reasonable, a similar kind of growth pattern there over the next six to 12 months.

I think, Ian, one of the other points that we make is this; so we've done well, but we have no choice. But we have over 50% of our Online turnover today comes from customers who do transact by a mobile or tablet. So it's not all by mobile or tablet, to the stats we've given out earlier. But therefore more than half our customer base by value uses this as a key means of transacting, not necessarily the only means of transacting with Paddy Power so we have to continue to invest, we have to have the product roadmap that Breon mentioned; and we just have to stay ahead.

And if there are -- we've done quite an amount but we have time, and if there are calls on the line, we're delighted to take them.

(Operator Instructions). Matthew Gerard, Credit Suisse Europe.

Four questions, please; two on regulation in Europe and two on Australia. In Australia can you give us any color for the disruption from the migration to paddypower.com platform or OpenBet, and how that impacted the first half, and whether we've seen a big wagering growth increase since the relaunch last month? Or is it too early to tell?

Secondly, on Betbox, I think there was the Court ruling last week on Monday, can you give us an update on that? I'm not quite sure where the next stage of the process is there.

And then on Europe, you previously gave guidance, I think, for EUR1 million to EUR2 million from PMU in 2011, accelerating next year. Do you still stick by that? And given we've now passed the one-year anniversary in France, has that changed your view on entering Spain or Greece on a B2B basis? Thanks.

Breon, if you'd deal with the two Australian questions.

So Matthew, in terms of disruption from the OpenBet thing, so yes, we have seen a pick-up in the business since our [going live] with OpenBet. We're not -- we haven't quantified the extent of that, and obviously it's -- there's marketing around that as well, so trying to disaggregate the different parts will be hard.

I think in terms of disruption, it was more a management focus over the last 12 months, in particular the first six months of this year, where in effect we were running two legacy proprietary systems at IAS and Sportsbet, and managing the focus on the launch of OpenBet, which is -- which proved to be a substantial project. But that work is now done, materially the Company is focused on OpenBet, and growing the business; and we're happy with the progress since the product went live on time, a number of months ago.

With respect to Betbox, yes, we did win, the ruling was in our favor a couple of weeks ago. I understand that the other side has a number of weeks to appeal that ruling, and we'll see how that plays out. But broadly it was supportive of our right to offer international digital-type product across -- outside of the Northern Territory, and some of the commentary around the ruling talked about the monopolistic behavior of the TABs.

So I think it's a long slog for the corporates in Australia, but I think we have good momentum there. Of course as Patrick said earlier, we're in Court today in Australia about raising product fees; but momentum does seem to be on our side at the moment.

Thanks, Breon. Jack, PMU?

Yes. So, Matthew, I think the guidance that you refer to was back in 2009, when we announced the PMU deal, as you said; we said EBIT in 2011 of EUR1 million to EUR2 million. And we haven't updated that range, but I think it's fair to say, given some of what you'll have read, in terms of the enforcement challenges, keeping offshore operators out of the markets, etc., you could conclude reasonably that we would be at the lower end of that range. But we've made no change to the range.

I think, Matthew, in relation to your final question, as to our PMU experience, and its application in the rest of the continent; I think our PMU experience operationally is very, very positive. It's shown that we can do this, and do this well. PMU and ourselves have an excellent relationship, so we have the operational capability, that box has been ticked, and I think then one goes to the same issues that we discussed earlier with David. What we do, if anything, in future geographies is a function of what the opportunities are in those geographies, and the pitch that's marked out for us. And those pitches will be very, very different, country by country.

Okay, thanks. Can I just come back on one point, on Betbox? If Tabcorp appeal, which presumably they will do, but the appeal is rejected, what's the end game on Betbox? What do we see the rollout as being if there is legal clarity on the product?

I think we may as well see how that appeal goes. I think the market has changed in Australia, continues to change, and is expected to continue to change with the probable or the possible appeal of the in running stuff. Mobile has obviously also changed the market structure. So the future for the Betbox, for kiosk-type devices, is probably less certain than it was in the past, before we realized how mobile would catch on. So I don't think there should be a line for the Betbox revenues in your numbers any time soon.

Okay, thanks.

Vaughan Lewis.

Just a follow-up on the balance sheet, if that's okay. With all the cash that you've got at the end of H1, and the in-flow from the tax from Australia in H2, should we expect a special dividend, do you think, in the second half, or a buyback?

And then secondly, in the UK, with the acceleration in the store rollout, is it getting easier to find new stores, now that you're in so many more cities than you were a couple of years ago? Thanks.

Vaughan, I think on the UK, on the one hand we're on a lot more people's radars. We have a presence, as I mentioned earlier, in 32 cities and towns across the UK, and therefore local estate agents, local landlords, think of Paddy Power, and approach Paddy Power, in ways that they didn't before, and that's positive; and also think of us as a tenant in a more positive way, and our covenant in a more positive way, than they might have before. So that's all good.

I think, obviously, at the same time, there are opportunities that you see, and the opportunities over time, as you take the most obvious ones, the opportunities may dilute slightly over time. I think that's more than offset, though, by the increased number of incomings that we get. And I think the other thing that we've done is we have continued to grow our development team in the UK. So that's why we'll be confident in 35 to 40 shops a year, which would be a faster rate of growth than we've had in any historic year.

In relation to the capital structure, we've made no decisions on that. I think I would reiterate that we are absolutely committed to cash returns to shareholders, and I think the track record talks to that; but we're also committed to growing the business. My own view is that over the next three to five years, I think there will be enormous opportunities in our sector. And I think it's those who have invested in our capabilities, and those who are well capitalized who'll be able to take advantage of those opportunities.

Great. Thank you.

Roohi Siddiqui.

A couple of questions from me, please. Firstly, in Australia, is it possible to give a sense of what your expectations are for wagers for the second half? In H1 obviously you had the World Cup impact and then the flooding, so what's the underlying rate of growth in wagers in H1 in Australia?

And secondly, on mobile, could you give us a figure for where you are in terms of revenues from mobile at the moment?

Jack, do you want to take the Australian points?

Yes, sure Roohi, and when you think about stakes in Australia, it's quite important to think separately about Telephone and then Online; because the telephone, of course, can create a little bit of noise, if you like, in terms of its materiality at the amount staked level. But then of course, as we say in the statement, the gross win percentage is much lower on it, and the costs of sales are higher, and OpEx, etc., so it doesn't really make a huge material difference to the bottom line on its growth.

So I'll take then in turn, and in that context the Telephone turnover has been falling, and given the structural outlook for Telephone, all things being equal, you would expect that. But the main number to focus upon is the progress with the Online business; and in the first half we achieved year-on-year growth in Online amount staked of 7% in constant currency.

And as we set out, back at IMS time, and again in this statement with more certainty, we'd expect to see that improve significantly in the second half. And I don't think it'll reach the type of growth levels that we have seen in paddypower.com in this particular H2 period, but we certainly expect it to move substantially from the 7%, well into double digits with the investments and the change in technology that we've made. So that is the broad picture.

And with respect to the mobile question. In the first half, 35% of actions transacted in least in part on mobile devices, that was 22% of sportsbetting stakes. In July we said it was 37% of actions, so that 22% has ticked up a little bit as well.

Okay. Is there a difference in margin, in mobile versus online? I mean the gross win margin?

No, we haven't broken it out. There's reasons why margin will be higher and lower, but we haven't broken it out, and we think, over time, the margins will converge on the same place.

Okay, thank you very much.

Thank you. There's no further questions over the telephone.

All right. Well, ladies and gentlemen, thank you very much for joining us this morning, and we obviously would be very happy to take any follow-on queries that you may have. Just come individually to Breon, Jack or myself. Thank you very much indeed.

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank you very much for joining us. Do enjoy the rest of your day.