Paddy Power To Re-Power B.C. Lottery Corporation Online Gambling

Obtained by Bob Mackin via Freedom of Information 2010goldrush@gmail.com twitter.
com/bobmackin
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Entertainment Mode
110%
Going Mobile
Giant Erection
Volcano Betting
Sin Bin
Social Paddy
Psychic Power
Bricks & Clicks
Paddy TV
Election Betting
Pope My Ride
Annual Report 2010
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PPad Manual Report

User Guide
Paddy Power plc Annual Report 2010

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Contents
1. At a Glance 2. Getting Started 3. Getting the Basics Right 4. 20.10 Operating System 5. Connectivity 6. Syncing Financial Highlights Chairmans Statement Chief Executives Review Operating & Financial Review Corporate Social Responsibility Board of Directors Corporate Governance Remuneration Committee Report Statement of Directors Responsibilities Independent Auditors Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Company Financial Statements Five Year Financial Summary Additional Information for Shareholders Letter to Shareholders Notice of Annual General Meeting 8. Conclusion 2010 Betting Review 1 2 8 13 30 36 38 50 58 61 62 64 65 66 67 68 70 129 130 143 144 147 149 153
7. Tips and Troubleshooting Directors Report
WARNING: iPhones , iPads and Androids became the must have devices of 2010 and, riding the wave of mobile opportunity, the Paddy Power App unleashed the full potential of mobile betting. Having Paddy in your Pocket was more popular than Justin Bieber at a teenage girls disco resulting in a 310% increase in our mobile sports betting turnover in 2010. But it wasnt all about technology, 2010 was also the year of a World Cup, a Papal visit, a psychic octopus, one very temperamental volcano, a sponsored confession box and a general election and, as you would expect from Paddy Power, we were there every step of the way trying to add some aPPyness!
iPhone and iPad are trademarks of Apple Inc Android is a trademark of Google Inc
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At a Glance
Financial Highlights
1
Adjusted Diluted Earnings Per Share
2.000 1.800 1.600 1.400 1.200 1.000
Total amounts staked *
3,834m +39%
2009: 2,752m
Total income *
444m +50%
2009: 296m
Adjusted diluted earnings per share **
0.800 0.600 0.400 0.200 0. 00 00 01 02 03 04 05 06 07 08 09 10
1.689 +40%
2009: 1.207
Dividends per share
2009: 58.40c
75.00c +28%
* Amounts staked by customers represents amounts received in respect of bets placed on sporting events that occurred during the year and net winnings, commission income and fee income earned on gaming and other activities. Income (or gross win) represents the net gain on sports betting transactions (stake less payout) plus the gain or loss on the revaluation of open positions at year end, net winnings on xed odds and online casino gaming activities, and commission income and tournament fees earned from peer to peer games, nancial spread betting and business-to-business services. ** Adjusted earnings per share in respect of 2010 is calculated excluding a gain on revaluation of the Sportsbet buyout call options of 7,116,000 and the recognition of a deferred tax asset in respect of prior period GB retail tax losses of 1,770,000.
Company Secretary and Registered Ofce David Johnston - Airton House, Airton Road, Tallaght, Dublin 24. Stockbrokers Goodbody Stockbrokers - Ballsbridge Park, Ballsbridge, Dublin 4. Investec - 2 Gresham Street, London, EC2V 7QP. Legal advisers Arthur Cox - Earlsfort Centre, Earlsfort Terrace, Dublin 2. Auditor KPMG - 1 Stokes Place, St Stephens Green, Dublin 2. Principal bankers Allied Irish Banks plc - 100-101 Grafton Street, Dublin 2. Lloyds TSB plc - Bailey Drive, Gillingham Business Park, Kent, ME8 0LS. Barclays Bank - Barclays House, Victoria Street, Douglas, Isle of Man, IM99 1AJ. Registrars Computershare Investor Services (Ireland) Limited. Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Registered number 16956.
Directors Nigel Northridge Chairman Patrick Kennedy Chief Executive Breon Corcoran Chief Operating Ofcer Jack Massey Finance Director Tom Grace Non-executive Director Fintan Drury Non-executive Director Stewart Kenny Non-executive Director Jane Lighting Non-executive Director Pdraig Rordin Non-executive Director David Power Non-executive Director William Reeve Non-executive Director Brody Sweeney Non-executive Director
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Getting Started
Chairmans Statement
2
2010 2009 % Change % Change in Constant Currency (CC)
Dear Shareholder, I am delighted to report on a highly successful year for Paddy Power. Despite the difcult economic conditions, the Group delivered record turnover of 3.8 billion and operating prot of 104m. Earnings per share grew by 40% and the Board is recommending a full year dividend of 75c, an increase of 28% versus 2009. The fundamental pillars of this strong performance are product innovation, value for customers and brand differentiation. The fruits of investment in the business, combined with an unusually high proportion of bookmaker friendly results in the second half of the year, ensured that 2010 was a milestone year for the Group.
m
Amounts staked Sportsbook gross win % Gross win Gross prot Operating costs Operating prot Prot before tax* EPS, adjusted diluted* Dividends Net cash, at year end
3,834 9.3% 443.5 383.3 (279.5) 103.8 104.2 168.9 cent 75.0 cent 159m
2,752 8.5% 295.9 258.0 (191.3) 66.7 67.2 120.7 cent 58.4 cent 75m
+39% +50% +49% +46% +56% +55% +40% +28%
+34% +45% +44% +42% +48% +48%
*2010 excludes gains re the Sportsbet buyout call options revaluation and UK deferred tax asset recognition (where applicable)
As well as driving earnings growth, business developments in recent years have fundamentally changed the prole of Paddy Powers activities, and positioned it positively for future growth.
Zooming in on wee objects

When viewing photos that need a bit more attention you can zoom in and out for a closer look at the worlds largest poker chip stack.
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PPad Apps
The following apps are included with PPad: Going Mobile Now you can have Paddy in your pocket all the time! The new Paddy Power App for iPhone, iPad and Android stole the show in 2010, rocketing mobile betting into the stratosphere and resulting in a mobile sports bet being struck every three seconds! Giant Erection Spanning 270ft in length and 50ft high, the Hollywood style Paddy Power sign overlooking the 2010 Cheltenham Festival turned a few heads, raised even more eyebrows and entered the record books as the longest free-standing billboard in the world. Volcano Betting What better way to follow a giant erection than a massive eruption! Coming to the rescue of would-be holiday makers, volcanobetting.com allowed people to insure the cost of their holiday by placing a bet on their departure airport closing for at least one hour. Sin Bin Forgive me Father for I have sinned. Where better to clear your conscience than a trip down to the Paddy Power Sin Bin, the worlds rst sponsored confession box. Drop in to see Father Michael at St. Etheldredas Church, Newmarket, and tell him Paddy sent you! Social Paddy In 2010, our Twitter, Facebook and YouTube channels attracted more followers, fans and viewers than ever before. On Facebook we now have more fans than the next ten competing bookmakers combined and were only getting started! Psychic Power With the phenomenal success of Paul the Psychic Octopus during the 2010 World Cup, we joined forces with the National Sea Life Centre to test the psychic skills of Pauls Irish cousin, Paddy. However the Celtic cephalopod had his own plans. Bricks & Clicks 2010 was not just about online. Paddy Power is about Bricks and Clicks! In 2010, we continued to expand our retail presence both at home and abroad. We opened the doors to 31 new betting shops in the UK and nine in Ireland. Paddy TV Blind footballers, outrageous ofce e-mails and a difcult moment in the lads changing room. It can mean only one thing, Paddy Power are on TV. Englands Blind Football team stole the show with a display of skill that wouldnt seem out of place on MOTD (just ask Tiddles!). Election Betting The UK general election attracted huge betting interest as punters sniffed change was in the air. Our political betting website, electionbetting.com, went into overdrive with scores of political betting markets on offer. Pope My Ride To coincide with the visit of His Holiness to the UK, we put our very own Pope and Popemobile on the streets of Glasgow, Edinburgh and London allowing thousands more fans to get a glimpse of El Papa.
Going Mobile
Giant Erection
Volcano Betting
Sin Bin
Social Paddy
Psychic Power
Bricks & Clicks
Paddy TV
Election Betting
Pope My Ride
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Getting Started
Chairmans Statement (continued)
Going Mobile
pour homme, pour femme,

pour iPhone, iPad & Android!
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Going Mobile
May 2010 saw the launch of our iPhone App. We were the only bookmaker around the world - in the Apple App Store at one stage. In September, the Paddy Power App was the number one most downloaded App in the Irish store. Mobile betting means our customers are only ever one touch away from Paddy Power, whether out and about, at the races or home watching the match. Hot on the heels of our iPhone offering we also introduced Apps for the iPad and the Android, which is apparently a kind of phone rather than an actual robot. In total, our mobile sports betting turnover increased by over 300% in 2010 and accounted for 19% of total sportsbook stakes by the rst two months of 2011.
iPad iPhone Android
iPhone and iPad are trademarks of Apple Inc Android is a trademark of Google Inc
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Getting Started
Paddy Power: An International Company

Almost two thirds of Paddy Powers prots were generated outside of Ireland in 2010. We are the third largest online bookmaker and sixth largest online gaming business in Britain and Ireland and, at the current trajectory, we will have more shops in the UK than Ireland by 2013. The acquisition and growth of Sportsbet and IAS made us the number 1 online corporate bookmaker in Australia. Last weeks successful completion of the early buyout of the minority shareholdings in Australia puts further capital at work in this fast growing market. Meanwhile our new B2B activities have seen us expand into France, in partnership with PMU.
Paddy Power: An Online Company
almost
3/4s
Q A Z 123 W S X E D C R F V T G B Y H N
of profit from online

U J M I K ! O L ? 123 P return
A full years contribution from our Australian acquisitions is reected in the results bringing greater visibility to the scale of the Groups online business. Online gross win last year was 250m, an 88% increase over 2009. This level of online revenue, together with the Groups total prot after tax of 97m, gives us a position of scale amongst the top-tier of online betting and gaming operators to fund further online investment. Our position is bolstered by strong momentum and less regulatory complexities than faced by many of our peers. Evidence of the signicant online investment, and the related returns, are clearly visible. Last year, we were at one stage the only bookmaker globally to have an iPhone app in Apples App Store. We were also at one point the only bookmaker with an iPhone and iPad app in the App Store and an app in the Android Marketplace. We also launched over 100 new online games including a selection for mobile. Paddy Power has more followers on YouTube, Facebook and Twitter combined than the next ve competing bookmakers put together an illustration of how well the Paddy Power brand works online. All told, almost three quarters of Paddy Powers prots were generated online last year.
Taxation
In January 2011, the Irish Government passed legislation extending the 1% tax on Irish retail stakes to online and telephone bookmakers in respect of bets taken in Ireland, effective from a date to be set by the Minister for Finance. We urge the new Government to ensure it can stringently enforce the tax on all operators supplying the Irish market, irrespective of where they are located, before the legislation is implemented. Any failure to enforce in full will lead to companies which employ staff and pay taxes in Ireland being put at a disadvantage in what is a highly competitive market. It is more essential than ever before that Ireland remains an attractive and competitive location to support the expansion of business and the creation of new jobs. Paddy Power has a demonstrable track record of providing high quality jobs and a major tax contribution to Ireland. The Group paid 42m to the Irish Exchequer last year and the extension of Irish betting tax and employer payroll taxes this year will add some 5m and 2m respectively per annum to this. Last year, Paddy Power created 121 jobs in Ireland, as well as announcing plans to increase its Irish employees by 500 to 2,210 by 2013 driven by its international expansion. A further 900 new jobs are expected to be created outside of Ireland by 2013.
The Board
William Reeve joined the board as a non-executive director last May. William is an online entrepreneur and has founded, led and guided many successful online businesses. Williams understanding of the online market place and his track record of delivering consumer concepts via the internet has already been of substantial assistance to Paddy Power as it continues to grow its online businesses.
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IMPORTANT:
Sportsbook amounts staked are up 16% and total gross win is up 38% in the rst two months of 2011. Financial Position and Dividends
Prot growth at Paddy Power converts strongly into increased cash ow. Last year, operating cashow (after maintenance capex and LTIP trust share purchases) was 142m, or 111% of headline EBITDA. Strong cash generation has been used to fund investment and increase cash returns for shareholders, whilst still leaving the Group with a strong balance sheet and exibility for expansion. Net cash at 28 February 2011, less cash expenditure of AUD123m (91m) related to the Sportsbet acquisition, remained strong at 87m or 47m excluding customer balances. The Board is proposing to increase the nal dividend by 29% to 50.0 cent per share. This would bring the total dividend in respect of 2010 to 36.4m or 75.0 cent per share, an increase of 28% on 2009.
Outlook
The year has started well. Turnover growth and sporting results have been strong, notwithstanding Australia being affected by severe adverse weather. Sportsbook amounts staked are up 16% and total gross win is up 38% in the rst two months (in constant currency versus the same period last year). This reects the strong momentum in the Group, as well as a weak 2010 comparable. The Group looks forward to 2011 and beyond with condence.
Nigel Northridge Chairman 4 March 2011
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Getting the Basics Right

Chief Executives Review
Substantial progress was made in the successful implementation of our strategy in 2010. In recent years, this strategy has been built upon investment in value, product and brand to enable us to: - grow share in all our existing markets; - pursue multi-channel growth in the UK; - enter other attractive regulated markets. This strategy has resulted in strong growth in scale and protability, whilst avoiding the legal risk, curtailment of other opportunities and lack of sustainability which may come from large investments in unregulated markets.
Grow Share in All Our Existing Markets

Paddy Powers approach to driving growth has been consistent since its inception differentiation based on more product, more value and more entertainment than any competitor. The mix and detail of this approach constantly evolves. Since the onset of more difcult economic conditions, we have signicantly stepped up the value of our offer to win market share from competitors less prepared to invest for the long term. There was no easing up last year with our biggest ever Money-Back Special payout. In addition, our Australian punters were introduced to early pay-outs and we had some high prole justice payouts on unlucky golfers. Genuine Paddy Power value means much more than competitive pricing its a unique approach to being generous in entertaining ways that resonate with customers and differentiate us from the rest of the pack. Technology development has facilitated opportunities for product innovation and enhanced marketing. In 2010, smart phone technology has changed how the internet is consumed, while social media has opened up new ways to reach and interact with customers. Paddy Power has taken full advantage of these opportunities. For example, a mobile phone sports bet is struck on average every three seconds on paddypower.com, while our expertise in app development has enabled the rapid creation of an Election Betting app, supported by a dedicated @pppolitics Twitter feed. We also continue to invest signicantly in technology to ensure that we retain the capability to exploit the opportunities afforded by new media and technologies.
Setting Up PPad
Before you can use PPad, you must hook it up to your nearest Paddy Power supply to fully charge it.
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IMPORTANT:
Our UK online growth actually accelerated last year having increased active customers by an average of 28% over the previous three years, we grew by a further 56% in 2010, from a substantially higher base.
Whilst expanding internationally, we continue to strengthen our business in Ireland. We are already the largest online operator in Ireland, and our position improves as we gain scale internationally and develop further capabilities which can further enhance our domestic position. In Irish Retail, we have grown our market share from some 25% to 26% prior to the downturn to over 30% now, as more price and brand conscious consumers respond to our offer, coupled with the closure of shops by our competitors. Our Irish shops are well positioned for the current challenging market conditions with turnover per shop more than twice the average of our competitors and direct costs per shop 14% lower than two years ago. We estimate that our competitors have closed 200 shops since August 2008, while we have closed none and opened 20 over the same period. We expect this trend to continue.
Pursue Multi-channel Growth in the UK

Notwithstanding the expansion of our international activities, the UK remains very attractive to Paddy Power as a substantial regulated market, with an established betting culture that is highly receptive to our products and brand. The online market has obvious attractions given its strong structural growth drivers (mobile internet usage, live online streaming of sports and casino, new online advertising opportunities) and our track record of both growing with the market and taking market share. Our growth actually accelerated last year having increased active customers by an average of 28% over the previous three years, we grew by a further 56% in 2010, from a substantially higher base. In the retail market, we are also generating strong returns with the strength of our offer enabling us to win market share from the best performing shops of our competitors. Last year, our EBITDA per shop was 141,000 as compared to a capital cost of 235,000 for new openings, excluding acquired units. The expected benets from new and maturing shops, lower per shop depreciation and increased scale to cover central overheads and facilitate further cost reductions, are all feeding strongly into operating prot the 7.4m achieved in 2010 representing a 13.4m turnaround versus 2006. Despite the challenges of migration online, our telephone business has also grown its UK operations substantially, with UK customers increasing by 20% and UK gross win by 32% last year. This multi-channel approach gives us greater scale for investment in brand, product and other spending that benets all channels. Activities in each channel also directly compliment each other: for example, a retail presence increases trust online, cash deposit/withdrawals at shops enhance online payment options and online technical capabilities add to the retail product offering.
2002/3 2004 2005 2006 2007 2008 2009 2010 Total Estate
11 19 15 12 1
UK Retail Shops Opened By Year
UK Retail EBITDA Per Shop Pre Central Costs (000) 95 113 109
UK Retail Operating Profit (m) 141

PHASE 1 PHASE 2 PHASE 3
+7.4 +1.3 +0.3 +1.2
10 25 31 124 (24)
2004
9 (14)
2005 2006 2007 2008 2009 2010
(1.5) (3.7) (4.7) (6.0) 2003 2004 2005 2006 2007 2008 2009 2010
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Chief Executives Review (continued)
Giant Erection
10
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Giant Erection
Cheltenham is widely considered the Oscars of the jump racing world and, to celebrate the 2010 Festival, we installed our very own Hollywood-esque sign on Cleeve Hill overlooking the iconic race course. In what was the longest free-standing billboard in the world, the monster Paddy Power sign spanned a massive 270ft in length dwarng the iconic Hollywood landmark which measures a puny 200ft. As well as being the worlds longest sign, the giant Paddy Power stands at a mighty 50ft in height - making it taller than three doubledecker London buses stacked on top of each other. The reaction by race goers was overwhelmingly positive and our YouTube video chronicling the gigantic erection achieved an equally impressive 107,000 views.
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11

Chief Executives Review (continued)
There is still signicant potential for Paddy Power in the UK. Despite our progress online, we still only have a low double-digit percentage share of the online sports betting market and we will continue to make signicant inroads into the gaming market. In retail, we are on track to reach our target of at least 150 shops by 2011 but that is still less than 2% of the market. Momentum is good with the 31 shops opened last year representing our largest ever number in a single year. These openings also included seven shops acquired over three transactions, with the strong uplift in performance of these units since our acquisition demonstrating a further option we have to grow our estate selectively.
Enter Other Attractive Regulated Markets

Strong growth opportunities in our existing markets allow Paddy Power to be selective about expansion further aeld. Nonetheless we are committed to entering new markets where attractive opportunities exist, as we have done in Australia and France. Our Australia expansion has been very successful to date and, notwithstanding the market, as expected, becoming more competitive, we remain excited by its prospects. The division generated EBITDA (pre Group central cost allocations) of AUD40m in 2010, up 72% versus the twelve months prior to our initial acquisition. The Sportsbet brand holds a clear leadership position versus other online corporate bookmakers; however when the online share of the TABs (the licensed retail monopolies) are added, our share is lowered, leaving substantial scope for growth. In addition, we expect the Australian online market to continue to grow strongly, driven by the same macro drivers we have seen elsewhere, plus the attraction of the better value and choice available online compared to the offerings of the retail monopolies. We are looking forward to the completion this year of the migration of Sportsbet and IAS to the same technology operating platform as Paddy Power. This will substantially enhance the product offering of both our Australian brands, as well as leaving them ideally prepared should online betting-in-running or gaming be allowed at some point by the Australian government. Against this backdrop, we were pleased to increase our ownership of Sportsbet to 100% last week giving us the benets of full control, combined with our Australian partners continued involvement. While our preference is to enter new markets on a B2C basis, sometimes the risk-reward prole of a B2B approach may be more attractive. That was our conclusion in relation to the French online market and we were delighted to begin supplying sports book risk management and pricing expertise to PMU on schedule in June. Successful live operation enhances our credentials established by winning such a prestigious rst client and we continue to seek further B2B relationships.
average EPS growth since 2000

Q A Z 123 W S X E D C R F V T G B Y H N U J M I K ! O L
26% p.a.
P return ? 123
Australia and France represent two excellent proven examples of how Paddy Power can leverage and migrate its core competencies to work effectively elsewhere as other international markets regulate.
Conclusion
Paddy Power has a track record of delivering growth. In the ten years since otation in 2000, we have increased turnover from 363m to over 3.8 billion, an average annual growth rate of 27%, and earnings per share at an average annual growth rate of 26%. We continue to invest, particularly in our online and technology capabilities, to maintain that virtuous circle of revenue growth, generating more cash for investment, to drive further revenue growth. As a result of the substantial opportunities in our markets, and our positioning to avail of them, we look forward to 2011 and beyond with condence.
Patrick Kennedy Chief Executive 4 March 2011
12
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20.10 Operating System

Operating & Financial Review
4
2009 % of Group
Paddy Power is an international betting and gaming group. Operations are divided across Online, Retail and Telephone channels. Betting and gaming services are provided predominantly to consumers, mainly in the UK, Ireland and Australia, but also to business-to-business clients globally. The prole of the Groups activities has changed signicantly over recent years with the online channel accounting for 72% and non-Irish customers accounting for 64% of operating prot in 2010. Operating Prot by Division (m) Online (ex Australia) Online Australia Irish Retail UK Retail Telephone (ex Australia) Group
2010 % of Group
57.5 19.5 17.6 7.4 1.8 103.8
55% 19% 17% 7% 2% 100%
45.7 4.6 16.3 1.3 (1.2) 66.7
69% 7% 24% 2% (2%) 100%
(Online Australia also includes legacy telephone operations accounting for less than 10% of gross and operating prot in 2010)
Operating Prot by Geography (m) UK Australia Ireland and Rest of World Group
2010
% of Group
2009
% of Group
45.7 19.5 38.6 103.8
44% 19% 37% 100%
29.4 4.6 32.7 66.7
44% 7% 49% 100%
(Online and Telephone operating prot allocated by geography based on average divisional prot margins applied to gross win)
Sporting Results and Trading

Sporting results in the rst half of the year threw up a rare, unusual and bizarre overall gross win percentage in line with our expectations. The fact that the swings and roundabouts balanced out highlights the potential benets of an ever increasing diversity of events and markets. The second half of the year got off to a great start with the concluding stages of the World Cup pushing up our total stakes on the tournament to 86m and gross win to 18m. Thankfully, the combination of the Germans and optically challenged referees assistants did take out some of the teams carrying our biggest liabilities. Nonetheless, we did get stung by Paul Oktopus correctly predicting the winner in all of Germanys World Cup matches from his ofce in the Sea Life Aquarium, landing punters a few squid. Always keen to embrace new innovations we lost no time in appointing his rst cousin, Paddy the Psychic Octopus, to the senior management team to predict the outcome of major sporting events. With a gross win percentage 1% above our normal expectations in the second half of the year, were thinking of donating Paddy to the Irish government in the national interest. Paddys achievement was all the more heroic given our ongoing commitment to give better value than the competition through extra places for each-way bets (e.g. seven in the British Open), justice payouts on selections that let our punters down (e.g. Andy Murray when Nadal withdrew during the Australian Open) and early payouts on selections that we gured werent going to let our punters down (e.g. So You Think in the Cox Plate). In the crazy world of sports where Andy Carroll is only slightly cheaper than Zinedine Zidane and more expensive than David Villa, at least our commitment to great value and entertainment for our punters will not change.
IMPORTANT:
Almost two thirds of Paddy Powers prots were generated outside of Ireland in 2010.
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13

Operating & Financial Review (continued)
Volcano Betting
14
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Volcano Betting
In April, air travel in Europe literally ground to a halt courtesy of a previously inactive Icelandic volcano with an unpronounceable name. Eyjafjallajkulls impact on air travel was immediate and, with no end in sight, we spotted opportunity in adversity and launched volcanobetting.com. Volcanobetting.com allowed would-be holidaymakers to place a bet on a wide range of UK or Irish airports closing for at least a one hour period due to volcanic ash contamination on any given date between June 1st and August 31st. The odds on offer varied by airport and by date; as an example a 1,000 holiday leaving London Heathrow on July 18th could be covered by placing a bet of 50 at 20/1. Turnover was literally ying in the rst two weeks before the worst thing that could happen happened; the volcano stopped erupting. Short lived but much loved, volcanobetting.com, just like Eyjafjallajkull, remains dormant for now!
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15

4
2009 % Change % Change in CC
ONLINE
m 2010
Sportsbook gross win Gaming & other gross win Total gross win Operating prot % of Group operating prot Active customers
176.7 72.8 249.5 75.0 72% 838,043
80.3 52.5 132.8 49.4 74% 537,202
+120% +39% +88% +52% +56%
+105% +34% +77% +44%
(Active customers dened as those who have bet in the reporting period, excluding indirect B2B customers and Australia pre Q409)
Last year our online operations generated 250m of gross win and 75m of operating prot. Operating prot growth of 26m comprised paddypower.com growth of 12m and Australian growth of 14m (of which 4m arose from having a full year contribution).
IMPORTANT:
Paddy Powers online earnings have a unique prole with 71% of revenue generated from sports betting and our prots generated from the legal regulated markets of the UK, Australia and Ireland.
Paddy Powers online earnings have a unique prole with 71% of revenue generated from sports betting and our prots generated from the legal regulated markets of the UK, Australia and Ireland. We see this strength in sports betting as a signicant asset, as it is the largest individual segment in online gambling, and also has the highest potential for product differentiation and barriers to successful new entrants. A strong sportsbook position can also enhance gaming protability and growth when backed up by investment in product, marketing and intelligent cross selling. Whilst regulations currently preclude the Group from availing of this opportunity in Australia, gaming contributes almost as much revenue as sports betting for paddypower.com. In constant currency versus proforma comparatives, online gross prot increased by 51% and operating costs by 66%, reecting in part investment in key areas such as mobile betting to ensure the Group remains part of the big-get-bigger segment of online operators. Overall, we signicantly strengthened our market position in 2010, ending the year with more customers, more scale and more capabilities, as well as signicantly higher prots, compared to a year previously.
ONLINE DIVISION (Excluding Australia)

m 2010 2009 % Change % Change in CC
Amounts staked Sportsbook gross win Sportsbook gross win % Gaming & other gross win Total gross win Gross prot Operating costs Operating prot
1,126.0 90.9 8.6% 72.8 163.7 143.0 (85.5) 57.5
856.4 55.3 6.9% 52.5 107.8 94.6 (48.9) 45.7
+31% +64% +39% +52% +51% +75% +26%
+29% +61% +34% +48% +47% +72% +20%
The online division (excluding Australia) grew its prots by 26% in the period to 58m (or by 20% in constant currency excluding a 2.1m benet from positive exchange rate movements). An improvement in sports results contributed to this increased prot but sportsbook stakes and gaming gross win also grew substantially, by 28% and 34% respectively in constant currency. Active customers increased by 44%, driven by 56% growth in UK customers. Both sportsbook and gaming active customers grew strongly, up 45% and 48% respectively.
16
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After negligible operating cost growth in 2009, costs increased by 72% in constant currency. Increased taxation was a signicant factor with the extension of payroll taxes in Ireland and higher UK VAT adding almost 3m or 6% to online costs. Further cost increases arose as a result of revenue growth, and specic investment decisions taken in a wide range of areas to drive future growth including: Increased investment in proven initiatives such as streamed live sports online, terrestrial TV advertising in the UK for both Sportsbook and Gaming, enhanced gaming promotions and further investment in website development; Exploiting new opportunities such as the potential from pay-per-click advertising, smart phone usage and other geographies; People costs linked to direct volume growth, a step-up in our infrastructure in areas such as B2B and IT, and performance related pay. As well as driving growth, these investments contribute to the quality of our customers experience and we were pleased to win best Customer Relations Operator at the E-Gaming Review awards in 2010. Online Channel Active Customers UK Ireland and Rest of World Total Online Customers Product Usage Sportsbook only Gaming only Multi-product customers Total
2010 2009 % Change
474,617 167,672 642,289

2010
304,301 142,100 446,401

2009
+56% +18% +44%

% Change
355,842 85,613 200,834 642,289
253,233 62,108 131,060 446,401
+41% +38% +53% +44%
online sportsbook stakes up 28% to
(Active customers dened as those who have bet in the reporting period, excluding indirect B2B customers)
(A) Sportsbook
The amounts staked on the online sportsbook increased by 28% in constant currency to 1.053 billion. Within this, bet volumes grew 50% to 63.8m while the average stake per bet decreased by 15% in constant currency to 16.52. The reduction in average stake per bet is due to a combination of factors, including the signicant growth in active customers and more challenging economic circumstances. We saw strong growth in both racing and football turnover as a result of continued development of our product which included signicant investment in live betting markets and a new live betting interface. This expansion in the choice of markets, together with the option of mobile betting, contributed to growth in the average number of bets per customer, partially offsetting the reduction in average stake per bet. Sportsbook gross win increased by 61% in constant currency. This growth was helped by a rebound in the gross win percentage to 8.6%, which was above the upper end of our normal expected range of 7.0% to 8.0%. This improvement was despite our biggest ever Money-Back Special refund being triggered when Spain and Holland nished 0:0 in the World Cup nal, which resulted in over 25,000 online customers receiving back their losing stakes (and over 50,000 customers across the Group).
1.1bn
Q A Z 123 W S X E D C R F V T G B Y H N U J M I K !
O L ?
P return
123
Sportsbook Mobile Turnover (Ex Australia) m

+310%
112
CAGR
17 17
+16%
27 18
2006 2007 2008 2009 2010
The Paddy Power book of course goes way beyond sport. Special events such as the Royal nuptials generate much to bet on from the stag night to the dress (Paddy gave his views on both to the media outside Buckingham Palace despite, we suspect, a small chasm between his knowledge of the two subjects). Sometimes even Paddys expertise reaches its limits though, resulting in us commissioning and publishing independent political opinion polls, reinforcing our leadership position in political betting. There is almost no subject for which our traders cannot provide a betting market. Their diverse output generated great interest at home and abroad, ranging from our volcano eruption betting which was covered in National Geographic magazine, the name of Apples next device (The Economist) and the next species to become extinct (Wall Street Journal).
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17

Sin Bin
18
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Sin Bin
In April, we teamed up with champion jockey Frankie Dettori to unveil our latest sponsorship, the Paddy Power Sin Bin The celestial sponsorship funded a . new confession box for St. Etheldredas Church in the home of UK at racing, Newmarket. The sponsorship was the brainchild of Newmarket Parish Priest Father Michael Grifn who was on the look out for innovative ways to nance the renovation of his church which was several years overdue. The unveiling took place after 10 oclock mass on April 27th. The congregation were a little bemused by the whole affair, particularly when a Sky News outside broadcast unit descended on the Church to broadcast the unveiling live on TV. Frankie Dettori had the honour of having his confession heard rst in the Sin Bin followed by the perennially penitent Paddy Power.
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19

31% of active sportsbook customers now using mobile

Q A Z 123 W S X E D C R F V T G B Y H N U J M I K ! O L ? 123 P return
There were, as always, numerous product innovations in the year, but the stand-out highlight was mobile. After a few false dawns and several dodgy ringtones, the year of the mobile came with turnover up over 300% to 112m, or 11% of total sportsbook stakes. In January to February of this year, 31% of our online sportsbook customers transacted with us via mobile, generating 19% of the total amounts staked. We were rst-to-market with a series of award winning mobile applications. These releases were backed up with a major brand advertising campaign in the UK and Ireland showcasing our technology credentials (for those that might mistake us for just a cheeky chappy). In addition, we made signicant investment in the evolving mobile advertising channels. We expect more innovation and growth this year as we continue to adapt our smartphone platform to the demands of the mobile user.
(B) Gaming & Other

Gaming and other revenue increased by 34% in constant currency to 73m driven by growth in Games, Casino and Bingo. Signicant enhancement to the quality of our gaming offer and promotions expertise encouraged us to conduct more direct customer acquisition for gaming. TV advertisements were run for the rst time for both Games and Bingo in June and good results led to further campaigns, as well as increased focus on pay-per-click advertising for gaming. Growth in sportsbook customers is a key potential driver for Games and Casino growth. To leverage that opportunity, signicant investments have been made in expertise, analysis and technology to customise cross-selling, ongoing promotional offers and product presentation. This customisation is to the preferences and behaviours of players, both in their early life and as they evolve over time. Progress and investment in this area is highlighted by the 53% increase in active multi-product customers. Our ability to offer more games more quickly accelerated last year and we increased our selection of games to over 200. Last year we introduced over 100 new games, versus 52 in 2009, incorporating innovative promotions such as 20 Games in 20 Days in April and 24 Games in 24 Hours in October (the techies are all getting full Star Trek box sets if they manage 60 Games in 60 Minutes). We also took advantage of the increased appetite for live streamed product with further investment in our Live Casino offer. In addition, Paddy Power beneted from a competitive market amongst technology suppliers: we now use over 15 suppliers across Games and Casino, giving us best of breed products for our customers and exible competitively priced supply. Bingo was our fastest growing gaming segment last year which exemplies how Paddy Power can adapt its capabilities to new areas. Bingos performance was driven by our core strengths in distinguishing our product from the rest of the pack, and online and ofine marketing that combines creativity with detailed analytics behind the scenes. Our Poker business continues to perform well relative to its peers but faces ongoing challenges from sites taking play from the U.S. In this context, we were pleased to increase new player sign-ups helped by our sportsbook growth, another successful Irish Open Poker Tournament (which attracted record player numbers) and the towering achievement of a world record chip stack at our Irish Winter Festival. The last time we piled chips so high involved two slices of buttered bread and the mother of all hangovers! B2B revenues grew strongly, as expected, with the commencement of service to PMU in June and we aim to build a portfolio of such deals in markets where a B2B entry offers a more attractive risk reward prole than B2C. We also transact with business customers through our sports risk management business (Airton Risk Management). It targets companies with exposures to sporting results from marketing or player bonus arrangements and enjoyed a turnover boost from the World Cup. For some time, we have been evaluating options to further invest in Paddy Power Trader to grow its contribution to a worthwhile level. We have concluded that the balance of risk and reward is not favourable for such an investment relative to our other opportunities and we are winding down the service. The decision does not give rise to any material costs or impact on our expected prots over the coming years.
Gaming and Other Gross Win m

23%
+39%
73
R+ CAG
41 28
53 47
2006 2007 2008 2009 2010
20
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ONLINE AUSTRALIA DIVISION

Sportsbet.com.au Active Customers (000)
CA GR
m
170
2010
2009
103
65%
18
CA
GR
50
30
Amounts staked Gross win Sportsbook gross win % Gross prot Operating costs Operating prot Active customers
1,230.4 97.0 7.9% 75.3 (55.8) 19.5 198,132
450.3 31.8 7.1% 22.3 (17.7) 4.6 92,820
84
2006 2007 2008 2009 2010
(Active customers dened as customers who have bet in the reporting period for 2010 or post acquisition in quarter 4 for 2009) (The division also includes legacy telephone operations accounting for less than 10% of gross and operating prot in 2010)
Our Australian operations generated excellent nancial results last year driven by a strong performance from our mass market online brand, sportsbet.com.au. In constant currency versus pro-forma comparatives, online gross win grew by 44%, amounts staked by 20% and bet volumes by 28%. Online active customers were up 46% last year as compared to 2009 pro-forma comparatives, with growth of 66% in active customers of sportsbet.com.au. The gross win percentage increased signicantly to 7.9% and, assuming normal sports results and channel mix, we would expect a gross win percentage around this level going forward. This represents a signicant increase in expectations versus, for example, the 6.2% achieved by Sportsbet pre-acquisition in the year ended 30 June 2009. The increase reects risk management process changes and an emphasis towards a more mass-market (albeit lower staking) online customer base, and away from lower margin telephone business. In constant currency versus pro-forma comparatives, these changes lower growth in turnover, up 11% last year, but more importantly, maintain strong growth in gross win, up 25% last year. The level of deductions between gross win and gross prot also improved at 23% of gross win in 2010 compared to 30% in 2009. This was driven by a reduction in the betting duty levied by the Northern Territory and agreements reached in the second half of last year with Racing Victoria Limited, Queensland Racing and South Australias racing bodies to calculate their product fees as a percentage of gross win (rather than turnover) until at least June 2012. This issue continues to be the subject of litigation with other Australian racing bodies, including Racing New South Wales (RNSW). In June last year, a Federal Court judgement in the RNSW case was delivered substantially in Sportsbets favour, but the full Federal Court later upheld an appeal by RNSW against this judgement. Sportsbet subsequently lodged an application for leave to appeal to the High Court with a decision on the application to appeal expected on 11 March. New South Wales has also recently introduced legislation which has stopped the exploratory trials of the Sportsbet Betbox branded online access terminals.
IMPORTANT:
Our Australian operations online gross win grew by 44% and amounts staked by 20% in constant currency versus pro-forma comparatives.
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21

Social Paddy
22
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Social Paddy
Its been a great year for us in the world of Social Media. Our Twitter, Facebook and YouTube channels attracting more and more followers, fans and viewers than ever before. Weve had hundreds of thousands of viewers for our television adverts and our now famous Nob Nation videos produced by Irelands leading video satirists. On Facebook weve gone from strength to strength and have more fans than the next ten competing bookmakers combined! During Cheltenham our page was abuzz with the tips ying backwards and forwards as our fans really got stuck in. Meanwhile were also more active than ever in the Twittersphere in daily contact , now with over 10,000 followers. There is no better way to keep in touch with our customers and with channels devoted to customer service, our special offers and even showbiz, politics and racing, weve got every angle covered!
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23

RETAIL
Both our retail businesses grew their prots last year despite the challenging economic backdrops. UK Retail clearly has a strong opportunity to grow prots as we expand the size of the estate, however the EBITDA from the existing units also grew strongly. Irish Retail protability also increased as it beneted from consumers continuing to respond to its value offering and a normalisation of sporting results. We expect to continue to grow our retail market share in both the UK and Ireland by offering outstanding value to more price conscious consumers. New innovative offers introduced in 2010 included paying out on two winners where an early leader, frustratingly for punters, fails to nish the job (Winner Winner), extending our unbeatable money back on all losers to greyhound racing and an unparalleled level of daily price enhancements. Product innovation continues across all aspects of the retail offering. Newly introduced Self Service Betting Terminals give customers further service and choice about how they want to bet theyre similar to the express self-service checkouts at supermarkets, only with the added distinction of actually being quick! Our shop audio team now also communicates key time-sensitive news impacting odds and alerts for major Paddy Power specials on Twitter. Such developments leverage online expertise in a retail setting driving more benets out of the multi-channel approach.
IRISH RETAIL DIVISION

m
2010 2009 % Change
Amounts staked Gross win Gross win % Gross prot Operating costs Operating prot Shops at year end
908.4 109.6 12.1% 100.3 (82.7) 17.6 207
949.1 106.0 11.2% 96.2 (79.9) 16.3 198
-4% +3% +4% +4% +8% +5%
The amounts staked within Irish Retail decreased by 4% to 908m; however gross win increased by 3% to 110m, driven by an improved gross win percentage. We opened nine new shops last year, including two which we acquired. Excluding the impact of new shops, like-for-like amounts staked were down 7%, gross win was up 0.2% and operating costs up 1%. The reduction in like-for-like stakes was due entirely to a fall in average stake per slip of 11% to 18.16, with the number of slips increasing by 5% despite the increased year on year weather disruption to events in January and December.
IMPORTANT:
Both our retail businesses grew their prots last year despite the challenging economic backdrops.
24
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UK RETAIL DIVISION
m
2010 2009 % Change % Change in CC
Amounts staked OTC gross win Sportsbook gross win % Machine gross win Total gross win Gross prot Operating costs Operating prot Shops at year end
276.3 30.0 11.9% 24.2 54.2 45.8 (38.4) 7.4 124
198.3 21.3 11.6% 14.1 35.4 30.0 (28.7) 1.3 93
+39% +41% +72% +53% +53% +34% +484% +33%
+34% +36% +66% +47% +47% +30% +351%
(Machine gross win above and throughout this statement is after the deduction of VAT at 17.5% in 2010 and 15% in 2009)
UK Retail operating profit up almost six-fold to

Q A Z 123 W S X E D C R F V T G B Y H N U J M I
UK Retail operating prot increased almost six-fold from 1.3m to 7.4m. New shops opened in 2010, and a full year impact from openings in 2009, were, as expected, an important driver of this growth; however our existing shops also signicantly increased their protability driven by the introduction of new Storm FOBT machines, as well as the benet of the World Cup, more normal sports results and stronger sterling (which added approximately 0.4m to prot). In constant currency, turnover grew 34% to 276m, while gross win increased by 47% to 54m. Like-for-like gross win grew 12% in constant currency: this comprised machine growth of 20% and over-the-counter (OTC) growth of 7% on like-for-like OTC turnover up 2%. The average OTC stake per bet was down 3% in constant currency to 15.70 while like-for-like bet numbers grew 5%. There were 492 machines installed at year end, an increase of 124 compared to last year as a result of new shop openings. The average gross win per machine per week including VAT was 1,072, an increase of 24% compared to last year. Operating costs grew 30% in constant currency driven by a 35% increase in average shop numbers. Like-forlike costs (including central costs) were up 2.6% in constant currency reecting in part the 2.5% increase in UK VAT last year. The further increase in UK VAT to 20% from January 2011 will reduce the Groups prots by approximately 1.3m at current levels of activity, with the majority of this impact within UK Retail. Costs will also increase next year by some 0.2m as a result of changes to the UK Horseracing Levy effective from April 2011. We await detailed provisions from the Treasury on the expected replacement of the existing VAT and AMLD regime for machine taxation with a gross prots tax (GPT) effective next year. While we are hopeful the Treasury remain true to their original objective for any change to be tax neutral, the change could adversely impact efcient machine and expanding operators such as Paddy Power. We opened 31 new shops last year, including seven which we acquired, at an average capital cost per unit of 314,000 (267,000) including lease premia and acquisition costs. EBITDA per shop pre central costs averaged 164,000 (141,000), an increase of 29% in constant currency. After central costs, EBITDA and EBIT per shop were 100,000 and 58,000 respectively, despite the estate not being mature or at its optimal scale as yet.
7.4m
O K ! L ? 123 P return
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25

Psychic Power
26
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Psychic Power
Following the phenomenal success of Paul the Psychic Octopus at predicting the results of selected 2010 World Cup matches from his home in Oberhausen, Germany, we joined forces with the National Sea Life Centre in Bray to give Pauls Irish cousin, Paddy, a shot at predicting the outcome of sporting events a little closer to home. Paddy the Psychic Octopus took up residence in his new home at Sea Life in Bray at the beginning of August and began his psychic training. Paddys rst prediction on the All Ireland Hurling Final proved right on the money when the intuitive cephalopod chose to feed from a perspex feeding box adorned in the Tipperary colours. Buoyed by Paddys apparent psychic ability, we planned a major media event around the 2010 Ryder Cup where Psychic Paddy would predict the winner of the historic golf event live via webcam. However, psychic Paddy had other plans and, to the disbelief of shocked Sea Life staff, laid hundred of eggs in his aquarium home. Sadly the laying of eggs marks the end of the octopus life cycle and we never got to see his (or rather her) Ryder Cup prediction.
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27

4
2009 % Change % Change in CC
TELEPHONE DIVISION (Excluding Australia)

m
2010
Amounts staked Gross win Gross win % Gross prot Operating costs Operating prot / (loss)
293.2 19.0 6.5% 18.9 (17.1) 1.8
297.4 14.9 5.0% 14.9 (16.1) (1.2)
-1% +27% +27% +6% n/a
-3% +25% +24% +5% n/a
UK telephone active customers up
20%
Q A Z 123 W S X E D C R F V T G B Y H N U
Our telephone business is an integral part of our full service offering to customers. Not the kind of full service Charlie Sheen has been enjoying mind. Recent years have been a story of two very different geographic performances. Ireland remains very difcult with amounts staked down 13% last year, and down a full 31% versus 2007, driven by reductions in average stake per 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. UK active customers were up 20% and amounts staked up 5% last year. With turnover broadly maintained by the performance in the UK, a return to a normal gross win percentage restored the channel to protability. Bet volumes grew strongly by 19% to 5.3m, driven by growth in active customers of 14% and increased bets per customer of 4%. The average stake per bet decreased by 18% in constant currency to 55.30 due to the weak economic conditions and the impact of attracting incremental but smaller than average sized bets from some customers. Operating costs grew by 5% in constant currency driven by growth in bet volumes and new customer acquisition costs, particularly in the UK market. Many new telephone customers also go on to bet with Paddy Power online, boosting the overall return on customer acquisition spending. Telephone Channel Active Customers UK Ireland and Rest Of World Total
(Active customers dened as those who have bet in the reporting period) 2010 2009 % Change
I J M K !
O L ?
P return
123
49,223 23,902 73,125
40,849 23,107 63,956
+20% +3% +14%
Brand
Notwithstanding all the other changes in our business, the Paddy Power brand and brand values of fun, occasional irreverence and putting the customer rst remains our greatest asset and source of difference, and we continuously invest in it to stay ahead. Like Pamela Anderson visiting a plastic surgeon. Putting the customer rst and fairness are core principles at Paddy Power. There are lots of small, low prole ways we do this such as by being transparent about charges and terms. However, its our approach to certain ofcial results that demonstrates the difference most prominently. As we put it when refunding backers of Dustin Johnson when he missed out on the play-off for the USPGA after a ruling that he grounded his club in sand: Dustin may have to live with the fact that rules have robbed him of a chance to win a major but we dont have to live with such strait-jacket nonsense. Some of our competitors actually stated that they never gave the idea of refunding a moments thought a stark contrast which we advertised with the question, Who do you bet with?. We believe that the differentiation, loyalty and turnover that this approach generates more than covers any short term cost. The ongoing investment in the brand highlighted throughout this statement is of course not just done because its fun; it continues because it delivers measurable, cost effective results. This is illustrated not only in the nancial performance of the business but equally in the brand loyalty of our clients and the ability of the brand to appeal across different platforms, driving growth despite the current tough times.
28
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IMPORTANT:
The Paddy Power brand and brand values of fun, occasional irreverence and putting the customer rst remains our greatest asset and source of difference, and we continuously invest in it to stay ahead. Taxation
Following the strong performance in UK Retail, a deferred tax asset of 1,770,000 in respect of accumulated losses in Great Britain was recognised over the course of last year. Excluding this credit and the 7,116,000 gain on the revaluation of the Sportsbet buyout call options, the underlying effective tax rate was 15.7%, compared to 13.0% in 2009. The increased rate was as a result of the addition of Australian prots to the mix with an effective corporation tax rate of 30% under the historic structure which included minority shareholders. Over the next two years, assuming no other changes, the Group would expect its effective tax rate to gradually fall to approximately 14%. Upon the implementation in September 2007 of the UK Gambling Act 2005, we signicantly reduced the cost of deductions between gross win and gross prot within the Online and Telephone divisions. In 2010, the Department for Culture, Media and Sport in the UK consulted on proposals to introduce new license requirements for overseas-based online rms providing services to UK consumers. No policy changes have been announced to date.
Cash Flow, Cash Balances and Foreign Exchange

Net cash generated from operating activities was 160m in 2010, up 75m compared to 2009. This was driven by operating prot post tax growth of 35m, increased working capital inows of 27m driven by strong online growth, and higher depreciation and share based incentive charges of 14m. Capital expenditure was 24m, mainly connected with the organic opening and upgrading of retail outlets. Despite our retail expansion, capex has remained broadly in line with depreciation, helped by the quality materials and equipment previously invested in the estate all wearing well. Expenditure on acquisitions was 19m related to the additional 9.8% of Sportsbet purchased in February 2010, Sportsbet contingent consideration paid in August 2010 and retail shops acquired. Last year, sterling and Australian dollar denominated operating prots were approximately 64m and AUD34m respectively. Accordingly, Group operating prot year-on-year can be positively impacted by a weaker Euro versus these currencies and adversely impacted by a stronger Euro versus these currencies. As at 31 December 2010, the Group had net cash of 159m (2009: 75m) including cash balances held on behalf of customers of 42m (2009: 33m). This is net of third party debt within the Groups Australian operations of 5m which the Group can now manage more efciently with 100% ownership. Net cash at 28 February 2011, less cash expenditure of AUD123m (91m) related to last weeks acquisition, remained strong at 87m or 47m excluding customer balances.
Jack Massey Finance Director
Page 106 PSS-201102158
29
Connectivity
Corporate Social Responsibility
Paddy Power appreciates that it has important responsibilities to its customers and the broader community, as well as to its employees and shareholders. The Group is committed to acting fairly and properly in its dealings with all stakeholders and the directors are cognisant of the signicant impact that environmental, social and governance matters may have on our business. We have set out below brief overviews of some areas of particular focus for the Group.
Employees
Our people are pivotal to everything we do and we are fortunate to have such a range of talented people that epitomise our devotion to customer service, our dedication to product excellence and our brand values of fun, fair and friendly. The Group continues to focus heavily on employee communication, development and retention. In 2010, the employee appraisal process continued to bring further focus to the personal development planning of employees, aligning personal objectives with those of the business, thus improving employee engagement at all levels within the business. We also want people to have a longer term stake in the Groups performance and we continue to offer schemes that encourage share ownership amongst employees. We are committed to communications from the top down and our Chief Executive attends employee consultation forums and induction meetings for all new head ofce staff. We strive to continually improve internal communications, promoting usage of the staff intranet and increasing the frequency of meetings of our head ofce employee communications groups. In 2010, we introduced a series of employee information brieng sessions at our head ofce that promote awareness of other internal business units, advocate integration between teams and encourage communication and consultation across the Group. Our dedicated in-house recruitment function continues to source the next generation of management talent through increased usage of our dedicated careers website www.workwithpaddy.com and various online and social networking recruitment tools. Opportunities for employment, advancement, training and development are determined on the basis of each individuals ability and performance record, irrespective of their gender, ethnic origin, nationality, age, religion, sexual orientation or disability. Our presence in the UK continued to grow apace in 2010, with the number of people working for the Group in the UK rising by 33% to 644. This has been driven by the aggressive expansion plans of our business in the UK, which will continue in 2011 and beyond. The number of staff employed in the Group increased by 13% over the course of the year to 2,574 including our Australian business.
IMPORTANT:
Paddy Power appreciates that it has important responsibilities to its customers and the broader community, as well as to its employees and shareholders.
30
Page 107 PSS-201102158
Safety, Health and Welfare at Work Act 2005

Paddy Power is committed to the safety and well being of employees at work in compliance with the Safety, Health and Welfare at Work Act 2005. The Act imposes certain obligations on employers in respect of health and safety in the workplace. Appropriate measures have been taken to ensure that health and safety standards are complied with at all relevant locations and that all applicable Group companies meet the requirements of the Act. These measures include Safety Statements at all locations and training in health, re and general safety for all new employees, conducted by our area trainers at the start of employees induction training. All of our appointed contractors must submit an up to date Health and Safety Statement and proof of their public liability insurance before we award any contract. Prior to the commencement of any major works within the Group, the appointed contractor must submit a method statement describing how the proposed works will be carried out safely. We service all of our essential emergency and re alarm systems on a six-monthly basis to protect our staff and to ensure that we comply with relevant statutory regulations.
Responsible gambling
employees +13% to
2,574
Q A Z 123 W S X E D C R F V T G B Y H N U J M I
O K ! L ?
P return
We strive to protect the small number of our customers who may have difculties with gambling. For most people, gambling is a harmless and fun leisure activity; however, if a customer does develop a problem with gambling, we actively refer them to the relevant experts who can help. Our close association with Gamcare, a registered UK charity and a leading authority on the provision of information, advice and practical help to promote responsible gambling, helps us to protect our customers. We also provide signicant funding to Gamcare via agreed contributions to the Responsibility in Gambling Trust. All of our customer service agents are certied by Gamcare and undergo regular Gamcare training to ensure they offer the most professional service possible to those who might be suffering from a problem with gambling. We also display information about Gamcare in all of our shops. We provide our customers with comprehensive information about problem gambling including recognising behaviour signs, the various forms of treatment available, relevant contact information, and advice on software to block access to gambling sites. This information is available in the responsible gambling section of all our websites, with a link to this section included on every page of the site. We empower our customers to stay in control of their own gambling activity by allowing them to set limits on the maximum value and frequency of deposits to their account. In addition, we have strict processes in place to ensure that any customers who wish to go further and exclude themselves completely from transactions with us can do so. We offer this self exclusion option to our customers directly through our customer service agents and police it rigorously. In Australia, we have implemented a Responsible Gambling Code of Conduct, which is continually reviewed to assist customers with difculties that may arise from problem gambling. It is illegal for anyone under the age of 18 to bet with us and we take our responsibilities in this area very seriously. We use age verication software to carry out electronic checks whenever a potential customer is proposing to use a payment method that might be available to someone under 18 years of age and the public data infrastructure exists for us to complete such checks. We work closely with age verication software providers to help develop new and better ways of verifying the age of potential customers over the increasing range of payment methods available. We also recommend that our online customers install web ltering software if they share their computer with anyone under the age of 18. Staff in our betting shops are trained to be vigilant and not to accept bets from anyone under the age of 18, requesting reliable proof of age if they are in any doubt.
123
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31
Connectivity
Corporate Social Responsibility (continued)
Bricks & Clicks
32
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Bricks & Clicks

2010 was not just about online. In 2010, we continued to expand our retail presence both at home and abroad. We opened the doors to 31 new betting shops in the UK and nine in Ireland. Our expansion was supported with product innovation across all aspects of the retail offering. Newly introduced Self Service Betting Terminals give customers further service and choice about how they want to bet theyre similar to the express self-service checkouts at supermarkets, only with the added distinction of actually being quick! Our shop audio team now also communicates key time sensitive news impacting odds and alerts for major Paddy Power specials on Twitter. Such developments leverage online expertise in a retail setting driving more benets out of the multi-channel approach. New innovative retail offers introduced in 2010 included paying out on two winners where an early leader, frustratingly for punters, fails to nish the job (Winner Winner), extending our unbeatable money back on all losers to greyhound racing and an unparalleled level of daily price enhancements.
Page 110 PSS-201102158
33
Connectivity
Corporate Social Responsibility (continued)
IMPORTANT:
The Group increased its charitable donations by 43% to 459,000 in 2010 and was involved in a number of major charitable initiatives. Environment
Paddy Power has a proactive approach to helping all its personnel conduct business in a manner that protects the environment. The Group encourages efcient use of resources, recycling wherever possible and is compliant with all relevant environmental legislation. The Group has introduced a complete waste management policy in its head ofce and retail shops and we now recycle almost 100% of all their waste. Examples of environmental initiatives in place during 2010 include: use of long life energy efcient light bulbs in all shops; use of more efcient, and lower cost, combined heat and power (CHP) generated electricity in our shops; replacement of night storage heating in shops with lower electricity consumption split heating and cooling systems; using only eco-friendly cleaning products in our shops; reducing the level of packaging waste in respect of all cased goods and furniture; installation of more water efcient ushing systems in newly tted-out shops to reduce water consumption; and running a charity-administered mobile phone and used inkjet cartridge re-cycling programme in our head ofce. Paddy Power is also a participant in the Carbon Disclosure Project, an investor sponsored scheme for collating company data on climate change issues.
Community
Paddy Power believes that a responsible approach to developing relationships between companies and the communities they serve is a vital part of delivering business success. We maintain relationships with a large number of charitable organisations, ranging from those supporting the local communities in which our shops play a key role, through to national charities focusing on the welfare of specic groups. Our Charity Committee, which is comprised of employees from across the Group, has responsibility for maximising the effectiveness of the Groups charitable strategy and for the implementation and management of that strategy.
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During the year, the Group spent a total of 459,088 on charitable donations (2009: 321,564) and was involved in a number of major charitable initiatives, some of which are further described below by the Charity Committee.
Disaster struck the people of Haiti on 12 January 2010 when a devastating earthquake ripped through the capital city of Port-au-Prince causing the deaths of an estimated 316,000 people. Our Charity Committee was quick to react and launched a range of fundraising initiatives including sponsorship of the InterSevens Haiti Earthquake Appeal Fund Soccer Marathon, an intercompany seven-a-side soccer tournament. Fifty teams from corporate Ireland took part in the event which raised over 85,000 for the relief efforts. In February, we literally got our hands dirty when we climbed onboard the Shave or Dye campaign for the Irish Cancer Society. Along with numerous Paddy Power staff shaving or dying their hair for the month, we made Irish radio celebrity Tony Fenton an offer he couldnt refuse to dye his hair Paddy Power green! Leading childrens charity Barnardos was selected as our Charity of the Year in Ireland and the UK. We engaged in various fund raising initiatives including pledging 1,000 for every Irish trained winner at the Cheltenham Festival and 1,000 for every goal scored by Wayne Rooney at the World Cup. I think you can gure out for yourself which cost us more! We were once again proud to support the extraordinary work of HEALS, a voluntary organisation working in the area of Equine Assisted Therapy and Equine Assisted Learning. We also entered the second year of the Paddy Power Sports Graduate Programme at Dublin City University, through which we sponsor a sports scholarship placement initiative. Last but not least, an honorary mention for the now legendary Paddy Power Christmas Cake Sale which raised a mouth watering 5,000 for the Society of St Vincent de Paul.
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Syncing
Board of Directors
Executive Directors
Patrick Kennedy (aged 41) is the Chief Executive. He joined the Group in an executive capacity in September 2005 and became Chief Executive in
January 2006. Patrick was already a Board member, having been appointed as a non-executive director in March 2004. Before joining Paddy Power, Patrick was Chief Financial Ofcer of Greencore Group plc, having previously been Group Development Director. Patrick has also worked with KPMG Corporate Finance both in Ireland and the Netherlands, and as a strategy consultant with McKinsey & Company in London, Dublin and Amsterdam. Patrick is also a non-executive director of Elan Corporation, plc and Bank of Ireland Group plc. Patrick has been a member of the Risk Committee since January 2006.
Breon Corcoran (aged 39) is Chief Operating Ofcer with responsibility for the Groups online businesses, its technology function and the Group
human resources function as well as its Australian operations and development opportunities in certain key geographies. Prior to his appointment as Chief Operating Ofcer in August 2010, Breon was Managing Director - Non Retail and Development. He joined the Group in April 2001 with responsibility for development of the non-retail business having previously worked with J.P.Morgan and Bankers Trust as well as a number of start-ups. Breon is a graduate of Trinity College, Dublin with an MBA from INSEAD. He was appointed to the Board in August 2004 and has been a member of the Risk Committee since January 2005.
Jack Massey (aged 42) is the Finance Director. He joined the Group and was appointed to the Board in April 2006. He previously worked with ITG
Europe, the European division of the NYSE quoted company, Investment Technology Group Inc., where he had been Chief Operating Ofcer since 2002. Jack joined ITG Europe in 1998 as Finance Director. Prior to that, he worked with Ulster Bank Markets as Head of Financial and Management Reporting and previous to that as a Manager with Arthur Andersen. He is a Fellow of Chartered Accountants Ireland and a graduate of University College Dublin.
Non-executive Directors
Nigel Northridge (aged 55), Chairman, was appointed as a non-executive director in July 2003 and as Chairman from January 2009. Nigel spent 32 years with Gallaher Group plc in sales and marketing roles, becoming group chief executive in 2000, a position in which he oversaw signicant growth in shareholder value, leading to the sale of the company in 2007 for 9.4 billion. Nigel is Chairman of Debenhams plc and a non-executive director of Inchcape plc. Nigel has been a member of the Nomination Committee since September 2003 (becoming Committee Chairman in January 2009) and of the Remuneration Committee since July 2007. Tom Grace (aged 62) was appointed as a non-executive director and Audit Committee Chairman in January 2006 and became Senior Independent
Director in January 2009. Tom was a partner with PricewaterhouseCoopers from 1983 to 2005, where he led the Insolvency Department from 1987 onwards. With 34 years experience in total at PricewaterhouseCoopers, Tom also worked in the audit and management consultancy divisions, principally in the area of nancial advice. Tom is also well known as a former rugby international and is currently honorary treasurer of the Irish Rugby Football Union. He won 25 international rugby caps for Ireland between 1972 and 1978 and captained the side on eight occasions. He also toured as a British and Irish Lion in 1974.
Fintan Drury (aged 52) is chairman of sports and conference management company PLATINUM ONE Ltd and of global renewable energy company,
Mainstream Renewal Power. Fintan founded Drury Communications in 1988 and grew the company into the market leader in corporate communications in Ireland prior to selling it in 1999. He joined the Board of Paddy Power in August 2002, and was Chairman of the Group from May 2003 to December 2008. Fintan has been a member of the Nomination Committee since September 2003.
Stewart Kenny (aged 59) was a co-founder of Paddy Power in 1988. He has considerable experience in the betting industry, training with Ladbrokes
in London for two years before establishing a chain of betting shops, Kenny OReilly Bookmakers. He sold that business to Coral in 1986 and subsequently re-entered the business, opening ten betting shops between 1986 and 1988. He was Group Chief Executive from 1988 to 2002, and Chairman from 2002 to 2003. Stewart has been a member of the Risk Committee since June 2006.
Jane Lighting (aged 54) was appointed as a non-executive director in September 2009 and as a member of the Audit and Remuneration
Committees in October 2009. She was Chief Executive of Five, the UKs fth terrestrial television channel, until 2008. Prior to joining Five in 2003, Jane was Chief Executive of Flextech plc. Jane is a Trustee and Fellow of the Royal Television Society and a Council Member of the British Screen Advisory Council and is a non-executive director of Trinity Mirror Group plc.
Pdraig Rordin (aged 45) was appointed as a non-executive director in July 2008. Pdraig is Managing Partner of Arthur Cox, a leading Irish law rm. He studied law in the National University of Ireland and Harvard Law School and has practiced in New York and Dublin. In addition to his role in managing Arthur Cox, Pdraig advises a range of public companies, private companies and state related entities on their transactional and business issues and has a specialist expertise in regulated industries. In 2009, he was named European Managing Partner of the Year at the Lawyer European Awards and the British Legal Awards. He is also a non-executive director of TVC Holdings plc. Pdraig has been Chairman of the Remuneration Committee since August 2008 and a member of the Nomination Committee since August 2009. David Power (aged 64) co-founded Paddy Power in 1988 and has been a non-executive director since that date. He merged a signicant proportion
of the betting shops controlled by him and trading as Richard Power Bookmakers with Paddy Power in 1988. He is an on-course bookmaker. He has been Chairman of the Risk Committee since September 2003.
William Reeve (aged 38) was appointed as a non-executive director in May 2010. He is a co-founder of LOVEFiLM International, and ran the operation from its inception in 2003 until 2008, by which time it had become Europes largest online lm rental service. Prior to LOVEFiLM, William cofounded Fletcher Research in 1997, which became the UKs largest internet research rm and was subsequently acquired by the NASDAQ listed company, Forrester Research. William is currently executive chairman of TrueKnowledge.com and also serves as non-executive director with a number of high growth Internet companies. He is a former strategy consultant with McKinsey & Company and a graduate of University College, Oxford. Brody Sweeney (aged 50) was appointed as a non-executive director and as a member of the Audit Committee in February 2005. He is the
founder of OBriens Irish Sandwich Bars and of Connect Ethiopia, the Irish business charity. Brody has been a member of the Nomination Committee since February 2009.
Secretary
David Johnston (aged 38) was appointed as the Company Secretary in March 2007. A solicitor, David was previously company secretary and chief legal counsel of Telefnica O2 Ireland, the mobile telecommunications operator, and prior to that was in private practice with McCann FitzGerald Solicitors.
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PPad power
Extra power can be inserted, use the extra cables to connect directly into PPad.
Patrick Kennedy
Breon Corcoran
Jack Massey
Nigel Northridge
Tom Grace
Fintan Drury
Stewart Kenny
Jane Lighting
Pdraig Rordin
David Power
William Reeve
Brody Sweeney
David Johnston
Syncing in progress
75% complete
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Tips and Troubleshooting

Directors Report
The directors have pleasure in submitting their report together with the audited nancial statements for the year ended 31 December 2010.
Principal activities
The Group provides sports betting services through the internet (paddypower.com, sportsbet.com. au and iasbet.com.au), through a chain of licensed betting ofces (Paddy Power Bookmaker) and by telephone (Dial-a-Bet). It also provides online gaming services principally through paddypower.com, paddypowercasino.com, paddypowerpoker.com and paddypowerbingo.com. It provides these services principally in the United Kingdom, Ireland and Australia.
Results
The Groups prot for the year of 96.7m reects an increase of 65% on the 2009 prot gure of 58.5m. Basic earnings per share amounted to 192.7 cent compared with 121.9 cent in the previous year, an increase of 58%. The nancial results for the year are set out in the consolidated income statement on page 64. Total equity attributable to Company equity holders at 31 December 2010 amounted to 228.4m (2009: 157.6m restated).
Dividends
An interim dividend amounting to 25.00 cent per share was paid during 2010. The directors recommend that a nal dividend of 50.00 cent per share (2009: 38.90 cent per share), amounting to 24.3m (2009: 18.7m), be paid on 20 May 2011 to shareholders registered at close of business on 18 March 2011. This would make a total distribution of prot to shareholders of 36.4m in respect of the year ended 31 December 2010 (2009: 28.0m).
Business review and key performance indicators

A detailed commentary incorporating key performance indicators by channel including like-for-like growth, active customers, average bet values, bet volumes, gross win and gross prot is contained in the Operating & Financial Review on pages 13 to 29.
Principal risks and uncertainties

The Group and Company are exposed to a number of risks and uncertainties that could affect their operating results, nancial position and/or prospects. The principal such risks and uncertainties include those that could arise from adverse developments in the areas below. These should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties and additional items that are not currently known to the Board or which the Board currently deem immaterial could also arise. the economic, demographic, technological, consumer behaviour and other macro factors affecting demand for the Groups products especially in the Groups current primary markets of the UK, Ireland and Australia; changes in current tax law, interpretation or practice in the areas of betting tax, value added tax, payroll, corporation or other taxes, particularly in Ireland, the UK, Australia and the Isle of Man; increased payment obligations to racing and sporting bodies either directly or indirectly through related obligations to government authorities; the intensity of competition in the Groups markets and the Groups ability to successfully compete; the regulatory or legislative environment, interpretation or practices applicable to the Groups activities and the related risks from litigation by third parties or the Group; social, media or political sentiment towards the Group, its brands and its businesses; changes in the exchange rates between the euro and the foreign currencies in which the Group transacts business, primarily the pound sterling, the Australian dollar and the US dollar (the latter driven by poker play denominated in dollars, not transactions with US residents);
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the ability of the Group to maintain, develop and avoid disruption to its key information technology systems and/or to adequately protect customer and other key data and information; relationships with and performance by key suppliers, particularly those supplying software platforms, payment processing and data to support the Groups products; relationships with and performance for business-to-business customers; disruption to the sporting calendar or the broadcasting of major sporting events due to weather or other factors; the ability of the Group to attract and retain key employees; the performance of the Group in managing bookmaking risk so as to achieve gross win margins within expected percentage ranges; the performance of the Group in managing credit risk arising from credit betting customers; and the ability of the Group to enter new markets, launch new products or introduce new technologies or systems in a successful, cost effective and/or timely manner. The Board regularly monitors all of the above risks and appropriate actions are taken to mitigate those risks or address their potential adverse consequences. The composition and responsibilities of the Risk Committee are set out on pages 53 and 54. The Board has also established nancial risk management objectives and policies which have been implemented by executive management, details of which are given in Note 3 to the consolidated nancial statements on pages 81 to 85.
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Directors Report (continued)
Paddy TV
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Paddy TV
In 2010, we returned to TV screens across the UK with three commercials that were certain to get tongues wagging. The accidental sending of a dodgy e-mail to your entire ofce was joined by a cringeworthy moment of male bonding in the locker room. However, the cornerstone of the campaign was a football-themed ad believed to be the worlds rst commercial featuring blind footballers. A ve-a-side match between two blind football teams takes an unexpected twist when a feline friend invades the pitch. Several of the players featured in the commercial went on to represent England in the 2010 World Blind Football Championships including the commercials main protagonist, Ajmal Ahmed, the England captain. Of course no cats were actually injured and Tiddles remains our good friend. We also returned to television screens in Australia with a new Sportsbet TV campaign which raised a wry smile on the face of punters Down Under.
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Research and development

The Group performs research and development activities to ensure that it continues to be a recognised innovator in the betting and gaming industry. These activities support the introduction of new products, the creation of new betting markets, improved online customer experience and the development of better processes and systems. Continued research and development contributes to the Groups future growth and protability. The Group recognised research and development expenditure (calculated by reference to Irish research and development tax credit rules) in 2010 of 0.4m (2009: 0.2m).
Market research
The Group undertakes market research across all business divisions in Ireland, the UK and Australia. In 2010, research undertaken included brand research and customer satisfaction surveys.
Events since the year end and future developments

The signicant events affecting the Group since the year end are the recommendation to pay dividends to shareholders as noted above and the purchase of the remaining 39.2% shareholding in Sportsbet Pty Limited on 1 March 2011 (see Note 34 to the consolidated nancial statements). The directors do not anticipate any substantial changes in the nature of the business.
Amendment of Articles of Association

The Companys Articles of Association may only be amended with the approval of a special resolution of the shareholders.
Rights and obligations attaching to the Companys shares

As at 4 March 2011, the Company had 50,410,720 shares in issue, all of which are of the same class and carry the same rights and obligations (apart from 1,734,000 shares held by the Group as treasury shares which have no voting rights and no entitlement to dividends). With regard to the Companys shares: (i) there are no restrictions on their transfer; (ii) no person holds shares carrying special rights with regard to the control of the Company; (iii) there are no shares to which an employee share scheme relates carrying rights with regard to the control of the Company; (iv) there are no restrictions on the voting rights attaching to the Companys shares; and (v) there are no agreements between shareholders that are known to the Company that may result in restrictions on the transfer of securities or on voting rights. Further information on the Companys share capital is set out in Note 19 to the consolidated nancial statements.
Own shares held

The Paddy Power plc Employee Benet Trust (the Trust) was originally established to manage the Long Term Incentive Plan and also manages the Managers Deferred Share Award Scheme (collectively referred to as the share award schemes). Further information on these schemes is presented in the Remuneration Committee Report on page 59. During the year ended 31 December 2010, the Trust purchased 354,500 (2009: 540,000) Paddy Power plc shares at a cost of 9.0m (2009: 14.1m). During 2010, the Trust transferred 336,804 (2009: 268,144) ordinary shares that had vested to beneciaries of the Trust. At 31 December 2010, the Trust held 1,456,407 (2009: 1,438,711) ordinary shares in Paddy Power plc, representing 2.92% (2009: 2.89%) of the issued share capital. Further information is set out in Note 21 to the consolidated nancial statements. As of 31 December 2010 and 2009, the Companys ordinary shares held in treasury totalled 1,734,000 shares and represented 3.47% (2009: 3.48%) of the issued share capital. The treasury shares have no voting rights and have no entitlement to dividends. Further information is set out in Note 19 to the consolidated nancial statements.
Substantial holdings
As at 4 March 2011, details of interests of over three percent in the ordinary share capital carrying voting rights (excluding directors) which have been notied to the Company are:
Holding %
Standard Life Investments Limited UBS Investment Bank Ameriprise Financial Inc. Capital Research and Management Company John Corcoran Marathon Asset Management L.L.P.
3,397,853 3,037,701 2,431,158 1,802,146 1,500,000 1,466,748
6.98% 6.24% 4.99% 3.70% 3.08% 3.01%
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Directors power to purchase and allot Company shares

With the approval of a special resolution of the shareholders, the directors may (i) allot shares for cash up to ve percent of the nominal value of the Companys shares and (ii) make market purchases of the Companys shares up to ten percent of the nominal value of the Companys shares.
Board of Directors and Company Secretary

William Reeve was appointed to the Board on 19 May 2010 and is proposed for election by the shareholders at the AGM to be held on 17 May 2011. Breon Corcoran and Brody Sweeney retire from the Board by rotation in 2011 and, being eligible, offer themselves for reelection. In line with the principles of the Combined Code on Corporate Governance (June 2008), directors who have served for in excess of nine years should be subject to annual re-election. David Power and Stewart Kenny, being non-executive directors who have served longer than nine years, offer themselves for re-election at the AGM to be held on 17 May 2011. Fintan Drury, who will complete a third term as a director in 2011, will step down from the Board before the end of 2011. In line with the principles of the new UK Corporate Governance Code published in June 2010, the Group will adopt a policy of annual re-election for all board directors with effect from the AGM to be held in May 2012.
Directors remuneration
Details of directors remuneration are given in the Remuneration Committee Report on pages 58 and 59 and in Note 7 to the nancial statements on page 88. No director or employee is entitled to any compensation for loss of ofce or employment occurring as a result of a takeover of the Company.
Directors and Secretarys interests

The interests of the directors and Company Secretary who held ofce at 31 December 2010 in the share capital of Paddy Power plc, all of which were benecially owned, were as follows:
Number of ordinary shares of 0.10 each 31 December 2010 31 December 2009 (or date of appointment if later)
Patrick Kennedy Breon Corcoran Jack Massey Nigel Northridge Tom Grace Fintan Drury Stewart Kenny Jane Lighting Pdraig Rordin David Power William Reeve Brody Sweeney David Johnston (Secretary)
264,921 270,905 59,058 6,000 34,200 445,020 2,000 3,928,692 1,680 -
180,873 177,363 42,540 6,000 34,200 444,440 4,228,692 5,550 -
There have been no changes in the above shareholdings between 31 December 2010 and the date the directors approved these nancial statements.
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Election Betting
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Election Betting
In the UK we paid out over 100,000 on the Conservatives winning the most seats in the UK Election before a single vote had been cast. Camerons strong performance in the nal TV debate saw a relentless tide of betting support for the Conservatives, shortening the odds on the Tories winning most seats at the Election from 1/5 to 1/16. In our usual understated way we chose to unveil our early payout by creating a light-show on the side of the House of Commons. In Ireland we dipped our toe into political polling with our rst national opinion poll which gave a strong indication that the winds of political change were gaining momentum. Our political betting website, electionbetting. com, became a popular iPhone App and our dedicated political betting Twitter feed, @pppolitics, rapidly built up a loyal and vocal band of followers.
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7
Exercise price (b)
Share ownership and dealing

The Company has established share ownership guidelines for executive directors to ensure the interests of executive directors are aligned with that of shareholders. Further details are set out within the Remuneration Report on page 59. The Company has a policy on dealing in shares that applies to all directors and senior management. This policy adopts the terms of the Model Code as set out in the Listing Rules published by the UK Listing Authority and the Irish Stock Exchange. Under this policy, directors and senior management are required to obtain clearance before dealing in Paddy Power plc shares. Directors and senior management are prohibited from dealing in Paddy Power plc shares during designated close periods and at any other time when they are in possession of Inside Information (as dened by the Market Abuse (Directive 2003/6/EC) Regulations 2005). The directors and the Company Secretary, who held ofce at 31 December 2010, had the following movements in share options during the year and held the following share options at 31 December 2010:
Number of options at start of year Options exercised during the year (a) Options granted during the year Options lapsed during the year Number of options at end of year
Exercise period
Patrick Kennedy
1,785 1,236 20,000 1,989 1,989 4,000 1,989
(20,000) -
1,785 1,236 1,989 1,989 4,000 1,989
11.29 9.45
4 December 2011 3 June 2012 4 December 2013 3 June 2014
Breon Corcoran
8.15 24 February 2007 24 February 2011 9.45 4 December 2011 3 June 2012 9.45 4 December 2011 3 June 2012
Jack Massey David Johnston (Secretary)
24.17 5 September 2010 5 September 2017 9.45 4 December 2011 3 June 2012
(a) The options exercised during the year were under the terms of the Companys Share Option Scheme (see Note 21). (b) The market price of the Companys shares at 31 December 2010 was 30.70 and, for the year then ended, the Companys daily closing share price ranged between 22.75 and 30.80 (2009: ranged between 10.52 and 25.75 and was 24.75 at year end).
During the year ended 31 December 2010, the executive directors and the Company Secretary had the following interests and were conditionally granted the following share awards under the Long Term Incentive Plan scheme:
Awards outstanding at start of year Awards outstanding at end of year Weighted average share price at date of grant Cost of shares vested to directors during the year 000
Granted during year
Vested during year
Date awards granted
Patrick Kennedy
270,000 205,000 85,000 5,500
4,048 100,000 3,542 80,000 1,518 25,000 -
(84,048) (73,542) (31,518) -
190,000 100,000 135,000 80,000 55,000 25,000 5,500
2008 & 2009 2 March 2010 2008 & 2009 2 March 2010 2008 & 2009 2 March 2010 2008 & 2009
20.53 23.76 16.44 23.76 20.32 23.76 18.94
1,465 1,282 549 -
Breon Corcoran
Jack Massey
David Johnston (Secretary)
The awards are subject to the rules of the scheme and will vest if testing growth performance targets are met over the allowable vesting period. Further details of the scheme are outlined in the Remuneration Committee Report and in detail in Note 21 to the consolidated nancial statements. Included in current year award grants and vestings are a small number of vested shares which relate to dividends earned over the vesting period in respect of the shares vested during the year. The cost of shares vested during the year included in the table above represent the value of shares at original cost vested from the Long Term Incentive Plan (see Note 21) to directors during the year.
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Transactions with directors and parties related to them have been disclosed in Note 7 to the consolidated nancial statements on page 89. The directors and secretary have no interests in shares in any other Group companies.
Political donations
No political donations were made by the Group during the year that require disclosure in accordance with the Electoral Acts 1997 to 2002.
Books of account
The measures which the directors have taken to ensure that proper books of account are kept are: the appointment of suitably qualied personnel, the adoption of suitable policies for recording transactions, assets and liabilities, and the appropriate use of computers and documentary systems. The Group and Company books of account are kept at Airton House, Airton Road, Dublin 24.
Regulation 21 of SI 255/2006 European Communities (Takeover Bids Directive (2004/25/EC)) Regulations 2006
For the purpose of Regulation 21 of Statutory Instrument 255/2006 European Communities (Takeover Bids Directive (2004/25/EC)) Regulations 2006, the information given under the following headings on pages 106 and 107 (Share capital and reserves), page 36 (Board of Directors), pages 58 to 60 (Performance bonus and Long term incentive bonus plan), page 59 (Long Term Incentive Plan), page 59 (Share options), page 60 (directors service contracts) and pages 107 to 111 (Share schemes) is deemed to be incorporated in the Directors Report. The Companys outsourcing contract with PMU can be terminated by PMU in some circumstances if there is a change of control in the Company.
SI 277/2007 Transparency (Directive 2004/109/EC) Regulations 2007

As required by Statutory Instrument 277/2007 Transparency (Directive 2004/109/EC) Regulations 2007, the following sections of the Companys Annual Report shall be treated as forming part of this report: 1. The Chairmans Statement on pages 2 to 7, the Chief Executives Review on pages 8 to 12 and the Operating & Financial Review on pages 13 to 29 which include a review of the external environment, key strategic aims and nancial and other key performance measures. 2. The Corporate Governance statement on pages 50 to 57. 3. The Remuneration Committee Report on pages 58 to 60. 4. The Corporate Social Responsibility report on pages 30 to 35. 5. Details of earnings per share on page 93. 6. Details of shares purchased by the Company on page 106. 7. Details of derivative nancial instruments on pages 122 to 124.
SI 450/2009 European Communities (Directive 2006/46/EC) Regulations 2009

For the purpose of Statutory Instrument 450/2009 European Communities (Directive 2006/46/EC) Regulations 2009, the Corporate Governance statement on pages 50 to 57 is deemed to be incorporated in the Directors Report.
Auditor
In accordance with Section 160(2) of the Companies Act 1963, the auditor, KPMG, will continue in ofce.
Going concern
The directors are satised that the Group has adequate resources to continue in business for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the nancial statements. On behalf of the Board
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Pope My Ride
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Pope My Ride
Its not every day that the boss of the Catholic Church decides to pay a visit to the UK so, to celebrate the momentous occasion, we put our very own Pope and Popemobile on the streets of Glasgow, Edinburgh and London. The Paddy Power Popemobile proved popular not only with crowds on their way to see the real Pope but also to the ever-watchful police, resulting in what must be the rst time a Papal car has ever been clamped! We were lucky to dodge a betting coup after the Pontiff failed to kiss the tarmac on arrival at Edinburgh airport, scuppering a host of bets placed at odds of 10/1. Francis Arinze of Nigeria is the 2/1 favourite to succeed Benedict to become the next Pope while Father Dougal Maguire of Craggy Island remains the 1000/1 outsider.
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Corporate Governance
The Board is committed to maintaining the highest standards of corporate governance. The following describes how the Group applies the main and supporting principles of section 1 of the Combined Code on Corporate Governance (June 2008), which sets out principles of good governance and a code of best practice. On 29 September 2010, the Irish Stock Exchange (ISE) amended the Listing Rules of the ISE to require listed companies to apply the provisions of the new UK Corporate Governance Code published in June 2010. The UK Corporate Governance Code applies to accounting periods beginning on or after 30 September 2010. In addition, the ISE introduced the Irish Corporate Governance Annex to apply to accounting periods beginning on or after 18 December 2010. The Board welcomes these corporate governance developments, which apply to the Group for the year ending 31 December 2011. Our policy on corporate governance is as follows:
Board role and responsibilities

Your Board has overall responsibility for the leadership, control and oversight of the Group. Responsibility for the management of the Group has been delegated by the Board to executive management. This delegation is effected through the Chief Executive, who is accountable to the Board for its exercise. The functions of Chairman and Chief Executive are not combined and both roles responsibilities are clearly divided. A number of responsibilities of the Board are delegated to committees of the Board. Certain decisions of the Group are formally reserved to the Board. The Board has responsibility for approving Group objectives, strategy, annual budgets, major acquisitions and capital projects, and treasury policy. It sets governance policies and ensures implementation thereof. It denes the roles and responsibilities of the Chairman, Chief Executive, other directors and the Board sub-committees. In addition, the Board approves the interim management statements, half-yearly and annual nancial statements, reviews the Groups systems of internal control and approves any signicant changes in accounting policies. It approves all resolutions and related documentation put before shareholders at general meetings. The Board sets the Groups dividend policy, approves the interim dividend and recommends the nal dividend.
Induction and development of non-executive directors

New directors are provided with extensive induction materials and are comprehensively briefed on the Group, its operations, corporate governance best practice and their duties as a director. Briengs with the executive directors and senior management are also held on a regular basis. Individual directors may seek independent professional advice, at the expense of the Company, in the furtherance of their duties as a director. No such professional advice was sought by any director during the year.
Board composition, refreshment and renewal

The Board should comprise a mix of the necessary business skills required to provide leadership, control and oversight of the management of the business and to contribute to the development and advancement of business strategy. Paddy Power is a specialist business and it is in the best interests of all shareholders that it should always retain the betting industry savvy that has been part of the fabric of the Board, both as a private and public company. The current Board comprises a mix of executive directors, founding directors and directors recruited for the particular skill and experience they would bring to Paddy Power. The standard terms of the letter of appointment of non-executive directors are available, on request, from the Company Secretary.
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At each Annual General Meeting of the Company, it has been the practice that every director who has been in ofce at the completion of each of three successive Annual General Meetings since he or she was last appointed or reappointed, should retire from ofce. That practice will continue for the AGM on 17 May 2011. Any director appointed by the Board is subject to election by shareholders at the rst opportunity after his or her appointment. Non-executive directors who have served longer than nine years (e.g. three three-year terms) are subject to annual re-election. Reappointment is not automatic. Directors who are seeking re-election are subject to a performance appraisal, which is overseen by the Nomination Committee. In line with the principles of the new UK Corporate Governance Code, the Group will adopt a policy of annual re-election for all board directors with effect from the AGM to be held in May 2012. The Board is committed to a policy of Board refreshment and renewal. William Reeve was appointed to the Board on 19 May 2010 and will seek election at the 2011 AGM. This follows the appointment of Jane Lighting to the Board in September 2009. The appointments of William Reeve and Jane Lighting to the Board as non-executive directors formed part of a recruitment process undertaken in conjunction with external recruitment consultants. Breon Corcoran retires from the Board by rotation in 2011 and, being eligible, offers himself for re-election at the 2011 AGM. As Brody Sweeney has completed a second three year term, the Board has carried out a review of his remaining as a non-executive director in the context of his performance and commitment to the role and believe that it is appropriate for him to do so. Brody, therefore also offers himself for re-election at the 2011 AGM. Fintan Drury, who will complete a third term as a director in 2011, will step down from the Board before the end of the year. David Power and Stewart Kenny, both founder members of the Company, have served on the Board for longer than nine years. The Combined Code sets out that non-executive directors may serve longer than nine years, subject to annual re-election. The Board has performed a review of the appropriateness of their continuing to serve as directors and believes that their experience within the industry remains central to your Companys continued development and success and that their continuance in ofce is in the best interests of the Company and its shareholders. Both David and Stewart therefore offer themselves for re-election at the AGM in May 2011.
Directors independence
The Combined Code states that at least half the Board, excluding the Chairman, should comprise non-executive directors determined by the Board to be independent. The Group has determined that Tom Grace, Fintan Drury, Jane Lighting, Pdraig Rordin, William Reeve and Brody Sweeney are independent. The Chairman, Nigel Northridge, was independent on his appointment to the Board as a nonexecutive director in July 2003 and as Chairman in January 2009. David Power and Stewart Kenny are founder members of the Company and have served on the Board for longer than nine years and are not considered by the Board to be independent. There are three executives on the Board (Patrick Kennedy, Breon Corcoran and Jack Massey). The Board currently comprises six independent non-executive directors, two non-executive directors and three executive directors. Fintan Drury will step down from the Board before the end of 2011. On his retirement, the Board will remain compliant with the Combined Code such that at least half the Board, excluding the Chairman, will comprise directors determined by the Board to be independent. As part of its review, the Board considered the independence of Fintan Drury. Fintan joined the Board in August 2002 and was Chairman of the Group from May 2003 to December 2008. The Board has concluded that, notwithstanding his prior role as Chairman, Fintan is independent in character and judgement and is accordingly an independent non-executive director within the spirit and meaning of the Combined Code.
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Corporate Governance (continued)
The Board also considered the independence of Mr Pdraig Rordin, given his role as Managing Partner of Arthur Cox, one of the Groups legal advisors. The Board has concluded that, notwithstanding this relationship, Pdraig is independent in character and judgement and is accordingly an independent non-executive director within the spirit and meaning of the Combined Code. He has a demonstrated record of such independence, including his appointment in 2007 by the then Minister for Finance to the Irish Governments Advisory Forum on Financial Legislation, on which he serves as Independent Chairman, the role of Managing Partner which he fulls at his rm and his appointment as a member of ILEG, the advisory body to the European Commission on the future crisis management and resolution regime for the European banking sector. The Board took account of the fees paid to Arthur Cox for its legal services and, in particular, considered the test of materiality, as set out by some of the proxy voting agencies, relating to the level of fees paid to Arthur Cox. The Board concluded that the fees are not material to Pdraigs independent judgement given the scale of the operations and nancial results of Arthur Cox and the work it has done for the Group. Pdraig has not provided any legal services to the Group since his appointment to the Board.
The Chairmans role

I have been Chairman of the Group since January 2009. The Chairman is responsible for the leadership of the Board, ensuring its continued effectiveness in carrying out its duties and setting its agenda. The Chairman is also responsible for ensuring that all directors receive accurate, timely and clear information. The Chairman facilitates the effective contribution of his non-executive colleagues and ensures constructive relationships exist between executive and non-executive directors. He is the guarantor of effective communications with shareholders and ensures that the Board is apprised of the views of shareholders. As Chairman, I also meet with the non-executive directors independently of the executive directors. I meet regularly with the Chief Executive to discuss all aspects of the businesss performance and, on an occasional basis, we meet with other senior members of the management team together.
Directors fees
As reported in the 2007 Annual Report, the standard non-executive fee was set at 70,000 in 2008. It was also agreed that the Audit Committee chair would receive an additional fee of 20,000, that chairs of other Committees would be paid an additional fee of 12,000 and that the Chairman would receive an annual fee of 200,000. These fees were reviewed in January 2010 and it was agreed that they would remain unchanged. Non-executive directors are not eligible to participate in the Groups bonus schemes, option plans or share award schemes. None of the remuneration of the non-executive directors is performance related. The non-executive directors fees are not pensionable and nonexecutive directors are not eligible to join any Group pension plans.
Board performance evaluation

As Chairman, it is my responsibility to ensure that the performance of all directors is at the levels required and I have met with all the directors individually to discuss their performance. The senior independent director has conducted a review of my performance with the non-executive directors, while also taking into account the views of the executive directors, the results of which have been discussed with me. The Board conducts an annual evaluation of its own performance as do each of its Committees. This involves the completion of assessment questionnaires by all directors covering the performance of the Board and by the Committee members in relation to the individual Committees. Other aspects that are reviewed include the effectiveness of the Chairman, executive and non-executive directors, the monitoring of operational performance, corporate governance, as well as leadership and culture. A summary of the conclusions from the evaluation are considered by the Board and any appropriate actions are taken. The Board also recognises the need for periodic external evaluation, which is now required at least every three years as set out in the new UK Corporate Governance Code.
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Board operations and committees

The Board holds at least eight full Board meetings each year. The Board also visited a selection of the Groups retail outlets in the UK in 2010 and three of the non-executive directors separately visited the Groups Australian division during the year. I expect all Board members to be available to me between meetings. The composition of the Board committees as at 4 March 2011 was as follows: Audit Tom Grace (Chair); Jane Lighting; Brody Sweeney. Remuneration Pdraig Rordin (Chair); Jane Lighting; Nigel Northridge. Nomination Nigel Northridge (Chair); Fintan Drury; Pdraig Rordin; Brody Sweeney. Risk David Power (Chair); Breon Corcoran; Patrick Kennedy; Stewart Kenny.
Audit Committee
The Audit Committees responsibilities include: monitoring the integrity of the nancial statements of the Company and Group; reviewing the Groups internal controls; monitoring and reviewing the effectiveness of the Groups internal audit function; making recommendations to the Board in relation to the appointment and removal of the Groups external auditor; approving the remuneration and terms of engagement of the external auditor; evaluating the performance of the external auditor, including their independence and objectivity; approving non-audit services provided by the auditor in accordance with the Groups policy on non-audit services; developing and ensuring compliance with the Groups policy on the provision of non-audit services; reviewing arrangements by which staff may, in condence, raise concerns about possible improprieties in matters of nancial reporting or other matters; and ensuring that there are appropriate procedures in place to monitor and evaluate the general business risks to which the Group is exposed. The Audit Committee has unrestricted access to the Groups external and internal auditors, with whom it meets at least twice a year, both with and without management. These meetings ensure that there are no restrictions on the scope of their audits, and allow discussion of any matters that the auditors did not wish to raise in the presence of management. The Chairman of the Audit Committee visited the Groups Australian business in October 2010, where he met with the local internal and external auditors and management team and attended a meeting of the local audit committee. The Audit Committee is responsible for ensuring that external auditor objectivity and independence is safeguarded where the auditor also provides non-audit services to the Group. A breakdown of the non-audit fees provided by the Groups auditors in 2010 is set out on page 91.
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The Audit Committee reviewed the letter from the Groups external auditors conrming their independence and objectivity. The Company recognises that the perceived independence and objectivity of an auditor may be compromised in circumstances where non-audit fees exceed the annual audit fee. During the year, the Committee therefore also performed a review of the audit and non-audit services provided by the external auditors, and the fees charged for those services, to ensure there was no impairment of objectivity or independence. Paddy Power engaged KPMG, during 2010, to provide tax advisory services to the Group. KPMG also provided one-off services, during 2010, relating to the acquisition of Sportsbet. Excluding the related one-off fees for these services, non-audit fees paid to KPMG in 2010 were not in excess of the audit fee. To ensure a rigorous, objective and independent external audit, the Company undertook a tender process for the provision of audit services to the Group following completion of the nancial statements for the year ended 31 December 2010. The Company received written tenders and presentations from the four leading global audit rms for the role of external auditor. Following detailed consideration, it was decided to retain KPMG as the Groups external auditor. When taking the decision to retain KPMG as external auditor, in order to ensure that the perceived independence and objectivity of the auditors is maintained, the Audit Committee agreed that KPMG would cease to be the primary tax advisor to the Group and that this work would be undertaken by another accounting rm. Tax advice constitutes the vast majority of non-audit fees incurred by the Group. The Audit Committee has also set a policy that non-audit fees should not exceed audit fees on an annual basis, save in exceptional circumstances. To further ensure that auditor objectivity is not compromised, KPMG have also changed the lead audit partner for the Paddy Power Group in accordance with their rotation policy. The Audit Committee is comprised of three directors all of whom have been determined by the Board to be independent. The Board has determined that Tom Grace, the Chairman of the Committee, has recent and relevant nancial experience and therefore satises the requirements of the Combined Code.
Remuneration Committee
The Remuneration Committee is primarily responsible for making recommendations to the Board on remuneration policy for the Groups executive directors and selected senior management. The report of the Remuneration Committee is set out on pages 58 to 60. The Remuneration Committee is comprised of three directors all of whom have been determined by the Board to be independent.
Nomination Committee
The Nomination Committee is primarily responsible for recommending candidates to the Board for appointment as directors and ensuring that appropriate procedures are followed for all such appointments. To facilitate the search for candidates to serve as non-executive directors, the Committee uses the services of independent consultants.
Risk Committee
The Risk Committee is responsible for ensuring that policies in respect of betting risk are appropriate to a group of Paddy Powers size, for monitoring that such policies are being correctly applied and that the expertise and systems within the organisation are consistent with the level of risk undertaken. The Committee also sets overall policy for betting risk. Limits are agreed with the Committee and set annually but are subject to review by the Committee at any time.
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Attendance at Board and Committee meetings

There were eight full meetings of the Board in 2010. The attendance at Board and Committee meetings by the directors who held ofce in 2010 are set out below:
Note Board Audit Remuneration Nomination Risk
Number of meetings held in 2010 Attended by: N Northridge* T Grace* F Drury* S Kenny** J Lighting* P Rordin* D Power** W Reeve* B Sweeney* P Kennedy*** B Corcoran*** J Massey***
* ** *** (1)
(1)
8 8 8 8 6 7 8 4 8 8 8 8
4 4
3 3 2
4 4
2 2
2 2 2
Independent non-executive director Non-executive director Executive director William Reeve was appointed to the Board on 19 May 2010. There were four Board meetings after his appointment, all of which he attended.
The Board places considerable importance on attendance at both scheduled Board and Committee meetings. During the year, no director attended less than 75% of scheduled Board or Committee meetings. All of the directors were in attendance at the 2010 AGM on 18 May 2010.
Senior Independent Director

The Board has appointed Tom Grace as the Senior Independent Director. Tom is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director.
Company Secretary
The appointment and removal of the Company Secretary is a matter for the Board. All directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. The Company Secretary ensures that the Board members receive appropriate induction and ongoing training and development to enable them to discharge their duties. The Company Secretary is also responsible for advising the Board on all corporate governance matters.
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Internal control
The Combined Code on Corporate Governance states that: 1. The Board should maintain a sound system of internal control to safeguard the shareholders investment and Group assets. 2. The directors should, at least annually, conduct a review of the effectiveness of the Groups system of internal control and should report to shareholders that they have done so. The review should cover all material controls, including nancial, operational and compliance controls, and risk management systems. The directors have overall responsibility for the Groups system of internal control and have delegated responsibility for the implementation of this system to executive management and to internal audit. This system includes nancial controls which enable the Board to meet its responsibilities for the integrity and accuracy of the Groups accounting records. The Board has also established a process of compliance which addresses the Boards responsibility to maintain, review and report on all internal controls. The principal processes comprising the system of internal control are that: budgets are prepared for approval by executive management and the Board; income and expenditure are regularly compared to budgets; the consolidated nancial statements are prepared subject to the oversight and control of the Group Finance Director. An appropriate control framework has been established to ensure that correct data is captured in respect of all Group companies, appropriate eliminations and other adjustments are recorded, and all the information required for disclosure in the consolidated nancial statements has been provided; the Board establishes appropriate treasury policies for implementation by executive management; compliance with risk limits is reported on by the risk management department and reviewed by senior management and internal audit; all material commitments for expenditure and payments are compared to previously approved budgets and are subject to prior approval by personnel designated by the Board of Directors; regular nancial results are submitted to and reviewed by the Board of Directors; the directors, through the Audit Committee, review the effectiveness of the Groups system of internal control; and an audit and security department, independent of operations, monitors and audits betting operations. They also undertake internal control reviews throughout the Group. The head of this department meets regularly with the Audit Committee. The Board, through the Audit Committee, is responsible for conducting a review of the effectiveness of the Groups systems of internal controls. This review has been performed in respect of the year ended 31 December 2010. The directors consider that the procedures necessary to implement the Turnbull guidelines on internal control in the Combined Code have been properly established.
Relations with shareholders

The Group is committed to ongoing communication with its shareholders. The Group operates an investor relations section on its corporate website (www.paddypowerplc.com). This contains copies of investor presentations and annual reports as well as providing access to Regulatory News Service (RNS) statements and corporate press releases. All shareholders are encouraged to attend the Annual General Meeting where they are afforded the opportunity to question the Board. There is regular discussion between Group management and analysts, brokers and institutional shareholders, ensuring that the market is appropriately informed on business activities. Visits to the Groups headquarters are encouraged and tours of our retail outlets are undertaken regularly. Feedback from major shareholders and reports by analysts are communicated to directors so directors can monitor their views on the Group. The short-term nancial performance of Paddy Power can be signicantly inuenced throughout the nancial year by the run of sporting results. This is normal in the sports betting industry. For example, a disproportionate number of favourites winning at a major horse racing festival will depress short-term protability, whereas a disproportionate number of outsiders winning will have the opposite effect. The experience of the industry is that this typically balances out over a more extended period. Accordingly, the Board does not believe that the typical levels of short-term prot volatility intrinsic to our business should signicantly inuence the investment decisions of a reasonable investor or that it should be likely to have a signicant effect on the Companys share price.
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The Board and management of Paddy Power carefully monitor any signicant variances in nancial performance to assess, based on the experience of the Company, whether such variances are attributable to the run of sporting results and therefore likely to be short-term in nature or reect a trend which may impact on the overall performance of the Company going forward. The Board considers these two categories of variances to be fundamentally different as to their likely inuence on the investment decisions of a reasonable investor and therefore on the Companys share price. The Board makes its judgements in respect of announcements to the market and its obligations under the disclosure rules to which the Company is subject against this background.
Compliance
The directors conrm that the Company has complied throughout the accounting period with the provisions of the Combined Code.
Conclusion
I would invite you all to consider the above carefully, and encourage any shareholders who have questions relating to this Corporate Governance statement to contact me by email at nigel.northridge@paddypower.com.
Nigel Northridge Chairman 4 March 2011
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Remuneration Committee Report
The Remuneration Committee

The Remuneration Committee operates within agreed terms of reference and has responsibility for making recommendations to the Board on the Groups general policy relating to executive remuneration, and to determine, on behalf of the Board, specic remuneration packages for the executive directors. Outside independent professional advice is sought where necessary. In addition to the remuneration of the executive directors, the Committee is also responsible for approving the remuneration of those other senior executives who report directly to the Chief Executive (senior executives). Membership of the Remuneration Committee is set out on page 53. The remuneration of the Chairman of the Board is determined by the Board, excluding the Chairman. The remuneration of the nonexecutive directors is determined by the Board, including the non-executive directors.
Remuneration policy
General The Remuneration Committee determines the Groups policy on executive directors and senior executives remuneration. The objectives of the policy are: to reward executive directors and senior executives in a manner that ensures that they are properly incentivised and motivated to perform in the best interests of shareholders over the long term; and to provide the level of remuneration required to attract and retain executive directors and senior executives of an appropriate calibre. Salaries and other benets are reviewed annually. The Remuneration Committee takes into account the performance of the individual, comparisons with peer group companies, institutional guidelines and reports from specialist consultants. The experience of the individual and his/ her level of responsibility are also taken into account. Consistent with this policy, the benet packages awarded to executive directors are intended to be competitive and comprise a mix of performance-related and non-performance-related remuneration, designed to motivate them, but not to detract from the goals of corporate governance. Basic salaries and benets Salaries of executive directors are set by reference to those prevailing in the market. Employment related benets relate principally to medical, life and health insurances and to the provision of a company car or car allowance. No fees are payable to executive directors. Performance bonus Under current arrangements, which are reviewed annually by the Remuneration Committee, executive directors have targeted bonuses of 40% to 50% of salary subject to the attainment of specic and stretching targets set for each individual. The level earned in any one year depends on the Committees assessment of each individuals performance and the overall performance of the Group against predetermined revenue and protability targets for the year. The maximum payout under the bonus scheme can be twice the bonus target (i.e. a maximum of 80% to 100% of salary) and this will only be achieved with substantial out-performance in the year under review. Pension entitlements The Group does not operate any pension scheme or make pension provision for non-executive directors. Each executive director has an independent pension trust into which the Group makes dened contributions.
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Targeted remuneration The targeted composition of each directors annual remuneration (excluding sundry benets) is as follows:
Performance related Non-performance related
Executive Patrick Kennedy Breon Corcoran* Jack Massey Non-executive Nigel Northridge Tom Grace Fintan Drury Stewart Kenny Jane Lighting Pdraig Rordin David Power William Reeve Brody Sweeney
* this percentage excludes the possible impact of the long term incentive bonus plan as described below.
28% 24% 24%
72% 76% 76%
100% 100% 100% 100% 100% 100% 100% 100% 100%
Long Term Incentive Plan It is Group policy to motivate its key executives to deliver superior performance over the long term and, at the Annual General Meeting held on 22 June 2004, the shareholders approved the 2004 Long Term Incentive Plan (LTIP). This plan, details of which are included in Note 21 to the consolidated nancial statements, allows shares conditionally awarded to executives to be earned over a three to ve year period subject to the achievement of testing earnings per share growth targets. Details of share awards to the executive directors and the Company Secretary are included with the directors and secretarys interests in the Directors Report on page 46. Shareholding guidelines The Group has put in place share ownership guidelines for executive directors to ensure the interests of executive directors are aligned with those of shareholders. In summary, the guidelines are that the current market value of the shares in the Company held by the relevant director should be at least 1.5 times salary for the Chief Executive and 1 times salary for other executive directors. Share options Details of options granted to the executive directors prior to the introduction of the LTIP and options granted to executive directors under the Sharesave Schemes are included with the directors and secretarys interests in the Directors Report on page 46. All options are granted at the market price on the date of grant, with the exception of options granted under Revenue approved sharesave schemes which are granted at a discount. Further details of these plans are given in Note 21 to the consolidated nancial statements. The market price of the Companys shares at 31 December 2010 was 30.70 and, for the year then ended, the Companys daily closing share price ranged between 22.75 and 30.80. Long term incentive bonus plan As rst disclosed in the 2009 Annual Report, Breon Corcoran participates in a cash based long term incentive bonus plan in respect of the 2009 to 2012 period. There are two components to the plan and payment there under is based on the achievement of two separate and very challenging performance targets, one based on operating prot in the Groups online and telephone divisions (excluding Australia) and the other on EBITDA in the Groups Australian business in the years ended 31 December 2012 and 30 June 2012, respectively.
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Remuneration Committee Report (continued)
Under the plan, Breon Corcoran has the potential to earn a cash payment of between 0.25m and 1.5m if the online and telephone divisions (excluding Australia) generate operating prot in 2012 above challenging predened thresholds and between 0.4m and 1.0m if EBITDA in the Groups Australian business in the year ended 30 June 2012 is above challenging predened thresholds. The payment of 70% of any amount due under the plan is scheduled for around March 2013, at which date Breon Corcoran must also be employed by the Group for a payment to be made to him. The remaining 30% will be paid on the one year anniversary of the original payment date, provided that Breon is still an employee of the Company on that date. The interests of Mr Corcoran under the plan did not change between the start and end of the nancial period and no benet crystallised in this period. Executive directors service contracts The notice period for Patrick Kennedy is 12 months, and it is six months for both Breon Corcoran and Jack Massey. All executive directors are employed on contracts with a normal retirement age of 65. No executive director is entitled to any contractual termination payment other than for payment in lieu of notice. Non-executive directors service contracts Non-executive directors, in accordance with best practice, are not appointed on service contracts, rather they are issued with a letter conrming the terms of their appointment. Non-executive directors are expected to give three months notice of resignation, but this is without prejudice to their right to resign immediately if they feel it appropriate. None of the non-executive directors have an entitlement to a termination payment. Directors detailed emoluments Full details of the emoluments of the directors are set out in Note 7 to the consolidated nancial statements on pages 88 and 89.
Pdraig Rordin Chairman, Remuneration Committee 4 March 2011
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Statement of Directors Responsibilities
In respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the Annual Report and the Group and Company nancial statements, in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company nancial statements for each nancial year. Under that law, the directors are required to prepare the Group nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and have elected to prepare the Company nancial statements in accordance with generally accepted accounting practice in Ireland, comprising applicable law and the nancial reporting standards issued by the Accounting Standards Board in the UK and promulgated by the Institute of Chartered Accountants in Ireland. The Group nancial statements are required by law and IFRSs as adopted by the EU to present fairly the nancial position and performance of the Group; the Companies Acts 1963 to 2009 provide in relation to such nancial statements that references in the relevant part of the Acts to nancial statements giving a true and fair view are references to their achieving a fair presentation. The Company nancial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing each of the Group and Company nancial statements the directors are required to: select suitable accounting policies and apply them consistently; make judgements and estimates that are reasonable and prudent; and prepare the nancial statements on the going concern basis, unless it is inappropriate to presume that the Group and Company will continue in business. Under applicable law and the requirements of the Listing Rules issued by the Irish Stock Exchange, the directors are also responsible for preparing a Directors Report and reports relating to directors remuneration and corporate governance that comply with the law and those Rules. In particular, in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 (the Transparency Regulations), the directors are required to include in their report a fair review of the business and a description of the principal risks and uncertainties facing the Group and Company and a responsibility statement relating to these and other matters, included below. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the nancial position of the Group and Company, and which enable them to ensure that the nancial statements comply with the Companies Acts 1963 to 2009, and, as regards the Group nancial statements, Article 4 of the European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005 (the IAS Regulation). They are also responsible for safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and nancial information included on the Companys website (www.paddypowerplc.com). Legislation in Ireland concerning the preparation and dissemination of nancial statements may differ from legislation in other jurisdictions.
Responsibility Statement, in accordance with the Transparency Regulations

Each of the directors, whose names and functions are listed in the Board of Directors section on page 36, conrm that, to the best of each persons knowledge and belief: the Group nancial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and nancial position of the Group at 31 December 2010 and of the prot of the Group for the year then ended; the Company nancial statements, prepared in accordance with generally accepted accounting practice in Ireland, give a true and fair view of the assets, liabilities and nancial position of the Company at 31 December 2010; the Directors Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board
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Independent Auditors Report to the Members of Paddy Power plc
We have audited the Group and Company nancial statements (the nancial statements) of Paddy Power plc for the year ended 31 December 2010, which comprise the consolidated Income Statement, the consolidated Statement of Comprehensive Income, the consolidated Statement of Financial Position and Company Balance Sheet, the consolidated Statement of Cash Flows, the consolidated Statement of Changes in Equity and the related notes. These nancial statements have been prepared under the accounting policies set out therein. This report is made solely to the Companys members, as a body, in accordance with Section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor

The directors responsibilities for preparing the Annual Report and the Group nancial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the Company nancial statements in accordance with applicable law and the nancial reporting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland), are set out in the Statement of Directors Responsibilities on page 61. Our responsibility is to audit the nancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Group nancial statements give a true and fair view in accordance with IFRSs as adopted by the EU and have been properly prepared in accordance with the Companies Acts 1963 to 2009 and Article 4 of the IAS Regulation, and whether, in addition, the Company nancial statements give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland and have been properly prepared in accordance with the Companies Acts 1963 to 2009. We also report to you our opinion as to: whether proper books of account have been kept by the Company; whether at the balance sheet date, there exists a nancial situation requiring the convening of an extraordinary general meeting of the Company; and whether the information given in the Directors Report is consistent with the nancial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the Company balance sheet is in agreement with the books of account. We also report to you if, in our opinion, any information specied by law or the Listing Rules of the Irish Stock Exchange regarding directors remuneration and directors transactions is not disclosed and, where practicable, include such information in our report. We are required by law to report to you our opinion as to whether the description of the main features of the internal control and risk management systems in relation to the process for preparing the consolidated Group nancial statements, set out in the Corporate Governance statement, is consistent with the consolidated nancial statements. In addition, we review whether the Corporate Governance statement reects the Companys compliance with the nine provisions of the 2008 FRC Combined Code specied for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Boards statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Groups corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited nancial statements. The other information comprises only the Directors Report, the Chairmans Statement, the Chief Executives Review, the Operating & Financial Review and the Remuneration Committee Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the nancial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the nancial statements. It also includes an assessment of the signicant estimates and judgements made by the directors in the preparation of the nancial statements, and of whether the accounting policies are appropriate to the Groups and Companys circumstances, consistently applied and adequately disclosed.
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We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufcient evidence to give reasonable assurance that the nancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the nancial statements.
Opinion
In our opinion: the Group nancial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Groups affairs as at 31 December 2010 and of its prot for the year then ended; the Group nancial statements have been properly prepared in accordance with the Companies Acts 1963 to 2009 and Article 4 of the IAS Regulation; the Company nancial statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the Companys affairs as at 31 December 2010; and the Company nancial statements have been properly prepared in accordance with the Companies Acts 1963 to 2009. We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the Company. The Company balance sheet is in agreement with the books of account. In our opinion the information given in the Directors Report on pages 38 to 47 and the description in the Corporate Governance statement of the main features of the internal control and risk management systems in relation to the process for preparing the consolidated Group nancial statements is consistent with the nancial statements. The net assets of the Company, as stated in the Company balance sheet on page 129, are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2010 a nancial situation which under Section 40(1) of the Companies (Amendment) Act 1983 would require the convening of an extraordinary general meeting of the Company.
Chartered Accountants Registered Auditor Dublin 4 March 2011
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63
Consolidated Income Statement

Year ended 31 December 2010
Note
Total 2010 000
Total 2009 000
Amounts staked by customers Continuing operations Income Direct betting costs Gross prot Employee expenses Property expenses Marketing expenses Technology and communications expenses Depreciation and amortisation Other expenses, net Total operating expenses Operating prot Financial income on nancial assets at amortised cost Financial income derivative nancial instruments at fair value through prot or loss (Sportsbet buyout call options) Financial expense Prot before tax Income tax expense Prot for the year Attributable to: Equity holders of the Company Non-controlling interest 10 8 8 8 4 5
3,834,316
2,751,537
443,527 (60,256) 383,271 (129,883) (30,432) (50,358) (22,259) (24,278) (22,312) (279,522) 103,749 1,779 7,116 (1,344) 111,300 (14,566) 96,734
295,928 (37,954) 257,974 (90,146) (25,222) (28,973) (16,185) (18,113) (12,641) (191,280) 66,694 900 (402) 67,192 (8,717) 58,475
90,005 6,729 96,734
56,946 1,529 58,475
Earnings per share Basic Diluted Notes 1 to 35 on pages 70 to 128 form an integral part of these consolidated nancial statements.
11 11
1.927 1.874
1.219 1.207
Patrick Kennedy 4 March 2011
Jack Massey
64
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Consolidated Statement of Comprehensive Income

Note
2010 000
2009 Restated 000
Changes in fair value of available-for-sale nancial assets Foreign exchange gain on revaluation of the net assets of foreign currency denominated subsidiaries Deferred tax on share-based payments Deferred tax on the changes in fair value of available-for-sale nancial assets Other comprehensive income for the year Prot for the year Total comprehensive income for the year Attributable to: Equity holders of the Company Non-controlling interest Total comprehensive income for the year Notes 1 to 35 on pages 70 to 128 form an integral part of these consolidated nancial statements.
15 8 22 22
12,667 264 12,931 96,734 109,665
241 1,037 (76) 1,202 58,475 59,677
100,718 8,947 109,665
57,451 2,226 59,677
Jack Massey
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65
Consolidated Statement of Financial Position

As at 31 December 2010
Note
31 December 2010 000
31 December 2009 Restated 000
Assets Property, plant and equipment Intangible assets Goodwill Financial assets Deferred tax assets Total non current assets Trade and other receivables Financial assets restricted cash Cash and cash equivalents Total current assets Total assets Equity Issued share capital Share premium Treasury shares Shares held by long term incentive plan trust Other reserves Retained earnings Total equity attributable to equity holders of the Company Non-controlling interest Total equity Liabilities Trade and other payables Derivative nancial liabilities Provisions Borrowings Current tax payable Total current liabilities Trade and other payables Derivative nancial liabilities Provisions Borrowings Deferred tax liabilities Total non current liabilities Total liabilities Total equity and liabilities Notes 1 to 35 on pages 70 to 128 form an integral part of these consolidated nancial statements.
12 13 14 15 22
77,798 51,510 76,967 9,735 2,591 218,601 15,574 21,081 139,581 176,236 394,837 4,995 20,876 (34,177) (33,890) 33,699 236,936 228,439 15,798 244,237 115,336 8,586 278 1,885 6,862 132,947 7,354 16 1,876 2,633 5,774 17,653 150,600 394,837
76,727 45,450 63,511 1,581 1,291 188,560 16,120 9,025 80,576 105,721 294,281
17 18 18
4,977 18,009 (34,177) (31,858) 16,435 184,177 157,563 8,947 166,510
23 23 24 25
90,553 5,448 1,272 5,023 2,497 104,793 3,003 154 1,611 11,498 6,712 22,978 127,771 294,281
23 23 24 25 22
Jack Massey
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Consolidated Statement of Cash Flows

Note
2010 000
2009 000
Cash ows from operating activities Prot before tax Financial income Financial expense Depreciation and amortisation Cost of employee share-based payments Foreign currency exchange loss (Gain) / loss on disposal of property, plant and equipment and intangible assets Other adjustments Cash from operations before changes in working capital Decrease / (increase) in trade and other receivables Increase in trade and other payables and provisions Cash generated from operations Income taxes paid Net cash from operating activities Cash ows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of businesses, net of cash acquired Acquisition expenses paid Proceeds from disposal of property, plant and equipment and intangible assets Interest received Net cash used in investing activities Cash ows from nancing activities Proceeds from the issue of new shares Purchase of shares by long term incentive plan trust Purchase of non-controlling interest Dividends paid Movements in current and non current restricted cash balances Proceeds from secured bank loan Proceeds from non-controlling shareholder loans Repayment of non-controlling shareholder loans Secured bank loan repayments Finance lease repayments Interest paid Net cash used in nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Foreign currency exchange gain / (loss) in cash and cash equivalents Cash and cash equivalents at end of year Notes 1 to 35 on pages 70 to 128 form an integral part of these consolidated nancial statements. 18
111,300 (8,895) 1,344 24,278 13,427 177 (12) 123 141,742 1,886 29,776 173,404 (13,159) 160,245
67,192 (900) 402 18,113 5,841 228 75 90,951 (1,498) 6,652 96,105 (10,685) 85,420
16 16
(16,431) (7,278) (10,460) (212) 208 1,902 (32,271)
(15,196) (3,658) (27,984) (2,437) 295 907 (48,073)
16 20
3,186 (9,048) (8,561) (30,769) (12,808) (3,067) (10,906) (961) (1,229) (74,163) 53,811 80,576 5,194 139,581
4,648 (14,067) (26,158) (9,267) 11,878 3,492 (1,041) (316) (373) (31,204) 6,143 76,661 (2,228) 80,576
Jack Massey
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68
Attributable to equity holders of the Company (see Note 19) Number of ordinary shares in issue Issued share capital 000 Fair value reserve 000 Other reserves 000 Treasury shares 000 Retained earnings 000 Total equity 000 Foreign Share exchange premium translation 000 000 Noncontrolling Total interest 000 000 Shares held by long term incentive plan trust 000 Sharebased payment reserve 000
4,977 18,009 - 10,449 - 10,449 - 90,005 90,005 - 10,449 264 264 - 90,269 100,718 6,729 96,734 2,218 12,667 264 8,947 109,665
75
1,392 (34,177) (31,858) 14,968 184,177 157,563
8,947 166,510
18 18 4,995 2,867 20,876 48 10,572 - 13,427 7,016 (5,934) 48 39 (65) (198) 49 (9,048) (9,048)
2,867
2,885
2,885 (9,048)
Consolidated Statement of Changes in Equity
(6,568) (6,529) (1,952) (8,481) 17 (198) (144) (342) 49 49 - 13,427 (741) 341 - 13,427 341
Balance at 1 January 2010 49,767,339 Total comprehensive income for the year Prot Foreign exchange retranslation Deferred tax on share-based payments (Note 22) Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Shares issued (Note 19) 186,775 Own shares acquired by the long term incentive plan trust 354,500 ordinary shares (Note 21) Purchase of non-controlling interest Sportsbet (Note 16) Discount on loans from non-controlling interest Repayment of non-controlling interest loans Net wealth tax Equity-settled transactions expense recorded in income statement (Note 21) Equity-settled transactions vestings (Note 19) Transfer to retained earnings on exercise of share options (Note 19) Dividends to shareholders (Note 20) Total contributions by and distributions to owners of the Company 186,775 Balance at 31 December 2010 49,954,114 (551) 551 - (30,769) (30,769) - (30,769) (175) - (2,032) 6,942 (37,510) (29,842) (2,096) (31,938) 1,217 (34,177) (33,890) 21,910 236,936 228,439 15,798 244,237
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Attributable to equity holders of the Company (see Note 19)
Restated 4,927 421 421 84 84 56,946 56,946 56,946 421 84 57,451 1,529 616 81 2,226 58,475 1,037 165 59,677 11,318 (346) 1,136 (34,177) (21,526) 13,733 152,175 127,240 - 127,240
Number of ordinary shares in issue Issued share capital 000 Fair value reserve 000 Other reserves 000 Treasury shares 000 Retained earnings 000 Total equity 000 Foreign Share exchange premium translation 000 000 Noncontrolling Total interest 000 000
Shares held by long term incentive plan trust 000 Sharebased payment reserve 000
50 50 4,977 6,691 18,009 75 (84) 3,735 5,841 (3,234) 256 (143) (84) - (14,067) - (14,067) (15) (99) 256 5,841 358 (1,372) 1,372 - (26,158) (26,158)
6,691
6,741
6,741 - (14,067) 6,903 6,903 (427) (526) 245 501 5,841 358 - (26,158) 6,721 (20,407) 8,947 166,510
Balance at 1 January 2009 49,270,742 Total comprehensive income for the year Prot Foreign exchange retranslation Fair value changes (Note 19) Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Shares issued (Note 19) 496,597 Own shares acquired by the long term incentive plan trust 540,000 ordinary shares (Note 21) Business combinations Sportsbet (Note 16) Business combinations IAS Discount on loans from non-controlling interest (Notes 19 & 25) Equity-settled transactions expense recorded in income statement (Note 21) Equity-settled transactions vestings (Note 19) Transfer to retained earnings on exercise of share options (Note 19) Dividends to shareholders (Note 20) Total contributions by and distributions to owners of the Company 496,597 Balance at 31 December 2009 49,767,339 256 - (10,332) 1,235 (24,944) (27,128) 1,392 (34,177) (31,858) 14,968 184,177 157,563
Notes 1 to 35 on pages 70 to 128 form an integral part of these consolidated nancial statements.
Patrick Kennedy
Jack Massey
Page 146 PSS-201102158
4 March 2011
69
Notes to the Consolidated Financial Statements
1. General information
Paddy Power plc (the Company) and its subsidiaries (together referred to as the Group) provide online interactive sports betting services (paddypower.com, sportsbet.com.au and iasbet.com.au), sports betting services through a chain of licensed betting ofces (Paddy Power Bookmaker) and telephone sports betting (Dial-a-Bet). The Group also provides online gaming services through paddypower.com, paddypowerpoker.com, paddypowercasino.com and paddypowerbingo.com, and nancial spread betting services through paddypowertrader.com. It provides these services principally in the United Kingdom, Ireland and Australia. It also provides business-to-business services globally. The Company is a public limited company incorporated and domiciled in the Republic of Ireland and has its primary listing on the Irish Stock Exchange. The address of its registered ofce is set out on page 1 of this Annual Report. The consolidated nancial statements of the Group for the year ended 31 December 2010 comprise the nancial statements of the Company and its subsidiary undertakings and were authorised for issue by the Board of Directors on 4 March 2011.
2. Basis of preparation and summary of signicant accounting policies

The consolidated nancial statements are prepared on the historical cost basis except for betting transactions (which are recorded as derivative nancial instruments), derivative nancial instruments (call options), available-for-sale nancial assets and certain share-based payments, all of which are stated at fair value (grant date fair value in the case of share-based payments). The consolidated nancial statements are presented in euro, the Companys functional currency, rounded to the nearest thousand. Further to IAS Regulation (EC1606/2002) (Accounting standards adopted for use in the EU), EU law requires that the annual consolidated nancial statements of the Group be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union (EU). The consolidated nancial statements have been prepared on the basis of IFRSs adopted by the EU and effective for accounting periods ending on or before 31 December 2010. The accounting policies set out below have been applied consistently by Group entities. The accounting policies applied in the preparation of these consolidated nancial statements have been applied consistently during the year and prior year, except as highlighted below in recent accounting pronouncements. Recent accounting pronouncements The IASB and the International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations which were effective and signicant for the Group in the year ended 31 December 2010: Revised IFRS 3, Business Combinations (2008) From 1 January 2010, the Group has applied IFRS 3, Business Combinations (2008) in accounting for business combinations. The change in accounting policy has been applied prospectively and has had no signicant impact on earnings per share in the current reporting period. The revised standard impacts on the amounts recorded in goodwill and in the income statement for business combinations, and incorporates the following changes that are likely to be relevant to the Groups operations: The denition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. Contingent consideration is measured at fair value, with subsequent changes therein recognised in prot or loss. Transaction costs, other than share and debt issue costs, are expensed as incurred. Any pre-existing interest in the acquiree is measured at fair value with the gain or loss recognised in prot or loss. Any non-controlling interest is measured at either fair value, or at its proportionate interest in the identiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Revised IAS 27, Consolidated and Separate Financial Statements (2008) From 1 January 2010, the Group has applied IAS 27, Consolidated and Separate Financial Statements (2008) in accounting for acquisitions of non-controlling interests. The change in accounting policy has been applied prospectively and there was no impact on earnings per share in the current reporting period.
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2. Basis of preparation and summary of signicant accounting policies (continued)

From 1 January 2010, acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised. Previously, goodwill arising on the acquisition of non-controlling interests in a subsidiary would have been recognised, and represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction. See Note 16 for the application of the new policy to the acquisition of non-controlling interests that occurred during the reporting period. The following provides a brief outline of the likely impact on future nancial statements of relevant IFRSs adopted by the EU which are not yet effective and have not been adopted early in these nancial statements: IAS 32 Amendment, Classication of Rights Issues (effective for the Groups 2011 consolidated nancial statements). The directors do not believe that this will have any signicant impact on Group reporting. IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for the Groups 2011 consolidated nancial statements). The directors do not believe that this will have any signicant impact on Group reporting.
Basis of consolidation The Groups nancial statements consolidate the nancial statements of Paddy Power plc and its subsidiary undertakings based on accounts made up to the end of the nancial year. A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the nancial and operating policies of an entity so as to obtain benets from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated on consolidation except to the extent that unrealised losses provide evidence of impairment. Non-controlling interests in the net assets of consolidated subsidiaries are identied separately from the Group equity therein. Non-controlling interest comprises the amount of such interests at the date of original business combination, either as a proportion of the fair value of identiable assets acquired or at full fair value, and the non-controlling interests share of changes in equity since the date of original combination. Judgements and estimates The preparation of nancial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about signicant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signicant effect on the amounts recognised in the nancial statements is included in the following notes and in Note 35: Note 14 measurement of the recoverable amounts of cash generating units containing goodwill and indenite life licences and brands intangible assets. Note 15 embedded derivative nancial assets. Note 16 business combinations. Note 21 measurement of share-based payments. Note 22 utilisation of UK tax losses. Note 23 sports betting open positions. Note 26 credit risk arising from trade and other receivables.
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Notes to the Consolidated Financial Statements (continued)

Restatement of prior year nancial information As permitted by IFRS 3 Business Combinations, and as a result of (1) the nalisation of fair value accounting for the acquisition of the 51% share of Sportsbet Pty Limited (Sportsbet) and (2) the nalisation of fair value accounting for the Groups acquisition of the 100% interest in International All Sports Limited (IAS) on a step acquisition basis, a number of adjustments have been made to the Groups 31 December 2009 comparative nancial information. Where adjustments have been made to comparative information in respect of the year ended 31 December 2009 the relevant nancial statement or note is headed up as Restated. The principal adjustments made are summarised below:
Deferred tax on Sportsbet brands intangible assets (1) 000
Note (see below)
Sportsbet buyout call option nalisation (2) 000
Step acquisition of IAS (3) 000
IAS acquisition balance sheet (4) 000
Foreign currency retranslation and other (5) 000
Total 000
Intangible assets computer software Goodwill Financial assets Deferred tax assets Current assets other receivables Total assets Foreign exchange translation reserve Retained earnings Non-controlling interest Current liabilities trade and other payables Current liabilities provisions Current liabilities current tax payable Non current liabilities derivative nancial liabilities Non current liabilities provisions Non current liabilities deferred tax Total equity and liabilities
1,464 1,464 1,407 (2,871) (1,464)
1,055 (917) 138 (138) (138)
(731) (731) (81) 467 345 731
354 1,165 (302) 1,217 333 (80) (102) (1,470) 102 (1,217)
12 (345) (1,993) (10) (2,336) 524 145 (20) (49) 1,736 2,336
366 2,608 (917) (1,993) (312) (248) 443 467 2,230 (100) (102) (1,519) (138) 102 (1,135) 248
(1) The recognition of deferred tax at the relevant Australian tax rate of 30% on the value of the brands intangible assets recognised on the acquisition of Sportsbet. (2) A revision in the net fair value of the Sportsbet buyout call options from a nancial asset of 917,000 to a nancial liability of 138,000 on nalisation of the valuation of these derivative nancial instruments. (3) A change in the consolidation accounting for the IAS acquisition to reect the acquisition of IAS being completed in two stages, an initial 19.98% acquisition by the Group on 1 July 2009 and the nal 80.02% acquisition on 1 October 2009. (4) Changes to the 1 October 2009 IAS acquisition balance sheet to reect subsequent information about conditions affecting balances at that date. (5) Primarily relates to foreign currency retranslation adjustments as of 31 December 2009 in respect of the above and a reclassication of deferred tax balances between deferred tax assets and deferred tax liabilities.
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The impact on previously reported balances is as follows:
As previously reported 000 Adjustment 000 As restated 000
Intangible assets Goodwill Financial assets Deferred tax assets Trade and other receivables Foreign exchange translation reserve Retained earnings Non-controlling interest Current liabilities trade and other payables Current liabilities provisions Current liabilities current tax payable Non current liabilities derivative nancial liabilities Non current liabilities provisions Deferred tax liabilities
45,084 60,903 2,498 3,284 16,432 (518) (184,644) (11,177) (90,453) (1,170) (978) (16) (1,713) (5,577)
366 2,608 (917) (1,993) (312) 443 467 2,230 (100) (102) (1,519) (138) 102 (1,135)
45,450 63,511 1,581 1,291 16,120 (75) (184,177) (8,947) (90,553) (1,272) (2,497) (154) (1,611) (6,712)
As the above adjustments to comparative information had no impact on 1 January 2009 balances, the statement of nancial position at the beginning of the earliest comparative period (1 January 2009) has not been included in these nancial statements. Income The services provided by the Group comprise sports betting, xed odds games betting, online casino and games, peer to peer games including online poker and bingo, nancial spread betting and business-to-business services. Income is stated exclusive of value added and general sales taxes and certain free bets, promotions and bonuses. The Groups betting and gaming activities, with the exception of peer to peer games and nancial spread betting on which commission income and tournament fees are earned and business-to-business services on which fees are earned, are classied as derivative nancial instruments. Income from online sportsbook, retail and telephone betting activities represents the net gain or loss from betting activities in the period plus the gain or loss on the revaluation of open positions at period end. Income from xed odds games and the online casinos represents net winnings (customer drop), being amounts staked net of customer winnings. Income from peer to peer games and nancial spread betting represents commission income (rake) and tournament fees earned from games completed by the period end. Income from business-to-business services represents fees charged for the services provided in the period. These derivatives are recognised initially at fair value and subsequently at fair value through prot or loss, within the income line as this represents the Groups principal activity. Commission and other fee income earned is also recorded within income but is analysed separately in the notes to the nancial statements. Financial income Interest income is recognised on an accruals basis by reference to the principal outstanding and the effective rate of interest. Financial income includes changes in the fair value of nancial assets at fair value through prot or loss.
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Financial expense Financial expense comprises interest expense on borrowings (except in respect of borrowing costs relating to qualifying assets), interest on guarantee contracts entered into with third parties, the unwinding of the discount on provisions and other non current liabilities and impairment losses recognised in respect of nancial assets. In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Previously, the Group would have immediately recognised all borrowing costs as an expense. Operating segment reporting Operating segments are distinguishable components of the Group that have been established based on the internal reports regularly reviewed by the Groups Chief Operating Decision Maker in order to assess each segments performance and to allocate resources to them. Geographical segments provide services within a particular economic environment that are subject to risks and rewards that are different from those components operating in alternative economic environments. The Group has determined that its operating segments of online (ex Australia), Australia, Irish retail, UK retail and telephone (ex Australia) are its reportable operating segments. See Note 4 for further information on operating segments. Exceptional items Exceptional items are those that in managements judgement need to be disclosed by virtue of their size or incidence. Such items are included within the income statement caption to which they relate, and are separately disclosed either on the face of the consolidated income statement or in the notes thereto. Foreign currency Functional and presentation currency The Group and Company nancial statements are presented in euro which is also the Companys functional currency. Items included in the nancial statements of each of the Groups entities are measured using the currency of the primary economic environment in which the entity operates, which is primarily the euro, pound sterling and Australian dollar. Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Non monetary assets that are carried at historical cost are not subsequently retranslated. Monetary assets and liabilities denominated in foreign currencies at the statement of nancial position date are translated to functional currencies at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Gains and losses arising on the retranslation of cash and cash equivalent balances are included within other expenses in the income statement rather than as a nancial expense, as the directors consider that the gains or losses arising relate to operations, as the Group broadly matches its foreign currency denominated assets and liabilities to ensure that foreign exchange gains and losses are minimised. Gains and losses on retranslation of non-cash assets and liabilities are also dealt with as operating items. Gains and losses on foreign currency retranslation are separately analysed into their components in the statement of cash ows. Foreign currency translation of foreign operations To the extent that the Groups foreign operations are considered to have functional currencies which are different from the Groups presentation currency, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation and long term intra-group loans that are part of the net investment because repayment is not planned or foreseen, are translated to euro at foreign exchange rates ruling at the statement of nancial position date. The revenues and expenses of these foreign operations are translated to euro at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognised directly in equity.
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Business combinations Acquisitions of subsidiaries are accounted for using the purchase method. The cost of acquisition is measured at the date of purchase and represents the aggregate of the fair values of assets given, liabilities incurred or assumed and any equity instruments issued by the Group in exchange for control of the acquiree. The identiable assets and liabilities of the acquiree are recognised at their fair values at the date of acquisition. Goodwill recognised under Irish Generally Accepted Accounting Practice (GAAP) prior to the date of transition to IFRS is stated at net book value as at the transition date. Goodwill recognised subsequent to 1 January 2004, representing the excess of purchase consideration over the fair value of net identiable assets acquired dened in accordance with IFRS 3 Business Combinations (2008), is capitalised. Goodwill is initially recognised as an asset at cost and is thereafter measured at cost less any accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment annually. Any impairment in the value of goodwill is dealt with in the income statement in the period in which it arises. Goodwill is recognised only when control of the acquiree is initially achieved. Following the acquisition of control, no goodwill is recognised on subsequent purchases of equity interests in the acquiree and instead the difference between the cost of such acquisitions and the fair values of the relevant net assets acquired is dealt with through retained earnings. Costs relating to the acquisition of businesses that occurred since 1 January 2010 are expensed to the income statement when incurred. The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders percentage interest in the net fair value of the assets, liabilities and contingent liabilities recognised. Subsequently, the non-controlling interests are allocated their share of results recognised in the income statement and the statement of comprehensive income. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing items and restoring the site on which they are located. Cost also may include transfers from equity of any gain or loss on qualifying cash ow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Previously, the Group would have immediately recognised all borrowing costs as an expense. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within total operating expenses in prot or loss. Depreciation is calculated to write off the cost less estimated residual value of property, plant and equipment on a straight line basis over their useful lives; the estimated useful lives of leasehold improvements are the unexpired terms of the leases, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease when it is reasonably certain that the Group has the intention of renewing the lease. Land is not depreciated. The estimated useful lives are as follows: Buildings: Freehold Fixtures and ttings Computer equipment Motor vehicles 50 years 3 7 years 3 5 years 3 5 years
Assets in the process of construction are stated at cost less impairment losses. Depreciation of these assets begins when the assets are ready for their intended use. The residual value of property, plant and equipment, if not insignicant, is reassessed annually.
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Intangible assets Intangible assets, principally comprising computer software, licences and brands, are capitalised at cost and amortised over their estimated useful economic lives on a straight line basis. Computer software includes the costs incurred in acquiring and bringing specic software programs into use. Maintenance costs relating to computer software programs are expensed to the income statement when incurred. Licences comprise the costs of acquiring retail bookmaking licences, the rents incurred in respect of the period prior to each shop opening for business (as the existence of a premises is a pre-requisite for obtaining such licences) and licences for electronic point of sale (EPOS) system software. Brands represent the fair value of brands and trade mark assets acquired in business combinations. The estimated useful economic lives of intangible assets, according to which amortisation is calculated, are as follows: Computer software Licences- shop licences and EPOS software licences 3 5 years 5 20 years
The licences intangible assets recognised on the acquisition of the D McGranaghan Limited business and the brands intangible assets recognised on the acquisition of Sportsbet Pty Limited and International All Sports Limited are not amortised for the reasons set out in Note 13. Impairment Financial assets (including receivables) A nancial asset not carried at fair value through prot or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A nancial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash ows of that asset that can be estimated reliably. Objective evidence that nancial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy and the disappearance of an active market for a security. In addition, for an investment in an equity security, a signicant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Group considers evidence of impairment at both a specic asset and collective level. All individually signicant receivables are assessed for specic impairment. All individually signicant receivables found not to be specically impaired are then collectively assessed for any impairment that has been incurred but not yet identied. Receivables that are not individually signicant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managements judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a nancial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash ows discounted at the assets original effective interest rate. Losses are recognised in prot or loss and reected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through prot or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to prot or loss. The cumulative loss that is removed from other comprehensive income and recognised in prot or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in prot or loss. Changes in impairment provisions attributable to time value are reected as a component of interest income. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.
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Non-nancial assets The carrying amounts of the Groups non-nancial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. For goodwill, and intangible assets that have indenite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inows from continuing use that are largely independent of the cash inows of other assets or groups of assets (the cash generating unit, or CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benet from the synergies of the combination. The Groups corporate assets do not generate separate cash inows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in prot or loss. Impairment losses recognised in respect of CGUs are allocated rst to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Non-derivative nancial instruments Other non-derivative nancial instruments comprise cash and cash equivalents and trade and other receivables and trade and other payables. Non-derivative nancial instruments are recognised initially at fair value plus, for instruments not at fair value through prot or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative nancial instruments are measured as described below. A nancial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Groups contractual right to the cash ows from the nancial assets expire or if the Group transfers the nancial asset to another party without retaining control or substantially all the risks and rewards of the asset. Regular way purchases and sales of nancial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Groups obligations specied in the contract expire or are discharged or cancelled. Trade and other receivables are stated at their nominal value as reduced by appropriate allowances for estimated impaired amounts. Subsequent to initial recognition, cash and cash equivalents and trade and other payables are measured at amortised cost. Cash and cash equivalents for the purpose of the statement of cash ows comprise cash and call deposits with an original maturity of three months or less.
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Financial assets Restricted cash Restricted cash represents cash held by the Group but which is ring fenced or used as security for specic nancing arrangements (such as collateral for a bank guarantee), and to which the Group has restricted access for a period of time. Restricted cash is classied as held to maturity and carried at amortised cost. Restricted cash balances are further classied as current or non current depending on when the restriction rst ends. Available-for-sale investments Available-for-sale investments (representing the Groups 19.98% investment in IAS between 1 July 2009 and 1 October 2009) are recognised initially at their acquisition date fair value and subsequently at fair value based on their quoted bid price at the reporting date. Changes in the fair value of available-for-sale investments are recognised directly in other comprehensive income until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income is included in prot or loss for the period. Where an investment previously classied as available-for-sale and measured at fair value has been transferred to the cost of investment in a subsidiary, amounts recorded in other comprehensive income will be treated as if the previously held equity interest had been disposed of. This is in accordance with IFRS 3, Revised. Derivative nancial instruments The Group holds certain derivative nancial instruments which are recognised initially at fair value. Sports betting open positions Amounts received from customers on sportsbook events that have not occurred by the year end are derivative nancial instruments and have been designated by the Group on initial recognition as nancial liabilities at fair value through prot or loss. Separable embedded derivatives The Group has certain Sportsbet buyout call options, which are characterised as embedded derivatives. Embedded derivatives are separated from their host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the denition of a derivative and the combined instrument is not measured at fair value through prot or loss. Separable embedded derivative nancial assets and liabilities are netted where they relate to the same host contract. Changes in the fair value of separable embedded derivatives are recognised immediately in prot or loss. Leases Leased assets, under the terms of which the Group assumes substantially all the risks and rewards of ownership, are classied as nance leases. The assets acquired by way of nance lease are stated at an amount equal to the lower of fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Finance lease payments are apportioned between the nance charge and the reduction of the outstanding liability, and the charge is allocated to the income statement during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. All other leases are classied as operating leases and are not recognised in the statement of nancial position. Operating lease rentals payable are recognised as an expense in the income statement on a straight line basis over the lease term unless another systematic basis is more appropriate. Income tax Income tax in the income statement comprises current and deferred tax. Income tax expense is recognised in prot or loss except to the extent that it relates to items recognised in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of nancial position date, and any adjustment to tax payable in respect of the previous year.
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Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for nancial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable prot and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of nancial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable prots will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benet will be realised. Deferred tax assets and liabilities are offset to the extent that they relate to income taxes levied by the same taxation authority. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is considered probable that an outow of economic benets will be required to settle the obligation. Provisions are determined by discounting the expected future cash ows at a pre-tax rate that reects current market assessments of the time value of money and the risks specic to the liability. Long service leave The provision for long service leave (that arises under the provisions of Australian state legislation) is measured at the present value of expected future payments to be made in respect of services rendered by employees of the Australia operating segment up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on Australian government bonds with terms to maturity that match, as closely as possible, the estimated future cash outows. Lease reinstatement Where there exists a legal obligation for properties held under operating leases to be reinstated to their original condition on expiry of the lease, a provision is established to recognise the estimated cost of such reinstatement work on a straight line basis over the term of the lease. Onerous contracts A provision for onerous contracts is recognised when the expected benets to be derived from a contract by the Group are lower than the unavoidable costs of meeting its obligations under the terms of the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Employee benets Pensions The Group operates a number of dened contribution schemes under which the Group pays xed contributions to a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions are recognised as an expense in the income statement as the obligation falls due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. Long term incentive bonus plans The Group accounts for obligations relating to long term incentive bonus plans for executive directors and other employees at the present value of the dened benet obligation at the statement of nancial position date. The service cost relating to such plans is allocated to the nancial years over which service under the plan is rendered by the employee. The income statement expense represents the increase in the present value of the dened benet obligation resulting from employee service in the current period, in addition to any associated nance costs where material.
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Share-based payments The Group operates equity-settled share option schemes for employees under which employees acquire options over Company shares. The fair value of share options granted is recognised as an employee benet cost with a corresponding increase in the sharebased payment reserve in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Group operates an equity-settled share save scheme (SAYE) for employees under which employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benet cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Group operates certain equity-settled long term incentive plans (being the Long Term Incentive Plan and the Managers Deferred Share Award Scheme, collectively referred to as the share award schemes) for selected senior executives and other key management under which they are conditionally awarded shares which vest upon the achievement of predetermined earnings targets and/ or future service periods. The fair value is measured at the award grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant. Share capital Ordinary shares Ordinary shares are classied as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Own shares held Purchases of the Companys shares by the long term incentive plan trust, which have been conditionally awarded to executives under the terms of the share award schemes, and purchases of the Companys own shares held as treasury shares are shown separately as deductions from equity in the consolidated statement of nancial position. Transaction costs relating to the purchase by the Company of its own shares are written off directly to retained earnings. Repurchase of share capital (treasury shares) When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity. The repurchased shares are classied as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or decit on the transaction is transferred to or from retained earnings. Where the Company purchases its own shares and subsequently cancels those shares, the cost of the shares cancelled is written off directly to retained earnings. The nominal value of the shares cancelled is transferred from share capital to the capital redemption reserve fund. Dividends Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the statement of nancial position date are disclosed in Note 34. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the prot or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the prot or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which include awards under share award schemes and share options granted to employees.
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Bank and credit card charges Bank and credit card charges and fees that are considered integral to the operations of the Groups business are recognised in total operating expenses in the consolidated income statement. Bank and credit card charges and fees that are related to the Groups nancing activities are recognised in nancial income and expense in the consolidated income statement.
3. Financial risk management

The Group has the following risk exposures in relation to its use of nancial instruments: Market risk; Interest rate risk; Credit risk; and Liquidity risk. Set out below is information on the Groups exposure to each of the above risks, and what its objectives, policies and processes are for measuring and managing those risks. Information is also provided on how the Group manages its capital. Quantitative disclosures in respect of these risks are included throughout these consolidated nancial statements and, in particular, in Notes 25 to 31. General The Board of Directors of Paddy Power plc has overall responsibility for the management of the Groups risks. This responsibility is delegated to a number of committees over which the Board has oversight. The primary Board committees set up to manage risks are the Risk Committee and the Audit Committee. Both these Committees report regularly to the Board on their activities. The oversight of the Groups treasury operations is performed by an Investment Committee, chaired by the Finance Director, who reports in turn to the Board on its activities. Market risk Market risk relates to the risk that changes in prices, including sports betting prices/ odds, foreign currency exchange rates and interest rates (see also interest rate section below), will impact the Groups income or the value of its nancial instruments. Market risk management has the function of managing and controlling the Groups exposures to market risk to within acceptable limits, while at the same time ensuring that returns are optimised. The management of market risk is performed by the Group under the supervision of the Risk Committee and the Investment Committee and according to the guidelines approved by them. The Group will utilise hedges where there is an identied requirement to manage prot or loss volatility. Sports betting prices/ odds Managing the risks associated with sportsbook bets is a fundamental part of the Groups business. The Group has a separate Risk Department which has responsibility for the compilation of bookmaking odds and for sportsbook risk management. This function reports directly to the Group Chief Executive and to the Risk Committee of the Board. The Risk Department is responsible for the creation and pricing of all betting markets and the trading of those markets through their life. A mix of traditional bookmaking approaches married with risk management techniques from other industries is applied, and extensive use is made of mathematical models and information technology. The Group has set predened limits for the acceptance of sportsbook bet risks. Stake and loss limits are set by reference to individual sports, events and bet types. These limits are subject to formal approval by the Risk Committee. Risk management policies also require sportsbook bets to be hedged with third parties in certain circumstances to minimise potential losses. The prots and losses recorded on sportsbook hedging activities are recorded in income in the income statement. Foreign currency risk The Group is exposed to currency risk in respect of income, expenses, receivables, cash and cash deposits, and other nancial assets and nancial liabilities (primarily trade payables and customer balances) that are denominated in currencies that are not the functional currency of the entities in the Group. The currencies in which transactions are primarily denominated are the euro, the pound sterling (GBP), the Australian dollar (AUD) and the US dollar (USD).
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3. Financial risk management (continued)

It is Group policy to ensure that foreign currency denominated liabilities, primarily customer balances, are broadly matched by foreign currency denominated assets, primarily cash deposits. This is generally achieved by monthly sales of net foreign currency inows into euro (or the subsidiaries functional currency) at spot rates. The Groups Australian activities are conducted by separate subsidiaries whose accounts are denominated in AUD. Foreign exchange impacts therefore arise on the retranslation of their income and expense into euro for Group reporting purposes. Subject to Investment Committee approval, the Group may make use of forward contracts, intentional imbalances between foreign currency denominated liabilities and assets, and derivatives to manage foreign currency exposures on expected future cash ows. During the years ended 31 December 2010 and 2009, the Group did not utilise either foreign currency forward contracts or derivatives. While the Group generally maintained a naturally hedged balance sheet, as described in the preceding paragraph, during the years ended 31 December 2010 and 2009, its expected future foreign currency denominated income and expenses generally remained un-hedged. The average GBP exchange rate against the euro increased by approximately 4% in 2010 versus 2009 (fell by 11% in 2009 versus 2008), while the AUD exchange rate increased by 19% and USD exchange rate increased by approximately 5% (2009: increased by 6%). The change in the value of the euro against these currencies positively impacted the Groups prot for the year ended 31 December 2010 by approximately 2.9m (2009: adversely impacted by approximately 3.3m), primarily from the increases in the value of GBP versus the euro (approximately 57% of the total positive impact) and AUD versus the euro (approximately 25% of the positive impact). The Groups interests in its Australian subsidiaries, whose functional currency is the Australian dollar, are not hedged. Transactions by these subsidiary companies are primarily AUD denominated. Gains and losses on the retranslation of the Groups net investment in AUD and GBP functional currency subsidiaries are included in the foreign currency translation reserve in equity. The gain on retranslation of cash and cash equivalent balances in the year ended 31 December 2010 was 5,194,000 (2009: loss of 2,228,000). Within the cash retranslation gains and losses are gains of 235,000 (2009: losses of 3,605,000) that have been included within other expenses in the income statement rather than as a nancial expense, as the directors consider that the gain or loss relates to operations as the Group broadly matches its foreign currency denominated assets and liabilities to ensure that foreign exchange gains and losses are minimised (as described above). Gains and losses on retranslation of non-cash assets and liabilities are also dealt with as operating items. Gains and losses on foreign currency retranslation are separately analysed into their components in the statement of cash ows, with further analysis presented in Notes 8 and 9. Interest rate risk During 2009, the acquisition of Sportsbet and IAS resulted in borrowings being consolidated in the Groups statement of nancial position. The Group acquired nance lease debt with the acquisition of a controlling interest in Sportsbet in July 2009. The acquisition of IAS resulted in the Group acquiring additional nance lease debt from IAS and also part funding the acquisition of IAS through a combination of secured bank debt and Sportsbet shareholder loans (both from the Paddy Power group and from the then 49% non-controlling shareholders in Sportsbet, according to their respective shareholdings). Finance lease debt, amounting to 1,260,000 at 31 December 2010 (2009: 1,887,000), is subject to repayment at xed rates of interest ranging from 8.7% to 16.0% (2009: 8.7% to 15.0%) and at a weighted average rate of interest of approximately 12.5% (2009: 11.9%). The secured nonrecourse bank debt of 2,284,000 at 31 December 2010 (2009: 11,453,000) is repayable on a quarterly basis up to 30 September 2012 and bears interest at the banks base rate plus a margin (at 31 December 2010 the total interest rate was 9.27% (2009: 7.89%)). During 2010, the Group repaid 6,598,000 of bank debt over and above the scheduled repayment amounts from surplus cash. The shareholder loans, which had a face value of 1,072,000 and a carrying value of 974,000 at 31 December 2010 (2009: face value of 3,682,000 and a carrying value of 3,181,000), are from the 39.2% (2009: 49%) non-controlling shareholders in Sportsbet and are non-interest bearing. During 2010, an amount of 3,067,000 was repaid to non-controlling shareholders in respect of these loans (2009: nil). No derivative nancial instruments are used to manage the interest rate risk inherent in the Groups borrowings. Excess cash funds are invested in short term interest-bearing bank deposits on which the interest rate is xed for the term of the deposit. Group treasury policy imposes limits on the terms over which cash can be placed on deposit. As a consequence of the nancial market instability in recent years and to minimise the credit risk of cash deposits, the Group has at times reduced the average maturity period of deposits placed and invested cash with nancial institutions with only the highest credit standing.
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Credit risk The Groups credit risk represents the risk that a nancial loss may result in the event that a counterparty to a nancial instrument, a trading partner or customers of the Australian businesses fail to meet their contractual obligations. Trade and other receivables The Groups sports betting and gaming businesses (excluding Australia) are cash and credit card/ debit card businesses where there is a requirement that the customer pays in advance when a transaction is entered into. An option for customers to avail of credit is normal practice in the Australian online and telephone sports betting markets. Accordingly, the Australian sports betting business model is one where credit is sometimes granted to customers. Trade receivables (after provisions for impairment) amounted to 5,508,000 at 31 December 2010 (2009: 6,391,000); included in this balance are receivables from credit betting customers (primarily in Australia) of 3,986,000 (2009: 4,230,000). Credit lines are provided to customers on a case by case basis for higher value customers or based on credit ratings for smaller value customers. Individual credit limits are decided upon by the credit control function in the rst instance after taking into account credit and background reference checks. The collectability of outstanding trade receivable balances is closely monitored by reference to aged receivables and other reports and any receivable balances considered to be uncollectible are provided against when identied. Trade and other receivables impairment allowances are established against individual receivable balances when there is objective evidence that such balances are likely to be uncollectible, either in full or in part. The impairment allowance also includes a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identied. There is no material concentration of sales with individual customers. Cash investments It is Group treasury policy to limit investments in cash deposits to counterparties that have a Moodys (or equivalent) long term credit rating of Aa3 or higher and a Moodys (or equivalent) short term credit rating of P1, unless otherwise specically approved by the Investment Committee (as at the date of this report there are specic approvals for a number of lower rated banks where they have been guaranteed by the Irish state or invested in by the UK government and are perceived by the Investment Committee to be systemically important). A list of approved counterparties is maintained by the Group. There are also limits on the percentage of total cash on deposit that can be invested with any individual counterparty. Management does not expect any counterparty to fail to meet its obligations as of the statement of nancial position date and the date of this report. There are also restrictions on the types of cash products that can be invested in. During 2009 and 2010, in response to nancial market instability, the Group at certain times restricted its cash deposit investments to counterparties that had higher credit ratings and shortened the maturities of deposits placed. The Group continues to carefully measure counterparty risk by monitoring credit agency ratings, Credit Default Swap (CDS) spread prices and other public information, and to take action to mitigate such risks as are identied. Guarantees The Groups policy is generally to only provide guarantees in respect of certain commitments of wholly-owned subsidiaries of the Group. The guarantees entered into are generally in respect of certain third party obligations of subsidiaries, such as overdraft facilities. As of 31 December 2010, there were no amounts outstanding in the consolidated nancial statements under these guarantees (2009: nil). The Group has put in place certain third party bank guarantees in favour of the Isle of Man and Maltese gambling regulatory bodies. These guarantees (which are more fully described in Note 31) are required by the terms of gambling licences and cover the value of player funds held by certain Group companies. In addition, our Australian business has a number of third party guarantees (see also Note 31 for further details). Certain of these guarantees have been partly or fully cash backed by cash deposits which have been classied as either non current or current nancial assets depending on when the relevant restrictions rst end (see Note 18). The Australian corporate sports bookmaking licences issued to Sportsbet and IAS require those companies to hold sufcient liquid funds to cover monies owed to customers. At 31 December 2010, the total amount of relevant customer balances attributable to the Australia operating segment was 23,562,000 (AUD30,951,000) (2009: 15,943,000 (AUD25,522,000)) and total cash balances amounted to 31,001,000 (AUD40,723,000) at that date (2009: 19,114,000 (AUD30,598,000)).
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Liquidity risk This represents the risk that the Group will not be able to meet its nancial obligations as they fall due. The Groups policy for liquidity management is to ensure that there is sufcient liquidity in place to meet its liabilities as they fall due, both under normal or potential adverse conditions, and without resulting in undue loss or damage to the Group. The Group performs regular cash projections to ensure that there is sufcient cash on hand to meet its expected obligations as they fall due. The nature of the Groups business and the potential volatility in sporting results can result in signicant differences between expected and actual short term cash ows. Consequently, a conservative approach is applied to cash forecasting and exibility is built into the forecast to cover potentially adverse sporting results. Cash deposit placement time periods are decided upon by reference to cash inows forecast and expected requirements in respect of the Groups nancial obligations. The Groups treasury policy sets a maximum maturity on deposits of nine months. The overall maturity of deposits at 31 December 2010 and 2009 is set out in Note 18. It is the directors belief that the Groups cash deposit balances can be withdrawn without signicant penalty. The Group has the following lines of credit: Loan facility of 8.9m (AUD11.7m) from National Australia Bank secured on the assets of Sportsbet (on a non recourse to shareholders basis), of which 2.3m (AUD3.0m) was drawn at 31 December 2010 (2009: 11.5m (AUD18.3m)). This loan facility relates to the part funding of the acquisition of IAS by Sportsbet. The loan facility reduces and repayment is required in the amount of 1.3m (AUD1.7m) each quarter until 30 September 2012 at which time the facility expires. The original loan facility amount was 15.2m (AUD20.0m). The loan bears interest at the banks base rate plus a margin of 3.0% (2009: 3.0%). Shareholder loans from the non-controlling shareholders in Sportsbet with a face value of 1.1m (AUD1.4m) and a carrying value of 1.0m (AUD1.3m) which were fully drawn down at 31 December 2010 (2009: face value of 3.7m (AUD5.9m) and a carrying value of 3.2m (AUD5.1m)). These loans part funded the acquisition of IAS by Sportsbet. The loans are non-interest bearing. Unsecured uncommitted bank overdraft facilities for working capital purposes totalling 7.5m. Interest is payable thereon at the banks prime overdraft rate. Bank overdraft facilities for certain subsidiaries of the Company are guaranteed by way of a Letter of Guarantee issued by Paddy Power plc in favour of Allied Irish Banks plc. Unsecured uncommitted bank overdraft facilities for working capital purposes totalling GBP6.5m (7.6m). Interest is payable thereon at the banks sterling base rate plus 0.5%. Bank overdraft facilities for certain subsidiaries of the Company are guaranteed by way of a Letter of Guarantee issued by Paddy Power plc in favour of AIB Group (UK) plc. At 31 December 2010, none of the bank overdraft facilities were being utilised. Capital management The Group has historically funded its operations through internally generated cash. Borrowings do not form part of its capital structure, apart from the consolidation of debt within its majority-owned subsidiaries in Australia during 2009 and 2010. The Groups nancing and capital structure is kept under review by the Board. The Board is committed to capital discipline; however in the current environment a strong cash balance gives Paddy Power nancial strength and exibility for expansion organically or via acquisition, thereby creating more opportunity for the Group. Subsequent to the year end, a material amount of the Groups cash was invested in buying out the remaining 39.2% non-controlling shareholders in Sportsbet see Note 34 for further information. The Group has the authority to buy back up to ten percent of the Companys issued share capital between the dates of its Annual General Meetings (AGMs), subject to the annual approval of its shareholders at the Companys AGM. No shares were acquired under this authority in 2010 or 2009. Shares bought back may either be cancelled or held in treasury. Since its rst share buybacks in 2007, a total of 3,873,443 of the Companys own shares have been bought back at an average share price of 21.11, of which 2,139,443 were cancelled and the remaining 1,734,000 are held in treasury. The Companys ordinary shares are also acquired on the market periodically by the Paddy Power plc Employee Benet Trust (the Trust) to meet the Trusts obligations under share award schemes. These shares are held by the Trust and ownership is transferred to the Trusts beneciaries if and when the related share awards vest. There were no signicant changes in the Groups approach to capital management during 2010.
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Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements, with the exception of certain restrictions placed on Sportsbets ability to distribute prots under the terms of its secured loan agreement with National Australia Bank (see further in Note 25). In the year ended 31 December 2010, the Group earned a return on capital of 46.6% (2009: 40.0%). Capital is dened by the Group as total equity attributable to equity holders of the Company. Return on capital is calculated by dividing the prot for the year attributable to equity holders of the Company (90,005,000 (2009: 56,946,000)) by the average capital attributable to the equity holders of the Company for the year. Average capital is calculated by taking the average of the start and end of year capital balances (the average of 157,563,000 and 228,439,000 respectively, being 193,001,000 (2009: average of 127,240,000 and 157,563,000 respectively, being 142,401,000)).
4. Operating segments
The income, operating prot and net assets of the Group relate to the provision of betting and gaming activities, the majority of which are conducted in the United Kingdom (UK), Australia and the Republic of Ireland. Income Income for the years ended 31 December 2010 and 2009 is analysed as follows:
2010 000 2009 000
Income in respect of sportsbook and gaming activities Other commission and fee revenue (included in non retail income) Total income
428,651 14,876 443,527
282,972 12,956 295,928
As more fully described in our accounting policies, betting activities are considered to be derivative nancial instruments as set out in IAS 39. Other commission and fee revenue is earned from peer to peer gaming, nancial spread betting and business-to-business services and, as these activities do not involve customers taking a direct position against the Group, such revenue is not classied as income from derivative nancial instruments. The Groups reportable segments are divisions that are managed separately, due to a combination of factors including method of service delivery (online, retail shops, telephone), geographical segmentation and the different services provided. (a) Reportable business segment information The Group considers that its reportable segments are as follows: - Online (ex Australia); - Australia; - Irish retail; - UK retail; and - Telephone (ex Australia). The online (ex Australia), Irish retail, UK retail and telephone (ex Australia) segments all derive their revenues primarily from sports betting and gaming (gaming machines, casino, poker, games, bingo and nancial spread betting). Online (ex Australia) services are delivered primarily through the internet, telephone (ex Australia) through the public telephony system and Irish and UK retail through licensed bookmaking shop estates. The online (ex Australia) and telephone (ex Australia) segments derive their revenues primarily from the UK and Ireland, the Irish retail segment from retail outlets in the Republic of Ireland and UK retail from retail outlets in Great Britain and Northern Ireland. The Australia segment earns its revenues primarily from sports betting services provided to Australian customers using both the internet and the public telephony system.
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4. Operating segments (continued)

The accounting policies of the reportable segments are the same as those described in the summary of signicant accounting policies set out in Note 2 above. Central operating expenses are allocated to reportable segments based on internal management allocation methodologies. Any expenses that are not directly allocated to reportable segments in internal management reports are shown in the reconciliation of reportable segments to Group totals. The Group does not allocate income tax expense or interest. Treasury management is centralised for the online (ex Australia), Irish retail, UK retail and telephone (ex Australia) segments. The Australia segment manages its own treasury function. Assets and liabilities information is reported internally in total and not by reportable segment and, accordingly, no information is provided in this note on assets and liabilities split by reportable segment. Reportable business segment information for the year ended 31 December 2010
Online (ex Australia) 000 Telephone (ex Australia) 000 Total reportable segments 000
Australia 000
Irish retail 000
UK retail 000
Income from external customers, being total income Direct betting costs Gross prot Depreciation and amortisation Other operating expenses Reportable segment prot
163,662 (20,666) 142,996 (4,451) (81,081) 57,464
97,037 (21,762) 75,275 (4,040) (51,745) 19,490
109,637 (9,315) 100,322 (9,215) (73,481) 17,626
54,220 (8,443) 45,777 (5,470) (32,942) 7,365
18,971 (70) 18,901 (1,102) (15,995) 1,804
443,527 (60,256) 383,271 (24,278) (255,244) 103,749
Reportable business segment information for the year ended 31 December 2009
Online (ex Australia) 000 Telephone (ex Australia) 000 Total reportable segments 000
Australia 000
Irish retail 000
UK retail 000
Income from external customers, being total income Direct betting costs Gross prot Depreciation and amortisation Other operating expenses Reportable segment prot / (loss)
107,788 (13,202) 94,586 (2,254) (46,642) 45,690
31,820 (9,527) 22,293 (1,673) (16,058) 4,562
106,042 (9,814) 96,228 (8,816) (71,063) 16,349
35,353 (5,411) 29,942 (4,505) (24,175) 1,262
14,925 14,925 (865) (15,229) (1,169)
295,928 (37,954) 257,974 (18,113) (173,167) 66,694
Reconciliation of reportable segments to Group totals

2010 000 2009 000
Income Total income from reportable segments, being total Group income (1) Prot and loss Total prot and loss from reportable segments Unallocated amounts: Financial income non-Australia (2) Financial income Australia Financial income Australia Sportsbet buyout call options (3) Financial expense non-Australia (2) Financial expense Australia Prot before tax
443,527
295,928
103,749 411 1,368 7,116 (235) (1,109) 111,300
66,694 723 177 (126) (276) 67,192
(1) There are no inter-segment revenues or prots requiring elimination in any of the reporting years. (2) The non-Australia segment comprises the online (ex Australia), Irish retail, UK retail and telephone (ex Australia) operating segments. Financial expense relating to this segment is primarily in respect of guarantee fees payable. (3) Included in nancial income in respect of the Australia segment is 7,116,000 of income relating to the increase in the fair value of the Sportsbet buyout call options see Notes 8 and 15.
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4. Operating segments (continued)

(b) Geographical segment information The Group considers that its primary geographic segments are UK, Australia and Ireland and rest of world. The UK geographic segment consists of the UK retail bookmaking business, online and telephone sports betting from UK customers, and online gaming from UK customers. The Australia geographic segment consists of online and telephone sports betting from Australian customers. The Ireland and rest of world geographic segment is composed of the Irish retail bookmaking business, online and telephone sports betting from Irish and rest of world customers, and online gaming from Irish and rest of world customers. Revenues from customers outside the UK, Australia and Ireland are not considered sufciently signicant to warrant separate reporting. Group revenues by geographical segment are as follows: Income
2010 000 2009 000
UK Australia Ireland and rest of world Total (a) Revenues are attributed to geographical location on the basis of the customers location. (b) Revenues from any single customer do not amount to ten per cent or more of the Groups revenues. Non current assets (excluding deferred tax balances) by geographical segment are as follows: Non current assets
167,416 97,037 179,074 443,527
103,131 31,820 160,977 295,928
2010 000
2009 Restated 000
UK Australia Ireland and rest of world Total
64,491 96,564 54,955 216,010
60,450 71,843 54,976 187,269
5. Direct betting costs

Direct betting costs comprise:
2010 000 2009 000
Betting taxes Software supplier costs Other direct betting costs Direct betting costs
22,420 12,580 25,256 60,256
16,903 9,178 11,873 37,954
Betting taxes comprise betting taxes levied on gross win, betting taxes levied on Irish retail and Australia segment amounts staked and general sales tax (GST) on Australia segment gross win. Software supplier costs comprise direct costs incurred under supplier agreements for the provision of online casino, poker, bingo, xed odds gaming services and FOBTs. Other direct betting costs comprise payments to third parties for new online customers acquired, data rights which mainly comprise costs incurred in respect of British Horseracing Board and UK statutory levies, product and raceeld fees payable to Australian state racing authorities, prize and tournament costs, customer bad debt charges and other miscellaneous direct betting costs.
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6. Employee expenses and numbers

2010 000 2009 000
Wages and salaries Social security costs Dened contribution pension and life assurance costs Share-based payments (Note 21) Other staff costs
94,588 11,801 3,338 13,427 6,729 129,883

2010
70,949 6,995 2,338 5,841 4,023 90,146

2009
The average number of persons employed by the Group (including executive directors), all of whom were involved in the provision of sports betting and gaming services, during the year was
2,350
2,109
7. Directors emoluments and transactions with key management personnel

Included in directors emoluments are the following emoluments in respect of directors who were in ofce during the year:
Fees 000 Salary 000 Pension costs 000 Benets 000 Annual bonus 000 Total 2010 000 Total 2009 000
Executive Patrick Kennedy (1) Breon Corcoran Jack Massey Non-executive Nigel Northridge (2) Tom Grace (3) Fintan Drury Stewart Kenny Jane Lighting (4) Pdraig Rordin (5) David Power (6) William Reeve (7) Brody Sweeney Cost of shares vested from Long Term Incentive Plan 777 1.
678 460 300
203 69 60
45 12 28
491 244 159
1,417 785 547
1,422 827 555
200 90 70 70 70 82 82 43 70 777
1,438
332
85
894
200 90 70 70 70 82 82 43 70 3,526 3,296 6,822
200 90 70 70 23 82 82 70 3,491 2,768 6,259
1,438
332
85
894
2. 3. 4. 5. 6. 7.
Patrick Kennedy is a non-executive director of Elan Corporation, plc for which he received fees of 56,794 in the year ended 31 December 2010 (2009: 53,338). He was also awarded 23,855 (2009: 7,500) Restricted Stock Units over Elan Corporation, plc shares. In July 2010, he was appointed as non-executive director of Bank of Ireland for which he received fees of 30,784 in the year. Nigel Northridge was appointed Chairman of the Company on 1 January 2009. Tom Grace is Chairman of the Audit Committee. Jane Lighting was appointed to the Board on 1 September 2009. Pdraig Rordin is Chairman of the Remuneration Committee. David Power is Chairman of the Risk Committee. William Reeve was appointed to the Board on 19 May 2010.
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7. Directors emoluments and transactions with key management personnel (continued)

Benets provided to executive directors include provision of a company car or car allowance, life and medical insurance. Not included in the above table are accruals made in respect of the long term incentive bonus plan and share-based payment costs in respect of unvested shares in the Groups Long Term Incentive Plan (see Note 21). Details of the number and value of shares vested to executive directors from the Long Term Incentive Plan during the year are set out in the Directors Report on page 46. Other transactions with directors There were no loans outstanding to any director at any time during the year. Details of directors interests in share awards and share options are set out on page 46. Other related party transactions between the Group and the directors, all of which were conducted on an arms length basis and on normal commercial terms, are set out below. In addition to the directors emoluments disclosed above, in the year ended 31 December 2010 directors were paid the following: Stewart Kenny received 80,000 (2009: 80,000) in respect of consulting fees. Pdraig Rordin is Managing Partner of Arthur Cox. During the year ended 31 December 2010, the Group incurred fees of 172,815 (2009: 148,285) relating to legal and taxation advice received from Arthur Cox. The Group engages in transactions with David Power in his capacity as an on-course bookmaker. In aggregate, the Group placed bets losing 33,422 (2009: winning 18,023) with Richard Power On-Course Bookmakers and that rm placed bets with the Group winning 24,444 (2009: winning 25,135). The Group paid rent of 38,727 (2009: 38,727) during the year for retail properties owned by David Power and occupied by the Group under long term leases. Transactions with key management personnel comprising executive and other senior management Key management personnel compensation is as follows:
2010 000 2009 000
Wages and salaries Social security costs Dened contribution pension and life assurance costs Provision for executive director long term incentive bonus plan (1) Share-based payments Non-executive directors fees Other staff costs
5,651 633 634 597 8,798 777 216 17,306
4,434 569 562 792 3,015 687 205 10,264
2010 000
2009 000
Executive directors (excluding share-based payments) Non-executive directors Other key management personnel Provision for executive director long term incentive bonus plan (1) Social security costs Share-based payments
2,805 777 3,752 597 633 8,798 17,306
2,805 687 2,396 792 569 3,015 10,264
(1) An amount of 597,000, accrued by the Group in respect of Breon Corcorans long term incentive bonus plan for the year ended 31 December 2010 (2009: 792,000), has not been included in the table of directors emoluments on page 88. As set out in the Remuneration Committee Report on pages 59 and 60, no payment obligation has crystallised under the plan at this point and payment is dependent on the online (ex Australia) and telephone (ex Australia) divisions, and the Australia division, achieving very challenging operating prot targets in the year ended 31 December 2012 and year ended 30 June 2012, respectively. However, the provision represents the Groups best estimate of the most likely amount payable.
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8. Financial income and expense

2010 000 2009 000
Recognised in prot or loss: Financial income: On nancial assets at amortised cost: Interest income on short term bank deposits On derivative nancial instruments at fair value through prot or loss: Increase in fair value of Sportsbet buyout call options (Note 15) Financial income Financial expense: On nancial liabilities at amortised cost: Bank loans Bank guarantees Finance leases Unwinding of the discount on provisions and other non current liabilities Financial expense
1,779 1,779 7,116 7,116 8,895
900 900 900
783 132 198 231 1,344
247 113 29 13 402
2010 000
2009 Restated 000
Recognised in other comprehensive income: Foreign exchange gain on revaluation of the net assets of foreign currency denominated subsidiaries 12,667 12,667 1,037 1,037
9. Statutory and other information

2010 000 2009 000
Directors emoluments Auditors remuneration for audit services Depreciation owned assets Depreciation leased assets Impairment charges property, plant and equipment owned Impairment reversals property, plant and equipment owned Amortisation of intangible assets Impairment charges intangible assets Impairment reversals intangible assets (Gain) / loss on disposal of property, plant and equipment and intangible assets Foreign currency exchange (gain) / loss cash and cash equivalents Foreign currency exchange loss / (gain) other monetary items Operating lease rentals, principally premises Research and development Operating lease income (representing sub-lease income)
6,822 396 16,580 1,146 662 (566) 6,448 28 (20) (12) (235) 412 15,856 405 (278)
6,259 240 14,201 254 384 (694) 3,165 803 75 3,605 (3,377) 13,269 200 (141)
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9. Statutory and other information (continued)

Remuneration to Group external auditors (KPMG Dublin) In accordance with the requirements of Regulation 120 of Statutory Instrument 220/2010, European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010, the auditor remuneration gures presented below represent fees paid to KPMG Dublin only and are exclusive of value added tax. Audit relates to the audit of the Group nancial statements only. Audit fees in relation to the audit of subsidiary companies by KPMG Dublin are classied as other assurance services.
2010 000 2009 000
Audit Other assurance services audit of subsidiaries Other assurance services miscellaneous Tax advisory services Other non-audit services Total
145 50 21 334 550
105 55 10 305 475
Further analysis of the total fees paid to the Group auditor, KPMG, worldwide for audit and non-audit services is presented below: Analysis of total auditors remuneration for audit services
2010 000 2009 000
Audit of Group (KPMG Dublin) Audit of other subsidiaries (KPMG Dublin) Value added tax on audit fees Group and other subsidiaries (KPMG Dublin) Audit of other subsidiaries (other KPMG ofces) Other assurance services miscellaneous Total Analysis of amounts paid to the auditor in respect of non-audit services
145 50 41 147 13 396
105 55 34 43 3 240
2010 000
2009 000
Tax advisory services (KPMG Dublin) Value added tax on fees tax advisory services (KPMG Dublin) Tax advisory services (other KPMG ofces) Assurance services Total Tax advisory once-off acquisition (included above) Total excluding once-off acquisition costs
334 70 28 18 450 (55) 395
305 64 6 7 382 (78) 304
10. Income tax expense

2010 000 2009 000
Recognised in prot or loss: Current tax charge Prior year over provision Deferred tax (credit) / charge Prior year over provision (Decrease) / increase in net deferred tax liability (Note 22) Total income tax expense in income statement 16,969 (24) 16,945 (1,573) (806) (2,379) 14,566 9,120 (449) 8,671 451 (405) 46 8,717
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10. Income tax expense (continued)

The difference between the total income tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the prot before tax is as follows:
2010 000 2009 000
Prot before tax Tax on Group prot before tax at the standard Irish corporation tax rate of 12.5% (2009: 12.5%) Depreciation on non-qualifying property, plant and equipment Effect of different statutory tax rates in overseas jurisdictions UK tax loss deferred tax asset recognised UK tax loss deferred tax asset utilised in year Other differences Interest income taxable at higher rates Over provision in prior year Total income tax expense
111,300
67,192
12.5% 0.8% 1.3% (1.6%) 0.7% 0.1% 0.0% (0.7%) 13.1%
13,912 872 1,417 (1,770) 776 154 35 (830) 14,566
12.5% 1.3% 0.1% 0.0% 0.0% 0.3% 0.1% (1.3%) 13.0%
8,399 834 59 199 80 (854) 8,717
Unrecognised deferred tax assets In previous reporting periods, a deferred tax asset was not recognised in respect of tax losses related to the Groups retail operations in Great Britain (GB retail) as it was not certain whether taxable prots would be generated against which to offset these losses. The value of this unrecognised deferred tax asset at 31 December 2009 was 1,770,000. Given the improved protability performance of the GB retail business in 2010, the directors believe that it is now appropriate to recognise this deferred tax asset. Accordingly, the 1,770,000 has been credited to the income statement in the year ended 31 December 2010. During 2010, an amount of 776,000 of this asset was utilised against taxable GB retail prots arising in the year. No signicant changes are expected to statutory tax rates in Ireland. As announced on 23 March 2011, UK statutory tax rates are expected to reduce from 28% to 26% in April 2011 and by a further 1% per annum up to April 2014 when the tax rate will be 23%. Statutory tax rates in Australia are expected to be reduced from the current 30% to 29% for the year ended 30 June 2014 and to 28% for the year ending 30 June 2015 and thereafter.
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11. Earnings per share

Earnings per share is calculated by dividing the prot attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year as follows:
2010 2009
Numerator in respect of basic and diluted earnings per share (000): Prot attributable to equity holders of the Company Numerator in respect of adjusted earnings per share (000): Prot attributable to equity holders of the Company Less: Sportsbet buyout call options value change (Note 8) Less: UK tax losses deferred tax asset recognition (Note 10) Prot for adjusted earnings per share calculation Denominator in respect of basic earnings per share: Ordinary shares in issue at beginning of year Adjustments for weighted average number of: - ordinary shares issued during year - ordinary shares purchased and cancelled or held in treasury - ordinary shares held by long term incentive plan trust Weighted average number of ordinary shares Basic earnings per share Adjusted earnings per share Denominator in respect of diluted earnings per share: Basic weighted average number of ordinary shares in issue during year Adjustments for dilutive effect of share option schemes, sharesave scheme, share award schemes and shares held by long term incentive plan trust Weighted average number of ordinary shares Diluted earnings per share Adjusted diluted earnings per share
90,005
56,946
90,005 (7,116) (1,770) 81,119
56,946 56,946
49,767,339
49,270,742
64,992 173,731 (1,734,000) (1,734,000) (1,387,159) (978,296) 46,711,172 46,732,177 1.927 1.737 1.219 1.219
46,711,172 1,329,728 48,040,900 1.874 1.689
46,732,177 429,425 47,161,602 1.207 1.207
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12. Property, plant and equipment

Land, buildings & leasehold improvements 000 Fixtures & ttings 000 Computer equipment 000 Motor vehicles 000
Total 000
Cost Balance at 1 January 2009 Additions Additions business combinations (Note 16) Disposals Foreign currency retranslation adjustment Balance at 31 December 2009 Additions Additions business combinations (Note 16) Disposals Transfers (Note 13) Foreign currency retranslation adjustment Balance at 31 December 2010 Depreciation and impairment Balance at 1 January 2009 Depreciation charges Impairment reversals Disposals Foreign currency retranslation adjustment Balance at 31 December 2009 Depreciation charges Impairment charges Disposals Foreign currency retranslation adjustment Balance at 31 December 2010 Net book value At 31 December 2010 At 31 December 2009
50,782 5,207 887 (90) 209 56,995 3,350 (19) 215 636 61,177
76,100 8,343 248 (211) 159 84,639 7,935 1,046 (164) (178) 132 93,410
19,001 4,624 3,333 (215) 255 26,998 6,754 (17) (1,398) 1,062 33,399
1,163 69 38 (10) 3 1,263 139 (574) 8 836
147,046 18,243 4,506 (526) 626 169,895 18,178 1,046 (774) (1,361) 1,838 188,822
16,240 2,514 (82) (22) 55 18,705 3,294 86 (13) 211 22,283
46,291 9,069 (215) (134) 42 55,053 9,594 4 (120) 51 64,582
16,031 2,686 (13) (20) 95 18,779 4,565 6 (16) 390 23,724
443 186 2 631 273 (472) 3 435
79,005 14,455 (310) (176) 194 93,168 17,726 96 (621) 655 111,024
38,894 38,290
28,828 29,586
9,675 8,219
401 632
77,798 76,727
The net book value of land, buildings and leasehold improvements at 31 December 2010 includes 34.7m (2009: 33.8m) in respect of leasehold improvements. At 31 December 2010, included in leasehold improvements are assets held under nance leases with a cost value of 2,685,000 (2009: 2,097,000), accumulated depreciation of 976,000 (2009: 367,000) and net book value of 1,709,000 (2009: 1,730,000). At 31 December 2010, included in computer equipment are assets held under nance leases with a cost value of 1,982,000 (2009: 1,457,000), accumulated depreciation of 1,228,000 (2009: 452,000) and net book value of 754,000 (2009: 1,005,000). The impairment credits and charges relate to the Irish retail and UK retail operating segments and have arisen from a review of the carrying value of shop properties. The recoverable amounts used in the calculation of Irish retail and UK retail operating segment impairment credits and charges are based on value in use. The pre-tax discount rate used to determine value in use was 10% (2009: 10%). The impairment charge of 96,000 (2009: credit of 310,000) recorded in the year ended 31 December 2010 includes 662,000 relating to new impairment charges and is stated net of impairment reversals of 566,000 (2009: 384,000 relating to new impairment charges and is stated net of impairment reversals of 694,000). The impairment credits and charges are included in depreciation and amortisation in the consolidated income statement. The directors do not consider the remaining useful lives of property, plant and equipment to be materially different from the period over which the assets are being depreciated.
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13. Intangible assets

The movements during the prior year and current year in respect of intangible assets, which comprise computer software, licences and brands (all acquired), were as follows:
Computer software Restated 000 Licences 000 Brands 000 Total Restated 000
Cost Balance at 1 January 2009 Additions Additions business combinations (Note 16) Disposals Foreign currency retranslation adjustment Balance at 31 December 2009 Additions Disposals Transfers (Note 12) Foreign currency retranslation adjustment Balance at 31 December 2010 Amortisation and impairment Balance at 1 January 2009 Amortisation charges Impairment charges Disposals Foreign currency retranslation adjustment Balance at 31 December 2009 Amortisation charges Impairment charges / (reversals) Disposals Foreign currency retranslation adjustment Balance at 31 December 2010 Net book value At 31 December 2010 At 31 December 2009
18,005 2,725 1,965 (20) 99 22,774 6,594 (24) 1,463 850 31,657
26,596 596 (2,280) 24,912 119 (12) (102) 648 25,565
13,743 999 14,742 3,224 17,966
44,601 3,321 15,708 (20) (1,182) 62,428 6,713 (36) 1,361 4,722 75,188
11,322 2,669 803 21 14,815 5,796 (10) (12) 258 20,847
1,667 496 2,163 652 18 (2) 2,831
12,989 3,165 803 21 16,978 6,448 8 (14) 258 23,678
10,810 7,959
22,734 22,749
17,966 14,742
51,510 45,450
The value of betting shop licences of 20,610,000 (2009: 19,975,000) acquired as a result of the purchase of D McGranaghan Limited in 2008 are not being amortised as the directors consider these licences to have an indenite life because: existing law in Northern Ireland restricts entry of new competitors; there exists a proven and future expected demand for bookmaking services and products; and Paddy Power has a track record of renewing its betting permits and licences at minimal cost. The value of brands intangible assets recognised on application of fair value accounting to the purchase of Sportsbet and IAS in 2009 (amounting to 17,966,000 at 31 December 2010 (2009: 14,742,000) see Note 16) are not being amortised as the directors consider that the relevant brands have indenite lives because: the directors intend to utilise the brands in the businesses for the foreseeable future; and substantial sums are invested annually in the form of marketing expenditure expensed through prot or loss to maintain and to enhance the value of these brands. The Group reviews the carrying value of licences and brands for impairment annually (or more frequently if there are indications that the value of the licences and brands may be impaired) by comparing the carrying values of these assets with their recoverable amounts (being the higher of value in use and fair value less costs to sell).
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13. Intangible assets (continued)

In 2010, a net impairment charge of 8,000 was recorded relating to the Irish retail and UK retail operating segments and was comprised of new impairment charges of 28,000 and the reversal of previously recorded charges of 20,000. The impairment charges and credits arose from a review of the carrying values of shop properties. The recoverable amounts used in the calculation of Irish retail and UK retail operating segment impairment charges were based on value in use. The pre-tax discount rate used to determine value in use was 10%. The impairment charge in respect of the year ended 31 December 2009 of 803,000 related to certain computer software costs recognised on the acquisition of Sportsbet. The directors believed that the computer software would not be used on a long term basis by the Australia operating segment and that the recognition of an impairment charge for the full value of the computer software at 31 December 2009 was appropriate. The impairment charges and credits are included in depreciation and amortisation in the consolidated income statement.
14. Goodwill
The following cash generating units, being the lowest level of asset for which there are separately identiable cash ows, have the following carrying amounts of goodwill:
Irish retail 000 UK retail 000 Australia Restated 000 Total Restated 000
Balance at 1 January 2009 Arising on acquisitions during the year (Note 16) Foreign currency retranslation adjustment Balance at 31 December 2009 Arising on acquisitions during the year (Note 16) Foreign currency retranslation adjustment Balance at 31 December 2010
5,923 1,144 7,067 1,140 8,207
9,080 (832) 8,248 1,517 231 9,996
45,703 2,493 48,196 10,568 58,764
15,003 46,847 1,661 63,511 2,657 10,799 76,967
Goodwill on Irish retail properties arose from the amalgamation of three bookmaking businesses to form Paddy Power plc in 1988, the acquisition of three retail bookmaking businesses in 2007 and the acquisition of a number of retail bookmaking shop properties in both 2009 and 2010 (see Note 16). Goodwill on UK retail properties arose from the acquisition of two London bookmaking businesses in 2004, the acquisition of a retail bookmaking company in Northern Ireland in 2008 and the acquisition of a number of retail bookmaking shop properties in 2010 (see Note 16). The Australia segment goodwill amount arose from the acquisition by the Group of a 51% interest in Sportsbet Pty Limited (Sportsbet) on 1 July 2009 and the acquisition of International All Sports Limited (IAS) by Sportsbet on 1 October 2009 (see Note 16). Impairment tests for cash generating units containing goodwill and indenite life intangible assets In accordance with accounting requirements, the Group performs an annual test for impairment of its cash generating units. The most recent test was performed at 31 December 2010.
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14. Goodwill (continued)

The Groups operating segments include the following amounts in respect of goodwill and indenite life intangible assets (comprising licences acquired as part of the purchase of the D McGranaghan Limited business in 2008 and brands acquired as part of the purchase of Sportsbet and IAS in 2009 see Notes 13 and 16):
31 December 2010 Total 000 31 December 2009 Total Restated 000
Irish retail amalgamation of three bookmaking businesses in 1988 Irish retail acquisition of three bookmakers in 2007 Irish retail acquisition of bookmaking business in 2009 Irish retail acquisition of bookmaking businesses in 2010 UK retail 2004 acquisitions UK retail Northern Ireland acquisition 2008 UK retail acquisition of bookmaking businesses in 2010 Australia Sportsbet acquisition 2009 Australia IAS acquisition 2009 Total UK retail Northern Ireland acquisition 2008 Australia Sportsbet acquisition 2009 Australia IAS acquisition 2009 Total
Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Intangible assets licences Intangible assets brands Intangible assets brands Goodwill, licences and brands
904 5,019 1,144 1,140 976 7,503 1,517 36,157 22,607 76,967 20,610 12,713 5,253 115,543
904 5,019 1,144 976 7,272 29,645 18,551 63,511 19,975 10,432 4,310 98,228
The details of the impairment reviews in respect of the operating segments above as of 31 December 2010 are presented below:
31 December 2010 000 31 December 2009 000
Irish retail goodwill
8,207
7,067
The recoverable amount of the Irish retail operating segment underlying cash generating units was estimated based on value in use calculations. These calculations use cash ow projections based on actual operating results and nancial budgets and forecasts approved by management covering a ve year period. Cash ow growth for the extrapolated period (following the initial ve year period) is projected to be approximately 2% (2009: 2%) per annum and is based on weighted average income growth rates of 2% to 3% (2009: 2% to 3%) and gross win rates of 13% to 14% (2009: 13% to 14%), which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. The growth rate assumption is considered realistic by management in light of the recent performance of the Group and the Groups targeted performance over the next ve years. It is assumed, and management have no reason to expect otherwise, that the Group will continue to trade in locations currently occupied by the underlying cash generating units for the foreseeable future. A pre-tax discount rate of 10% (2009: 10%), which reects the specic risks and currency of the cash ows relating to the underlying business segments, has been used in discounting the projected cash ows. Management believe that any reasonably possible change in the key assumptions on which the Irish retail operating segment goodwill recoverable amount is based would not cause its carrying amount to exceed its recoverable amount.
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UK retail goodwill and licences
30,606
28,223
The recoverable amount of the UK retail operating segment underlying cash generating units was estimated based on value in use calculations. These calculations use cash ow projections based on actual operating results and nancial budgets and forecasts approved by management covering a ve year period. Cash ow growth for the extrapolated period (following the initial ve year period) is projected to be approximately 2% (2009: 2%) per annum and is based on weighted average income growth rates of 2% to 3% (2009: 2% to 3%) and gross win rates of 11% to 13% (2009: 12% to 13%), which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. The growth rate assumption is considered realistic by management in light of the recent performance of the Group and the Groups targeted performance over the next ve years. It is assumed, and management have no reason to expect otherwise, that the Group will continue to trade in locations currently occupied by the underlying cash generating units for the foreseeable future. A pre-tax discount rate of 10% (2009: 10%), which reects the specic risks and currency of the cash ows relating to the underlying business segments, has been used in discounting the projected cash ows. Management believe that any reasonably possible change in the key assumptions on which the UK retail operating segment goodwill and licences recoverable amounts are based would not cause their carrying amounts to exceed their recoverable amounts.
31 December 2010 000 31 December 2009 Restated 000
Australia goodwill and brands
76,730
62,938
The recoverable amount of the Australia operating segment underlying cash generating units was estimated based on value in use calculations. These calculations use cash ow projections based on actual operating results and nancial budgets and forecasts approved by management covering a ve year period. Cash ow growth for the extrapolated period (following the initial ve year period) is projected to be approximately 3% (2009: 3%) per annum and is based on a weighted average income growth rate of 3% (2009: 3%) and a gross win of 8% (2009: 7%), which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. The growth rate assumption is considered realistic by management in light of the recent performance of the Group and the Groups targeted performance over the next ve years. A pre-tax discount rate of 13% (2009: 13%), which reects the specic risks and currency of the cash ows relating to the underlying business segments, has been used in discounting the projected cash ows. Management believe that any reasonably possible change in the key assumptions on which the Australia operating segment goodwill and brands recoverable amounts are based would not cause their carrying amounts to exceed their recoverable amounts. The primary assumptions used by management in assessing the recoverable amounts of the relevant cash generating units during the initial ve year review period are as follows:
Irish retail UK retail Australia
Growth in number of bets per annum (on compound annual growth rate basis) Growth in average stake per bet per annum (on compound annual growth rate basis) Growth in amounts staked (on compound annual growth rate basis) Gross win % (average and as percentage of amounts staked) Cost of sales % (of amounts staked) Cost ination per annum
+2% 0% n/a 13% 1% +2%
+1% to +2% 0% to +1% n/a 12% to 13% 2% to 3% +2%
n/a n/a +7% 8% 2% +7%
98
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The assumptions above are based on past experience of the Groups businesses, managements expectations for market development, growth in market share, gross win margin percentages and cost ination for the ve year period. The discount rate applied to the cash ows is based on the risk free rate for ten years plus government bonds, adjusted for a risk premium that reects both the increased risk of investing in equities and the systemic risk of the cash generating units. The risk premium is calculated using the equity market risk premium (being the increased return required by investors in the equity market as a whole over and above the risk free rate available) and the risk adjustment applied to reect the risk of the specic cash generating unit relative to the market as a whole. The discount rates reect the market conditions applicable to the Group and to the particular cash generating units being reviewed. Based on the reviews as described above, no impairment has arisen.
15. Financial assets (non current)

Derivative nancial assets Sportsbet buyout call options Other nancial assets Restricted cash (see Note 18) Available-for-sale investments Total The movements during the prior year and current year in respect of nancial assets were as follows:
Sportsbet buyout call options Restated 000 Restricted cash 000
6,978 6,978 2,757 2,757 9,735
1,581 1,581 1,581
Available-for-sale investments 000
Total Restated 000
Balance at 1 January 2009 Business combinations acquisition of Sportsbet Movements in fair value of available-for-sale investments Foreign currency retranslation adjustment Business combinations acquisition of IAS Balance at 31 December 2009 Change in fair value of Sportsbet buyout call options Foreign currency retranslation adjustment Other movements Balance at 31 December 2010
6,978 6,978
862 101 618 1,581 425 751 2,757
4,339 241 238 (4,818) -
5,201 241 339 (4,200) 1,581 6,978 425 751 9,735
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15. Financial assets (non current) (continued)

Sportsbet buyout call options Under the terms of the agreement to purchase 51% of Sportsbet on 1 July 2009, the Company was granted certain options to purchase the equity interests of the non-controlling interest in Sportsbet. In the event that the combined Sportsbet and IAS earnings before interest, taxation, depreciation and amortisation (EBITDA) for either of the years ending 30 June 2011 or 2012 is less than AUD22.0m (16.7m), the Company has the right to claw equity from Sportsbets existing shareholders on a proportionate basis to the shortfall in protability. In addition, the Company had a call option, exercisable in either 2012 or 2013, to acquire all of the outstanding shares in Sportsbet that it does not own, with the exercise price to be determined based on an EBITDA multiple of 4 to 7 times, depending on the level of EBITDA, and subject to a maximum payment of AUD196m (149.2m). In the event that the Company elects not to exercise the 2013 call option, the non-controlling shareholders in Sportsbet will have the option to acquire the Companys shareholding. The exercise price for this option is to be determined on the same basis as the call option that the Company holds. The net value ascribed to the embedded derivatives in these option contracts (which have been designated on initial recognition as at fair value through prot or loss) was a net nancial liability of 138,000 (as restated) as at the date of acquisition, and was included in derivative nancial liabilities (see Note 23). In accordance with the requirements of accounting standards, a valuation exercise was performed in respect of the options as of 31 December 2010 which indicated a total net nancial asset of 6,978,000. The change in the valuation between 31 December 2009 and 31 December 2010 of 7,116,000 has been included in nancial income in prot or loss (see Note 8). Available-for-sale investments Sportsbet held a 19.98% interest in IAS on the date of its acquisition by the Company, valued at 4,339,000. This investment was classied as an available-for-sale investment. The fair value of this investment increased by 479,000 to 4,818,000 in the period from 1 July 2009 to the date of acquisition by Sportsbet of the remaining 80.02% of IAS that it did not already own, at which time the value of the investment was transferred to the cost of investment in IAS (see Note 16).
16. Business combinations and purchase of non-controlling interest

Year ended 31 December 2010 Acquisition of additional 9.8% of Sportsbet Pty Limited On 12 February 2010, the Company increased its shareholding in Sportsbet to 60.8% through the buyout of a non-controlling shareholder who had no executive involvement with the business. The consideration for the 9.8% shareholding acquired amounted to AUD13.0m (8.5m) in cash. The Company also acquired that shareholders loan to Sportsbet as part of the transaction.
000
Purchase consideration cash Net assets acquired from non-controlling interest Change in Group share of discount on loans from non-controlling shareholders Cost of purchase of non-controlling interest transferred to retained earnings Net cash outow from purchase of non-controlling interest for the purposes of the statement of cash ows Purchase of non-controlling interest before acquisition expenses Acquisition expenses paid Purchase of non-controlling interest
8,481 (1,952) 39 6,568
8,481 80 8,561
Payments of deferred consideration for 51% of Sportsbet Pty Limited and for Irish retail 2009 bookmaking business acquisition On 18 August 2010, the Company paid the non-controlling shareholders of Sportsbet an amount of 7,007,000 (AUD10,000,000) in respect of deferred consideration for the Companys initial 51% acquisition of Sportsbet. The payment followed conrmation that the relevant protability target set for the nancial year ended 30 June 2010 had been achieved by Sportsbet. An amount of 100,000 was paid during 2010 in respect of deferred consideration for the Irish retail 2009 bookmaking business acquisition. Net cash outow from deferred consideration payments for the purposes of the statement of cash ows
000
Purchase of businesses, net of cash acquired Acquisition expenses paid
7,107 7,107
100
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16. Business combinations and purchase of non-controlling interest (continued)

Shop property business acquisitions In 2010, the Group, in the absence of available comparable sites for organic shop openings, acquired two retail licensed bookmaking businesses in Ireland and three in Great Britain, comprising nine shops in total. Details of the net assets acquired and the goodwill arising on these acquisitions under IFRS are as follows:
Total provisional fair values 31 December 2010 000
Identiable net assets acquired: Property, plant and equipment Goodwill arising on acquisition Irish retail Goodwill arising on acquisition UK retail Goodwill arising on acquisition total Consideration Satised by: Cash consideration Deferred purchase consideration
1,046 1,046 1,140 1,517 2,657 3,703
3,353 350 3,703
Net cash outow from purchase of businesses for the purposes of the statement of cash ows Purchase of businesses, net of cash acquired Acquisition expenses paid
3,353 43 3,396
The principal factors contributing to the goodwill balances above are the well established nature of the acquired businesses within the locations in which they operate and the potential synergies, rebranding opportunities and operational efciencies achievable for the acquired businesses within the Paddy Power group. Information in respect of amounts staked, income, operating prot and cash ows for the acquired shops in respect of the period from acquisition and for the year ended 31 December 2010 has not been presented on the basis of immateriality. Year ended 31 December 2009 Australia acquisitions Acquisition of Sportsbet Pty Limited On 1 July 2009, the Group completed the purchase of a 51% shareholding in Sportsbet, a provider of internet and telephone sports betting services in Australia. The initial purchase consideration for this acquisition amounted to 26.3m, comprised of a cash payment of 24.6m and the granting of 100,000 ordinary shares of the Company valued at 1.7m. An additional payment of AUD10.0m (6.2m) is payable in 2010 if certain protability targets are achieved by Sportsbet in respect of the nancial year ended 30 June 2010. Under the terms of the acquisition, certain call options were granted to the Company and to the non-controlling interest in Sportsbet (see Note 15). The net fair value of these options was added to the purchase consideration in the calculation of the goodwill arising on acquisition of Sportsbet.
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Details of the net assets acquired and the goodwill arising on this acquisition under IFRS are as follows (restated see Note 2): Finalisation of provisional accounting:
Book values on acquisition 000 Provisional fair value adjustments 000 Final fair values 31 December 2009 Restated 000
Final fair value adjustments 000
Identiable net assets acquired: Property, plant and equipment Intangible assets Financial assets Deferred tax asset (net) Current assets (excluding cash and cash equivalents) Cash and cash equivalents Customer balances Current liabilities Sports betting open positions current Corporation tax payable Non current liabilities Provisions non current Deferred tax liabilities
1,753 272 5,201 365 6,134 6,846 (5,412) (5,594) (1,311) (694) (594) (140) 6,826
10,374 (241) 10,133
(2,871) (2,871)
Less: non-controlling interest arising on acquisition Goodwill arising on acquisition Consideration (including associated purchase costs) The consideration is analysed as: Cash consideration (including associated purchase costs paid and accrued) Ordinary shares issued to vendors (Note 19) Deferred purchase consideration Embedded derivative Sportsbet buyout call options (Note 23 and restated per Note 2) The net cash consideration is analysed as: Cash consideration before acquisition expenses Acquisition expenses paid Cash consideration Cash acquired Net cash consideration for acquisition of Sportsbet
1,753 10,646 5,201 365 6,134 6,846 (5,412) (5,594) (1,311) (694) (594) (140) (3,112) 14,088 (6,903) 27,748 34,933 26,931 1,648 6,216 138 34,933 24,627 2,172 26,799 (6,846) 19,953
The intangible assets recognised on application of fair value accounting to the acquisition were increased by brands totalling 9,571,000 and computer software totalling 803,000. The valuations were performed by an independent advisor and used the relief of royalty method for the valuation of brands and the replacement cost method for the valuation of computer software. The value attributed to goodwill reects the future potential growth in the business acquired.
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Acquisition of International All Sports Limited On 1 October 2009, Sportsbet completed the acquisition of a 100% shareholding in another Australian internet and telephone sports betting company, IAS. At 1 July 2009, and upon acquisition by the Company, Sportsbet owned a 19.98% interest in IAS (see Note 15). IAS was a publicly quoted company whose shares were listed on the Australian Stock Exchange and the acquisition was implemented via a Scheme of Arrangement. The acquisition valued the entire issued share capital of IAS at AUD40.0m (24.2m). The Company and Sportsbets non-controlling shareholders provided shareholder loans to Sportsbet to part fund the acquisition, with the Company providing a loan of 3,833,000 (AUD6,135,000) and the 49% non-controlling shareholders in Sportsbet providing a loan of 3,682,000 (AUD5,895,000) (see Note 25). A secured bank loan of 12,494,000 (AUD20,000,000) was also taken out by Sportsbet to part fund the acquisition (see Note 25). Details of the net assets acquired and the goodwill arising on this acquisition under IFRS are as follows (restated see Note 2): Finalisation of provisional accounting:
Book values on acquisition Restated 000 Step acquisition adjustments Restated 000 Final fair values 31 December 2009 Restated 000
Fair value adjustments 000
Identiable net assets acquired: Property, plant and equipment Intangible assets Financial assets Deferred tax asset (net) Current assets (excluding cash and cash equivalents) Cash and cash equivalents Customer balances Current liabilities Sports betting open positions current Provisions current Corporation tax payable Non current liabilities Provisions non current Goodwill arising on acquisition Consideration (including associated purchase costs) The consideration is analysed as: Cash consideration (including associated purchase costs paid and accrued) Fair value of existing 19.98% holding in IAS at date of acquisition (Note 15) Deferred tax on movements in fair value of existing 19.98% holding in IAS at date of acquisition (Note 22) The net cash consideration is analysed as: Cash consideration before acquisition expenses Acquisition expenses paid Cash consideration Cash acquired Net cash consideration for acquisition of IAS
2,733 1,359 618 1,417 2,335 10,164 (7,433) (4,897) (269) (1,092) (2,208) (785) (242) 1,700
(128) 152 (124) (159) 276 172 163 18 (268) 259 (32) 32 361
3,703 3,703
2,605 5,214 494 1,417 2,176 10,440 (7,261) (4,734) (251) (1,360) (1,949) (817) (210) 5,764 17,955 23,719 19,604 4,577 (462) 23,719 19,367 201 19,568 (10,164) 9,404
4,818 (530) 4,288
(241) 68 (173)
The intangible assets recognised on application of fair value accounting to the acquisition were increased by brands totalling 4,172,000 net of a fair valuation reduction in the value of computer software acquired of 469,000. The valuations were performed by an independent advisor and used the relief of royalty method for the valuation of brands and the replacement cost method for the valuation of computer software.
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The value attributed to goodwill reects the future potential growth in the business acquired. Since the dates of acquisition to 31 December 2009, the acquired Australia businesses contributed 450.3m, 31.8m and 6.8m to amounts staked, income and operating prot (excluding sale and integration costs), respectively. Since the date of acquisition to 31 December 2009, the acquired Australia businesses contributed a cash inow of 5.3m to net cash from operating activities, a cash outow of 11.4m to net cash used in investing activities (including the purchase of IAS) and a cash inow of 13.5m to net cash used in nancing activities (including debt taken on to part fund the acquisition of IAS). If the Australia acquisitions had occurred on 1 January 2009, then their contribution to income for the year ended 31 December 2009 would have been 62.8m (including the 31.8m actually contributed) (AUD112m) and their contribution to operating prot (excluding sale and integration costs) for the year ended 31 December 2009 would have been approximately 12.3m (including the 6.8m actually contributed) (AUD22m). Shop property acquisition In January 2009, the Group, in the absence of available comparable sites for an organic shop opening, acquired a retail licensed bookmaking business in Ireland. Details of the net assets acquired and the goodwill arising on this acquisition under IFRS are as follows:
Book values on acquisition 000 Fair value adjustments 000 Fair values 31 December 2009 000
Identiable net assets acquired: Property, plant and equipment Goodwill arising on acquisition Consideration (including associated purchase costs) The consideration is analysed as: Cash consideration (including associated purchase costs) Deferred purchase consideration
100 100
(80) (80)
20 20 1,144 1,164 1,064 100 1,164
The net cash consideration is analysed as: Cash consideration Acquisition expenses paid Net cash consideration for acquisition
1,000 64 1,064
The principal factors contributing to the goodwill balance above are the well established nature of the acquired business within the location in which it operates, the quality of its customer base and the potential synergies, rebranding opportunities and operational efciencies achievable for the acquired business within the Paddy Power group. Information in respect of amounts staked, income, operating prot and cash ows for the acquired shop in respect of the period from acquisition and for the year ended 31 December 2009 has not been presented on the basis of immateriality.
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Net cash outow from purchase of businesses, acquisition expenses paid and purchase of non-controlling interest for the purposes of the statement of cash ows
2010 000 2009 000
Cash consideration Acquisition expenses paid Less: cash and cash equivalents acquired Purchase of businesses and acquisition expenses paid Analysed for the purposes of the statement of cash ows as: Purchase of businesses, net of cash acquired Acquisition expenses paid Purchase of non-controlling interest, including acquisition expenses paid
18,941 292 19,233
44,994 2,437 (17,010) 30,421
10,460 212 8,561 19,233
27,984 2,437 30,421
17. Trade and other receivables

Trade receivables credit betting customers Trade receivables other Trade receivables Other receivables Prepayments and accrued income
3,986 1,522 5,508 1,342 8,724 15,574
4,230 2,161 6,391 3,179 6,550 16,120
Trade and other receivables are non-interest bearing.
18. Cash and cash equivalents

Cash Short term bank deposits Less: Financial asset current restricted cash deposit (see below) Less: Financial asset non current restricted cash deposits (see below) Cash and cash equivalents in the statement of cash ows
18,054 145,365 163,419 (21,081) (2,757) 139,581
13,772 77,410 91,182 (9,025) (1,581) 80,576
The effective interest rate on short term bank deposits was 1.28% (2009: 1.06%); these deposits have an average original maturity date of 48 days (2009: 51 days). The short term bank deposits also have an average maturity date of 19 days from 31 December 2010 (2009: 26 days). The directors believe that all short term bank deposits can be withdrawn without signicant penalty.
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18. Cash and cash equivalents (continued)

Short term bank deposits are analysed by currency as follows:
Euro GBP AUD USD
101,452 14,916 26,737 2,260 145,365
53,836 10,137 12,610 827 77,410
Financial assets Included in short term bank deposits at 31 December 2010 is an amount of 21,081,000 (2009: 9,025,000 (GBP8,015,000)) which was restricted at that date and up to 14 January 2011 (2009: 5 January 2010) as it formed part of a guarantee issued in favour of the Isle of Man Gambling Supervision Commission in respect of player funds held by the Group (see Note 31). This balance has been shown as a current nancial asset in the consolidated statement of nancial position. Included in short term bank deposits at 31 December 2010 are amounts totalling 2,757,000 (AUD3,622,000) (2009: 1,581,000 (AUD2,531,000)) which are restricted at that date and beyond 31 December 2011. The bank deposits (1) form part of a number of guarantees issued in favour of Australian state racing authorities as required by gambling licences totalling 305,000 (2009: 531,000), (2) are in respect of certain obligations entered into by the Group for ofce accommodation held under operating leases of 1,310,000 (2009: 925,000) and (3) are in respect of merchant facility and other certain other services provided to the Group of 1,142,000 (2009: 125,000). The balance has been shown as a non current nancial asset in the consolidated statement of nancial position (see Note 15). See also Note 31.
19. Share capital and reserves

The total authorised share capital of the Company comprises 70,000,000 ordinary shares of 0.10 each (2009: 70,000,000 ordinary shares of 0.10 each). All issued share capital is fully paid. The holders of ordinary shares are entitled to vote at general meetings of the Company on a one vote per share held basis. Ordinary shareholders are also entitled to receive dividends as may be declared by the Company from time to time. During the year, 186,775 ordinary shares of 0.10 each (2009: 396,597 ordinary shares of 0.10 each) were issued as a result of the exercise of share options, for a total consideration of 2,885,000 (2009: 5,093,000) and giving rise to a share premium of 2,867,000 (2009: 5,053,000). In 2009, as part of the consideration for the purchase of Sportsbet (see Note 16), the Company issued 100,000 ordinary shares to the vendors of Sportsbet on 1 July 2009. The total value of these shares on the date of issue amounted to 1,648,000, of which 1,638,000 represented the share premium on issue. The total number of ordinary shares issued at 31 December 2010 was 49,954,114 (2009: 49,767,339), those shares having a total nominal value of 4,995,000 (2009: 4,977,000). The total number of shares held in treasury at 31 December 2010 was 1,734,000 shares (2009: 1,734,000 shares). All rights (including voting rights and the right to receive dividends) in the shares held in treasury are suspended until such time as the shares are reissued. The Groups distributable reserves are restricted by the value of the treasury shares, which amounted to 34,177,000 as of 31 December 2010 (2009: 34,177,000). The value of treasury shares held by the Company at 31 December 2010 was 5,975,000 (2009: 5,975,000), with the remaining 28,202,000 of shares being held by Paddy Power Isle of Man Limited (2009: 28,202,000). At 31 December 2010, the Company held a further 1,456,407 of its own shares (2009: 1,438,711), which were acquired at a total cost of 33,890,000 (2009: 31,858,000), in respect of potential future awards relating to the Groups Long Term Incentive Plan and Managers Deferred Share Award Scheme (see Note 21). The Companys distributable reserves at 31 December 2010 are further restricted by this cost amount. In the year ended 31 December 2010, 336,804 shares originally valued at 7,016,000 were transferred from the long term incentive plan trust (the Trust) to beneciaries of the Trust consequent to the vesting thereof (2009: 268,144 shares originally valued at 3,735,000).
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19. Share capital and reserves (continued)

The foreign exchange translation reserve at 31 December 2010 was a balance of 10,572,000 (2009: restated balance of 75,000) which arose from the retranslation of the Groups net investment in AUD and GBP functional currency subsidiary companies. Other reserves comprise a capital redemption reserve fund, a capital conversion reserve fund, a capital contribution reserve and a net wealth tax reserve. The capital redemption reserve fund of 876,000 (2009: 876,000) relates to the nominal value of shares in the Company acquired by the Company and subsequently cancelled. The capital conversion reserve fund of 260,000 (2009: 260,000) arose on the redenomination of the ordinary share capital of the Company at the time of conversion from Irish pounds to euro. The capital contribution reserve balance of 32,000 (2009: 256,000) arose on initial recognition of the Groups share of the discount on the non-controlling shareholder loans (which are non-interest bearing see Note 25). During 2010, an amount of 49,000 was transferred to a net wealth tax reserve in accordance with Luxembourg law (2009: nil). During 2009, an unrealised after-tax gain of 165,000 arose on revaluation of the Groups 19.98% available-for-sale investment in IAS between the date the Group acquired its 51% interest in Sportsbet (1 July 2009) and the date that Sportsbet acquired the remaining 80.02% interest in IAS (1 October 2009). The Groups share of this gain was 84,000. This gain was transferred from the fair value reserve to retained earnings upon Sportsbet acquiring a 100% interest in IAS. In 2010, an amount of 551,000 (2009: 1,372,000) in respect of share options exercised during the year was transferred from the share-based payment reserve to retained earnings. An amount of 264,000 of deferred tax relating to the Groups share-based payments was credited to retained earnings in 2010 (2009: nil) see also Note 22. As permitted by section 148(8) of the Companies Act 1963, no separate prot and loss account is presented in respect of the Company. The Company recorded a prot for the year (measured in accordance with Irish GAAP) of 64.1m (2009: 67.8m), which includes 54.0m (2009: 50.0m) of dividends receivable from subsidiary companies.
20. Dividends paid on equity shares

2010 000 2009 000
Ordinary shares: - nal paid of 38.90 cent per share (2009: 35.40 cent) - interim paid of 25.00 cent per share (2009: 19.50 cent)
18,750 12,019 30,769 24,340
16,864 9,294 26,158 18,686
Proposed nal dividend of 50.00 cent (2009: 38.90 cent) per share (see Note 34)
21. Share schemes

Summary of share-based payments expense The share-based payments expense in the income statement in respect of the Groups share schemes is comprised as follows:
2010 000 2009 000
Share option scheme Sharesave scheme Long Term Incentive Plan (LTIP) Managers Deferred Share Award Scheme
100 580 12,614 133 13,427
358 435 4,930 118 5,841
All of the above schemes are treated as equity-settled in the nancial statements as all can only be settled by the allocation of shares purchased in the market or by the issue of new shares.
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21. Share schemes (continued)

General The aggregate number of shares which may be utilised under the employee share option schemes and the LTIP in any ten year period may not exceed ten percent of the Companys issued ordinary share capital. The percentage of share capital which can be utilised under these schemes and the Sharesave Scheme comply with guidelines issued by the Irish Association of Investment Managers in relation to such schemes. Summary of options outstanding The total number of options outstanding at 31 December 2010 was 702,522 (2009: 859,512). These options had exercise prices ranging from 9.43 to 24.17 (2009: 8.15 to 24.17). For the year ended 31 December 2010:
Options outstanding at 1 January 2010 Options granted during year Options lapsed during year Options outstanding at 31 December 2010
Options exercised during year
Share option scheme Sharesave scheme Total For the year ended 31 December 2009:
316,800 542,712 859,512

Options outstanding at 1 January 2009
66,528 66,528
Options granted during year
(36,743) (36,743)
Options lapsed during year
(168,500) (18,275) (186,775)
148,300 554,222 702,522

Options outstanding at 31 December 2009
Share option scheme Sharesave scheme Total The Group has the following employee share schemes:
636,935 685,752 1,322,687
110,939 110,939
(13,500) (164,017) (177,517)
(306,635) (89,962) (396,597)
316,800 542,712 859,512
The Paddy Power plc November 2000 Share Option Scheme (the Share Option Scheme) The Share Option Scheme was adopted by shareholders on 21 November 2000 and modied by the shareholders on 22 June 2004. The Share Option Scheme is open to directors, other than non-executive directors, and employees. Options may be granted within a period of ten years from 7 December 2000 at the higher of nominal and current market value. Options may not be exercised earlier than three years from the date of grant and may only be exercised if the Group meets certain targets and any further condition on exercise which the Board determines to be appropriate. These targets require real growth (Consumer Price Index (CPI) plus ve percent compounded annually) in earnings per share of the Group over a period of not less than three years following the grant of an option. Since November 2000, 1,600,472 options have been granted under the scheme. Options granted before 7 November 2002 do not fall within the scope of IFRS 2 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Groups share-based payment reserve. Since November 2000, options over 1,247,306 shares have been exercised and options over 204,866 shares have lapsed. Options over 148,300 shares were outstanding at 31 December 2010 (2009: 316,800), of which 148,300 were exercisable at 31 December 2010 (2009: 164,000). Movements in the share options under this scheme during the year were as follows:
Options outstanding at 1 January 2010 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2010
Earliest exercise date
Exercise price
Market price at date of exercise
Granted after 7 November 2002 * 20,000 10,000 30,000 3,000 101,000 152,800 316,800 (20,000) (6,000) (30,000) (3,000) (74,000) (35,500) (168,500) 4,000 27,000 117,300 148,300 February 2007 June 2007 September 2008 March 2009 October 2009 September 2010 8.15 9.43 14.80 12.55 14.40 24.17 26.66 25.10 27.55 25.10 29.20 28.28 23.32 30.27 25.42 29.33
* Share options lapse ten years after date of grant.
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There were no options granted under this scheme in either of the years ended 31 December 2010 or 2009. In 2009, options over 25,951 shares were exercised at an exercise price of 8.15 when the market price per share ranged from 17.40 to 21.37, options over 27,000 shares were exercised at an exercise price of 9.43 when the market price per share ranged from 16.55 to 21.85, options over 13,684 shares were exercised at an exercise price of 9.80 when the market price per share was 17.40, options over 99,000 shares were exercised at an exercise price of 14.80 when the market price per share ranged from 20.33 to 24.75, options over 12,000 shares were exercised at an exercise price of 12.55 when the market price per share ranged from 18.62 to 18.85 and options over 129,000 shares were exercised at an exercise price of 14.40 when the market price per share ranged from 17.00 to 25.49. During 2009, options in respect of 13,500 shares at an exercise price of 24.17 per share lapsed. The Paddy Power plc Sharesave Scheme (the Sharesave Scheme) The Sharesave Scheme was adopted by shareholders on 21 November 2000 and was subsequently approved by the Revenue Commissioners. All employees (including executive directors) who have not less than 12 months continuous service with the Company or any subsidiary nominated to join the Sharesave Scheme may be invited to apply for options to acquire shares. Options will normally be granted to all eligible employees in the 42 day period after the announcement of the interim or nal results of the Company. The purchase price for each ordinary share in respect of which an option is granted shall not be less than 75 per cent of the closing price of the shares on the Irish Stock Exchange on the dealing day last preceding the date of grant of the option or its nominal value. The aggregate maximum monthly contribution payable by an employee in connection with the scheme is 500. Options granted before 7 November 2002 do not fall within the scope of IFRS 2 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Groups share-based payment reserve.
Options outstanding at 1 January 2010 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2010 Market price at date of exercise
Earliest exercise date
Exercise price
Granted after 7 November 2002 * 25,019 1,724 14,913 3,686 370,728 16,392 103,701 6,549 542,712 58,456 8,072 66,528 (2,276) (80) (584) (18,462) (2,712) (11,987) (642) (36,743) (7,772) (1,644) (6,432) (1,361) (1,066) (18,275) 14,971 7,897 2,325 351,200 13,680 91,714 5,907 58,456 8,072 554,222 December 2009 & December 2011 December 2009 & December 2011 December 2010 & December 2012 December 2010 & December 2012 December 2011 & December 2013 December 2011 & December 2013 December 2012 & December 2014 December 2012 & December 2014 December 2013 & December 2015 December 2013 & December 2015 11.29 8.15 19.26 14.36 9.45 8.00 14.90 14.13 19.87 17.62 22.97 26.82 22.97 25.00 29.68 30.70 29.68 30.19 27.00 -
* Share options lapse 3.5 and 5.5 years after date of grant.
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In 2009, options over 104,390 shares at an exercise price of 14.90 and options over 6,549 shares at an exercise price of 14.13 were granted. During 2009, options over 61,512 shares at an exercise price of 11.60 were exercised when the market price ranged from 11.25 to 20.95, options over 26,682 shares at an exercise price of 11.29 were exercised when the market price ranged from 25.00 to 25.75, options over 1,156 shares at an exercise price of 8.15 were exercised when the market price ranged from 25.00 to 25.75 and options over 612 shares at an exercise price of 9.45 were exercised when the market price ranged from 17.00 to 22.30. During 2009, options in respect of 83,463 shares at an exercise price of 11.60 per share, options in respect of 12,419 shares at an exercise price of 11.29 per share, options in respect of 694 shares at an exercise price of 8.15 per share, options in respect of 3,874 shares at an exercise price of 19.26 per share, options in respect of 801 shares at an exercise price of 14.36 per share, options in respect of 59,197 shares at an exercise price of 9.45 per share, options in respect of 2,880 shares at an exercise price of 8.00 per share and options in respect of 689 shares at an exercise price of 14.90 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 494,029 (2009: 538,257). The signicant inputs into the model were the share price of 26.49 (2009: 17.66) at the grant date, the exercise prices of 19.87 and 17.62 (2009: 14.90 and 14.13), the standard deviations of expected share price returns of 36% and 34% (2009: 36% and 41%), the option lives disclosed above and annual risk free rates of 4.6% and 5.2% (2009: 2.4% and 3.3%). The volatility measured as the standard deviation of expected share price returns is based on a statistical analysis of the Companys daily share price over the last three years. Long Term Incentive Plan On 22 June 2004, the 2004 Long Term Incentive Plan (LTIP) for senior executives was adopted by the shareholders, under which the Remuneration Committee can make conditional awards of a number of Company shares to each eligible executive. The awards are subject to the rules of the scheme. In accordance with the rules, the award will vest if the growth target (EPS growth at least equal to the compound growth in CPI plus 12% per annum) is achieved over the minimum vesting period of three years. To the extent the award does not vest in full in respect of the minimum vesting period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the four year period measured from the commencement of the minimum vesting period. To the extent the award does not vest in full in respect of such four year period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the ve year period measured from the commencement of the minimum vesting period, provided, however, that to the extent the award has not vested on or before the latest vest date specied above, the award will automatically lapse in its entirety immediately following such date. In respect of the 2009 awards only, shareholders approved the adjustment of the growth target for the rst year to the estimated consensus EPS for 2009 as at 6 April 2009 (Consensus EPS), of 106 cent, rather than an EPS determined off 2008 performance. For the full number of 2009 awards to vest, Consensus EPS must then be grown by not less than the compound growth in CPI plus 15% per annum in 2010 and 2011. These awards may vest after a three or four year period from award date only. Until the vesting of the award in accordance with the rules of the scheme, the award holder will have no rights over or in respect of the shares subject to the award and on vesting, the award holders rights are limited to those shares in respect of which the growth target has been achieved in accordance with the rules of the scheme. The awards are not transferable. In relation to the awards of shares granted in 2008, the relevant growth target has been met and eligible awards are expected to vest. Upon the vesting of a share award, as part of the award holders rights they also receive a small number of additional shares in respect of dividends on those shares between the award and vesting dates, regarded as a de facto part of the original share award. During the year, awards of 272,000 shares and 191,500 shares (2009: 250,000 shares, 276,000 shares and 15,000 shares) were granted to senior management (including executive directors). The share prices at the dates of award were 23.76 and 27.40, respectively (2009: 17.84, 23.23 and 24.74). The total cost of these awards (net of awards that lapsed) is 11,305,000 (2009: 11,243,000) if the testing performance targets are achieved along with the other conditions for vesting. The cost is being expensed in the Group income statement over the expected vesting period of the award. The operating prot for the year ended 31 December 2010 is stated after an LTIP charge of 12,614,000 (2009: 4,930,000). During 2010, 60,000 share awards lapsed (including 17,000 relating to 2010 awards) (2009: 10,000 share awards). During 2010, a total of 334,679 shares (2009: 268,144 shares) in respect of 2007 awards (2009: 2006 awards) and related dividends were vested from the Trust to senior management.
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A credit of 779,000 was recorded in 2009 in respect of the 2008 awards, which primarily reected managements revised estimate of the likelihood of the awards vesting given the very challenging 2010 EPS target required for these awards to vest in the context of the then prevailing economic conditions. As noted above, the relevant growth target in respect of 2008 awards has been met and the eligible awards are expected to vest. Accordingly, it is appropriate to recognise the full cost of vesting at 31 December 2010, which has resulted in a 5,338,000 charge to the income statement in respect of 2008 awards in 2010. Managers Deferred Share Award Scheme As a means of rewarding strong performance in 2007 and retaining some key members of staff, the Board approved the establishment of the Managers Deferred Share Award Scheme (the Share Award Scheme). Under the Share Award Scheme, a total of 89,677 ordinary shares were conditionally granted to a small number of key Group employees (not including directors) in December 2007 and March 2008 when the Companys share price was 23.14 and 24.00, respectively. The awards were conditional on the achievement of protability targets in respect of 2007 and there is no further performance vesting condition under the scheme rules. Employees will only become entitled to receive these shares if they remain employed by the Group until March 2011. Until the vesting of the award in accordance with the rules of the scheme, the award holder will have no rights over or in respect of the shares subject to the award grant. The awards are not transferable. During 2010, no ordinary shares (2009: nil) were conditionally awarded to employees, 2,125 ordinary shares (2009: nil) were vested from the Trust to beneciaries of the scheme and no share awards lapsed (2009: 5,274). At 31 December 2010, there were 77,729 share awards outstanding under the Share Award Scheme (2009: 79,854). The total cost of the award is estimated at 1,919,000 (2009: 1,909,000). Of this amount, the estimated performance bonus element of the award cost of 1,460,000 was expensed in the year ended 31 December 2007 and a further 208,000, 118,000 and 133,000 of the award cost was expensed in the years ended 31 December 2008, 2009 and 2010 respectively. Paddy Power plc Employee Benet Trust The Paddy Power plc Employee Benet Trust (the Trust) was established to manage the Long Term Incentive Plan and also manages the Managers Deferred Share Award Scheme. Purchases of Paddy Power plc ordinary shares from 1 January 2009 to 31 December 2010, and shares vested from the Trust during that period, are shown below:
Number of Paddy Power plc ordinary shares Cost of purchase 000
Shares held by the Trust at 1 January 2009 Purchased 8 December 2009 Vested from the Trust in 2009 Shares held by the Trust at 31 December 2009 Purchased 8 March 2010 Purchased 7 December 2010 Vested from the Trust in 2010 Shares held by the Trust at 31 December 2010
1,166,855 540,000 1,706,855 (268,144) 1,438,711 272,000 82,500 1,793,211 (336,804) 1,456,407
21,526 14,067 35,593 (3,735) 31,858 6,585 2,463 40,906 (7,016) 33,890
The results of the Trust are included in the Paddy Power plc Company nancial statements. The shares held by the Trust at the statement of nancial position date are shown as a deduction from equity in the consolidated statement of nancial position in accordance with the Groups accounting policy (see Note 19). Paddy Power 2004 Second Tier Option Scheme On 22 June 2004, the shareholders approved the establishment of the Paddy Power 2004 Second Tier Option scheme, which allows the Company to grant options to employees, exercisable after a ve year performance period, upon the achievement by the Company of exceptional performance levels. To be exercisable, the Companys earnings per share must grow during the ve year performance period by at least the percentage increase in the Consumer Price Index plus ten percent compounded and the Companys earnings per share growth must be in the top quarter in performance terms of a specied peer group. No options have been granted to date under this scheme to any Group employees.
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22. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:
31 December 2010 Assets 000 Liabilities 000 Total 000 Assets 000 31 December 2009 Restated Liabilities 000 Total 000
Property, plant and equipment Business combinations licences and brands intangible assets Lease premiums income element UK tax losses Employee benets Other Net assets / (liabilities) Analysed by Irish, UK and Australian corporation tax: Irish corporation tax UK corporation tax Australian corporation tax Net assets / (liabilities)
1,094 994 2,413 1,951 6,452
(9,585) (50) (9,635)
1,094 (9,585) (50) 994 2,413 1,951 (3,183)
563 1,270 1,581 3,414
(8,721) (114) (8,835)
563 (8,721) (114) 1,270 1,581 (5,421)
2,641 1,139 2,672 6,452
(50) (5,771) (3,814) (9,635)
2,591 (4,632) (1,142) (3,183)
1,405 16 1,993 3,414
(114) (5,593) (3,128) (8,835)
1,291 (5,577) (1,135) (5,421)
The above deferred tax balances are in respect of Irish, UK and Australian corporation tax. The deferred tax assets and liabilities have been offset at 31 December 2010 and 2009 as there is a legally enforceable right to such set-off. The net balances as of 31 December 2010 comprised an Irish corporation tax net deferred tax asset of 2,591,000 (2009: 1,291,000), a UK corporation tax net deferred tax liability of 4,632,000 (2009: 5,577,000) and an Australian corporation tax net deferred tax liability of 1,142,000 (2009: 1,135,000). Included in the statement of nancial position is a deferred tax asset of 2,591,000 (2009: 1,291,000) representing the Irish net deferred tax asset and a deferred tax liability of 5,774,000 (2009: 6,712,000) representing the UK and Australian net deferred tax liabilities. Unrecognised deferred tax assets The previously unrecognised deferred tax asset in respect of the tax losses related to the Groups retail operations in Great Britain was recognised in 2010 as it is expected that taxable prots will be generated against which to offset these losses. Deferred tax assets have not been recognised in respect of the following item:
UK tax losses
1,770
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22. Deferred tax assets and liabilities (continued)

Movement in temporary differences during the year
Recognised in other compreTransfer hensive to retained income earnings 2009 2009 Restated Restated 000 000 000 Foreign currency Purchase retransof lation businesses adjustment 2009 2009 Restated Restated 000 000 Recognised Foreign in other currency compreretranshensive lation income adjustment 2010 2010 000 000
Balance at 1 Recognised January in income 2009 2009 000
Balance at 31 Recognised December in income 2009 2010 Restated 000 000
Balance at 31 December 2010 000
Property, plant and equipment Business combinations intangible assets (Note 16) Lease premiums income element Available-for-sale investments UK tax losses Employee benets Other
332
208
22
563
509
22
1,094
(6,232) (114) 1,048 12 (4,954)
241 (637) 142 (46)
(76) (76)
530 530
(3,112) (438) 816 1,382 (1,330)
382 (16) 43 45 455
(8,721) (114) 1,270 1,581 (5,421)
64 994 777 35 2,379
264 264
(864) 102 335 (405)
(9,585) (50) 994 2,413 1,951 (3,183)
23. Trade and other payables and derivative nancial liabilities

Current liabilities
Trade and other payables Trade payables Customer balances PAYE and social security Value added tax and general sales tax Betting duty, data rights and product & raceeld fees Employee benets Deferred consideration business combinations Accruals and other liabilities Derivative nancial liabilities Sports betting open positions
11,551 42,368 3,920 1,697 6,764 13,378 50 35,608 115,336 8,586
9,712 33,231 2,268 848 7,296 9,142 6,329 21,727 90,553 5,448
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113
23. Trade and other payables and derivative nancial liabilities (continued)
Non current liabilities
Trade and other payables PAYE and social security Employee benets Deferred consideration business combinations Derivative nancial liabilities Sports betting open positions Sportsbet buyout call options (Note 15)
1,961 5,093 300 7,354 16 16
90 2,913 3,003 16 138 154
Sports betting open positions Amounts received from customers on sportsbook events that have not occurred by the year end are derivative nancial instruments and have been designated by the Group on initial recognition as nancial liabilities at fair value through prot or loss. The carrying amount of the liabilities is not signicantly different from the amount that the Group is expected to pay out at maturity of the nancial instruments. Sports bets are non-interest bearing. There is no interest rate or credit risk associated with open sports bets. A currency risk may arise where such bets are denominated in a currency other than the euro. This currency risk is not considered signicant as any payout on such bets is made in the same currency as that in which the bet was originally staked.
24. Provisions
Current liabilities
Employee benets (long service leave) Accruals and other liabilities (lease reinstatement and onerous contracts)
150 128 278
102 1,170 1,272

Employee benets (long service leave) Accruals and other liabilities (lease reinstatement and onerous contracts)
179 1,697 1,876
132 1,479 1,611
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24. Provisions (continued)

The movements in provisions during 2009 and 2010 were as follows: Current liabilities
Long service leave Restated 000 Lease reinstatement Restated 000 Onerous contracts Restated 000
Total Restated 000
Balance at 1 January 2009 Other additions Business combinations (Note 16) Charged / (credited) to the income statement: - Additional provisions recognised - Unused amounts reversed Amounts used during the year Foreign currency retranslation adjustment Balance at 31 December 2009 Transfers from non current liabilities Charged / (credited) to the income statement: - Additional provisions recognised - Unused amounts reversed Amounts used during the year Foreign currency retranslation adjustment Balance at 31 December 2010 Non current liabilities
99 3 102 31 103 (100) 14 150
516 (16) 19 519 192 (380) (384) 53 -
113 477 5 56 651 10 (136) (452) 55 128
113 1,092 5 (16) 78 1,272 31 305 (616) (836) 122 278
Long service leave Restated 000
Lease reinstatement Restated 000
Onerous contracts Restated 000
Total Restated 000
Balance at 1 January 2009 Other additions Business combinations (Note 16) Charged / (credited) to the income statement: - Additional provisions recognised - Unused amounts reversed Amounts used during the year Foreign currency retranslation adjustment Balance at 31 December 2009 Transfers to current liabilities Charged / (credited) to the income statement: - Additional provisions recognised - Unused amounts reversed Amounts used during the year Foreign currency retranslation adjustment Balance at 31 December 2010
382 29 (132) (167) 20 132 (31) 37 41 179
388 53 (60) 60 441 308 27 776
1,054 76 (92) 1,038 (117) 921
1,442 382 158 (192) (259) 80 1,611 (31) 345 (117) 68 1,876
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24. Provisions (continued)

Long service leave This provision represents the amounts provided in respect of the long service leave entitlements of Australia employees under the provisions of relevant Australian state legislation. The long service leave liability is measured as the present value of expected future payments to be made in respect of services rendered up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on Australian government bonds with terms to maturity that match, as closely as possible, the estimated future cash outows. The timing and amount of long service leave cash outows are primarily dependent on when staff employed at the balance sheet date avail of their entitlement to leave and their expected salaries at that time. As of 31 December 2010 and 31 December 2009, it was expected that cash outows would occur primarily within the following three years. Lease reinstatement Included in this category are amounts provided by the Group for the reinstatement of properties held under operating leases to their original condition when the leases were taken out. These costs are generally provided for over the period of the relevant leases. The timing and amount of lease reinstatement cash outows is dependent on the expected dates on which leased premises will be exited and the existence of provisions in the lease contracts requiring reinstatement. The bulk of the cash outows are expected to occur within one to two years of the balance sheet date, with some cash ows expected to occur over the next 30 years as longer term leases are not renewed (2009: approximately half of the lease reinstatement cash ows are expected to occur within one year and the bulk of the remaining cash outows over the following year, with some cash ows expected to occur over the next 30 years as longer term leases are not renewed). Onerous contracts The onerous contracts provision primarily relates to operating leases where the Group is not occupying properties for which it still has a present and future obligation to make lease payments. The provision represents the future expected net cash outows under these leases discounted at an interest rate appropriate to the timing of the expected net cash outows. Future cash outows in respect of onerous contracts are dependent on the relevant lease expiry dates and the timing of break provisions in the lease contracts. It is expected that the provisions will unwind over a 24 year period (2009: 25 year period).
25. Borrowings
The Group had the following borrowings at 31 December: Current liabilities
Secured non-recourse bank loan Loans from Sportsbet non-controlling shareholders Finance leases
974 911 1,885
4,165 858 5,023

Secured non-recourse bank loan Loans from Sportsbet non-controlling shareholders Finance leases
2,284 349 2,633
7,288 3,181 1,029 11,498
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25. Borrowings (continued)

The borrowings at 31 December 2010 are further analysed as follows:
Nominal interest rate (including facility fee)
Currency
Counterparty
Year taken out
Year of maturity
Face value 000
Carrying amount 000
Secured non-recourse bank loan Loans from Sportsbet non-controlling shareholders
AUD AUD
9.27% Nil
National Australia Bank Non-controlling shareholders holding 39.2% of the share capital of Sportsbet
2009 2009
2012 2011
2,284 1,072
2,284 974
3,356 The borrowings at 31 December 2009 are further analysed as follows:

Nominal interest rate (including facility fee)
3,258
Currency
Counterparty
Year taken out
Year of maturity
Face value 000
Carrying amount 000
Secured non-recourse bank loan Loans from Sportsbet non- controlling shareholders
AUD AUD
7.89% Nil
National Australia Bank Non-controlling shareholders holding 49% of the share capital of Sportsbet
2009 2009
2012 2016
11,453 3,682
11,453 3,181
15,135
14,634
Both the secured bank loan and the non-controlling shareholder loans were taken out by the Group to part fund the acquisition of IAS. The loans from the 39.2% (2009: 49%) non-controlling shareholders in Sportsbet are non-interest bearing. A discount of 98,000 (2009: 501,000), representing the difference between the nominal value of the loans of 1,072,000 (2009: 3,682,000) and their fair value, has been included in the capital contribution reserve and in non-controlling interest. A discount rate of 5.0% was used in the calculation of the fair value. Under the terms of the buyout of the 39.2% non-controlling shareholders in Sportsbet, the loans from those shareholders will be repaid upon completion of the buyout transaction on 1 March 2011 (see Note 34). Security and restrictions The National Australia Bank bank loan is non-recourse to shareholders and is secured by a rst ranking xed and oating charge over all the assets of Sportsbet. Under the terms of the National Australia Bank loan agreement, Sportsbet is restricted from distributing in excess of 60% of its available annual net prot in respect of the nancial years ending 30 June 2010 and 30 June 2011, and 100% of the annual net prot of the nancial year ending 30 June 2012. The terms of the secured bank loan also preclude a distribution if the net tangible assets of Sportsbet (excluding amounts owing in respect of shareholder loans) are less than the facility limit at that date. Under the terms of the Shareholder Loan Deed relating to the non-controlling shareholder loans, Sportsbet, in lieu of making dividend payments, must rst make loan repayments in an amount equal to the dividend payment that each individual shareholder would have been entitled to.
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25. Borrowings (continued)

Finance lease liabilities The nance lease liability obligations are analysed as follows:
Future minimum lease payments 2010 000 Present value of minimum lease payments 2010 000 Future minimum lease payments 2009 000 Present value of minimum lease payments 2009 000
Payable
Interest payable 2010 000
Interest payable 2009 000
Within one year Between one and ve years
1,004 373 1,377
93 24 117
911 349 1,260
1,032 1,125 2,157
174 96 270
858 1,029 1,887
26. Credit risk

Exposure to credit risk The carrying amount of nancial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 December was:
Carrying amount 31 December 31 December 2010 2009 Restated 000 000
Financial assets at fair value through prot or loss Restricted cash Trade receivables Other receivables Cash and cash equivalents
6,978 23,838 5,508 1,342 139,581 177,247
10,606 6,391 3,179 80,576 100,752
The maximum exposure to credit risk for trade and other receivables by geographic region at 31 December was:
Ireland United Kingdom Australia Other
404 214 5,953 279 6,850
973 237 6,366 1,994 9,570
The maximum exposure to credit risk for trade and other receivables by type of counterparty at 31 December was:
Trade receivables credit betting customers Trade receivables other sports betting counterparties Other receivables
3,986 1,522 1,342 6,850
4,230 2,161 3,179 9,570
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26. Credit risk (continued)

Signicant customers There were no individual customers at 31 December 2010 or 2009 that represented over ten per cent of trade receivables. Impairment losses The ageing of trade receivables (stated net of impairment provisions) at 31 December was as follows:
Not past due Past due 0 days to 30 days Past due 31 days to 120 days Past due 121 days to 365 days More than one year
3,338 849 1,304 17 5,508
2,722 1,867 1,802 6,391
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
2010 000 2009 000
Balance at 1 January Business combinations Impairment losses recognised Impaired losses written off Foreign currency retranslation adjustment Balance at 31 December
1,391 1,768 (1,216) 351 2,294
1,470 621 (806) 106 1,391
27. Liquidity risk

The following are the contractual maturities of nancial liabilities as at 31 December:
Carrying amount 000 Contractual cash ows 000 6 months or less 000 31 December 2010 6 to 12 months 000 1 to 2 years 000 2 to 3 years 000 4 years and over 000
Non-derivative nancial liabilities Trade and other payables Deferred consideration Secured bank loan Other loans Finance leases Derivative nancial liabilities Sports betting open positions
122,340 350 2,284 974 1,260 127,208 8,602 135,810
122,340 350 2,525 1,072 1,377 127,664 8,602 136,266
115,287 70 1,072 502 116,931 8,507 125,438
50 69 502 621 79 700
1,956 300 2,386 326 4,968 16 4,984
4,138 47 4,185 4,185
959 959 959
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119
27. Liquidity risk (continued)

Carrying amount 000 Contractual cash ows 000 6 months or less 000 31 December 2009 Restated 6 to 12 months 000 1 to 2 years 000 2 to 3 years 000 4 years and over 000
Non-derivative nancial liabilities Trade and other payables Deferred consideration Secured bank loan Other loans Finance leases Derivative nancial liabilities Sports betting open positions Sportsbet buyout call options
87,227 6,329 11,453 3,181 1,887 110,077 5,464 138 115,679
87,227 6,347 12,538 3,682 2,157 111,951 5,464 138 117,553
84,223 100 2,448 516 87,287 5,112 92,399
6,247 2,370 516 9,133 336 9,469
172 4,533 1,028 5,733 15 5,748
2,223 3,187 97 5,507 1 138 5,646
609 3,682 4,291 4,291
28. Currency risk

Currency risk exposure As of 31 December 2010 and 2009, the Groups foreign currency risk exposure in respect of the principal foreign currencies in which the Group operates was as follows:
31 December 2010 GBP 000 AUD 000 USD 000 GBP 000 31 December 2009 Restated AUD 000
USD 000
Financial assets non current Sportsbet buyout call options Financial assets non current restricted cash Trade receivables 60 Other receivables 171 Financial assets current restricted cash Cash and cash equivalents 19,345 Trade payables (4,218) Customer balances (11,162) Other payables (excluding accruals) (2,312) Financial liabilities non current Sportsbet buyout call options Deferred consideration Secured bank loan Other loans Finance leases Gross statement of nancial position exposure 1,884
6,978 2,757 5,378 536 31,711 (2,682) (21,412) (4,567) (2,284) (974) (1,260) 14,181
21 2,523 (79) (2,367) 98
53 187 9,025 3,117 (4,008) (9,328) (715) (1,669)
1,581 6,244 1,400 18,489 (947) (14,424) (5,474) (138) (6,229) (11,453) (3,181) (1,887) (16,019)
1 699 1,194 (39) (1,757) 98
The Australian dollar exposure primarily relates to the Australia operating segment whose functional currency is the AUD. The above analysis excludes certain assets and liabilities that comprise the Groups net investment in Sportsbet and IAS. The Group had no forward foreign currency contracts or derivatives that are cash ow hedges in place at either 31 December 2010 or 2009.
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28. Currency risk (continued)

The following are the signicant exchange rates that applied during the year:
To 1 Euro: 2010 Average rate 2009 31 December (mid-spot rate) 2010 2009
GBP AUD USD
0.858 1.444 1.327
0.891 1.775 1.393
0.861 1.314 1.336
0.888 1.601 1.441
Sensitivity analysis A ten percent strengthening and weakening of the euro against the following currencies at 31 December 2010 and 2009 would have increased / (decreased) prot and other equity by the amounts below as a consequence of the retranslation of foreign currency denominated nancial assets and liabilities at those dates. It is assumed that all other variables, especially interest rates, remain constant in the analysis.
10% increase 000 Prot 10% decrease 000 Other equity 10% increase 10% decrease 000 000
31 December 2010 GBP AUD USD 31 December 2009 GBP AUD USD
(149) (92) (1)
183 113 1
(2,041) (5,438) -
2,494 6,647 -
116 (76) -
(142) 93 1
(2,203) (3,124) -
2,692 3,819 -
29. Interest rate risk

Prole At 31 December 2010 and 31 December 2009, the interest rate prole of the Groups interest-bearing nancial instruments was as follows:
Carrying amount 31 December 31 December 2010 2009 000 000
Variable rate instruments Financial assets non current restricted cash Financial assets current restricted cash Financial assets cash Financial assets short term bank deposits Financial liabilities secured bank loan
2,757 21,081 18,054 121,527 (2,284) 161,135
1,581 9,025 13,772 66,804 (11,453) 79,729
Carrying amount 31 December 31 December 2010 2009 000 000
Fixed rate instruments Financial liabilities nance leases
(1,260) (1,260)
(1,887) (1,887)
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121
29. Interest rate risk (continued)

Cash ow sensitivity analysis for variable rate instruments A change of 50 (increase) and 25 to 50 (decrease) basis points (bps) in interest rates at 31 December 2010 and at 31 December 2009 would have increased / (decreased) prot for a full year and other equity by the amounts set out in the table below. The 25 bps decrease in interest rates has been applied to the Groups non-Australian variable rate instruments and the 50 bps decrease to its Australian segment variable rate instruments. It is assumed that all other variables, including foreign currency exchange rates, remain constant. The selection of the lower 25 bps for the interest rate decrease assumptions at 31 December 2010 and 31 December 2009 reects the low euro and GBP deposit interest rates currently being earned.
50 bps increase 000 Prot 25 50 bps decrease 000 Other equity 50 bps 25 50 bps increase decrease 000 000
31 December 2010 Variable rate instruments
599
50 bps increase 000
(356)
25 bps decrease 000
50 bps increase 000
25 bps decrease 000
31 December 2009 Variable rate instruments
320
(160)
30. Fair values

Fair values versus carrying amounts The following are the fair values and carrying amounts of nancial assets and liabilities in the statement of nancial position:
31 December 2010 Carrying amount 000 Fair value 000 31 December 2009 Restated Carrying Fair amount value 000 000
Available-for-sale Assets 19.98% investment in IAS
Carried at fair value Assets Derivative nancial assets Sportsbet buyout call options Liabilities Derivative nancial liabilities Sportsbet buyout call options Derivative nancial liabilities sports betting open positions Net Carried at amortised cost Assets Restricted cash non current Trade receivables Other receivables Restricted cash current Cash and cash equivalents Liabilities Trade and other payables Secured bank loan Other loans Finance leases Net Total
6,978 (8,602) (1,624)
6,978 (8,602) (1,624)
(138) (5,464) (5,602)
(138) (5,464) (5,602)
2,757 5,508 1,342 21,081 139,581 170,269 (122,690) (2,284) (974) (1,260) (127,208) 43,061 41,437
2,757 5,508 1,342 21,081 139,581 170,269 (122,690) (2,284) (974) (1,260) (127,208) 43,061 41,437
1,581 6,391 3,179 9,025 80,576 100,752 (93,556) (11,453) (3,181) (1,887) (110,077) (9,325) (14,927)
1,581 6,391 3,179 9,025 80,576 100,752 (93,556) (11,453) (3,181) (1,887) (110,077) (9,325) (14,927)
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30. Fair values (continued)

Fair value hierarchy Financial instruments at 31 December which are carried at fair value are analysed by valuation method below. The different levels have been dened as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 000 31 December 2010 Level 2 Level 3 000 000 Total 000
Available-for-sale nancial assets Derivative nancial assets Derivative nancial liabilities
6,978 6,978 (8,602) (1,624)
6,978 6,978 (8,602) (1,624)
Level 1 000
31 December 2009 Restated Level 2 Level 3 000 000
Total 000
Available-for-sale nancial assets Derivative nancial assets Derivative nancial liabilities
(5,602) (5,602)
(5,602) (5,602)
Basis for determining fair values The following are the signicant methods and assumptions used to estimate the fair values of the nancial instruments above: Trade and other receivables The fair value of trade and other receivables are estimated using the present value of future cash ows discounted at the market rate of interest at the reporting date. Amounts due within three months are not discounted. Cash and cash equivalents The fair value of cash and cash equivalents is based on the nominal value of the cash balances held, as all cash on hand is held at variable interest rates. Derivative nancial instruments Derivative nancial instruments comprise the Sportsbet buyout call options and sports betting open positions. The Sportsbet buyout call options have been valued using a Black Scholes option pricing model. The key assumptions in the option pricing model are risk free rates of between 5.2% and 5.3% (2009: 4.7% to 5.2%), share price volatility of 40% (2009: 40%) and expected option lives of 1.75 to 3.08 years (2009: 3.25 to 4.59 years). The fair value of open sports bets at the year end has been calculated using the latest available prices on relevant sporting events. The fair value calculation also includes the impact of any hedging activities in relation to these open positions, which is not signicant. Non-derivative nancial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash ows, discounted at the market rate of interest at the reporting date. For nance leases the market rate of interest is determined by reference to similar lease agreements.
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30. Fair values (continued)

Sensitivity analysis in respect of nancial instruments carried at fair value The following sensitivity analysis has been performed for the nancial assets and liabilities carried at fair value at 31 December 2010 and 2009: Sportsbet buyout call options The fair value of the Sportsbet buyout call options is sensitive to both share price volatility assumptions and exercise price assumptions (which are a function of EBITDA in future years). If the share price volatility assumption increased by 20% to 60% and the expectation of achievement of the EBITDA projections used in the valuation model decreased from 100% to 90%, the fair value of the options would increase by 5,850,000 (2009: 545,000). Sports betting open positions The fair value of sports betting open positions is primarily based on expectations as to the results of sporting and other events on which bets are placed. Changes in those expectations and ultimately the actual results when the events occur will result in changes in fair value. While it is unlikely that the results of all sporting events would vary against expectation in a similar linear manner, a 10% positive and negative (from the viewpoint of the results of the Group) movement in the overall probability estimate of relevant sporting event outcomes would result in a 645,000 decrease and increase, respectively, in the value of open sports bets at 31 December 2010 (2009: decrease and increase of 410,000, respectively). Movements in year in respect of nancial instruments carried at fair value The movements in respect of the nancial assets and liabilities carried at fair value in the year to 31 December are as follows:
2010 Sportsbet buyout call options 000 2010 Sports betting open positions 000 2010 2009 Sportsbet buyout call options Restated 000 2009 Sports betting open positions Restated 000 2009
Total 000
Total Restated 000
Balance at 1 January Business combinations Recognised in the income statement Settlements Balance at 31 December
(138) 7,116 6,978
(5,464) (428,651) 425,513 (8,602)
(5,602) (421,535) 425,513 (1,624)
(138) (138)
(3,669) (1,580) (282,972) 282,757 (5,464)
(3,669) (1,718) (282,972) 282,757 (5,602)
The amounts recognised for business combinations in 2009 represent (1) the fair value of the Sportsbet buyout call options granted when Sportsbet was purchased on 1 July 2009 (liability of 138,000) and (2) the fair value of the sports betting open positions acquired as a result of the purchase of Sportsbet and IAS (liability of 1,580,000). The amounts recognised in the income statement represent the Groups gross win in respect of sports betting positions and other derivatives included in income in the year (see Note 4). The settlements in the year are the net amounts received and receivable from customers in respect of those sports betting positions. All gains and losses have been recognised in the income statement in 2010 and 2009.
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31. Commitments and contingencies

(a) Guarantees The Group has uncommitted working capital overdraft facilities of 15.1m (2009: 14.8m) with Allied Irish Banks plc. These facilities are secured by a Letter of Guarantee from Paddy Power plc. The Group has a bank guarantee in favour of the Isle of Man Gambling Supervision Commission as security for player funds owed by Paddy Power Isle of Man Limited to its customers. This guarantee is required as part of Paddy Power Isle of Man Limiteds Online Gambling Licence. The maximum amount of the guarantee at 31 December 2010 was GBP17,000,000 (euro equivalent of 19,750,000) (2009: GBP16,000,000 and euro equivalent of 18,016,000). No claims had been made against the guarantee as of 31 December 2010 (2009: nil). The guarantee is secured by counter indemnities from Paddy Power plc and Paddy Power Isle of Man Limited, and, at 31 December 2010, was secured by a cash deposit of 21,081,000 (2009: GBP8,015,000 (euro equivalent 9,025,000)) over which the guaranteeing bank holds a oating charge. The fair value accounting impact of this guarantee is deemed to be immaterial. The Group has a bank guarantee in favour of the Lotteries & Gaming Authority Malta as security for player funds owed by Paddy Power Bookmakers (Malta) Limited to its customers. This guarantee is required as part of Paddy Power Bookmakers (Malta) Limiteds Remote Gaming Licence. The maximum amount of the guarantee at 31 December 2010 was 300,000 (2009: 300,000). No claims had been made against the guarantee as of 31 December 2010 (2009: nil). The guarantee is secured by counter indemnities from Paddy Power plc and Paddy Power Bookmakers (Malta) Limited. The fair value accounting impact of this guarantee is deemed to be immaterial. The Australian corporate sports bookmaking licences issued to Sportsbet and IAS require those companies to hold sufcient cash funds to cover monies owed to customers. At 31 December 2010, the total value of relevant customer balances attributable to the Australia business segment was 23,562,000 (AUD30,951,000) (2009: 15,943,000 (AUD25,522,000)) and the combined cash and cash equivalent balances held by Sportsbet and IAS at that date totalled 31,001,000 (AUD40,723,000) (2009: 19,114,000 (AUD30,598,000)). The Australia operating segment had 2,757,000 (AUD3,622,000) of cash-backed bank issued guarantees outstanding at 31 December 2010 (2009: 1,581,000 (AUD2,531,000)), comprised as follows: amounts of 305,000 (AUD400,000) (2009: 500,000 (AUD800,000)) guaranteed to the Northern Territory Racing and Gaming Authority; and guarantees of 1,310,000 (AUD1,722,000) (2009: 925,000 (AUD1,481,000)) outstanding in respect of rental and other property commitments and a merchant facility guarantee of 1,142,000 (AUD1,500,000) (2009: nil). At 31 December 2009, there were other guarantees of 156,000 (AUD250,000) primarily relating to Sportsbets outsourced payroll services provider. The Company enters into nancial guarantee contracts to guarantee the indebtedness of other companies within the Group. The Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. (b) Capital commitments Capital expenditure contracted for at the statement of nancial position date but not yet incurred was as follows:
Property, plant and equipment Intangible assets
1,380 5,149 6,529
3,055 121 3,176
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31. Commitments and contingencies (continued)

(c) Operating leases The Group leases various licensed betting and other ofces under operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The leases typically run for a period of ten years, with a right of renewal after that date. Lease rentals are typically reviewed every ve years to reect market rental rates or changes in general ination rates. At 31 December 2010 and 2009, the Group had the following rent commitments in respect of non-cancellable operating leases on properties where the lease terms expire as follows:
31 December 2010 Annual Total commitment commitment 000 000 31 December 2009 Annual Total commitment commitment 000 000
Within 1 year Between 2 and 5 years After 5 years
2,644 2,022 12,895 17,561
2,644 7,890 173,871 184,405
2,402 1,487 11,236 15,125
2,402 4,758 158,432 165,592
The Group has a small number of shop properties that are sublet. Sublease payments of 316,000 are expected to be received during the year ended 31 December 2011. During 2010, an amount of 16,181,000 was recognised in prot or loss in respect of operating leases (2009: 13,525,000). Contingent rent expense in prot or loss amounted to a credit of 325,000 (2009: credit of 256,000). Sublease income (netted against operating lease expense on the basis of immateriality) amounted to 278,000 in 2010 (2009: 141,000). Operating leases for licensed betting and other ofces are entered into as combined leases of land and buildings. Since the title to the land does not pass, the rent paid to the landlord of the building is increased to market rent at regular intervals and the Group does not participate in the residual value of the building, it was determined that substantially all the risks and rewards of the ofces are with the landlord. As such, the Group determined that the leases are operating leases.
32. Related parties

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There were no other related party transactions save those disclosed in Note 7.
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33. Group entities

The Company had the following subsidiary undertakings carrying on businesses which principally affect the prots and assets of the Group at 31 December 2010:
Equity interest at 31 December 2010 Country of incorporation
Name
Activity
Registered ofce
Power Leisure Bookmakers Limited Paddy Power Isle of Man Limited Paddy Power Entertainment Limited D McGranaghan Limited Sportsbet Pty Limited
100% 100% 100% 100% 60.8% (2009: 51%) 60.8% (2009: 51%) 100% 100% 100%
England Isle of Man Isle of Man
Bookmaker Bookmaker Gaming
Northern Ireland Bookmaker Australia Bookmaker
International All Sports Limited
Australia
Bookmaker
Paddy Power Financials Limited Paddy Power Bookmakers (Malta) Limited Paddy Power Luxembourg s..r.l.
Ireland Malta Luxembourg
Marketing services Gaming Treasury services
5th Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN 14 Athol Street, Douglas, Isle of Man, IM1 1JA 14 Athol Street, Douglas, Isle of Man, IM1 1JA Capital House, 3 Upper Queen Street, Belfast, BT1 6PU Fannie Bay Racecourse, Playford Street, Fannie Bay, Darwin, Northern Territory 0820, Australia Fannie Bay Racecourse, Playford Street, Fannie Bay, Darwin, Northern Territory 0820, Australia Airton House, Airton Road, Tallaght, Dublin 24, Ireland Abacus, Suite 2, Psaila Street, St Venera, SVR 9017, Malta 16 Avenue Pasteur, L-2310, Luxembourg
With the exception of Sportsbet and IAS that both have 30 June year ends, the above subsidiary undertakings have the same year end date as the Company. All subsidiary undertakings have been included in the Group consolidated nancial statements. Accounts have been drawn up to 31 December 2010 in respect of both Sportsbet and IAS. In addition to the above subsidiary undertakings, the Group utilises an employee trust, Paddy Power plc Employee Benet Trust, with a registered address at PO Box 76, Wests Centre, St Helier, Jersey, JE4 8PQ, and which holds the shares under the share award schemes.
34. Events after the statement of nancial position date

Dividend In respect of the current year, the directors propose that a nal dividend of 50.00 cent per share (2009: 38.90 cent per share) will be paid to shareholders on 20 May 2011. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these nancial statements. The proposed dividend is payable to all shareholders on the Register of Members on 18 March 2011. The total estimated dividend to be paid amounts to 24,340,000 (2009: 18,686,000). Buyout of non-controlling interest in Sportsbet On 1 March 2011, the Company acquired the remaining 39.2% non-controlling shareholdings in Sportsbet following the granting of approval by shareholders at an EGM held on 22 February 2011. The initial AUD132.6m (98.0m) consideration payable for the acquisition was satised by: AUD110.6m (81.6m) in cash from Paddy Powers existing cash reserves; the issue of AUD18.0m (13.4m) of new Paddy Power plc ordinary shares (totalling 455,535 ordinary shares and calculated by reference to a share price of 29.17 per share and the AUD exchange rate shortly prior to acquisition completion); and the assumption of an AUD4.0m (3.0m) obligation to certain Sportsbet employees. This obligation relates to a long term incentive plan put in place for the benet of those employees by the non-controlling shareholders at the time of the original acquisition by the Company of 51% of Sportsbet. The non-controlling shareholder loans with a face value of 1.1m (AUD1.4m) were also repaid as part of the transaction.
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34. Events after the statement of nancial position date (continued)

Additional consideration is payable to the extent the EBITDA (post Group central cost allocations) of Paddy Powers Australian operations for the year ended 31 December 2013 exceeds AUD65.0m (48.0m). The maximum additional consideration of AUD25.0m (18.4m) is payable in the event that 2013 EBITDA exceeds AUD80.0m (59.0m). As part of the discussions surrounding the acquisition it was agreed that a special dividend, in excess of that payable pursuant to Sportsbets ongoing dividend policy, be paid to all Sportsbet shareholders out of available fully franked dividend capacity prior to completion of the acquisition. The element of the special dividend payable to the non-controlling shareholders amounted to AUD8.5m (6.3m) and was paid on 1 March 2011. The total maximum potential consideration for the acquisition totals AUD166.1m (122.7m) which comprises the initial consideration (including the cash and shares elements and the assumption of the liability to Sportsbet employees), the special dividend and the maximum additional consideration.
35. Accounting estimates and judgements

Key sources of estimation uncertainty and critical accounting judgements in applying the Groups accounting policies Goodwill of 76,967,000 (2009: restated balance of 63,511,000) continues to be carried in the Group statement of nancial position as the directors believe that there has been no impairment in the fair value of the net identiable assets of the acquired businesses. Retail shop acquisitions in Ireland and the UK in 2010 contributed additional goodwill of 1,140,000 and 1,517,000 to the Irish retail and UK retail operating segments, respectively. During the year ended 31 December 2009, the acquisition by the Group of 51% of Sportsbet and Sportsbets subsequent acquisition of IAS contributed goodwill of 58,764,000 (2009: 48,196,000), including 3,814,000 (2009: 3,128,000) of deferred tax on the value of brands intangible assets recognised on the application of fair value accounting to the acquisitions, and brands intangible assets of 17,966,000 (2009: 14,742,000). Other acquisitions and amalgamations in 2009 and prior years contributed goodwill of 15,546,000 (2009: 15,315,000), including 5,771,000 (2009: 5,593,000) of deferred tax on the value of licences intangible assets recognised on the application of fair value accounting to the acquisitions, and 20,610,000 (2009: 19,975,000) of licences intangible assets. The directors believe that this goodwill and the licences and brands intangible assets have not been impaired as of 31 December 2010. The key assumptions made in respect of goodwill and indenite life intangible assets are set out in Note 14. The share-based payment reserve, which includes amounts in relation to the share award schemes and various share option schemes, amounted to 21,910,000 at 31 December 2010 (2009: 14,968,000). The signicant assumptions made in accounting for share-based payments are set out in Note 21. The fair value of the Groups sports betting open positions amounted to 8,602,000 at 31 December 2010 (2009: 5,464,000) and the Group considers such arrangements to be derivatives. The Group performs a revaluation of sports betting open positions at each statement of nancial position date. The revaluation takes into account the expected probability of such open positions resulting in a gain or loss to the Group in the future, and is dependent on factors that cannot always be reliably predicted. The fair value of the Groups Sportsbet buyout call options at 31 December 2010 was an asset of 6,978,000 (2009: liability of 138,000 as restated). The valuation of these embedded derivative nancial instruments has been performed by an independent advisor. The valuation is sensitive to a number of assumptions, including the future expected protability of Sportsbet, the estimated current market value of Sportsbet, risk free rates, volatility rates, future dividend yields and probabilities of individual options being exercised. The directors believe that the value attributed to the Sportsbet buyout call options at 31 December 2010 is reasonable and appropriate. The majority of the Groups retail premises are held under operating leases. Under accounting standards there is a requirement for management to examine the buildings element within such operating leases to determine if the lease meets the denition of a nance lease and, if so, it should be accounted for as such. This review involves determining the fair value of each property at the inception of the lease and analysing the minimum lease payments between their land and buildings elements. Based on managements review of operating leases for the years ended 31 December 2010 and 2009, all retail premises leases qualify as operating leases. Included in trade receivables at 31 December 2010 of 5,508,000 (2009: 6,391,000) are gross receivable balances of 7,802,000 (2009: 7,782,000), stated net of an impairment provision for bad and doubtful accounts of 2,294,000 (2009: 1,391,000). Management believes that the impairment provision represents their best estimate of the value of receivable balances at 31 December 2010 that may not be recoverable from customers, and that the carrying value of trade receivables is their fair value.
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Company Balance Sheet

Note
Fixed assets Intangible assets Goodwill Tangible assets Financial assets
3 4 6 7
201 6,648 38,198 78,185 123,232
535 5,955 41,492 52,245 100,227
Current assets Trade and other receivables Cash at bank and on hand
8 9
161,519 80,718 242,237 (171,768) 70,469 193,701
104,207 29,085 133,292 (80,649) 52,643 152,870 (885) (444) 151,541
Creditors (amounts falling due within one year) Net current assets Total assets less current liabilities Creditors (amounts falling due after more than one year) Provision for liabilities Net assets Capital and reserves Called-up share capital Share premium Capital redemption reserve fund Capital conversion reserve fund Treasury shares Shares held by long term incentive plan trust Share-based payment reserve Prot and loss account Shareholders funds all equity interests Notes 1 to 18 on pages 130 to 142 form an integral part of these nancial statements.
10
11 12
(1,141) 192,560
13 13 13 13 13 13 13 13 13
4,995 20,876 876 260 (5,975) (33,890) 21,910 183,508 192,560
4,977 18,009 876 260 (5,975) (31,858) 14,968 150,284 151,541
Jack Massey
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Notes to the Company Financial Statements
1. Basis of preparation and accounting policies

The nancial statements have been prepared in euro in accordance with generally accepted accountancy principles under the historical cost convention and comply with the nancial reporting standards of the Accounting Standards Board, as promulgated by the Institute of Chartered Accountants in Ireland. The accounting policies have been applied consistently throughout the year and the preceding year. As permitted by section 148(8) of the Companies Act 1963, no separate prot and loss account is presented in respect of the Company. The Company recorded a prot for the year of 64.1m (2009: 67.8m), which includes dividends receivable from a number of subsidiary companies amounting to 54.0m (2009: 50.0m). Financial assets Interests in subsidiary undertakings are stated in the Company balance sheet as nancial xed assets, at cost less, where necessary, provisions for impairment. The Group has certain Sportsbet buyout call options, which are characterised as embedded derivatives. Embedded derivatives are separated from their host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the denition of a derivative and the combined instrument is not measured at fair value through prot or loss. Separable embedded derivative nancial assets and liabilities are netted where they relate to the same host contract. Changes in the fair value of separable embedded derivatives are recognised immediately in prot or loss. Included within nancial xed assets are capital contributions representing share-based payment awards made to employees of certain of the Companys subsidiaries. Tangible assets and depreciation Tangible assets are stated at historical cost less accumulated depreciation. Depreciation is calculated so as to write off the cost less estimated residual value of tangible assets on a straight line basis over their estimated useful lives, as follows: Land Buildings: Freehold Buildings: Leasehold improvements Not depreciated 50 years unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease if there is an unconditional right of renewal 3 7 years 3 years 3 5 years 5 years
Fixtures and ttings Computer equipment Computer software Motor vehicles
The residual value, if not insignicant, is reassessed annually. Goodwill Goodwill arising on the acquisition of a subsidiary or business, representing the excess of cost over the fair value of the identiable assets and liabilities acquired, is capitalised and amortised by equal annual instalments against prot over its expected useful life, currently 20 years. Provision is made for any impairment in the value of goodwill held. Intangible assets Intangible assets, principally comprising licences, are capitalised at cost and amortised over their estimated useful economic lives on a straight line basis. Licences comprise the costs of acquiring retail bookmaking licences, the rents incurred in respect of the period prior to each shop opening for business and licences for electronic point of sale (EPOS) system software. The estimated useful economic lives of intangible assets, according to which amortisation is calculated, are as follows: Licences shop licences and EPOS software licences 5 years
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1. Basis of preparation and accounting policies (continued)

Leases Assets held under nance leases are included in the balance sheet at their capital value and are depreciated over the term of the lease. The corresponding liabilities are recorded as a creditor and the interest element of the nance lease rentals is charged to the prot and loss account over the term of the lease to produce a constant rate of charge on the balance of capital repayment outstanding. Operating lease rentals are charged to the prot and loss account on a straight line basis over the lease term. Pensions The Company operates a number of dened contribution pension schemes for certain employees and executive directors. Contributions are charged to the prot and loss account as incurred. Foreign currency Transactions denominated in foreign currencies are translated at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date. The resulting prots and losses are dealt with in the prot and loss account. Taxation Current tax, including Irish corporation tax and foreign tax, is provided on the Companys taxable prots at amounts expected to be paid using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the Companys taxable prots and its results as stated in the nancial statements that arise from the inclusion of gains and losses in taxable prots in periods different from those in which they are recognised in the nancial statements. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable prots from which the future reversal of the underlying timing differences can be deducted. Cash ow statement Under the provisions of FRS 1, Cash Flow Statements, a cash ow statement has not been prepared as the Company itself publishes consolidated nancial statements that include a cash ow statement in the required format. Related party transactions Under the exemption granted by FRS 8, Related Party Disclosures, the Company, as a member of a group which publishes consolidated nancial statements in which the Company is included, is not required to and does not disclose transactions with fellow members, associated undertakings and joint ventures of that group. Financial assets and liabilities Under the provisions of FRS 29, Financial Instruments: Disclosures (paragraph 2D), the Company is exempt from disclosing nancial instruments in its single entity nancial statements. Share-based payments The Company operates equity-settled share option schemes for employees under which Group employees acquire options over Company shares. The fair value of share options granted is recognised as an employee benet cost / increase in investment in subsidiary with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense / increase in investment in subsidiary is adjusted to reect the actual number of share options that vest.
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Notes to the Company Financial Statements (continued)

The Company operates an equity-settled share save scheme (SAYE) for employees under which Group employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benet cost / increase in investment in subsidiary with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period of the savings contract. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense / increase in investment in subsidiary is adjusted to reect the actual number of share options that vest. The Company operates certain equity-settled long term incentive plans (being the Long Term Incentive Plan and the Managers Deferred Share Award Scheme, collectively referred to as the share award schemes) for selected senior Group executives and other key Group management under which they are conditionally awarded shares which vest upon the achievement of predetermined earnings targets. The fair value is measured at the award grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant. Own shares held Purchases of the Companys shares by the long term incentive plan trust, which have been conditionally awarded to Group executives under the terms of the share award schemes, and purchases of the Companys own shares held as treasury shares are shown separately as deductions from equity in the balance sheet. Transaction costs relating to the purchase by the Company of its own shares are written off directly to retained earnings. Where the Company purchases its own shares and subsequently cancels those shares, the cost of the shares cancelled is written off directly to retained earnings. The nominal value of the shares cancelled is transferred from share capital to the capital redemption reserve fund. Dividends Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the balance sheet date are disclosed in Note 34 to the consolidated nancial statements.

2010 000 2009 000
Wages and salaries Social security costs Dened contribution pension and life assurance costs Share-based payments (see below) Other staff costs
28,310 3,841 657 3,891 1,268 37,967

2010
31,054 2,962 680 1,594 1,310 37,600

2009
The average number of persons employed by the Company (including executive directors), all of whom were involved in the provision of betting services, during the year was Details of transactions with directors are set out in Note 7 to the consolidated nancial statements.
902
912
132
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2. Employee expenses and numbers (continued)

Summary of share-based payments expense The share-based payments expense in the prot and loss account in respect of the Companys share schemes is comprised as follows:
2010 000 2009 000
Share option scheme Sharesave scheme Long Term Incentive Plan Managers Deferred Share Award Scheme
3 284 3,596 8 3,891
5 195 1,390 4 1,594
Summary of options outstanding to employees of the Company The total number of options outstanding at 31 December 2010 was 260,179 (2009: 286,413). These options had exercise prices ranging from 9.43 to 24.17 (2009: 8.15 to 24.17). For the year ended 31 December 2010:
Options outstanding at 1 January 2010 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2010
Share option scheme Sharesave scheme Total For the year ended 31 December 2009:
31,000 255,413 286,413
18,718 18,718
(11,268) (11,268)
(27,000) (6,684) (33,684)
4,000 256,179 260,179
Options outstanding at 1 January 2009
Options outstanding at 31 December 2009
Share option scheme Sharesave scheme Total
41,000 365,271 406,271
49,294 49,294
(10,000) (121,286) (131,286)
(37,866) (37,866)
31,000 255,413 286,413
Further details of the Companys employee share schemes are set out in Note 21 to the consolidated nancial statements.
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The movements during the year in respect of intangible assets, which comprise licences, were as follows:
Licences 000 Total 000
Cost Balance at 1 January 2010 Additions Disposals Reclassications (Note 6) Balance at 31 December 2010 Amortisation Balance at 1 January 2010 Amortisation for year Disposals Balance at 31 December 2010 Net book value At 31 December 2009 At 31 December 2010
1,539 (102) 1,437
1,539 (102) 1,437
1,004 232 1,236
1,004 232 1,236
535 201
535 201
4. Goodwill
000
Cost Balance at 1 January 2010 Acquisitions in year (Note 5) Balance at 31 December 2010 Amortisation Balance at 1 January 2010 Amortisation for year Balance at 31 December 2010 Net book value At 31 December 2009 At 31 December 2010 The goodwill balance as of 1 January 2010 arose from the assets acquired as part of the amalgamation of three bookmaking businesses to form Paddy Power plc in 1988, the acquisition of eight licensed bookmaking shops (through three separate acquisitions) in Ireland in 2007 and the acquisition of one licensed bookmaking shop in 2009.
8,584 1,140 9,724
2,629 447 3,076
5,955 6,648
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5. Purchase of businesses
Year ended 31 December 2010 Acquisition of additional 9.8% of Sportsbet Pty Limited On 12 February 2010, the Company increased its shareholding in Sportsbet to 60.8% through the buyout of a non-controlling shareholder who had no executive involvement with the business. The consideration for the 9.8% shareholding acquired amounted to AUD13.0m (8.5m) in cash. The Company also acquired that shareholders loan to Sportsbet as part of the transaction.
2010 000
Cash consideration Acquisition expenses paid
8,481 80 8,561
Payment of deferred consideration for 51% of Sportsbet Pty Limited On 18 August 2010, the Company paid the non-controlling shareholders of Sportsbet an amount of 7.0m (AUD10.0m) in respect of deferred consideration for the Companys initial 51% acquisition of Sportsbet. The payment followed conrmation that the relevant protability target set for the nancial year ended 30 June 2010 had been achieved by Sportsbet. At 31 December 2009, an amount of 6.2m had been accrued for this liability.
2010 000
Deferred consideration paid Deferred consideration payment accrued as of 31 December 2009 Change in deferred consideration amount in year (foreign exchange movements) Shop property acquisition In 2010, the Company, in the absence of available comparable sites for organic shop openings, acquired two retail licensed bookmaking businesses in Ireland. Details of the net assets acquired and the goodwill arising on this acquisition are as follows:
Provisional fair value adjustments 31 December 2010 000
7,007 (6,216) 791
Book value on acquisition 000
Provisional fair values 31 December 2010 000
Identiable net assets acquired: Tangible xed assets Goodwill arising on acquisition Consideration (including associated purchase costs) Satised by: Cash consideration (including associated purchase costs) Contingent consideration accrued
69 69
69 69 1,140 1,209
859 350 1,209
Net cash outow from purchase of businesses Purchase of businesses, net of cash acquired Acquisition expenses paid
859 859
The principal factors contributing to the goodwill balance above are the well established nature of the acquired businesses within the locations in which they operate, the quality of their customer bases and the potential synergies, rebranding opportunities and operational efciencies achievable for the acquired businesses within the Paddy Power plc group. Information in respect of amounts staked, income, operating prot and cash ows for the acquired shops in respect of the period from acquisition and for the twelve months ended 31 December 2010 has not been presented on the basis of immateriality.
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5. Purchase of businesses (continued)

Year ended 31 December 2009 Sportsbet Pty Limited On 1 July 2009, the company purchased a 51% shareholding in Sportsbet Pty Limited (Sportsbet), a provider of internet and telephone sports betting services in Australia. The initial purchase consideration for this investment amounted to 26.3m, comprising a cash payment of 24.6m and the granting of 100,000 ordinary shares of the Company valued at 1.7m (see Note 13). An additional payment of AUD10.0m (6.2m) is payable in 2010 if certain protability targets are achieved by Sportsbet in respect of the nancial year ended 30 June 2010. Acquisition costs incurred by the Company in relation to the purchase totalled 2.3m. See also Note 16 to the consolidated nancial statements for further information. Under the terms of the acquisition, certain call options were granted to the Company and to the non-controlling interest in Sportsbet (see Note 7 below and Note 15 to the consolidated nancial statements for further information). The net fair value of these options has been deducted from the overall purchase consideration in the calculation of the cost of the investment in Sportsbet. The cost of the investment in Sportsbet is analysed as follows:
Cash consideration (including associated purchase costs) Shares issued Deferred consideration Acquisition expenses paid Accrued acquisition expenses Financial asset Sportsbet buyout call options (Note 7)
24,627 1,648 6,216 2,172 154 34,817 (917) 33,900
Shop property acquisition In January 2009, the Group, in the absence of available comparable sites for an organic shop opening, acquired a retail licensed bookmaking business in Ireland. Details of the net assets acquired and the goodwill arising on this acquisition are as follows:
Book value on acquisition 000 Fair value adjustments 31 December 2009 000 Fair values 31 December 2009 000
Identiable net assets acquired: Tangible xed assets Goodwill arising on acquisition Consideration (including associated purchase costs) Satised by: Cash consideration (including associated purchase costs) Contingent consideration accrued
100 100
(80) (80)
20 20 1,144 1,164
1,064 100 1,164
Net cash outow from purchase of businesses Purchase of businesses, net of cash acquired Acquisition expenses paid
1,000 64 1,064
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5. Purchase of businesses (continued)

The principal factors contributing to the goodwill balance above are the well established nature of the acquired business within the location in which it operates, the quality of its customer base and the potential synergies, rebranding opportunities and operational efciencies achievable for the acquired business within the Paddy Power plc group. Information in respect of amounts staked, income, operating prot and cash ows for the acquired shop in respect of the period from acquisition and for the year ended 31 December 2009 has not been presented on the basis of immateriality.
6. Tangible assets
Land, buildings & leasehold improvements 000 Fixtures, ttings & equipment 000 Computer equipment 000 Computer software 000 Motor vehicles 000
Total 000
Cost Balance at 1 January 2010 Additions Purchase of businesses (Note 5) Reclassications (Note 3) Transfers to other Group companies Disposals Balance at 31 December 2010 Depreciation Balance at 1 January 2010 Charge for year Transfers to other Group companies Impairment credits Disposals Balance at 31 December 2010 Net book value At 31 December 2009 At 31 December 2010
35,985 539 214 (15) 36,723
50,399 2,985 69 (173) 665 (163) 53,782
3,759 396 61 466 (17) 4,665
2,989 79 (15) 3,053
148 44 (111) 81
93,280 3,999 69 102 1,175 (321) 98,304
13,157 1,785 (102) (2) 14,838
32,936 5,685 (241) (120) 38,260
3,644 732 (1) (15) 4,360
1,940 650 (11) (12) 2,567
111 11 70 (111) 81
51,788 8,863 70 (355) (260) 60,106
22,828 21,885
17,463 15,522
115 305
1,049 486
37 -
41,492 38,198
The net book value of land, buildings and leasehold improvements at 31 December 2010 includes 18.2m (2009: 18.5m) in respect of leasehold improvements. The impairment credits relate to the retail business segment and have arisen from a review of the carrying value of shop properties. The recoverable amounts used in the calculation of the impairment credits are based on value in use. The pre-tax discount rate used to determine value in use was 10% (2009: 10%). The impairment credit of 355,000 (2009: credit of 252,000) recorded in the year ended 31 December 2010 includes 226,000 (2009: 386,000) relating to new impairment charges and is stated net of impairment reversals of 581,000 (2009: 638,000). The directors do not consider the remaining useful lives of tangible xed assets to be materially different from the period over which the assets are being depreciated.
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7. Financial assets
Unlisted investments in subsidiary companies 000 Embedded derivatives 000 Capital contributions 000
Total 000
Balance at 1 January 2010 Share-based payments Movement during year acquisition of additional 9.8% of Sportsbet (Note 5) Change in fair value of Sportsbet buyout call options Deferred consideration payment 51% acquisition of Sportsbet (Note 5) Other movements Balance at 31 December 2010
34,097 8,561 1,055 791 (64) 44,440
917 6,061 6,978
17,231 9,536 26,767
52,245 9,536 8,561 7,116 791 (64) 78,185
In the opinion of the directors, the value to the Company of the unlisted investments in subsidiary companies is not less than the carrying amount of 44,440,000 (2009: 34,097,000). The Companys principal subsidiaries are listed in Note 33 to the consolidated nancial statements. Capital contributions represent amounts included in the Companys share-based payment reserve relating to share-based payment awards made to employees of certain of the Companys subsidiary undertakings. The embedded derivatives nancial asset arises in respect of call options granted by the vendors of Sportsbet to the Company and a call option granted by the Company to the vendors of Sportsbet. These call options relate to the acquisition of the Companys and the non-controlling interests shareholdings in Sportsbet (see Note 15 to the consolidated nancial statements for further information). The movement in the fair value of the call options in the year of 7,116,000 has been credited to nancial income in the prot and loss account.

Other debtors and prepayments Amounts owed by fellow Group companies Loan receivable from Sportsbet Deferred tax (Note 12)
1,351 158,034 1,663 471 161,519
1,564 98,810 3,833 104,207
All of the above debtors, with the exception of the loan receivable from Sportsbet, fall due within one year. The loan receivable from Sportsbet is repayable by Sportsbet on or before 25 September 2016. The loan is non-interest bearing. Amounts owed by fellow Group companies are unsecured, interest free and repayable on demand.
9. Cash at bank and on hand

Included in cash at bank and on hand at 31 December 2010 is an amount of 21,081,000 (2009: 9,025,000 (GBP8,015,000)) which was restricted at that date and up to 14 January 2011 as it formed part of a guarantee issued in favour of the Isle of Man Gambling Supervision Commission in respect of player funds held by a subsidiary of the Company, Paddy Power Isle of Man Limited (see Note 16).
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10. Creditors (amounts falling due within one year)

Trade creditors Accruals Corporation tax PAYE and social welfare Betting duty Sports betting open positions Value added tax Deferred consideration for business combinations Amounts owed to fellow Group companies
922 10,780 126 1,754 2,026 1,409 157 50 154,544 171,768
1,469 6,664 710 799 2,360 894 158 6,329 61,266 80,649
Amounts owed to fellow Group companies are unsecured, interest free and repayable on demand.
11. Creditors (amounts falling due after more than one year)
Accruals Deferred consideration for business combinations
841 300 1,141
885 885
12. Provision for liabilities

Deferred tax
2010 000 2009 000
Cost Balance at 1 January (Credited) / charged to the prot and loss account for year Credited to retained earnings in respect of share-based payments Balance at 31 December Deferred tax at 31 December 2010 and 2009 is analysed by category as follows:
444 (789) (126) (471)
(692) 1,136 444
Capital allowances Employee benets Share schemes Capitalised rents Other Deferred tax (asset) / liability All of the above deferred tax balances are in respect of Irish corporation tax.
122 (35) (479) 31 (110) (471)
553 (6) (154) 59 (8) 444
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13. Capital and reserves

Number of ordinary shares in issue Issued share capital 000 Capital Capital redemption conversion Share reserve reserve premium fund fund 000 000 000 Shares held by long term Treasury incentive shares plan trust 000 000 Sharebased payment reserve 000 Prot and loss account 000
Total 000
Balance at 1 January 2010 49,767,339 Shares issued on exercise of share options 186,775 Own shares acquired: By the long term incentive plan trust 354,500 ordinary shares Prot for the year Equity-settled transactions prot and loss account and nancial assets Equity-settled transactions vestings Transfer to prot and loss account on exercise of share options Dividends to shareholders (Note 14) Balance at 31 December 2010 49,954,114
4,977 18,009 18 2,867
876 -
260 -
(5,975) (31,858) 14,968 150,284 151,541 2,885
(9,048) -
- (9,048) - 64,057 64,057
876
260
- 13,427 7,016 (5,934)
126 13,553 (741) 341
4,995 20,876
(551) 551 - (30,769) (30,769) (5,975) (33,890) 21,910 183,508 192,560
The total authorised share capital of the Company comprises 70,000,000 ordinary shares of 0.10 each (2009: 70,000,000 ordinary shares of 0.10 each). All issued share capital is fully paid. The holders of ordinary shares are entitled to vote at general meetings of the Company on a one vote per share held basis. Ordinary shareholders are also entitled to receive dividends as may be declared by the Company from time to time. During 2010, 186,755 ordinary shares of 0.10 each (2009: 396,597 ordinary shares of 0.10 each) were issued as a result of the exercise of share options, for a total consideration of 2,885,000 (2009: 5,093,000), giving rise to a share premium of 2,867,000 (2009: 5,053,000). In 2009, as part of the consideration for the purchase of Sportsbet (see Note 5), the Company issued 100,000 ordinary shares to the vendors of Sportsbet on 1 July 2009. The total value of these shares on the date of issue amounted to 1,648,000, of which 1,638,000 represented the share premium on issue. The total number of shares held in treasury at 31 December 2010 was 250,000 shares (2009: 250,000 shares). All rights (including voting rights and the right to receive dividends) in the shares held in treasury are suspended until such time as the shares are reissued. The Companys distributable reserves are restricted by the value of the treasury shares, which amounted to 5,975,000 as of 31 December 2010 (2009: 5,975,000). At 31 December 2010, the Company held a further 1,456,407 of its own shares (2009: 1,438,711), which were acquired at a total cost of 33,890,000 (2009: 31,858,000), in respect of potential future awards relating to the Groups Long Term Incentive Plan and Managers Deferred Share Award Scheme (see Note 21 to the consolidated nancial statements). The Companys distributable reserves at 31 December 2010 are further restricted by this cost amount. In the year ended 31 December 2010, 336,804 shares originally valued at 7,016,000 were transferred from the long term incentive plan trust (the Trust) to beneciaries of the Trust consequent to the vesting thereof (2009: 268,144 shares originally valued at 3,735,000). The capital redemption reserve fund of 876,000 (2009: 876,000) relates to the nominal value of shares in the Company acquired by the Company and subsequently cancelled. The capital conversion reserve fund of 260,000 (2009: 260,000) arose on the redenomination of the ordinary share capital of the Company at the time of conversion from Irish pounds to euro. In 2010, an amount of 551,000 (2009: 1,372,000) in respect of share options exercised during the year was transferred from the share-based payment reserve to the prot and loss account. An amount of 126,000 of deferred tax relating to the Companys share-based payments was credited to retained earnings in 2010 (2009: nil) see also Note 12.
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2010 000 2009 000
Ordinary shares: - nal paid of 38.90 cent per share (2009: 35.40 cent) - interim paid of 25.00 cent per share (2009: 19.50 cent)
18,750 12,019 30,769
16,864 9,294 26,158
Proposed nal dividend of 50.00 cent (2009: 38.90 cent) per share (see Note 34 to the consolidated nancial statements)
24,340
18,686
15. Pension arrangements

The Company operates dened contribution pension schemes for certain employees and executive directors. The assets of the schemes are held separately from those of the Company in independently administered funds. Pension costs for the year were 572,000 (2009: 605,000) and the amount due to the schemes at 31 December 2010 amounted to nil (2009: 46,000).

(a) Guarantees The Company has uncommitted working capital overdraft facilities of 5.3m (2009: 5.2m) with Allied Irish Banks plc. These facilities are unsecured. The Company enters into nancial guarantee contracts to guarantee the indebtedness of other companies within the Group. The Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. The Company has issued a letter of guarantee totalling 9.8m (2009: 9.6m) in favour of Allied Irish Banks plc in respect of working capital overdraft facilities provided to certain of the Companys subsidiaries. A bank guarantee has been issued in favour of the Isle of Man Gambling Supervision Commission as security for player funds owed by the Companys subsidiary, Paddy Power Isle of Man Limited, to its customers. This guarantee is required as part of Paddy Power Isle of Man Limiteds Online Gambling Licence. The maximum amount of the guarantee at 31 December 2010 was GBP17,000,000 (euro equivalent of 19,750,000) (2009: GBP16,000,000 (euro equivalent of 18,016,000)). No claims had been made against the guarantee as of 31 December 2010 (2009: nil). The guarantee is secured by counter indemnities from the Company and Paddy Power Isle of Man Limited, and is partly secured by a cash deposit of 21,081,000 (2009: GBP8,015,000 (euro equivalent 9,025,000)) over which the guaranteeing bank holds a oating charge (see also Note 9). A bank guarantee has also been issued in favour of the Lotteries & Gaming Authority Malta as security for player funds owed by a subsidiary of the Company, Paddy Power Bookmakers (Malta) Limited, to its customers. This guarantee is required as part of Paddy Power Bookmakers (Malta) Limiteds Remote Gaming Licence. The maximum amount of the guarantee at 31 December 2010 was 300,000 (2009: 300,000). No claims had been made against the guarantee as of 31 December 2010 (2009: nil). The guarantee is secured by counter indemnities from Paddy Power plc and Paddy Power Bookmakers (Malta) Limited. (b) Section 17 guarantees Pursuant to the provisions of Section 17 of the Companies (Amendment) Act 1986, the Company has guaranteed the liabilities of its wholly-owned subsidiary undertakings in the Republic of Ireland for the nancial year ended 31 December 2010 and, as a result, such subsidiary undertakings have been exempted from the ling provisions of Section 7 of the Companies (Amendment) Act 1986. (c) Capital commitments The Company has entered into commitments for capital expenditure not provided for in the nancial statements amounting to 230,000 (2009: 636,000).
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(d) Operating lease commitments The Company has annual commitments of 9,308,000 (2009: 8,918,000) in respect of operating leases on properties where the lease terms expire as follows:
Within 1 year Between 2 and 5 years After 5 years
1,491 801 7,016 9,308
1,088 907 6,923 8,918
17. Statutory information

2010 000 2009 000
Directors remuneration Auditors remuneration
6,822 165
6,259 125
The auditors remuneration of 165,000 (2009: 125,000) comprises 20,000 (2009: 20,000) for the audit of the Company and 145,000 (2009: 105,000) in respect of fees incurred by the Company in relation to the Group nancial statements audit. Auditor remuneration to Company external auditors (KPMG Dublin) In accordance with the requirements of Regulation 120 of Statutory Instrument 220/2010, European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010, the auditor remuneration gures presented below represent fees paid to KPMG Dublin only and are exclusive of value added tax. Audit relates to the audit of the Company nancial statements only. Audit fees borne by the Company in relation to the audit by KPMG Dublin of the Group and subsidiary companies are classied as other assurance services.
2010 000 2009 000
Audit Other assurance services Tax advisory services Other non-audit services Total
20 196 334 550
20 150 305 475
Other assurance services includes 145,000 (2009: 105,000) in respect of fees incurred by the Company for the audit of the Group nancial statements, 30,000 (2009: 35,000) in respect of fees relating to the audit of subsidiary companies which have been borne by the Company and fees for other miscellaneous assurance work of 21,000 (2009: 10,000).
18. Approval of nancial statements

The nancial statements of the Company for the year ended 31 December 2010 were approved for issue by the Board of Directors on 4 March 2011.
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Five Year Financial Summary
Financial information for the Group reported under IFRS for the ve years ended 31 December 2010 is set out below in euro and pounds sterling.
2010 000 2009 Restated 000 2008 000 2007 000 2006 000
Amounts staked by customers Income Operating prot (before exceptional item) Prot before tax Prot for the year attributable to equity holders of the Company Net cash inow from operating activities Total equity attributable to equity holders of the Company
3,834,316 443,527 103,749 111,300 90,005 160,245 228,439
2,751,537 295,928 66,694 67,192 56,946 85,420 157,563
2,100,926 283,657 75,695 81,727 68,817 95,287 127,240
2,027,777 278,952 72,106 75,828 62,778 98,828 117,362
1,795,090 218,706 45,462 49,699 41,245 67,743 128,131
Set out below is the above nancial information translated into pounds sterling at the exchange rates shown, for illustrative purposes only.
2010 GBP000 2009 Restated GBP000 2008 GBP000 2007 GBP000 2006 GBP000
Amounts staked by customers Income Operating prot (before exceptional item) Prot before tax Prot for the year attributable to equity holders of the Company Net cash inow from operating activities Total equity attributable to equity holders of the Company Average annual exchange rates used are
3,289,846 380,547 89,017 95,495 77,224 137,490 196,001 1.1655
2,451,757 263,687 59,428 59,871 50,742 76,113 140,393 1.1223
1,672,978 225,878 60,276 65,080 54,799 75,878 101,322 1.2558
1,387,653 190,893 49,344 51,891 42,960 67,630 80,313 1.4613
1,223,730 149,094 30,992 33,880 28,117 46,181 87,348 1.4669
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Additional Information for Shareholders
Listings Paddy Power plc is an Irish registered company. Its ordinary shares are quoted on the Irish Stock Exchange and the London Stock Exchange. Registrar Enquiries concerning shareholdings should be addressed to the Companys Registrar: Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Telephone: +353-1-216 3100 Facsimile: +353-1-216 3151 Website: www.computershare.com Payment of dividends direct to a bank account Dividends are paid by cheque; however shareholders resident in Ireland or in the UK may have their dividends paid by electronic transfer direct to a designated bank account. Shareholders who wish to avail of this facility should contact the Companys Registrar (see above). Payment of dividends in euro Dividend payments are made in euro by default. However, shareholders wishing to opt for payments in pounds sterling either by cheque or direct to their bank account may do so by contacting the Registrar (see details above). Crest Transfer of the Companys shares takes place through the CREST settlement system. Shareholders have the choice of holding their shares in electronic form or in the form of share certicates. Dividend Withholding Tax (DWT) Note: The following information, which is given for the general guidance of shareholders, does not purport to be a denitive guide to relevant taxation provisions. It is based on the law and practice as provided for under Irish tax legislation. Shareholders should take professional advice if they are in any doubt about their individual tax positions. Further information concerning DWT may be obtained from: DWT Unit, Collector Generals Division, Government Ofces, Nenagh, Co. Tipperary, Ireland. Telephone: +353-67-63400 Facsimile: +353-67-33822 E-mail: infodwt@revenue.ie Website: www.revenue.ie/en/tax/dwt/ General With certain exceptions, dividends paid by Irish resident companies are subject to DWT at the standard rate of income tax, which is currently 20%. DWT, where applicable, is deducted by the Company from all dividends. The following summarises the position in respect of different categories of shareholder: A. Irish resident shareholders Individuals Individuals resident in the Republic of Ireland for tax purposes are liable to DWT in respect of dividends received. Individual shareholders are liable to Irish income tax on the amount of the dividend before deduction of DWT, and the DWT may be available for offset against their income tax liability; where the DWT exceeds such liability, the shareholder may apply to the Revenue Commissioners, at the address shown above, for a refund of the excess.
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Shareholders not liable for DWT Shareholders who receive a dividend in a benecial capacity can, in certain circumstances, be exempted from DWT. Provided the shareholder furnishes a properly completed declaration on a standard form to the Companys Registrar, and not less than three working days prior to the relevant dividend payment record date, the following classes of shareholders may receive their dividends gross: Companies resident in the Republic of Ireland for tax purposes; Qualifying Employee Share Ownership Trusts; Exempt Approved Pension Schemes; Collective Investment Undertakings; Qualifying unit trusts; Charities exempt from income tax on their income; Athletic/ amateur sports bodies whose income is exempt from income tax; Designated stockbrokers receiving a dividend for the benet of the holder of a Special Portfolio Investment Account (SPIA); Qualifying fund managers of Approved Retirement Funds or an Approved Minimum Retirement Fund; Qualifying savings managers of Special Savings Incentive Accounts; A PRSA administrator; and Persons exempt from tax on income from personal injury claims.
Copies of the relevant declaration form may be obtained from the Companys Registrar or from the Revenue Commissioners at their addresses shown on page 144. Once lodged with the Companys Registrar, the declaration form remains valid until the exempt shareholder noties the Registrar that entitlement to exemption is no longer applicable. Where DWT is deducted from dividends paid to shareholders not liable to DWT, the shareholder may apply to the Revenue Commissioners, at the address shown on page 144, for a refund of the DWT so deducted. Qualifying intermediaries Dividends received by qualifying intermediaries on behalf of a shareholder who is exempt from DWT may be received without deduction of DWT. A qualifying intermediary is a person who receives dividends on behalf of a third party, is resident for tax purposes in the Republic of Ireland or in a relevant territory*, and: holds a licence under the Central Bank Act 1971, or a similar authorisation under the law of a relevant territory, or is owned by a company which holds such a licence; or is a member rm of the Irish Stock Exchange or of a recognised stock exchange in a relevant territory; or otherwise is, in the opinion of the Irish Revenue Commissioners, a person suitable to be a qualifying intermediary; and who (a) enters into a qualifying intermediary agreement with the Irish Revenue Commissioners and (b) is authorised by them as a qualifying intermediary. * A relevant territory means: (i) a member state of the European Communities (other than the Republic of Ireland); or (ii) a country with which the Republic of Ireland has concluded a double taxation agreement which is currently in force; or (iii) a country with which the Republic of Ireland has concluded a double taxation agreement where that agreement has yet to come into force. Information concerning conditions to be satised by intending qualifying intermediaries may be obtained from the Irish Revenue Commissioners at the address shown on page 144. A qualifying intermediary should ensure that it receives completed declarations from underlying shareholders eligible for DWT exemption, so as to be in a position to notify the Companys Registrar, in advance of each dividend record payment date, of the extent to which the dividend payable to the qualifying intermediary is to be paid without deduction of DWT. A shareholder wishing to ascertain whether an entity is a qualifying intermediary should contact the Irish Revenue Commissioners at the address shown on page 144. B. Non Irish-resident shareholders Persons not resident in the Republic of Ireland are liable to DWT in respect of dividends received. The following categories of shareholder not resident for tax purposes in the Republic of Ireland may claim exemption from DWT, as outlined below: (a) an individual who is neither resident nor ordinarily resident for the purpose of tax in the Republic of Ireland and who is resident for tax purposes in a relevant territory; (b) an unincorporated entity which is not resident in the Republic of Ireland and is resident for tax purposes in a relevant territory; (c) a company which is not resident in the Republic of Ireland and is resident in a relevant territory (by virtue of the law of that relevant territory) and which is not under the control, whether directly or indirectly, of a person or persons who is/ are resident for the purpose of tax in Ireland;
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Additional Information for Shareholders (continued)
(d) a company which is not resident in the Republic of Ireland and is under the control, whether directly or indirectly, of a person or persons who is/ are resident for the purposes of tax in a relevant territory and who are not under the control, whether directly or indirectly, of a person or persons who is/ are not so resident; or (e) a company not resident in the Republic of Ireland, the principal class of the shares of which, (i) where the company is a 75 per cent subsidiary of another company, of that other company, or (ii) where the company is wholly-owned by two or more companies, of each of those companies, is substantially and regularly traded on one or more than one recognised stock exchange in a relevant territory or on such other stock exchange as may be approved of by the Minister for Finance. To claim exemption, any such shareholder must furnish a valid declaration, on a standard form available from the Irish Revenue Commissioners and from the Companys Registrar, to the Companys Registrar not less than three working days in advance of the relevant dividend payment record date, accompanied by: Categories (a) and (b): The declaration must be certied by the tax authority of the country in which the shareholder is resident for tax purposes. Where the shareholder is a trust, the declaration must be accompanied by a certicate signed by the trustee(s) showing the name and address of each settlor and beneciary and a notice in writing from the Irish Revenue Commissioners stating that the Irish Revenue Commissioners have noted the contents of the certicate. However, it is important to note where trusts are concerned that only non-resident discretionary trusts, which are resident in a relevant territory, can obtain an exemption from DWT. In that circumstance, the trustee of the discretionary trust may make the declaration. The individual beneciaries of a non-resident bare trust, where the beneciaries are resident in a relevant territory, may obtain an exemption from DWT where: the trustees of the trust have been authorised by the Revenue Commissioners to act as a Qualifying Intermediary, and where an exemption declaration has been made to the Qualifying Intermediary by the beneciaries. Category (c): The declaration must be accompanied by a certicate issued by the tax authority of the relevant territory certifying that the company is resident in that territory for tax purposes. It must also be accompanied by a certicate from the companys auditors conrming that it is not under the control, directly or indirectly, of persons resident in Ireland. Category (d): The declaration must be accompanied by a declaration from the auditors of the company conrming that the company is not resident in Ireland and is under the control, whether directly or indirectly, of persons who are resident for tax purposes in a relevant territory by virtue of the law of that territory and is not under the control of persons who are not so resident. Category (e): The declaration must be accompanied by a certicate from the companys auditors certifying that the principal class of shares in the company (or (i) where the company is a 75 percent subsidiary of another company, of that other company, or (ii) where the company is wholly-owned by two or more companies, of each of those companies), is substantially and regularly traded on one or more than one recognised stock exchange in a relevant territory or on such other stock exchange as may be approved of by the Minister for Finance. Each of the certicates mentioned above remains current from its date of issue until 31 December in the fth year following the year of issue. In relation to categories (c), (d) and (e) above, the requirements for an auditors certicate and a certicate from the foreign tax authority are not required for dividends made and new declarations provided on or after 3 April 2010. Dividends received by a shareholder who is a qualifying intermediary on behalf of a qualifying non-resident person may be received without declaration of DWT - see Qualifying intermediaries under A. Irish resident shareholders on page 145. C. Dividend statements Each shareholder receives a statement showing the shareholders name and address, the dividend payment date, the amount of the dividend, and the amount of DWT, if any, deducted. In accordance with the requirements of legislation, this information is also furnished to the Irish Revenue Commissioners. Financial calendar Announcement of nal results for 2010 Ex-dividend date Record date for dividend Annual General Meeting Dividend payment date
7 March 2011 16 March 2011 18 March 2011 17 May 2011 20 May 2011
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Letter to Shareholders
This document is important and requires your immediate attention. If you are in any doubt as to the action you should take, you are recommended to seek your own personal nancial advice from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser being, in the case of shareholders in Ireland, an organisation or rm authorised or exempted pursuant to the European Communities (Markets in Financial Instruments) Regulations (Nos. 1 to 3) 2007 or the Investment Intermediaries Act 1995 (as amended), or, in the case of shareholders in the United Kingdom, a rm authorised under the Financial Services and Markets Act 2000. If you have sold or transferred all of your registered holding of ordinary shares in the Company, please forward this document and the accompanying Form of Proxy to the purchaser or transferee or to the stockbroker, bank or other agent through or by whom the sale or transfer was effected, for delivery to the purchaser or transferee. To all shareholders I am writing to you to outline the background to the resolutions to be proposed at the forthcoming Annual General Meeting (AGM) of Paddy Power plc (the Company), all of which are recommended by the Board for approval. Your attention is drawn to the notice of the AGM of the Company, to be held at The Burlington Hotel, Upper Leeson Street, Dublin 4 at 11.00 am on Tuesday, 17 May 2011. In addition to the ordinary business which deals with the Report and Accounts, the dividend, the appointment and reappointment of directors and the Auditors remuneration, there are various items of special business which are described further below. Resolutions 3, 4(a), (b), (c) and (d) of the ordinary business propose the appointment of William Reeve and the reappointment of four directors. William Reeve was appointed by the directors since the last Annual General Meeting and, in accordance with the Articles of Association of the Company, retires at the AGM and puts himself forward for election by the shareholders. Messrs Brody Sweeney and Breon Corcoran, having served on the Board for three years, retire in accordance with Regulation 85 of the Articles of Association and, being eligible, offer themselves for reappointment. Messrs Stewart Kenny and David Power, having served on the Board for more than nine years, offer themselves for annual re-election in accordance with the provisions of the Combined Code. In view of their experience and skills, and their contribution to the Board to date, the Board recommends the appointment/ reappointment of each of these directors. Biographical information on these directors is given on page 36 of the Annual Report. Shareholders are being asked in resolution 6 to renew the directors authority to allot relevant securities, within the meaning of Section 20 of the Companies (Amendment) Act 1983, up to the unissued authorised share capital of the Company (excluding treasury shares). If renewed, this authority will expire on the date of the next AGM of the Company or 16 November 2012, whichever is earlier. The Board has no immediate intention to exercise this authority. Shareholders are being asked in resolution 7 to renew the directors authority to allot shares for cash without being required to offer them rst to shareholders. In line with best practice, this authority is limited to an allotment of shares up to ve percent of the issued ordinary share capital of the Company at the date of the resolution (currently equal to 2.52m shares). If renewed, this authority will expire on the date of the next AGM of the Company or 16 November 2012, whichever is earlier. Shareholders are being asked in resolution 8 to renew the authority to empower the Company, or any subsidiary, to make market purchases of the Companys shares. No more than ten percent of the issued share capital of the Company may be acquired under this authority. The price range at which shares may be acquired cannot be less than the nominal value of the Companys shares and cannot be greater than 105% of the average price of the Companys shares over the ve dealing days prior to the date of purchase by the Company. Shares purchased by the Company may be cancelled or held in treasury pending cancellation or re-issue.
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Letter to Shareholders (continued)
The total number of options to subscribe for shares in the Company on 1 April 2011 is 697,292 and represents 1.4% of the total voting rights of the Company (excluding treasury shares) on that date. This percentage would increase to 1.6% if the full authority to buy shares is used. The authority sought will expire on the date of the next AGM of the Company or 16 November 2012, whichever is earlier. The Board will only exercise the power to purchase shares in the future at price levels at which it considers purchases to be in the best interests of the shareholders generally after taking account of the Groups overall nancial position. Shareholders are also being asked in resolution 9 to pass a resolution authorising the Company to re-issue shares purchased by it and not cancelled as treasury shares off market within a price range, which shall not be less than 95% nor more than 120% of the average price of the Companys shares over the ten dealing days prior to the date of re-issue by the Company. The authority sought will expire on the date of the next AGM of the Company or 16 November 2012, whichever is earlier, unless previously varied or renewed in accordance with the provisions of Section 209 of the Companies Act 1990. The total number of treasury shares held by the Company on 1 April 2011 is 1,734,000, which represents 3.6% of the total ordinary share capital of the Company (excluding treasury shares in issue on that date). Shareholders are being asked in resolution 10 to maintain the existing authority in the Articles of Association which permits the Company to convene an Extraordinary General Meeting on 14 days notice in writing where the purpose of the meeting is to consider an ordinary resolution. As a matter of policy, the 14 day notice will only be utilised where the directors believe that it is merited by the business of the meeting and the circumstances surrounding the business. Action to be taken A Form of Proxy for use at the AGM is enclosed with this Annual Report. The Form of Proxy will be valid if lodged at the registered ofce of the Company or with the Companys Registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, by no later than 11am on 15 May 2011. Alternatively you may wish to submit your votes via the internet and instructions on how to do so are shown on the form. All proxy forms must be lodged no later than 48 hours before the time appointed for the meeting. The completion and lodging of the Form of Proxy will not prevent you from attending and voting in person at the meeting should you so wish. Recommendation The directors believe that the resolutions proposed are in the best interests of the Company and its shareholders, and so they recommend that you vote in favour of these resolutions at the AGM, as they intend to themselves in respect of their shares. Yours sincerely
Nigel Northridge Chairman 1 April 2011
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Notice of Annual General Meeting

of Paddy Power plc
NOTICE is hereby given that the Annual General Meeting of Paddy Power plc (the Company) will be held at The Burlington Hotel, Upper Leeson Street, Dublin 4 at 11.00 am on Tuesday, 17 May 2011 for the following purposes: To consider and if thought t, to pass the following resolutions, which will be proposed as ordinary resolutions: 1. To receive and consider the nancial statements for the year ended 31 December 2010 and the reports of the Directors and Auditors thereon. To declare a nal dividend of 50.00 cent per share for the year ended 31 December 2010. To elect William Reeve as a director who is recommended by the Board for election. To re-elect by separate resolution: Resolution 4(a) Brody Sweeney Resolution 4(b) Breon Corcoran Resolution 4(c) Stewart Kenny Resolution 4(d) David Power who retire in accordance with Regulation 85 of the Articles of Association and, being eligible, offer themselves for re-election. 5. To authorise the directors to x the remuneration of the Auditors for the year ending 31 December 2011.
2. 3. 4.
As Special Business As special business to consider and, if thought t, pass the following resolutions: 6. As an ordinary resolution That the directors be and they are hereby generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 20 of the Companies (Amendment) Act 1983) up to an aggregate nominal amount not exceeding the authorised unissued capital of the Company as at the time of passing this resolution; provided that this authority shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 16 November 2012 save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if the authority hereby conrmed had not expired. As a special resolution That for the purposes of Regulation 8(d) of the Articles of the Association of the Company, the directors are hereby empowered to allot equity securities (as dened in Section 23 of the Companies (Amendment) Act 1983) for cash pursuant to and in accordance with the provisions of their authority pursuant to Section 20 of the Companies (Amendment) Act 1983 as if sub-section (1) of Section 23 of the Companies (Amendment) Act 1983 did not apply to any such allotment provided that, pursuant to Regulation 8(d)(ii), the maximum aggregate nominal value of shares to which this authority relates shall be an aggregate nominal value of 240,383 or ve percent of the Companys issued ordinary share capital at the close of business on the date on which this resolution shall be passed; and the authority hereby conferred shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 16 November 2012 unless previously renewed, varied or revoked by the Company in general meeting provided that the Company may make before such expiry an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement notwithstanding that the power hereby conferred has expired.
7.
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of Paddy Power plc
Notice of Annual General Meeting (continued)
8.
As a special resolution That the Company and/ or any subsidiary (being a body corporate referred to in the European Communities (Public Limited Companies Subsidiaries) Regulations 1997) of the Company be generally authorised to make market purchases (as dened by Section 212 of the Companies Act 1990) of shares of any class of the Company on such terms and conditions and in such manner as the directors may from time to time determine in accordance with and subject to the provisions of the Companies Act 1990 and to the restrictions and provisions set out in Regulation 46(a) of the Articles of Association of the Company and that the authority hereby conferred shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 16 November 2012 unless, in any such case, previously renewed, varied or revoked by the Company in general meeting. As a special resolution That the re-issue price range at which any treasury share (as dened in Section 209 of the Companies Act 1990) for the time being held by the Company, may be re-issued off market, shall be the price range set out in Article 46(b) of the Articles of Association of the Company; and the authority hereby conferred shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 16 November 2012 unless, in any such case, previously renewed, varied or revoked in accordance with the provisions of Section 209 of the Companies Act 1990.
9.
10. As a special resolution That it is hereby resolved that the provision in Article 53(a) allowing for the convening of an Extraordinary General Meeting by at least fourteen Clear Days notice (where such meetings are not convened for the passing of a special resolution) shall continue to be effective. By Order of the Board
David Johnston Company Secretary 1 April 2011 Registered Ofce: Airton House Airton Road Tallaght Dublin 24
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Notes 1. Any member entitled to attend, speak and vote at the meeting is entitled to appoint a proxy (who need not be a member of the Company) to attend, speak and vote in his/ her place. Completion of a Form of Proxy will not affect the right of a member to attend, speak and vote at the meeting in person. A shareholder may appoint more than one proxy to attend and vote at the meeting provided each proxy is appointed to exercise rights attached to different shares held by that shareholder. Should you wish to appoint more than one proxy, please read carefully the explanatory notes accompanying the Form of Proxy. A member may appoint a proxy or proxies electronically by logging on to the website of the Registrars, Computershare Services (Ireland) Limited: www. computershare.com/ie/voting/paddypower. Shareholders will be asked to enter the Shareholder Reference Number, PIN Number and Control Number as printed on your Form of Proxy and agree to certain conditions. As a shareholder, you have several ways to exercise your right to vote: (a) By attending the Annual General Meeting in person; or (b) By appointing (either electronically or by returning a completed Form of Proxy) the Chairman or another person as a proxy to vote on your behalf; or (c) By appointing a proxy via the CREST System if you hold your shares in CREST. If you are appointing someone other than the Chairman as your proxy, then you must ll in the details of your representative at the meeting in the box located underneath the wording I/We hereby appoint the Chairman of the AGM OR the following person on the Form of Proxy. If you appoint the Chairman or another person as a proxy to vote on your behalf, please make sure to indicate how you wish your votes to be cast by ticking the relevant boxes on the Form of Proxy. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other registered holder(s) and, for this purpose, seniority will be determined by the order in which the names stand in the register of members. Completing and returning a Form of Proxy will not preclude you from attending and voting at the meeting should you so wish. Alternatively, you may appoint a proxy electronically, by visiting the website of the Companys Registrars at www.computershare. com/ie/voting/paddypower. You will need your Shareholder Reference Number, PIN number and Control Number which can be found on the lower section of your Form of Proxy. 4. To be valid, Forms of Proxy duly signed together with the power of attorney or such other authority (if any) under which they are signed (or a certied copy of such power or authority) must be lodged with the Companys Registrar, Computershare Services (Ireland) Limited, P.O. Box 954, Sandyford, Dublin 18 not less than 48 hours before the time appointed for the holding of the meeting. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST Proxy Instruction must be properly authenticated in accordance with Euroclear (UK and Ireland) Limiteds specications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by Computershare Services (Ireland) Limited (ID 3RA50) by 11.00 a.m. on 15 May 2011. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Computershare Investor Services PLC is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear (UK and Ireland) Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s)), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the CREST Regulations.
2.
3.
5.
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of Paddy Power plc
Notice of Annual General Meeting (continued)
6.
Each of the directors has been subject to the evaluation process recommended by the 2008 FRC Combined Code. On this basis, the Chairman and Board are pleased to recommend the re-election of those directors. If you or a group of shareholders hold at least three per cent of the issued share capital of the Company, you or the group of shareholders acting together have the right to put an item on the agenda of the AGM. In order to exercise this right, written details of the item you wish to have included in the AGM agenda together with a written explanation why you wish to have the item included in the agenda and evidence of your shareholding must be received by the Company Secretary at Paddy Power plc, Airton House, Airton Road, Tallaght, Dublin 24, Ireland or by email to info@paddypowerplc.com no later than 5 April 2011 (i.e. 42 days before the AGM meeting). An item cannot be included in the AGM agenda unless it is accompanied by the written explanation and received at either of these addresses by this deadline. If you or a group of shareholders hold at least three per cent of the issued share capital of the Company, you or the group of shareholders acting together have the right to table a draft resolution for inclusion in the agenda of the AGM subject to any contrary provision in company law. In order to exercise this right, the text of the draft resolution and evidence of your shareholding must be received by post by the Company Secretary at Paddy Power plc, Airton House, Airton Road, Tallaght, Dublin 24, Ireland or by email to info@paddypowerplc.com by no later than 5 April 2011 (i.e. 42 days before the AGM meeting). A resolution cannot be included in the AGM agenda unless it is received at either of these addresses by this deadline. Furthermore, shareholders are reminded that there are provisions in company law which impose other conditions on the right of shareholders to propose resolutions at the general meeting of a company. Pursuant to section 134C of the Companies Act 1963, shareholders have a right to ask questions related to items on the AGM agenda and to have such questions answered by the Company subject to any reasonable measures the Company may take to ensure the identication of shareholders. An answer is not required if (a) an answer has already been given on the Companys website in the form of a Q&A or (b) it would interfere unduly with preparation for the meeting or the condentiality or business interests of the Company or (c) it appears to the Chairman that it is undesirable in the interests of good order of the meeting that the question be answered.
7.
8.
9.
10. This AGM notice, details of the total number of shares and voting rights at the date of giving this notice, the documents to be submitted to the meeting, copies of any draft resolutions and copies of the forms to be used to vote by proxy are available on the Companys website at www.paddypowerplc.com. Should you not receive a Form of Proxy, or should you wish to be sent copies of documents relating to the meeting, you may request this by telephoning the Companys Registrars on 00 353 1 447 5105 or by writing to the Company Secretary at the address set out above.
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Conclusion
2010 Betting Review
JAN
The year started in very icy fashion. In fact so much so that we were forced to slash the odds on it being the coldest January on record from 12/1 to 7/1 and then even further to 5/1 and ultimately 4/6. We paid out just ten days into the month as it was clear that the only thing hotting up was the betting on the plummeting temperatures. That kept the wolf from the door while racing was falling foul of the weather. But when we did get play on the pitch, there was no lack of heat. Carlos Tevez managed to incense Gary Neville to such a degree in the 1st Leg of the Manchester Derby Carling Cup Semi that the United man was spotted on camera giving Tevez the nger, or maybe he was just pointing up in the air with his middle nger while looking angrily at Tevez well never know. But United were still favourites to go through despite being a goal behind with the home leg to come. They did go through. Surely this would be their year. The early birds were in for a hung parliament in the upcoming UK Election, backing it down to just 9/4, much to the disdain of some political dinosaurs who were at pains to explain that hung parliaments just dont happen. We also invited Barack Obama to play in the paddypowerpoker.com Irish Open over the Easter weekend when it emerged that he was a bit of a punter and a poker fan.Youll have to wait until April to nd out if he showed up! John Terry managed to get himself caught with his pants down and sparked a massive gamble on him to lose the England captaincy, he was backed from 4/1 to 11/8 to be stripped of the honour. Not that stripping was allegedly that alien to him. On the racing front Solwhit justied odds on favouritism in the Irish Champion Hurdle and made sure that Ireland would dominate the market for the English version come March. Well remember February very fondly thanks to Kwame Nkrumah-Acheampong. Most people will remember him as the Snow Leopard. He is the Ghanaian skier we sponsored at the Winter Olympics in Canada. He didnt quite win Gold but he won plenty of fans. The outsiders, the New Orleans Saints, won their rst Superbowl, but were very well backed and we only got out by the skin of our teeth. Ireland went into the Six Nations as Grand Slam Champions and rightly full of condence. Ireland got off the mark with a nice easy win over Italy, just about covering the handicap and losing us a fortune in the process. Then reality bit hard. We went to Paris and that was that. We were stuffed 33-10. The only good thing about the rugby season for Irish fans also happened in February. We beat England in Twickenham. Enough said about the game.
FEB
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Conclusion
2010 Betting Review (continued)
FEB
Continued In round ball games, Beckhams Milan was up against Man Utd. United went to Italy and cost us a right few quid by coming from a goal down to win 3-2 at pretty rewarding odds. Thankfully neither of Rooneys two goals were the rst of the match. Rooney was a name we dreaded during March. And Messi wasnt much better come to think of it.
MAR
Believe it or not Wayne Rooney scored rst in every single game he played in March except for the game against Liverpool where it was none other than Fernando Torres who stepped up to the plate! At the same time Messi went on a run of scoring ten goals in four games. Probably not the best time ever for us to offer a promotion of doubling the odds on rst goalscorer bets if your player scores twice! There were plenty of plots in Marchs Champions League matches and we saw United nish off Milan with a 4-0 drubbing in Old Trafford, while Chelsea were schooled and sent packing by Jose Mourinhos Inter Milan. March is always all about Cheltenham though, and so it was this year. The one word that springs to mind when remembering Cheltenham is BIG. Cheltenham is often compared to the movie business with scripts that you just couldnt write and starring roles and oodles of drama. The one thing they were always missing was their very own Hollywood sign. We brought Hollywood to Cheltenham, and boy was it big! Standing at over 50 feet high (thats higher than three double decker buses) the Paddy Power sign in the Cheltenham hills was actually bigger than the sign in the Hollywood hills. A BIG sign for a big festival. We kicked off the week with a big offer too. Dunguib was the unbeatable Irish banker of the week and went off at 4/5 favourite for the Supreme Novices Hurdle. We were offering money back on all losing bets in the race if and when Dunguib won. Unfortunately for his tens of thousands of backers he could only manage third behind Menorah and second favourite Get Me Out Of Here. If Get Me Out Of Here had won, wed still be paying out. We didnt win much on the race but we dodged a 4.5m bullet. The highlight of the meeting was the Gold Cup on Friday which didnt go exactly to plan with Kauto Star upending himself at the fourth last. It left the race at the mercy of Denman, but it was the imperious 7/1 third favourite Imperial Commander who landed the spoils. Seemingly the end of an era of short priced Gold Cup winners thankfully!
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MAR
Continued We were in the mood for thinking big so we went after the biggest sh of them all Tiger Woods. The poor fellow was being dropped left, right and centre by sponsors after scandals in his personal life, which looked like a great opportunity for us to step in and help him out. We offered him a sponsorship deal, but unfortunately he nally managed to say no. Phil Mickelson won the Masters, Chelsea and Bayern Munich both beat United, Lionel Messi beat Arsenal but April belongs to Tony McCoy. He nally won the Grand National and pretty much broke the bookies in the process. Its only tting though that he does it on a horse that everyone is on. Dont Push It was subject of one of the biggest ever Grand National gambles and was comfortably our worst National result ever. To make matters worse we agreed to buy everyone in Liverpool a pint if McCoy broke his duck, a long night in Aldos bar for Paddy! By the way Obama didnt show up for the Poker tournament either. Eyjafjallajkull is a name we all remember fondly from April 2010. Its not a Ukrainian supermodel but the Icelandic Volcano that caused an awful lot of bother across Europe. It did inspire us to launch volcanobetting.com which allowed would be holiday makers bet on their airport being closed on the day they were going on holidays. It was immensely popular and had real potential as a business channel, now if only that volcano would erupt again May kicked off with Gordon Brown kicked out. We paid out early on a Tory win in the UK election after Camerons performance in the last TV debate where he wiped the oor with Brown. As the results tumbled in, it was never in doubt. The Premier League title race was still alive to the last day of the season, although Chelsea were very much in the driving seat and justied their nal morning odds of 1/12 to keep United at bay. It was also the last chance for some of the fringe players to impress Fabio Capello and break into the World Cup squad. I bet some of them wished they hadnt played so well! Didier Drogbas 59th minute goal in the FA Cup nal saw Chelsea complete their double with victory over unlikely nal opponents Portsmouth.
APR
MAY
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Conclusion
MAY
Continued In the non sporting world, BP were in somewhat hot water with the oil leak in the Gulf. Their CEO, Tony Hayward, wasnt the most popular man on the planet and there was a big betting plunge on him losing his job, BP denied there was any truth in the rumourright before they announced he was gone! The whole year was all about June and the kick off of the World Cup. This was to be Englands time. Themselves and Spain were the two best backed teams and they went into their rst game with the USA with the weight of a nation on their shoulders. Stephen Gerrard scored on four minutes to get the World Cup off to a dream start but then Robert Green the England goalie has a complete shocker and spills an easy catch into his own net. It ends 1-1, and who would have thought that was about as good as it was going to get. The mighty Algeria held England to a scoreless draw in their second game and while the fans booed, Rooney berated them to a TV camera on his way off the pitch not good Wayne! I hate to say it to any of our English cousins who may be reading this but these two results were two of the best weve ever had in football from a betting perspective. Finally the fans get a victory when Jermaine Defoe beats Slovenia and they land the juiciest of ties against Germany in the last sixteen. Klose, Podolski and a brace from Mller sent England home. Spain stuttered to begin with but soon began giving public lessons on how to play the beautiful game. At the same time the Dutch were getting down and very dirty, but proving that it doesnt have to be pretty to be effective. The racing world was taken by storm by Workforce who upset Aidan OBriens hotpot Jan Vermeer when running away with the Derby at Epsom. June 2011 will never be forgotten by backers of Graeme McDowell, nor by the great man himself, who won the US Open at odds of 60/1. In a pretty dramatic nal round Dustin Johnson lost the plot and McDowell showed nerves of steel to go on and win his rst major. Hes exactly the type of ice cool player we could do with at the Ryder Cup in October. The World Cup was coming to its climax and with the quarters and semis being more dramatic than a Shakespearian festival, the purists willed on Spain to prove that good could prevail over evil, while Dutch fans were probably the only ones to cheer on Holland and not all of them admitted to it! Both were big losers for us in the World Cup winner market, so we just wanted a draw to get something back.
JUN
JUL
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Continued Spain played football in the World Cup Final, Nigel De Jong played some sort of weird martial arts where you drop kick someone in the chest. The ref thought it was OK though, so game on! Everyones a winner! The bookies get their draw and Iniestas extra time winner gives Spain their trophy I suppose Holland werent winners so only nearly everyones a winner! If the US Open was anything to go by, the British Open was going to be a crackerand it looked like it might be when Rory McIlroy shot a rst round 63, but after his second round 80, Who ey? Oosthuizen led from then to the end. It was a good result as he was any treble gure price you want before the start but not exactly the exciting Sunday nish we were looking for. The Wimbledon mens nal was a bit of a damp squib with Rafa Nadal hammering Tomas Berdych in straight sets. John Isners earlier victory over Nicolas Mahut was a little bit closer and will be the outstanding memory from Wimbledon 2010. The match went on for over 11 hours with Isner eventually winning the nal set 70 games to 68 you would have got pretty big odds on that. Chelsea were pre season favourites to win the Premier League at 13/8 and after winning both of their rst two 6-0 it looked like a pretty decent bet. They scored 14 goals in their rst three games and conceded none. Not bad for the goal difference! In Golf, Dustin Johnson reared his head again in the USPGA. It looked like justice was going to be done when he stood on the 18th tee with a one shot lead. He hit his ball onto a bit of scrub and then proceeded to play his way to a bogey on the hole which left him in a playoff, or so he thought. Everything thats wrong with golf came to the fore and he was penalised two shots for grounding his club in a bunker. It seemed strange as the spectators had been walking through where he played from usually spectators cant walk through bunkers. So, Dustin loses out on about a squillion dollars and punters look likely to lose their dough too, but of course we couldnt let that happen and refund all losing bets on Johnson to win and pay him out as an each way winner. By the way Martin Kaymer beat Bubba Watson in the playoff. In racing, red hot favourite Starspangledbanner could only manage second place in the Nunthorpe at York. He would have been a stinker of a result but even more importantly the winner, Sole Power, was 100/1 and owned by Paddys mum!
AUG
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Conclusion
SEP
Hurling fans will remember 2010 as the year that Tipperary came of age. Lar Corbetts hat-trick in the All Ireland Final put paid to Kilkenny and stamped the Premier County as the ones to beat in the fastest game in the world. Cork beat Down by just a point in a nailbiter of an All Ireland Football Final. Giovanni Trappatonis Ireland managed two huge wins in September, putting the mighty Andorra and Armenia to the sword in our bid to qualify for Euro 2012. And before you English readers start to snigger, dont forget you could only draw with the mighty Montenegro! We did pay out early on Europe winning the Cup though as it seemed very unlikely to be Americas weekend especially when their rain gear turned out not to be waterproof! The Ryder Cup nally began, albeit a day late thanks to the lashings of rain, and the script didnt exactly go to plan for Europe with the USA showing that apparently they actually did know how to play golf in the rain. It was a shock to us all that the weather was so bad imagine, rain in Wales in October. Who could possibly have predicted that! It was nip and tuck all the way and on the nal day (Monday) it looked like it was going to be one of those moments for Graeme McDowell and so it was. What a little legend he his, holding his nerve and winning the Cup! Hell have some job topping 2010! Workforce had opped after his Derby win but came back and just got up for Prix De lArc glory in France. Not the worst result in the world as Behkabad and Fame And Glory had both been heavily backed in the build up. 6/1 must be Workforces favourite price! Chelsea had lost to Man City but were still rolling along nicely and looking very solid in their bid to retain their title. Meanwhile, Spurs were struggling a little when 4-0 down to Inter in the rst 35 minutes before Gareth Bale decided that if nobody else was going to do it, he was. He picked a pretty good time to score his rst hat-trick, and even though they lost 4-3, Spurs were moral victors and Bale was worth a few zeros more.
OCT
158
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Two football matches deserve a mention in November, probably of slightly differing standards. Barcelona destroyed Real Madrid 5-0 in a masterclass of football, and in a far tighter affair Sligo Rovers and Shamrock Rovers clashed in the FAI Cup Final. The Cup Final went to penalties which should have been advantage to double-seeking Shamrock Rovers, as Sligo were without their rst choice keeper. Super sub Ciaran Kelly was in nets and managed to save no less than four penalties in the shootout to give a famous victory to Sligo Rovers. Long Run was the hot favourite for the rst big race of the jumps season, The Paddy Power Gold Cup, at Cheltenham. He should have hacked up on the form book but didnt. That settled it, he just doesnt like Cheltenham. Little Josh went off in front and pinged every single fence, they didnt get near him. Diamond Harry won the Hennessy and was made work for it by the never say die Denman who carried a mammoth weight to nish third. Hes never been out of the rst four when completing I probably should have been backing him. The weather closed in in December and played havoc with the racing calendar in particular.
DEC
Leopardstown somehow managed to race, albeit a bit late, and whetted our appetite for the jumps season ahead. Dermot Weld had won the Ascot Gold Cup, half of the races at Galway and now popped up to win the Paddy Power Chase with Majestic Concorde does this man never tire of winning things? What about all the other lads? Youd think hed give them a chance! Chelsea were starting to stutter and when Arsenal stuffed them 3-1 they no longer looked so invincible. Game on! It was a mixed time for Arsenal. They beat Chelsea, one of their biggest fans jockey AP McCoy won sports personality of the year, but they drew Barcelona in the Champions League the elusive four timer wasnt looking as healthy now. Another year over, plenty of ups and downs, and with no World Cup (except for rugby, cricket, beach volleyball and tiddlywinks) 2011 is bound to be a quiet one.
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Notes
160
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www.sourcedesign.ie
The paper used in this publication comes from a well managed forest.
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Airton House, Airton Road, Tallaght, Dublin 24 Tel: +353 1 404 5900 Fax: +353 1 404 5901 E-mail: info@paddypowerplc.com Website: www.paddypowerplc.com
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Title here
PPad
Paddy Power plc Airton House, Airton Road, Tallaght, Dublin 24 Tel: +353 1 404 5900 Fax: +353 1 404 5901 E-mail: info@paddypowerplc.com Website: www.paddypowerplc.com
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PADDY POWER PLC ANNUAL REPORT 2006
TO ENTER THE PADDY POWER ANNUAL REPORT 2006 YOU MUST BE AT LEAST 18 YEARS OF AGE and denitely NOT an American resident
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2006 was a huge year for us - we turned 18. But does growing up mean its the end of all of our fun? Of course not - It means ADULT fun from here on in! Were grown-ups and like all grown-ups we like to experiment. We no longer have to just sneak a look at those magazines on the top shelf; we can take them down and buy them. We can play strip poker with our friends, in fact we can go and set a new World record for the biggest ever strip poker tournament with 200 of our closest friends. We are The Entertainment Company which specialises in betting. If its fun its for us. Weve even made our Annual Report fun. Were prepared to take risks. If somebody has a dream that a football player is going to score a goal from inside their own half, well offer them odds. Why? Because we can and thats what we do! Lets go back to those top shelf magazines for a moment. If it was down to us to publish them wed certainly have some fun. Read on & enjoy!
On the morning of Saturday 19th August almost 200 people descended on the famous London venue known as the Caf Royal to take part in one of the most unusual Guinness World Record attempts; the Worlds Largest Strip Poker Tournament. Sitting nervously awaiting the rst players to arrive it was hard to believe that the entire event began as a silly trademark Paddy Power April Fools prank six months earlier when a spoof press release made its way into several national newspapers. It wasnt long before the Napoleon Suite was fully seated with all 200 players in their stripping uniform of hat, tee-shirt, shorts & underwear. There were many highlights from the day, but one of the best moments has to be the brave Laura Bennet etching her name (and picture!) into the history books by standing on her seat and becoming the rst girl to twirl her towel around her head wearing nothing but a thong & a smile! Jon Young from London was the eventual winner, but lets face it everyone was a winner. 200 people, 20 tables, very little clothing and a new World record. Job done!
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Directors and Other Information

Directors Fintan Drury Chairman Patrick Kennedy Chief Executive Breon Corcoran Managing Director Non Retail and Development Jack Massey Finance Director Tom Grace Non-Executive Director Stewart Kenny Non-Executive Director Nigel Northridge Non-Executive Director David Power Non-Executive Director Brody Sweeney Non-Executive Director Contents 3 4 5 7 9
Directors and Other Information 2006 Group Highlights Chairmans Statement Chief Executives Statement Operating & Financial Review
19 Board of Directors
I can say for denite that Donnacha OCallaghan was not the only man to have his pants taken down last year. Picture the scene; its May, its the Millennium Stadium in Cardiff, 80,000 people there 75,000 of them in red. Theres only one Irish man wearing white, and thats Paddy Power! Munster stumbled early in the campaign and looked down and out. Their odds drifted out to 40/1 and only the faithful believed. Not only did they believe, they piled in. At 40/1, at 20/1, at 10/1, at 8/1, you name it they backed it. Peter Stringer is too onedimensional, he never picks and goes himself, he always passes or kicks thats what the form book says. The record book on the other hand says that Stringer duped the whole stadium and scooted into the corner. The horns were blaring outside, but there was tumbleweed blowing through the Paddy Power trading room. The 6 foot 6 rugby odds compiler was sitting head in hands while the couple of lads from Munster were struggling to stie their grins. It wasnt pretty but deep down we all wanted them to win!
Company Secretary and Registered Office David Johnston Airton House, Airton Road, Tallaght, Dublin 24 Stockbrokers Goodbody Stockbrokers Ballsbridge Park, Ballsbridge, Dublin 4 Investec 2 Gresham Street, London, EC2V 7QP Legal Advisers Arthur Cox Earlsfort Centre, Earlsfort Terrace, Dublin 2 Kennedy McGonagle Ballagh 127 Lower Baggot Street, Dublin 2 Auditor KPMG 1 Stokes Place, St Stephens Green, Dublin 2 Principal Bankers Allied Irish Banks plc 100-101 Grafton Street, Dublin 2 Lloyds TSB plc Bailey Drive, Gillingham Business Park, Kent, ME8 0LS Registrars Computershare Investor Services (Ireland) Limited Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18 Registered Number 16956
20 Directors Report 28 Statement of Directors Responsibilities 29 Corporate Governance 38 Remuneration Committee Report 41 Independent Auditors Report 43 Consolidated Income Statement 44 Consolidated Statement of Recognised Income and Expense 45 Consolidated Balance Sheet 46 Consolidated Cash Flow Statement 47 Notes to the Consolidated Financial Statements 77 Company Balance Sheet 78 Notes to the Company Financial Statements 90 Five Year Financial Summary 91 Additional Information for Shareholders 94 Letter to Shareholders 95 Notice of Annual General Meeting of Paddy Power plc
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2006 Group Highlights
4
Amounts staked Retail Telephone Online Total amounts staked* Total revenue* Profit before taxation Profit after taxation Earnings per share Basic earnings per share Adjusted earnings per share** Dividends per share Interim paid Final proposed Total
Year ended 31 December 2006 m 963.1 306.6 525.4 1,795.1 218.7 49.7 41.2
Year ended 31 December 2005 (restated) m 794.3 249.9 327.5 1,371.7 160.8 31.3 27.0
% Change
+21% +23% +60% +31% +36% +59% +53%
0.819 0.786
0.541 0.541
+51% +45%
0.0943 0.2277 0.3220
0.0775 0.1284 0.2059
+22% +77% +56%
Amounts staked
1,795.1 2000
Earnings per share

100 81.9
Dividends per share

32.20 2001 2002 2003 2004 2005 2006 5.10 10.20 12.89 18.72 35
30
1,371.7
80 20.59 25 56.6
CENT PER SHARE CENT PER SHARE
1500 1,159.7
60
54.1
1000 673.8
913.6
20
37.0
461.1
31.4
40
15
20
16.0
500
10
2001 2002 2003 2004 2005 2006
2001 2002 2003 2004 2005 2006
* Amounts staked by customers (turnover) represent amounts received in respect of bets placed on sporting events that occurred during the period and net winnings on gaming activities. Revenue (or gross win) represents the net gain on sports betting transactions (stake less payout) and net winnings on gaming activities. ** Adjusted earnings per share is calculated excluding a once-off after-tax property gain of 1,677,000 that was recorded in the year ended 31 December 2006.
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Chairmans Statement
Dear Shareholder, I am pleased to report on an exceptional year of growth and protability for Paddy Power. 2006 Turnover Pre tax profit Adjusted basic EPS Dividend Cash balances 1,795m 47.6m 78.6 cent 32.2 cent 87.1m % Change +31% +52% +45% +56% +66%
Regulation
2006 saw some signicant regulatory developments. The passing of the Unlawful Internet Gambling Enforcement Bill in the US in September effectively outlawed online gambling by US residents and the facilitation of related money transfers by banks. Overnight this resulted in billions of euro being wiped off the stock market valuation of companies which had targeted US gamblers and the creation of legal uncertainty for their executives. Paddy Power has never targeted the US market so our market value was not impacted in any material way. The Group has never sought players from the US and has for years had measures in place to proactively prevent any play from the US including: Prominent graphics, statements and terms and conditions at customer registration stating that we do not accept US customers; Payment controls to block deposits from bank cards issued in the US, transfers from US bank accounts or payments from US residents via e-wallet payment methods; Never targeting any advertising or promotional activity at US residents. Closer to home, there was media coverage during the year in relation to the possibility of certain bookmakers, not including Paddy Power, introducing Fixed Odds Betting Terminals (FOBTs) into Irish betting shops. While such machines are an established part of the UK betting environment and culture, our view was that neither the Government nor the punter in Ireland were likely to be in favour of their introduction. This view of the Governments position appears conrmed by the Government statement in December 2006 that they wished to warn those in the industry, in the strongest possible terms, that the Government was opposed to the introduction of such machines. The Minister for Justice, Equality and Law Reform also announced, in August 2006, the possible regulation of land based casinos in Ireland. Given our knowledge and experience of the Irish market place and the strength of our brand, we would consider participation in land based casino developments in Ireland. We would hope to see clarication and implementation of the Governments position in the next number of months. In continental Europe, the regulatory landscape continues to be far from uniform, with periodic swings towards increased liberalisation and restriction within individual member states. Overall however we are encouraged by our prospects in the medium term for online expansion, both as a result of countries that have already moved towards liberalisation and by ongoing action by the European Commission to ensure that any restrictions on the provision of services within the European Union are necessary, proportionate and nondiscriminatory and therefore consistent with EU Law.
(Results above and throughout this statement exclude the exceptional property gain of 2.1m pre-tax in 2006) These record prots were driven by strong turnover growth across the Group. The ongoing investment in business development that I reported on last year has come through strongly in the 2006 results. In addition, Irish retail turnover received a boost from the introduction of tax-free betting, while all channels beneted from the World Cup. Our online business continues to grow strongly in both sportsbook and gaming and I am pleased to conrm that the results also reect a signicant level of investment for future growth. We also beneted from an improved run of sporting results compared to 2005, but the overall run of results, while good, was not exceptionally favourable to bookmakers. As always there were plenty of fraught moments with patriotic punters rubbing their hands following a record haul of ten Irish winners at Cheltenham, an Irish winner at the Grand National, Ireland winning the Triple Crown and last but certainly not least, Munster nally fullling their destiny to win the Heineken Cup! However a ne showing by a range of outsiders in late December raised the Groups overall sportsbook gross win percentage margin broadly in line with expected levels. 2006 also marked the 18th anniversary of Paddy Powers formation through the merger of three Irish retail bookmakers. The evolution of the business since is evidenced by the fact that, while the Irish retail business has gone from strength to strength, it now accounts for just under half of our operating prot. Since its inception our non retail business has similarly evolved with over 50% of its turnover in 2006 coming from the UK and over 30% of its gross win generated from online gaming rather than sports betting. Many other things have changed during that period but the core ethos of Paddy Power to remain the most punter-friendly, innovative and entertainment based bookmaker lives on throughout our entire business.
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The Board
As noted in the 2005 Annual Report, Tom Grace and Jack Massey were appointed to the Board in January 2006 and April 2006 respectively. Both appointments have brought valuable experience and new perspectives to the Group. More recently, we have announced the appointment of David Johnston as Company Secretary. We welcome David from O2 Ireland where he had been Chief Legal Counsel and Company Secretary. We also express our sincere gratitude and best wishes to the former Company Secretary, Nuala Hunt, who is leaving the Group.
Dividends and Capital Structure

As announced in our Interim Report for 2006, the Board is committed to a progressive dividend policy and is recommending an increase in the dividend payout ratio to 40% in the current year. A nal dividend of 22.77 cent per share is therefore proposed, payable to shareholders on the register at 16 March 2007. This brings the total dividend for the year to 16.5m or 32.2 cent per share, an increase of 56% on the 20.59 cent paid in 2005. In the six years since otation in 2000, Paddy Power will have therefore grown dividends per share at an average annual rate of 42%, a growth rate ahead of the already signicant increase in average earnings per share growth of 29%.
The Group has historically retained a positive cash balance in order to be in a strong position to exploit the many development opportunities available to it. Given the very strong growth in the business in the last number of years, its very strong cash generative abilities and the signicant growth in the Groups cash balances, maintaining exibility for future growth and returning additional cash to shareholders are no longer mutually exclusive objectives. The Board obtains shareholder approval annually to buy back up to 10% of the companys issued share capital, and we will seek that approval again at this years AGM. It is the Boards current intention to conduct share buybacks this year. The timing and amount of shares bought back will depend on the Groups pipeline of development opportunities as well as equity market conditions.
Outlook
2007 promises to be another exciting year for Paddy Power as we continue to expand across the Group. Trading for the year to date has been satisfactory and I look forward to updating you on progress at our AGM in May.
Fintan Drury Chairman 2 March 2007
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Chief Executives Statement
Introduction
Paddy Power is a growth company. In the six years since otation in 2000, we have increased turnover from 363m to almost 1.8 billion, an average annual growth rate of 31%, and earnings per share at an average annual growth rate of 29%. A particular feature of this very strong growth is that it has been achieved almost entirely organically, without recourse to acquisition. More importantly, looking forward, the Group today has a strong portfolio of businesses, each of which is well positioned to drive further turnover and prot growth.
These positive market conditions attract increased competition every year, and the migration of customers from the telephone to the online channel is continuing. Nonetheless, our businesses have continued to grow strongly, with amounts staked increasing by 23% and 18% in the telephone and Irish retail businesses respectively last year. (ii) Our recently launched emerging businesses include our online sportsbook, online casino, online games and online poker, as well as our UK retail business. The online businesses are expanding rapidly, with amounts staked and gross win increasing by 60% and 57% respectively last year. Some people hold the view that products and services sold online can only be differentiated on the basis of price. We disagree with this; we differentiate ourselves versus our competition just as strongly in the online world as in our retail markets. This takes a number of different forms: Trading Product and Specials: our broader range of product as well as our Money-Back Specials, early payouts, double result payouts and the many other imaginative refunds that we regularly offer are highly valued by our online customers, and the centre piece of the paddypower.com home page is always dedicated to our latest such offering; Brand: the strength of our brand, as well as our retail presence in both the UK and Ireland, differentiates us against the myriad online-only players. We also employ a team of journalists to ensure that our websites and customer emails reect the fun, and occasionally irreverent, side to our brand. For example, as a result of the polls introduced on our website last year, we now know whats the most painful? between a fractured skull (12% of votes), a kick in the nuts (43%), childbirth (11%) and watching Bolton (34%);
Our Existing Businesses

These businesses are at varying stages of their life cycles; indeed, one of the particular attributes of Paddy Power is the excellent balance of activities that we have at different stages of development. Some are long established, substantial businesses; others are more recently launched, emerging businesses; whilst others are very recent investments which, although unlikely to contribute materially in the short-term, have excellent medium term prospects. It is worthwhile considering our businesses in each of these three stages of development in greater detail: (i) Our longer established, substantial businesses include our Irish retail and our telephone businesses. Both benet from positions of leadership in the Irish market, from our unique brand, from the Groups innovative product range, and from the fantastic customer service for which Paddy Power is renowned. Both are also beneting from signicant recent investment: in the last ve years, we have newly opened, retted, extended or relocated over 85% of the 160 shops in our Irish estate, whilst our telephone business moved to a new stateof-the-art call centre in May 2006. Finally, both benet from a positive external backdrop: continued population and economic growth, particularly in Ireland, and the continuing growth in live televised sport. The move to tax-free betting for punters, which Paddy Power introduced in December 2005, is a further positive for our Irish retail business. Strategy: Business Positioning
PROFIT
Timeframe 1
Expand and protect core businesses
Timeframe 2
Build emerging businesses
Timeframe 3
Create new opportunities
TIME
Irish Retail Telephone
Online: sportsbook, casino, games, poker UK Retail
German language sportsbook Online bingo
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Chief Executives Statement (continued)
Customer Service: great customer service, an absolute throughout our businesses, is a particular feature of our online channel. Many of our online competitors outsource customer service; we on the other hand insist on it remaining in-house, and regard it as a recruitment ground for the rest of our businesses, with a substantial proportion of our customer service staff being third level students or graduates; Technology: our development team continues to use technology very effectively to tailor our websites to provide better and more accessible information, improve customer service and increase cross-selling opportunities. As well as holding the leading market position in online betting and gaming in Ireland, this focus on differentiation has propelled paddypower.com to be the third largest online sportsbook in the UK (measured by number of visitors in the second half of 2006), ahead of many more substantial rivals. This is an enormous achievement, from a standing start a number of years ago. Many of our online competitors have big international brands with very substantial budgets and indeed competition has increased even further in the last ve months since the US market was effectively closed down. Nonetheless, the prospects for all of our online businesses are strong, as betting and gaming continue to increase in popularity, as the economies and also broadband penetration in our key markets continue to grow, and as we focus relentlessly on differentiating our proposition against the competition. Another emerging business is our UK retail business. A great job has been done since 2003 developing our UK retail estate, and at the end of 2006 we had a substantial footprint of 58 shops within the M25. The 2005 Gaming Act which takes effect later this year in the UK will allow for extended shop opening hours, the installation of higher payout gaming machines and improved shop opening opportunities. Our priority now is to optimise our proposition in anticipation of this deregulated market and, in this regard, our overriding focus for 2007 is to continue to improve the performance of the existing estate rather than open a substantial number of additional new shops. We remain optimistic about the prospects of our UK retail estate for several reasons, referred to in greater detail in the Operating & Financial Review, including: Our gross win continues to grow strongly, on both a total and like-for-like basis; Our brand recognition continues to grow strongly;
Our market research indicates that our customers rate us much more highly than those of our competitors, and are more loyal and less likely to switch, whilst competitor customers are most likely to switch to us. (iii) Our very recent investments include our online German language sportsbook and our online bingo business. These businesses rely less on cross selling to existing customers, but rather bring Paddy Power to entirely new customer groups. As such, they may take longer to have a material impact on the business than other online businesses launched in the last number of years, but we are condent about their medium-term prospects.
Business Development
In addition to the strong prospects of our existing businesses, we have increased the focus on new business development in 2006. Breon Corcorans new role as managing director of non retail and development enables him to dedicate a substantial part of his time to seeking new opportunities for the Group, and through a number of senior hires he has built a top class development team to nd the next set of new businesses for Paddy Power. These opportunities fall into a number of categories: Accessing other segments of the betting market, as we did last year with our online bingo business; Expanding our presence in existing geographies, for example potentially opening Paddy Power casinos in Ireland; Deeper use of existing Group resources, such as our risk capabilities; Further geographic expansion, as we commenced in the last 12 months with our German language website; Stretching our brand into new areas, as we did last year with our online reverse auctions business.
Summary
As a result of these substantial opportunities, both in existing and potential new businesses, along with the quality of our people and our brand, we look forward to 2007 and beyond with condence.

Page 594 PSS-201102158
Operating & Financial Review
Paddy Power is a multi-channel, multi-national betting and gaming company. It operates through two main divisions: the retail division, which operates bookmaking shops in Ireland and the UK, and the non retail division, which provides telephone betting services to customers in Ireland and the UK together with an online channel that provides both betting and gaming services to English and German speaking customers in the UK, Ireland and continental Europe. 2006 was a year of spectacular growth in turnover, gross win and operating prots in both divisions. Our brand, the quality of our people and our innovative product range drove this growth, as they do every year. In addition, results last year beneted from the largest betting event in history, the 2006 football World Cup, which generated 4.0m of gross win for us directly, as well as a signicant number of new customers.
risk management and security. Overall, we are condent of recouping an attractive return on our investment in EPOS. Our trademark product innovation continues to give more choice to the retail customer. In horse racing, we now provide early prices for every UK and Irish horse race and lead the market in betting-without-the-favourite, match betting and distance betting. We have also expanded our sports betting, adding for example 15 extra soccer leagues from a range of countries including Poland, Japan, Romania, Hungary and Russia. To complete the package, we even provide Paddy Power soccer coupons in Polish, which involves more than just adding on ski to the end of every team name!
Retail Estate Development - 2002 to 2006

250 22 14 200 62 150 94 26 218
The Retail Division

2006 Amounts staked Sportsbook gross win percentage 963m 12.54% 2005 794m 11.92% % Change +21% +5%
100
The amounts staked over-the-counter (OTC), that is excluding FOBT gross win, in the combined Irish and UK estate grew by 21% to 956m. The average stake per slip increased by 9% to 20.82, while the number of slips grew by 10% to 45.9m. The OTC gross win percentage in the retail sportsbook was 12.5% as compared to 11.9% last year. This strong performance reected a number of factors specic to the retail division. These included an increase in multiples within the mix, higher than average racing margins, as well as the anticipated positive impact of our Electronic Point of Sale (EPOS) system. EPOS was rolled out across the entire estate in 2006, bar a handful of shops scheduled for redevelopment, at a total capital cost of 10.4m which was under the budget we set out last year. The deployment was supported by a signicant training investment and has met with a positive response from both customers and staff. Our priority has been to use the system to improve customer service by increasing the speed and accuracy of customer payouts, extending the product range and freeing up staff to devote more time to enhancing the special buzz and atmosphere that so differentiates Paddy Power shops. The system has also enabled us to measure more accurately customer demand for new offerings, as well as the effectiveness of accompanying point of sale, screen, audio and other promotions. We have also leveraged the intranet communications infrastructure of EPOS to provide in-shop customer information terminals and in-shop printing of marketing materials and coupons thereby reducing distribution costs. Further benets also accrue in relation to
50
New
Refitted Relocated
Extended
Other Total Estate
(i) Irish Retail

m Amounts staked Gross win Gross profit Operating costs Operating profit 2006 833.1 104.4 91.5 (69.5) 22.0 2005 703.8 83.6 74.0 (59.9) 14.1 % Change +18% +25% +24% +16% +56%
The amounts staked within Irish retail grew by 18% to 833m. Strong shop opening opportunities existed in 2006 and we opened 10 new shops, bringing our total number to 160. In addition, we grew like-for-like amounts staked by 14% as compared to 9% in 2005. This strong growth is driven by the factors common to all our businesses, our brand, our product innovation and our customer service, but also by the following factors specic to our Irish retail estate: The very signicant investment we have made in the estate in the last ve years; The continuing positive economic and demographic backdrop in Ireland;
Page 595 PSS-201102158

10
The move to tax-free betting in December 2005 which boosted growth in 2006. When the Irish Government announced in the December 2005 budget that it was eliminating the 2% customer based betting tax and replacing it with a 1% tax levied on the bookmaker from 1 July 2006, we decided not to wait; instead we offered our customers a discount equal to the tax from the morning after the budget. During 2006, this resulted in an average cost to Paddy Power, as a percentage of amounts staked, of 1.5% or 12.5m based on a 2% cost in the rst half of the year and a 1% cost in the second half. This compares with a cost of 8.3m in 2005 when discounts to cover the 2% tax were offered within parts rather than all of the estate. In 2007 onwards, a full year at the lower tax rate of 1% should save the Group approximately 4m as compared to 2006. In addition to the 10 shops newly opened during 2006, a further ve shops were relocated, 10 retted and three extended. Such shop developments incorporate our high quality interior furnishings and state-of-the-art technology infrastructure. This features 24 information screens, a dedicated sports gantry, customised audio and large screen televisions, all controlled via infrared technology from a central production studio. This enables us to co-ordinate and tailor information and coverage to local preferences, greatly improving the in-shop experience for customers. This substantial investment in our estate has contributed signicantly to the growth in Irish retail by retaining existing retail punters and also attracting new footfall. During the year, the Group made an exceptional prot of 2.1m on the sale of an Irish shop property. The Group acquired the property in 2006 under a purchase option within its lease and at the same time entered into an arms length sale and lease back of the property. This is in line with the Groups policy in recent years to operate shops under leases rather than owning and managing property, giving us more exibility in locating shops and ensuring we can react swiftly to any market changes. The Group currently owns 13 of its shops and has no current plans to sell any of these properties. In-house valuations of these premises indicate a market value of approximately 13m. These properties are carried on the balance sheet at a net book value based on their historical cost of 5m.
The Irish have taken over the World. 10 Cheltenham winners trained in the Emerald Isle, they say theres something in the grass. Who knows and who cares! The parade of Champions was led by Gold Cup winner War of Attrition who got the ride of his life from Conor ODwyer to land the big one. And we all thought Michael OLeary was about cheap this and low cost that. War of Attritions win was anything but. Then came Aintree and the greatest race in the world. 40 runners in a marathon over humungous fences. Forget winning, just getting around is an achievement in itself. Numbersixvalverde has the honour of having more letters in his name than any previous winner. I dont know how we did but we got away with this one, it was probably because his name was too long for people to write on their betting slips! It wasnt just a good jumps season, it was also a pretty decent at one too. Aidan OBrien cleaned up as usual, winning two of the classics one of them with George Washington who as it turns out wouldnt really suit this magazine.
(ii) UK Retail
We have continued to make substantial progress in our UK retail estate: We operated 58 outlets as at the end of December, an increase of 13 since December 2005; Our gross win grew by 59%, and by 15% on a like-forlike basis;
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The group of shops opened before 2006 generated positive EBITDA in 2006; Our brand continues to grow strongly, with recognition of 21% amongst all adults in London, up from 16% in 2005; Market research indicates that our customers rate us more highly, on all key attributes, than those of our two largest competitors, and are more loyal and less likely to switch. It also indicates that customers of local competitors who would consider switching are, by a distance, most likely to switch to Paddy Power.
13
Ann Murphys dream was to sample the delights of life as a high-roller in Las Vegas. The 55 year old Dublin native could be forgiven for thinking that the opportunity might have passed her by, but dream she did. Then one morning the telephone rang. She had won an all expenses paid trip to her spiritual home, fabulous Las Vegas, in a draw on Paddy Power Casino in June 2006. Ann travelled with her son, Barry, and was immediately thrilled by the experience. For the rst three days you walk around in awe of how grand and over the top everything is, she enthused. The most thrilling was just walking in the lobby of the Venetian for the rst time, not really believing you were staying there and just the sheer luxury that surrounded you. However, she soon settled into a groove and found her online gaming experience with Paddy Power Casino stood her well. I played blackjack, roulette but mostly the slots. I thought about having a few games of hold em but reasoned I should get more poker practice in before attempting it. Ann no longer dreams about sampling the life of a high-roller in Las Vegas. Shes been there, done that, bought the t-shirt and it lived up to everything she had hoped for, even her wildest dreams had come true.
Thus while the overall estate continues to be loss making, due to the opening of new loss making shops and the necessary investment in the central infrastructure, the underlying trend is positive and the more mature outlets are cash positive. We expect this positive trajectory to continue as further shops reach maturity and we continue to focus on realising the benets of the reasonable scale now achieved. m Amounts staked OTC Gross win Gross profit Operating costs Operating loss 2006 123.0 23.6 18.0 (24.0) (6.0) 2005 86.3 14.8 11.0 (15.7) (4.7) % Change +43% +59% +64% +53% +29%
(2006 FOBT gross win above and throughout this review is shown inclusive of VAT of 1.2m for consistency with 2005) In 2006, the amounts staked grew by 43% to 123m. Gross win growth of 59% to 23.6m was comprised of 88% growth in FOBT gross win to 8.1m, and 47% growth in OTC gross win to 15.5m. Like-for-like gross win grew by 15%, with OTC growth of 7% and FOBT growth of 38%. The OTC growth was impacted by the very strong FOBT growth with some punters switching their stakes between these products. There were 226 machines installed as at the end of the year, an increase of 31% compared to the end of 2005. The average gross win per machine per month increased 44% to 3,600 compared to 2,500 in 2005. During 2006 we conducted an extensive review of our UK business, and its potential opportunities. We also strengthened its management team. We have as a result identied a number of valuable initiatives to improve the performance of the existing estate and implemented a number of these in late 2006, with more to come in 2007. We are pleased with progress to date. We expect just a few shop openings in 2007 as compared to the 15 or so in previous years as we continue to prioritise improving the performance of the existing estate in the run up to deregulation.
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14
We also increased our FOBT protability during 2006 by holding a competitive tender to improve our commercial terms, leveraging the growth in the estate and our increased turnover per machine, while also maintaining a rst class product and service. The dual screen Rainmaker machines we selected were installed across the estate in late 2006. We have also commenced a range of FOBT promotion initiatives and have recruited a dedicated FOBT manager. FOBT performance improvement is needed to offset the impact of the introduction of Amusement Machine License Duty (AMLD) and the possible impact of the UK smoking ban. AMLD was introduced from August 2006 at a cost of 0.2m in 2006 and an expected cost of 0.7m in 2007. A smoking ban is scheduled to come into force in the UK in July 2007 and, while the introduction of the smoking ban in Ireland had no signicant effect on retail turnover, the experience may be somewhat different in the UK due to the presence of FOBTs. We welcome the implementation of the Gambling Act effective from September 2007 which will feature extended shop opening hours, the installation of higher payout gaming machines and improved shop opening opportunities. The removal of the demand test for openings also gives us more exibility in the format and size of our new shops. The Group is currently progressing the related license applications and is well prepared for the new requirements.
The guided range for non retail gross win percentages in 2006 was 8.0% to 9.0%. The actual gross win percentage was at the bottom of the guided range in the telephone channel at 8.0% and slightly outside the range in the online sportsbook at 7.9%. Nonetheless, the absolute amount of sportsbook gross win within the non retail division grew strongly by 41% in 2006, driven by exceptional turnover growth of 43%. This compares with growth in gross win of 14% and turnover of 19% in 2005. There were a number of reasons for the margin performance including some unfavourable results for bookmakers in sports such as rugby where non retail derives a greater proportion of its turnover as compared to retail. However the key factor behind this margin reduction were changes in the mix of business driven by a greater propensity of punters to bet on odds on selections and the popularity of certain new products. For example, we experienced particularly strong growth in the year in nancial markets betting and betting-in-running in a range of sports including soccer, tennis and snooker. These products tend to be single bet selections and have a bias towards odds on selections resulting in lower than average margins. Nonetheless they are innovative, differentiating and popular new products, attracting good incremental turnover as evidenced by the 41% growth in non retail absolute gross win and we will continue to make new product decisions on the basis of such criteria. We would expect non retail margins to be approximately 50 basis points lower in the 7.5% to 8.5% range going forward.
The Non Retail Division

The non retail division comprises telephone betting and online betting and gaming. Operating prot from the division increased by 43% to 29.4m, comprising 6.0m from the telephone channel, an increase of 65%, and 23.4m from the online channel, an increase of 38%. Betting on soccer represents a greater proportion of turnover in the non retail division as compared to retail, hence both non retail channels beneted particularly from the World Cup in 2006.
(i) The Telephone Channel

m Amounts staked Gross win Gross profit Operating costs Operating profit 2006 306.6 24.5 22.4 (16.4) 6.0 2005 249.9 19.5 17.2 (13.6) 3.6 % Change +23% +26% +30% +21% +65%
Non Retail Sportsbook Turnover & Gross Win

+43% +41%
+19%
804
63.7 +14%
8.1%
7.9%
560
45.1 2006
TURNOVER
2005
2005
GROSS WIN
2006
2005
GROSS WIN %
2006
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5.1
The amounts staked within the telephone channel grew by 23% to 307m. Within this, bet volumes grew 9% to 3.0m while the average stake per bet increased 12% to 102.98. We prioritise protability ahead of such metrics as customer numbers or market share and achieved growth in operating prot of 65% in 2006 despite a small reduction in active customers at the end of 2006. Telephone Channel Active Customers Ireland and Rest Of World UK Total 2006 2005 % Change
The online channel had another strong year with 38% growth in operating prots, while at the same time making a number of important investments for future growth. These investments were reected in the increase in operating costs by 11.9m to 28.3m. The major drivers of this increase were: The launch of new businesses and expansion of businesses recently launched; Volume driven promotional spend and marketing spend; Growth in variable costs due to increased activity levels. Customer numbers in the online channel continue to grow strongly in both the more mature sportsbook and the newer gaming products. The growing customer base has also demonstrated a developing propensity towards multi product usage. Online Channel Active Customers Ireland and Rest Of World UK Total Online Customers Product Usage Sportsbook only Gaming only Multi product customers Total 2006 2005 % Change +67% +40% +49% % Change +26% +130% +64% +49%
15
11,048 8,923 19,971
10,783 10,148 20,931
+2% -12% -5%
(Active customers are dened as those who have bet in the last three months)
If you cant stand the sound of an unanswered phone, youd be in good company with our dedicated Dial-A-Bet team that answered in excess of 2.5m calls in 2006, over 90% in less than 10 seconds. We continue to invest and rene our use of technology to improve our customer service and the volume of calls we can handle. For example, in 2006 we adapted and expanded the operators on screen information to enhance our management of customer calls. The successful growth of this business, together with Paddy Power as a whole, necessitated the relocation of our call centre to a new building beside our existing headquarters in Dublin in May 2006. The new building increased the call centre capacity by an initial 25% and also offers additional capacity as needed over the next few years. Operating costs within the telephone channel increased by 21% to 16m reecting volume growth and the investment in the new call centre location, partially offset by savings from operational efciencies and reductions negotiated on third party charges.
42,735 67,380 110,115 2006 60,811 25,885 23,419 110,115
25,646 48,015 73,661 2005 48,137 11,277 14,247 73,661
(Active customers are dened as those who have bet in the last three months)
Online Active Customers

120000 Ireland & Rest of World UK
(ii) The Online Channel

m Amounts staked Gross win Gross profit Operating costs Operating profit 2006 525.4 67.4 51.7 (28.3) 23.4 2005 327.5 42.9 33.4 (16.4) 17.0 % Change
Number of Customers
100000 80000 60000 40000 20000 0
+60% +57% +55% +72% +38%
2001
2002
2003
2004
2005
2006
Page 601 PSS-201102158
(a) Sportsbook
The amounts staked online on the sportsbook increased by 60% to 497m. Within this, bet volumes grew 70% to 16.2m while the average bet value decreased 6% to 30.74. Gross win in the sportsbook increased by 52% to 39.1m. Product innovation continues to be a key driver of this level of growth. During 2006 we introduced a range of new products to cater for the different time horizons and risk preferences of our customers. For those with less time available, we expanded our betting-in-running options, introducing next game betting in tennis, next frame betting in snooker and substantially expanded our successful nancial indices betting. For the more risk adverse, we created race insurance, unique to Paddy Power, with the punter being refunded if his horse is placed. We are also the only bookmaker offering placeonly betting on all UK races each day and most Irish races. For those with varying risk preferences, we even provide the bet randomiser which generates a proposed bet for punters who submit their current state of luckiness! We upgraded our sportsbook web site in 2006 to reect the major growth in our events, markets and channels as well as changing customer preferences and tastes. The enhanced site includes easier navigation, better cross promotion of channels and a superior betting-in-running interface. We have also expanded our value added content and services comprising WAP and Java mobile phone services, bet-and-watch racing, historical horse racing and soccer statistics as well as live score updates. The German language online sportsbook launched in April incurred a small loss in 2006, in line with our expectations. It has been progressing satisfactorily, although our growth has been restricted by the German regulatory environment which has in particular constrained our promotional activity. Nonetheless we are encouraged by the EU Commissions strong position on freedom of choice for consumers. We have also expanded our product range to meet continental European preferences with the inclusion of ice-hockey, basketball and additional soccer leagues. Payment options were expanded to include Neteller and Moneybookers, both popular on the continent. We have also introduced the German speaking punter to our novelty bets with good media interest in our market on which person mentioned in former Chancellor Schrders memoirs would take legal action against him no winners as yet but the wife would always seem a good bet in this context, particularly at 33/1!
16
Our commitment to poker and to the ongoing promotion of our brand led to our sponsorship of the 2006 Irish Open poker tournament. The Irish Open is the longest running poker tournament in Europe, but its 25th anniversary set new landmarks for the tournament as Irelands rst ever guaranteed 1m event and Irelands largest ever poker event. The nal was broadcast live across Europe on Sky Sports and was hailed as a tremendous success by commentators, the poker media and players alike. Paddy Power will guarantee the 2007 event for 2m, reecting both the growth of our own poker business and the poker market overall. The rst half of 2007 involves an important operational challenge for poker as we tackle the migration of our customers from the software of our existing network supplier to that of another operator that acquired them. Product expansion in the gaming area also continued with the launch of online bingo, Live Games with a studio presenter and an online version of the popular TV game show Deal Or No Deal. These products encapsulate the Paddy Power brand values of fun, fair and friendly and give us particular potential to attract new types of customers.
Trading & Risk Management

Trading and risk management is at the heart of bookmaking and the function at Paddy Power is at the forefront of industry practice. The core responsibility of the function is the creation and pricing of all markets and the trading of those markets through their life. The function employs a mix of traditional bookmaking approaches married with risk management techniques from other industries and the extensive use of mathematical models and information technology. The quality of the function provides a powerful resource for product innovation and differentiation. For instance, in a typical match during the football World Cup nals we offered 70 markets as compared to 46 by our nearest UK or Irish competitor. Offering this range of markets directly addresses feedback from customer surveys but it also differentiates us, promotes loyalty, spreads our trading risk, and of course drives turnover! In October 2006, the Starting Price Regulatory Commission (SPRC) chaired by Lord Donoughue set out recommendations to strengthen the Starting Price (SP) compilation process. The principal changes implemented were to increase the number of bookmakers included in the sample and to give priority to bookmakers offering each-way prices. Paddy Power believes the changes will contribute to a fairer and more accurate representation of the on-course market. However we would not expect the increase in the bookmakers sampled to have a dramatic impact on our margins given that intense competition between bookmakers, particularly amongst prices on the more favoured selections where the vast majority of turnover arises, ensures that prices on these selections are within a narrow range.
Page 602 PSS-201102158
(b) Gaming
The online channel generates gaming revenues from casino, games, poker and bingo. Revenue from these sources, representing the operators hold or commission income, increased by 65% to 28.3m, with growth achieved across all four product categories.
Marketing
Marketing has been a consistent strength at Paddy Power enabling us to develop a brand not only highly recognised, but recognised for what it stands for. We continue to strive to apply our fun, fair and friendly values consistently and throughout all aspects of our business. The World Cup gave us a stage to demonstrate these values, particularly to potentially new customers to Paddy Power. For example, we not only offered different Money-Back Specials on every match day, we also refunded punters if their team was knocked out in penalty shoot outs, thereby bailing out unfortunate supporters of England, Argentina, France and Switzerland. In addition, we offered our English and other customers the best price amongst all bookmakers on England in the quarter nals. We also followed our punters into the pub for the match with our pub kits, including wee-goals (dont ask!) and pint glasses branded with pertinent bets including 10/1 Her Place; 5/4 The Chipper! We also continue to put marketing investment into local events to build relationships and interact on a more personal basis with our customers. During 2006 these events included the Paddy Power London 5-a-side tournament, which attracted over 400 teams, and the Irish Karaoke Championships, where the ultimate winner from the 88 participating pubs went on to become World Champion. At Paddy Power we pride ourselves on our range of novel and innovative betting markets, which both generate turnover and media coverage. During 2006 we tapped into the dominant topic of Irish conversation and national obsession of the last 15 years, property prices. Punters can now put their money where their mouth is as regards their views on the property market without recourse to the services of solicitors, estate agents or removal men! When the many betting markets we offer do nonetheless come up short relative to the needs of our punters, we are happy to try and oblige. Such was the case when Adrian Hayward approached us to have a bet on Liverpools Xabi Alonso to score a goal from inside his own half, following a dream hed had about it. In January 2006 he won 25,000 on the 200 he had at 125-1!
Crucially, we also always want to be fair to our customers. Living up to this principle manifests itself in many practical low prole ways such as responsible customer care and transparency on charges and terms. However, it is in our approach to certain ofcial results that probably demonstrates the difference most prominently. As we put it when explaining the decision to refund backers of the Pakistan cricket team when they were deemed to have forfeited the fourth Test against England following an alleged ball tampering incident: In these circumstances we dont look at our rules but we ask ourselves what would we consider to be a fair result if we were the punter. For the record, we also refunded losing bets on the draw - ensuring that nobody betting on this event ended up out of pocket. In addition to being the right thing to do, we believe that the differentiation, loyalty and turnover that this approach generates more than covers any short-term cost.
17
People
Our people are critical to everything we do and we are fortunate to have some of the most dedicated, skilled and creative people working in the industry. As we continue to grow, we have a signicant need for more people and new skills, and we are committed to developing staff internally for new or expanded roles, as well as recruiting externally. Accordingly, we invest substantially in training and development courses through our own human resources team and utilising external specialists as required. We also focus heavily on bringing new talent into the organisation. In 2006, we ran targeted graduate recruitment campaigns in both the UK and Ireland. We also expanded the net globally to track down the best people and have beneted from the diversity of experience and skills that recruits from as far aeld as South Africa, India, Russia and Poland have brought to us during 2006, particularly in areas such as information technology. While high calibre people continue to be a scarce resource for many parts of our business, especially e-commerce, we have been successfully attracting, developing and retaining such people. Some positions are certainly easier to ll than others. We teamed up with RT the Irish national TV channel, to offer a dream job as a Paddy Power sports trader in the documentary No Experience Required. Julian Canny came out the winner out of over 100 hopefuls and continues to trade soccer betting-in-running with us. The average number of employees in the Group during 2006 was 1,414 (2005: 1,255). At the year end, the total number of employees was 1,468 (2005: 1,374).
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Taxes
The corporation tax charge for the year was 8.5m. Excluding adjustments relating to prior years, the underlying effective tax rate for 2006 was 16.4% as compared to 14.7% for 2005. As highlighted in our Interim Report, the Groups effective tax rate increased from July 2006 as a result of the non-deductibility of the revised 1% turnover based tax on amounts staked within Irish retail. Given the amount staked within Irish retail, this change added 0.5m to the tax charge for the second half of 2006. Excluding the impact of the higher corporation tax applicable to the Irish retail property disposal, the underlying effective tax rate for the second half of 2006 was approximately 17%. No corporation tax is currently payable in the UK due to tax losses. The Groups effective tax rate is above the Irish statutory rate due to the impact of a number of non-deductible expenses.
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The Group has no borrowings. Exposures from interest rate changes are therefore limited to the direct impact on interest income on deposits and the indirect impact from any resulting changes in consumer spending. Cash balances are invested in accordance with dened treasury policies approved by the Board. These policies limit the risk rating of institutions that can be used, the concentration of risk with any one institution or within any category of institutions and the term of deposits. Cash balances are substantially invested in short-term bank deposits with maturities of 120 days or less. Foreign exchange risk in the business is small. The Group generates sterling inows from UK based customers of the online and telephone channels, partially offset by the Groups need for sterling as it expands in the UK. Group policy allows the Group to hedge foreign exchange exposure for up to six months. At the year end, no foreign exchange contracts were open. The Groups presentation currency is the euro and translation risk exists with its sterling subsidiaries.
Cash Flow, Cash Balances and Foreign Exchange Risk

Cash balances at 31 December were 87.1m compared to 52.3m at 31 December 2005, an increase of 34.8m. This includes cash balances held on behalf of customers of 13.4m compared to 10.0m at 31 December 2005. Net cashow from operating activities was 67.7m in 2006 compared to 41.4m in 2005, an increase of 64%. This was driven by operating prot growth of 51% combined with the net cash inow into customers accounts of 3.4m. Capital expenditure on tangible and intangible assets of 25.8m primarily comprised the t out of new and the upgrading of existing retail outlets, and the roll out of EPOS.
Patrick Kennedy Chief Executive
Jack Massey Finance Director 2 March 2007
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Board of Directors
Executive Directors
Patrick Kennedy (aged 37) is the Chief Executive. He joined the Group in an executive capacity in September 2005 and became Chief Executive on 1 January 2006. Patrick was already a Board member, having been appointed as a non-executive director in March 2004. Patrick was previously Chief Financial Ofcer of Greencore Group plc. He joined Greencore in 1998 with responsibility for group development and was central to the acquisition and integration of Hazlewood Foods in 2001. He was appointed to the Board of Greencore in 2001 and assumed the CFO role in 2002. Prior to joining Greencore Patrick worked with KPMG Corporate Finance both in Ireland and internationally and as a strategy consultant with McKinsey Management Consultants in London, Dublin and Amsterdam. Breon Corcoran (aged 35) is the Managing Director Non Retail and Development. He joined the Group in April 2001 with responsibility for development of the non retail business. In May 2006, his role was expanded to include responsibility for new business development, strategy and acquisitions. He previously worked with J.P. Morgan and Bankers Trust. He is a graduate of Trinity College, Dublin and holds an MBA from INSEAD. He was appointed to the Board in August 2004. Jack Massey (aged 38) is the Finance Director. He joined the Group and was appointed to the Board in April 2006. He previously worked with ITG Europe, the European division of the NYSE quoted company, Investment Technology Group Inc., where he had been Chief Operating Ofcer since 2002. Jack joined ITG Europe in 1998 as Finance Director. Prior to that, he worked with Ulster Bank Markets as Head of Financial and Management Reporting and previous to that as a Manager with Arthur Andersen. He is a Fellow of the Institute of Chartered Accountants in Ireland and a graduate of University College Dublin.
Stewart Kenny (aged 55) was a co-founder of Paddy Power in 1988. He has considerable experience in the betting industry, training with Ladbrokes in London for two years before establishing a chain of betting shops, Kenny OReilly Bookmakers. He sold that business to Coral in 1986 and subsequently re-entered the business, opening ten betting shops between 1986 and 1988. He was the Group Chief Executive from 1988 to 2002 and Chairman from 2002 to 2003. Tom Grace (aged 58) was appointed as a non-executive director in January 2006. Tom was a partner with PricewaterhouseCoopers from 1972 to 2005, where he led the Insolvency Department since 1987. With 34 years experience at PricewaterhouseCoopers, Tom also worked in the audit and management consultancy divisions, principally in the area of nancial advice. Tom is also well known as a former rugby international. He won 25 international rugby caps for Ireland between 1972 and 1978 and captained the side on eight occasions. He also toured as a British and Irish Lion in 1974. Nigel Northridge (aged 51) was appointed as a non-executive director in July 2003. He is the Chief Executive of Gallaher Group plc. He held various sales and marketing roles with Gallaher after joining the company in 1976, before assuming responsibility for continental Europe in 1988. In 1990, he was appointed Managing Director of Gallaher (Dublin) in his native Ireland and was subsequently appointed UK Sales and Marketing Director in 1994 and Group Sales and Marketing Director in 1996. He was appointed Chief Executive of Gallaher in January 2000. He is also a non-executive director of Aggreko plc. David Power (aged 60) co-founded Paddy Power in 1988 and has been a non-executive director since that date. He merged a signicant proportion of the betting shops controlled by him and trading as Richard Power Bookmakers with Paddy Power in 1988. He is an on-course bookmaker. Brody Sweeney (aged 46) was appointed as a nonexecutive director in February 2005. He is one of Irelands leading entrepreneurs, being the founder and Executive Chairman of OBriens Irish Sandwich Bars, which has over 270 outlets in Ireland, the UK, Europe and Asia.
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Non-Executive Directors
Fintan Drury (aged 48), Chairman, is chairman of sports and conference management company Platinum One (formerly called DSMI), and is a director of a number of other private companies. He is also a non-executive director of Anglo Irish Bank plc, and a former nonexecutive Chairman of RT, the Irish state broadcaster. A former news journalist with RT, Fintan founded Drury Communications, a leading corporate communications consultancy, in 1988. He retired from this business in 1999 when he sold his controlling interest in the company. He joined the Board of Paddy Power in August 2002 and was appointed Chairman in May 2003.
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Directors Report
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The directors submit their report together with the audited nancial statements for the year ended 31 December 2006.
Principal Activities
The Group provides sports betting services through a chain of licensed betting ofces (Paddy Power Bookmaker), together with telephone betting (Dial-a-Bet) and online interactive betting services (paddypower.com). It provides online gaming services principally through paddypower. com, paddypowercasino.com, paddypowerpoker. com and paddypowerbingo.com. It provides its services principally in Ireland and the United Kingdom.
Results
The Groups prot after taxation of 41.2m reects an increase of 53% on the 2005 prot gure of 27.0m. Basic earnings per share amounted to 81.9 cent compared with 54.1 cent in the previous year, an increase of 51%. The nancial results for the year are set out in the consolidated income statement on page 43. Shareholders funds at 31 December 2006 amounted to 128.1m (2005: 96.1m).
It only happens a couple of times a year that Croke Park is full of beefy, testosterone oozing men with steam coming off their bodies hugging and kissing each other. Thats All Ireland Final day. One of the sights for sore eyes of the football Championship was the vision of Ciarn McDonalds blond owing locks swaying in the wind as he ran rings around his opponents. He inspired Mayo to another All Ireland Final. How unlucky they were to come up against the mighty Kingdom led by their own Kieran, that monster of a man, Kieran Donaghy. It was a case of men against boys and Kerry dominated Mayo from start to nish as they piled on the pain. Mayo deserved more but the Kingdom collected. One of the imponderables of the year was how Cork could be favourites to beat Kilkenny in the Hurling nal. Cork had a few scares along the way, most memorably against Limerick and coming from behind to beat Waterford. The Cats on the other hand were awesome all season, they never got out of second gear and were unbeaten. They ultimately got the cream.
Dividends
An interim dividend amounting to 9.43 cent per share was paid during 2006. The directors recommend that a nal dividend of 22.77 cent per share, amounting to 11.7m, be paid on 25 May 2007 to shareholders registered at close of business on 16 March 2007. This would make a total distribution of prot to shareholders of 16.5m in respect of the year ended 31 December 2006 (2005: 10.3m).
Business Review and Key Performance Indicators

A detailed commentary incorporating key performance indicators by channel including active customers, average slip/bet values, bet volumes, gross win and gross prot is contained in the Operating & Financial Review on pages 9 to 18.
Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group and Company, as required to be disclosed in accordance with the terms of European Accounts Modernisation Directive (2003/51/EEC), include those that could arise from adverse developments in the following areas: the regulatory, taxation or legislative environment applicable to the Groups activities;
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the intensity of competition in the Groups markets; the economic, demographic, technological and other macro factors affecting demand for the Groups products; social, media or political sentiment towards the Group and its businesses; relationships with key suppliers, particularly those supplying software platforms to support existing and future products and data required for sports betting;
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Im such an idiot, said Phil Mickelson. I usually hit the ball 10 yards further in that situation, said Monty. The mistakes that cost me were putts not going in: genius insight from Jim Furyk. Did he win? I went to bed, said the punters who backed Ogilvy. I cant believe that muppet threw it away, said many a punter on Mickelson, Monty & Furyk. I cant believe we got our money back! said the Paddy Power punters. That was the big special, money back if youre second and that was the US Open its not all about the Ryder Cup you know! But what an event it was. Roads were built, photos were doctored, magazines were sued, pints were sunk and punts were landed apparently there was a bit of golf too! The Europeans looked pretty in pink but their golf hit a purple patch that left the Americans trailing in their wake. It wasnt much of a contest but it was the Ryder Cup in Ireland.
disruption to the sporting calendar due to weather or other factors; the ability of the Group to attract and retain key employees; the ability of the Group to manage its bookmaking risk so as to achieve gross win margins within the percentage ranges that it has guided; the ability of the Group to avoid disruption to its key information technology systems. The Board regularly monitors all of the above risks and appropriate actions are taken to mitigate those risks or address their potential adverse consequences. Further details in relation to the Groups trading risk function are included in the Trading & Risk Management section of the Operating & Financial Review on page 16. The composition and responsibilities of the Risk Committee are set out on pages 34 and 35. The Board has also established nancial risk management objectives and policies which have been implemented by executive management, details of which are given in Note 26 on page 75.
Market Research
The Group undertakes continuing market research across all business divisions in both Ireland and the UK. In 2006, research undertaken included brand research and customer satisfaction surveys.
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Events Since the Year End and Future Developments

There have been no signicant events affecting the Group since the year end other than the recommendation to pay dividends to shareholders as noted above. The directors do not anticipate any substantial changes to the nature of the business.
Directors Remuneration
Details of directors remuneration are given in the Remuneration Committee Report on pages 38 to 40 and in Note 6 to the nancial statements on pages 57 and 58.
Directors and Secretarys Interests

The interests of the directors and secretary who held ofce at 31 December 2006 in the share capital of Paddy Power plc, all of which were benecially owned, were as follows: Number of ordinary shares of 0.10 each 31 December 2006 Fintan Drury Patrick Kennedy Breon Corcoran Jack Massey Tom Grace David Power Nigel Northridge Stewart Kenny Brody Sweeney Nuala Hunt (Secretary) 19,400 16,000 70,448 5,000 5,000 4,398,788 3,000 419,832 14,000 31 December 2005 (or date of appointment if later) 19,400 3,000 70,448 5,000 5,000 4,398,788 1,000 419,832 3,500
Own Shares Held

The Paddy Power plc Employee Benet Trust (the Trust) was established to manage the long term incentive plan. During the year ended 31 December 2006, the Trust purchased 280,000 (2005: 190,000) Paddy Power plc shares at a cost of 3.7m (2005: 2.6m). During 2006, the Trust transferred 55,500 (2005: nil) ordinary shares that had vested to a former director of the Company, John OReilly. At 31 December 2006 the Trust held 654,500 (2005: 430,000) ordinary shares in Paddy Power plc, representing 1.28% (2005: 0.85%) of the issued share capital.
Substantial Holdings
Details of interests of over 3% in the ordinary share capital which have been notied to the Company are set out below: Holding at 2 March 2007 Fidelity Investments Ltd Nordea Investment Funds SA 5,071,042 3,814,800 %
9.90% 7.45%
There have been no changes in the above shareholdings between 31 December 2006 and the date the directors approved these nancial statements.
Board of Directors and Company Secretary

Tom Grace was appointed to the Board on 3 January 2006 and Jack Massey was appointed to the Board on 25 April 2006. Both were elected by the shareholders at the AGM in May 2006 along with Fintan Drury who was re-elected after retiring by rotation. Stephen Thomas resigned from the Board on 16 May 2006, having completed a full three year term. Patrick Kennedy, Stewart Kenny, Nigel Northridge and David Power retire from the Board by rotation in 2007 and, being eligible, offer themselves for re-election. Further information on the dates of appointment of the directors is given in the Remuneration Committee Report on page 40. On 2 March 2007, Nuala Hunt resigned as Company Secretary and David Johnston was appointed as Company Secretary in her place.
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The directors and the company secretary, who held ofce at 31 December 2006, had the following movements in share options during the year and held the following share options at 31 December 2006: Number of Options options at exercised start of during the year year 20,000 1,020 25,000 8,000 1,020 25,000 Options granted during the year 1,785 Number of options at end of year 1,785 20,000 1,020 8,000 1,020 Exercise price (a) 11.29 8.15 11.60 5.25 8.15 11.60 Exercise period
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Patrick Kennedy (b) Breon Corcoran Breon Corcoran Nuala Hunt (Secretary) (c) Nuala Hunt (Secretary) Nuala Hunt (Secretary)
5 December 2011 5 June 2012 24 February 2007 24 February 2010 6 October 2008 6 April 2009 24 July 2005 24 July 2008 24 February 2007 24 February 2010 6 October 2008 6 April 2009
(a) The market price of the Companys shares at 31 December 2006 was 15.06 and, for the year then ended, the Companys daily closing share price ranged between 11.90 and 16.29 (2005: ranged from 10.37 to 15.95 and was 12.10 at year end). (b) The options granted during the year were under the terms of the Companys Sharesave Scheme (see Note 19). (c) These options were exercised on 1 March 2006 when the market price of the shares was 13.00. During the nancial year ended 31 December 2006 the executive directors had the following interests and were conditionally granted the following shares under the Long Term Incentive Plan scheme: Grants outstanding at start of year Patrick Kennedy Breon Corcoran Jack Massey 70,000 95,000 Granted during year 80,000 85,000 35,000 Grants outstanding at end of year 150,000 180,000 35,000 Date shares granted Share price at date of grant 12.55 12.55 & 13.68 13.68
9 March 2006 9 March & 25 May 2006 25 May 2006
The awards are subject to the rules of the scheme and will vest if the growth performance targets are met over the minimum vesting period. Further details of the scheme are outlined in the Remuneration Committee Report and in detail in Note 19 of the consolidated nancial statements. Transactions with directors and parties related to them have been disclosed in Note 6 to the nancial statements on page 58. The directors and secretary have no interests in shares in any other Group companies.
in embracing new technology and ways of working thereby ensuring the successful roll out of EPOS across the retail estate and signicant enhancements to customer service. The Group continued to attract new talent as well as focusing on the development and retention of employees. Opportunities for employment, training and development are determined on the basis of each individuals ability and performance record, irrespective of their gender, ethnic origin, nationality, age, religion, sexual orientation or disability. Employee policies are aligned to our business needs and take into account external legislation and internal codes of conduct as well as Paddy powers values as an organisation. We continue to engage proactively with our staff, for example through our established retail employee communications group.
Employees
Enthusiastic, energised and customer focused employees are critical to Paddy Powers success. These employee qualities have been a recurring feature at the Group and were perhaps best exemplied in 2006 by the dedication of our retail staff
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Safety, Health and Welfare at Work Act 2005

Paddy Power is committed to the safety and well being of employees at work and has taken all the necessary steps to ensure compliance with the Safety, Health and Welfare at Work Act 2005. The Act imposes certain obligations on employers in respect of health and safety in the workplace. Appropriate measures have been taken to ensure that health and safety standards are complied with at all relevant locations and that all applicable Group companies meet the requirements of the Act. These measures include Safety Statements at all locations and induction training in health, re and general safety for all new employees, conducted by our area trainers at the start of employees induction training. All of our appointed contractors must submit an up to date Health and Safety Statement and proof of their public liability insurance before we award any contract. Prior to the commencement of any major works within the Group, the appointed contractor must submit a method statement describing how the proposed works will be carried out safely. We service all of our essential emergency and re alarm systems on a quarterly basis to protect our staff and to ensure that we comply with relevant statutory regulations.
behaviour signs and offer them a range of self exclusion options. In this context, we offer our customers the option of setting limits on the maximum value and frequency of their deposits. In addition, we have strict processes in place to ensure that any customers who wish to go further and exclude themselves completely from transactions with Paddy Power can do so. We also recommend that those with gambling problems install software to block certain types of online sites. It is illegal for anyone under the age of 18 to open an account, or to bet, with Paddy Power and we take our responsibilities in this area very seriously. We carry out electronic age verication checks whenever a potential customer is proposing to use a payment method that might be available to someone under 18 years of age and the public data infrastructure exists for us to complete such checks. In this regard, we also work very closely with age verication software providers to help develop new and better ways of verifying the age of potential customers over the increasing range of payment methods available. We also recommend that our online customers install ltering software if they share their computer with anyone under the age of 18. Staff in our shops are trained to be vigilant, to request reliable proof of age if they are in any doubt and to refuse bets from anyone under the age of 18.
Political Donations
No political donations were made by the Group during the year which require disclosure in accordance with the Electoral Acts 1997 to 2002.
Environment
Paddy Power has a proactive approach to helping all personnel conduct business in a manner that protects the environment. The Group encourages efcient use of resources, recycling wherever possible and is compliant with all relevant environmental legislation. The Group has introduced a complete waste management policy in head ofce and retail shops nationwide and everything from glass to general ofce paper is recycled. Examples of environmental initiatives adopted in 2006 include: installation of long life energy efcient light bulbs in all new and refurbished shops; use of more efcient, and lower cost, combined heat and power (CHP) generated electricity in all Irish shops; replacement of night storage heating in shops with lower electricity consumption split heating and cooling systems; reducing the level of packaging waste in respect of all cased goods and furniture; installation of more water efcient ushing systems in newly tted shops to reduce water consumption; and a charity-administered mobile phone and used inkjet cartridge recycling programme in our head ofce.
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Corporate and Social Responsibility

Paddy Power appreciates that it has important responsibilities to its customers and the broader community, as well as to its employees and shareholders. The Group is committed to acting fairly and properly in all its dealings with all stakeholders. Set out below are brief overviews of some areas of particular focus for the Group:
Responsible Gambling
We strive to protect the small number of our customers who may have difculties with gambling. If a customer does develop a problem with gambling we actively refer them to the relevant experts who can help. Part of the reason we are in a position to do this is our close association with Gamcare, a registered charity and leading authority on the provision of information, advice and practical help to promote responsible gambling. All of our customer service staff undergo regular Gamcare training to ensure they offer the most professional service possible to those who might be suffering from a problem with gambling. We believe the most effective approach is to provide customers with information about problematic
We also want to keep the environmental impact of our annual report package to a minimum. The paper used was manufactured in a mill with IS01 4001 accreditation and the report contains 80% minimum de-linked post consumer waste content. Shareholders are also encouraged to elect to receive electronic means of communication.
Auditor
In accordance with Section 160 (2) of the Companies Act 1963, the auditor, KPMG, will continue in ofce.
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Going Concern
The directors are satised that the Group has adequate resources to continue in business for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the nancial statements. On behalf of the Board
Charities
Paddy Power maintains relationships with a large number of charitable organisations, ranging from those supporting the local communities in which our shops play a key role, through to national charities focusing on the welfare of specic groups. During the year the Group spent 111,279 on charitable donations (2005: 81,505).
Books of Account
The measures which the directors have taken to ensure that proper books of account are kept are: the appointment of suitably qualied personnel, the adoption of suitable policies for recording transactions, assets, and liabilities, and the appropriate use of computers and documentary systems. The Group and Company books of accounts are kept at Airton House, Airton Road, Dublin 24. Patrick Kennedy Chief Executive
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Statement of Directors Responsibilities in Respect of the Annual Report and the Financial Statements
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The directors are responsible for preparing the Annual Report and the Group and Company nancial statements, in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company nancial statements for each nancial year. Under that law the directors are required to prepare the Group nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and have elected to prepare the Company nancial statements in accordance with Generally Accepted Accounting Practice in Ireland, comprising applicable law and the nancial reporting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland. The Group nancial statements are required by law and IFRSs as adopted by the EU to present fairly the nancial position and performance of the Group; the Companies Acts 1963 to 2006 provide, in relation to such nancial statements, that references in the relevant part of these Acts to nancial statements giving a true and fair view are references to their achieving a fair presentation. The Company nancial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing each of the Group and Company nancial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; and prepare the nancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the nancial position of the Company and enable them to ensure that its nancial statements comply with the Companies Acts 1963 to 2006. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under company law and the requirements of the Listing Rules issued by the Irish Stock Exchange, the directors are also responsible for preparing a Directors Report and reports relating to directors remuneration and corporate governance that comply with that law and those Rules. The directors are responsible for the maintenance and integrity of the corporate and nancial information included on the Groups website. Legislation in the Republic of Ireland governing the preparation and dissemination of nancial statements may differ from legislation in other jurisdictions. On behalf of the Board
Patrick Kennedy Chief Executive
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The 2003 Annual Report discussed at length the Boards view on corporate governance, its importance, its role in your Company and how the Board expects to full its obligations. I have not repeated that discussion in this years report but have set out below our policies on corporate governance. There have been no substantive changes in the past year. Since my last report there have been a number of changes in Board personnel. Stephen Thomas stepped down from the Board at the AGM in May 2006, and Tom Grace and Jack Massey were appointed to the Board in January and April 2006 respectively. Our policy on corporate governance is as follows:
should always retain the betting industry savvy that has been part of the fabric of its Board, both as a private and public company. The Board should also include high quality non-executives sourced from the different geographic markets in which the Group operates. It is essential that all Board members have sufcient time to add real value to your Company. With this in mind and, reecting the regulatory obligations and the wider demands of this Board, it has been agreed that our non-executive directors should not hold more than three directorships of publicly quoted companies. In addition the Chairman cannot be the chairman of any other publicly quoted company. We have also agreed that there should be no more than two Paddy Power directors on the Board of any one other listed company. Executive directors should hold non-executive directorships with no more than one other group.
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Board Role and Responsibilities

Your Board has overall responsibility for the leadership and control of the Group. Responsibility for the management of the Group has been delegated by the Board to executive management. This delegation is effected through the Chief Executive, who is accountable to the Board for its exercise. The functions of Chairman and Chief Executive are not combined and both roles responsibilities are clearly divided. A number of responsibilities of the Board are delegated to Committees of the Board. Certain decisions of the Group are formally reserved to the Board. The Board has responsibility for approving Group strategy, annual budgets, major acquisitions and capital projects, and treasury policy. It sets governance policies and ensures implementation thereof. It denes the roles and responsibilities of the Chairman, Chief Executive, other directors and the Board sub-committees, appoints and removes directors from the boards of the Company and its subsidiary companies. In addition, the Board approves the interim and nal nancial statements, reviews the Groups systems of internal control and approves any signicant changes in accounting policies. It approves all resolutions and related documentation put before shareholders at general meetings. The Board sets the Groups dividend policy, approves the interim dividend and recommends the nal dividend.
Tenure
The current Board comprises a mix of executive directors, founding directors and directors recruited for the particular skill and experience they would bring to Paddy Power. The Board is going through a period of change. Of the nine directors currently serving on the Board, just two have been members since the Company was launched on the Stock Exchange in December 2000. The Board is actively seeking to recruit at least one additional independent non-executive director for appointment in 2007. After this appointment the Board membership will increase to ten, ve of whom will be independent non-executive directors, two of whom will be non-executive founder directors and three of whom will be executive directors. In 2004, the Board decided that, effective from the date of otation, all non-executive directors of Paddy Power would serve a maximum of two three year terms. It was agreed that the Nominations Committee would retain the right, in special circumstances, to extend the tenure of any non-executive director for a further term, up to an absolute maximum of nine years in total. David Power and Stewart Kenny, both founder members of the Company, have now completed two three year terms. The Board has performed a very rigorous review of the appropriateness of their serving for a third term and believes that their vast experience of the betting industry continues to be central to your Companys continued development and success and hence that their continuance in ofce for a further three year term is in the best interests of the Company. Accordingly, they offer themselves for re-election for a third and nal term at the forthcoming Annual General Meeting in May 2007.
Board Composition
It will be at the discretion of the Board itself to decide on the appropriate number of directors for the business at any point. The majority of the Board should be independent non-executive directors. The Board should comprise a mix of the necessary business skills required to provide oversight of the management of the business and to contribute to the development and advancement of business strategy. Paddy Power is a specialist business and
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The Non-Executive Directors Responsibilities

In addition to their statutory responsibilities as outlined in the Statement of Directors Responsibilities on page 28, it has been agreed by your Board that all directors will have three specic responsibilities: Attendance at Board meetings Membership of at least one Board sub-committee Role as a mentor to a particular area of the business Regular contact with each other, and availability to the Chairman and to the Chief Executive for advice and ideas, remain critical. Effective Paddy Power Board members are enthusiasts for the business. Mere attendance at meetings is not sufcient, what matters is the directors active participation and contribution in these meetings. The non-executive directors also meet once a year without their executive director colleagues or your Chairman. In addition to their standard roles, the Board felt it would be very benecial if individual non-executive directors were in a position to act as mentors to an individual or a team within the business, especially on strategic issues to which the director involved could contribute their relevant skills, experience and guidance. This is not about non-executives straying into operational affairs that are the business of management. It is about giving life to the Boards real desire to provide business counsel that can help grow the business and, with it, shareholder value. It is also a further check on the growing pressures on a Board to just supervise, dot is and cross ts. In that context, it is important too that non-executives do not feel either restricted by the corporate governance rules of engagement or feel that simple compliance with them will be sufcient to meet their obligations. That has never been the Paddy Power way and a commitment to corporate governance should not be interpreted as a change in our drive for innovation.
The World Cup started with 20 of the rst 23 favourites winning it wasnt pretty, just like ZZs head butt! Then came the knockout stages and the dreaded penalty shoot outs. The worst match of the tournament was Switzerlands draw with Ukraine, it went to penalties and both teams deserved to lose. Because Switzerland were beaten on penos, we refunded all losing outright bets on them to win the tournament so three of our customers were happy! Then came the biggest betting match of the tournament so far. Hosts Germany against tournament favourites Argentina. Now both of these teams had been heavily backed before the tournament so the last thing we wanted was a massive refund... The Argies were in front, but up popped Klose after 80 minutes and the writing was on the wall. The Argies went out on penos and the punters got their money back. At least it couldnt get any worse than that for the poor bookies. Beckhams tears, Rooneys stamp, Carvalhos groin, Ronaldos wink, Ronaldos penalty. Enough said. Money back on England, we felt an awful lot sorer than Ricardo Carvalho!
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The Chairmans Role

The Chairman is a non-executive director and carries the same responsibilities as all his non-executive colleagues. His, however, is a wider role. As well as conducting Board meetings and being a member of sub-committees, your Chairman is the one constant in the management of Board affairs.
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The Chairman is responsible for the leadership of the Board, ensuring its continued effectiveness in carrying out its duties and setting its agenda. The Chairman is also responsible for ensuring that all directors receive accurate, timely and clear information. The Chairman facilitates the effective contribution of his non-executive colleagues and ensures constructive relationships exist between executive and non-executive directors. He is the guarantor of effective communications with shareholders. A performance evaluation of the Board, its committees and its individual directors is undertaken annually. Your Chairman will act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the Board and, where appropriate, appointing new members to the Board or seeking the resignation of existing directors. While there may be a perception that Board business revolves exclusively around meetings, this is not the case. Board counsel must be available to senior management at all times. Your Chairman is the normal source of such advice and encouragement, but by no means the only one. The need to source the most relevant expertise at short notice means that the Chairman must have regular contact with individual Board members to ensure that there is a seamless interaction between the senior executive team and the non-executive directors. As Chairman, I also meet with the non-executive directors independently of the executive directors. I meet regularly with the Chief Executive to discuss all aspects of the businesss performance and, on an occasional basis, we meet with other senior members of the management team together.
33
I want to take you back to last year yes 2006, the year when Irish people knew nothing about cricket! If ever there was an example of what Paddy Power is all about, it was during the controversial 4th England v Pakistan cricket test at the Oval. It was all very confusing. The umpires accused Pakistan of ball tampering when the teams broke for tea, and then Pakistan refused to come back out to play. Eventually when they did come out, the powers that be said it was all too late and awarded England a forfeit. So what about all of those poor punters who backed Pakistan? And even more importantly the vast majority who backed England? The resounding vote from around the industry was all bets void. The resounding vote from Paddy Power was all bets void- if you backed a loser, but winner alright if you backed England. Rules are rules, but sometimes youve just got to think of it from the punters point of view and do the right thing...Right George?
Directors Fees
As reported in the 2005 Annual Report the standard non-executive fee was set at 55,000 in 2006. It was also agreed that chairs of committees would be paid an additional fee of 10,000 and that the Chairman would receive an annual fee of 160,000. These fees were set for a two year period and, barring exceptional circumstances, will not be reviewed again until 2008. Non-executive directors are not eligible to participate in the Group bonus schemes, option plans or long term incentive plans. None of the remuneration of the non-executive directors is performance related. The non-executive directors fees are not pensionable and non-executive directors are not eligible to join any Group pension plans.
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Board Effectiveness
Each director is expected to perform to the highest standards with regard to both their general contribution and their contribution through committees and mentoring. As I have previously said, it is my responsibility to ensure that the performance of all directors is at the levels required. In addition to the formal Board meetings I have met with all directors individually to discuss their performance. The non-executive directors have also met without me and the executive directors. David Power has conducted a detailed review of my performance with all directors, the results of which have been discussed with me. In the absence of a senior independent director, David Power undertakes the review as it is felt he is in the best position to do so. David was not appointed during my tenure and has had the added benet of serving under each of the chairmen of Paddy Power.
34
monitoring and reviewing the effectiveness of the Groups internal audit function; making recommendations to the Board in relation to the appointment and removal of the Groups external auditor; approving the remuneration and terms of engagement of the external auditor; evaluating the performance of the external auditor, including their independence and objectivity; approving non-audit services provided by the auditor in accordance with the Groups policy on non-audit services; developing and ensuring compliance with the Groups policy on the provision of non-audit services; reviewing arrangements by which staff may, in condence, raise concerns about possible improprieties in matters of nancial reporting or other matters; and ensuring that there are appropriate procedures in place to mentor and evaluate the general business risks to which the Group is exposed. The Audit Committee has unrestricted access to the Groups external and internal auditors, with whom it meets at least twice a year, both with and without management. These meetings ensure that there are no restrictions on the scope of their audits, and allow discussion of any matters that the auditors did not wish to raise in the presence of management. The Audit Committee is responsible for ensuring that auditor objectivity and independence is safeguarded where the auditor also provides non-audit services to the Group. The Audit Committee reviewed the letter from the Groups external auditor conrming their independence and objectivity. During the year the Committee also performed a review of the audit and non-audit services provided by the external auditor, and the fees charged for those services, to ensure there was no impairment of independence.
Board Operations and Committees

The Board holds at least eight full Board meetings each year. Each non-executive member of the Board sits on at least one committee and each non-executive director mentors one part of the business where it is felt they can provide additional specialist advice to senior management. I expect all Board members to be available to me between meetings. The composition of the Board committees as at 2 March 2007 is as follows:
Remuneration
David Power (Chair); Fintan Drury.
Nominations
Fintan Drury (Chair); Nigel Northridge; Patrick Kennedy; Stewart Kenny.
Audit
Tom Grace (Chair); David Power; Brody Sweeney.
Risk
David Power (Chair); Patrick Kennedy; Nigel Northridge; Breon Corcoran; David Power; Stewart Kenny.
Remuneration Committee Audit Committee

The Audit Committees responsibilities include: monitoring the integrity of the nancial statements of the Company; reviewing the Groups internal controls; The Remuneration Committee is primarily responsible for making recommendations to the Board on remuneration policy for the Groups executive directors and selected senior management. The report of the Remuneration Committee is set out on pages 38 to 40.
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Nominations Committee
The Nominations Committee is primarily responsible for recommending candidates to the Board for appointment as directors and ensuring that appropriate procedures are followed for all such appointments. In appointing new non-executive directors the committee agrees the preferred prole of the director with the Board as a whole and receives written recommendations from existing directors. Given the industry knowledge of the Board and the committee members, as well as their general commercial experience, it is felt that this approach is more effective than using either advertised search or recruitment agencies. The quality of directors found using this approach has been excellent and the Board believes this is the best method for your Company.
Risk Committee
The Risk Committee is responsible for ensuring that policies in respect of betting risk are appropriate to a group of Paddy Powers size, for monitoring that such policies are being correctly applied and that the expertise and systems within the organisation are consistent with the level of risk undertaken. The Committee also sets overall policy for betting risk. Limits are agreed with the Committee and set annually but are subject to review by the Committee at any time. Compliance with these risk limits is reported daily to senior management and internal audit. Internal audit also carries out reviews of the risk function. The Group does not offer credit betting.
35
Attendance at Board and Committee Meetings

There were nine full meetings of the Board in 2006. The attendance at Board and Committee meetings by the directors who held ofce in 2006 are set out below: Note Number of meetings held in 2006: Attended by: F Drury* N Northridge* T Grace* S Thomas* B Sweeney* D Power** S Kenny** P Kennedy*** J Massey*** B Corcoran*** * Independent Non-Executive Director ** Non-Executive Director *** Executive Director a) b) c) Stephen Thomas resigned on 16 May 2006, before which there were four Board meetings, two of which he attended. Stewart Kenny was appointed to the Risk Committee on 20 June 2006, after which there was one meeting. Jack Massey joined the Board on 25 April 2006, after which there were six Board meetings, all of which he attended. Due to the number of independent directors serving in 2006 it was not possible to populate the committees in accordance with the Combined Code at all times. The Group is committed to complying with corporate best practice and signicant effort has and is being expended to identify and appoint at least one additional non-executive director. It is the Boards intention to complete this appointment in 2007. c) b) a) 9 9 9 2 9 9 9 9 6 9 2 5 4 6 3 3 2 1 2 5 1 6 3 3 2 Board 9 Audit 5 Remuneration 6 Nominations 3 Risk 2
As discussed, the Board is in a state of transition. The number of independent non-executive directors is now four (including the chairman) and there are ve non-independent directors (including three executive directors). No senior independent director has been appointed as the Board wishes to complete the appointment of new independent directors and give the new Board some time to consider this matter.
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With regard to the Nominations Committee, which comprises four directors, two of whom are independent non-executive directors, the Board believes that the current balance of independence, industry knowledge and experience best suits the task at hand. The quality of their work is reected in the excellent quality of the appointments and no changes to the composition of this committee are planned.
The directors, through the Audit Committee, review the effectiveness of the Groups system of internal control. An audit and security department, independent of operations, monitors the activities of the betting operations and the risk management division, including the verication of winning bets. They also undertake internal control reviews throughout the organisation. The head of this department meets regularly with the Audit Committee. The Board, through the Audit Committee, is responsible for conducting a review of the effectiveness of the Groups systems of internal controls. This review has been performed in respect of the year ended 31 December 2006. The directors consider that the procedures necessary to implement the Turnbull guidelines on internal control in the Combined Code have been properly established.
Internal Control
The Combined Code annexed to the listing rules of the Irish Stock Exchange and the UK Listing Authority states that: 1. The Board should maintain a sound system of internal control to safeguard shareholders investment and Group assets. The directors should, at least annually, conduct a review of the effectiveness of the Groups system of internal control and should report to shareholders that they have done so. The review should cover all material controls, including nancial, operational and compliance controls and risk management. The directors have overall responsibility for the Groups system of internal control and have delegated responsibility for the implementation of this system to executive management.
2.
Relations with Shareholders

The Group is committed to ongoing communication with its shareholders. The Group operates an investor relations section on its corporate website (www.paddypowerplc. com). This contains copies of investor presentations and annual reports as well as providing access to Regulatory New Service (RNS) statements and corporate press releases. All shareholders are encouraged to attend the Annual General Meeting where they are afforded the opportunity to question the Board. There is regular discussion between Group management and analysts, brokers and institutional shareholders, ensuring that the market is appropriately informed on business activities. Visits to the Group headquarters are encouraged and tours of our retail outlets are undertaken regularly. Feedback from major shareholders and reports by analysts are communicated to directors so directors can monitor their views on the Group. The short-term nancial performance of Paddy Power can be signicantly inuenced throughout the nancial year by the run of sporting results. This is normal in the sports betting industry. For example, a disproportionate number of favourites winning at a major horse racing festival will depress short-term protability, whereas a disproportionate number of outsiders winning will have the opposite effect. The experience of the industry is that this typically balances out over a more extended period. Accordingly, the Board does not believe that the typical levels of short-term prot volatility intrinsic to our business should signicantly inuence the investment decisions of a reasonable investor or that it should be likely to have a signicant effect on the Companys share price.
The Board has established a process of compliance which addresses the Boards responsibility to maintain, review and report on all internal controls, including nancial, operational and compliance risk management. The principal processes comprising the system of internal control are: Budgets are prepared for approval by executive management and include a Group budget approved by the Board. Expenditure and income are regularly compared to previously approved budgets. The Board establishes appropriate treasury risk policies for implementation by executive management. Compliance with risk limits are reported on by the risk management department and reviewed by senior management and internal audit. All material commitments for expenditure and payments are compared to previously approved budgets and are subject to prior approval by personnel designated by the Board of Directors. Regular nancial results are submitted to and reviewed by the Board of Directors.
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The Board and Management of Paddy Power carefully monitor any signicant variances in nancial performance to assess, based on the experience of the Company, whether such variances are attributable to the run of sporting results and therefore likely to be short-term in nature or reect a trend which may impact on the overall performance of the Company going forward. The Board considers these two categories of variances to be fundamentally different as to their likely inuence on the investment decisions of a reasonable investor and therefore on the Companys share price. The Board makes its judgments in respect of announcements to the market and its obligations under the disclosure rules to which the Company is subject against this background.
Compliance
The directors conrm that the Company has complied throughout the accounting period with the provisions of the Combined Code, except as noted in this commentary.
37
Conclusion
As in previous years, I would invite you all to consider the above carefully, and encourage any shareholders who have questions relating to this Corporate Governance Statement to contact me by email at fdrury@paddypower.com.
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The report on directors remuneration and interests has been prepared by the Remuneration Committee on behalf of the Board of Directors in accordance with the requirements of the Irish Stock Exchanges Combined Code on Corporate Governance.
To provide the level of remuneration required to attract and retain executive directors and senior executives of an appropriate calibre. Salaries and other benets are reviewed annually. The Remuneration Committee takes into account the performance of the individual, comparisons with peer group companies, institutional guidelines and reports from specialist consultants. The experience of the individual and his/her level of responsibility are also taken into account. Consistent with this policy, the benet packages awarded to executive directors are intended to be competitive and comprise a mix of performance-related and nonperformance-related remuneration, designed to motivate them, but not to detract from the goals of corporate governance.

As at the date of this report, the Remuneration Committee consisted of the following non-executive directors: David Power (Chairman, Remuneration Committee) Fintan Drury Stephen Thomas, an independent director, was Chairman of the Remuneration Committee until he stepped down from the Board in May 2006. The members of the Committee have no personal nancial interest (other than as shareholders) in the matters addressed by the Committee, and have no conicts of interest arising from cross-directorships. The Committee met six times in 2006 and operated within agreed terms of reference. The Remuneration Committee has responsibility for making recommendations to the Board on the Groups general policy relating to executive remuneration, and to determine, on behalf of the Board, specic remuneration packages for the executive directors. Outside independent professional advice is sought where necessary. In addition to the remuneration of the executive directors, the Committee is also responsible for approving the remuneration of ve of the most senior executives (senior executives) as well as the bonus schemes in operation within the Group. The remuneration of the Chairman of the Board is determined by the Board, excluding the Chairman. The remuneration of the non-executive directors is determined by the Board, including the non-executive directors.
Basic Salaries and Benefits

Salaries of executive directors are set by reference to those prevailing in the market. Employment related benets relate principally to medical, life and health insurances and to the provision of a company car or car allowance. No fees are payable to executive directors.
Performance Bonus
Under current arrangements, which are reviewed annually by the Remuneration Committee, executive directors have targeted bonuses of 40% to 50% of salary subject to the attainment of specic and stretching targets set for each individual. The level earned in any one year depends on the Committees assessment of each individuals performance and the overall performance of the Group against predetermined targets for the year. The maximum payout under the bonus scheme can be twice the bonus target and this will only be achieved with substantial out-performance of strict nancial targets that are set annually. The minimum payment is 30% of bonus target.
Remuneration Policy
General
The Remuneration Committee determines the Groups policy on executive directors and senior executives remuneration. The objectives of the policy are: To reward executive directors and senior executives in a manner that ensures that they are properly rewarded and motivated to perform in the best interests of shareholders over the long term.
Pension Entitlements
The Group does not operate any dened benet pension plan or Group dened contribution scheme for nonexecutive directors. The Group makes no pension provision in respect of the non-executive directors. Each executive director has an independent pension trust into which the Group makes dened contributions.
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Targeted Remuneration
The targeted composition of each directors annual remuneration (excluding sundry benets) is as follows: PerformanceNonRelated performanceRelated Executive Patrick Kennedy Breon Corcoran* Jack Massey Non-Executive Fintan Drury Tom Grace Stewart Kenny Nigel Northridge David Power Brody Sweeney 100% 100% 100% 100% 100% 100% 31% 28% 29% 69% 72% 71%
The market price of the Companys shares at 31 December 2006 was 15.06 and, for the year then ended, the Companys daily closing share price ranged between 11.90 and 16.29.
39
Long Term Incentive Bonus Plan

The Board considers the online business to be a central driver of growth in the Group over the medium term, and that it is very important to maintain the considerable momentum which the Group has generated in developing online market share. Breon Corcoran, Managing Director Non Retail and Development, has been key in developing this market since his arrival at the Group in 2001, and under his direction the online business has grown and developed from an operating loss of 9.1m in 2001 to an operating prot of 23.4m in 2006. The Board considers the retention of Breon Corcoran in the Group as key and, on the recommendation of the Remuneration Committee, adopted a long term incentive bonus plan on 18 October 2006 designed to retain him in the Group. This is the only occasion on which the Group has adopted a long term incentive bonus plan designed for an individual director. Payment under the plan is dependent upon the combined online and telephone businesses (non retail) achieving very challenging operating prot targets in the year ended 31 December 2009. Should Breon Corcoran guide the non retail division to achieve these targets, the Board is satised that the payment of the long term incentive under the plan will represent very good value to shareholders. Under the plan, Breon Corcoran has the potential to earn a cash payment of between 1.0m and 2.5m if the non retail business generates operating prot in 2009 above predened thresholds. The operating prot targets contained in the plan will be adjusted if the Group makes relevant acquisitions or makes material changes in the relevant geographical scope of its businesses. In the event of a change of control of the Company before 31 December 2009 that materially reduces Breon Corcorans ability to achieve the plans targets, 2.5m will become payable to him within one week of the accounts for the nancial year ended 31 December 2009 being signed. The Remuneration Committee will determine the calculation, adjustment or achievement of the targets under the plan.
* this percentage excludes the possible impact of the Long Term Incentive Bonus Plan outlined below.
Long Term Incentive Plan

It is Group policy to motivate its senior management to deliver superior performance over the long term and at the Annual General Meeting held on 22 June 2004 the shareholders approved the 2004 Long Term Incentive Plan (LTIP). This plan, details of which are included in Note 19 to the consolidated nancial statements, allows shares conditionally awarded to executives to be earned over a three to ve year period subject to the achievement of testing earnings per share growth targets. Details of share grants to the executive directors are included with the directors and secretarys interests in the Directors Report on page 25.
Share Options
The policy of the Remuneration Committee is to motivate executives, excluding senior management eligible for LTIP awards, by granting them share options. Accordingly, options have been granted under the terms of employee share incentive plans approved by shareholders. Further details of these plans are given in Note 19 to the consolidated nancial statements. Details of options granted to the executive directors prior to the introduction of the LTIP are included with the directors and secretarys interests in the Directors Report on page 25. All options are granted at the market price on the date of grant and, with the exception of options granted under Revenue Approved Sharesave Schemes, no options are granted at a discount.
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No changes (except for minor amendments to benet the administration of the plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for the participant in the plan or for the Company or other members of the Group) will be made to the beneciary of the plan, the limits on the amount of cash payable or the maximum entitlement of Breon Corcoran under the plan, or to take account of any capitalisation issue, rights issue or open offer, subdivision or consolidation of shares or reduction of capital or any other variation of the capital of the Company, without the prior approval of the Companys shareholders in general meeting. Whilst a related accrual has been made at year end, no payment obligation has crystallised under the plan at this point. Payment under the plan is scheduled for around March 2010, at which date Breon Corcoran must also be employed by the Group for a payment to be made to him. Payments under the plan are not pensionable. The plan will be available for inspection from the date of publication of this document until the close of the Companys Annual General Meeting on 22 May 2007 at the Companys registered ofce, and at the place of the general meeting for at least 15 minutes before and during the meeting.
Retirement of Directors by Rotation

At each Annual General Meeting of the Company, every director who has been in ofce at the completion of each of three successive Annual General Meetings since he was last appointed or re-appointed, shall retire from ofce. Patrick Kennedy, Stewart Kenny, Nigel Northridge and David Power will retire at the 2007 AGM, and have indicated their willingness to be re-appointed. Details of the service periods of the directors are: Appointed by Board Fintan Drury Patrick Kennedy Breon Corcoran Jack Massey Tom Grace Stewart Kenny Nigel Northridge David Power Brody Sweeney 29 August 2002 23 March 2004 31 August 2004 25 April 2006 3 January 2006 1 June 1988 22 July 2003 1 June 1988 16 February 2005 Last elected by shareholders 16 May 2006 22 June 2004 17 May 2005 16 May 2006 16 May 2006 22 June 2004 22 June 2004 22 June 2004 17 May 2005 Term expires AGM 2009 AGM 2007 AGM 2008 AGM 2009 AGM 2009 AGM 2007 AGM 2007 AGM 2007 AGM 2008
Executive Directors Service Contracts

The notice period for Patrick Kennedy is 12 months, and it is six months for both Breon Corcoran and Jack Massey. All executive directors are employed on contracts with a normal retirement age of 65. No executive director is entitled to any contractual termination payment other than for payment in lieu of notice.
Directors Detailed Emoluments

Full details of the emoluments of the directors are set out in Note 6 to the consolidated nancial statements on pages 57 and 58.
Non-Executive Directors Service Contracts

Non-executive directors, in accordance with best practice, are not appointed on service contracts, rather they are issued with a letter conrming the terms of the appointment. They are appointed for a xed initial period of three years, and may be re-appointed for further xed periods, up to a total of six years unless there are exceptional circumstances. This is referred to in more detail in the Corporate Governance Report. Non-executive directors are expected to give three months notice of resignation, but this is without prejudice to their right to resign immediately if they feel it appropriate. None of the non-executive directors have an entitlement to a termination payment.
David Power Chairman, Remuneration Committee 2 March 2007
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Independent Auditors Report to the Members of Paddy Power plc

We have audited the Group and Company nancial statements (the nancial statements) of Paddy Power plc for the year ended 31 December 2006, which comprise the consolidated Income Statement, the consolidated and Company Balance Sheets, the consolidated Cash Flow Statement, the consolidated Statement of Recognised Income and Expense and the related notes. These nancial statements have been prepared under the accounting policies set out therein. This report is made solely to the Companys members, as a body, in accordance with Section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members, as a body, for our audit work, for this report, or for the opinions we have formed. We also report to you if, in our opinion, any information specied by law or the Listing Rules of the Irish Stock Exchange regarding directors remuneration and directors transactions is not disclosed and, where practicable, include such information in our report. We review whether the Corporate Governance Statement reects the Companys compliance with the nine provisions of the 2003 FRC Combined Code specied for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Boards statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Groups corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited nancial statements. The other information comprises only the Directors Report, the Chairmans Statement, the Chief Executives Statement, the Operating & Financial Review and the Remuneration Committee Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the nancial statements. Our responsibilities do not extend to any other information.
41

The directors responsibilities for preparing the Annual Report and the Group nancial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the Company nancial statements in accordance with applicable law and the accounting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland), are set out in the Statement of Directors Responsibilities on page 28. Our responsibility is to audit the nancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the nancial statements give a true and fair view and have been properly prepared in accordance with the Companies Acts 1963 to 2006 and whether, in addition, the Group nancial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you our opinion as to whether: proper books of account have been kept by the Company; whether at the balance sheet date, there exists a nancial situation requiring the convening of an extraordinary general meeting of the Company; and whether the information given in the Directors Report is consistent with the nancial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the Company nancial statements are in agreement with the books of account.

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the nancial statements. It also includes an assessment of the signicant estimates and judgments made by the directors in the preparation of the nancial statements, and of whether the accounting policies are appropriate to the Groups and Companys circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufcient evidence to give reasonable assurance that the nancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the nancial statements.
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Independent Auditors Report to the Members of Paddy Power plc (continued)

Opinion
In our opinion: the Group nancial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Groups affairs as at 31 December 2006 and of its prot for the year then ended; the Group nancial statements have been properly prepared in accordance with the Companies Acts 1963 to 2006 and Article 4 of the IAS Regulation; the Company nancial statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the Companys affairs as at 31 December 2006; and the Company nancial statements have been properly prepared in accordance with the Companies Acts 1963 to 2006.
42
We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the Company. The Company balance sheet is in agreement with the books of account. In our opinion the information given in the Directors Report on pages 20 to 27 is consistent with the nancial statements. The net assets of the Company, as stated in the Company balance sheet on page 77, are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2006 a nancial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company.
Chartered Accountants Registered Auditor Dublin 2 March 2007
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Note Amounts staked by customers
Before exceptional item 2006 000
Exceptional item (Note 7) 2006 000
Total 2006 000 1,795,090
Total 2005 (restated) 000 1,371,710
43
Continuing Operations
Revenue Direct betting costs Gross profit Employee expenses Property expenses Marketing expenses Technology and communications Depreciation and amortisation Other expenses, net Total operating expenses Operating profit Financial income Financial expense Profit before tax Income tax expense Profit for the year from continuing operations 10 8 8 5 4 218,706 (35,090) 183,616 (64,227) (21,174) (17,309) (11,537) (15,512) (8,395) (138,154) 45,462 2,149 (10) 47,601 (8,033) 39,568 2,098 2,098 2,098 2,098 (421) 1,677 218,706 (35,090) 183,616 (64,227) (21,174) (17,309) (11,537) (15,512) (6,297) (136,056) 47,560 2,149 (10) 49,699 (8,454) 41,245 160,848 (25,278) 135,570 (51,076) (17,398) (11,346) (8,171) (11,295) (6,166) (105,452) 30,118 1,226 31,344 (4,390) 26,954
Earnings per share Basic Diluted 11 11 0.819 0.811 0.541 0.529
The prot for the year is entirely attributable to equity holders of the Company. Notes 1 to 27 form part of these consolidated nancial statements. On behalf of the Board
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Consolidated Statement of Recognised Income and Expense

44
2006 000 Profit for the year Foreign exchange translation difference Total recognised income and expense 41,245 1 41,246
2005 000 26,954 (1) 26,953
The total recognised income and expense for the year is entirely attributable to equity holders of the Company. Notes 1 to 27 form part of these consolidated nancial statements. On behalf of the Board
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Consolidated Balance Sheet

Note Assets Property, plant and equipment Intangible assets Goodwill Deferred tax assets Total non current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity Issued capital Share premium Shares held by long term incentive plan trust Other reserves Retained earnings Total equity Liabilities Deferred tax liabilities Total non current liabilities Trade and other payables Current tax payable Total current liabilities Total liabilities Total equity and liabilities Notes 1 to 27 form part of these consolidated nancial statements. On behalf of the Board 21 20 17 17 17 17 17 15 16 12 13 14 20
31 December 2006 000 76,240 9,260 1,880 195 87,575 4,203 87,061 91,264 178,839
31 December 2005 000 72,400 3,615 1,880 167 78,062 2,134 52,318 54,452 132,514
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5,124 10,163 (8,137) 6,536 114,445 128,131
5,040 7,548 (4,929) 4,142 84,250 96,051
49,140 1,568 50,708 50,708 178,839
843 843 34,873 747 35,620 36,463 132,514
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Consolidated Cash Flow Statement

Note Cash flows from operating activities Profit before taxation Financial income Depreciation and amortisation Cost of employee share-based payments (Gain)/loss on disposal of property, plant and equipment Cash from operations before changes in working capital (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash generated from operations Income taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of new shares Purchase of shares by employee trust Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Notes 1 to 27 form part of these consolidated nancial statements. On behalf of the Board 16
46
2006 000 49,699 (2,149) 15,512 3,184 (1,183) 65,063 (2,013) 13,209 76,259 (8,526) 67,733
2005 000 31,344 (1,226) 11,295 2,289 267 43,969 222 3,320 47,511 (6,101) 41,410
(17,855) (7,921) 3,028 2,094 (20,654)
(23,925) (2,068) 329 1,254 (24,410)
2,699 (3,742) (11,293) (12,336) 34,743 52,318 87,061
903 (2,623) (10,168) (11,888) 5,112 47,206 52,318
Page 632 PSS-201102158
Paddy Power plc (the Company) and its subsidiaries (together referred to as the Group) provide sports betting services through a chain of licensed betting ofces (Paddy Power Bookmaker) together with telephone betting (Dial-a-Bet) and online interactive betting services (paddypower.com). The Group also provides online gaming services through paddypower.com, paddypowerpoker.com, paddypowercasino.com and paddypowerbingo. com. It provides these services principally in Ireland and the United Kingdom. The Company is a public limited company incorporated and domiciled in the Republic of Ireland and has its primary listing on the Irish Stock Exchange. The address of its registered ofce is set out on page 3. The consolidated nancial statements of the Group for the year ended 31 December 2006 comprise the nancial statements of the Company and its subsidiary undertakings and were authorised for issue by the Board of Directors on 2 March 2007.
47
2. Basis of preparation and summary of signicant accounting policies

The consolidated nancial statements are prepared on the historical cost basis except for betting transactions, which are recorded as nancial instruments, and share-based payments, both of which are stated at fair value. The consolidated nancial statements are presented in euro, rounded to the nearest thousand. Further to IAS Regulation (EC1606/2002) (Accounting standards adopted for use in the EU), EU law requires that the annual consolidated nancial statements of the Group be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union (EU). The consolidated nancial statements have been prepared on the basis of IFRSs adopted by the EU and effective at 31 December 2006. The accounting policies set out below have been applied consistently by Group entities. The accounting policies applied in the preparation of these consolidated nancial statements are consistent with those set out in the Annual Report for the year ended 31 December 2005 except for a change in the Groups revenue recognition policy which is outlined below. Restatement of revenue presentation and recognition of ante post bets accrual at fair value In 2006, as a result of a change in industry practice, the Group has concluded that a sportsbook bet is a nancial instrument. As a result, the Group now accounts for betting transactions as trading nancial instruments in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The implications of classifying betting transactions as trading nancial instruments are twofold: 1. In relation to sports betting activities, revenue now represents the net gain/(loss) on betting transactions (stake less payout) from customers, whereas previously revenue represented amounts staked by customers and the payout was shown separately in cost of winning bets. In the 2005 Annual Report this gain/(loss) on betting transactions was reported by the Group as Gross Win. Under IAS 39, amounts received from customers on sporting and other events that have not occurred by year end are measured at fair value. Thus at year end, sports betting open positions (included in trade and other payables - Note 21) are carried at fair market value and gains and losses arising on this valuation are recognised in revenue, together with the gains and losses realised on positions that have closed. In previous nancial statements, amounts received from customers on events that had not occurred by period end were treated as deferred income. There was no material adjustment from the revaluation of sports betting open positions at either 31 December 2006 or 2005.
2.
Page 633 PSS-201102158

The consolidated income statement for the year ended 31 December 2005 has been restated to reect the change in reported revenue and direct betting costs as follows: Cost of winning bets 000 (1,236,140) 1,236,140 -* Direct betting costs 000 - ** (25,278) (25,278)
48
Gross revenue 000 As previously reported Adjustment Restated 1,371,710 (1,371,710) -*
Revenue 000 - ** 160,848 160,848
Gross profit 000 135,570 135,570
* Does not form part of the 2006 income statement presentation ** Did not form part of the 2005 income statement presentation The consolidated income statement of the Group will continue to show amounts staked by customers but this is for information purposes only. Amounts staked represent amounts received in respect of bets placed on sporting events in the period and net winnings from gaming. This is consistent with the presentation of gross revenue in the year ended 31 December 2005. Recent accounting pronouncements The IFRSs adopted by the EU applied by the Company and Group in the preparation of these nancial statements are those that were effective at 31 December 2006. The following provides a brief outline of the likely impact on future nancial statements of relevant IFRSs adopted by the EU which are not yet effective and have not been adopted early in these nancial statements: Amendment to IAS 1, Capital Disclosures: This amendment will require additional disclosures regarding the capital structure of the Group. The impact is not expected to be material in terms of Group reporting. IFRS 7, Financial Instruments: Disclosures: This standard updates and extends the existing disclosure requirements of IAS 32 and will require additional disclosures relating to risk management policies and processes. The impact of IFRS 7 is not expected to be material in terms of Group reporting. IFRIC 8, Scope of IFRS 2 Share-based Payment addresses the accounting for share-based payment transactions in which some or all goods or services received cannot be specically identied. IFRIC 8 will become mandatory for the Groups 2007 nancial statements, with retrospective application required. This IFRIC is not expected to have a material impact on the Group. Basis of consolidation The Groups nancial statements consolidate the nancial statements of Paddy Power plc and its subsidiary undertakings based on accounts made up to the end of the nancial year. A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the nancial and operating policies of an entity so as to obtain benets from its activities. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated on consolidation except to the extent that unrealised losses provide evidence of impairment. Judgements and estimates The preparation of nancial statements in conformity with IFRS adopted by the EU requires certain critical accounting estimates. It also requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors, including expectations of future events that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
Page 634 PSS-201102158

The estimates and underlying assumptions are continually reviewed and evaluated to reect the Groups view of current conditions. New events or additional information may result in a revision of these estimates over time. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. It is possible that actual results may differ from these estimates. Judgements made by management in the application of IFRSs that have a high degree of complexity or a signicant effect on the nancial statements, and estimates with a signicant risk of material adjustment in the forthcoming year are discussed in Note 27. Revenue The services provided by the Group comprise sports betting, xed odds games betting, online casino and games and peer to peer games, including online poker and bingo. Revenue is stated exclusive of value-added taxes and certain free bets, promotions and bonuses. Retail, telephone and online sportsbook betting activities are classied as nancial instruments. Revenue from these activities represents the net gain or loss from betting activities in the period plus the gain or loss on the revaluation of open positions at period end. Revenue from xed odds games and online casino represents net winnings (customer drop), being amounts staked net of customer winnings. Revenue from peer to peer games represents commission income (rake) and tournament fees earned from games completed by the period end. Interest income is recognised on an accruals basis by reference to the principal outstanding and the effective rate of interest. Segment reporting Business segments are distinguishable components of the Group that provide products and services that are subject to risks and returns that are different from other business segments. Geographical segments provide services within a particular economic environment that are subject to risks and rewards that are different from those components operating in alternative economic environments. The Group has determined that its business segments of retail and non retail are the primary reporting segments. Foreign currency The consolidated nancial statements are presented in euro. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates ruling at the dates of the transactions. Nonmonetary assets are not subsequently translated as they are carried at historical cost. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated into the functional currency at the rates of exchange ruling at that date. Foreign exchange differences arising on such translations are recognised in the income statement. The assets and liabilities of foreign operations, including goodwill arising on consolidation, are translated into euro at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into euro at rates approximating the foreign exchange rates ruling at the dates of the transactions.
49
Page 635 PSS-201102158

Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Depreciation is calculated to write off the cost less estimated residual value of property, plant and equipment on a straight line basis over their useful lives. Land is not depreciated. The estimated useful lives are as follows: Buildings: Freehold Buildings: Leasehold improvements 50 years unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease if there is an unconditional right of renewal 3 - 7 years 3 years 5 years
50
Fixtures and ttings Computer equipment Motor vehicles
Assets in the process of construction are stated at cost less impairment losses. Depreciation of these assets begins when the assets are ready for their intended use. The residual value of property, plant and equipment, if not insignicant, is reassessed annually. Goodwill Goodwill recognised under Irish Generally Accepted Accounting Practice (GAAP) prior to the date of transition to IFRS is stated at net book value as at the transition date. Goodwill recognised subsequent to 1 January 2004, representing the excess of purchase consideration over fair value of net identiable assets acquired dened in accordance with IFRS 3 Business Combinations, is capitalised. Goodwill is initially recognised as an asset at cost and is thereafter measured at cost less any accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment annually. Any impairment in the value of goodwill is dealt with in the income statement in the period in which it arises. Intangible assets Intangible assets, comprising computer software and licences, are capitalised at cost and amortised on a straight line basis over their estimated useful economic lives. Computer software includes the costs incurred in acquiring and bringing specic software programs into use. Maintenance costs relating to computer software programs are expensed to the income statement when incurred. Licences comprise the costs of acquiring retail bookmaking licences, the rents incurred in respect of the period prior to each shop opening for business and licences for electronic point of sale (EPOS) system software. The estimated useful economic lives of intangible assets, according to which amortisation is calculated, are as follows: Computer software Licences Impairment The carrying amounts of property, plant and equipment, intangible assets and goodwill are reviewed at each balance sheet date to determine whether there is an indication of impairment. If any such indication exists, the recoverable amount of the asset, or the cash generating units to which it relates, is estimated. For intangible assets that are not yet available for use and goodwill, the recoverable amount is estimated at each annual balance sheet date, regardless of whether any indication of the impairment exists. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount of such assets or cash generating units is the greater of their fair value less costs to sell or value in use. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the asset.
Page 636 PSS-201102158
3 - 5 years 5 - 20 years

Trade and other receivables Trade and other receivables are stated at their nominal value as reduced by appropriate allowances for estimated impaired amounts. Non-derivative nancial instruments In addition to sports betting activities (see revenue accounting policy above), non-derivative nancial instruments comprise cash and cash equivalents and trade and other payables. Non-derivative nancial instruments are recognised initially at fair value plus, for instruments not at fair value through prot or loss, any directly attributable transactions costs. Subsequent to initial recognition non-derivative nancial instruments are measured as described below. A nancial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Groups contractual right to the cash ows from the nancial assets expire or if the Group transfers the nancial asset to another party without retaining control or substantially all the risks and rewards of the asset. Regular way purchases and sales of nancial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Groups obligations specied in the contract expire or are discharged or cancelled. Cash and cash equivalents for the purpose of the statement of cash ows comprise cash at bank and on hand and call deposits with an original maturity of three months or less. Leases Leases, under the terms of which the Group assumes substantially all the risks and rewards of ownership, are classied as nance leases. The assets acquired by way of nance lease are stated at an amount equal to the lower of fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment loss. Finance lease payments are apportioned between the nance charge and the reduction of the outstanding liability and the charge is allocated to the income statement during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Operating lease rentals payable are recognised as an expense in the income statement on a straight line basis over the lease term unless another systematic basis is more appropriate. Income tax Income tax in the income statement comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of the previous year. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for nancial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable prot and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable prots will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benet will be realised. Pensions The Group operates a number of dened contribution schemes. Obligations for contributions are recognised as an expense in the income statement as service is received from the respective employees.
51
Page 637 PSS-201102158

Long term incentive bonus plan The Group accounts for obligations relating to long term incentive bonus plans for executive directors and other employees at the present value of the dened benet obligation at the balance sheet date. The service cost relating to such plans is allocated to the nancial years over which service under the plan is rendered by the employee. The income statement expense represents the increase in the present value of the dened benet obligation resulting from employee service in the current period. Share-based payments The Group operates equity-settled share option schemes for employees under which employees acquire options over Company shares. The fair value of share options granted is recognised as employee benet cost with a corresponding increase in the share-based payment reserve in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Group operates an equity-settled share save scheme (SAYE) for employees under which employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benet cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period of the savings contract. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Group operates an equity-settled long term incentive plan for selected senior executives under which the executives are conditionally granted shares which vest upon the achievement of predetermined earnings targets. The fair value is measured at the grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant. Own shares held Purchases of the Companys shares by the long term incentive plans trust, which have been conditionally awarded to executives under the terms of the long term incentive plan, are shown separately as a deduction from equity in the consolidated balance sheet. Dividends Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the balance sheet date are disclosed in Note 25.
52
Page 638 PSS-201102158
3. Segment reporting
The revenue, operating prot and net assets of the Group relate to the provision of betting and gaming activities, substantially all of which are conducted in the Republic of Ireland and the UK. (a) By business segment The Group considers its primary business segments to be retail and non retail. The retail business segment comprises the Groups Irish and UK licensed bookmaking shop estates. The non retail business segment comprises the Groups online and telephone sports betting businesses and its online gaming businesses, primarily casino, games, poker and bingo. Business segment information for the year ended 31 December 2006: Other unallocated 31/12/06 000 (28) (6,473) (6,501) (6,501) 2,149 (10) (4,362) 78,519 13,683 2
53
Retail 31/12/06 000 Revenue Direct betting costs Gross profit Depreciation and amortisation Other operating costs Operating profit before property gain Property gain Operating profit Financial income Financial expense Profit before tax Total assets Segment liabilities Capital expenditure 126,783 (17,250) 109,533 (12,035) (79,258) 18,240 2,098 20,338 20,338 87,970 14,559 22,422
Non retail 31/12/06 000 91,923 (17,840) 74,083 (3,449) (36,911) 33,723 33,723 33,723 12,350 22,466 4,421
Total 31/12/06 000 218,706 (35,090) 183,616 (15,512) (122,642) 45,462 2,098 47,560 2,149 (10) 49,699 178,839 50,708 26,845
Business segment information for the year ended 31 December 2005: Other unallocated 31/12/05 (restated) 000 (6,072) (6,072) 1,226 (4,846) 56,027 13,866 -
Retail 31/12/05 (restated) 000 Revenue Direct betting costs Gross profit Depreciation and amortisation Other operating costs Operating profit Financial income Profit before tax Total assets Segment liabilities Capital expenditure 98,460 (13,484) 84,976 (8,481) (64,348) 12,147 12,147 67,346 10,432 24,302
Non retail 31/12/05 (restated) 000 62,388 (11,794) 50,594 (2,814) (23,737) 24,043 24,043 9,141 12,165 3,166
Total 31/12/05 (restated) 000 160,848 (25,278) 135,570 (11,295) (94,157) 30,118 1,226 31,344 132,514 36,463 27,468
Page 639 PSS-201102158
3. Segment reporting (continued)

The amounts shown in the other unallocated category above, representing items that cannot be allocated to either the retail or non retail segments, are primarily in respect of management costs relating to the Group as a whole, cash deposits held centrally and certain accounts payable, tax and accrual balances. (b) By geographic segment The Group considers that its primary geographic segments are Ireland & other and UK. The Ireland & other geographic segment is composed of the Irish retail bookmaking business, online and telephone sports betting from non-UK customers (principally in Ireland), and online gaming from non-UK customers. The UK geographic segment consists of the UK retail bookmaking business, online and telephone sports betting from UK customers, and online gaming from UK customers. Ireland & other 31/12/06 000 Revenue Segment assets Capital expenditure 148,462 131,269 14,369 Ireland & other 31/12/05 (restated) 000 112,338 106,623 18,598 UK 31/12/06 000 70,244 47,570 12,476 Total 31/12/06 000 218,706 178,839 26,845
54
UK 31/12/05 (restated) 000 48,510 25,891 8,870
Total 31/12/05 (restated) 000 160,848 132,514 27,468
Page 640 PSS-201102158

Further analysis of the business segments by channel is as follows: 2006 000 Amounts staked by customers Retail Ireland Retail UK Retail Telephone Online Revenue Retail Ireland Retail UK Retail Telephone Online Gross profit Retail Ireland Retail UK Retail Telephone Online Operating profit before exceptional item Retail Ireland Retail UK Retail Telephone Online 22,025 (5,995) 16,030 6,004 23,428 45,462 14,136 (4,656) 9,480 3,649 16,989 30,118 91,510 18,023 109,533 22,352 51,731 183,616 73,970 11,006 84,976 17,151 33,443 135,570 104,385 22,398 126,783 24,519 67,404 218,706 83,642 14,818 98,460 19,454 42,934 160,848 833,125 129,936 963,061 306,604 525,425 1,795,090 703,780 90,541 794,321 249,871 327,518 1,371,710 2005 (restated) 000
55
In December 2005, the tax regime for xed odds betting terminals (FOBTs) in the UK retail estate was changed and gross prots tax was replaced by value added tax (VAT). While the amount of tax levied is broadly unchanged, accounting practice requires that income is included within revenue net of VAT, whereas previously the income was included gross with the gross prots tax being deducted in arriving at gross prot. The VAT charged on FOBT income in 2006 was 1.2m. The equivalent gross prots tax in 2005 was 0.6m.
Page 641 PSS-201102158
4. Direct betting costs

Direct betting costs comprise: 2006 000 Betting taxes Software supplier costs Data rights Other direct betting costs 12,895 7,487 2,411 12,297 35,090 2005 (restated) 000 6,549 4,651 3,603 10,475 25,278
56
Betting taxes comprise taxes levied on gross win and tax levied on Irish retail amounts staked generated in the period 1 July 2006 to 31 December 2006. On 1 July 2006, the Irish government replaced the previous 2% customer based betting tax with a 1% tax levied on the bookmaker. Software supplier costs comprise direct costs incurred under supplier agreements for the provision of online casino, poker, xed odds gaming services and FOBTs. Data rights mainly comprise costs incurred in respect of British Horseracing Board and UK statutory levies. Other direct betting costs comprise discounts on bets granted in the Irish retail estate prior to 1 July 2006, payments to third parties for new online customers acquired, prize and tournament costs and other miscellaneous direct betting costs.

2006 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Share-based payments (Note 19) Other staff costs 50,661 4,891 1,677 3,184 3,814 64,227 2006 The average number of persons employed by the Group (including executive directors), all of whom were involved in the provision of betting services, during the year was 2005 000 41,586 3,157 1,211 2,289 2,833 51,076 2005
1,414
1,255
Page 642 PSS-201102158

Included in directors emoluments are the following emoluments in respect of directors who were in ofce during the year: Pension costs 000 172 47 34 Annual bonus 000 459 197 112 -
57
Fees 000 Executive Patrick Kennedy (1) Breon Corcoran Jack Massey (2) John OReilly (3) Ross Ivers (4) Non-Executive Fintan Drury Tom Grace (5) Stewart Kenny Nigel Northridge David Power (6) Brody Sweeney (7) Stephen Thomas (8) 160 65 55 55 71 55 25 486 1. -
Salary 000 572 317 172 -
Benefits 000 45 18 16 -
2006 000 1,248 579 334 -
2005 000 301 389 1,050 968
1,061
253
79
768
160 65 55 55 71 55 25 2,647
110 40 40 50 35 50 3,033
2. 3. 4. 5. 6. 7. 8.
During the year ended 31 December 2005, Patrick Kennedy was paid fees of 36,000 in respect of services as a non-executive director for the period up to 18 September 2005, after which he became a full time executive of the Company as Chief Executive Designate. Jack Massey was appointed to the Board on 25 April 2006. John OReilly retired from the Board on 31 December 2005. Ross Ivers resigned from the Board on 6 December 2005. Tom Grace was appointed to the Board on 3 January 2006. He is Chairman of the Audit Committee. David Power is Chairman of the Remuneration Committee and the Risk Committee. Brody Sweeney was appointed to the Board on 16 February 2005. Stephen Thomas resigned from the Board on 16 May 2006.
Benets include provision of a company car or car allowance, life and medical insurance. Share-based payment costs in respect of the Groups Long Term Incentive Plan (see Note 19) and the accrual made in respect of the long term incentive bonus plan are not included in the above table.
Page 643 PSS-201102158

Other transactions with directors There were no loans outstanding to any director at any time during the year. Details of directors interests in share awards and share options are set out on page 25. Other related party transactions between the Group and the directors, all of which were conducted on an arms length basis at normal commercial terms, are set out below. In addition to the directors emoluments disclosed above, in the year ended 31 December 2006 directors were paid the amounts set out below: Stewart Kenny received 60,000 (2005: 60,000) in respect of consulting fees. The Group engages in transactions with David Power in his capacity as an on-course bookmaker. In aggregate, the Group placed bets losing 224,793 (2005: winning 78,772) with Richard Power On-Course Bookmakers and that rm placed bets with the Group losing 74,454 (2005: losing 32,314). The Group paid rent of 38,727 (2005: 38,727) during the year for retail properties occupied by the Group under long term leases and owned by David Power. Transactions with key management personnel comprising executive and other senior management Key management personnel compensation is as follows: 2006 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Provision for executive director long term incentive bonus plan (1) Share-based payments Other staff costs 3,883 477 490 625 2,546 228 8,249 2006 000 Executive directors Other key management personnel Provision for executive director long term incentive bonus plan (1) Social security costs Share-based payments 2,161 2,440 625 477 2,546 8,249 2005 000 3,164 366 1,069 2,045 199 6,843 2005 000 2,672 1,760 366 2,045 6,843
58
(1) An amount of 625,000, accrued by the Company in respect of Breon Corcorans long term incentive bonus plan, has not been included in the table of directors emoluments on page 57. As set out in the Remuneration Committee Report on pages 39 and 40, no payment obligation has crystallised under the plan at this point and payment is dependent on the non retail division achieving very challenging operating prot targets in the year ended 31 December 2009.
Page 644 PSS-201102158
7. Exceptional item
2006 000 Gain on disposal of Irish retail shop property 2,098 2005 000 -
59
During the 2006 nancial year, the Group disposed of a shop property. This property, which forms part of the Groups Irish retail licensed bookmaking operations, was originally held under an operating lease. The Group exercised a purchase option contained in the lease and subsequently sold the property at arms length to a third party, simultaneously entering into a leaseback agreement at arms length with that third party.
8. Net nancing costs

2006 000 Financial income: - Deposit interest income Financial expense: - Bank overdraft and other interest payable 2,149 (10) 2,139 2005 000 1,226 1,226

2006 000 Directors emoluments Auditors remuneration for audit services Depreciation Amortisation of intangible assets (Gain)/ loss on disposal of property, plant and equipment Operating lease rentals, principally premises Operating lease income 2,647 140 13,190 2,322 (1,183) 10,230 (158) 2005 000 3,033 140 9,875 1,420 267 8,828 (148)
Amounts paid to the auditor in respect of non-audit services, comprising tax fees, were 152,000 (2005: 160,000).
Page 645 PSS-201102158

2006 000 Recognised in the income statement: Current tax charge Prior year under/(over) provision Deferred tax (credit)/charge Prior year over provision (Decrease)/increase in deferred tax Total income tax expense in income statement 8,536 789 9,325 (403) (468) (871) 8,454 4,249 (211) 4,038 352 352 4,390 2005 000
60
The difference between the total income tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the prot before tax is as follows: 2006 000 Profit before tax Tax on Group profit before tax at the standard Irish corporation tax rate of 12.5% (2005: 12.5%) Depreciation on non-qualifying property, plant and equipment Betting duty Expenses deductible for tax purposes Other differences Chargeable gains Interest income taxable at the higher rates Under/(over) provision in prior year Total income tax charge 49,699 2005 000 31,344
12.5% 0.6% 1.1% 0.0% 0.4% 0.3% 0.5% 1.6% 17.0%
6,212 285 528 (4) 225 159 260 789 8,454
12.5% 2.7% (1.4%) (0.0%) 0.9% (0.7%) 14.0%
3,918 837 (432) (2) 280 (211) 4,390
No corporation tax is payable in the UK due to the availability of tax losses. A deferred tax asset of 2,842,000 (2005: 2,760,000) relating to these losses forward has not been recognised in accordance with the Groups accounting policy for deferred tax. There is no expiry date in respect of these losses. No signicant changes are expected to statutory tax rates in the future.
Page 646 PSS-201102158

Earnings per share is calculated by dividing the prot attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year as follows: 2006 Numerator in respect of basic and diluted earnings per share ( 000): Profit attributable to equity holders of the Company Numerator in respect of adjusted earnings per share ( 000): Profit attributable to equity holders of the Company Less: Property gain after tax Profit for adjusted earnings per share calculation Denominator in respect of basic earnings per share: Ordinary shares in issue at beginning of year Adjustments for - ordinary shares issued during year - ordinary shares held by long term incentive plan trust Weighted average number of ordinary shares Basic earnings per share Adjusted earnings per share Denominator in respect of diluted earnings per share: Basic weighted average number of ordinary shares in issue during year Adjustments for dilutive effect of share option schemes, sharesave scheme, shares held by long term incentive plan trust and long term incentive plan Weighted average number of ordinary shares Diluted earnings per share Adjusted diluted earnings per share 50,344,254 49,839,880 50,397,168 494,991 (547,905) 50,344,254 0.819 0.786 50,045,581 152,251 (357,952) 49,839,880 0.541 0.541 41,245 (1,677) 39,568 26,954 26,954 41,245 26,954 2005
61
501,021 50,845,275 0.811 0.778
1,127,252 50,967,132 0.529 0.529
Page 647 PSS-201102158

Land, buildings & leasehold improvements 000 Cost Balance at 1 January 2005 Additions Disposals Balance at 31 December 2005 Transfers (Note 13) Additions Disposals Balance at 31 December 2006 Accumulated depreciation Balance at 1 January 2005 Charge for year Disposals Balance at 31 December 2005 Charge for year Disposals Balance at 31 December 2006 Net book value At 31 December 2006 At 31 December 2005 35,262 32,695 35,361 33,077 4,980 5,997 637 631 76,240 72,400 7,392 1,944 (530) 8,806 2,255 (566) 10,495 17,162 6,416 (3,355) 20,223 8,242 (586) 27,879 6,596 1,280 (160) 7,716 2,528 (66) 10,178 363 235 (137) 461 165 (157) 469 31,513 9,875 (4,182) 37,206 13,190 (1,375) 49,021 35,405 7,116 (1,020) 41,501 41,501 5,875 (1,619) 45,757 42,955 13,916 (3,571) 53,300 53,300 10,929 (989) 63,240 10,009 3,892 (188) 13,713 (1,294) 12,419 2,890 (151) 15,158 851 453 (212) 1,092 1,092 229 (215) 1,106 89,220 25,377 (4,991) 109,606 (1,294) 108,312 19,923 (2,974) 125,261
62
Fixtures & fittings 000
Computer equipment 000
Motor vehicles 000
Total 000
The net book value of land, buildings and leasehold improvements at 31 December 2006 includes 30.4m (2005: 27.3m) in respect of leasehold improvements. Computer equipment at 31 December 2005 includes an amount of 4.2m in respect of equipment which was either not available for use or in test. Accordingly these assets were not depreciated during 2005. The carrying cost of these assets included 0.5m in respect of internal labour costs. These assets were placed into service during 2006 and have been depreciated thereafter. During 2006, an amount of 1,294,000, relating to computer equipment either not available for use or in test as of 31 December 2005 and included in property, plant and equipment additions in 2005, was reclassied as computer software and transferred to intangible assets (see Note 13). The directors do not consider the remaining useful lives of property, plant and equipment to be materially different from the period over which the assets are being depreciated. Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2003 on Waste Electrical and Electronic Equipment was introduced on 13 August 2005. The Group has adopted a comprehensive policy on collection, treatment, recovery, reuse and recycling of waste and does not believe that the introduction of this directive will have a material effect on the carrying cost of property, plant and equipment purchased prior to 13 August 2005. The cost of collection, treatment, recovery and recycling of property, plant and equipment purchased subsequent to 13 August 2005 is nanced through the payment of charges on acquisition. These charges, none of which are material, are capitalised as part of the cost of the related asset and depreciated over the assets expected useful lives.
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The movements during the prior year and current year in respect of intangible assets, which comprise computer software and licences, were as follows: Computer software 000 Cost Balance at 1 January 2005 Additions Balance at 31 December 2005 Transfers (Note 12) Additions Disposals Balance at 31 December 2006 Amortisation Balance at 1 January 2005 Amortisation for year Balance at 31 December 2005 Amortisation for year Disposals Balance at 31 December 2006 Net book value At 31 December 2006 At 31 December 2005 5,869 2,087 3,391 1,528 9,260 3,615 3,190 1,355 4,545 2,038 6,583 76 65 141 284 (1) 424 3,266 1,420 4,686 2,322 (1) 7,007 4,982 1,650 6,632 1,294 7,926 4,526 12,452 1,228 441 1,669 1,669 2,396 (250) 3,815 6,210 2,091 8,301 1,294 9,595 6,922 (250) 16,267
63
Licences 000
Total 000
Page 649 PSS-201102158
14. Goodwill
The following cash generating units, being the lowest level of asset for which there are separately identiable cash ows, have the following carrying amounts of goodwill: Irish retail 000 Balance at 31 December 2006 and 31 December 2005 904 UK retail 000 976
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Total 000 1,880
Goodwill on Irish retail properties arose from the amalgamation of three bookmaking businesses to form Paddy Power plc. Goodwill on UK retail properties arose from the acquisition of two London bookmaking businesses in 2004. Impairment tests for cash generating units containing goodwill In accordance with accounting requirements, the Group performs an annual test for impairment of its cash generating units. The most recent test was performed at 31 December 2006. The retail divisions in Ireland and the UK include the following amounts in respect of goodwill: 31 December 2006 000 Irish retail 904 31 December 2005 000 904
The recoverable amount of the Irish retail underlying cash generating units was estimated based on value in use calculations. These calculations use cash ow projections based on actual operating results and nancial budgets approved by management covering a ve year period. Cash ows for thereafter have been extrapolated assuming a weighted average revenue growth rate of 5% (2005: 5%) and a gross win of 13% (2005: 12%) which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. The growth rate assumption is considered realistic by management in light of the recent performance of the Group and the Groups targeted performance over the next ve years. Cash ow growth for the extrapolated period is projected to be approximately 3% per annum. It is assumed, and management have no reason to expect otherwise, that the Group will continue to trade in locations currently occupied by the underlying cash generating units for the foreseeable future. A pre-tax discount rate of 9% (2005: 10%), which reects the specic risks relating to the underlying business segments, has been used in discounting the projected cash ows. Management believes that any reasonably possible change in the key assumptions on which the Irish retail goodwill recoverable amount is based would not cause its carrying amount to exceed its recoverable amount. 31 December 2006 000 UK retail 976 31 December 2005 000 976
The recoverable amount of the two London underlying cash generating units was estimated based on value in use calculations. These calculations use cash ow projections based on actual operating results and nancial budgets approved by management covering a ve year period. Cash ows for thereafter have been extrapolated assuming a weighted average revenue growth rate of 5% (2005: 5%) and a reduced gross win of 13% (2005: 13%) which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. The growth rate assumption is considered realistic by management in light of the recent performance of the Group and the Groups targeted performance over the next ve years. Cash ow growth for the extrapolated period is projected to be approximately 3% per annum. It is assumed, and management have no reason to expect otherwise, that the Group will continue to trade in locations currently occupied by the underlying cash generating units for the foreseeable future. A pre-tax discount rate of 10% (2005: 10%), which reects the specic risks relating to the underlying business segments, has been used in discounting the projected cash ows. Management believes that any reasonably possible change in the key assumptions on which the UK retail goodwill recoverable amount is based would not cause its carrying amount to exceed its recoverable amount.
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The primary assumptions used by management in assessing the recoverable amounts of the relevant cash generating units over the initial ve year review period are as follows: Irish retail Growth in number of bets per annum Growth in average stake per bet per annum Gross win % (of amounts staked) Cost of sales % (of amounts staked) 5% 2% 14% reducing to 13% 1% UK retail 5% reducing to 2% 3% 14% 4%
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The assumptions above are based on past experience, managements expectations for market development, growth in market share, gross win percentage margins and cost ination for the ve year period. The discount rate applied to the cash ows is based on the risk free rate for ten years plus government bonds, adjusted for a risk premium that reects both the increased risk of investing in equities and the systemic risk of the cash generating units. The risk premium is calculated using the equity market risk premium (being the increased return required by investors in the equity market as a whole over and above the risk free rate available) and the risk adjustment applied to reect the risk of the specic cash generating unit relative to the market as a whole. Based on the reviews as described above, no impairment has arisen.

31 December 2006 000 Sundry receivables and prepayments 4,203 31 December 2005 000 2,134
The carrying amounts of trade and other receivables approximate their fair value. Trade and other receivables are non-interest bearing.

31 December 2006 000 Cash at bank and on hand Short-term bank deposits Cash and cash equivalents in the statement of cash flows 7,670 79,391 87,061 31 December 2005 000 3,538 48,780 52,318
The effective interest rate on short-term bank deposits was 3.95% (2005: 2.55%); these deposits have an average original maturity date of 30 days (2005: 53 days). The short-term bank deposits have an average maturity date of 10 days from 31 December 2006 (2005: 15 days). Short-term bank deposits are analysed by currency as follows: 31 December 2006 000 Euro Sterling 66,000 13,391 79,391 The carrying amounts of these assets approximate their fair values. 31 December 2005 000 44,490 4,290 48,780
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Number of ordinary shares in issue Balance at 1 January 2005 Shares issued Own shares acquired: 190,000 ordinary shares Total recognised income and expense Equity-settled transactions Dividends to shareholders (Note 18) Balance at 31 December 2005 Balance at 1 January 2006 Shares issued Share issue costs Own shares acquired: 280,000 ordinary shares Total recognised income and expense Equity-settled transactions Transfer to retained earnings on exercise of share options Dividends to shareholders (Note 18) Balance at 31 December 2006 51,238,437 5,124 10,163 1 923 (3,742) 534 (8,137) 2,636 (243) 5,613 41,245 243 (11,293) 114,445 50,397,168 50,397,168 841,269 5,040 5,040 84 7,548 7,548 2,663 (48) (1) 922 922 (2,623) (4,929) (4,929) 2,289 3,220 3,220 26,954 (10,168) 84,250 84,250 50,045,581 351,587 Shares held by long term Other incentive reserves plan trust 000 000 923 (2,306) Share -based payment Retained reserve earnings 000 000 931 67,464 -
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Share Share capital premium 000 000 5,005 35 6,680 868
The total authorised share capital of the Company comprises 70,000,000 ordinary shares of 0.10 each (2005: 70,000,000 ordinary shares of 0.10 each). All issued share capital is fully paid. During the year, 841,269 ordinary shares of 0.10 each (2005: 351,587 ordinary shares of 0.10 each) were issued as a result of the exercise of share options, for total consideration of 2,747,000 (2005: 903,000), giving rise to a share premium of 2,663,000 (2005: 868,000). Other reserves comprise the net foreign exchange translation differences together with a capital redemption reserve fund and a capital conversion reserve fund. The capital redemption reserve fund of 662,000 (2005: 662,000) relates to the nominal value of shares in the Company acquired by the Company and subsequently cancelled. The capital conversion reserve fund of 260,000 (2005: 260,000) arose on the redenomination of the ordinary share capital of the Company at the time of conversion from Irish pounds to euro. The foreign exchange reserve at 31 December 2006 was 1,000 (2005: nil). In 2006, an amount of 243,000 (2005: nil) in respect of options exercised during the year was transferred from the share-based payment reserve to retained earnings. As permitted by section 148(8) of the Companies Act, 1963 no separate prot and loss account is presented in respect of the Company. The Company recorded a prot for the year (measured in accordance with Irish GAAP) of 25.1m (2005: 19.2m).
Page 652 PSS-201102158
17. Share capital and reserves (continued)

At 31 December 2006, the Company held 654,500 of its own shares (2005: 430,000), which were acquired at a total cost of 8,137,000 (2005: 4,929,000), in respect of potential future awards relating to the Groups Long Term Incentive Plan (see Note 19). The Companys distributable reserves at 31 December 2006 are restricted by this amount. During the year, 55,500 shares originally valued at 534,000 were transferred from the Long Term Incentive Plan trust to a former director of the Company.
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2006 000 Ordinary shares: - final paid of 0.1284 per share (2005: 0.1252) - interim paid of 0.0943 per share (2005: 0.0775) 6,476 4,817 11,293 Proposed final dividend of 0.2277 (2005: 0.1284) per share (see Note 25) 6,265 3,903 10,168 2005 000
11,665
6,416
19. Share schemes

The Company has the following employee share schemes: The Paddy Power plc May 2000 Executive Share Option Scheme (the Executive Share Option Scheme) Under the May 2000 Executive Share Option Scheme, options over a total of 3,543,000 shares have been granted at an exercise price of 1.16 per share. These options were granted prior to 7 November 2002 and accordingly, do not fall within the scope of IFRS 2 Share-based Payment. Since May 2000, options over 3,396,000 shares have been exercised and options over a further 90,000 shares have lapsed. Options over 57,000 shares are outstanding at 31 December 2006 (2005: 384,000). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2005 300,000 27,000 57,000 384,000 Options exercised during year 300,000 9,000 18,000 327,000 Options outstanding at 31 December 2006 18,000 39,000 57,000 Earliest exercise date* 1 May 2003 1 May 2004 1 May 2005 Market price at date of exercise 13.35 15.07 12.70 13.10
Exercise price 1.16 1.16 1.16
* Share options lapse 10 years after date of grant. During 2005, 207,000 options were exercised at an exercise price of 1.16 when the market price ranged from 13.44 to 14.70. On 21 November 2000 the shareholders approved the termination of this scheme, and thus no further options may be granted pursuant to it.
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The Paddy Power plc 2000 Restricted Share Scheme (the Restricted Scheme) The Restricted Scheme was adopted by shareholders on 21 November 2000. Employees eligible to participate in the Restricted Scheme may not be participants in any other Company share option scheme (except for the Sharesave Scheme described below). In addition, to be eligible, a participant must have been an employee at 7 December 2000, must have had at least three years continuous service, and must have been listed in the allocation schedule attached to the Rules of the Restricted Scheme. The awards of shares granted under the Restricted Scheme were in the amounts of 3,175, 1,905 or 1,270 per eligible employee. The shares cannot be sold within ve years of the date of the award being granted. During this period of ve years the shares are held by the Power Leisure Employee Benet Trust for the benet of the relevant employees. At 31 December 2006, 49,588 ordinary shares (2005: 272,903) owned by employees are held on their behalf by Power Leisure Employee Benet Trust. The Paddy Power plc November 2000 Share Option Scheme (the Share Option Scheme) The Share Option Scheme was adopted by shareholders on 21 November 2000 and modied by the shareholders on 22 June 2004. The Share Option Scheme is open to directors, other than non-executive directors, and employees. Options may be granted within a period of ten years from 7 December 2000 at the higher of nominal and current market value. Options may not be exercised earlier than three years from the date of grant and may only be exercised if the Group meets certain targets and any further condition on exercise which the Board determines to be appropriate. These targets require real growth (Consumer Price Index (CPI) plus ve percent compounded annually) in earnings per share of the Group over a period of not less than three years following the grant of an option. Since November 2000, 1,423,672 options have been granted under the scheme. Options granted before 7 November 2002 do not fall within the scope of IFRS 2 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Groups share-based payment reserve. Since November 2000, options over 699,171 shares have been exercised and options over 152,866 shares have lapsed. Options over 571,635 shares were outstanding at 31 December 2006 (2005: 843,257), of which 10,000 were exercisable at 31 December 2006 (2005: 377,466). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2005 Options granted during year Options lapsed during year Options Options outstanding exercised at 31 during December year 2006
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Earliest exercise Exercise date* price
Granted before 7 November 2002 302,466 75,000 85,000 105,366 8,000 94,000 13,684 15,741 144,000 56,300 243,000 15,741 6,000 35,300 57,041 302,466 65,000 85,000 51,415 10,000 513,881 10,000 53,951 8,000 84,000 13,684 138,000 21,000 243,000 571,635 August 2004 July 2005 May 2006 February 2007 March 2007 June 2007 September 2007 February 2008 September 2008 March 2009 September 2009 3.59 5.25 5.00 8.15 8.90 9.43 9.80 12.89 14.80 12.55 14.40 14.10 - 14.60 12.80 - 14.15 14.15 - 16.29 15.40 - 15.55 15.95 -
Granted after 7 November 2002
843,257 299,300
* Share options lapse 10 years after date of grant.

Page 654 PSS-201102158

During 2005, options over 50,000 shares were exercised at an exercise price of 3.59 when the market price was 14.41 and options over 50,000 shares were exercised at an exercise price of 5.25 when the market price per share was between 14.05 and 15.20. During 2005, options in respect of 13,000 shares at an exercise price of 5.25 per share and options in respect of 13,000 shares at an exercise price of 9.43 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 786,000 (2005: 481,000). The signicant inputs into the model were the share prices for the two grant dates of 12.55 and 14.40 (2005: share prices for two grant dates ranging from 12.89 to 14.80), the exercise prices shown above, the standard deviation of expected share price returns of 26% (2005: 25%), the expected term as disclosed above, and an annual risk free rate of 3.61% (2005: 3.14%). The volatility measured as the standard deviation of expected share price returns is based on a statistical analysis of the Companys share price over the last three years. The Paddy Power plc Sharesave Scheme (the Sharesave Scheme) The Sharesave Scheme was adopted by shareholders on 21 November 2000 and was subsequently approved by the Revenue Commissioners. All employees (including executive directors) who have not less than 12 months continuous service with the Company or any subsidiary nominated to join the Sharesave Scheme may be invited to apply for options to acquire shares. Options will normally be granted to all eligible employees in the 42 day period after the announcement of the interim or nal results of the Company. The purchase price for each ordinary share in respect of which an option is granted shall not be less than 75 percent of the closing price of the shares on the Irish Stock Exchange on the dealing day last preceding the date of grant of the option or its nominal value. The aggregate maximum monthly contribution payable by an employee in connection with the scheme may not exceed 320. Options granted before 7 November 2002 do not fall within the scope of IFRS 2 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Groups share-based payment reserve. Options outstanding at 31 December 2005 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2006
69
Earliest exercise date*
Exercise price
Granted before 7 November 2002 1,060 672 388 July 2005 4.95
Granted after 7 November 2002 264,271 98,457 6,568 48,987 2,260 51,919 388 215,284 96,197 6,568 318,049 October 2008 December 2009 & December 2011 December 2009 & December 2011 11.60 11.29 12.04
265,331 105,025
* Share options lapse 3.5 and 5.5 years after date of grant. Options over 388 shares were exercised during 2006 when the market price was 12.75. During 2005, options over 44,587 shares were exercised at an exercise price of 4.95 when the market price ranged from 13.30 to 15.13. During 2005, options in respect of 1,783 shares at an exercise price of 4.95 per share lapsed.
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The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 374,000 (2005: 889,000). The signicant inputs into the model were the share price of 15.05 (2005: 14.50) at the grant date, the exercise prices of 11.29 and 12.04 (2005: 11.60), the standard deviation of expected share price returns of 26% (2005: 25%), the option life disclosed above, and an annual risk free rate of 3.69% (2005: 3.00%). The volatility measured as the standard deviation of expected share price returns is based on a statistical analysis of the Companys daily share price over the last three years. Long Term Incentive Plan On 22 June 2004, the 2004 Long Term Incentive Plan (LTIP) for senior executives was adopted by the Shareholders, under which the directors can make conditional grants of a number of Company shares to each eligible executive. The grants are subject to the rules of the scheme. In accordance with the rules, the grant will vest if the growth target (EPS growth at least equal to the compound growth in CPI plus 12% per annum) is achieved over the minimum vesting period of three years. To the extent the grant does not vest in full in respect of the minimum vesting period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the four year period measured from the commencement of the minimum vesting period. To the extent the award does not vest in full in respect of such four year period, the grant will continue in effect in accordance with the rules and will vest if the growth target is met over the ve year period measured from the commencement of the minimum vesting period, provided, however, that to the extent the grant has not vested on or before the latest vest date specied above, the grant will automatically lapse in its entirety immediately following such date. Until the vesting of the award in accordance with the rules of the scheme, the grantholder will have no rights over or in respect of the shares subject to the grant and on vesting, the grantholders rights are limited to those shares in respect of which the growth target has been achieved in accordance with the rules of the scheme. The grants are not transferable. In relation to the awards of shares granted in 2004, the relevant growth target has been met and eligible awards are expected to vest. Upon the vesting of a share award, as part of the grantholders rights they shall now receive a small number of additional shares purchased from the dividends received by the LTIP trustee in respect of those shares prior to the vesting date, regarded as a de facto part of the original share award. During the year, awards of 165,000 and 85,000 shares (2005: 250,000 shares) were granted to senior management (including executive directors). The share prices at the dates of grant were 12.55 and 13.68, respectively (2005: 12.27 to 14.40). The total cost of this grant is estimated at 3,234,000 (2005: 2,986,000) and is expensed in the Group income statement over the minimum vesting period of the grant (being the expected term of the grant), i.e. three years. The operating prot for the year ended 31 December 2006 is stated after an LTIP charge of 2,598,000 (2005: 1,937,000). As a result of the resignation of a director of the Company in 2005, an award of 30,000 shares granted in 2005 lapsed during the year. The Paddy Power plc Employee Benet Trust (the Trust) was established to manage the Long Term Incentive Plan. The Trust purchased 240,000 Paddy Power plc shares on 28 June 2004 at a cost of 2.3m, 190,000 Paddy Power plc shares between 18 May 2005 and 23 May 2005 at a cost of 2.6m and a further 280,000 Paddy Power plc shares between 21 June 2006 and 28 June 2006 at a cost of 3.7m. On 28 June 2006, 55,500 shares with an original value of 534,000 were vested from the Trust to a former director of the Company. The results of the Trust are included in the Paddy Power plc Company nancial statements. The shares held by the Trust at the balance sheet date are shown as a deduction from equity in the consolidated balance sheet in accordance with the Groups accounting policy.
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Paddy Power 2004 Second Tier Option Scheme On 22 June 2004, the shareholders approved the establishment of the Paddy Power 2004 Second Tier Option Scheme, which allows the Company to grant options to employees, exercisable after a ve year performance period, upon the achievement by the Company of exceptional performance levels. To be exercisable, the Companys earnings per share must grow during the ve year performance period by at least the percentage increase in the Consumer Price Index plus ten percent per annum compounded and the Companys earnings per share growth must be in the top quarter in performance terms of a specied peer group. No options have been granted to date under this scheme to any Group employees. Summary of options outstanding The total number of options outstanding at 31 December 2006 was 946,684 (2005: 1,492,588). These options had exercise prices ranging from 1.16 to 14.80 (2005: 1.16 to 14.80). Options outstanding at 31 December 2005 Executive share option scheme Share option scheme Sharesave scheme Total 384,000 843,257 265,331 Options granted during year 299,300 105,025 Options lapsed during year 57,041 51,919 Options exercised during year 327,000 513,881 388 841,269 Options outstanding at 31 December 2006 57,000 571,635 318,049 946,684
71
1,492,588 404,325 108,960
Summary of share-based payments expense The share-based payments expense in the income statement in respect of the Groups share schemes above is comprised as follows: 2006 000 Share option schemes Sharesave scheme Long term incentive plan Total General The aggregate number of shares which may be utilised under the employee share option schemes and the LTIP in any ten year period may not exceed ten percent of the Companys issued ordinary share capital. The percentage of share capital which can be utilised under these schemes and the Sharesave Scheme comply with guidelines issued by the Irish Association of Investment Managers in relation to such schemes. 312 274 2,598 3,184 2005 000 263 89 1,937 2,289
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Deferred tax assets and liabilities are attributable to the following: 31 December 2006 Assets Liabilities 2006 2006 000 000 Property plant and equipment Lease premiums income element Freehold and leasehold interest Employee benefits Net assets/(liabilities) 99 292 391 (196) (196) Total 2006 000 99 (196) 292 195 31 December 2005 Assets 2005 000 156 11 167 Liabilities 2005 000 (783) (60) (843) Total 2005 000 (783) (60) 156 11 (676)
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All of the above deferred tax balances are in respect of Irish corporation tax. The deferred tax assets and liabilities have been offset at 31 December 2006 as there is a legally enforceable right to such set-off. Unrecognised deferred tax assets: Deferred tax assets have not been recognised in respect of the following items: 31 December 2006 000 UK tax losses 2,842 31 December 2005 000 2,760
A deferred tax asset has not been recognised in respect of the UK tax losses as it is not certain when taxable prots will be generated against which to offset these losses. Movement in temporary differences during the year: Balance at 1 January 2005 000 Property, plant and equipment Lease premiums income element Freehold and leasehold interest Employee benefits (363) (34) 66 7 (324) Balance at Recognised in income 31 December 2005 2005 000 000 (420) (26) 90 4 (352) (783) (60) 156 11 (676) Recognised Balance at in income 31 December 2006 2006 000 000 882 (136) (156) 281 871 99 (196) 292 195
21. Trade and other payables

31 December 2006 000 Trade payables Customer balances Sports betting open positions PAYE and social security Value added tax Betting duty Accruals and other liabilities 6,261 13,410 2,877 1,659 582 3,647 20,704 49,140 31 December 2005 000 5,594 10,034 2,077 1,182 570 3,488 11,928 34,873
Page 658 PSS-201102158
21. Trade and other payables (continued)

Sports betting open positions Amounts received from customers on sportsbook events that have not occurred by the year end have been designated by the Group on initial recognition as nancial liabilities at fair value through prot and loss. In previous nancial statements, amounts received from customers on events that had not occurred by year end were treated as deferred income. The fair value of open sports bets at the year end has been calculated using the latest available prices on relevant sporting events. The fair value calculation also includes the impact of any hedging activities in relation to these open positions. The carrying amount of the liability is not signicantly different from the amount that the Group is expected to pay out at maturity of the nancial instruments. Movements in the fair value of the nancial liability are not related to changes in benchmark interest rates. Of the open sports bets amount at 31 December 2006, 2,848,000 is due to mature in the year ending 31 December 2007 and 29,000 is due to mature in the year ending 31 December 2008. Sports bets are non-interest bearing. There is no interest rate or credit risk associated with open sports bets. A currency risk may arise where such bets are denominated in a currency other than the euro. This currency risk is not considered signicant as any payout on such bets is made in the same currency as that in which the bet was originally staked.
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(a) Guarantees The Group has working capital overdraft facilities of 3.0m with Allied Irish Banks plc. The Group also has a 1.6m BACS guarantees and cash facility from Allied Irish Banks plc. These facilities are unsecured. The Company enters into nancial guarantee contracts to guarantee the indebtedness of other parties including companies within its Group. The Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. (b) Capital commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: 31 December 2006 000 Property, plant and equipment Intangible assets 115 115 31 December 2005 000 3,787 143 3,930
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(c) Operating lease commitments The Group leases various licensed betting and other ofces under operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group has the following commitments in respect of operating leases on properties where the lease terms expire as follows: 31 December 2006 Annual Total commitment commitment 000 000 Within 1 year Between 2 and 5 years After 5 years 501 1,209 8,583 10,293 501 4,102 147,433 152,036 31 December 2005 Annual commitment 000 848 1,008 7,459 9,315 Total commitment 000 848 3,015 128,916 132,779
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23. Related parties

There were no related party transactions other than those disclosed in Note 6.
24. Group entities

The Company has the following subsidiaries, all of which are wholly equity owned, at 31 December 2006: Country of incorporation Activity UK Bookmaker
Power Leisure Bookmaker Limited
Leisurebet Limited Zephyr Limited KOR Enterprises Limited Rexbury Limited QC Holdings Limited Pridepark Developments Limited
Ireland Ireland Ireland Ireland Ireland Ireland
Non-trading Property holding Property holding Property holding Non-trading Property holding Call centre administration Poker and gaming Bookmaker Non-trading Non-trading Non-trading Non-trading
Paddy Power Call Centre Services Limited Isle of Man Paddy Power Entertainment Limited Paddy Power Isle of Man Limited Paddy Power Games Limited Paddy Power BCI Limited Paddy Power Alderney Limited Paddy Power (Malta) Limited Isle of Man Isle of Man Isle of Man Alderney Alderney Malta
Registered office 5th Floor, Crowne House, 56-58 Southwark St, London SE1 1UN Airton House, Airton Road, Tallaght, Dublin 24, Ireland Airton House, Airton Road, Tallaght, Dublin 24, Ireland Airton House, Airton Road, Tallaght, Dublin 24, Ireland Airton House, Airton Road, Tallaght, Dublin 24, Ireland Airton House, Airton Road, Tallaght, Dublin 24, Ireland Airton House, Airton Road, Tallaght, Dublin 24, Ireland 14 Athol Street, Douglas, Isle of Man, IM1 1JE 14 Athol Street, Douglas, Isle of Man, IM1 1JE 14 Athol Street, Douglas, Isle of Man, IM1 1JE 14 Athol Street, Douglas, Isle of Man, IM1 1JE York House, Victoria Street, Alderney, GY9 3TA York House, Victoria Street, Alderney, GY9 3TA Abacus, Suite 2, Psaila Street, St Venera, Malta
Page 660 PSS-201102158
24. Group entities (continued)

In addition to the above subsidiaries, the Group utilises two employee trusts. Power Leisure Employee Benet Trust, with a registered address at Airton House, Airton Road, Tallaght, Dublin 24, holds the shares of the Restricted Share Scheme. Paddy Power plc Employee Benet Trust, with a registered address at PO Box 76, Wests Centre, St Helier, Jersey, JE4 8PQ, holds the shares under the Long Term Incentive Plan.
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25. Events after the balance sheet date

In respect of the current year, the directors propose that a nal dividend of 22.77c per share (2005: 12.84c per share) will be paid to shareholders on 25 May 2007. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these nancial statements. The proposed dividend is payable to all shareholders on the Register of Members on 16 March 2007. The total estimated dividend to be paid amounts to 11,665,000 (2005: 6,476,000).
26. Financial instruments

The Group does not offer credit to customers and does not make use of derivative nancial instruments. The Group is exposed to interest rate and currency risks in the normal course of business. Investments are only allowed in cash with a maturity date on deposits of 180 days or less. Investments in cash are restricted to nancial institutions with a Moodys credit rating (or equivalent from another rating agency) of P2 or better. There are also limits on the proportion of cash funds that can be invested in P2 credit rated institutions. The Board oversees the framework for the operation of the Groups treasury management policy. At 31 December 2006, it is estimated that a movement of one percentage point in interest rates or in the value of the euro against sterling would not have a material impact on the Groups prot before taxation. The Group actively manages the risks associated with sportsbook bets. The Group has a separate Risk department whose responsibility is bookmaking odds compiling and risk management. This function reports directly to the Group Chief Executive and to the Risk Committee of the Board. The Risk department is responsible for the creation and pricing of all markets and the trading of those markets through their life. A mix of traditional bookmaking approaches married with risk management techniques from other industries is applied, and extensive use is made of mathematical models and information technology. The Group has set predened limits for the acceptance of sports bet risks. Stake and loss limits are set by reference to individual sports, events, and bet types. The limits are subject to formal approval by the Risk Committee. Risk management policies also require sportsbook bets to be hedged in certain circumstances to minimise potential losses. There is a clearly dened approval procedure for the acceptance and pricing of sportsbook bets. There has been no signicant change during the nancial year, or since the end of the year, to the types of nancial risks faced by the Group or the Groups approach to managing such risks.
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Key sources of estimation uncertainty and critical accounting judgements in applying the Groups accounting policies Goodwill of 1.9m (2005: 1.9m) continues to be carried in the Group balance sheet as the directors believe that there has been no impairment in the fair value of the net identiable assets of the acquired businesses. The share-based payment reserve, which includes amounts in relation to the Long Term Incentive Plan and various share option schemes, amounted to 5,613,000 at 31 December 2006 (2005: 3,220,000). The fair value of share options granted after 7 November 2002 has been determined using a Black Scholes valuation model. The signicant inputs into the model include certain management assumptions with regard to the standard deviation of expected share price returns, expected option life and annual risk free rates. The fair value of the Groups sports betting open positions amounted to 2,877,000 at 31 December 2006 (2005: 2,077,000). The Group performs a revaluation of sports betting open positions at each balance sheet date. The revaluation takes into account the expected probability of such open positions resulting in a gain or loss to the Group in the future, and is dependent on factors that cannot always be reliably predicted. The majority of the Groups retail premises are held under operating leases. Under accounting standards there is a requirement for management to examine the buildings element within such operating leases to determine if the lease meets the denition of a nance lease and, if so, it should be accounted for as such. This review involves determining the fair value of each property at the inception of the lease and analysing the minimum lease payments between their land and buildings elements. Based on managements review of operating leases for the years ended 31 December 2006 and 2005, all retail premises leases qualify as operating leases.
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Note Fixed assets Intangible assets Goodwill Tangible assets Financial assets 3 4 5 6
31 December 2006 000 1,189 854 48,806 3,764 54,613
31 December 2005 000 435 975 50,096 1,855 53,361
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Current assets Debtors Cash at bank and in hand Creditors (amounts falling due within one year) Net current assets Total assets less current liabilities Provision for liabilities and charges Net assets Capital and reserves Called up share capital Share premium Capital redemption reserve Capital conversion reserve fund Share-based payment reserve Shares held by long term incentive plan Profit and loss account Shareholders funds all equity interests 10 11 12 12 12 12 5,124 10,163 662 260 5,613 (8,137) 92,046 105,731 5,040 7,548 662 260 3,220 (4,929) 78,017 89,818 9 8 7 28,127 74,503 102,630 (51,512) 51,118 105,731 105,731 26,830 45,678 72,508 (34,804) 37,704 91,065 (1,247) 89,818
Notes 1 to 17 form part of these nancial statements. On behalf of the Board
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1. Basis of preparation and accounting policies

The nancial statements have been prepared in euro in accordance with generally accepted accountancy principles under the historical cost convention and comply with nancial reporting standards of the Accounting Standards Board, as promulgated by the Institute of Chartered Accountants in Ireland. The accounting policies have been applied consistently throughout the year and the preceding year. As permitted by section 148(8) of the Companies Act 1963, no separate prot and loss account is presented in respect of the Company. The Company recorded a prot for the year of 25.1m (2005: 19.2m). Financial assets Interests in subsidiary undertakings are stated in the Company balance sheet as nancial xed assets, at cost less, where necessary, provisions for impairment. Tangible assets and depreciation Tangible assets are stated at historical cost less accumulated depreciation. Depreciation is calculated so as to write off the cost less estimated residual value of tangible assets on a straight line basis over their estimated useful lives, as follows: Buildings: Freehold Buildings: Leasehold improvements 50 years unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease if there is an unconditional right of renewal 3 - 7 years 3 years 5 years
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Fixtures and ttings Computer equipment Motor vehicles
The residual value, if not insignicant, is reassessed annually. Goodwill Goodwill arising on the acquisition of a subsidiary or business, representing the excess of cost over the fair value of the identiable assets and liabilities acquired, is capitalised and amortised by equal annual instalments against prot over its expected useful life, currently 20 years. Provision is made for any impairment. Leases Assets held under nance leases are included in the balance sheet at their capital value and are depreciated over the term of the lease. The corresponding liabilities are recorded as a creditor and the interest element of the nance lease rentals is charged to the prot and loss account over the term of the lease to produce a constant rate of charge on the balance of capital repayment outstanding. Operating lease rentals are charged to the prot and loss account on a straight line basis over the lease term. Pensions The Company operates a number of dened contribution pension schemes for certain employees and executive directors. Contributions are charged to the prot and loss account as incurred. Foreign currency Transactions denominated in foreign currencies are translated at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date. The resulting prots and losses are dealt with in the prot and loss account. Taxation Current tax, including Irish corporation tax and foreign tax, is provided on the Companys taxable prots, at amounts expected to be paid using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
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Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the Companys taxable prots and its results as stated in the nancial statements that arise from the inclusion of gains and losses in taxable prots in periods different from those in which they are recognised in the nancial statements. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable prots from which the future reversal of the underlying timing differences can be deducted. Cash ow statement Under the provisions of FRS 1, Cash Flow Statements, a cash ow statement has not been prepared as the Company is a wholly owned subsidiary of a company which itself publishes consolidated nancial statements that include a cash ow statement in the required format. Related party transactions Under the exemption granted by FRS 8, Related Party Disclosures, the Company, as a wholly owned subsidiary of a group which publishes consolidated nancial statements in which the Company is included, is not required to and does not disclose transactions with fellow members, associated undertakings and joint ventures of that group. Share-based payments The Company operates equity-settled share option schemes for employees under which employees acquire options over company shares. The fair value of share options granted is recognised as an employee benet cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Company operates an equity-settled share save scheme (SAYE) for employees under which employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benet cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period of the savings contract. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reect the actual number of share options that vest. The Company operates an equity-settled long term incentive scheme for selected senior executives under which the executives are conditionally granted shares which vest upon the achievement of predetermined earnings targets. The fair value is measured at the grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant. Own shares held Purchases of the Companys shares by the Long Term Incentive Plans trust, which have been conditionally awarded to executives under the terms of the Long Term Incentive Plan, are shown separately in equity in the Company balance sheet. Dividends Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the balance sheet date are disclosed in Note 25 to the consolidated nancial statements.
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2006 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Equity-settled transactions Other staff costs 27,154 2,453 713 1,275 1,348 32,943 2006 The average number of persons employed by the Company (including executive directors), all of whom were involved in the provision of betting services, during the year was 2005 000 24,004 1,485 794 881 1,366 28,530 2005
80
783
595
Details of transactions with directors are set out in Note 6 to the consolidated nancial statements. The Company has the following employee share schemes: The Paddy Power plc May 2000 Executive Share Option Scheme (the Executive Share Option Scheme) Under the May 2000 Executive Share Option Scheme, options over a total of 2,592,000 shares have been granted at an exercise price of 1.16 per share. These options were granted prior to 7 November 2002 and, accordingly, do not fall within the scope of FRS 20 Share-based Payment. Since May 2000, options over 2,565,000 shares have been exercised and options over 27,000 shares were outstanding at 31 December 2006 (2005: 327,000). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2005 300,000 6,000 21,000 327,000 Options Options exercised outstanding at during year 31 December 2006 300,000 300,000 6,000 21,000 27,000 Earliest exercise date* 1 May 2003 1 May 2004 1 May 2005 Market price at date of exercise 13.35 -
Exercise price 1.16 1.16 1.16
* Share options lapse 10 years after date of grant. During 2005, 18,000 options were exercised at an exercise price of 1.16 when the market price ranged from 13.44 to 14.18. On 21 November 2000, the shareholders approved the termination of this scheme, and thus no further options may be granted pursuant to it. The Paddy Power plc 2000 Restricted Share Scheme (the Restricted Scheme) These options were granted prior to 7 November 2002 and accordingly do not fall within the scope of FRS 20 Sharebased Payment.
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The Paddy Power plc November 2000 Share Option Scheme (the Share Option Scheme) The Share Option Scheme was adopted by shareholders on 21 November 2000 and modied by the shareholders on 22 June 2004. The Share Option Scheme is open to directors, other than non-executive directors, and employees. Options may be granted within a period of ten years from 7 December 2000 at the higher of nominal and current market value. Options may not be exercised earlier than three years from the date of grant and may only be exercised if the Group meets certain targets and any further condition on exercise which the Board determines to be appropriate. These targets require real growth (Consumer Price Index plus ve percent compounded annually) in earnings per share of the Group over a period of not less than three years following the grant of an option. Since November 2000, 369,466 options have been granted under the scheme. Options granted before 7 November 2002 do not fall within the scope of FRS 20 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Companys share-based payment reserve. Since November 2000, options over 332,466 shares have been exercised. Options over 37,000 shares were outstanding at 31 December 2006 (2005: 327,466), of which none were exercisable at 31 December 2006 (2005: 302,466). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2005 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2006
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Granted before 7 November 2002 302,466 Granted after 7 November 2002 10,000 15,000 327,466 12,000 12,000 302,466 10,000 15,000 12,000 37,000 February 2007 September 2008 October 2009 8.15 14.80 14.40 302,466 August 2004 3.59
* Share options lapse 10 years after date of grant. Of the 302,466 options over shares exercised during 2006, 302,000 were exercised when the share price was 14.10 and 466 were exercised when the share price was 14.60. During 2005, no options over shares were exercised, and options in respect of 15,000 shares were granted at an exercise price of 14.80 per share. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 31,560 (2005: 56,781). The signicant inputs into the model was a share price for the grant date of 14.40 (2005: 14.80), the exercise price shown above, the standard deviation of expected share price returns of 26% (2005: 25%), the expected term as disclosed above, and an annual risk free rate of 3.69% (2005: 3.14%). The volatility measured as the standard deviation of expected share price returns is based on a statistical analysis of the Companys share price over the last three years.
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The Paddy Power plc Sharesave Scheme (the Sharesave Scheme) The Sharesave Scheme was adopted by shareholders on 21 November 2000 and was subsequently approved by the Revenue Commissioners. All employees (including executive directors) who have not less than 12 months continuous service with the Company or any subsidiary nominated to join the Sharesave Scheme may be invited to apply for options to acquire shares. Options will normally be granted to all eligible employees in the 42 day period after the announcement of the interim or nal results of the Company. The purchase price for each ordinary share in respect of which an option is granted shall not be less than 75 percent of the closing price of the shares on the Irish Stock Exchange on the dealing day last preceding the date of grant of the option or its nominal value. The aggregate maximum monthly contribution payable by an employee in connection with the scheme may not exceed 320. Options granted before 7 November 2002 do not fall within the scope of FRS 20 Share-based Payment. Options granted after 7 November 2002 have been included in the calculation of the Companys share-based payment reserve. Options outstanding at 31 December 2005 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2006
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Granted before 7 November 2002 1,060 Granted after 7 November 2002 162,550 163,610 61,105 61,105 15,822 1,834 18,328 388 146,728 59,271 205,999 October 2008 December 2009 & December 2011 11.60 11.29 672 388 July 2005 4.95
* Share options lapse 3.5 and 5.5 years after date of grant. During 2006, options over 388 shares were exercised when the share price was 12.75. During 2005, options over 162,550 shares were granted at an exercise price of 11.60, and options over 34,874 shares were exercised at an exercise price of 4.95 when the market price ranged from 13.30 to 15.13. During 2005, options in respect of 1,090 shares at an exercise price of 4.95 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 219,000. The signicant inputs into the model were the share price of 15.05 (2005: 14.50) at the grant date, the exercise price of 11.29, the standard deviation of expected share price returns of 26% (2005: 25%), the option life disclosed above, and an annual risk free rate of 3.69% (2005: 3.00%). The volatility measured as the standard deviation of expected share price returns is based on a statistical analysis of the Companys daily share price over the last three years.
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Long Term Incentive Plan On 22 June 2004, the 2004 Long Term Incentive Plan (LTIP) for senior executives was adopted by the shareholders, under which the directors can make conditional grants of a number of Company shares to each eligible executive. The grants are subject to the rules of the scheme. In accordance with the rules, the grant will vest if the growth target (EPS growth at least equal to the compound growth in CPI plus 12% per annum) is achieved over the minimum vesting period of three years. To the extent the grant does not vest in full in respect of the minimum vesting period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the four year period measured from the commencement of the minimum vesting period. To the extent the award does not vest in full in respect of such four year period, the grant will continue in effect in accordance with the rules and will vest if the growth target is met over the ve year period measured from the commencement of the minimum vesting period, provided, however, that to the extent the grant has not vested on or before the latest vest date specied above, the grant will automatically lapse in its entirety immediately following such date. Until the vesting of the award in accordance with the rules of the scheme, the grantholder will have no rights over or in respect of the shares subject to the grant and on vesting, the grantholders rights are limited to those shares in respect of which the growth target has been achieved in accordance with the rules of the scheme. The grants are not transferable. In relation to the awards of shares granted in 2004, the relevant growth target has been met and eligible awards are expected to vest. Upon the vesting of a share award, as part of the grantholders rights they shall now receive a small number of additional shares purchased from the dividends received by the LTIP trustee in respect of those shares prior to the vesting date, regarded as a de facto part of the original share award. During the year, awards of 80,000 shares and 35,000 shares (2005: 115,000 shares) were granted to senior management (including executive directors). The share prices at the dates of grant were 12.55 and 13.68 respectively (2005: 13.80 to 14.40). The total cost of this grant is estimated at 1,483,000 (2005: 1,215,000) and is expensed in the Company prot and loss account over the minimum vesting period of the grant (being the expected term of the grant), i.e. three years. The operating prot for 2006 is stated after an LTIP charge of 1,078,000 (2005: 828,407). As a result of the resignation of a director of the Company in 2005, an award of 30,000 shares granted in 2005 lapsed during the year. The Paddy Power plc Employee Benet Trust (the Trust) was established to manage the Long Term Incentive Plan. The Trust purchased 240,000 Paddy Power plc shares on 28 June 2004 at a cost of 2.3m, 190,000 Paddy Power plc shares between 18 May 2005 and 23 May 2005 at a cost of 2.6m and a further 280,000 Paddy Power plc shares between 21 June 2006 and 28 June 2006 at a cost of 3.7m. On 28 June 2006, 55,500 shares with an original value of 534,000 were vested from the Trust to a former director of the Company. The results of the Trust are included in the Paddy Power plc Company nancial statements. The shares held by the Trust at the balance sheet date are shown as a deduction from equity in the Company balance sheet in accordance with the Companys accounting policy.
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Paddy Power 2004 Second Tier Option Scheme On 22 June 2004, the shareholders approved the establishment of the Paddy Power 2004 Second Tier Option Scheme, which allows the Company to grant options to employees, exercisable after a ve year performance period, upon the achievement by the Company of exceptional performance levels. To be exercisable, the Companys earnings per share must grow during the ve year performance period by at least the percentage increase in the Consumer Price Index plus ten percent per annum compounded and the Companys earnings per share growth must be in the top quarter in performance terms of a specied peer group. No options have been granted to date under this scheme to any Company employees. Summary of options outstanding The total number of options outstanding at 31 December 2006 was 269,999 (2005: 818,076). These options had exercise prices ranging from 3.59 to 14.80 (2005: 3.59 to 14.80). Options outstanding at 31 December 2005 Executive share option scheme Share option scheme Sharesave scheme Total General The aggregate number of shares which may be utilised under the employee share option schemes and the LTIP in any ten year period may not exceed ten percent of the Companys issued ordinary share capital. The percentage of share capital which can be utilised under these schemes and the Sharesave Scheme comply with guidelines issued by the Irish Association of Investment Managers in relation to such schemes. 327,000 327,466 163,610 818,076 Options granted during year 12,000 61,105 73,105 Options lapsed during year 18,328 18,328 Options outstanding at 31 December 2006 27,000 37,000 205,999 269,999
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Options exercised during year 300,000 302,466 388 602,854
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The movements during the year in respect of intangible assets, which comprise licences, were as follows: Computer software 000 527 (527) 329 (329) 198 Paddy Power plc Annual Report 2006
85
Total 000 806 (527) 1,069 15 1,363 371 (329) 132 174 435 1,189
Licences 000 Cost Balance at 1 January 2006 Reclassification Additions Transfers Balance at 31 December 2006 Amortisation Balance at 1 January 2006 Reclassification Amortisation for year Balance at 31 December 2006 Net book value At 31 December 2005 At 31 December 2006 237 1,189 42 132 174 279 1,069 15 1,363
During 2006, the directors reviewed the classication of computer software and determined that it should be included within tangible assets rather than intangible assets.
4. Goodwill
000 Cost Balance at 1 January 2006 and 31 December 2006 Amortisation Balance at 1 January 2006 Amortisation for year Balance at 31 December 2006 Net book value At 31 December 2005 At 31 December 2006 Goodwill arose from the assets acquired as part of the amalgamation of three bookmaking businesses to form Paddy Power plc. 975 854 1,446 121 1,567 2,421
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5. Tangible assets
Land, buildings & leasehold improvements 000 Cost At 1 January 2006 Reclassification (Note 3) Additions Disposals Transfers At 31 December 2006 Accumulated depreciation At 1 January 2006 Reclassification (Note 3) Charge for year Disposals Transfers At 31 December 2006 Net book value At 31 December 2005 At 31 December 2006 22,790 22,584 21,097 22,048 5,628 601 3,451 581 122 50,096 48,806 7,659 1,582 (441) (383) 8,417 16,845 4,655 (236) (3,987) 17,277 2,348 613 (9) (1,687) 1,265 329 268 (328) 269 347 26 (82) (221) 70 27,199 329 7,144 (768) (6,606) 27,298 30,449 3,997 (1,369) (2,076) 31,001 37,942 9,070 (389) (7,298) 39,325 7,976 2,555 (12) (8,653) 1,866 527 2,423 770 3,720 928 202 (214) (724) 192 77,295 527 18,247 (1,984) (17,981) 76,104 Fixtures, fittings & Computer equipment equipment 000 000
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Computer software 000
Motor vehicles 000
Total 000
The net book value of land, buildings and leasehold improvements at 31 December 2006 includes 20.5m (2005: 17.7m) in respect of leasehold improvements. Computer equipment at 31 December 2005 includes an amount of 4.2m in respect of equipment which was either not available for use or in test. Accordingly these assets were not depreciated during 2005. The carrying cost of these assets included 0.5m in respect of internal labour costs. These assets were placed into service during 2006 and have been depreciated from that date. During 2006, assets with a net book value of 11.4m were transferred from the Company to a subsidiary, Power Leisure Bookmaker Limited. On transfer these assets had an original cost of 18.0m and an accumulated depreciation balance of 6.6m. During 2006, computer equipment with a cost value of 1.3m, either not available for use or in test as of 31 December 2005 and included computer equipment additions in 2005, was reclassied as computer software. The directors do not consider the remaining useful lives of property, plant and equipment to be materially different from the period over which the assets are being depreciated. Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2003 on Waste Electrical and Electronic Equipment was introduced on 13 August 2005. The Company has adopted a comprehensive policy on collection, treatment, recovery, reuse and recycling of waste and does not believe that the introduction of this directive will have a material effect on the carrying cost of property, plant and equipment purchased prior to 13 August 2005. The cost of collection, treatment, recovery and recycling of property, plant and equipment purchased subsequent to 13 August 2005 is nanced through the payment of charges on acquisition. These charges, none of which are material, are capitalised as part of the cost of the related asset and depreciated over the assets expected useful lives.
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6. Financial assets
Unlisted investments in subsidiary companies 000 Balance at 1 January 2006 Movement during year Balance at 31 December 2006 103 103 Capital contributions 000 1,752 1,909 3,661 Total 000 1,855 1,909 3,764
87
In the opinion of the directors, the value to the Company of the unlisted investments in subsidiary companies is not less than the carrying amount of 103,000 (2005: 103,000). The Companys subsidiaries are listed in Note 24 to the consolidated nancial statements. Capital contributions represent amounts included in the Companys share-based payment reserve, which relates to share-based payment awards made to employees of certain of the Companys subsidiary undertakings.
7. Debtors
31 December 2006 000 Sundry debtors and prepayments Amounts owed by Group companies Deferred tax (Note 9) 1,079 25,641 1,407 28,127 All of the above debtors fall due within one year. Amounts owed by Group companies are unsecured, interest free and repayable on demand. 31 December 2005 000 1,060 25,770 26,830
8. Creditors (amounts falling due within one year)

31 December 2006 000 Trade creditors Accruals Corporation tax PAYE and social welfare Betting duty Value added tax Amounts owed to Group companies 5,609 7,202 639 603 2,060 157 35,242 51,512 Amounts owed to Group companies are unsecured, interest free and repayable on demand. 31 December 2005 000 5,517 4,600 516 978 3,193 393 19,607 34,804
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9. Provision for liabilities and charges

2006 000 Deferred tax Cost At beginning of year (Credited)/charged to the profit and loss account for year At end of year Deferred tax at 31 December 2006 and 2005 is analysed by category as follows: 31 December 2006 000 Capital allowances Employee benefits Deferred tax (asset)/liability All of the above deferred tax balances are in respect of Irish corporation tax. (1,127) (280) (1,407) 31 December 2005 000 1,255 (8) 1,247 1,247 (2,654) (1,407) 997 250 1,247 2005 000
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10. Share capital

See Note 17 to the consolidated nancial statements.
11. Share premium

12. Other reserves and shares held by long term incentive plan

2006 000 Ordinary shares: - final paid of 0.1284 per share (2005: 0.1252) - interim paid of 0.0943 per share (2005: 0.0775) Proposed final dividend of 0.2277 (2005: 0.1284) per share (see Note 25 to the consolidated financial statements) 6,476 4,817 11,293 11,665 6,265 3,903 10,168 6,416 2005 000

The Company operates dened contribution pension schemes for certain employees and executive directors. The assets of the schemes are held separately from those of the Company in independently administered funds. Pension costs for the year were 616,000 (2005: 774,000) and the amount due to the schemes at 31 December 2006 amounted to 71,000 (2005: 75,000).
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(a) Guarantees The Company has working capital overdraft facilities of 3.0m with Allied Irish Banks plc. The Company also has a 1.6m BACS guarantees and cash facility from Allied Irish Banks plc. These facilities are unsecured. The Company enters into nancial guarantee contracts to guarantee the indebtedness of other parties including companies within its Group. The Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. (b) Capital commitments The Company has entered into commitments for capital expenditure not provided for in the nancial statements amounting to 115,000 (2005: 900,000). (c) Operating lease commitments The Company has annual commitments of 7.027m (2005: 6.178m) in respect of operating leases on properties where the lease terms expire as follows: 31 December 2006 000 Within 1 year Between 2 and 5 years After 5 years 501 1,164 5,362 7,027 31 December 2005 000 768 790 4,620 6,178
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16. Statutory information

2006 000 Auditors remuneration Directors remuneration Depreciation Amortisation of intangible assets Amortisation of goodwill Operating lease rentals, principally premises 105 2,647 7,144 132 121 6,542 2005 000 105 3,033 6,893 234 121 6,536
17. Approval of nancial statements

The nancial statements of the Company for the year ended 31 December 2006 were approved for issue by the Board of Directors on 2 March 2007.
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Financial information for the Group for the ve years ended 31 December 2006 is set out below in euro and Pounds Sterling. 2006 000 Amounts staked Revenue Operating profit Profit before tax Profit for the year Net cash inflow from operating activities Total equity 1,795,090 218,706 47,560 49,699 41,245 67,733 128,131 2005 000 1,371,710 160,848 30,118 31,344 26,954 41,410 96,051 2004 000 1,159,658 134,110 31,103 32,109 27,447 41,167 78,697 2003 000 913,624 94,610 19,632 20,410 17,551 32,144 52,274 2002 000 673,788 78,848 17,083 17,822 14,793 30,435 40,146
Set out below is the above nancial information translated into Pounds Sterling at the exchange rates shown, for illustrative purposes only. 2006 Stg000 Amounts staked Revenue Operating profit Profit before tax Profit for the year Net cash inflow from operating activities Total equity Exchange rates used are 1,223,730 149,094 32,422 33,880 28,117 46,174 87,348 1.4669 2005 Stg000 937,986 109,989 20,595 21,433 18,431 28,316 65,680 1.4624 2004 Stg000 797,399 92,216 21,387 22,079 18,873 28,307 54,113 1.4543 2003 Stg000 630,390 65,280 13,546 14,083 12,110 22,179 36,068 1.4493 2002 Stg000 437,951 51,250 11,104 11,584 9,615 19,782 26,094 1.5385
Note: 2006, 2005 and 2004 amounts are reported under IFRS, while amounts for all previous years are reported under Irish GAAP. The principal differences between IFRS and Irish GAAP relate to the non-amortisation of goodwill and the treatment of share-based payments according to IFRS.
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Additional Information For Shareholders
Listings
Paddy Power plc is an Irish registered Company. Its ordinary shares are quoted on the Irish Stock Exchange and the London Stock Exchange.
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Registrar
Enquiries concerning shareholdings should be addressed to the Companys Registrar: Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Telephone: +353-1-216 3100 Facsimile: +353-1-216 3151 Website: www.computershare.com
Payment of Dividends Direct to a Bank Account

Dividends are paid by cheque; however shareholders resident in Ireland or in the UK may have their dividends paid by electronic transfer direct to a designated bank account. Shareholders who wish to avail of this facility should contact the Companys Registrar (see above).
Payment of Dividends in Euro

Dividend payments are made in euro by default. However, shareholders wishing to opt for payments in Pounds Sterling either by cheque or direct to their bank account may do so by contacting the Registrar (see details above).
Crest
Transfer of the Companys shares takes place through the CREST settlement system. Shareholders have the choice of holding their shares in electronic form or in the form of share certicates.
Dividend Withholding Tax (DWT)

Note: The following information, which is given for the general guidance of shareholders, does not purport to be a denitive guide to relevant taxation provisions. It is based on the law and practice as provided for under Irish tax legislation. Shareholders should take professional advice if they are in any doubt about their individual tax positions. Further information concerning DWT may be obtained from: DWT Section, Collector Generals Division, Government Ofces, Nenagh, Co. Tipperary, Ireland. Telephone: +353-67-63400 Facsimile: +353-67-33822 E-mail: infodwt@revenue.ie
General
With certain exceptions, dividends paid by Irish resident companies on or after 6 April 2000 are subject to DWT at the standard rate of income tax of 20%. DWT, where applicable, is deducted by the Company from all dividends. The following summarises the position in respect of different categories of shareholder:
A. Irish Resident Shareholders

Individuals
Individuals resident in the Republic of Ireland for tax purposes are liable to DWT in respect of dividends received. Individual shareholders are liable to Irish income tax on the amount of the dividend before deduction of DWT, and the DWT may be available for offset against their income tax liability; where the DWT exceeds such liability, the shareholder may apply to the Revenue Commissioners, at the address shown above, for a refund of the excess.
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Additional Information For Shareholders (continued)
Shareholders not liable for DWT

Shareholders who receive a dividend in a benecial capacity can, in certain circumstances, be exempted from DWT. Provided the shareholder furnishes a properly completed declaration on a standard form to the Companys Registrar, and not less than three working days prior to the relevant dividend payment record date, the following classes of shareholders may receive their dividends gross: Companies resident in the Republic of Ireland for tax purposes; Qualifying Employee Share Ownership Trusts; Exempt Approved Pension Schemes; Collective Investment Undertakings; Charities exempt from income tax on their income; Athletic/ amateur sports bodies whose income is exempt from income tax; Designated stockbrokers receiving a dividend for the benet of the holder of a Special Portfolio Investment Account (SPIA); Qualifying fund managers of approved retirement funds or an approved Minimum Retirement Fund; and Persons exempt from tax on income from personal injury claims. Copies of the relevant declaration form may be obtained from the Companys Registrar or from the Revenue Commissioners at their addresses shown on page 91. Once lodged with the Companys Registrar, the declaration form remains current from its date of issue until 31 December in the fth year following the year of issue, or, within such period, until the exempt shareholder noties the Registrar that entitlement to exemption is no longer applicable. Where DWT is deducted from dividends paid to shareholders not liable to DWT, the shareholder may apply to the Revenue Commissioners, at the address shown on page 91, for a refund of the DWT so deducted.
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Qualifying Intermediaries
Dividends received by qualifying intermediaries on behalf of a shareholder who is exempt from DWT may be received without deduction of DWT. A qualifying intermediary is a person who receives dividends on behalf of a third party, is resident for tax purposes in the Republic of Ireland or in a relevant territory*, and: holds a licence under the Central Bank Act, 1971, or a similar authorisation under the law of a relevant territory, or is owned by a Company which holds such a licence; or is a member rm of the Irish Stock Exchange or of a recognised stock exchange in a relevant territory; or otherwise is, in the opinion of the Irish Revenue Commissioners, a person suitable to be a qualifying intermediary; and who (a) enters into a qualifying intermediary agreement with the Irish Revenue Commissioners and (b) is authorised by them as a qualifying intermediary. * A relevant territory means a member state of the European Union, other than the Republic of Ireland, or a country with which the Republic of Ireland has entered into a double taxation agreement. Information concerning conditions to be satised by intending qualifying intermediaries may be obtained from the Irish Revenue Commissioners at the address shown on page 91. A qualifying intermediary should ensure that it receives completed declarations from underlying shareholders eligible for DWT exemption, so as to be in a position to notify the Companys Registrar, in advance of each dividend record payment date, of the extent to which the dividend payable to the qualifying intermediary is to be paid without deduction of DWT. A shareholder wishing to ascertain whether an entity is a qualifying intermediary should contact the Irish Revenue Commissioners at the address shown on page 91.
B. Non Irish-resident shareholders

The following categories of shareholder not resident for tax purposes in the Republic of Ireland may claim exemption from DWT, as outlined below: (a) an individual who is neither resident nor ordinarily resident for the purpose of tax in the Republic of Ireland and who is resident for tax purposes in a relevant territory;
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Additional Information For Shareholders (continued)
(b) an unincorporated entity which is not resident in the Republic of Ireland and is resident for tax purposes in a relevant territory; (c) a company which is not resident in the Republic of Ireland and is resident in a relevant territory (by virtue of the law of that relevant territory) and which is not under the control, whether directly or indirectly, of a person or persons who is/ are residents for the purpose of tax in Ireland; (d) a company which is not resident in the Republic of Ireland and is under the control, whether directly or indirectly, of a person or persons who is/ are resident for the purposes of tax in a relevant territory and who are not under the control, whether directly or indirectly, of a person or persons who is/ are not so resident; or (e) a company not resident in the Republic of Ireland, the principal class of the shares of which, or (i) where the company is a 75 per cent subsidiary of another company, of that other company, or (ii) where the company is wholly-owned by two or more companies, of each of those companies, is substantially and regularly traded on one or more than one recognised stock exchange in a relevant territory or on such other stock exchange as may be approved of by the Minister for Finance. To claim exemption, any such shareholder must furnish a valid declaration, on a standard form available from the Irish Revenue Commissioners and from the Companys Registrar, to the Companys Registrar not less than three working days in advance of the relevant dividend payment record date, accompanied by: Categories (a) and (b): The declaration must be certied by the tax authority of the country in which the shareholder is resident for tax purposes. Where the shareholder is a trust, the declaration must be accompanied by a certicate signed by the trustee(s) showing the name and address of each settlor and beneciary and a notice in writing from the Irish Revenue Commissioners stating that the Irish Revenue Commissioners have noted the contents of the certicate. However, it is important to note where trusts are concerned that only non-resident discretionary trusts, which are resident in a relevant territory, can obtain an exemption from DWT. In that circumstance, the trustee of the discretionary trust may make the declaration. The individual beneciaries of a non-resident bare trust, where the beneciaries are resident in a relevant territory, may obtain an exemption from DWT where: the trustees of the trust have been authorised by the Revenue Commissioners to act as a Qualifying Intermediary, and where an exemption declaration has been made to the Qualifying Intermediary by the beneciaries.
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Category (c): The declaration must be certied by the tax authority of the country in which the company is resident for tax purposes. The companys auditor must also certify the declaration. Categories (d) and (e): The declaration must be certied by the companys auditor. Dividends received by a shareholder who is a qualifying intermediary on behalf of a qualifying non-resident person may be received without declaration of DWT - see Qualifying Intermediaries under A. Irish Resident Shareholders on page 92.
C. Dividend statements
Each shareholder receives a statement showing the shareholders name and address, the dividend payment date, the amount of the dividend, and the amount of DWT, if any, deducted. In accordance with the requirements of legislation, this information is also furnished to the Irish Revenue Commissioners.
Financial calendar
Announcement of: Final results for 2006 Ex-dividend date Record date for dividend Annual General Meeting Dividend payment date 5 March 2007 14 March 2007 16 March 2007 22 May 2007 25 May 2007
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To all shareholders
I am writing to you to outline the background to the resolutions to be proposed at the forthcoming annual general meeting of Paddy Power plc (the Company), all of which are recommended by the Board for approval. Your attention is drawn to the notice of the Annual General Meeting (AGM) of the Company, to be held at the Conrad Hotel, Earlsfort Terrace, Dublin 2 at 11.00 am on Tuesday 22 May 2007. In addition to the ordinary business which deals with the Report and Accounts, the dividend, the re-appointment of directors, and the Auditors remuneration, there are various items of special business which are described further below. Resolutions 3 (a), (b), (c) and (d) of the ordinary business propose the re-appointment of four directors. Messrs Stewart Kenny, Nigel Northridge, David Power and Patrick Kennedy, having served on the Board for three years, retire in accordance with Regulation 87 of the Articles of Association and being eligible, offer themselves for re-appointment. In view of their experience and skills, and their contribution to the Board to date, the Board recommends the re-appointment of each of these directors. Biographical information on these directors is given on page 19 in the Annual Report. Shareholders are being asked in resolution 5 to renew the directors authority to allot shares for cash without being required to offer them rst to shareholders. This authority is limited to an allotment of shares up to ve percent of the issued ordinary share capital of the Company at the date of the resolution (currently equal to 2.56m shares). If renewed, this authority will expire at the next AGM in 2008 or 21 November 2008, whichever is earlier. Shareholders are being asked in resolution 6 to renew the authority to empower the Company, or any subsidiary, to make market purchases of the Companys shares. No more than ten percent of the issued share capital of the Company may be acquired under this authority. The price range at which shares may be acquired cannot be less than the nominal value of the Companys shares and cannot be greater than the higher of (1) 105% of the average price of the Companys shares over the ve dealing days prior to the date of purchase by the Company or (2) the price of the last independent trade and the highest current bid on the trading venues where the purchase is carried out. Shares purchased by the Company may be cancelled or held in treasury pending cancellation or reissue. The total number of options to subscribe for shares in the Company on 30 March 2007 is 914,684, and represents 1.8% of the issued share capital of the Company on that date. This percentage would increase to 2.1% if the full authority to buy shares is used. The authority sought will expire on the date of the next Annual General Meeting of the Company or 21 November 2008, whichever is earlier. The Board will only exercise the power to purchase shares in the future at price levels at which it considers purchases to be in the best interests of the shareholders generally after taking account of the Groups overall nancial position. It is the Boards current intention to exercise this power to purchase shares in 2007. Shareholders are also being asked in resolution 7 to pass a resolution authorising the Company to reissue shares purchased by it and not cancelled as treasury shares off market within a price range, which shall not be less than 95% nor more than 120% of the average price of the Companys shares over the ten dealing days prior to the date of re-issue by the Company. The authority sought will expire on the date of the next Annual General Meeting of the Company or 21 November 2008, whichever is earlier, unless previously varied or renewed in accordance with the provisions of Section 209 of the Companies Act 1990.
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Action to be taken
A Form of Proxy for use at the Annual General Meeting is enclosed with this Annual Report. The Form of Proxy will be valid if lodged at the registered ofce of the Company or with the Companys Registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, by no later than 11am on 20 May 2007. Alternatively you may wish to submit your votes via the internet and instructions on how to do so are shown on the form. All proxy forms must be lodged no later than 48 hours before the time appointed for the meeting. The completion and lodging of the Form of Proxy will not prevent you from attending and voting in person at the meeting should you so wish.
Recommendation
The directors believe that the resolutions proposed are in the best interests of the Company and its shareholders, and so they recommend that you vote in favour of these resolutions at the AGM, as they intend to themselves in respect of their shares. Yours sincerely

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Notice of Annual General Meeting of Paddy Power plc
NOTICE is hereby given that the Annual General Meeting of Paddy Power plc (the Company) will be held at the Conrad Hotel, Earlsfort Terrace, Dublin 2 on Tuesday 22 May 2007 at 11.00 am for the following purposes: To consider and if thought t, to pass the following resolutions, which will be proposed as ordinary resolutions: 1. 2. 3. To receive and consider the nancial statements for the year ended 31 December 2006 and the reports of the Directors and Auditors thereon. To declare a nal dividend of 0.2277 per share for the year ended 31 December 2006. To re-elect by separate resolution Resolution 3 (a) Stewart Kenny Resolution 3 (b) Nigel Northridge Resolution 3 (c) David Power Resolution 3 (d) Patrick Kennedy who retire in accordance with Regulation 87 of the Articles of Association and, being eligible, offer themselves for re-election. 4. To authorise the Directors to x the remuneration of the Auditors for the year ending 31 December 2007.
95
As Special Business As special business to consider and, if thought t, pass the following resolutions: 5. As a special resolution That for the purposes of Regulation 8(d) of the Articles of the Association of the Company, the directors are hereby empowered to allot equity securities (as dened in section 23 of the Companies (Amendment) Act 1983) for cash pursuant to and in accordance with the provisions of their authority pursuant to Section 20 of the Companies (Amendment) Act 1983 as if sub-section (1) of Section 23 of the Companies (Amendment) Act did not apply to any such allotment provided that, pursuant to Regulation 8(d)(ii), the maximum aggregate nominal value of shares to which this authority relates shall be an aggregate nominal value of 240,383 or ve percent of the nominal value of the Companys issued ordinary share capital at the close of business on the date on which this resolution shall be passed; and the authority hereby conferred shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 21 November 2008 unless previously renewed, varied or revoked by the Company in general meeting. As a special resolution That the Company and/or any subsidiary (being a body corporate referred to in the European Communities (Public Limited Companies Subsidiaries) Regulations 1997) of the Company be generally authorised to make market purchases (as dened by Section 212 of the Companies Act 1990) of shares of any class of the Company on such terms and conditions and in such manner as the directors may from time to time determine in accordance with and subject to the provisions of the Companies Act 1990 and to the restrictions and provisions set out in Regulation 47(a) of the Articles of Association of the Company and that the authority hereby conferred shall expire at the close of business on the earlier of the date of the next annual general meeting of the Company or 21 November 2008 unless, in any such case, previously renewed, varied or revoked by the Company in general meeting. As a special resolution That the re-issue price range at which any treasury share (as dened in Section 209 of the Companies Act 1990) for the time being held by the Company, may be re-issued off market, shall be the price range set out in Article 47(b) of the Articles of Association of the Company; and the authority hereby conferred shall expire at the close of business on the earlier of the date of the next annual general meeting of the Company or 21 November 2008 unless, in any such case, previously renewed, varied or revoked in accordance with the provisions of Section 209 of the Companies Act 1990.
6.
7.
By Order of the Board
David Johnston Company Secretary 30 March 2007 Registered Ofce: Airton House Airton Road Tallaght Dublin 24
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2006 BETTING REVIEW
To get the most from our 2006 Betting Review youll need a quick 30-second lesson in bookmaking: The short-term nancial performance of Paddy Power can be signicantly inuenced month to month by the run of sporting results, as well as the absolute amount of money staked. This is normal in the sports betting industry. For example a disproportionate number of favourites winning at a major horse racing festival will depress short-term protability, whereas a disproportionate amount of outsiders winning will have the opposite effect. The experience of the industry is that this typically balances out over a more extended period. To illustrate this phenomenon, we have graphed our absolute gross win by month in 2006 behind the Betting Review text for each month. The graph is drawn from Paddy Powers perspective turn it upside down for the highs and lows for punters! Enjoy.
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2 0 0 6
Its always nice to start the year with a bang and courtesy of Liverpool mid-elder, Xabi Alonso, we did! One Liverpool fan, Adrian Hayward, had a dream that Alonso would score a goal this season from inside his own half which he duly did in January against Luton in the FA Cup. His 60-yard screamer cost us 25,000 (200 @ 125/1) and put a smile the size of the Kop End across this lucky lads face. We were smiling too on January 8th when we enjoyed some of the best soccer results ever with Celtic losing to Clyde and Man Utd failing to beat Burton Albion, a team we also sponsored. Our smile however was short-lived with a number of high prole gambles being landed in Irish racing. The rst of these was inspired by Pricewise in the Racing Post when Charlie Swans What A Native was supported from 8/1 in the morning into 4/1 by post time before landing the Leopardstown Chase. We did well to avoid the brunt of the business in the morning but were stung nonetheless as this public gamble intensied. There was no avoiding the second gamble however when that cute old fox Tony Martin landed the Thyestes Chase at Gowran with Dun Doire. They left the bookmakers battered and bruised and it wouldnt be the last we would hear of this Trainer and Horse. In tennis it was the same old same old with Roger Federer cruising to Australian Open glory. If the punters won the opening foray in January then the bookmakers certainly struck back in February. The racing results were the best weve seen in months with a string of well backed favourites beaten. What goes around comes around! In the Superbowl the Pittsburgh Steelers nally got their heads in front when justifying favouritism to easily beat the Seattle Seahawks. In the other odd shaped ball game, the Six Nations kicked off. We started off by stumbling home against Italy while England hammered Wales and amazingly Scotland beat France. In the next round we scored four second half tries against France but unfortunately conceded six. England rolled on with a crushing victory over Italy in Rome. We ended the month hammering Wales and seeing Scotland beat England in a pretty bizarre tournament. All to play for! We may have cleaned up on the racing in February but we did our best to give it all back. We celebrated our 18th birthday towards the end of the month and though it would be a little cheeky to ask for presents from our customers, instead we bombarded them with money back specials and bonus offers happy birthday Paddy Power!
March was a great month to be Irish. The Gaffer, Steve Staunton, made his debut for Ireland with an impressive 3-0 drubbing of Sweden this managerial lark is easy! Then it was off to Cheltenham to watch the Irish contingent walk away with a record ten winners; however, youll be glad to know that things were not as bad as they seemed. The two opening races on the Tuesday saw the defeat of the Irish banker bet Sweet Wake in the opener and a win for the overlooked Voy Por Estedes in the Arkle Chase but just when we began to smile we were hit with three consecutive body blows from the raiding party in the form of Brave Inca in the Champion Hurdle and in the following two handicaps from our old friend Dun Doire and Native Jack. So there were three Irish winners on the opening day and then four more obliged on the Wednesday: however three of these, with the exception of Skys The Limit in the Coral Cup, were good results for us including Newmill landing the Champion Chase and leaving former champ Moscow Flyer in his wake. There was only one Irish winner on the Thursday and this fellow did little damage at 50/1 however a huge gamble on Golden Cross in the Stayers Hurdle left us screaming for My Way De Solzen in a desperate battle up the famed hill. Thankfully our screams were not in vain. So up early on Saturday, brush off the Cheltenham hangover and off to Twickers to try to upset the six points favourites England and win the Triple Crown. Horgan scored the rst try (but was it really a try? And do we really care?). Then drama of the highest order, Horgan says go go gadget arms and scores a try with the last play of the game and Ireland win the triple crown. What a week!
B E
Turning to golf for a moment and thankfully our team of sports traders managed to keep us on the right side of Phil Mickelson who looked a very impressive winner of the US Masters. Unfortunately we got some spanking with our Money-Back special on this event in which we promised to refund losing bets on players who birdied the 18th hole in the nal round. Refunds included World Number One Tiger Woods, the ever popular Ernie Els, 2003 champion Mike Weir and Irelands most popular player, Padraig Harrington. Other refunds included runner-up Tim Clark, Sergio Garcia, Shingo Katayama, Ben Curtis, Ted Purdy and joint-third placed Chad Campbell. As if this wasnt enough we also paid the top FIVE each way places. April was the month of the racing festivals with Aintree, Fairyhouse and Punchestown all taking place. Just as in March the punters rolled up their sleeves, took off their gloves and bet like men. The victory of Numbersixvalverde in the Grand National should have been a bad result but for some reason last years Irish National winner was not that popular - maybe his name was too long to t on a betting slip! We also got a cracker in the Irish National with victory going to the outsider Point Barrow and at that stage we were having a bumper harvest. However many of the big fancies for Punchestown obliged and there was plenty to smile about as a punter as the month came to a close. The Champions League and Heineken Cups were simmering nicely to a boil and we saw Arsenal beat Juventus and Villareal to reach the nal, but unlucky for them the Barcelona juggernaut trundled through Benca and AC Milan to await the Gunners.
JANUARY
FEBRUARY
MARCH
APRIL
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Chelsea were crowned Premiership Championships in May but you already knew that because we had paid out the previous September (thats not a misprint!). Thankfully they did too, because if theyd blown it Id have had to run naked around Stamford Bridge not a pretty sight! Steve Stauntons got a bit of a rude awakening when Chile came to Lansdowne Road and beat us 1-0. But the big football story of May was in Paris. Barcelona were the best backed Champions League nalists ever. Jens Lehman was sent off, but Sol Campbell put Arsenal into an unlikely lead. Youd think the Gunners being 1-0 up would put off the Barcelona punters not a chance! Amazingly the Spaniards were as big as 15/2 to win the match and the punters piled in. Barca won, the punters won, and for every winner there has to be a loser the bookies were hammered. It was our worst football result in the history of the company. In the FA Cup nal a Stephen Gerrard wonder volley got the reds into extra time and they went on to win on penalties which of course meant that anyone whod backed West Ham got their money back. Munster 23, Biarritz 19. We could hear the car horns tooting on the road outside but the ofce was eerily quiet, in fact there were a few tears among the odds compilers. This was a bloodbath. There were 75,000 Munster fans in Cardiff, the same again in Limerick, and twice as many around the country. Munster were backed at all odds, by all customers. Ouch! Ouch! Ouch!
T T I N G
In June Sir Percy won a thriller of a Derby. He beat 66/1 shot Dragon Dancer by a short head, but hey, you cant be too greedy! The Federer express was derailed in the French Open Final. It was the rst time Federer has been anything like 5/6 to win a match but Raphael Nadal stood up to the greatest and maintained his two year unbeaten record on clay. Nadal is the only thing that stood in the way of a Federer grand slam of grand slams. In the US Open Geoff Ogilvy managed to keep his head as Mickelson, Monty and Harrington all managed to completely bottle it in the closing stages thanks Geoff, the biggest bullet we dodged in the whole of 2006! There was also a little football tournament which kicked off in June. What a start for punters. 20 of the rst 23 favourites won their matches was this some kind of sick joke? Our soccer experts were busy preparing their CVs when up stepped the minnows of the USA to hold Italy to a draw this wasnt just a beano, it was the ultimate beano. It stopped the rot and was our best ever soccer result. It really was a year of best evers and worst evers and biggest evers. We kicked on from the USA and enjoyed a run of draws in the knockout games which saw us recoup all of that money we had lent to the punters. The World Cup reached its heady climax in July and Zinedine Zidane stole the show. He was always a very clever footballer, but ensured that in his last ever game he will always be remembered for using his head. We still dont know what Materazzi said to him, but what we do know is that our punters reaped the rewards of yet another Paddy Power special. We had pledged to give money back on any team that was knocked out of the World Cup on penalties. Up stepped Switzerland, hardly even noticed it. Then came Argentina, ouch. Then it was Englands turn, double ouch. And nally it was France in the nal, whose stupid idea was this anyway? At least we got something back when Wayne Rooneys missus, Colleen McLoughlin, was photographed in the press more than any other Wag. Posh Spice was the hot favourite, but could only come in a sorry second. The British Open was pretty boring, but it was emotional for Tiger. He got to the front and just kept going. Garcia mounted a semi challenge on the last day but Hoylake was a Tiger track for sure. He was another well backed favourite and went on to conrm that he was denitely off our Christmas card list by going on and winning another 5 consecutive Championship events. An impressive and expensive run of six victories which included two majors and two World Championship Events. It took our own Padraig Harrington to nally stop his run in Japan.
In August we had Galway. The memories are fuzzy as usual but Far from Trouble did land a bit of a touch in the Plate and Cuan na Grai went off like a scalded cat and never came back to them in the hurdle. We know Tiger won the USPGA, but what about Ireland against Holland in Lansdowne Road? We were stuffed 4-0 and lucky that it wasnt 10 was this the same team that beat the Swedes? But the real story of August was the new World Champion, Jon Young. What an athlete, he showed incredible stamina and a complete lack of self respect when staying on best of all to become the rst ever Paddy Power World Strip Poker Champion. And its ofcial, its in the Guinness Book of Records. What a tough day at the ofce, wandering around the Caf Royal in London surrounded by naked people!
MAY
JUNE
JULY
AUGUST
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R E V I E W
We had to go away from home to the high ying World Cup hosts Germany in September. This was on the back of that 4-0 drubbing by Holland. God help Stan! We were beaten alright, but it was one of those heroic defeats where we played like men and the luck of the Irish deserted us. A reprieve for Staunton, and a pretty good result for the bookies no matter what the form book suggests, people still punt with their hearts rather than their heads. We all went to the dogs in September and witnessed an awesome performance from Razldazl Billy who lived up to his name when sprinting clear in the Paddy Power Irish Greyhound Derby Final. He picked up a juicy cheque for 175,000 but we got the prize money back when the nationwide plunge on Kieran Fallons Bar the Devil went pear shaped. It was the most hyped up event ever, theres no way it could live up to it. They were going to struggle to get the crowds because of the tight security, the trafc was going to be a shocker. How wrong those knockers were. It blew a gale and lashed down with rain, but that wouldnt dampen the spirits of the fans at the Ryder Cup. The Europeans went into the week as slight 4/5 favourites with many of the pragmatists backing the USA because of the Tiger factor. The dreamers were right. Darren Clarke arrived on the rst tee and the crowd went wild. It was emotional, it was brilliant, it was bloody expensive. There are a lot of believers in fairytales out there and they piled on Europe. They also piled on Clarke to hole the winning putt and by God did they try to engineer it. Thanks be to Henrik Stenson it wasnt big Darren. The Prix de lArc de Triomphe was an unbelievable touch for punters. It was all thanks to the Japanese. Deep Impact a wonder horse in the land of the rising sun came to Paris and brought a fan club of what seemed like a million people. They were queuing at the tote windows from early morning piling their euro on Deep Impact. So what does that have to do with me if Im sitting on my couch in Dublin watching the greatest at race of the year? The Japanese have only gone and manipulated the tote pools! That means that Deep Impact is a fraction of the odds he should be, so everything else is a multiple of the odds they should be. If you backed Rail Link you should have got 8/1, but those canny punters who spotted the rick ended up getting 23/1 for their money. Cyprus 5, Ireland 2. That is not a misprint, its an embarrassment but not a misprint. Surely Staunton had to go. Cyprus were 11/2 to win the match at home, and we didnt take a bean on them. Stan was a very lucky man that we played the Czechs the same week. He was even luckier that the players decided to perform and grab a draw. The Czechs were punted off the boards down to 8/11 favourites and for once we could cheer for Ireland with a clear conscience. We may have blown our chances for one World Cup, but theres nothing wrong with being the second best team in the world a year before another World Cup. South Africa and Australia came, and they were conquered. We also sent the Pacic Islanders home with their tails between their legs. It must be the rst time Ireland have ever been single gure odds to win a World Cup, in any sport. The only problem is that Ireland keep winning and keep covering the handicap. This means that we keep losing its just not fair! It all went pear shaped for Andy Robinsons England. They could nearly have got a result against New Zealand, but then were beaten by Argentina and South Africa. Its a pretty torrid time for English rugby but Brian Ashton has justied the odds of 5/2 and taken over as coach. Maybe he can steady the ship. When you sponsor a huge race meeting and youre a bookie, the least you should expect is to get a couple of outsiders winning and getting a bit of a return on your investment. We went to Cheltenham to ofcially raise the curtain on the National Hunt Season with the Paddy Power Gold Cup meeting. Ten winning favourites over three days, and ve of them were on Paddy Power Gold Cup day. The only result we got was in the big race itself, when Exotic Dancer kicked on to beat the favourite. Even at 16/1 that was only a get out because it was ridden by Tony McCoy and backed in from 28/1 in the morning. What a swizz! I bet you thought youd get through the year without hearing about the smallest trophy in the world and the biggest collapse in the world. Thats right, England have been well and truly walloped by the Aussies. There wasnt a huge amount of condence in England before the start, in fact the Aussies were red hot favourites to win back the Ashes. They were very well backed even at short odds and the most popular bet was for an Australian whitewash funny enough they duly obliged. The good news for England fans is that Shane Warne has retired. Chelsea began to stutter as Man Utd cranked up the pressure on the Champs. John Terry went on the injured list and the blues duly managed to drop points against both Fulham and Reading after scraping by Everton and Wigan. It was a case of ip opping favourites between the Reds and the Blues throughout December and it was United who ended the year 1/2 favourites to nish on top. On the racing front we were guaranteed drama in the build up to Cheltenham when Kauto Star took the routes out of a couple on the way to justifying red hot favouritism in the King George at Kempton. God is clearly a bookie because Noel Meades Jazz Messenger scuppered Straw Bears attempt to complete one of the most popular doubles of the year. At Leopardstown Brave Inca did the bookies a favour for a change when beating Iktitaf and cemented his place at the top of the Champion Hurdle market. The highlight of the week for many was Tom Taaffes Cane Break holding off the late challenge of Ballistraw to win the Paddy Power Chase under top weight, the rst horse ever to carry that much to victory in the race. Next stop Aintree!
The ut of a Grai never e. SPGA,
We t e
t , Jon owed ete ng on ver r in
ce, yal in people!
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
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PADDY POWER PLC ANNUAL REPORT 2006
Airton House, Airton Road, Tallaght, Dublin 24. Tel: +353 1 404 5900 Fax: +353 1 404 5901 E-mail: info@paddypowerplc.com Website: www.paddypowerplc.com
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FREE INSIDE Paddy Power plc Annual Report 05
Page 687 PSS-201102158
Paddy Power plc Annual Report 2005 1
Paddy Power master marketeers

David Jennings, Davy European Transport & Leisure Monthly
Bookies pay out on Blues Sky News website, September 30th

If you ask Paddy Power management what they think separates the company from the competition, the first thing they are likely to mention is its brand. The Paddy Power brand distinguishes it from other retail bookmakers and, increasingly, from other online competitors as well. The brand encompasses a number of elements but is primarily built on the proposition that Paddy Power is the punters pal, the bookmaker that offers more money-back specials than anyone else while at the same time providing a level of service and trust that matches the best in the industry. The companys marketing generally emphasises this theme by highlighting its belief in fairness, even if that comes at a cost.
Contents
4 5 6 8
Directors and Other Information Financial Highlights Chairmans Statement Chief Executives Statement
10 Operations Review 14 Financial Review 18 Board of Directors 19 Directors Report 23 Statement of Directors Responsibilities 24 Corporate Governance 30 Remuneration Committee Report 32 Independent Auditors Report 34 Consolidated Income Statement 35 Consolidated Statement of Recognised Income and Expense 36 Consolidated Balance Sheet 37 Consolidated Cash Flow Statement 38 Notes to the Consolidated Financial Statements 65 Company Balance Sheet 66 Notes to the Company Financial Statements 78 Five Year Financial Summary 79 Additional Information for Shareholders 82 Letter to Shareholders 83 Notice of Annual General Meeting of Paddy Power plc
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2 Paddy Power plc Annual Report 2005
Paddy Power master marketeers (continued)

David Jennings, Davy European Transport & Leisure Monthly
In effect, a money-back special is an indirect way of competing on price; it simply reduces Paddy Powers overall gross win margin over time. An example is Paddy Power offering to return all losing bets on a game of football should a player be sent off during the match. The thinking behind the special is that any resulting reduction in margin is worth the cost as it helps to promote the brand and distinguish Paddy Power from the competition while encouraging customers to recycle (re-invest) their winnings. The more innovative the special, the greater its marketing power potential. The ultimate example of this strategy came on September 29th when Paddy Power announced that it was paying out on all bets made on Chelsea to win the 2005/2006 Premiership title in England, despite the fact that the season is less than two months old. The basis for this decision is the fact that Chelsea are top of the league by a considerable margin. Furthermore, with the backing of Russian billionaire Roman Abramovich, the club has the deepest pockets of any club and can therefore continue to buy any players required to win the league. While other bookmakers have paid out early on the league in previous years, most have done so around Easter-time. None have done so with just 18% of the fixtures played! On the face of it, the move appears reckless; as any football fan will tell you, a lot
can happen between September and May. If Chelsea subsequently fail to win the league, Paddy Power would end up paying out on two teams. But it is precisely because the move appears premature that Paddy Power did it: the benefits to the brand are likely to dwarf the initial pay-out cost, a pay-out that was likely to be incurred regardless at the end of the season. The benefits can be broken down into various different sub-sets. Firstly, there is the free publicity generated. A Google search of Paddy Power and Chelsea on September 30th yielded 22 results from that day alone! numerous interviews on television and radio followed with leading managers and players all being asked to comment on Paddy Powers move. Five-minute advertising slots on Sky news do not come cheap! Furthermore, the publicity is not likely to be limited to this week alone: should Chelsea blow it, you can be sure that there will be further media comment next May about red faces at Paddy Power! The second benefit is the punters pal angle: there is nothing customers like more than an early pay-out from a bookie, especially when there is still a chance the bet could go wrong. The move generates goodwill between the company and its customers, which encourages customer loyalty in what is a notoriously fickle industry.
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The third benefit is the recycling effect; in all likelihood, punters will recycle their winnings into other bets eight months earlier than if they had been obliged to wait until the end of the season to receive their cash. The sooner they recycle, the sooner Paddy Power can start winning it back. The fourth and final benefit is the competition angle. By announcing the pay-out, Paddy Power has undoubtedly upset every other bookmaker in the UK, but especially the big three William Hill, Ladbrokes and Coral. The competition is now in a no-win situation. If they follow Paddy Powers lead, they are unlikely to reap the same benefits the publicity impact is far less if you are second to pay out and those who follow suit get little credit from punters who recognise where the generosity originated. Furthermore, the big three are likely to have had a greater liability to Chelsea retaining their title than Paddy Power and will be less keen to risk increasing that potential liability further just to match Paddy Powers gimmicky generosity. The companys marketing prowess is not limited to its special bet offerings its marketing campaigns tend to punch above their weight too. Take the companys latest poster campaign to promote its online casino and poker offering. One poster depicts Jesus and the 12 apostles on the night of the last supper. They are shown playing
cards and roulette. The campaign, undoubtedly designed to stir up attention, has already had the desired effect. Its holy war over Jesus the gambler poster, read the headline on September 28th on page three of the Irish Independent, Irelands best-selling broad-sheet newspaper. The headline was accompanied by a half-page report. As demonstrated in the past, irreverent campaigns tend to be newsworthy campaigns and newsworthy campaigns offer the greatest bang-for-your-buck when it comes to marketing spend. Contrast this with PartyGamings recent admission that it has wasted money on marketing in recent months and that it is re-examining its marketing campaigns as a result. The conclusion? Learning to manage and market a brand takes years, not months. Paddy Power consistently demonstrates that when it comes to marketing its brand the secret of success is as much about how it spends its cash as it is about the total amount it spends. This is a lesson many of Paddy Powers larger online peers would do well to learn, sooner rather than later. Having the deepest pockets does not necessarily ensure long-term success in the gaming sector if only the same could be said for the Premiership.
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Directors and Other Information

Directors Fintan Drury Chairman Patrick Kennedy Chief Executive Breon Corcoran Commercial Director Tom Grace Non-Executive Director Stewart Kenny Non-Executive Director Nigel Northridge Non-Executive Director David Power Non-Executive Director Brody Sweeney Non-Executive Director Stephen Thomas Non-Executive Director Company Secretary and Registered Office Nuala Hunt Airton House Airton Road Tallaght Dublin 24 Stockbrokers Goodbody Stockbrokers Ballsbridge Park Ballsbridge Dublin 4 Investec 2 Gresham Street London EC2V 7QP Legal Advisers Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Kennedy McGonagle Ballagh 20 Northumberland Road Ballsbridge Dublin 4 Auditor KPMG 1 Stokes Place St Stephens Green Dublin 2 Principal Bankers Allied Irish Banks plc 100 - 101 Grafton Street Dublin 2 Lloyds TSB plc Bailey Drive Gillingham Business Park Kent ME8 OLS Registrars Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Registered Number 16956
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2005 Highlights
Year ended 31 December 2005 000 Revenue Retail Telephone Online Total Group revenue Group profit before taxation Profit after taxation Earnings per Share Basic earnings per share Diluted earnings per share Dividends per Share Interim paid Final proposed Total 794,321 249,871 327,518 1,371,710 31,344 26,954 688,651 236,546 234,461 1,159,658 32,109 27,447 +15.3 +5.6 +39.7 +18.3 -2.4 -1.8 Year ended 31 December 2004 000 Year on Year % Change
0.5408 0.5289
0.5655 0.5429
-4.4 -2.6
0.0775 0.1284 0.2059
0.0620 0.1252 0.1872
+25.0 +2.6 +10.0
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Chairmans Statement
Dear Shareholder I am pleased to report on another year of progress in Paddy Power.
Revenue Pre tax profit EPS Dividend Cash balances 1,371.7m 18.3% 31.3m (2.4%) 54.08 cent (4.4%) 20.59 cent 10.0% 52.3m 10.8%
2005 was a challenging year. I have talked before about how a run of sporting results can favour one side or the other of the betting equation; last year certainly did not advantage bookmakers. That is not a moan. Its just a fact of life in this business. 2005 also witnessed structural change in the Irish retail betting market. These two factors meant that, despite record revenue, the results were off where we would have hoped such a strong performance would have placed us. The structural shift in the Irish retail market place gave rise to a revision of the expected gross win percentages in our domestic retail business. While this is undoubtedly a disappointment, we remain very confident that Paddy Power is best placed to take advantage of the opportunities associated with this structural shift. Our position as market leader, together with the introduction of tax-free betting in the Irish retail market, offers the opportunity for profitable growth in 2006 and beyond. We have made considerable progress on business development since my Statement in last years Annual Report. Much of the benefits of these advances will start to come through over the coming year and into 2007. The business is innovating constantly and I am confident that this will enhance shareholder value in the medium term.
rate of approximately 31%, while operating profit has grown by an average annual growth rate of approximately 30% to 30m. In that time, the business has been transformed from an Irish betting shop operator to a multi-channel, multi-national betting and gaming company with over two thirds of its operating profits coming from non retail activities and 29% of revenue coming from outside the Irish market. Paddy Power, through its continued customer focus, has remained the number one betting and gaming company in Ireland and has now established itself as a significant player in the considerably larger United Kingdom market. Our expansion has diversified our income sources, with non bookmaking income becoming an increasingly significant revenue stream. This in turn has allowed us to broaden our customer base, both by customer type and geographic market, and provides various cross selling opportunities that will fuel further growth. Paddy Power is a growth company. We have a track record of growing start up businesses organically while at the same time growing overall earnings and this is set to continue. The online channel has strong short and long term earnings growth potential in Ireland and the UK as the online betting market grows and we capture more market share. 2006 should also see us commence online operations targeting continental Europe where there are significant opportunities. We will also continue to invest in the roll out of our UK estate where significant long term potential remains.
Regulation
2005 saw some significant regulatory changes. In the UK, the Gambling Act was passed which, amongst many other provisions, will finally eliminate the demand test for betting shop licenses. It remains unclear as to when the relevant provisions will be enacted, but the formal consultative period has commenced and we remain hopeful for significant progress this year. In Ireland, the 2005 Budget eliminated customer based betting taxes from July 2006, replacing them with a 1% revenue based tax levied on the bookmaker. In true Paddy Power fashion, we decided
Strategy
On this, our fifth anniversary as a public company, I believe it is worth taking the time to reflect on the strength of the company and the significant growth opportunities available. The past five years has seen revenue grow from 362m to 1,372m, an average annual growth
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not to wait; instead we offered our customers taxfree betting from the morning after the Budget, with Paddy Power absorbing the full 2% charge until July 2006. Both we and our customers welcome the Budget change which now gives retail customers the same tax-free betting that Irish-based telephone and internet customers have enjoyed for some time.
We have also announced the appointment of Jack Massey as Finance Director. Jack joins us from ITG Europe, the European division of the NYSE quoted Investment Technology Group, where he has been Chief Operating Officer since 2002 and previously Finance Director. I know that Jack will make a very substantial contribution to the Company and look forward to working with him. We were very pleased to announce, in January 2006, the appointment of Tom Grace as a nonexecutive director. Tom retired as a Partner in PricewaterhouseCoopers in December of last year and I have no doubt that he will make a significant contribution to Paddy Power over the coming years. As noted in the 2004 Annual Report, Brody Sweeney joined the Board in February 2005 and we have already benefited from his contribution. Stephen Thomas will be retiring from the Board at this years AGM, having served a three-year term. I would like to thank Stephen for the quality of his contribution and his commitment to the Company over the past three years.
People
This year marked the end of John OReillys tenure as Chief Executive. It is accepted that John, together with his predecessor Stewart Kenny, forged an extraordinary position within the betting industry for Paddy Power. Finding a new CEO is a big challenge for any Board. Finding someone to follow Stewart and John was acutely so. I believe that during my time as Chairman it is unlikely that I will oversee a process as important for the shareholders than the selection of the right CEO to follow John. The Board believes that in Patrick Kennedy we have got the right man to take this business forward and deliver shareholder value. I want to wish Patrick well in that quest. I have said it before and I continue to believe that one of Paddy Powers strengths is the quality of its people. Under John OReillys leadership, the strength in depth of the team has been substantially enhanced. Maintaining the commitment to recruiting the very best talent available will remain a priority under Patrick Kennedys stewardship.
Dividends
The Board is recommending a final dividend of 12.84 cent per share payable to shareholders on the register at 10 March 2006, bringing the total dividend for the year to 20.59 cent per share, an increase of 10% on 2004 (18.72 cent).
Outlook
2006 promises to be another exciting year for Paddy Power as we expand in both new and existing markets. Trading for the year to date has been satisfactory and I look forward to updating you on progress at our AGM in May.
The Board
As the business has evolved so too has the Board. In 2005, two executive directors retired from the Board. John OReilly retired on 31 December having been with the Company from its inception. John served the Company in a variety of roles and was Chief Executive for the past three and a half years. His contribution was immense and on your behalf I thank him once again for his extraordinary commitment to Paddy Power. In early 2006, Ross Ivers is leaving the Company having been Finance Director since 2001. We greatly appreciate his significant contribution to Paddy Power and wish him well in his future career.
Fintan Drury Chairman 28 February 2006
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Chief Executives Statement

I am delighted as Paddy Powers new Chief Executive to outline my views on the Company. The growth of Paddy Power in its five years as a public Company, and indeed in the 18 years since its inception, has been tremendous. Equally impressive has been the fact that our culture today remains exactly as it has been throughout that period, characterised by a total focus on our customers and staff alike, on innovation and on our brand. is open to the brand-led, customer-led Paddy Power proposition. We have made substantial progress in this market: At the end of last year, we had 45 shops open, compared with 12 at the end of 2003 Our market share in the areas where we have shops continues to grow Our brand awareness, in London and in the UK, continues to increase, with research showing Paddy Power to be the fourth most recognised bookmaking brand in London Our product mix is improving, with the proportion of non-racing revenue continuing to increase
Our Business
The business today is very well positioned across each of its principal channels: -
(i) Irish Retail

The Irish retail market has very strong growth prospects underpinned by continued population and economic growth. These prospects have been reinforced by the industrys move to tax-free betting which was led by Paddy Power in December. Strong growth encourages new entrants and competitive trading. Nonetheless, as the market leader with a 27 % share and with consistent brand recognition of close to 90%, Paddy Power will continue to drive this market. Our brand, our people and our investment in innovative new products will support this. In addition, growth in the Irish retail market will be supported by the very significant investment we have made in our estate in the last number of years: 80% of our estate has been opened, extended, relocated or refurbished in the last four years. Our organic rollout plan of six to ten new outlets per annum will continue and the enlarged estate should be fully supported by an Electronic Point of Sale (EPOS) system by the end of the year.
The UK retail expansion continues to be workin-progress for Paddy Power, with a material contribution to Group earnings some way off yet. We are still moving towards critical mass: 30 shops have now been open for at least 12 months, and we recognise that it takes longer for a new entrant to develop a shop to steady state than it does for a market leader. It is our intention to continue our organic rollout in the UK at its current rate of up to 15 outlets per annum, although we will review this rate in light of market developments, including the new legislative environment.
(iii) Non Retail

The growth in the last few years in our non retail channel has been truly impressive. The business has moved from losses in excess of 8 million in 2001 on revenue of 90 million to operating profit of 21 million in 2005 on revenue of 577 million. In addition to our sportsbook offering through both telephone and internet channels, we have successfully introduced casino products, gaming products and poker. Well-resourced and ambitious competitors continue to enter these markets, attracted by the growth prospects. However, prospects for all of our businesses remain very strong. In addition, they are likely to be complemented by both additional product and additional language websites in the short term. We will continue to use organic growth to expand online, although strategic acquisitions at the right price that bring new product, technology or geographic expansion are possible.
(ii) UK Retail
The attractions of the UK market to Paddy Power that we identified when we originally targeted it remain in place. It is a very substantial market with in excess of 9,000 outlets. It is close to our home market and is about to deregulate. It has a similar product and customer profile, which allows us to take advantage of our existing capabilities. Importantly, it
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The same three factors will support the strong growth prospects of each of these sectors: our people, our brand and our innovative product range.
Our Resources
(i) Our People
Today we employ more than 1,400 people in Ireland and the UK, and this team is the single greatest reason for my confidence in the future of Paddy Power. As I spend time with people throughout the organisation, I am constantly impressed by the same qualities: energy, pride in our Company and in our brand, coupled with an absolute focus on our customers. In the last year, we have grown by close to 200 people. More than half of this growth has come directly from our new shop openings in Ireland and the UK, plus our team to support the EPOS rollout. In addition, we have increased our telephone operators, our customer service team and our IT team to support the very strong growth in non retail. We have also recruited dedicated management teams for poker, casino and our European sportsbook rollout. Furthermore, as the organisation overall has continued to grow apace, we have strengthened key central functions, including marketing, human resources, risk management and finance. As has historically been the case, we will continue to hire in anticipation of growth.
been operating for only four years, nationwide brand recognition among adults is 12%, 16% in London and over 60% amongst regular punters across the UK. This is a testament to the energy and imagination we invest in continually reinforcing our points of difference.
(iii) Our Products

The breadth of our product range is also a key source of differentiation from both other bookmakers and betting exchanges. It reinforces the brand quality of fairness to the customer, while also helping to drive revenue. For example, in leading live football matches, we will typically offer up to 55 markets, between pre-match and in-running, versus 25 on average from our largest competitors. Betting in Running has been expanded significantly in the last 12 months with more comprehensive product offerings particularly in football, golf, Formula 1, snooker, tennis and baseball. It now accounts for over a quarter of all non retail sports bets. Other recent products that have been launched include hourly financial markets, select-your-own handicaps in rugby, golf handicap betting, betting without the favourite and place-only-betting in racing and mythical matches in football.
Conclusion
Overall, whilst there are challenges facing all of our businesses, they are far outweighed by the opportunities that our market positions 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.
(ii) Our Brand

Our brand embodies our approach to our customers and is a key point of differentiation versus our competitors across all our channels. We will continue to position the brand as fun, friendly and occasionally cheeky and irreverent - but also, critically, fair. Whether through our broader range of products or our early payouts, innovative specials, double result payouts or the many other imaginative refunds that we regularly offer to our customers, we will continue to focus on being different from the competition. Paddy Powers brand recognition consistently runs at almost 90% in Ireland. In the UK, where we have
Patrick Kennedy Chief Executive 28 February 2006
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Operations Review
Paddy Power is Irelands largest betting and gaming company and has a significant UK operation. It operates through two main divisions; the retail division, which operates bookmaking shops in both Ireland and the UK, and the non retail division, which provides telephone bookmaking services in Ireland and the UK together with an online service that provides both bookmaking and gaming services in both markets. 2005 has seen continued expansion of each of the divisions. The retail estate has expanded in both countries. Active customer growth has continued in the existing non retail division, fuelled in part by the addition of significant new products and services in the online channel. Expansion of the UK estate continued with 15 new shops being opened during the year. We also closed our oldest shop during the year. This had been acquired in 2000 in order for Paddy Power to undertake UK based advertising and did not form part of our UK roll out plan. We enter 2006 with 45 shops open, 9 unopened licenses and a healthy pipeline of license applications across London. We plan to open up to 15 additional shops in London in 2006, assuming no changes to the existing legal process take effect in 2006. The management team is focused on achieving an improved financial performance in 2006 as the benefits of both scale and the maturity of the estate flow through. The Group has been testing a new EPOS solution for some time. There are currently 72 test shops in operation in both Ireland and the UK and we are very pleased with the results of the testing. Subject to the satisfactory delivery of a small piece of remaining code in the next few weeks, it is intended to commence the full roll out soon thereafter. It is our intention to have the vast majority, if not the entire estate, installed by the end of 2006. Total capital expenditure on this project will be approximately 10.6m, 4m to cover the central system and 6.6m to cover the shops. 4.2m had been spent by 31 December 2005. While there are many potential benefits of EPOS to both our customers and to Paddy Power, our intention is to use it to improve the quality of customer service by increasing the speed and accuracy of payout and expanding the product range. The improved availability of risk information from the retail estate should also help manage the gross win percentage over time. The technology infrastructure to support EPOS should also allow other benefits as it will provide an intranet communications infrastructure within the estate allowing e-mail communication and local printing of marketing material and coupons. It will also provide an infrastructure for customer facing information terminals or even internet access. While we expect to see some benefits immediately in risk, security and marketing, it will be 2007 before the full benefits are realised.
The Retail Division

2005 saw the continued implementation of our retail organic growth strategy in both Ireland and the UK. At 31 December 2005, the estate comprised 195 shops (2004:174), with 150 (2004:143) in Ireland and 45 (2004:31) in the UK. New openings in both countries were in line with plans, with a bias to the second half of the year in both locations. In addition to the new shop openings, our refurbishment plan has continued throughout the year in Ireland as we improve the physical quality of the estate, the average size and the audio/visual facilities. Total capital investment across the retail estate was 24.3m (2004: 24.6m). In Ireland, 7 (2004: 6) new shops were opened. In addition we also relocated 6 (2004: 4) shops, extended 4 (2004: 4) and refurbished 16 (2004: 27). The total number of premises developed in Ireland in the year was 33 (2004: 41). As we move through 2006, the level of the redevelopment work on the existing estate will decrease as the major shop fit upgrade programme that we have undertaken over the past three years is completed. The level of expenditure on maintenance capital is expected to decrease for two to three years before the next estate upgrade. We continue to operate 4 racecourse shops as well as the stadium facilities at Lansdowne Road. There were 7 (2004: 5) surplus property leases at the year end.
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2005 saw the completion of the roll out of a new screen system which provides a greatly improved experience for the customer. In addition to enhanced graphics it now supports 24 information screens, increased from 16, allowing us to add dedicated sports gantries across the majority of the estate. This in turn allows us to offer vastly improved betting options on sports particularly on Betting in Running. The new system also supports customer information terminals giving the customer full access to all current prices and results. In addition, it allows grouping of shops which enables the tailoring of the screen content for local preferences. New InfraRed technology has also been fully rolled out in 2005 and allows us to control all live television pictures from a central production studio. This enables us to coordinate the audio, information screens and the television screens in the shops, thus greatly improving the in-shop experience for customers.
of poker, which has performed very well in its first year of operation. Ongoing development of the core sportsbook product has continued with a range of ancillary features being added to increase the overall attractiveness of the site.
Online Active Customers Sportsbook Only Gaming Only Multi product customers Total 2005 48,137 11,277 14,247 73,661 2004 35,321 2,338 9,044 46,703
Non Retail Division

The non retail division comprises telephone betting, online and interactive television operations.
Active Customers Ireland and Rest Of World UK Total Online 2005 25,646 48,015 73,661 2004 16,721 29,982 46,703 Telephone 2005 10,783 10,148 20,931 2004 10,207 8,326 18,533
The development of the management team has been a major feature of the non retail division over the year. The addition of new product lines and the speed of their growth required that responsibilities for individual product lines be split into separate management teams. We are delighted with the calibre of the individuals that we have attracted, who have come from a wide range of leading e-commerce companies. 2006 will see an expansion of the online channel into continental Europe with at least one European language being added. We recruited a dedicated European team in 2005 to manage this project initially based in Dublin. We expect to be operational in quarter two and to run at a small loss for 2006.
The Telephone Channel

2005 was another year of significant development for the telephone business. Over the past three years we have been actively engaged in increasing the average telephone stake size to reflect the higher delivery costs of this channel in comparison to both the online and retail channels. As part of this process we encouraged lower staking customers to switch to the online channel. We have also made a number of improvements to the telephone service during the year. The changing profile of our telephone customers, together with the service changes and improved operational efficiencies, greatly improved the profitability of the business.
(Active customers are defined as those who have bet in the last three months)
The Online Channel

The significant expansion of the online operation seen over the previous four years continued in 2005 with record levels of activity throughout the business. The gradual shift of this channel away from bookmaking into online betting and gaming accelerated in 2005 as the take up of the new products launched in 2004 grew significantly. These were supplemented in 2005 by the launch
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Operations Review (continued)

However, notwithstanding the changes we have made, the underlying growth in the business means that our current facility in Dublin is reaching capacity. We will therefore be moving the call centre in 2006 to a new building beside our existing headquarters in Dublin. This will increase the call centre capacity by an initial 25% and also offers additional capacity as needed over the next few years. It also frees up space in our head office to facilitate the expansion of our other businesses. Power has used, and will continue to use, both the on and off track market and the betting exchanges as appropriate to manage risk. The levels of changes noted above mean that continued investment in risk management is essential and has been ongoing through 2005. This investment takes several forms. The need to monitor price movements in the market place requires increased technology to ensure that our relative position in the market is clearly understood in detail at all times. Investment in back office efficiency is essential to ensure that pricing and trading decisions are implemented across all the business channels as quickly as possible and with minimum risk of error. Increased headcount is needed as more sports are covered and specialist traders are put in place in each area. However, increased automation and sophisticated mathematical model allows greater productivity from individual traders who can cover more markets with greater accuracy. Some of the solutions noted above come from the EPOS implementation while others require separate solutions. 2006 will see continued investment in risk as Paddy Power further develops its market leading risk management operation. These actions will improve the overall quality and productivity of the risk management operation and help generate incremental revenue through new products launches. They will however have a limited impact on gross win percentages given the need to operate within a very competitive market place.
Trading and Risk Management

Trading and risk management is at the heart of a bookmaking business and 2005 has seen continued development of this function. It is responsible for the creation and pricing of all markets and the trading of those markets through their life. Betting has become more sophisticated as the number of events and the number of markets on each event increase. The increasing promotional capabilities in the retail business through its expanded screens system, together with the almost unlimited ability to promote product on the internet, requires an ever expanding product range. At the same time the speed of information flows is greater, requiring greater management of the betting markets offered. These changes in the speed and quantum of information also provide additional opportunities to create markets. Live sport together with improved technology allows Betting in Running to be offered through the internet and telephones. With the advent of EPOS it can also be done effectively through the shops. The ability to hedge markets has substantially changed over the past few years as betting exchanges have grown. While providing a previously unavailable method of hedging, their growth has also led to a gradual change in the way that the on track bookmakers manage risk. This change impacts the value and role of the track based starting price system as it no longer fully reflects the weight of money bet at the track. The debate on the role of an off track starting price is set to continue and is an area that Paddy Power will watch with interest. Paddy
Marketing
2005 was another very productive year for the marketing team as they reinforced Paddy Powers brand recognition and positioning in Ireland while building on the brand growth achieved in 2004 in the UK. Our approach to our brand has remained consistent. Small stake betting is about entertainment and Paddy Power continues to position itself as fun, fair and friendly. Our approach to marketing can be best illustrated through highlighting some key marketing events in 2005.
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The Papal elections in April generated significant media and customer interest. A quick decision was taken to send a team to Rome for the conclave with specially prepared marketing materials, backed up by a Paddy Power Papal Elections website. It was a risk that paid off handsomely, generating global coverage of Paddy Power, significant revenue and increasing our brand awareness to both our customers and investors. In September, after only seven matches, we declared Chelsea winners of the English Premiership and paid out all winning bets. As well as delighting many customers and demonstrating the Paddy Power difference, it generated substantial media coverage. Both of these events illustrate Paddy Powers core principles of being creative and fast moving. This willingness to make quick decisions enables us to gain first mover advantage. They also show that we are prepared to take risks in areas that clearly demonstrate our brand values. Our Irish outdoor brand campaign in September emphasised that Paddy Power was no longer just about sports betting but encompassed a whole selection of online games. As our posters said theres a place for fun and games and paddypower. com is it. While the campaign generated unexpected debate it was very successful in reinforcing the notion that Paddy Power is about fun and entertainment. These high profile one off events are balanced with a whole range of more traditional sponsorship deals covering sports, horse racing and entertainment using television, radio and print media. In 2005, we also increased our online sponsorships, becoming official online betting partner to both Arsenal and Liverpool football clubs to add to our Charlton Athletic and Aston Villa deals. In addition, as official betting partner to the Big Brother TV show, we generated significant exposure in the UK, capturing an audience that we would not normally reach through the more traditional sporting sponsorships. As always, novelty betting is a great source of entertainment for customers and is another area where Paddy Powers sense of fun can be demonstrated. It can also generate very significant commentary and discussion especially when it goes
wrong. In June 2005 it went wrong when betting on the colour of the Queens hat at Ascot. Who would have thought a brown hat at 12/1 would be a winner? Well, one lucky customer did as, only two hours before the Queen appeared at Ascot, a four thousand pound bet was placed with the price already having shortened to 8/11. The willingness to take risks continues in 2006. As early as the second week of January, we took short term sponsorship deals for Burton Albion FC in their FA Cup match against Manchester United and for Roy Keanes debut match for Celtic. Upset results in both games delivered excellent exposure for us.
People
Staff numbers increased significantly to 1,374 from 1,199 by the year end as the organisation grew both in Ireland and the UK. Having the right people is fundamental to the success of Paddy Power and, as we continue to grow and change, there is a constant need for more people and new skills. Some of these will be hired from outside the organisation and some will be developed in house. As planned, 2005 has seen significant investment in the training and development of staff throughout the organisation. Working through our own human resources team and with the aid of external specialists, we have developed a series of very successful in-house training courses covering a variety of management skills. In addition, a significant number of new staff have joined us and, as mentioned earlier, we are delighted with the calibre of the staff we have attracted to the online channel and to the organisation as a whole.
Patrick Kennedy Chief Executive 28 February 2006
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Financial Review
The Group has no discontinued operations and all activities are considered core.
Revenue
Sports betting revenue represents the amount staked (excluding revenue based betting taxes or levies) by the customer including the revenue from free bets. Gaming revenue represents net customer losses. Poker revenue represents the commission (rake) earned by Paddy Power. For gaming and poker, revenue is equal to the gross win (see below). Revenue for the year to 31 December 2005 was 1,371.7m (2004: 1,159.7m), an increase of 18.3 % on 2004. Revenue growth has been strong across all three channels ranging from 5.6 % to 39.7 %. Retail revenue grew by 15.3% in 2005 from 688.7m to 794.3m. Irish retail revenue grew by 12.1% to 703.7m from 628.1m in 2004. Like-for-like growth rates within Ireland were 8.65%, reflecting the continued market growth and Paddy Powers strong position within it. Like-for-like growth includes the impact of our continuing refurbishment programme referred to in the operations review, but excludes the impact of the seven new outlets opened during the year. We continue to invest in new in-shop display systems as detailed in the operations review which, through the display of additional product, will continue to drive revenue growth. There were no significant changes in opening hours of the estate during the year. UK retail revenue grew by 49.4% to 90.5m (2004: 60.6m).We are pleased with the revenue growth in the UK, which has been driven by growth in the number of shops, an increase in brand recognition, continued product development and improved display systems. The online channel continued to see strong growth, with revenue increasing by 39.7% to 327.5m (2004: 234.4m). Growth in the sportsbook was 35%, which was driven by continued improvement in the online product offering, growth in the Paddy Power brand and continued growth in the online betting market. Casino and gaming products grew strongly with revenue from non bookmaking product totalling 17.2m (2004: 5.9m).This includes the rake income
from poker, which commenced in February 2005. 67% (2004:69%) of revenue in the online channel comes from the UK, with the vast majority of the balance from Ireland. 2005 saw an acceleration in the repositioning of the telephone business that commenced in 2004 as we increasingly focus on higher stake customers. As expected, 2005 saw some loss of lower value business, particularly in the second half of the year where we made a number of significant product changes. We remain very happy with the development of the business and, as noted in the operations review, we will be moving into an expanded call centre in 2006. Revenue for the year grew to 249.8m (2004: 236.5m). The UK now accounts for 36.4% of revenue (2004:46.7%) with the balance from Ireland. Average slip/bet values by channel
2005 Retail Telephone Online 19.03 91.79 32.59 2004 18.21 83.45 27.09 Change % 4.5 10.0 20.3
(Note: Retail slips can contain more than one bet per slip, while other channels are a single bet per slip. Online comprises the sportsbook only.)
Average bet sizes are in line with expectations. Average bet size in the Irish retail business has continued to increase. As expected, we have seen a welcome reduction in the UK average as the shops start to mature. Given the different cost dynamics of handling bets through each channel, we continue to seek a higher average bet size in the telephone channel where the cost of delivery is higher, while encouraging lower staking customers to use the internet. Fixed odds betting terminals (FOBTs) income has grown in our UK estate with 172 machines installed at year end. Average gross drop per machine per month was 2.5k (2004: 2.5k). Gaming machines are not permitted in Ireland.
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Bet volumes
2005 000 Retail Telephone Online 41,744 2,722 9,522 2004 000 37,811 2,835 8,363 Change % 10.4 -4.0 13.9
Gross profit by channel

2005 000 Retail Telephone Online Total 84,976 17,151 33,443 135,570 2004 000 78,296 17,151 20,186 115,633 Change % 8.5 0 65.7 17.2
(Note: Retail volumes refer to the number of slips processed while other channels refer to the number of bets processed. Online comprises the sportsbook only.)
(Note: These numbers include FOBT and gaming income.)
Gross Win and Gross Profit

Gross win represents the gross betting or gaming profit (the difference between the amount staked and the amount paid in winnings) to Paddy Power before any other deductions. For poker and gaming income the gross win is equal to the revenue i.e.100% margin. Gross profit is the gross win less betting taxes and levies, discounted bets, direct software supplier costs and data rights. Gross win percentages by channel
2005 12 months to 31 Dec % Retail Telephone Online 12.40 7.79 13.11 2005 6 months to 31 Dec % 12.43 6.93 14.85 2004 12 months to 31 Dec % 12.88 8.31 10.98
Total gross win increased by 19.9% to 160.8m (2004: 134.1m) while gross profit increased by 17.2% to 135.6m (2004: 115.6m). Bookmaking gross win percentages were poor in 2005. Over the course of the year results favoured the punter with the big horse racing results being particularly good for the customers. In addition, retail trading conditions in Ireland were tough as the level of taxfree betting and other concessions increased though the course of the year. The increased competition levels, combined with further expectations of a complete move to tax-free betting, gave rise to a revision to the expected annual gross win percentages in November. This reduced both the retail and phone gross win percentage range by 1% and 0.5% respectively, while increasing the online sportsbook gross win percentage range by 0.5%. We now expect the annual bookmaking gross win percentages (i.e. excluding FOBT and gaming income) to be as follows:
Retail Non Retail 11%-13% 8%-9%
Gross win by channel

2005 000 Retail Telephone Online Total 98,460 19,454 42,934 160,848 2004 000 88,701 19,664 25,745 134,110 Change % 11.0 -1.1 66.8 19.9
Bookmaking gross win percentages will continue to be influenced by the level of pricing and trading concessions in the marketplace as well as bet type mix, sports mix, customer mix, risk management and, as always, the run of results. We continue to expect volatility in gross win percentages from year to year. Gross win from online gaming was 17.2m (2004: 5.9m), comprising gross win from the casino, poker and fixed odds games. This is an increase of 192% and reflects the strong growth we have seen in our casino and games business together with
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Financial Review (continued)

the impact of the new poker business in 2005. In addition to generating absolute earnings growth, the increase in gaming revenue will continue to provide some insulation against the inherent volatility of the sportsbook. Fixed odds betting terminals generated 4.3m (2004: 1.4m) of gross win, an increase of 217%. Gross profit grew by 17.2%, reflecting the movement in gross win offset by the changes in the mix of betting taxes/discounts, software supplier costs, and data rights. Gross profit was 84% of gross win (2004:86%). Further change is expected in 2006 as a result of the changes in the Irish betting tax rules and the drop in BHB data rights charges. Overall the business remains highly leveraged to small changes in the gross profit percentage.
Tax Rate
The corporation tax charge for the year was 4.4m (2004: 4.7m) representing an effective tax rate of 14% (2004: 14.5%). This compares with the statutory rate in Ireland of 12.5% and the UK statutory rate of 30%. No corporation tax is payable in the UK in respect of 2005 due to tax losses. The Groups effective tax rate remains above the statutory rate due to the disallowance of certain expenses and this is likely to continue going forward.
Cash Flow, Cash Balances and Foreign Exchange Risk

Cash balances at 31 December 2005 were 52.3m (2004: 47.2m), an increase of 5.1m. This includes cash held in customer accounts of 10m (2004: 6.5m). Cash from operating activities totalled 41.4m, an increase of 0.2m from 2004. Cash from operating activities included net cash inflow from customer accounts of 3.5m. Interest income was 1.2m, an increase of 0.2m, reflecting higher average cash balances. Capital expenditure decreased by 7% to 25.7m from 27.7m in 2004. The significant capital expenditure reflects the high levels of property activity in both Ireland and the UK due to the expansion and refurbishment of the retail estate. We expect this to continue as we expand at similar rates in the future, although we should see a short term reduction as the refurbishment programme in Ireland temporarily slows down. Cash balances are invested in accordance with defined treasury policies approved by the Board. These policies limit the risk rating of institutions that can be used, the concentration of risk with any one institution or within any category of institutions and the term of deposits. Cash balances are substantially invested in short-term bank deposits with maturities of 120 days or less. At year end, all deposits were available at twenty four hour notice. The Group has no borrowings. Interest rate exposure is thereby limited to interest income on deposits and the impact of the economy in general. The Group remains highly cash-generative and this, together
Operating Profit
Operating profit decreased in the year by 3.2%. This reflects the strong growth rates achieved across the business, the leverage impact of the changes in the gross win percentages, continued investment in the business and the growth of new products. In the retail division operating profit declined by 47% as the higher revenue was offset by the poorer gross win percentages. Costs grew in line with expectations, reflecting the growth of both the Irish and UK estates. In the telephone business operating profit declined by 20%. Despite continued revenue growth, this was also more than offset by the poor gross win percentages. The online sportsbook saw continued growth in revenue which compensated for the lower gross win percentages. This was enhanced by the growth in the newer gaming products, giving an overall increase in operating profits of 92%. The online channel now accounts for 56% of Group earnings compared to 28% in 2004, while the total non retail division accounts for over 66% (2004:43%).
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with existing cash balances, will be used to fund expansion. Only on determination of the scale of expansion in the UK, which is partly dependent on the timing of deregulation and the potential for strategic acquisition to enhance our online business, can the Board clearly identify potential surplus cash. Should the Group not require any of its cash reserves, the Board will determine the best method of returning it to shareholders. The Company has the ability to buy back its own shares. Foreign exchange risk in the business is small. As the Group expands in the UK it will require sterling to fund its capital expenditure. Much of this can be naturally hedged from the sterling gross profit generated in sterling from the online and telephone divisions, as these divisions primarily have a euro cost base and so generate surplus sterling. Group policy allows the Group to hedge the foreign exchange exposure for up to six months. At the year end, no foreign exchange contracts were open. The Groups presentation currency is the euro and translation risk exists with its sterling subsidiaries.
trading room and compliance with limits is reported daily to senior management and internal audit. Internal audit also carries out reviews of the risk function. A betting risk management sub-committee of the Board operates under the chairmanship of David Power, a non-executive director. This Committee sets overall policy for betting risk. Limits are agreed with the Committee and set annually but are subject to review by the Committee at any time. The Group does not offer credit betting.
Transition to International Financial Reporting Standards (IFRS)

There has been no material impact on the financial results by the transition from Irish GAAP to IFRS as detailed in the notes to the financial statements.
Dividend
The 2005 interim and proposed final dividend total is 20.59 cent per share (2004: 18.72 cent per share), amounting to 10.3m (2004: 9.3m), an increase of 10% on 2004. This represents dividend cover of 2.63 times (2004: 2.94).
Employees
The average number of employees in the Group during 2005 was 1,255 (2004: 1,076). At the year end, the total number of employees was 1,374 (2004: 1,199).
Share Price
The Companys daily closing share price ranged between 10.37 and 15.95 in 2005. The share price at 31 December 2005 was 12.10 (2004: 10.85) giving a market capitalisation of 609m (2004: 543m). The year end free float (shares not held by the directors or related parties) was 89.02% (2004: 88.03%).
Ross Ivers Chief Financial Officer 28 February 2006
Trading and Risk Management

The Group manages its betting risk through a central risk management and trading team whose role it is to compile the initial odds and, subsequently, to manage the odds and risk exposures throughout the life of the event. Risk limits are in place within the
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Board of Directors
Executive Directors
Patrick Kennedy (aged 36) is the Chief Executive. He joined the Group in an executive capacity in September 2005 and took over as Chief Executive on 1 January 2006. Patrick was already a Board member, having been appointed as a non-executive director in March 2004. Patrick was previously the Chief Financial Officer of Greencore Group plc. He joined Greencore in 1998 with responsibility for Group development, was appointed to the Board of Greencore in 2001, and assumed the CFO role in 2002. Prior to joining Greencore Patrick worked with KPMG Corporate Finance both in Ireland and internationally and as a strategy consultant with McKinsey Management Consultants in London, Dublin and Amsterdam. Breon Corcoran (aged 34) is the Commercial Director. He joined the Group in April 2001 and since then has been responsible for development of the Non-Retail business. He previously worked with J.P. Morgan and Bankers Trust. He is a graduate of Trinity College and holds an MBA from INSEAD. He was appointed to the Board in August 2004. Tom Grace (aged 57) was appointed a non-executive director in January 2006. Tom was a partner with PricewaterhouseCoopers up to 2005, where he led the Insolvency Department since 1987. With 34 years experience at PricewaterhouseCoopers, Tom also worked in the audit division and management consultancy division, principally in the area of financial advice. Tom is also well known as a former rugby international. He won 25 international rugby caps for Ireland between 1972 and 1978 and captained the side on eight occasions. He also toured as a British and Irish Lion in 1974. Nigel Northridge (aged 50) was appointed a non-executive director in July 2003. He is the Chief Executive of Gallaher Group plc. He held various sales and marketing roles with Gallaher after joining the company in 1976, before assuming responsibility for continental Europe in 1988. In 1990, he was appointed Managing Director of Gallaher (Dublin) in his native Ireland and was subsequently appointed UK Sales and Marketing Director in 1994 and Group Sales and Marketing Director in 1996. He was appointed Chief Executive of Gallaher in January 2000. He is also a nonexecutive director of Aggreko plc. David Power (aged 59) co-founded Paddy Power in 1988 and has been a non-executive director since that date. He merged a significant proportion of the betting shops controlled by him and trading as Richard Power Bookmakers with Paddy Power in 1988. He is an oncourse bookmaker. Brody Sweeney (aged 45) was appointed a non-executive director in February 2005. He is one of Irelands leading entrepreneurs, being the founder and Executive Chairman of OBriens Irish Sandwich Bars, which has over 260 outlets in Ireland, the UK, Europe and Asia. Stephen Thomas (aged 53) was appointed a non-executive director in August 2002. He has extensive experience of the UK leisure sector and is Chief Executive of Luminar plc. He co-founded Luminar in 1997, which today is the largest independent operator of late night entertainment venues in the UK comprising over 280 businesses including national brands such as Chicago Rock Caf, Jumpin Jaks, Liquid, The Orange House, and The Jam House. Prior to this he held senior positions with a number of UKbased leisure companies including Whitbread & Co plc, Grosvenor Leisure Limited and Rank Leisure Services.
Non-Executive Directors
Fintan Drury (aged 47), Chairman, is chairman of sports management company Platinum One (formerly called DSMI), and is a director of a number of other private companies. He is also a non-executive director of Anglo Irish Bank plc. A former news journalist with RT, Mr Drury founded Drury Communications, a leading corporate communications consultancy, in 1988. He retired from this business in 1999 when he sold his controlling interest in the company. He was appointed to the Board of Paddy Power in 2002, and was appointed Chairman in May 2003. Stewart Kenny (aged 54) was a co-founder of Paddy Power in 1988. He has considerable experience in the betting industry, training with Ladbrokes in London for two years before establishing a chain of betting shops, Kenny OReilly Bookmakers. He sold that business to Coral in 1986 and subsequently re-entered the business, opening ten betting shops between 1986 and 1988. He was the Group Chief Executive from May 1988 until June 2002 and also Chairman from June 2002 until May 2003.
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Directors Report
The directors submit their report together with the financial statements for the year ended 31 December 2005.
Market Research
The Group undertakes continuing market research across all business divisions in both Ireland and the UK. In 2005 research undertaken included brand research and customer satisfaction surveys in addition to focus groups previewing advertising campaigns.
Principal Activities
The Group provides sports betting services through a chain of licensed betting offices (Paddy Power Bookmaker) together with telephone betting (Dial-a-Bet) and online interactive betting services (paddypower.com). It provides online gaming services principally through paddypower. com, paddypowercasino.com and paddypowerpoker.com. It provides its services principally in Ireland and the United Kingdom.
Events Since the Year End and Future Developments

There have been no significant events affecting the Group since the year end other than the recommendation to pay dividends to shareholders as noted above. The directors do not anticipate any substantial changes to the nature of the business.
Results
The Groups profit after taxation of 27.0 million reflects a decrease of 1.8% on the 2004 profit figure. Basic earnings per share amounted to 0.5408 compared with 0.5655 in the previous year, a decrease of 4.4%. The financial results for the year are set out in the Consolidated income statement on page 34. Profit for the year amounted to 27.0 million (2004: 27.4 million). Shareholders funds at 31 December 2005 amounted to 96.1million (2004: 78.7 million).
Own Shares Held

The Paddy Power plc Employee Benefit Trust (the Trust) was established to manage the long-term incentive plan. During the year ended 31 December 2005, the Trust purchased 190,000 (2004: 240,000) Paddy Power plc shares at a cost of 2.6 million (2004: 2.3 million). At 31 December 2005 the Trust held 430,000 (2004: 240,000) ordinary shares in Paddy Power plc representing 0.85% (2004: 0.48%) of the issued share capital.
Dividends
An interim dividend amounting to 7.75 cent per share was paid during 2005. The directors recommend that a final dividend of 12.84 cent per share, amounting to 6.4 million, be paid on 19 May 2006 to shareholders registered at close of business on 10 March 2006. This would make a total distribution of profit to shareholders of 10.3 million in respect of the year ended 31 December 2005 (2004: 9.3 million).
Substantial Holdings
Details of interests of over 3% in the ordinary share capital which have been notified to the Company are set out below:
Holding at 28 February 2006 Fidelity Investments Ltd Nordea Investment Funds SA 4,529,298 3,934,900 % 8.99% 7.81%
Business Review and Key Performance Indicators

A detailed commentary incorporating key performance indicators by channel including; active customers, average slip/ bet values, bet volumes, gross win and gross profit is contained in the Operations and Financial Reviews on pages 10 to 17.
Board of Directors
John OReilly retired from the Board on 31 December 2005 and Ross Ivers stepped down from the Board on 6 December 2005. Tom Grace was appointed to the Board on 3 January 2006 and is proposed for election by the shareholders at the AGM in May 2006. Fintan Drury retires from the Board by rotation in 2006 and being eligible offers himself for re-election. Stephen Thomas will step down from the Board at the AGM in 2006, having completed a full three-year term. Further information on the dates of appointment of the directors is given in the Remuneration Committees Report on pages 30 and 31.
Principal Risks and Uncertainties

Information in respect of the principal risks and uncertainties facing the Company and the Group, as required in accordance with the terms of European Accounts Modernisation Directive (2003/51/EEC), are provided in the Trading and Risk Management section of the Operations Review on page 12. The composition and responsibilities of the Risk Committee are set out on pages 26 and 27. The Board has established financial risk management objectives and policies which have been implemented by executive management, details of which are given in Note 25 on page 62.
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Directors Remuneration
Details of directors remuneration are given in the Remuneration Committees Report on pages 30 and 31 and in Note 6 to the financial statements on pages 46 and 47.
Directors and Secretarys Interests

The interests of the directors and secretary who held office at 31 December 2005 in the share capital of Paddy Power plc, all of which were beneficially owned, were as follows:
Number of ordinary shares of 31 Dec 2005 Fintan Drury Patrick Kennedy John OReilly Breon Corcoran David Power Nigel Northridge Stewart Kenny Stephen Thomas Brody Sweeney Nuala Hunt (Secretary) 19,400 3,000 613,889 70,448 4,398,788 1,000 419,832 5,000 3,500 0.10 each 19,400 3,000 613,889 20,000 4,898,788 1,000 419,832 5,000 3,500
31 Dec 2004 (or date of appointment if later)
There have been no changes in the above shareholdings between 31 December 2005 and the date the directors authorised these financial statements. The directors and the company secretary had the following share options at 31 December 2005: Number of options at start of year
John OReilly Breon Corcoran Breon Corcoran Breon Corcoran Breon Corcoran Nuala Hunt (Secretary) Nuala Hunt (Secretary) Nuala Hunt (Secretary) 300,000 50,000 448 20,000 25,000 8,000 -
Exercised during the year

50,000 (b) 448 (c)
Options granted during the year 1,020 1,020
Number of options at end of year

300,000 20,000 1,020 25,000 8,000 1,020
Exercise price (a)
Exercise period
1.16 3.59 4.95 8.15 11.60 5.25 8.15 11.60
1 May 2003 1 May 2006 1 August 2004 1 August 2007 1 July 2005 31 December 2005 24 February 200724 February 2010 6 October 2008 6 April 2009 24 July 2005 24 July 2008 24 February 2007 24 February 2010 6 October 2008 6 April 2009
(a) The closing share price during the year ended 31 December 2005 ranged from 10.37 to 15.95 and was 12.10 at year end (2004: ranged from 7.15 to 11.00 and was 10.85 at year end). (b) These options were exercised on 8 September 2005 when the market price of the shares was 14.41. (c) These options were exercised on 5 September 2005 when the market price of the shares was 14.34.
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Transactions with directors and parties related to them have been disclosed in Note 22 to the financial statements on page 60. The directors and secretary have no interests in shares in any other Group companies. During the financial year ended 31 December 2005 directors who held office at 31 December 2005 were conditionally awarded the following share grants under the long-term incentive plan scheme:
Grants outstanding at start of year John OReilly Breon Corcoran Patrick Kennedy 60,000 30,000 Granted during year 65,000 70,000 Grants outstanding at end of year 60,000 95,000 70,000 Date shares granted 22 June 2004 22 Jun 2004 23 December 2005 19 September 2005 9.43 Share price at date of grant 9.43 13.80 14.40
The awards are subject to the rules of the scheme and will vest if the growth performance targets are met over the minimum vesting period. Further details of the scheme are outlined in the Remuneration Committee Report and in detail in Note 18 to these financial statements.
Employees
An enthusiastic and energised team of employees is essential to Paddy Powers success. Paddy Power aims to deliver the best customer experience and recognises that people make the difference. The continued success of Paddy Power is due to its ability to respond quickly to the ever changing and expanding environment in which it operates. The Group continues to attract new talent, as well as focusing on the development and retention of employees. All vacancies are advertised internally. Paddy Power is committed to constantly reviewing work practices and procedures to ensure that the Group provides a rewarding career and a friendly favourable working environment, whilst meeting the demands and customer requirements of the business. The Group has an established employee communications group comprising representatives from staff and management who meet regularly. This discussion group is encouraged to offer suggestions for change and ideas that are promptly considered and responded to. This forum also gives the Group an opportunity to provide information about the Groups plans, activities and results, and ensures that new developments are communicated and agreed with staff. Paddy Power is an equal opportunities employer and strongly promotes a work environment free from discrimination.
Safety, Health and Welfare at Work Act, 2005

The Safety, Health and Welfare at Work Act 2005 came into effect during the year. Paddy Power has taken all the necessary steps to ensure compliance with the changes made in the new Act. The Group pursues an active policy of providing a safe place of work for its employees and visitors to its premises. The new Act imposes certain obligations on employers in respect of health and safety in the workplace. Appropriate measures have been taken to ensure that health and safety standards are complied with at all relevant locations and that all applicable Group companies meet the requirements of the Act. These measures include safety statements at all locations, induction training in health, safety and fire safety for all new employees, receipt of method safety statements from contractors and proactive updating and actioning of shop risk assessments. We are currently planning a geographical health and safety audit in all of our retail shops and re-evaluating our risk assessments on a yearly basis.
Charities
Paddy Power maintains relationships with a large number of charitable organisations, ranging from those supporting the local communities in which our shops play a key role, through to national charities focusing on the welfare of specific groups. During the year the Group spent 81,505 on charitable donations (2004: 90,730).
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Political Donations
No political donations greater than during the year. 1,800 were made
Corporate and Social Responsibility

Social responsibility is an important issue to Paddy Power. The Groups strategy is predicated on looking after customers over the longer-term. Paddy Power acknowledges that there are significant behavioural differences between traditional fixed-odds betting and new gaming products. In recognition of these differences the Group works closely with Gamcare, a registered charity and leading authority on the provision of information, advice and practical help promoting responsible gambling. During 2005 all non retail customer service staff received training in responding to individuals who might be suffering from problem gambling. Work with Gamcare is ongoing and all new customer service recruits now receive Gamcare training. All Irish retail staff adhere to the polices and procedures of Gamcare. In 2005 all UK retail staff completed training on the Groups approach to responsible gambling and on the administration of the customer self exclusion process as part of the induction programme. Plans are underway to have the Groups practice and procedure audited by Gamcare. This is in line with industry practice in the UK.
by 60%. All of our cleaners, both internal and external, have now adopted the policy to use environmental friendly chemicals in both head office and in the retail shops. Each of our appointed contractors is aware of the importance of the environment and are all tasked to keep us informed of all new energy saving products on the current market. We also want to keep the environmental impact of our annual report package to a minimum. Thus, the paper used in this report was manufactured in a mill with ISO 9002 and IS01 4001 accreditation. The Report is woodfree, ECF, acid-free, recyclable and biodegradable.
Books of Account
The measures which the directors have taken to ensure that proper books of account are kept are: the appointment of suitably qualified personnel; the adoption of suitable policies for recording transactions, assets, and liabilities; and the appropriate use of computers and documentary systems. The Group and Company books of accounts are kept at Airton House, Airton Road, Dublin 24.
Auditor
In accordance with Section 160 (2) of the Companies Act 1963, the auditor, KPMG, will continue in office.
Environment
Paddy Power plc has a proactive approach to assisting all personnel to conduct business in a manner that protects the environment. The Group encourages efficient use of resources, encourages recycling where possible and is compliant with all relevant environmental legislation. Examples of initiatives adopted in 2005 included: improvements in energy efficiency with the installation of long life light bulbs in all of the refitted shops; reduction in packaging waste on all case goods and furniture; installation of a water efficient flushing system in the refitted shops which reduces water wastage by one third; and the use of a mobile phone and used inkjet re-cycling plan in head office which is administered by a charity. The Group, in association with Onyx Ireland, has introduced a complete waste management policy in head office and everything from glass to general office paper is recycled. We have also introduced a cardboard baler in our warehouse for all of the Group. This has proven to be of great benefit to the recycling plan and reduces the charge to remove waste
Going Concern
The directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. On behalf of the Board
Fintan Drury
Patrick Kennedy 28 February 2006
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Statement of Directors Responsibilities

The directors are responsible for preparing the Annual Report and the Group and Company financial statements, in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and have elected to prepare the Company financial statements in accordance with Generally Accepted Accounting Practice in Ireland, comprising applicable law and the financial reporting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland. The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Group; the Companies Acts 1963 to 2005 provide, in relation to such financial statements, that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing each of the Group and Company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. Fintan Drury The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Acts 1963 to 2005. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and the requirements of the Listing Rules issued by the Irish Stock Exchange, the directors are also responsible for preparing a Directors Report and reports relating to directors remuneration and corporate governance that comply with that law and those Rules. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Groups website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board
Patrick Kennedy
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The 2003 Annual Report discussed at length the Boards view on corporate governance, its importance, its role in your Company and how the Board expects to fulfill its obligations as well as giving a number of undertakings. I have not repeated that discussion in this years report but have set out below our policies on corporate governance. There have been no substantive changes in the past year. Since my last report the Board has seen further change. Two executive directors, John OReilly and Ross Ivers, stepped down from the Board in December, and in early January Tom Grace joined the Board as a non-executive director. He was subsequently appointed Chairman of the Audit Committee. In addition, Patrick Kennedy, who was a non-executive director, became an executive director when he joined the Group as Chief Executive designate in September 2005. The impact of these changes is that at certain stages in the year we were unable to staff all the committees strictly in accordance with best practice and some temporary appointments were made. This is discussed in further detail under Board Operations and Committees. What follows represents our policy on corporate governance: What we want to ensure is that Board members have sufficient time to add real value to your Company. The regulatory obligations and the wider demands of this Board mean that it has been agreed that no non-executive director should hold more than three directorships of publicly quoted companies. The Chairman cannot be the chairman of any other publicly quoted company. It is also agreed that there should be no more than two Paddy Power directors on the Board of any one other listed company. Executive directors should hold no more than one non-executive director position.
Tenure
The current Board comprises a mix of executive directors, founding directors and those who were recruited for the particular skill and experience they would bring to Paddy Power. The Board is going through a period of change. Of the nine directors currently serving on the Board, two have been members since the Company was launched on the Stock Exchange in December 2000. The Board is actively recruiting an additional independent nonexecutive director for appointment in 2006 and will be joined by a new executive Finance Director, Jack Massey in April 2006. On the making of these appointments the Board will increase to comprise three executive directors, two non-executive founder directors and the remainder being independent non-executive directors. The Board decided that all non-executive directors of Paddy Power would serve a maximum of two three-year terms effective from the date of floatation. The Nominations Committee would retain the right, in special circumstances, to extend the tenure of any non-executive director for a further term, to an absolute maximum of nine years in total. David Power and Stewart Kenny will have completed two terms in office in December 2006.
Board Composition
It will be at the discretion of the Board itself to decide on the right number of directors for the business at any point. The majority of the Board should be independent non-executive directors. The Board should comprise a mix of the necessary business skills required to provide the basic oversight of the management of the business and to contribute to the development and advancement of business strategy. Paddy Power is a specialist business and should always retain the betting industry savvy that has been part of the fabric of its Board, both as a private and public Company. The Board should also comprise high quality non-executives from the different geographic markets in which the Group operates.
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The Non-Executive Directors Responsibilities

In addition to their statutory responsibilities as outlined in the Statement of Directors Responsibilities on page 23, it has been agreed by your Board that all directors will have three specific responsibilities: Attendance at Board meetings Membership of at least one Board sub-committee Role as a mentor to a particular area of the business
The Chairmans Role

The Chairman is a non-executive director and carries the same responsibilities as all his non-executive colleagues. His role is wider of course. As well as conducting Board meetings and being a member of sub-committees, your Chairman is the one constant in the management of Board affairs. The Chairman is responsible for the leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda. The Chairman is also responsible for ensuring that all directors receive accurate, timely and clear information. The Chairman facilitates the effective contribution of his non-executive colleagues and ensures constructive relationships exist between executive and nonexecutive directors. He is the guarantor of effective communications with shareholders. Performance evaluation of the Board, its committees and its individual directors will be undertaken annually. Your Chairman will act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the Board and, where appropriate, appointing new members to the Board or seeking the resignation of directors. While there may be a perception that Board business revolves exclusively around meetings, this is not the case. Board counsel must be available to senior management at all times. Your Chairman is the normal source of such advice and encouragement, but by no means the only one. The need to source the most relevant expertise at short notice means that the Chairman must have regular contact with individual Board members to ensure that there is a seamless interaction between the senior executive team and the non-executive directors. As Chairman I also meet with the non-executive directors independently of the executive directors. I meet regularly with the Chief Executive and the Finance Director, to discuss all aspects of the business performance. I also have regular meetings with the Chief Executive and on an occasional basis, with him, I meet with other senior members of the management team.
Regular contact with each other, and availability to the Chairman and to the Chief Executive for advice and ideas, remain critical. To be an effective Paddy Power Board member means being an enthusiast for the business. Attendance at meetings is not sufficient. Active participation during formal Board and committee meetings is what matters. The non-executive directors will also meet once a year without their executive director colleagues or your Chairman. In addition to the standard roles, the Board felt it would be very beneficial if individual non-executive directors were in a position to act as a mentor to an individual or a team within the business on strategic issues they might face where the director involved would have relevant skills and experience. This is not about non-executives straying into operational affairs that are the business of management. It is about giving life to the Boards real desire to provide business counsel that can help grow the business and, with it, shareholder value. It is also a further check on the growing pressures on a Board to just supervise, dot is and cross ts. In that context, it is important too that non-executives do not feel either restricted by the corporate governance rules of engagement or feel that simple compliance with them will be sufficient to meet their obligations. That has never been the Paddy Power way and a commitment to corporate governance should not be interpreted as a change in our drive for innovation.
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Directors Fees
In July 2003, the standard non-executive fee was set at 40,000. It was agreed that chairs of committees would be paid an additional fee of 10,000 and that the Chairman would receive an annual fee of 110,000. These figures were set for an eighteen month period until 31 December 2004. The Board decided to retain the same fee levels for 2005 noting in last years report that there was likely to be a marked increase in 2006. The new fees have now been agreed and are as follows: Chairman of the Board Committee chairman Non-executive director 160,000 10,000 55,000 It is my responsibility to ensure that the performance of all directors is at the levels required. In addition to the formal Board meetings I have met with all directors individually to discuss their performance. The non-executive directors have also met without myself and the executive directors. David Power has conducted a detailed review of my performance with all directors, the results of which have been discussed with me. In the absence of having a senior independent director David Power undertook the review as it was felt he was in the best position to do so. David was not appointed during my tenure and has had the benefit of serving under each of the chairmen of Paddy Power.
Board Operations and Committees

The Board will hold at least nine full Board meetings each year. Each member sits on at least one committee and each non-executive director is also asked to mentor one part of the business where it is felt they could provide additional specialist advice to senior management. I expect all Board members to be available to me between meetings. The composition of the Board committees as at 28 February 2006 is:
These fees have been set for the next two years and, barring exceptional circumstances, will not be reviewed again until 2008. I refer, in my Chairmans Statement, to the process undertaken by the Nominations Committee for the recruitment of the new Chief Executive. At the start of this process we engaged consultants to provide some overall guidance and to ensure that it was appropriately managed. However, the Nominations Committee managed the process over an eight month period with a considerable investment of time by all concerned.
Remuneration
Stephen Thomas (Chair); David Power; Fintan Drury
Board Effectiveness
Each director is expected to perform to the highest standards with regard to both their general contribution and their contribution through committees and mentoring.
Nominations
Fintan Drury (Chair); Nigel Northridge; Patrick Kennedy; Stewart Kenny
Audit
Tom Grace (Chair); David Power; Brody Sweeney
Risk Management
David Power (Chair); Patrick Kennedy; Nigel Northridge; Breon Corcoran
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Audit Committee
The Audit Committees responsibilities include: monitoring the integrity of the financial statements of the Company reviewing the Groups internal financial controls monitoring and reviewing the effectiveness of the Groups internal audit function making recommendations to the Board in relation to the appointment and removal of the Groups external auditor approving the remuneration and terms of engagement of the external auditor evaluating the performance of the external auditor, including their independence and objectivity approving non audit services provided by the auditor in accordance with the Group policy on non audit services developing and ensuring compliance with the Groups policy on the provision of non-audit services reviewing arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters
Remuneration Committee
The Remuneration Committee is primarily responsible for making recommendations to the Board on remuneration policy for the Groups executive directors and selected senior management. The report of the Remuneration Committee is set out on pages 30 to 31.
Nominations Committee
The Nominations Committee is primarily responsible for recommending candidates to the Board for appointment as directors and ensuring that appropriate procedures are followed for all such appointments. In appointing new non-executive directors the committee agrees the preferred profile of the director with the Board as a whole and receives written recommendations from existing directors. Given the industry knowledge of the Board and the committee members, as well as their general commercial experience, it is felt that this approach is more effective than using either advertised search or recruitment agencies. The quality of directors found using this approach has been excellent and the Board believes this is the best method for your Company.
Risk Committee
The Risk Committee is responsible for ensuring that policies in respect of betting risk are appropriate to a group of Paddy Powers size, for monitoring that policies are being correctly applied and that the expertise and systems within the organisation are consistent with the level of risk undertaken.
The committees responsibilities have been expanded from January 2006 onwards to include ensuring that there are appropriate procedures in place to monitor and evaulate the general business risks to which the Group is exposed. The Audit Committee has unrestricted access to the Groups external auditor and internal auditors with whom it meets at least twice a year, both with and without management.
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The attendance at Board and committee meetings by the directors is set out below:
Number of meetings held and attended by the directors Board Audit Remuneration Nominations 9 3 8 1 9 9 N/A 6 7 9 9 8 9 8 9 8 1 1 Note Number of meetings held in 2005: Attended by: F Drury* N Northridge* Tom Grace* S Thomas* B Sweeney* D Power** S Kenny** P Kennedy*** J OReilly*** R Ivers*** B Corcoran***
* Independent Non-Executive Director ** Non-Executive Director ***Executive Director
Risk 2
a) b) c) d) e) f)
7 3 3 2 1 2 2 1 8 1 2
a) Tom Grace joined the Board on 3 January 2006 b) Brody Sweeney was appointed to the Board on 16 February 2005 and was a director for eight Board meetings and three Audit Committee meetings c) David Power acted as chairman of the Audit Committee for one meeting d) Patrick Kennedy became an executive director in September 2005 after joining the Group as Chief Executive designate. He chaired two Audit Committee meetings e) Retired 31 December 2005 f) Resigned 6 December 2005 As discussed, the Board is in a state of transition. The number of independent non-executive directors is now five (including the chairman) and there are four non-independent directors (including two executive directors). No senior independent director has been appointed as the Board wishes to complete the appointment of new independent directors and give the new Board some time to consider this matter. A decision will be made in 2006. Given the changes in independent directors serving in 2005 it was not possible to populate the committees in accordance with the combined code at all times. On appointment of a new independent director the composition of the committees will be reviewed. In respect of the Nominations Committee, which comprises four directors, two of whom are independent non-executive directors, the Board believes that the balance of independence, industry knowledge and experience best suits the task at hand. The quality of their work is reflected in the excellent quality of the appointments and no changes to the composition of this committee are planned.
Internal Control
The Combined Code annexed to the listing rules of the Irish Stock Exchange and the UK Listing Authority states that: 1. The Board should maintain a sound system of internal control to safeguard shareholders investment and Group assets.
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2. The directors should, at least annually, conduct a review of the effectiveness of the Groups system of internal control and should report to shareholders that they have done so. The review should cover all material controls, including financial, operational and compliance controls and risk management. The directors have overall responsibility for the Groups system of internal control and have delegated responsibility for the implementation of this system to executive management. The Board has established a process of compliance which addresses the Boards responsibility to maintain, review and report on all internal controls, including financial, operational and compliance risk management. The principal processes comprising the system of internal control are: Budgets are prepared for approval by executive management and included in a Group budget approved by the Board. Expenditure and income are regularly compared to previously approved budgets. The Board establishes treasury risk policies as appropriate, for implementation by executive management. Compliance with risk limits are reported on daily by the risk management department and reviewed by senior management and internal audit. All material commitments for expenditure and payments are compared to previously approved budgets and are subject to prior approval by personnel designated by the Board of Directors. Regular financial results are submitted to and reviewed by the Board of Directors. The directors, through the Audit Committee, review the effectiveness of the Groups system of internal control. An audit and security department, independent of operations, monitors the activities of the betting operations and the risk management division, including the verification of winning bets. They also undertake internal control reviews throughout the organisation. The head of this department meets regularly with the Audit Committee and also presents annually to the Board.
A review of the effectiveness of the system of internal control was carried out during the year to 31 December 2005. The directors considered that the procedures necessary to implement the Turnbull guidelines on internal control in the Combined Code have been properly established.
Relations with Shareholders

The Group is committed to ongoing communication with its shareholders. The Group operates an investor relations section on the corporate website. This contains copies of investor presentations and annual reports as well as providing access to RNS statements and corporate press releases. There is regular discussion between Group management and analysts, brokers and institutional shareholders, ensuring that the market is collectively informed on business operations. Visits to the Group headquarters are encouraged and tours of our retail outlets are undertaken regularly. All shareholders are encouraged to attend the Annual General Meeting where they are afforded the opportunity to question the Board.
Compliance
The directors confirm that the Company has complied throughout the accounting period with the provisions of the Combined Code, except as noted in this commentary.
Conclusion
As in previous years I would invite you all to consider the above carefully, and encourage any shareholders who have questions relating to this Corporate Governance Statement to contact me by email at fdrury@paddypower.com.
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The report on directors remuneration and interests has been prepared by the Remuneration Committee on behalf of the Board of Directors in accordance with the requirements of the Irish Stock Exchanges Combined Code on Corporate Governance. The experience of the individual and his/her level of responsibility are also taken into account. Consistent with the policy, the benefit packages awarded to executive directors are intended to be competitive and comprise a mix of performance-related and non-performancerelated remuneration, designed to motivate them, but not to detract from the goals of corporate governance.

As at the date of this report, the Remuneration Committee consisted of the following non-executive directors: Stephen Thomas (Chairman) David Power Fintan Drury The majority of members of the Committee are independent; they have no personal financial interest (other than as shareholders) in the matters addressed by the Committee, and have no conflicts of interest arising from cross-directorships. The Committee meets as required, but at least twice each year, and operates within agreed terms of reference. The Committee has responsibility for making recommendations to the Board on the Groups general policy relating to executive remuneration, and to determine, on behalf of the Board, specific remuneration packages for the executive directors. Outside independent professional advice is sought where necessary. The Committee is also responsible for approving executive remuneration of five of the most senior executives as well as the bonus schemes in operation within the Group. The remuneration of the Chairman of the Board is determined by the Board, excluding the Chairman. The remuneration of the non-executive directors is determined by the entire Board, including the non-executive directors.
Basic Salaries
Salaries of executive directors are set by reference to those prevailing in the market.
Performance Bonus
Under current arrangements, which are reviewed annually by the Remuneration Committee, executive directors have target bonuses of 40% to 50% of salary subject to the attainment of specific and stretching targets set for each individual. The level earned in any one year depends on the Committees assessment of each individuals performance and the overall performance of the Group against predetermined targets for the year. The maximum payout under the bonus scheme can be twice the bonus target and this will only be achieved with substantial out-performance of strict financial targets that are set annually. The minimum payment is 30% of bonus target.

It is Group policy to motivate its senior management to deliver superior performance over the long term and at the Annual General Meeting, held on 22 June 2004, the shareholders approved the 2004 Long Term Incentive Plan. This plan, details of which are included in Note 18 to the financial statements, allows shares conditionally awarded to executives to be earned over a three to five year period subject to the achievement of testing earnings per share growth targets. Details of share grants to the executive directors are included with the directors interests in the Report of the Directors on pages 19 to 22.
Remuneration Policy
General
The Remuneration Committee determines the Groups policy on executive directors remuneration. The objectives of the policy are: To reward executive directors in a manner that ensures that they are properly rewarded and motivated to perform in the best interests of shareholders. To provide the level of remuneration required to attract, retain and motivate executive directors of an appropriate calibre.
Share Options
The policy of the Remuneration Committee is to motivate its executive directors and other executives by granting them share options. Accordingly, options have been granted under the terms of employee share incentive plans approved by shareholders. Further details of these plans are given in Note 18 to the financial statements. Details of options granted to the executive directors are included with the directors interests in the Report of the Directors on pages 19 to 22. Non-executive directors are not eligible to participate in the employee share incentive plans.
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Salaries and other benefits are reviewed annually. The Remuneration Committee takes into account the performance of the individual, comparisons with peer group companies, institutional guidelines and reports from specialist consultants.
The market price of the Companys shares at 31 December 2005 was 12.10 and for the year then ended, the Companys daily closing share price ranged between 10.37 and 15.95.
Executive directors are employed on rolling contracts with a retirement age of sixty five and all directors cease holding office on reaching their seventy fifth birthday. The details of the service agreements for the non-executive directors throughout the year were as follows:
Appointed by Board Fintan Drury Stewart Kenny Nigel Northridge David Power Stephen Thomas Brody Sweeney Tom Grace 29 August 2002 1 June 1988 22 July 2003 1 June 1988 29 August 2002 16 February 2005 3 January 2006 Last elected by Shareholders 3 June 2003 22 June 2004 22 June 2004 22 June 2004 3 June 2003 17 May 2005 Proposed for AGM 2006 Term expires AGM 2006 AGM 2007 AGM 2007 AGM 2007 AGM 2006 AGM 2008 AGM 2009 Contractual termination payment Nil Nil Nil Nil Nil Nil Nil
Targeted Remuneration
The targeted composition of each directors annual remuneration (excluding sundry benefits) is as follows:
Performancerelated Executive Nonperformancerelated
Patrick Kennedy Breon Corcoran

Non-Executive
33% 29%
67% 71% 100% 100% 100% 100% 100% 100%

100%
Fintan Drury Stewart Kenny Nigel Northridge David Power Brody Sweeney Stephen Thomas
Tom Grace
Directors Service Contracts

The notice period for Patrick Kennedy and Breon Corcoran is one year. No executive director is entitled to any contractual termination payment other than for payment in lieu of notice. Non-executive directors, in accordance with best practice, are not appointed on service contracts. They are appointed for a fixed initial period of three years, and may be re-appointed for further fixed periods, up to a total of six years unless there are exceptional circumstances. This is referred to in more detail in the Corporate Governance Report. Non-executive directors are issued on appointment or re-appointment with a letter confirming the terms of their appointment. Non-executive directors are expected to give three months notice of resignation, but this is without prejudice to their right to resign immediately if they feel it appropriate. At each Annual General Meeting of the Company, every director who has been in office at the completion of each of three successive Annual General Meetings since he was last appointed or re-appointed, shall retire from office. A director who retires at an Annual General Meeting may be re-appointed, if willing to act.
Directors Pension Entitlements

The Group does not operate any defined benefit pension plan or Group defined contribution scheme for non-executive directors. Each executive director has an independent pension trust into which the Group makes defined contributions. The Group makes no pension provision in respect of the non-executive directors.
Directors Detailed Emoluments

Full details of the emoluments of the directors are set out in Note 6 to the financial statements on pages 46 and 47.
Stephen Thomas Chairman, Remuneration Committee 28 February 2006
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Independent Auditors Report

to the Members of Paddy Power plc
We have audited the Group and Company financial statements (the financial statements) of Paddy Power plc for the year ended 31 December 2005, which comprise the Consolidated income statement, the Consolidated and Company balance sheets, the Consolidated cash flow statement, the Consolidated statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Companys members, as a body, in accordance with Section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members, as a body, for our audit work, for this report, or for the opinions we have formed. We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Acts 1963 to 2005 and whether, in addition, the Group financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you our opinion as to: whether proper books of account have been kept by the Company; whether at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the Company; and whether the information given in the Directors Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the Company balance sheet is in agreement with the books of account. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding directors remuneration and directors transactions is not disclosed and, where practicable, include such information in our report. We review whether the Corporate Governance Statement reflects the Companys compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Boards statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Groups corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors Report, the Chairmans Statement, the Chief Executives Statement, the Operations Review, the Financial Review and the Remuneration Committee Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

The directors responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the Company financial statements in accordance with applicable law and the accounting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland), are set out in the Statement of Directors Responsibilities on page 23. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
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We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Groups and Companys circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the Company. The Company balance sheet is in agreement with the books of account. In our opinion the information given in the Directors Report is consistent with the financial statements. The net assets of the Company, as stated in the Company balance sheet, are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2005 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company.
Chartered Accountants Registered Auditor Dublin
Opinion
In our opinion: the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Groups affairs as at 31 December 2005 and of its profit for the year then ended; the Group financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2005 and Article 4 of the IAS Regulation; the Company financial statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the Companys affairs as at 31 December 2005; and the Company financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2005.
28 February 2006
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Note Gross revenue Cost of winning bets Net revenue from betting activities 3 4
31 December 2005 000 1,371,710 (1,236,140) 135,570
31 December 2004 000 1,159,658 (1,044,025) 115,633
Employee expenses Property expenses Marketing expenses Technology and communications Depreciation and amortisation Other expenses Total operating expenses
(51,076) (17,398) (11,346) (8,171) (11,295) (6,166) (105,452)
(40,212) (14,406) (7,485) (7,212) (8,624) (6,591) (84,530)
Operating profit Financial income Financial expense 7 7
30,118 1,226 -
31,103 1,060 (54)
Profit before tax Income tax expense Profit for the year 9
31,344 (4,390) 26,954
32,109 (4,662) 27,447
Earnings per Share Basic Diluted
10 10
0.541 0.529
0.565 0.543
The profit for the year is entirely attributable to equity holders of the Company. Notes 1 to 27 form part of these consolidated financial statements. On behalf of the Board
Fintan Drury 28 February 2006
Patrick Kennedy
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Consolidated Statement of Recognised Income and Expense

31 December 2005 000 Profit for the year Foreign exchange translation difference Total recognised income and expense 26,954 (1) 26,953 31 December 2004 000 27,447 1 27,448
The total recognised income and expense for the year is entirely attributable to equity holders of the Company. Notes 1 to 27 form part of these consolidated financial statements. On behalf of the Board
Patrick Kennedy
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Consolidated Balance Sheet

Note Assets Property, plant and equipment Intangible assets Goodwill Deferred tax assets Total non current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity Issued capital Share premium Shares held by long-term incentive plan trust Other reserves Retained earnings Total equity Liabilities Deferred tax liabilities Total non current liabilities Trade and other payables Current tax payable Total current liabilities Total liabilities Total equity and liabilities 20 14 15
31 December 2005 000 72,400 3,615 1,880 167 78,062 2,134 52,318 54,452 132,514
31 December 2004 000 57,707 2,944 1,880 73 62,604 2,290 47,206 49,496 112,100
11 12 13 19
16 16 16 16 16
5,040 7,548 (4,929) 4,142 84,250 96,051
5,005 6,680 (2,306) 1,854 67,464 78,697
19
843 843 34,873 747 35,620 36,463 132,514
397 397 30,197 2,809 33,006 33,403 112,100
Notes 1 to 27 form part of these consolidated financial statements. On behalf of the Board
Patrick Kennedy
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Consolidated Cash Flow Statement

31 December 2005 000 Cash flows from operating activities Profit before taxation Financial income Financial expense Depreciation and amortisation Cost of employee share-based payments Loss/(Gain) on disposal of fixed assets Cash from operations before changes in working capital Decrease/(Increase) in trade and other receivables Increase in trade and other payables Cash generated from operations Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets and goodwill Proceeds from disposal of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Capital element of finance lease payments Proceeds from the issue of new shares Purchase of shares by employee trust Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 31,344 (1,226) 11,295 2,289 267 43,969 222 3,320 47,511 (6,101) 41,410
31 December 2004 000 32,109 (1,060) 54 8,624 906 (31) 40,602 (129) 4,548 45,021 (54) (3,800) 41,167
(23,925) (2,068) 329 1,254 (24,410)
(25,949) (1,330) 69 1,086 (26,124)
903 (2,623) (10,168) (11,888) 5,112 47,206 52,318
(421) 2,929 (2,306) (7,212) (7,010) 8,033 39,173 47,206
Notes 1 to 27 form part of these consolidated financial statements. On behalf of the Board
Patrick Kennedy
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Paddy Power plc (the Company) and its subsidiaries (together referred to as the Group) provide sports betting services through a chain of licensed betting offices (Paddy Power Bookmaker) together with telephone betting (Dial-a-Bet) and online interactive betting services (paddypower.com). The Group also provides online gaming services through paddypower.com, paddypowerpoker.com and paddypowercasino.com. It provides these services principally in Ireland and the United Kingdom. The Company is a public limited Company incorporated and domiciled in the Republic of Ireland and has its primary listing on the Irish Stock Exchange. The address of its registered office is set out on page 4. The consolidated financial statements of the Group for the year ended 31 December 2005 comprise the financial statements of the Company and its subsidiary undertakings and were authorised for issue by the Board of Directors on 28 February 2006.
2. Basis of preparation and summary of significant accounting policies

The consolidated financial statements are prepared on the historical cost basis and are presented in euro, rounded to the nearest thousand, except for share based payments which are stated at fair value. Further to IAS Regulation (EC1606/2002) (Accounting standards adopted for use in the EU), EU law requires that the annual consolidated financial statements of the Group for the year ended 31 December 2005 be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union (EU). The consolidated financial statements have been prepared on the basis of IFRSs adopted by the EU and effective at 31 December 2005. These are the Groups first consolidated financial statements prepared on this basis and IFRS 1 has been applied. The accounting policies set out below have been applied consistently throughout the year and prior year. An explanation of how the transition to IFRS affected the financial position and the results of the Group, together with details of the transitional exemptions availed of, is provided in Note 27 on pages 63 and 64.
Basis of consolidation
The Groups financial statements consolidate the financial statements of Paddy Power plc and its subsidiary undertakings based on accounts made up to the end of the financial year. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated on consolidation except to the extent that unrealised losses provide evidence of impairment.
Recent accounting pronouncements

The IFRSs adopted by the EU applied by the Group in the preparation of these financial statements are those that were effective at 31 December 2005, together with the early adoption of the Amendment to IAS 39 The Fair Value Option. The IFRSs set out below have been adopted by the EU prior to 28 February 2006, are not yet effective and have not been early adopted in these financial statements. The directors have formed the opinion that the adoption of these pronouncements will not have a significant effect on the Groups financial statements. Amendment to IAS 1 Capital disclosures (effective 1 January 2007) Amendment to IAS 19 Actuarial Gains and Losses, Group Plans and Disclosures (effective 1 January 2006) Amendments to IAS 39 Cash Flow Hedge Accounting of Forecast Intragroup Transactions (effective 1 January 2006) Amendments to IAS 39 and IFRS 4: Financial Guarantee Contracts (effective 1 January 2006) IFRS 6 Exploration for and Evaluation of Mineral Resources (effective 1 January 2006) IFRS 7 Financial Instruments: Disclosures (effective 1 January 2007) IFRIC 4 Determining Whether an Arrangement Contains a Lease (effective 1 January 2006) IFRIC 5 Rights to Interests arising from Decommissioning Restoration and Environmental Rehabilitation Funds (effective 1 January 2006)
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2. Basis of preparation and summary of significant accounting policies (continued)

Judgements and estimates
The preparation of financial statements in conformity with IFRS adopted by the EU requires certain critical accounting estimates. It also requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors, including expectations of future events that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are continually reviewed and evaluated to reflect the Groups view of current conditions. New events or additional information may result in a revision of these estimates over time. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. It is possible that actual results may differ from these estimates. Judgements made by management in the application of IFRSs that have a high degree of complexity or a significant effect on the financial statements, and estimates with a significant risk of material adjustment in the forthcoming year are discussed in Note 26.
Revenue
Revenue is measured at the fair value of the consideration received or receivable from customers and represents amounts receivable for services that the Group provides as set out below. Revenue is stated exclusive of valueadded taxes, betting taxes and levies. The services provided by the Group comprise sports betting, fixed odds games betting, online casino and games and peer to peer games (including online poker). Sports betting revenue represents the gross takings receivable from customers in respect of individual bets placed on events that have occurred by the period end. Amounts collected from customers in respect of bets placed on events that have not occurred by the year end are subject to uncertainty and are treated as a liability, deferred income, until the actual events occur. Fixed odds games betting and online casino and games revenues represent net winnings (customer drop being amounts staked net of customer winnings) from customers on activities completed by the year end. In the case of peer to peer games (including online poker), revenue represents commission income (rake) and tournament fees earned from peer to peer games, completed by the year end. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective rate of interest and is shown as an operating activity in the Consolidated cash flow statement. Rental income in respect of the subletting of certain retail premises is recognised on a straight line basis as a credit to operating expenses.
Segment reporting
Business segments are distinguishable components of the Group that provide products and services that are subject to risks and returns that are different from other business segments. Geographical segments provide services within a particular economic environment that are subject to risks and rewards that are different from those components operating in alternative economic environments. The Group has determined that business segments are the primary reporting segments.
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Foreign currency
The consolidated financial statements are presented in euro. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates ruling at the dates of the transactions. Non monetary assets are not subsequently translated as they are carried at historical cost. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated into the functional currency at the rates of exchange ruling at that date. Foreign exchange differences arising on such translations are recognised in the income statement. The assets and liabilities of foreign operations, including goodwill arising on consolidation, are translated into euro at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into euro at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising after 1 January 2004, the date of the transition to IFRS, on retranslation of opening net assets and results for the year are recognised directly in a separate component of equity.
Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Depreciation is calculated to write off the cost less estimated residual value of property, plant and equipment on a straight line basis over their useful lives. Land is not depreciated. The estimated useful lives are as follows: Buildings: Freehold Buildings: Leasehold improvements 50 years unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease, if there is an unconditional right of renewal. 5-7 years 3 years 3 years
Fixtures and fittings Computer equipment Motor vehicles
The residual value, if not insignificant, is reassessed annually.
Goodwill
Goodwill recognised under Irish GAAP prior to the date of transition to IFRS is stated at net book value as at the transition date. Goodwill recognised subsequent to 1 January 2004, representing the excess of purchase consideration over fair value of net identifiable assets acquired defined in accordance with IFRS 3 Business Combinations, is capitalised. Goodwill is not amortised but is reviewed for impairment annually. Any impairment in the value of goodwill is dealt with in the income statement in the period it which it arises.
Intangible assets
Intangible assets, including licences and computer software, are capitalised at cost and amortised on a straight line basis over their estimated useful economic lives. The estimated useful lives of intangible assets are as follows: Computer software Licences 3-5 years 20 years
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Impairment
The carrying amounts of property, plant and equipment, intangible assets and goodwill are reviewed at each balance sheet date to determine whether there is an indication of impairment. If any such indication exists the recoverable amount of the asset, or the cash generating units to which it relates, is estimated. For intangible assets that are not yet available for use and goodwill, the recoverable amount is estimated at each annual balance sheet date, regardless of whether any indication of the impairment exists. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount of such assets or cash generating units is the greater of their sales price or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Cash and cash equivalents

Cash and cash equivalents for the purpose of the statement of cash flows comprises cash balances and call deposits.
Leases
Leases, under the terms of which the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. The assets acquired by way of finance lease are stated at an amount equal to the lower of fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment loss. Finance lease payments are apportioned between the finance charge and the reduction of the outstanding liability and the charge is allocated to the income statement during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Operating lease rentals payable are recognised as an expense in the income statement on a straight line basis over the lease term unless another systematic basis is more appropriate.
Income tax
Income tax in the income statement comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of the previous year. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Pensions
The Group operates a number of defined contribution schemes. Obligations for contributions are recognised as an expense in the income statement as service is received from the respective employees.
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Share based payments
The Group operates equity-settled share option schemes for employees under which employees acquire options over Company shares. The fair value of share options granted is recognised as employee benefit cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The Group operates an equity-settled share save scheme (SAYE) for employees under which employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benefit cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period of the savings contract. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The Group operates an equity-settled long-term incentive scheme for selected senior executives under which the executives are conditionally granted shares which vest upon the achievement of predetermined earnings targets. The fair value is measured at the grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant.
Own shares held

Purchases of the Companys shares by the long term incentive plans trust, which have been conditionally awarded to executives under the terms of the long-term incentive plan, are shown separately in equity in the Consolidated balance sheet.
Dividends
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the balance sheet date are disclosed in Note 24.
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3. Segment reporting
The revenue, operating profit and net assets of the Group relate to the provision of betting and gaming activities, substantially all of which are conducted in the Republic of Ireland and the UK.
(a) By business segment

The retail segment comprises a chain of licensed betting offices in Ireland and the United Kingdom. The non retail segment represents the Groups telephone betting, online sports betting, online casino and games and peer to peer games (including online poker). Retail 31/12/05 000 Revenue Segment result Unallocated Group expenses Operating profit Financial income/expense Income tax expense Profit after tax 794,321 12,147 Retail 31/12/04 000 688,651 18,716 Non Retail 31/12/05 000 577,389 24,043 Non Retail 31/12/04 000 471,007 15,369 Total 31/12/05 000 1,371,710 36,190 (6,072) 30,118 1,226 (4,390) 26,954 Total 31/12/04 000 1,159,658 34,085 (2,982) 31,103 1,006 (4,662) 27,447
Segment assets Unallocated Group assets Total assets
67,346
59,313
9,141
7,381
76,487 56,027 132,514
66,694 45,406 112,100
Segment liabilities Unallocated Group liabilities Total liabilities
10,432
9,675
12,165
10,218
22,597 13,866 36,463
19,893 13,510 33,403
Capital expenditure Depreciation/amortisation Non cash expenses other than depreciation
24,303 8,481 1,103
24,645 6,585 440
3,166 2,814 1,453
3,097 2,039 435
27,468 11,295 2,556
27,742 8,624 875
(b) By geographic segment

Ireland & Other 31/12/05 000 Revenue Segment assets Capital expenditure 960,548 106,623 18,599 Ireland & Other 31/12/04 000 827,465 96,622 17,084 UK 31/12/05 000 411,162 25,891 8,870 UK 31/12/04 000 332,193 15,478 10,658 Total 31/12/05 000 1,371,710 132,514 27,468 Total 31/12/04 000 1,159,658 112,100 27,742
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Further analysis of the business segments by channel is as follows: 31 December 2005 000 Revenue Retail Telephone Online 794,321 249,871 327,518 1,371,710 Gross win Retail Telephone Online 31 December 2004 000 688,651 236,546 234,461 1,159,658
98,460 19,454 42,934 160,848
88,701 19,664 25,745 134,110
Gross win represents the gross betting or gaming profit (the difference between the amount staked and the amount paid in winnings) to Paddy Power before any other deductions. For poker and gaming income the gross win is equal to the revenue. Gross profit Retail Telephone Online
84,976 17,151 33,443 135,570
78,296 17,151 20,186 115,633
Operating profit Retail Telephone Online
9,480 3,649 16,989 30,118
17,727 4,549 8,827 31,103
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4. Cost of winning bets

Cost of winning bets comprises: 31 December 2005 000 Cost of winning bets paid Software supplier costs Data rights Other cost of sales 1,210,862 5,552 3,603 16,123 1,236,140 31 December 2004 000 1,025,548 2,846 4,732 10,899 1,044,025
Software supplier costs comprise direct costs incurred under supplier agreements in the provision of online casino and fixed odds gaming services and fixed odds betting terminals. Data rights mainly comprise costs incurred in respect of British Horseracing Board and UK statutory levies. Other cost of sales comprises discounts on bets and taxes paid in relation to gross win.
5. Employee numbers and expenses

31 December 2005 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Share based payments Other staff costs 41,586 3,157 1,211 2,289 2,833 51,076 31 December 2004 000 33,631 2,726 1,029 906 1,920 40,212
31 December 2005 The average number of persons employed by the Group (including executive directors), all of whom were involved in the provision of betting services, during the year was:
31 December 2004
1,255
1,076
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Included in directors emoluments are the following emoluments in respect of directors who were in office during the year: Pension costs 000 47 435 358 31 871 Annual bonus 000 54 158 122 132 466
Fees 000 Executive Patrick Kennedy (1) John OReilly (2) Ross Ivers (3) Breon Corcoran (4) Non-Executive Fintan Drury Brody Sweeney (5) Stewart Kenny Nigel Northridge David Power Stephen Thomas Edward McDaid (6) Ian Armitage (6) John Corcoran (7) 36 110 35 40 40 50 50 361
Salary 000 155 428 306 210 1,099
Benefits 000 9 29 28 16 82
Other 000 154 154
2005 000 301 1,050 968 389 110 35 40 40 50 50 3,033
2004 000 38 883 498 167 110 40 40 50 50 24 25 37 1,962
1. During the year ended 31 December 2005, Patrick Kennedy was paid fees of 36,000 in respect of services as a non-executive director up to 18 September 2005 after which he became a full time executive of the Company as Chief Executive Designate. Patrick Kennedy was previously appointed to the Board in a non-executive capacity on 23 March 2004. 2. Amounts in respect of John OReilly include a supplemental one off pension contribution of 300,000 in acknowledgement of his very significant contribution to the Group on his retirement on 31 December 2005. 3. As part of the agreement reached with Ross Ivers to leave his position as Group Finance Director, he received a payment of 154,000, and a supplemental pension contribution of 307,000 was made to his pension scheme. 4. Breon Corcoran was appointed to the Board on 31 August 2004. 5. Brody Sweeney was appointed to the Board on 16 February 2005. 6. Edward McDaid and Ian Armitage retired from the Board on 22 June 2004. 7. John Corcoran retired from the Board on 1 December 2004. Benefits include provision of a company car, life and medical insurance. There were no loans outstanding to any director at any time during the year. Other related party transactions between the Group and the directors, all of which are on normal commercial terms, are set out in Note 22 on page 60. Details of directors interests in share awards and share options are set out on pages 20 and 21.
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Transactions with key management personnel comprising executive directors and other senior management. Key management personnel compensation is as follows: 31 December 2005 31 December 2004 000 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Share based payments Other staff costs 3,164 366 1,069 2,045 199 6,843 2,759 291 365 822 150 4,387
31 December 2005 000 Executive directors Other key management personnel Social security costs Share based payments 2,672 1,760 366 2,045 6,843
31 December 2004 000 1,548 1,726 291 822 4,387
7. Net financing costs

31 December 2005 000 Financial income: Deposit interest income Financial expenses: Finance lease interest 1,226 1,226 31 December 2004 000 1,060 (54) 1,006

31 December 2005 000 Directors emoluments Auditors remuneration for audit services Loss/(Gain) on disposal of property, plant and equipment Depreciation Amortisation of intangible assets Operating lease rentals, principally premises Operating lease income 3,033 140 267 9,875 1,420 8,828 (148) 31 December 2004 000 1,962 77 (31) 7,602 1,022 7,119 (89)
Amounts paid to the auditor in respect of non-audit services, comprising tax fees, were (2004: 204,000).
160,000
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31 December 2005 000 Recognised in the income statement Current tax charge Increase/(Decrease) in deferred tax charge Prior year (over)/under provision in respect of current tax Total income tax expense in income statement 4,249 352 (211) 4,390 31 December 2004 000 4,705 (101) 58 4,662
The difference between the total income tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the profit before tax is as follows: 31 December 2005 000 Profit before tax Tax on Group profit on ordinary activities at the standard Irish corporation tax rate of 12.5% (2004 12.5%) Expenses deductible for tax purposes Depreciation on non-qualifying fixed assets Interest income taxable at the higher rates Other adjustments (Over)/Under provision in prior year Total income tax expense in income statement 31,344 12.5% (1.4%) 2.7% 0.9% 0.0% (0.7%) 14.0% 3,918 (432) 837 280 (2) (211) 4,390 12.5% (0.1%) 1.4% 0.4% 0.1% 0.2% 14.5% 31 December 2004 000 32,109 4,014 (23) 458 133 22 58 4,662
No corporation tax is payable in the UK due to the availability of tax losses. A deferred tax asset of 2.76 million (2004: 2.07 million) relating to these losses forward has not been recognised in accordance with the Groups accounting policy for deferred tax. There is no expiry date in respect of these losses. No significant changes are expected to statutory tax rates in the future.
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Earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year as follows:
31 December 2005 Profit attributable to equity holders of the Company ( 000) 26,954
31 December 2004 27,447
The basic weighted average number of ordinary shares in issue is calculated as follows: In issue at beginning of year Adjustments for shares issued during year own shares held Weighted average number of ordinary shares Basic earnings per share The weighted average number of ordinary shares for diluted earnings per share is calculated as follows: Basic weighted average number of shares in issue during year Adjustments for share option scheme share save scheme shares held by long term incentive plan trust long term incentive plan Weighted average number of ordinary shares Diluted earnings per share 49,839,880 872,641 56,360 (71,948) 270,199 50,967,132 0.529 48,536,437 1,989,469 64,688 (115,410) 78,912 50,554,096 0.543 50,045,581 152,251 (357,952) 49,839,880 0.541 47,807,120 853,907 (124,590) 48,536,437 0.565
Page 736 PSS-201102158

Land, buildings & leasehold improvements 000 Cost Balance at 1 January 2004 Additions Disposals Balance at 31 December 2004 28,178 7,481 (254) 35,405
Fixtures & fittings 000 32,119 15,064 (4,228) 42,955
Computer equipment 000 6,931 3,078 10,009
Motor vehicles 000 757 289 (195) 851
Total 000 67,985 25,912 (4,677) 89,220
Balance at 1 January 2005 Additions Disposals Balance at 31 December 2005
35,405 7,116 (1,020) 41,501
42,955 13,916 (3,571) 53,300
10,009 3,892 (188) 13,713
851 453 (212) 1,092
89,220 25,377 (4,991) 109,606
Accumulated depreciation Balance at 1 January 2004 Charge for year Disposals Balance at 31 December 2004
6,025 1,621 (254) 7,392
16,504 4,884 (4,226) 17,162
5,761 835 6,596
259 262 (158) 363
28,549 7,602 (4,638) 31,513
Balance at 1 January 2005 Charge for year Disposals Balance at 31 December 2005
7,392 1,944 (530) 8,806
17,162 6,416 (3,355) 20,223
6,596 1,280 (160) 7,716
363 235 (137) 461
31,513 9,875 (4,182) 37,206
Net book value At 1 January 2004 At 31 December 2004
22,153 28,013
15,615 25,793
1,170 3,413
498 488
39,436 57,707
At 1 January 2005 At 31 December 2005
28,013 32,695
25,793 33,077
3,413 5,997
488 631
57,707 72,400 27.3 million
The net book value of land, buildings and leasehold improvements at 31 December 2005 includes (2004: 22.0 million) in respect of leasehold improvements.
Computer equipment includes an amount of 4.2 million (2004: 1.2 million) in respect of equipment which was either not available for use or in test. Accordingly these assets have not been depreciated during the year ended 31 December 2005. The carrying cost of these assets includes 0.5 million (2004: 0.1 million) in respect of internal labour costs. The directors do not consider the remaining useful lives of property, plant and equipment to be materially different from the period over which the assets are being depreciated.
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11. Property, plant and equipment (continued)

Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2003 on Waste Electrical and Electronic Equipment was introduced on 13 August 2005. The Group has adopted a comprehensive policy on collection, treatment, recovery, reuse and recycling of waste and does not believe that the introduction of this directive will have a material effect on the carrying cost of property, plant and equipment purchased prior to 13 August 2005. The cost of collection, treatment, recovery and recycling of property, plant and equipment purchased subsequent to 13 August 2005 is financed through the payment of charges on acquisition. These charges are capitalised as part of the cost of the related asset and depreciated over the assets expected useful life.

The movements during the year in respect of intangible assets, which comprise computer software and licences, were as follows: Computer software 000 Cost Balance at 1 January 2004 Additions during year Balance at 31 December 2004 Balance at 1 January 2005 Additions during year Balance at 31 December 2005 3,504 1,478 4,982 4,982 1,650 6,632 Licences 000s 876 352 1,228 1,228 441 1,669 Total 000 4,380 1,830 6,210 6,210 2,091 8,301
Amortisation Balance at 1 January 2004 Amortisation for year Balance at 31 December 2004 Balance at 1 January 2005 Amortisation for year Balance at 31 December 2005
2,216 974 3,190 3,190 1,355 4,545
28 48 76 76 65 141
2,244 1,022 3,266 3,266 1,420 4,686
Net book value At 1 January 2004 At 31 December 2004 At 1 January 2005 At 31 December 2005
1,288 1,792 1,792 2,087
848 1,152 1,152 1,528
2,136 2,944 2,944 3,615
Page 738 PSS-201102158

13. Goodwill
Irish retail 000 Balance at 1 January 2004 arising through business combinations Balance at 31 December 2004 Balance at 31 December 2005 904 904 904 UK retail 000 976 976 976 Total 000 904 976 1,880 1,880
Goodwill on Irish retail properties arose from the amalgamation of three bookmaking businesses to form Paddy Power plc. Goodwill in respect of the UK retail division arose on the acquisition of two London bookmaking businesses, prior to the date of transition to IFRS in December 2004, and is stated at net book value as at the transition date.
Impairment tests for cash-generating units containing goodwill

The retail divisions in Ireland and the UK include the following amounts in respect of goodwill: 31 December 2005 000 Irish retail 904 31 December 2004 000 904
The recoverable amount of the Irish retail underlying cash generation units was estimated based on value in use calculations. These calculations use cash flow projections based on actual operating results and financial budgets approved by management covering a five year period. Cash flows for a further five year period are extrapolated assuming a weighted average revenue growth rate of 5% and a gross win of 12% which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. A pre-tax discount rate of 10%, which reflects the specific risks relating to the underlying business segments, has been used in discounting the projected cash flows. 31 December 2005 000 UK retail 976 31 December 2004 000 976
The recoverable amount of the two London underlying cash generation units was estimated based on value in use calculations. These calculations use cash flow projections based on actual operating results and financial budgets approved by management covering a five year period. Cash flows for a further five year period are extrapolated assuming a weighted average revenue growth rate of 5% and a gross win of 13% which are based on experience and are consistent with managements expectations for market development and growth in market share where applicable. A pre-tax discount rate of 10%, which reflects the specific risks relating to the underlying business segments, has been used in discounting the projected cash flows. Based on the reviews as described above, no impairment has arisen. Goodwill was also tested for impairment at 1 January 2004, the date of transition to IFRS, even though no indication of impairment existed.
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31 December 2005 000 Sundry receivables and prepayments 2,134 31 December 2004 000 2,290

31 December 2005 000 Cash at bank and in hand Short term bank deposits Cash and cash equivalents in the statement of cash flows 3,538 48,780 52,318 31 December 2004 000 1,333 45,873 47,206
The effective interest rate on short term bank deposits was 2.55% (2004: 2.22%); these deposits have an average maturity date of 53 days (2004: 73 days).
Page 740 PSS-201102158

Shares held by long term Other incentive reserves plan trust 000 000 922 1 923 923 (1) 922 (2,306) (2,306) (2,306) (2,623) (4,929) Share based payment reserve 000 931 931 931 1,183 3,220
Number of ordinary shares in issue Balance at 1 January 2004 Shares issued Own shares acquired: 240,000 ordinary shares Total recognised income and expense Equity settled transactions Dividends to shareholders Balance at 31 December 2004 Balance at 1 January 2005 Shares issued Own shares acquired: 190,000 ordinary shares Total recognised income and expense Equity settled transactions Dividends to shareholders Balance at 31 December 2005 47,807,120 2,238,461 50,045,581 50,045,581 351,587 50,397,168
Share capital 000 4,781 224 5,005 5,005 35 5,040
Share premium 000 3,975 2,705 6,680 6,680 868 7,548
Retained earnings 000 47,229 27,447 (7,212) 67,464 67,464 26,954 (10,168) 84,250
The total authorised share capital of the Company comprises 70,000,000 ordinary shares of 70,000,000 ordinary shares of 0.10 each). All issued share capital is fully paid.
0.10 each (2004:
During the year, 351,587 ordinary shares of 0.10 each (2004: 2,238,461 ordinary shares of 0.10 each) were issued as a result of the exercise of share options, for total consideration of 903,000 (2004: 2,929,000), giving rise to share premium of 868,000 (2004: 2,705,000). Other reserves comprise the net foreign exchange translation differences together with a capital redemption reserve fund and a capital conversion reserve fund. The capital redemption reserve fund of 662,000 (2004: 662,000) relates to the nominal value of shares in the Company acquired by the Company and subsequently cancelled. The capital conversion reserve fund of 260,000 (2004: 260,000) arose on the redenomination of the ordinary share capital of the Company at the time of conversion from IEP to euro. The foreign exchange reserve at 31 December 2005 was nil (2004: 1,000). As permitted by section 148(8) of the Companies Act, 1963 no separate profit and loss account is presented in respect of the Company. The Company recorded a profit for the year of 19.2 million (2004: 20.0 million). At 31 December 2005, the Company held 430,000 of its own shares (2004: 240,000) which were acquired at a total cost of 4,929,000 (2004: 2,306,000). The Companys distributable reserves at 31 December 2005 are restricted by this amount.
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31 December 2005 000 Ordinary shares: final paid of 0.1252 per share (2003: 0.0859) interim paid of 0.0775 per share (2004: 0.0620) 6,265 3,903 10,168 Proposed final dividend of per share (see Note 24) 0.1284 (2004: 0.1252) 6,416 6,234 31 December 2004 000 4,107 3,105 7,212
18. Share schemes

The Company has the following employee share schemes:
The Paddy Power plc May 2000 Executive Share Option Scheme (the Executive Share Option Scheme)
Under the May 2000 Executive Share Option Scheme, options over a total of 3,543,000 shares were granted at an exercise price of 1.16 per share. These options were granted prior to 7 November 2002 and, accordingly, do not fall within the scope of IFRS 2 Share Based Payment. Since May 2000 options over 3,069,000 shares have been exercised and options over a further 90,000 shares have lapsed. Options over 384,000 shares were outstanding at 31 December 2005 (2004: 591,000). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2004 300,000 42,000 249,000 Options exercised during year 15,000 192,000 Options outstanding at 31 December 2005 300,000 27,000 57,000 Earliest exercise date* 1 May 2003 1 May 2004 1 May 2005 Exercise price 1.16 1.16 1.16 13.58- 14.09 13.44- 14.70 Market price at date of exercise
* Share options lapse 10 years after date of grant. During the year ended 31 December 2004, 1,959,000 options were exercised at an exercise price of the market price ranged from 9.30 to 10.10. 1.16 when
On 21 November 2000 the shareholders approved the termination of this Scheme, and thus no further options may be granted pursuant to this scheme.
The Paddy Power plc 2000 Restricted Share Scheme (the Restricted Scheme)
The Restricted Scheme was adopted by shareholders on 21 November 2000. Employees eligible to participate in the Restricted Scheme may not be participants in any other Company share option scheme (save for the Sharesave Scheme described below). In addition, to be eligible, a participant must have been an employee at 7 December 2000, must have at least three years continuous service, and must have been listed in the allocation schedule attached to the Rules of the Restricted Scheme. The awards of shares granted under the Restricted Scheme were in the amounts of 3,175, 1,905 or 1,270 per eligible employee. The shares cannot be sold within five years of the date of the award being granted. During this period of five years the shares are held by the Power Leisure Employee Benefit Trust for the benefit of the relevant employees. At 31 December 2005, 272,903 Ordinary shares (2004: 272,903) owned by employees are held on their behalf by Power Leisure Employee Benefit Trust.
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The Paddy Power plc November 2000 Share Option Scheme (the Share Option Scheme)
The Share Option Scheme was adopted by shareholders on 21 November 2000 and modified by the shareholders on 22 June 2004. The Share Option Scheme is open to directors, other than non-executive directors, and employees. Options may be granted within a period of 10 years from 7 December 2000 at the higher of nominal and current market value. Options may not be exercised earlier than three years from the date of grant and may only be exercised if the Group meets certain targets and any further condition on exercise which the Board determines to be appropriate. These targets require real growth (Consumer Price Index plus 5 percent compounded annually) in earnings per share of the Group over a period of not less than three years following the grant of an option. Since November 2000, 1,124,372 options have been granted under the scheme. Options granted before 7 November 2002 do not fall within the scope of IFRS2 Share Based Payments. Options granted after 7 November 2002 have been included in the calculation of the Groups share based payment reserve. Since November 2000, options over 185,290 shares have been exercised and options over 95,825 shares have lapsed. Options over 843,257 shares were outstanding at 31 December 2005 (2004: 809,516), of which 377,466 were exercisable at 31 December 2005 (2004: 352,466). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2004 Options outstanding at 31 December 2005
Exercise price
Granted before 7 November 2002 352,466 138,000 13,000 50,000 50,000 302,466 75,000 August 2004 July 2005 3.59 5.25 14.05 14.41 15.20
Granted after 7 November 2002 85,000 105,366 8,000 107,000 13,684 15,741 144,000 13,000 85,000 105,366 8,000 94,000 13,684 15,741 144,000 May February March June September February September 2006 2007 2007 2007 2007 2008 2008 5.00 8.15 8.90 9.43 9.80 12.89 14.80
* Share options lapse 10 years after date of grant. During the year ended 31 December 2004, options over 50,000 shares were exercised at an exercise price of 2.40 when the market price was 8.45; options over 5,290 shares were exercised at an exercise price of 2.40 when the market price per share was 8.15; and options over 30,000 shares were exercised at an exercise price of 3.59 when the market price was 8.45. During the year ended 31 December 2004, options in respect of 18,000 shares at an exercise price of 5.25 per share lapsed; and options in respect of 9,325 shares at an exercise price of 8.15 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 481,000 (2004: 505,000). The significant inputs into the model were share prices for the two grant dates of 12.89 and 14.80 (2004: share prices for three grant dates ranging from 8.15 - 9.80), exercise prices shown above, standard deviation of expected share price returns of 25.00% (2004: 25.00%), expected term as disclosed above, and an annual risk free rate of 3.14% (2004: 4.00%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of share prices over the last 3 years.
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The Paddy Power plc Sharesave Scheme (the Sharesave Scheme)
The Sharesave Scheme was adopted by shareholders on 21 November 2000 and was subsequently approved by the Revenue Commissioners. All employees (including executive directors) who have not less than 12 months continuous service with the Group or any subsidiary nominated to join the Sharesave Scheme may be invited to apply for options to acquire shares. Options will normally be granted to all eligible employees in the 42 day period after the announcement of the interim or final results of the Company. The purchase price for each ordinary share in respect of which an option is granted shall not be less than 80 percent of the closing price of the shares on the Irish Stock Exchange on the dealing day last preceding the date of grant of the option or its nominal value. The aggregate maximum monthly contribution payable by an employee in connection with the scheme may not exceed 320. Options granted before 7 November 2002 do not fall within the scope of IFRS 2 Share Based Payment. Options granted after 7 November 2002 have been included in the calculation of the Groups Share based payment reserve. Options outstanding at 31 December 2004 Options outstanding at 31 December 2005
Exercise price
Granted before 7 November 2002 47,430 1,783 44,587 1,060 July 2005 4.95
Granted after 7 November 2002 264,271 264,271 October 2008 11.60
* Share options lapse 3.5 years after date of grant. During the year ended 31 December 2004, options over 194,171 shares were exercised at an exercise price of 2.16 when the market price ranged from 9.15 - 9.90. During the year ended 31 December 2004, options in respect of 5,331 shares at an exercise price of 2.16 per share and options in respect of 8,045 shares at an exercise price of 4.95 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 889,000. The significant inputs into the model were share price of 14.50 (2004: n/a) at the grant date, exercise price of 11.60, standard deviation of expected share price returns of 25% (2004: n/a), option life disclosed above, and an annual risk free rate of 3% (2004: n/a). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last 3 years.
General
The maximum number of shares for which options may be granted shall not, when added to the number of shares which have been or remain to be issued pursuant to options granted under the Sharesave Scheme, exceed one percent of the issued ordinary share capital of the Company. In addition, the number of shares for which options may be granted under the Sharesave Scheme in any period of ten successive calendar years shall not, when added to the number of shares which have been or remain to be issued pursuant to options in the Sharesave Scheme or granted during the same period under any other employee share scheme of the Company, exceed ten percent of the issued share capital of the Company.
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On 22 June 2004 the 2004 Long Term Incentive Plan (LTIP) for senior executives was adopted by the shareholders, under which the directors can make conditional grants of a number of Company shares to each eligible executive. The grants are subject to the rules of the scheme. In accordance with the rules, the grant will vest if the growth target (EPS growth at least equal to the compound growth in CPI plus 12% per annum) over the minimum vesting period of three years. To the extent the grant does not vest in full in respect of the minimum vesting period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the four-year period measured from the commencement of the minimum vesting period and to the extent the award does not vest in full in respect of such four-year period, the grant will continue in effect in accordance with the rules and will vest if the growth target is met over the five-year period measured from the commencement of the minimum vesting period, provided, however, that to the extent the grant has not vested on or before the latest vest date specified above, the grant will automatically lapse in its entirety immediately following such date. Until the vesting of the award in accordance with the rules of the scheme, the grantholder will have no rights over or in respect of the shares subject to the grant and on vesting, the grantholders rights are limited to those shares in respect of which the growth target has been achieved in accordance with the rules of the scheme. The grants are not transferable. During the year, awards of 120,000 shares, 70,000 shares and 60,000 shares (2004: 240,000 shares) were granted to senior management (including executive directors). The share prices at the dates of grant were 13.80, 14.40 and 12.27 respectively (2004: 9.43). The total cost of this grant is estimated at 2,986,000 (2004: 2,263,000) and is expensed in the Group income statement over the minimum vesting period of the grant (being the expected term of the grant) i.e. 3 years. Thus the operating profit for the year ended 31 December 2005 is stated after an LTIP charge for the year ended 31 December 2005 of 1,937,000 (2004: 754,000). The Paddy Power plc Employee Benefit Trust (the Trust) was established to manage the long-term incentive plan. The Trust purchased 240,000 Paddy Power plc shares on 28 June 2004 at a cost of 2.3 million and 190,000 Paddy Power plc shares between 18 May 2005 and 23 May 2005 at a cost of 2.6 million. The results of the Trust are included in Paddy Power plc Company financial statements. The shares held by the Trust at the balance sheet date are shown as a deduction from equity in the Consolidated balance sheet in accordance with the Groups accounting policy.
Paddy Power 2004 Second Tier Option Scheme

On 22 June 2004 the shareholders approved the establishment of the Paddy Power 2004 Second Tier Option scheme, which allows the Company to grant options to employees, which will become exercisable after a five year performance period, upon the achievement by the Company of exceptional performance levels. To be exercisable, the Companys earnings per share must grow during the five year performance period by at least the percentage increase in the Consumer Price Index plus 10% per annum compounded and the Companys earnings per share growth must be in the top quarter in performance terms of a specified peer group. No options have been granted to date under this scheme to any Group employees.
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Deferred tax assets and liabilities are attributable to the following: 31 December 2005 Assets Liabilities Total 2005 2005 2005 000 000 000 Property plant and equipment Lease premiums income element Freehold and leasehold interest Employee benefits 156 11 167 (783) (60) (843) (783) (60) 156 11 (676) 31 December 2004 Assets Liabilities 2004 2004 000 000 66 7 73 (363) (34) (397) Total 2004 000 (363) (34) 66 7 (324)
Unrecognised deferred tax assets:

Deferred tax assets have not been recognised in respect of the following items: 31 December 2005 000 UK tax losses 2,760 31 December 2004 000 2,073
A deferred tax asset has not been recognised in respect of the UK tax losses as it is not certain when taxable profits will be generated against which to offset these losses.
Movement in temporary differences during the year: Balance at 1 January 2004 000 Property, plant and equipment Lease premiums interest element Freehold and leasehold interest Employee benefits 32 5 464 (76) 425 Recognised in income 2004 000 331 29 (530) 69 (101) Balance at 31 December 2004 000 363 34 (66) (7) 324 Recognised in income 2005 000 420 26 (90) (4) 352 Balance at 31 December 2005 000 783 60 (156) (11) 676
20. Trade and other payables

31 December 2005 000 Trade payables Customer balances Deferred income PAYE and social security Value added tax Betting duty Accruals 5,594 10,034 2,077 1,182 570 3,488 11,928 34,873 31 December 2004 000 4,570 6,462 1,737 1,100 538 1,356 14,434 30,197
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(a) Guarantees
The Group has guarantee facilities of 3.8 million with Allied Irish Banks plc. These facilities are unsecured.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other parties including companies within its Group or joint ventures, the Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
(b) Capital commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: 31 December 2005 000 Property, plant and equipment Intangible assets 3,787 143 3,930 31 December 2004 000 1,300 200 1,500
(c) Operating lease commitments

The Group leases various licensed betting offices under operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group has the following commitments in respect of operating leases on properties where the lease terms expire as follows: 31 December 2005 Annual Total commitment commitment 000 000 Within 1 year Between 2 and 5 years After 5 years 848 1,008 7,459 9,315 848 3,015 128,916 132,779 31 December 2004 Annual Total commitment commitment 000 000 595 1,219 5,975 7,789 595 3,515 109,272 113,382
22. Related parties

Transactions with Directors
In addition to the directors emoluments disclosed in Note 6, in the year ended 31 December 2005 directors were paid the amounts set out below: Stewart Kenny received 60,000 (2004: 60,000) in respect of consulting fees.
The Group engages in transactions with David Power in his capacity as an on-course bookmaker. In aggregate, the Group placed bets winning 78,772 (2004 losing 15,900) with Richard Power On-Course Bookmakers and that firm placed bets with the Group losing 32,314 (2004 losing 20,289). The Group paid rent of nil (2004: 21,000) and 38,727 (2004 38,727) during the year for retail properties occupied by the Group under long term leases and owned by Stewart Kenny and David Power respectively. Stewart Kenny no longer holds an interest in any property leased by the Group since 1 October 2004. All of the above transactions were conducted on an arms length basis at normal commercial terms.
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23. Group entities

The Company has the following subsidiaries, all of which are wholly equity owned, at 31 December 2005 and 31 December 2004: Country of Incorporation Power Leisure Bookmaker Limited UK Activity Bookmaker Registered Office 5th Floor, Crowne House, 56-58 Southwark St, London SE1 1UN Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Airton House, Airton Road, Tallaght, Dublin 24, Ireland. Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA York House, Victoria Street, Alderney, GY9 3TA York House,Victoria Street, Alderney, GY9 3TA Alpine House, San Gwan, Malta
Leisurebet Limited
Ireland
Non-trading
Zephyr Limited
Ireland
Property holding
KOR Enterprises Limited
Ireland
Property holding
Rexbury Limited
Ireland
Property holding
QC Holdings Limited
Ireland
Property holding
Pridepark Developments Limited
Ireland
Property holding
Paddy Power Call Centre Services Limited Paddy Power Entertainment Limited
Isle of Man
Call centre administration Non-trading
Isle of Man
Paddy Power Isle of Man Limited
Isle of Man
Bookmaker
Paddy Power BCI Limited
Alderney
Poker
Paddy Power Alderney Limited
Alderney
Casino
Paddy Power (Malta) Limited
Malta
Non-trading
In addition to the above subsidiaries, the Group utlitises two employee trusts. Power Leisure Employee Benefit Trust, with a registered address at Airton House, Airton Road, Tallaght, Dublin 24, holds the shares of the Restricted Share Scheme. Paddy Power plc Employee Benefit Trust, with a registered address at PO Box 76, Wests Centre, St Helier, Jersey, JE4 8PQ, holds the shares under the long-term incentive plan.
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24. Events after the balance sheet date
In respect of the current year, the directors propose that a final dividend of 12.84c per share (2004: 12.52c per share) will be paid to shareholders on 19 May 2006. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 10 March 2006. The total estimated dividend to be paid amounts to 6,416,000 (2004: 6,234,000).
25. Financial instruments

The Group does not offer credit to customers and does not make use of derivative financial instruments. The Group is exposed to interest rate and currency risks in the normal course of business. Investments are only allowed in cash with a maturity date on deposits of 180 days or less. Investments in cash are restricted to financial institutions with a credit rating at P2 or better. At 31 December 2005, it is estimated that a movement of one percentage point in interest rates or in the value of the euro against sterling would not have a material impact on the Groups profit before taxation.

Key sources of estimation uncertainty and critical accounting judgements in applying the Groups accounting policies Costs incurred during the year in respect of an Electronic Point of Sale system amounting to 3.0 million (2004: 1.2 million) have been capitalised in accordance with the Groups accounting policy, and are included at cost, within property, plant and equipment, at 31 December 2005. This system is currently nearing the completion of its final development and testing phase and the directors believe that it will be implemented throughout the Group during the year ending 31 December 2006. Trade and other payables includes 2,077,000 (2004: 1,737,000) which relates to amounts collected from customers in respect of bets placed on events that have not occurred by the year end, which are subject to uncertainty and are treated as deferred revenue, until the actual events occur. The accounting treatment of such bets under IFRS is currently under discussion across the betting industry. An alternative treatment under discussion is to recognise such bets as financial instruments. Had these bets been accounted for as financial instruments during the year ended 31 December 2005, revenue from betting would have been reported as gross win rather than the gross amount staked, with these bets at 31 December 2005 being measured at fair value. The estimated impact on profit of measuring these bets at fair value at 31 December 2005, rather than treating them as deferred revenue, is not material. Goodwill of 1.9 million (2004: 1.9 million) continues to be carried in the Group balance sheet as the directors believe that there has been no impairment in the fair value of the net identifiable assets of the acquired businesses. The share based payment reserve, which includes amounts in relation to the Long Term Incentive Plan and various share option schemes, amounted to 3,220,000 at 31 December 2005. The fair value of share options granted after 7 November 2002 has been determined using a Black Scholes valuation model. The significant inputs into the model include certain management assumptions with regard to the standard deviation of expected share price returns, expected option life and annual risk free rates.
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27. Explanation of transition to IFRS

An explanation of how the transition to IFRS has affected the financial information is outlined below:
First time adoption of International Financial Reporting Standards (IFRSs).

Up to and including the year ended 31 December 2004, the Groups financial statements were prepared in accordance with Irish Company Law and accounting standards issued by the Accounting Standards Board as promulgated by the Institute of Chartered Accountants in Ireland (Irish GAAP). IFRS 1 First-time adoption of International Financial Reporting Standards (IFRS 1), is the accounting standard governing the implementation of IFRS for the first time. This standard allows or requires a number of exceptions to its general principle that the standards in force at the reporting date should be applied retrospectively. At the transition date 1 January 2004, the exemptions to retrospective implementation availed of are that the Group has implemented the requirements of IFRS 2 Share Based Payments to all equity settled share based payments granted after 7 November 2002 that had not vested by 1 January 2005; has set the cumulative transition reserve to zero and has not restated business combinations prior to the transition date in accordance with IFRS 3 Business Combinations. The principal changes to the Groups financial statements resulting from the implementation of IFRS are set out in the table and related notes below: Restatement of Retained Earnings under Irish GAAP to IFRS Retained earnings Irish GAAP IFRS 2 Share-based payment IAS 12 Income taxes IAS 10 Events after the balance sheet date Retained Earnings IFRS 1 January 2004 000 42,596 (25) 552 4,106 47,229
Restatement of Consolidated Income Statement under Irish GAAP to IFRS Operating Profit Irish GAAP IFRS 2 Share-based payment IFRS 3 Business combinations: non amortisation of goodwill Operating Profit IFRS
31 December 2004 000 31,134 (152) 121 31,103
Restatement of Consolidated Balance Sheet under Irish GAAP to IFRS Total Assets Irish GAAP IFRS 3 Business combinations: non amortisation of goodwill IAS 12 Income taxes Total Assets IFRS
31 December 2004 000 111,906 121 73 112,100
Total Liabilities Irish GAAP IAS 10 Events after the balance sheet date IAS 12 Income taxes Total Liabilities IFRS
40,116 (6,234) (479) 33,403
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27. Explanation of transition to IFRS (continued)
Total Equity Irish GAAP IFRS 3 Business combinations IFRS 2 Share-based payment IAS 10 Events after the balance sheet date IAS 12 Income taxes Total Equity IFRS Total Equities and Liabilities Irish GAAP IFRS 3 Business combinations IFRS 2 Share-based payment IAS 12 Income taxes Total Equities and Liabilities IFRS 71,790 121 6,234 552 78,697 111,906 121 73 112,100
IFRS 2 Share-based Payment

The effect on the income statement of implementing IFRS 2 to the various Group share-based payment schemes is an increase in employee expenses 152,000 for the year ended 31 December 2004. This cost gives rise to a corresponding increase in a newly created reserve for share-based payments. In addition to the income statement effect, IFRS 2 resulted in a reclassification of reserves from retained earnings to the reserve for sharebased payments. This resulted in transfers of 25,000, and 754,000 from retained earnings to the reserve for share-based payments as at 1 January 2004 and 31 December 2004 respectively.
IFRS 3 Business Combinations

The effect on the income statement of implementing IFRS 3 is a decrease in the goodwill expense of 121,000 for the year ended 31 December 2004 respectively, due to the cessation of goodwill amortisation in respect of acquisitions.
IAS 38 Intangible Assets

The Group has reviewed the requirements of IAS 38 Intangible Assets and has reclassified assets, principally licence acquisition costs and computer software, from property, plant and equipment to intangibles based on the definition of an intangible asset outlined in the standard. The effect on the income statement of implementing IAS 38 is a reclassification of depreciation expense to amortisation expense of 1,022,000 for the year ended 31 December 2004. The net overall effect on the income statement of the reclassification is nil. The effect on the balance sheet is a reduction in the cost of property, plant & equipment and an increase in the cost of intangible assets of 4,380,000, and 6,210,000 as at 1 January 2004 and 31 December 2004 respectively. Similarly accumulated depreciation is reduced by 2,244,000, and 3,266,000 as at 1 January 2004 and 31 December 2004 respectively with corresponding increases in the accumulated amortisation of intangibles. This gives an overall effect of a reduction in the net book value of property plant and equipment and an increase in intangible assets of 2,136,000, and 2,944,000 as at 1 January 2004 and 31 December 2004 respectively.
IAS 10 Events after the Balance Sheet Date

Under IAS 10 Events after the Balance Sheet Date, interim dividends are provided for in the period when they are approved by the directors and paid, with final dividends being provided for in the period in which they are approved by shareholders. The effect on the balance sheet is a reduction in trade and other payables and increase in retained earnings of 4,106,000 and 6,234,000 as at 1 January 2004 and 31 December 2004 respectively.
IAS 12 Income Taxes

In accordance with IAS 12 Income Taxes, the Group has recognised deferred tax on interests in freehold land and buildings as at 1 January 2004 and 31 December 2004. This resulted in the recognition of additional deferred tax assets of 73,000; a reduction in deferred tax liabilities of 479,000; and an increase in retained earnings of 552,000 as at 1 January 2004 and 31 December 2004.
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Note
31 December 2004 (as restated) 000 470 1,096 41,598 447 43,611
Fixed assets Intangible fixed assets Goodwill Tangible fixed assets Financial fixed assets
3 4 5 6
435 975 50,096 1,855 53,361
Current assets Debtors Cash at bank and in hand
26,830 45,678 72,508 (34,804) 37,704
27,690 46,558 74,248 (36,633) 37,615
Creditors (amounts falling due within one year) Net current assets
Total assets less current liabilities Provision for liabilities and charges Net assets
91,065 (1,247) 89,818
81,226 (997) 80,229
Capital and reserves Called up share capital Share premium Capital redemption reserve Capital conversion reserve fund Share based payment reserve Shares held by long-term incentive plan Profit and loss account Shareholders funds all equity interests
10 11 12 12 12 12
5,040 7,548 662 260 3,220 (4,929) 78,017 89,818
5,005 6,680 662 260 931 (2,306) 68,997 80,229
Notes 1 to 17 form part of these financial statements. On behalf of the Board
Patrick Kennedy
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1. Basis of preparation and summary of significant accounting policies

The financial statements have been prepared in euro in accordance with generally accepted accountancy principles under the historical cost convention and comply with financial reporting standards of the Accounting Standards Board, as promulgated by the Institute of Chartered Accountants in Ireland. The accounting policies have been applied consistently throughout the year and the preceding year with the exception of the accounting policies on dividends and share based payments which have changed during the year. As permitted by section 148(8) of the Companies Act, 1963 no separate profit and loss account is presented in respect of the Company. The Company recorded a profit for the year of 19.2 million (2004: 20.0 million).
Financial instruments
Interests in subsidiary undertakings are stated in the Company balance sheet as financial fixed assets, at cost less, where necessary, provisions for impairment. Other financial instruments include amounts owing to/from Group companies, all of which are current.
Tangible fixed assets and depreciation

Tangible fixed assets are stated at historical cost less accumulated depreciation. Depreciation is calculated so as to write off the cost less estimated residual value of tangible fixed assets on a straight line basis over their estimated useful lives, as follows: Buildings: Freehold Buildings: Leasehold improvements 50 years unexpired term of the lease, except for leases with an initial term of ten or less years, which are depreciated over the unexpired term of the lease plus the renewal length of the lease, if there is an unconditional right of renewal. 5-7 years 3 years 3 years
Fixtures and fittings Computer equipment Motor vehicles
The residual value, if not insignificant, is reassessed annually.
Goodwill
Goodwill arising on the acquisition of a subsidiary or business, representing the excess of cost over the fair value of the identifiable assets and liabilities acquired, is capitalised and amortised by equal annual installments against profit over its expected useful life, currently 20 years. Provision is made for any impairment.
Leases
Assets held under finance leases are included in the balance sheet at their capital value and are depreciated over the term of the lease. The corresponding liabilities are recorded as a creditor and the interest element of the finance lease rentals is charged to the profit and loss account over the term of the lease to produce a constant rate of charge on the balance of capital repayment outstanding. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the lease term.
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Pensions
The Company operates a number of defined contribution schemes for certain employees and executive directors. Contributions are charged to the profit and loss account as incurred.
Foreign currency
Transactions denominated in foreign currencies are translated at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date. The resulting profits and losses are dealt with in the profit and loss account.
Taxation
Current tax, including Irish corporation tax and foreign tax, is provided on the Groups taxable profits, at amounts expected to be paid using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the Companys taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in taxable profits in periods different from those in which they are recognised in the financial statements. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Cash flow statement

Under the provisions of Financial Reporting Standard No. 1, Cash Flow Statements, a cash flow statement has not been prepared as the Company is a wholly owned subsidiary of a Company which publishes consolidated financial statements.
Related party transactions

Under the exemption granted by Financial Reporting Standard No. 8, Related Party Disclosures, the Company as a wholly owned subsidiary of a group which publishes consolidated financial statements in which the Company is included, is not required to, and does not, disclose transactions with fellow members, associated undertakings and joint ventures of that group.
Share based payment

The Company operates equity-settled share option schemes for employees under which employees acquire options over Company shares. The fair value of share options granted is recognised as employee benefit cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.
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Share based payment (continued)
The Company operates an equity-settled share save scheme (SAYE) for employees under which employees acquire options over Company shares at a discounted price subject to the completion of a savings contract. The fair value of share options granted is recognised as an employee benefit cost with a corresponding increase in the share-based payment reserve. The fair value is measured at grant date and spread over the period of the savings contract. The fair value of the options granted is measured using a Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The Company operates an equity-settled long-term incentive scheme for selected senior executives under which the executives are conditionally granted shares which vest upon the achievement of predetermined earnings targets. The fair value is measured at the grant date and is spread over the period during which the employees become unconditionally entitled to the shares with a corresponding increase in the share-based payment reserve. The fair value of the shares conditionally granted is measured using the market price of the shares at the time of grant.
Own shares held

Purchases of the Companys shares by the long term incentive plans trust, which have been conditionally awarded to executives under the terms of the long-term incentive plan, are shown separately in equity in the Consolidated balance sheet.
Dividends
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Companys shareholders, or, in the case of the interim dividend, when it has been approved by the Board of Directors and paid. Dividends declared after the balance sheet date are disclosed in Note 24 to the Group financial statements.
2. Employee numbers and expenses

31 December 2005 000 Wages and salaries Social security costs Defined contribution pension and life assurance costs Share based payments Other staff costs 24,004 1,485 794 881 1,366 28,530 31 December 2004 000 26,610 2,038 722 587 1,550 31,507
31 December 2005 The average number of persons employed by the Company (including executive directors), all of whom were involved in the provision of betting services, during the year was:
31 December 2004
595
534
Details of transactions with directors are set out in Notes 6 and 22 to the Group financial statements.
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2. Employee numbers and expenses (continued)

The Company has the following employee share schemes:
The Paddy Power plc May 2000 Executive Share Option Scheme (the Executive Share Option Scheme)
Under the May 2000 Executive Share Option Scheme, options over a total of 2,592,000 shares were granted at an exercise price of 1.16 per share. These options were granted prior to 7 November 2002 and, accordingly, do not fall within the scope of FRS20 Share Based Payment. Since May 2000 options over 2,265,000 shares have been exercised and options over 327,000 shares were outstanding at 31 December 2005 (2004: 345,000). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2004 300,000 12,000 33,000 Options exercised during year 6,000 12,000 Options outstanding at 31 December 2005 300,000 6,000 21,000 Earliest exercise date* 1 May 2003 1 May 2004 1 May 2005 Exercise price 1.16 1.16 1.16 13.58 13.44- 14.18 Market price at date of exercise
* Share options lapse 10 years after date of grant. During the year ended 31 December 2004, 1,881,000 options were exercised at an exercise price of the market price ranged from 9.30 to 10.10. 1.16 when
On 21 November 2000 the shareholders approved the termination of this Scheme, and thus no further options may be granted pursuant to this scheme.
The Paddy Power plc 2000 Restricted Share Scheme (the Restricted Scheme)
These options were granted prior to 7 November 2002 and accordingly do not fall within the scope of FRS 20 Share Based Payment.
The Paddy Power plc November 2000 Share Option Scheme (the Share Option Scheme)
The Share Option Scheme was adopted by shareholders on 21 November 2000 and modified by the shareholders on 22 June 2004. The Share Option Scheme is open to directors, other than non-executive directors, and employees. Options may be granted within a period of 10 years from 7 December 2000 at the higher of nominal and current market value. Options may not be exercised earlier than three years from the date of grant and may only be exercised if the Group meets certain targets and any further condition on exercise which the Board determines to be appropriate. These targets require real growth (Consumer Price Index plus 5 percent compounded annually) in earnings per share of the Group over a period of not less than three years following the grant of an option. Since November 2000, 357,466 options have been granted under the scheme. Options granted before 7 November 2002 do not fall within the scope of FRS 20 Share Based Payment. Options granted after 7 November 2002 have been included in the calculation of the Companys share based payment reserve.
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Since November 2000, options over 30,000 shares have been exercised. Options over 327,466 shares were outstanding at 31 December 2005 (2004: 312,466), of which 302,466 were exercisable at 31 December 2005 (2004: 302,466). Movements in the share options under this scheme during the year were as follows: Options outstanding at 31 December 2004 Options outstanding at 31 December 2005
Exercise price
Granted before 7 November 2002 302,466 302,466 August 2004 3.59
Granted after 7 November 2002 10,000 15,000 10,000 15,000 February 2007 September 2008 8.15 14.80
* Share options lapse 10 years after date of grant. During the year ended 31 December 2004, options over 30,000 shares were exercised at an exercise price of 3.59 when the market price was 8.45 and options in respect of 10,000 shares were granted at an exercise price of 8.15 per share. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 56,781 (2004: 21,764). The significant inputs into the model was a share price for the grant date of 14.80 (2004: 8.15), exercise prices shown above, standard deviation of expected share price returns of 25.00% (2004: 25.00%), expected term as disclosed above, and an annual risk free rate of 3.14% (2004: 4.00%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of share prices over the last 3 years.
The Paddy Power plc Sharesave Scheme (the Sharesave Scheme)

The Sharesave Scheme was adopted by shareholders on 21 November 2000 and was subsequently approved by the Revenue Commissioners. All employees (including executive directors) who have not less than 12 months continuous service with the Group or any subsidiary nominated to join the Sharesave Scheme may be invited to apply for options to acquire shares. Options will normally be granted to all eligible employees in the 42 day period after the announcement of the interim or final results of the Company. The purchase price for each ordinary share in respect of which an option is granted shall not be less than 80 percent of the closing price of the shares on the Irish Stock Exchange on the dealing day last preceding the date of grant of the option or its nominal value. The aggregate maximum monthly contribution payable by an employee in connection with the scheme may not exceed 320. Options granted before 7 November 2002 do not fall within the scope of FRS 20 Share Based Payment. Options granted after 7 November 2002 have been included in the calculation of the Companys share based payment reserve.
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Options outstanding at 31 December 2004 Options granted during year Options lapsed during year Options exercised during year Options outstanding at 31 December 2005
Exercise price
Granted before 7 November 2002 47,430 1,783 44,587 1,060 July 2005 4.95
Granted after 7 November 2002 264,271 264,271 October 2008 11.60
* Share options lapse 3.5 years after date of grant. During the year ended 31 December 2004, options over 194,171 shares were exercised at an exercise price of 2.16 when the market price ranged from 9.15 - 9.90. During the year ended 31 December 2004, options in respect of 5,331 shares at an exercise price of 2.16 per share and options in respect of 8,045 shares at an exercise price of 4.95 per share lapsed. The fair value of share options granted during the year has been determined using a Black Scholes model and amounts to 909,000. The significant inputs into the model were share price of 14.50 (2004: n/a) at the grant date, exercise price of 11.60, standard deviation of expected share price returns of 25% (2004: n/a), option life disclosed above, and an annual risk free rate of 3% (2004: n/a). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last 3 years.
General
The maximum number of shares for which options may be granted shall not, when added to the number of shares which have been or remain to be issued pursuant to options granted under the Sharesave Scheme, exceed one percent of the issued ordinary share capital of the Company. In addition, the number of shares for which options may be granted under the Sharesave Scheme in any period of ten successive calendar years shall not, when added to the number of shares which have been or remain to be issued pursuant to options in the Sharesave Scheme or granted during the same period under any other employee share scheme of the Company, exceed ten percent of the issued share capital of the Company.

On 22 June 2004 the 2004 Long Term Incentive Plan (LTIP) for senior executives was adopted by the shareholders, under which the directors can make conditional grants of a number of Company shares to each eligible executive. The grants are subject to the rules of the scheme. In accordance with the rules, the grant will vest if the growth target (EPS growth at least equal to the compound growth in CPI plus 12% per annum) over the minimum vesting period of three years. To the extent the grant does not vest in full in respect of the minimum vesting period, the award will continue in effect in accordance with the rules and will vest if the growth target is met over the four-year period measured from the commencement of the minimum vesting period and to the extent the award does not vest in full in respect of such four-year period, the grant will continue in effect in accordance with the rules and will vest if the growth target is met over the five-year period measured from the commencement of the minimum vesting period, provided, however, that to the extent the grant has not vested on or before the latest vest date specified above, the grant will automatically lapse in its entirely immediately following such date.
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Until the vesting of the award in accordance with the rules of the scheme, the grantholder will have no rights over or in respect of the shares subject to the grant and on vesting, the grantholders rights are limited to those shares in respect of which the growth target has been achieved in accordance with the rules of the scheme. The grants are not transferable. During the year, awards of 45,000 shares and 70,000 shares (2004: 130,000 shares) were granted to senior management (including executive directors). The share prices at the dates of grant were 13.80 and 14.40 respectively (2004: 9.43). The total cost of this grant is estimated at 1,215,000 (2004: 1,224,957) and is expensed in the Company profit and loss account over the minimum vesting period of the grant (being the expected term of the grant) i.e. 3 years. Thus the operating profit for the year ended 31 December 2005 is stated after an LTIP charge for the year ended 31 December 2005 of 828,407 (2004: 581,517). The Paddy Power plc Employee Benefit Trust (the Trust) was established to manage the long-term incentive plan. The Trust purchased 240,000 Paddy Power plc shares on 28 June 2004 at a cost of 2.3 million and 190,000 Paddy Power plc shares between 18 May 2005 and 23 May 2005 at a cost of 2.6 million. The results of the Trust are included in Paddy Power plc Company financial statements. The shares held by the Trust at the balance sheet date are shown as a deduction from equity in the Company balance sheet in accordance with the Companys accounting policy.
Paddy Power 2004 Second Tier Option Scheme

On 22 June 2004 the shareholders approved the establishment of the Paddy Power 2004 Second Tier Option scheme, which allows the Company to grant options to employees, which will become exercisable after a five year performance period, upon the achievement by the Company of exceptional performance levels. To be exercisable, the Companys earnings per share must grow during the five year performance period by at least the percentage increase in the Consumer Price Index plus 10% per annum compounded and the Companys earnings per share growth must be in the top quarter in performance terms of a specified peer group. No options have been granted to date under this scheme to any Company employees.
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The movements during the year in respect of intangible assets, which comprise computer software and licences were as follows: Computer software 000 Cost Balance at 1 January 2005 Additions Balance at 31 December 2005 333 194 527 Licences 000s 274 5 279 Total 000 607 199 806
Amortisation Balance at 1 January 2005 Amortisation for year Balance at 31 December 2005
110 219 329
27 15 42
137 234 371
Net book value At 31 December 2004 At 31 December 2005
223 198
247 237
470 435
4. Goodwill
000 Cost Balance at 1 January 2005 and 31 December 2005 2,421
Amortisation Balance at 1 January 2005 Amortisation for year Balance at 31 December 2005
1,325 121 1,446
1,096 975
Goodwill arose from the amalgamation of three bookmaking businesses to form Paddy Power plc.
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5. Tangible assets
Land buildings & leasehold improvements 000 Cost At 1 January 2005 Additions Disposals At 31 December 2005 27,408 3,988 (947) 30,449 Fixtures & fittings 000 32,830 8,579 (3,467) 37,942 Computer equipment 000 5,092 3,042 (158) 7,976 Motor vehicles 000 678 426 (176) 928
Total 000 66,008 16,035 (4,748) 77,295
Accumulated depreciation At 1 January 2005 Charge for year Disposals At 31 December 2005
6,673 1,514 (528) 7,659
15,560 4,616 (3,331) 16,845
1,922 570 (144) 2,348
255 193 (101) 347
24,410 6,893 (4104) 27,199
20,735 22,790
17,270 21,097
3,170 5,628
423 581
41,598 50,096
6. Financial fixed assets

Unlisted investments in subsidary companies 000 Balance at 1 January 2005 Movement during year Balance at 31 December 2005 103 103 Capital contributions 000 344 1,408 1,752 Total 000 447 1,408 1,855
In the opinion of the directors, the value to the Company of the unlisted investments in subsidiary companies is not less than the carrying amount of 103,000 (2004: 103,000). The Companys subsidiaries are listed in Note 23 to the Group financial statements. Capital contributions represent amounts included in the Companys share based payment reserve, which relate to share-based payment awards made to employees of certain of the Companys subsidiary undertakings.
7. Debtors
31 December 2005 000 Sundry debtors and prepayments Amounts owed by Group companies 1,060 25,770 26,830 All of the above debtors fall due within one year. 31 December 2004 000 1,491 26,199 27,690
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8. Creditors (Amounts falling due within one year)

31 December 2005 000 Trade creditors Accruals Corporation tax PAYE and social welfare Betting duty Value added tax Amounts owed to Group companies 5,517 4,600 516 978 3,193 393 19,607 34,804 31 December 2004 000 4,570 9,610 451 992 1,069 365 19,576 36,633
Amounts owed to Group companies are unsecured, interest free and repayable on demand.
9. Provisions for liabilities and charges Deferred tax

31 December 2005 000 Cost At beginning of year Credit for year At end of year 997 250 1,247 31 December 2004 000 1,032 (35) 997
Deferred tax at 31 December 2005 relates to accelerated capital allowances.
10. Share capital

See Note 16 to the Group financial statements.
11. Share premium

12. Capital redemption reserve fund and Capital conversion reserve fund
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31 December 2005 000 Ordinary shares: final paid of 0.1252 per share (2003: 0.0859) interim paid of 0.0775 per share (2004: 0.0620) 6,265 3,903 10,168 Proposed final dividend of 0.1284 (2004: 0.1252) per share (see Note 24 to the Group financial statements) 6,416 31 December 2004 000 4,107 3,105 7,212 6,234

The Company operates defined contribution schemes for certain employees and executive directors. The assets of the schemes are held separately from those of the Group in independently administered funds. Pension costs for the year were 774,000 (2004: 2005 amounted to 75,000 (2004: 23,000). 663,000) and the amount due to the schemes at 31 December

(a) Guarantees
The Company has guarantee facilities of 3.8 million with AIB plc. These facilities are unsecured.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other parties including companies within its Group or joint ventures, the Company considers these to be insurance arrangements and accounts for them as such. The Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
(b) Capital Commitments

The Company has entered into commitments for capital expenditure not provided for in the financial statements amounting to 0.9 million.
(c) Operating Lease Commitments

The Company has annual commitments of 6.178 million (2004: properties where the lease terms expire as follows: 5.929 million) in respect of operating leases on 31 December 2005 000 Within 1 year Between 2 and 5 years After 5 years 768 790 4,620 6,178 31 December 2004 000 501 1,024 3,871 5,396
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16. Prior year adjustments

An explanation of the prior period adjustments arising from the adoption of certain new Financial Reporting Standards during the year, together with their impact on the comparative financial statements are set out below: Restatement of Company Balance Sheet 31 December 2004 000 43,864 (6,234) 37,630
Total Liabilities as previously stated FRS 21 Events after the balance sheet date Total Liabilities as restated
Profit and Loss Account as previously stated FRS 20 Share-based payment FRS 21 Events after the balance sheet date Profit and Loss Account as restated
63,694 (931) 6,234 68,997
Share-based Payment Reserve as previously stated FRS 20 Share-based payment Share-based Payment Reserve as restated
931 931
Financial fixed assets as previously stated FRS 20 Share based payment Financial fixed assets as restated
103 344 447
FRS 21 Share-based Payment

In accordance with the new accounting policy in respect of share based payments, as set out in Note 1 to the Company financial statements on page 67, there was no effect on the Company profit and loss account on implementing FRS 20. In addition, the adoption of FRS 20 resulted in a reclassification from retained earnings to the share-based payment reserve of 25,000 and 754,000 as at 1 January 2004 and 31 December 2004 respectively with a further increase in the share-based payment reserve of 152,000 during the year ended 31 December 2004. This reserve comprises the cost of share based payments made both to employees of the Company and also to employees of certain of the Companys subsidiary undertakings. Share based payments in respect of employees of subsidiary undertakings are included as part of the share based payment reserve with a corresponding increase in financial fixed assets.
FRS 21 Events after the Balance Sheet Date

In accordance with the new accounting policy in respect of dividends, as set out in Note 1 to the Company financial statements on page 67, interim dividends are provided for in the period when they are approved by the directors and paid, with final dividends being provided for in the period in which they are approved by shareholders. The effect on the balance sheet is a reduction of 6,234,000 in trade and other payables and a corresponding increase in retained earnings as at 31 December 2004.
17. Approval of financial statements

The financial statements of the Company for the year ended 31 December 2005 were approved for issue by the Board of Directors on 28 February 2006.
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Financial information for the Group for the five years ended 31 December 2005 is set out below in euro and sterling. 2005 000 Revenue Operating profit Profit on ordinary activities before taxation Profit on ordinary activities after taxation Net cash inflow from operating activities Net equity 1,371,710 30,118 31,344 26,954 41,410 96,051 2004 000 1,159,658 31,103 32,109 27,447 41,167 78,697 2003 000 913,624 19,632 20,410 17,551 32,144 52,274 2002 000 673,788 17,083 17,822 14,793 30,435 40,146 2001 000 461,075 8,507 9,092 7,555 11,461 30,162
Set out below is the above financial information translated into sterling at the rates shown below, for illustrative purposes only. 2005 000 Stg000 Revenue Operating profit Profit on ordinary activities before taxation Profit on ordinary activities after taxation Net cash inflow from operating activities Net equity Exchange rates used are 937,986 20,595 21,433 18,431 28,316 65,680 1.4624 2004 000 Stg000 797,399 21,387 22,079 18,873 28,307 54,113 1.4543 2003 000 Stg000 630,390 13,546 14,083 12,110 22,179 36,068 1.4493 2002 000 Stg000 437,951 11,104 11,584 9,615 19,782 26,094 1.5385 2001 000 Stg000 286,168 5,280 5,643 4,689 7,114 18,722 1.611
Note: 2005 and 2004 amounts are reported under IFRS, while amounts for all previous years are reported under Irish GAAP.
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Additional Information for Shareholders

Listings
Paddy Power plc is an Irish registered Company. Its ordinary shares are quoted on the Irish Stock Exchange and the London Stock Exchange.
Registrar
Enquiries concerning shareholdings should be addressed to the Companys Registrar: Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Telephone: +353-1-216 3100. Facsimile: +353-1-216 3151. Website: www.computershare.com.
Payment of Dividends Direct to a Bank Account

Dividends are paid by cheque however, shareholders resident in Ireland or in the UK may have their dividends paid by electronic transfer direct to a designated bank account. Shareholders who wish to avail of this facility should contact the Companys Registrar (see details above).
Payment of Dividends in Euro

Dividend payments are made in euro by default. However, shareholders wishing to opt for sterling payments either by cheque or direct to their bank account may do so by contacting the Registrar (see details above).
Crest
Transfer of the Companys shares takes place through the CREST settlement system. Shareholders have the choice of holding their shares in electronic form or in the form of share certificates.
Dividend Withholding Tax (DWT)

Note: The following information, which is given for the general guidance of shareholders, does not purport to be a definitive guide to relevant taxation provisions. It is based on the law and practice as provided for under Irish tax legislation. Shareholders should take professional advice if they are in any doubt about their individual tax positions. Further information concerning DWT may be obtained from: DWT Section, Office of the Revenue Commissioners, Government Offices, Nenagh, Co. Tipperary, Ireland. Telephone: +353-67-63400. Facsimile: +353-67-33822. E-mail infodwt@revenue.ie
General
With certain exceptions, dividends paid by Irish resident companies on or after 6 April 2000 are subject to DWT at the standard rate of income tax, to apply at the reduced rate of 20% from 6 April 2001. DWT, where applicable, is deducted by the Company from all dividends. The following summarises the position in respect of different categories of shareholder:
A. Irish Resident Shareholders

Individuals
Individuals resident in the Republic of Ireland for tax purposes are liable to DWT in respect of dividends received. Individual shareholders are liable to Irish income tax on the amount of the dividend before deduction of DWT, and the DWT is available for offset against their income tax liability; where the DWT exceeds such liability, the shareholder may apply to the Revenue Commissioners, at the address shown above, for a refund of the excess.
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Additional Information for Shareholders (continued)

Shareholders not liable for DWT
Shareholders who receive the dividend in a beneficial capacity can be exempted from DWT. Provided the shareholder furnishes a properly completed declaration on a standard form to the Companys Registrar, not less than three working days prior to the relevant dividend payment record date, the following classes of shareholders may receive their dividends gross: Companies resident in the Republic of Ireland for tax purposes; Qualifying Employee Share Ownership Trusts; Exempt Approved Pension Schemes; Collective Investment Undertakings; Charities exempt from income tax on their income; Athletic/amateur sports bodies whose income is exempt from income tax; Designated stockbrokers receiving a dividend for the benefit of the holder of a Special Portfolio Investment Account (SPIA); Qualifying fund manager of approved retirement fund or an approved Minimum Retirement Fund; Persons exempt from tax on income from personal injury claims.
Copies of the relevant declaration form may be obtained from the Companys Registrar or from the Revenue Commissioners at their addresses shown on page 79. Once lodged with the Companys Registrar, the declaration form remains current from its date of issue until 31 December in the fifth year following the year of issue, or, within such period, until the exempt shareholder notifies the Registrar that entitlement to exemption is no longer applicable. Where DWT is deducted from dividends paid to shareholders not liable to DWT, the shareholder may apply to the Revenue Commissioners, at the address shown on page 79, for a refund of the DWT so deducted.
Qualifying Intermediaries
Dividends received by qualifying intermediaries on behalf of a shareholder are not liable for DWT and may be received without deduction of DWT. A qualifying intermediary is a person who receives dividends on behalf of a third party, is resident for tax purposes in the Republic of Ireland or in a relevant territory*, and: holds a licence under the Central Bank Act, 1971, or a similar authorisation under the law of a relevant territory, or is owned by a Company which holds such a licence; is a member firm of the Irish Stock Exchange or of a recognised stock exchange in a relevant territory; or otherwise is, in the opinion of the Irish Revenue Commissioners, a person suitable to be a qualifying intermediary; and who (a) enters into a qualifying intermediary agreement with the Irish Revenue Commissioners and (b) is authorised by them as a qualifying intermediary.
*A relevant territory means a member state of the European Communities, other than the Republic of Ireland, or a country with which the Republic of Ireland has entered into a double taxation agreement. Information concerning conditions to be satisfied by intending qualifying intermediaries may be obtained from the Irish Revenue Commissioners at the address shown on page 79. A qualifying intermediary should ensure that it receives completed declarations from underlying shareholders eligible for DWT exemption, so as to be in a position to notify the Companys Registrar, in advance of each dividend record payment date, of the extent to which the dividend payable to the qualifying intermediary is to be paid without deduction of DWT. A shareholder wishing to ascertain whether an entity is a qualifying intermediary should contact the Irish Revenue Commissioners at the address shown on page 79.
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B. Non-Irish Resident Shareholders

The following categories of shareholder not resident for tax purposes in the Republic of Ireland may claim exemption from DWT, as outlined below: (a) an individual who is neither resident nor ordinarily resident for the purpose of tax in the Republic of Ireland and who is resident for tax purposes in a relevant territory; (b) an unincorporated entity resident for tax purposes in a relevant territory; (c) a company which is resident in a relevant territory and which is not under the control, whether directly or indirectly, of a person or persons who is/are residents for the purpose of tax in Ireland; or (d) a company which is ultimately controlled, whether directly or indirectly, by a person or persons who is/are resident for the purposes of tax in a relevant territory; (e) a company not resident in the Republic of Ireland, the principal class of whose shares are traded on a recognised stock exchange in a relevant territory or on such other stock exchange as may be approved by the Minister for Finance, including a company which is a 75% subsidiary of such a company; or a company not resident in the Republic of Ireland that is wholly owned by two or more companies, each of whose principal class of shares is so traded. To claim exemption, any such shareholder must furnish a valid declaration, on a standard form available from the Irish Revenue Commissioners and from the Companys Registrar, to the Companys Registrar not less than three working days in advance of the relevant dividend payment record date, accompanied by: Categories (a) and (b): The declaration must be certified by the tax authority of the country in which the shareholder is resident for tax purposes. Where the shareholder is a trust, the declaration must be accompanied by a certificate signed by the trustee(s) showing the name and address of each settlor and beneficiary and a notice in writing from the Irish Revenue Commissioners stating that the Irish Revenue Commissioners have noted the contents of the certificate. Category (c): The declaration must be certified by the tax authority of the country in which the company is resident for tax purposes. The companys auditor must also certify the declaration. Categories (d) and (e): The declaration must be certified by the companys auditor. Dividends received by a shareholder who is a qualifying intermediary on behalf of a qualifying non-resident person may be received without declaration of DWT see Qualifying Intermediaries under Irish Resident Shareholders at A on page 79.
C. Dividend Statements
Each shareholder receives a statement showing the shareholders name and address, the dividend payment date, the amount of the dividend, and the amount of DWT, if any, deducted there from. In accordance with the requirements of legislation, this information is also furnished to the Irish Revenue Commissioners.
Financial calendar
Announcement of final results for 2005 Ex-dividend date Record date for dividend Annual General Meeting Dividend payment date 1 March 2006 8 March 2006 10 March 2006 16 May 2006 19 May 2006
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To all shareholders
I am writing to you to outline the background to the resolutions to be proposed at the forthcoming Annual General Meeting of Paddy Power plc (the Company), all of which are recommended by the Board for approval. Your attention is drawn to the notice of the Annual General Meeting (AGM) of the Company, to be held at the Westbury Hotel, Grafton Street, Dublin 2 at 11.00 am on 16 May 2006. In addition to the ordinary business which deals with the Report and Accounts, the dividend, the election/re-election of directors, and the Auditors remuneration, there are various items of special business which are described further below. Resolutions 3(a), 3(b) and 4 of the ordinary business propose the election of Tom Grace and Jack Massey and the re-election of myself. Tom Grace and Jack Massey were appointed by the directors since the last Annual General Meeting and in accordance with the Articles of Association of the Company put themselves forward for election by the shareholders. I, having served on the Board for three years, retire in accordance with Regulation 87 of the Articles of Association and being eligible, offer myself for re-election. In view of their experience and skills, and their contribution to the Board to date, the Board recommends the election/re-election of each of these directors. Shareholders are being asked in resolution 6 to renew the directors authority to allot shares for cash without being required to offer them first to shareholders. This authority is limited to an allotment of up to an aggregate nominal value equal to 5% of the nominal value of the Companys issued ordinary share capital i.e. 2.5 million shares. If renewed, this authority will expire at the next AGM in 2007 or 15 November 2007, whichever is the earlier. Shareholders are being asked in resolution 7 to renew the authority to empower the Company, or any Subsidiary, to make market purchases of the Companys shares and to determine the price at which treasury shares may be re-issued off market. No more than 10% of the issued share capital of the Company may be acquired under this authority at a price range which is no less than the nominal value of the Companys shares and no greater than 105% of the average price of the Companys shares over the five dealing days prior to the date of purchase by the Company. Shares purchased by the Company may be cancelled or held in treasury pending cancellation or reissue. Any treasury shares which are re-issued off market must be re-issued within a price range determined by a special resolution of the Company which shall not be less than 95%, nor more than 120%, of the average price of the Companys shares over the ten dealing days prior to the date of re-issue by the Company. The total number of options to subscribe for shares in the Company on 27 February 2006 is 1,492,588 which represents 3.0% of the issued share capital of the Company on that date. This percentage would increase to 3.3% if the full authority to buy shares is used. The authority sought will expire on the date of the next Annual General Meeting of the Company or 15 November 2007, whichever is earlier. The Board will only exercise the power to purchase shares in the future at price levels at which it considers purchases to be in the best interests of the shareholders generally after taking account of the Groups overall financial position. The Board has no immediate plans to make any such purchase.
Action to be taken
A Form of Proxy for use at the Annual General Meeting is enclosed with this Annual Report. The Form of Proxy will be valid if lodged at the registered office of the Company or with the Companys registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford, Dublin 18 by no later than 11.00am on 14th May 2006. Alternatively you may wish to submit your votes via the internet and instructions on how to do so are shown on the form. All proxy forms must be lodged no later than 48 hours before the time appointed for the meeting. The completion and lodging of the Form of Proxy will not prevent you from attending and voting in person at the meeting should you so wish.
Recommendation
The directors believe that the resolutions proposed are in the best interests of the Company and its shareholders, and so they recommend that you vote in favour of these resolutions at the AGM, as they intend to themselves in respect of their shares. Yours sincerely

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Notice of Annual General Meeting of Paddy Power plc

NOTICE is hereby given that the Annual General Meeting of Paddy Power plc (the Company) will be held at the Westbury Hotel, Grafton Street, Dublin 2 on 16 May 2006 at 11.00 am for the following purposes: To consider and if thought fit, to pass the following resolutions, which will be proposed as ordinary resolutions: 1. To receive and consider the financial statements for the year ended 31 December 2005 and the reports of the directors and auditor thereon. 2. To declare a final dividend of 0.1284 per share for the year ended 31 December 2005.
3. To elect by separate resolution the following persons as directors who are recommended by the Board for election: Resolution 3 (a) Tom Grace Resolution 3 (b) Jack Massey 4. To re-elect Fintan Drury, who retires in accordance with Regulation 87 of the Articles of Association and being eligible, offers himself for re-election. 5. To authorise the directors to fix the remuneration of the auditors for the year ending 31 December 2006. As Special Business As special business to consider and, if thought fit, pass the following resolutions: 6. As a special resolution That for the purposes of Regulation 8(d) of the Articles of the Association of the Company, the directors are hereby empowered to allot equity securities for cash pursuant to and in accordance with the provisions of their authority pursuant to Section 20 of the Companies (Amendment) Act 1983 as if sub-section (1) of Section 23 of Companies (Amendment) Act did not apply; pursuant to Regulation 8(d)(ii), the maximum aggregate nominal value of shares to which this authority relates shall be an aggregate nominal value equal to 5% of the nominal value of the Companys issued ordinary share capital for the time being; and the authority hereby conferred shall expire at the close of business on the earlier of the date of the next Annual General Meeting of the Company or 15 November 2007 unless previously renewed, varied or revoked by the Company in general meeting. 7. As a special resolution That the Company and/or any subsidiary (being a body corporate referred to in the European Communities (Public Limited Companies Subsidiaries) Regulations 1997) of the Company be generally authorised to make market purchases (as defined by Section 212 of the Companies Act, 1990) of shares of any class of the Company on such terms and conditions and in such manner as the directors may from time to time determine in accordance with and subject to the provisions of the Companies Act 1990 and to the restrictions and provisions set out in Regulation 47(a) of the Articles of Association of the Company. That the re-issue price range at which any treasury share (as defined in Section 209 of the Companies Act 1990) for the time being held by the Company, may be re-issued off market, shall be the price range set out in Article 47(b) of the Articles of Association of the Company; and the authorities hereby conferred shall expire at the close of business on the earlier of the date of the next annual general meeting of the Company or 15 November 2007 unless, in any such case, previously renewed, varied or revoked by the Company in general meeting. By Order of the Board
Nuala Hunt Company Secretary 28 February 2006 Registered Office: Airton House Airton Road Tallaght Dublin 24.
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Notice of Annual General Meeting of Paddy Power plc (continued)

Notes
Any member entitled to attend and vote at the meeting is entitled to appoint a proxy (who need not be a member of the Company) to attend, speak and vote in his/her place. Completion of a Form of Proxy will not affect the right of a member to attend, speak and vote at the meeting in person. A Form of Proxy is enclosed with this Notice. To be valid, Forms of Proxy duly signed must be returned together with the power of attorney or such other authority (if any) under which they are signed (or a notarially certified copy of such power or authority) so as to reach the Companys Registrar, Computershare Services (Ireland) Limited, P.O. Box 954, Sandyford, Dublin 18 by not later than 11.00a.m. on 14 May 2006. The Company, pursuant to Regulation 14 of the Companies Act, 1990 (Uncertificated Securities) Regulations, 1996, specifies that only those shareholders registered in the register of members of the Company as at 11.00a.m. on 14 May 2006 (or in the case of an adjournment as at 48 hours before the time fixed for the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at the time. Changes to entries in the register after that time will be disregarded in determining the right of any person to attend and/or vote at the meeting.
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Airton House Airton Road Tallaght Dublin 24 Tel: +353 1 404 5900 Fax: +353 1 404 5901 Email: info@paddypowerplc.com Web: www.paddypowerplc.com
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GAMING LAW REVIEW AND ECONOMICS Volume 15, Number 6, 2011 Mary Ann Liebert, Inc. DOI: 10.1089/glre.2011.15604
Articles
Online Gaming in Kahnawa:ke

Murray Marshall
f you gamble online, you have heard of the Kahnawa:ke Gaming Commission (the KGC). Since 1999, when it first began licensing and regulating online gaming, the KGCs distinctive red, white, and black logo has become a familiar sightappearing on literally hundreds of casino, poker, and sportsbook sites. But what is the KGC and what does it do? The Kahnawa:ke Gaming Commission was established in 1996 as the gaming regulator for the Mohawk Territory of Kahnawa:ke. Kahnawa:ke is an aboriginalNorth American Indiancommunity of approximately 8,000 people located immediately south of Montreal, Quebec, Canada. For the first few years of its existence, the KGC regulated only land-based gaming activities within Kahna wa:ke. The KGCs Regulations concerning Interactive Gaming were enacted in July 1999. Since its inception, the KGC has been empow ered solely on the strength of Kahnawa:kes own unique jurisdiction as a sovereign Mohawk community. Although over the years, some commentators, including representatives of the government of Can ada and Quebec, have questioned the validity of Kahnawa:kes jurisdiction over gaming, no person or agency has ever initiated a formal challenge of any kind. The only occasion on which the KGC has been involved in a judicial proceeding resulted in a ruling by the Superior Court of Quebec supportive of the KGCs role as a regulator of online gaming.1 After 14 years of actively, transparentlyand successfullyexercising its jurisdiction over gam ing, it is safe to say that Kahnawa:kes jurisdiction over gaming is a fait accompli.
A brief synopsis of its resume demonstrates that over the past 11 years, the KGC has earned its stripes as an online gaming regulator. The KGCs licensees include, or have included, many of the biggest names in the online gaming industry: Bodog, PartyGaming, PokerStars, UltimateBet, FullTiltPoker, Sportsinteraction, Ongame, and Golden Palace, to name a few. It has worked closely with software giants Microgaming, PlayTech, and many other third-party software providers. The KGC has entered into cooperative relationships with agencies in other jurisdictions whose regulatory regimes are compatible with the KGCsin particular, those in Antigua, Malta, and Alderneyand works closely with other regulatory and law enforcement agencies around the world. Its roster of Approved Agents presently includes eCOGRA,2 Gaming Associates,3 TST (a GLI company),4 iTech Global,5 NMi Metrology and Gaming (UK),6 and NFC Global7and is expanding quickly. Recent initiatives, which include an innovative Continuous Compliance Program, a Certificated Logo Program, and a dispute resolution mechanism which responds to player complaints quickly and effectively, have contributed to the KGCs reputation as a responsible and progressive regulator in the online gaming space.
Murray Marshall is General Counsel for the Kahnawa:ke Gaming Commission.
Horne v. Kahnawa:ke Gaming Commission et al. ( July 4, 2007), Superior Court of Quebec, District of Montreal, Docket No. 500-17- 031045-068. 2 < http:// www.ecogra.org > . 3 < http:// www.gamingassociates.com > . 4 < http:// www.tstglobal.com > . 5 < http:// www.itechglobal.com.au > . 6 < http:// www.nmi.nl > . 7 < http:// www.nfcglobal.com > .
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Which is not to say that the KGC has not had its challenges. It hasand it has learned from them. A brief retrospective is in order. In comparison with todays sophisticated industry, in 1999, the I-gaming world was relatively simple. At that time, the typical online gaming site was small in scale, and owned by one or two entrepreneurs operating through companies that had been recently incorporated in the Caribbean. Regulation of these sites was too often administered in a sparing and inconsistent manner. Gaming sites were generally divided between those offering traditional casino games and those offering sportsbook wagering. The one-stop-shop approach was not yet popular and online pokeralthough it existed in theoryhad not yet exploded into its own mega-industry. The worlds largest market for players was the United States, the government of which took a prohibitory stance in relation to the I-gaming industry. In this regard, some things have not changed so much. In 1999, and for several years thereafter, the KGC approach to regulation was, in comparison to its present level of functionality, relatively simplistic. From the outset, a good deal of care and attention was devoted to due diligence regarding suitability of the companies and individuals applying for licensure. The detailed information provided by applicants in accordance with the KGCs requirements was investigated thoroughly by the KGCs agents. More than one application was denied based on concerns that were revealed as a result of this processusually related to the suitability of beneficial owners. During the early years, the KGC also made efforts to confirm and monitor the suitability of an applicants software and control systemsbut this process was more difficult to implement in part because there was no clear consensus as to the most effective approach that should be taken. There were, in fact, two distinctly different schools of thought: 1.) source code testing, which was the approach advocated by testing agencies; and 2.) data auditing, which is a risk-based approach promoted by accounting firms. Each approach has its strengths and weaknesses. Source code testing that was completed before an operator went live provided a high degree of confidence in the functionality of the product, but was expensive, time-consuming, and difficult to manage
on a continuous basis. Also, for proprietary and security reasons, some software providers were averse to the notion of allowing a third party to access their source code. Auditing data generated by an operator was cheaper and less intrusive, but would identify problems only after the fact. Another concern was that data might be manipulated before it was provided to the auditors. The KGC experimented with both approaches, using agencies such as BMM and, for a short time, PriceWaterhouseCoopers, to assist it. Eventually, the KGC formed a close working relationship with Gaming Associates (at that time called World Wide Wagering and Gaming Consultants Pty Ltd.) and developed a more comprehensive risk analysis methodology which was designed to combine the benefits of testing the gaming systems most critical componentthe Random Number Generator (RNG)with regular monitoring of the systems output to ensure continuous reliability. Since 2009, the KGCs Continuous Compliance Program was further refined with the assistance of its Approved Agent, eCOGRA. The program now requires that a Certificate of Good Standing8 be made available by clicking the KGC logo posted on a licensees home page. This Certificate confirms that the site is properly licensed by the KGC and provides information such as: date of last annual audit; return to player percentages (re-calibrated on a monthly basis); and date of last RNG certification. From the time it first began licensing the online gaming industry, Kahnawa:ke quickly became the location of choice for operators. In a research report entitled Software and Services: Online Gaming, dated June 14, 2005, Desjardins Securities provided a thorough analysis of the online industry and concluded that: Kahnawa:ke is the most popular jurisdiction for the top 100 online gaming sites (hosting 20 sites), followed by the UK (hosting 13 sites), Antigua and Barbuda (hosting 12 sites) and Netherlands Antilles (hosting 10
Protected by an Extended Validation Certificate issued by THAWTE, which provides players a high level of assurance that the Certificate of Good Standing is validly issued by the KGC.
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sites)..The geographic proximity to the North American market as well as the relative political stability make this sovereign community ideal for establishing online casino operations. Over one fifth of the top 500 online casinos have their sites based in this jurisdiction. The past five years has seen a significant increase in the number of jurisdictions licensing online gaming in particular, the United Kingdom, the Isle of Man, Gibraltar, Alderney, and Maltawith a corresponding increase in competition for a share of the online gaming market. Although Kahnawa:ke has felt the effects of this increased competition, it has consistently maintained its position as a leader in the I-gaming space. At the date of writing of this article (February 2011), the KGC maintains a roster of 52 licensees, representing approximately 180 distinct online gaming Web sites. A comprehensive, and regularly updated, list of licensees and the sites each operates can be obtained from the KGCs Web site.9 A key component of Kahnawa:kes success in the I-gaming industry has been its state-of-the-art hosting facility, Mohawk Internet Technologies10 (MIT). MIT was established in 1998, at the same time as the KGC was mandated to prepare and enact its Regulations concerning Interactive Gaming (the Regulations). From its inception, MIT has been wholly owned by the community of Kahnawa:kethrough business entities established for that purpose. MIT is a co-location data centre that provides hosting services to I-gaming operators licensed by the KGCas well as to non-gaming clients. MIT does not own or operate any online gaming sites and does not provide any gaming related servicessuch as data processingto operators. In addition to its contribution to Kahnawa:kes commercial success, MIT has been the cornerstone of the KGCs ability to effectively regulate and control its licensees. The KGCs regulatory control over MIT is effected by requiring MIT to obtain and maintain its own unique licensecalled an Interactive Gaming Licence. The KGC is one of the few regulators11 that requires hosting facilities that provide services to online gaming operators be appropriately licensed. Moreover, unlike any other jurisdiction, the KGCs Regulations specifically provide that MIT
is the only12 hosting facility within Kahnawa:ke that is permitted to provide hosting services to online gaming operators. A different category of licensecalled a Client Provider Authorizationis issued to I-gaming operators. All Client Provider Authorizations are considered to be appended to the license held by MIT. Section 15 of the Regulations essentially makes MIT jointly responsible for any breaches by an operator that is hosted by MIT.13 As a result of these unique regulatory measures, the KGC has direct and effective control over its Igaming licensees. If an I-gaming operator breaches the KGCs regulatory requirements, and such breach results in a suspension or revocation of the operators license, the KGC can direct MIT to discontinue its hosting services to the offending operatorand MIT must immediately comply or risk jeopardizing its own license. Simply put: when circumstances warrant it, the KGC has power to unplug a licensee. In practice, on those occasions when an operators license has been suspended or revoked,14 the KGC has always received MITs full cooperation to effect its regulatory control. As is the case with any regulatory body, the KGC has had its share of challengesthe most high profile of which were the cheating scandals involving its licensees Absolute Poker and Ultimate Bet. It is beyond the scope of this article to provide a detailed review of each of these situations but given
< http:// www.gamingcommission.ca > . < http:// www.mohawk.ca > . For example, the Alderney Gambling Control Commission requires that if gambling equipment is to be located in Guernsey, the premises must hold a Hosting Certificate. On the other hand, gaming regulators in Malta, Antigua, and Gibraltar have no licensing requirement for hosting facilities in their respective jurisdictions. Isle of Man requires a form of licensing for hosting facilities that provide disaster recovery services to gaming operators. 12 Section 28 of the Regulations concerning Interactive Gaming provides as follows: To ensure the best interests of the commu nity of Kahnawa:ke are upheld, only one Interactive Gaming License will ever be issued by the Commission at any given time. 13 15. Any breach of the Law or these Regulations by an Authorized Client Provider may result in the suspension or revocation of its Client Provider Authorization, and of the Interactive Gaming License to which the Client Provider Authorization is appended, and/or the imposition of such fines as are prescribed in these Regulations. 14 For example, the suspension and eventual revocation of the license held by Grand Prive group: < http:// www. gamingcommission.ca/news.asp?ID = 27 > .
9 10 11
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their impact on the KGC and the online gaming industry generally, an overview is in order. On or about Oct. 16, 2007, the KGC first received a player complaint related to the Absolute Poker Web site, alleging that a particular account was engaged in unfair play. The user name of the impugned account was Potripper. The information provided by the complainant was compelling and, as a result, the following day, Oct. 17, 2007, the KGC issued a press release15 confirming that it had initiated an audit into the current and historic activities of Absolute Poker and interaction with its gaming and financial systems. The KGC appointed its Approved Agent, Gaming Associates, to conduct the audit and report to the Commission. On Jan. 11, 2008, after an extensive, ten-week investigation, the KGC issued its decision, In the Matter of Absolute Poker: Investigation Regarding Complaints of Cheating.16 The KGCs decision confirmed that commencing August 14, 2007 and thereafter for a period of approximately six weeks, [Potripper and five other accounts] were used to compromise Absolute Pokers systems by participating in live poker games with players using software that enabled the viewing of hole cards of each of the other players, resulting in unfair play . The KGCs decision also found that, shortly after the cheating was discovered, Absolute Poker had satisfactorily reimbursed players that were negatively affected by the unfair play and had taken appropriate actions to address the vulnerability in its systems. The decision also concluded that the cheating that took place was not initiated by, nor did it benefit, Absolute Poker as a corporate entity, its directors, or principal ownership. The evidence showed that little, if any, money was taken out of the system. As a result of its investigations, the persons responsible for the cheating on the Absolute Poker site were made known to the KGC. To avoid the possibility of jeopardizing a subsequent criminal investigation, the KGC did not name these individuals in its decisionalthough the decision confirms that the KGC directed Absolute Poker to remove the individuals in question from playing any role in APs mind and management and/or operations. . The decision concluded that Absolute Poker had breached a number of provisions of the Regulations and imposed a fine of US$500,000 and several other
sanctionsincluding twenty-four (24) specific directions for changes to Absolute Pokers management and systems. Literally one week after the decision in Absolute Poker was issued, the KGC received a number of player complaints again alleging unfair playbut this time regarding a related site, Ultimate Bet. The user name of the impugned account was NioNio. As it did in the Absolute Poker matter, the KGC immediately initiated an investigationappointing its Approved Agent, Gaming Associates, to carry out a thorough review of the circumstances of the complaint and of Ultimate Bets control systems. Over the course of the next several weeks, it became apparent that the Ultimate Bet situation was much larger and more complex than had been the case with Absolute Poker. The investigation consumed a significant part of the KGCs time, attention, and resources; as a result, the KGC did not publicly communicate on the status of its efforts as frequently as should have been the case. By way of a press release dated July 27, 2008, the KGC gave notice that it was taking its investigation to another level by appointing an Independent Monitoring Team, headed by former Director of the New Jersey Division of Gaming Enforcement, Mr. Frank Catania. The Independent Monitoring Team was given a broad mandate to complete a full forensic audit and investigation of the online gaming business of both Absolute Poker and Ultimate Bet, and to issue a report with its findings to the KGC. Absolute Poker was included in the mandate due to the fact that both sites were under the same ownership: Tokwiro Enterprises ENRG. The KGC empowered the Independent Monitoring Team to have full access to all data, records, and documents, and to interview all employees and individuals whom the monitoring team believed to be necessary. The team was charged with verifying that all those involved in the fraudulent activities in any manner, no matter how slight, were removed from management and/or operations, and to verify that Ultimate Bet and Absolute Poker submitted to full compliance with the directives issued by the KGC. Over the next several weeks, with the assistance of a variety of professionals including KPMG, the
15 16
See < http:// ww.gamingcommission.ca/news.asp?ID = 6 > . < http://www.gamingcommission.ca/news/pr01112008a.pdf > .
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independent monitoring team escalated the investigation into the Ultimate Bet cheating scandal. In a statement dated Sept. 29, 2008, the KGC provided a status report of its investigation and certain initial findings that had been made. Most significantly, the KGC advised that it had found, . clear and convincing evidence to support the conclusion that between the approximate dates of May 2004 to January 2008, Russell Hamilton, an individual associated with Ultimate Bets affiliate program, was the main person responsible for and benefiting from the multiple cheating incidents. The Press Release went on to confirm that, as was the case with the Absolute Poker matter, the KGC had been in contact with law enforcement agencies regarding the possible prosecution of one or more individuals involved in the Ultimate Bet cheating incidents. Unlike its decision in Absolute Poker, the KGCs decided to publicly name namesor at least the one individual that it found was primarily responsible for the cheating at Ultimate Bet. The KGC did so after consultation with law enforcement authorities and legal advisors, because the magnitude of the cheating activities in question demanded such public transparency. Unlike Absolute Poker, the cheating that took place on the Ultimate Bet site took place over an extended period of time, involving dozens of accounts. Millions of dollars were taken out of the system. The activities in question were so egregious that the resulting negative attention called into question the credibility of not only Ultimate Bet and the KGC, but the online poker industry in general.17 The Sept. 29, 2008 statement also confirmed that the KGC had levied a number of sanctions against Ultimate Bet, including the requirement to fully reimburse players that were adversely affected by the cheating, as well as imposing a fine in the amount of US$1,500,000.00. The statement made it clear that failure to comply fully with any of the sanctions imposed by the KGC would result in the immediate revocation of Ultimate Bets license. The KGC eventually confirmed that Ultimate Bet had reimbursed approximately US$23,000,000 to players. This, combined with the fine imposed by the KGC, is the largest monetary sanction ever imposed against a gaming companyonline or land-based.
The last chapter in the Ultimate Bet saga was written with the issuance of the KGCs final decision on Sept. 11, 2009.18 The 11-page decision provides a detailed review of the KGCs investigation, its findingsincluding a complete list of the 117 impugned user namesand the conditions imposed on Ultimate Bet. The final decision confirms that the evidence adduced by the investigation showed that Russell Hamilton, an individual previously associated with eWorld Holdings Group, was primarily responsible for and benefitted from the multiple cheating incidents. However, the decision also indicates that it was unlikely that Russell Hamilton acted alone, and confirms that the KGC had turned over the names of 31 other individuals, associated to varying degrees with Russell Hamilton and/or the cheating accounts, to law enforcement authorities for such further action as they deemed necessary. Given that the evidence regarding their involvement in the cheating was less clear, and on the advice of law enforcement authorities, the KGC did not publicly name any of these other 31 individuals. Obviously, the Absolute Poker/Ultimate Bet cheating scandals were harrowing for all involved. The KGC took a number of lessons from the experiencein particular, the value that the online poker community can add to a regulators oversight of its licensees. The community of online poker players is knowledgeable, sophisticated, and ever vigilant. It is a tremendous resource for any regulator. The KGC has made it a regular practice to review a variety of online fora as a means of monitoring the pulse of the industry. Following the Absolute Poker/Ultimate Bet meltdown, the KGC also undertook a number of other enhancements to its operations. A comprehensive Continuous Compliance Program has been implemented, with the assistance of eCOGRA and Gaming Associates. A SSL protected Certificate of Good Standing is now linked to the KGC logo on all licensees Web sites. A dedicated Dispute Resolution Officer was retained to clear a backlog of complaints and to establish a fast and accountable mechanism for receiving and resolving
17 See for example < http:// www.washingtonpost.com/wp-srv/ investigations/poker/ > and < http://www.cbsnews.com/stories/ 2008/11/25/60minutes/main4633254.shtml > . 18 < http://www.gamingcommission.ca/news/pr09112009a.pdf > .
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player concerns. A new site was launched, which includes downloadable copies of the Regulations, schedules, forms and general information, as well as a complete list of all operators and the URLs (uniform resource locators) associated with each. Despite the significant challenges it has faced, the KGC has not only endured but, especially in the past two years, has proven to be one of the worlds most effective and progressive regulators in the online gaming space. Looking beyond the developments in Kahna :ke, the past year has also seen a number of interwa esting initiatives by some of Canadas provincial lottery agencies to expand their offerings onto the Internet. This, after many years of keeping their collective heads firmly planted in the sand, and at times even suggesting that online gaming was not only illegal but immoral. Despite an early flirtation with the possibility of asserting federal jurisdiction over online gaming,19 the government of Canada has studiously deferred the issue to provincial authorities. The first provincial agency to venture into the new online market was the British Columbia Lottery Corporation (BCLC), which on July 15, 2010 launched its PlayNow site. Within hours, the site was taken off-line. The official explanation first offered by BCLC representatives was that the site had crashed due to overwhelming popular demand.20 It was later revealed that, in fact, the site was disabled when it was discovered that a software deficiency had resulted in the security of 134 player accounts being compromised.21 In a press release dated Aug. 19, 201022almost five weeks after PlayNow was taken off-line BCLC provided some additional information about the cause of the security breach and indicated that the site would soon be re-launched. Only a government-resourced business could have survived such a spectacularly flawed launch of an online gaming site. Up next was Loto-Quebec which, following a two week pre-registration period, launched its own site, Espacejeux, on Dec. 1, 2010. Prior to the launch of its online product, LotoQuebec representatives made a number of bold claims that the Loto-Quebec site would cannibalize players from about 2,000 illegal sites available to Quebecers.23
To date, Espacejeux has not encountered significant technical difficulties, but has had little impact on the market share of its competitorsi.e., the other 2,000 illegal sites. In an article dated Jan. 18, 2011,24 Loto-Quebec boasted that it had had 28,000 registrations on the Espacejeux site, although spokesperson Marie-Claude Rivet acknowledged that, . those who are registered have not necessarily played yet. The reason that any provincial agency will have difficulty competing withnever mind cannabilizingother online gaming sites is that it is legally limited to accepting only those players resident within that province. Particularly for provinces that do not have a large population base, such a limited pool of potential players will obviously impact their ability to achieve and maintain player liquidityespecially critical for poker offerings. There is some indication that to address this issue, some provinces are considering agreements that will allow them to pool or share their players.25 It remains to be seen whether such agreements will come to fruition and, if they do, how it will impact the operation and success rate of online gaming offered by the provinces. So how has the provincesparticularly Quebecsincursion into online gaming impacted the 12 year old industry in Kahnawa:ke?
Bill C-353, An Act to amend the Criminal Code (Internet lotteries), a private members bill introduced by MP Dennis Mills, was given first reading in the Canadian Parliament in November 1996 and a second reading in February 1997; it went to committee later that year. The bill provided, in part: (2.3) The Government of Canada may license an Internet service provider or other person to operate and manage a lottery scheme on the Internet . A federal election was held in the summer of 1997 and Bill C-353 died on the order paper in April 1997, when Parliament was dissolved. No comparable bill has since been introduced. 20 < http:// www.cbc.ca/canada/british-columbia/story/2010/07/ 16/bc-lottery-corporation-online-casino.html > . 21 < http:// www.vancouversun.com/BCLC + online + gambling + site + compromised + personal + info + users/3301022/story. html > . 22 < http://www.bclc.com/app/AboutBCLC/InformationBulletins. asp?NewsID = 910 > . 23 < http://www.globalmontreal.com/Loto + Queb%C3%A9c + boards + online + gambling + bandwagon/3857438/story.html > . 24 Translated from: < http:// tvanouvelles.ca/lcn/infos/national/ archives/2011/01/20110118-185834.html > . 25 < http://montreal.ctv.ca/servlet/an/local/CTVNews/20100203/ mtl_loto_quebec_online100203/20100203/?hub = Montreal Home > .
19
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In short: there has been no impact whatsoever. The obvious reason is that Kahnawa:ke does not own or operate any gaming siteit is not an opera tor. Accordingly, Kahnawa:ke does not compete with BCLC, Loto-Quebec, or any other provincial gaming agency that may go online in the future. The provinces competition are operators, such as Ultimate Bet, BoDog, and SportsInteraction all of whom accept players from anywhere in the world (with the possible exception of the U.S.). It must be emphasized and borne in mind that the KGC is a licensing and regulatory body. It does not compete with its Quebec counterpart, the Regie des alcools, des courses et des jeux (Regie), as Quebec is not licensing third-party operators, preferring instead to limit its online gaming offerings to those provided by LotoQuebecthe so-called state monopoly model. To date, other provinces have indicated they will take the same approach. In fact, it is not even clear that Quebecs own gaming regulator, the Regie, licenses and regulates the online products offered by Loto-Quebec. LotoQuebecs site has a list of General Conditions Governing the Use of the Internet Sites Operated by Loto-Quebec and its Subsidiaries,26 but these appear to have been created by Loto-Qubec, not the Regie. The laws and regulations listed on the Regies site27 make no mention of rules, regulations, or standards related to online gaming. In short, Loto-Quebec appears to be not only an online gaming state monopoly, it is also seems to be a self-regulating monopoly. If this is the case, it would be highly unusualas it is under-
standably rare for a government to vest so much responsibility in a single entity. Given that Quebec and Kahnawa:ke are now both engaged in the online gaming industryalbeit in very different capacitiesit would seem logical to the impartial observer that the two would be talking to each other about potential synergies that could benefit both. Late in 2010, such discussions were in fact initiated,28 although they have not yet produced any specific results. It is to be hoped that the two jurisdictions will yet find a way in which to cooperate, as they have in many other areas,29 in a manner consistent with the Statement of Mutual Respect and Understanding30 entered into between the two jurisdictions in 1998. In the meantime, as it has since 1999, all indica tions are that Kahnawa:ke will continue to play a leading role the online gaming industry, and will continue to work cooperatively with those jurisdictions that share its commitment to building a strong, secure, and safe online gaming environment.
26 < http:// www.loto-quebec.com/corporatif/nav/en/conditions-of-use > . 27 < http:// www.racj.gouv.qc.ca/index.php?id = 106&L = 1 > . 28 < http://www.Kahnawa:ke.com/news/pr/pr09202010a.pdf > . 29 Quebec and Kahnawa:ke have previously entered into numerous agreements concerning such diverse subjects as policing, administration of justice, transport, and fiscal matters. < http://www.saa.gouv.qc.ca/relations_autochtones/ ententes/mohawks/Kahnawa:ke/19990330_points_saillants_ en.htm > . 30 < http:// www.saa.gouv.qc.ca/relations_autochtones/ententes/ mohawks/Kahnawa:ke/19981015_en.htm > .
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From: Jones, Amy F SG:EX Sent: Monday, June 27, 2011 9:50 AM To: Smith, Kevin M SG:EX Subject: FW: Revised Invoice: Cameron Turner Victoria-Toronto-Dublin Jul 14 - 23 (please discard previous) As requested.... Amy Jones Office Administrator Registration and Certification Division Gaming Policy & Enforcement Branch Ministry of Public Safety and Solicitor General Location: 3rd Floor, 910 Government Street, Victoria BC V8W 1X3 Mailing Address: PO Box 9202 Stn Prov Govt, Victoria BC V8W 9J1 Tel: 250-356-2982 Fax: 250-356-0782 Toll Free: Service BC @ 660-2421 in Vancouver, or 1-800-663-7867 outside of Victoria or Vancouver Know your limit, play within it. -----Original Message----From: Lori Nalewanyj [mailto:lori.nalewanyj@marlintravel.ca] Sent: Friday, June 24, 2011 10:51 AM To: Jones, Amy F SG:EX Cc: Wright, Linda K SG:EX Subject: Revised Invoice: Cameron Turner Victoria-Toronto-Dublin Jul 14 - 23 (please discard previous)
MARLIN TRAVEL BRANCH: 691111 O-B JAFIC HOLDINGS LTD SUSSEX PLACE GST REG# R123205411 G-3, 1001 DOUGLAS ST VICTORIA, B.C. V8W 2C5 PHONE: 250-383-6101
TO: PUBLIC SAFETY & SOLICITOR GEN. GAMING POLICY BRANCH LOCATOR : s.17, s.22 s.17, s.22 BOX 9202 STN. PROV. GOVT. OUR REF : VICTORIA, B.C. V8W 9J1 AGENT : LORI NALEWANYJ
INVOICE INV NO: 38652 DATE: 24JUN11 PAGE: 1
file:///G|/...0CREG%2387/5.%20Fees%20and%20Expenses/Fees%20&%20Expenses/Travel%20Invoice%20-%20Turner%2027Jun2011.txt[2012-02-28 8:35:45 AM]
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FOR: MR CAMERON TURNER --------------ITINERARY ---------------*** AIR/RAIL/BUS *** FROM TO CARRIER FLT/CL ST DATE DEPART ARRIVE MEALS BAGS VICTORIA TORONTO PEARS AIR CANADA 190 Q HK 14JUL 6:45A 2:07P TORONTO PEARS DUBLIN AIR CANADA 894 Q HK 15JUL 8:50P 8:20A K DUBLIN TORONTO PEARS AIR CANADA 895 W HK 23JUL 9:55A 12:15P S TORONTO PEARS VICTORIA AIR CANADA 191 W HK 23JUL 4:45P 6:44P A320 -----------------COST -----------------AIR CANADA TKT NO AC 2854 997179 (INCL 412.31 TAX) GST/HST 7.70 COMFORT SEAT SELECTION 298.00 LOUNGE ACCESS 75.00 SERVICE FEE AIRLINE PROCESSING 70.00 HST 8.40 1773.31
*** SUB-TOTAL EXCLUDING GST/HST & APT 2216.31 *** TOTAL GST/HST 16.10 *** TOTAL CHARGES THIS INVOICE *** 2232.41 PAYMENT BY CA************6351 TKT 2854997179 1781.01 PAYMENT BY CA************6351 298.00 PAYMENT BY CA************6351 90.00 CREDIT TO CA*************6351 90.00PAYMENT BY CA************6351 75.00 PAYMENT BY CA************6351 78.40 *** BALANCE DUE THIS INVOICE **** 0.00
file:///G|/...0CREG%2387/5.%20Fees%20and%20Expenses/Fees%20&%20Expenses/Travel%20Invoice%20-%20Turner%2027Jun2011.txt[2012-02-28 8:35:45 AM]
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From: Wright, Linda K SG:EX Sent: Friday, June 24, 2011 10:50 AM To: Smith, Kevin M SG:EX Subject: FW: Another Revised Invoice: Kevin Smith Vancouver-Dublin Jul 13 - 23 (please discard previous invoice sent yesterday) For your info and records. Linda Wright Compliance Officer Gaming Policy and Enforcement Branch ' (250) 356-0922 7 (250) 356-0782 linda.wright@gov.bc.ca Website: www.pssg.gov.bc.ca/gaming Know your limit, play within it -----Original Message----From: Lori Nalewanyj [mailto:lori.nalewanyj@marlintravel.ca] Sent: Friday, June 24, 2011 10:48 AM To: Jones, Amy F SG:EX Cc: Wright, Linda K SG:EX Subject: Another Revised Invoice: Kevin Smith Vancouver-Dublin Jul 13 - 23 (please discard previous invoice sent yesterday)
Hi Amy & Linda.....This is another revised invoice for Kevin as the Lounge Access went on sale so I called and had the price adjusted.
MARLIN TRAVEL BRANCH: 691111 O-B JAFIC HOLDINGS LTD SUSSEX PLACE GST REG# R123205411 G-3, 1001 DOUGLAS ST VICTORIA, B.C. V8W 2C5 PHONE: 250-383-6101
TO: PUBLIC SAFETY & SOLICITOR GEN. GAMING POLICY BRANCH LOCATOR : BOX 9202 STN. PROV. GOVT. OUR REF : VICTORIA, B.C. V8W 9J1 AGENT : LO
s.17, s.22 s.17, s.22
YJ
INVOICE INV NO: 38623 DATE: 20JUN11

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file:///G|/...0CREG%2387/5.%20Fees%20and%20Expenses/Fees%20&%20Expenses/Travel%20Invoice%20-%20Smith%2024Jun2011.txt[2012-02-28 8:34:53 AM]
PAGE: 1 FOR: MR KEVIN SMITH AC 742269285 --------------ITINERARY ---------------*** AIR/RAIL/BUS *** FROM TO CARRIER FLT/CL ST DATE DEPART ARRIVE MEALS BAGS VANCOUVER TORONTO PEARS AIR CANADA 1162 W HK 13JUL 11:00A 6:20P TORONTO PEARS DUBLIN AIR CANADA 894 W HK 13JUL 8:50P 8:20A K DUBLIN TORONTO PEARS AIR CANADA 895 W HK 23JUL 9:55A 12:15P S TORONTO PEARS VANCOUVER AIR CANADA 161 W HK 23JUL 4:00P 5:58P A320 -----------------COST -----------------AIR CANADA TKT NO AC 2854 997152 (INCL 375.31 TAX) GST/HST 2.84 SEAT SELECTION 298.00 LOUNGE ACCESS 75.00 SERVICE FEE AIRLINE PROCESSING 70.00 HST 8.40 1335.31
*** SUB-TOTAL EXCLUDING GST/HST & APT 1778.31 *** TOTAL GST/HST 11.24 *** TOTAL CHARGES THIS INVOICE *** 1789.55 PAYMENT BY CA************6351 TKT 2854997152 1338.15 PAYMENT BY CA************6351 298.00 PAYMENT BY CA************6351 110.00 CREDIT TO CA*************6351 110.00PAYMENT BY CA************6351 75.00 PAYMENT BY CA************6351 78.40 *** BALANCE DUE THIS INVOICE **** 0.00
file:///G|/...0CREG%2387/5.%20Fees%20and%20Expenses/Fees%20&%20Expenses/Travel%20Invoice%20-%20Smith%2024Jun2011.txt[2012-02-28 8:34:53 AM]
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Itinerary / Receipt
Your booking is confirmed. Thank you for choosing Air Canada. Please print this itinerary / receipt for your reference.
Main Contact Information

Name: E-mail Form of payment: Mr Kevin Smith LORI.NALEWANYJ@MARLINTRAVEL.CA s.17, s.22
Booking reference:
s.17, s.22
Customer Care
Air Canada Reservations 1-888-247-2262 Air Canada Flight Information 1-888-422-7533 International Reservations Alert me of flight changes Flight notification
Electronic Ticketing confirmed. This is your official itinerary/receipt.
Flight Itinerary
Flight AC1162 From Vancouver (YVR) Wed 13-Jul 2011 11:00 - TERMINAL M -MAIN Seat number(s) requested: 17A AC894 Toronto Pearson (YYZ) Wed 13-Jul 2011 20:50 - TERMINAL T1 INTL Seat number(s) requested: 2H AC895 Dublin (DUB) Sat 23-Jul 2011 09:55 - TERMINAL 1 Seat number(s) requested: 3A AC161 Toronto Pearson (YYZ) Sat 23-Jul 2011 16:00 - TERMINAL T1 Seat number(s) requested: 18A To Toronto Pearson (YYZ) Wed 13-Jul 2011 18:20 - TERMINAL T1 Aircraft 319 Booking class W Status Confirmed
Dublin (DUB) Thu 14-Jul 2011 08:20 - TERMINAL 1
763
Confirmed
Toronto Pearson (YYZ) Sat 23-Jul 2011 12:15 - TERMINAL T1 INTL
763
Confirmed
Vancouver (YVR) Sat 23-Jul 2011 17:58 - TERMINAL M -MAIN
320
Confirmed
Passenger Information
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Passenger Name: Frequent Flyer Pgm: Mr Kevin Smith Air Canada Aeroplan
1 Ticket number: Program number: 014 2854 997152 s.17, s.22
Fare Summary
Passenger: 1 Ticket number 014 2854 997152 Date of issue Fare Amount in Canadian dollars: (including navigational & other charges) Taxes, Fees & Charges Carrier Admin. Service Charge (YQ) Canada Security Charge (CA) Combined Taxes *see fare calculation below (XT) Total Fare in Canadian dollars: Options Seat selection fee in Canadian dollars Seat selection fee in Canadian dollars Lounge Access in Canadian dollars Lounge Access in Canadian dollars Ticket particularities: VLD AC TRANSATLANTIC ONLY -RE FUNDABLE-CXLFEE-CHGFEE *Fare calculation: 13JUL YVR AC X/YTO AC DUB Q15.44 463.47AC X/YTO Q15.44 AC YVR 494.37NUC988.72END ROE0.97092 Canadian tax registration numbers: XG Canada Goods and Service Tax (GST) #10009-2287 RC Canada Harmonized Sales Tax (HST) #10009-2287 XQ Quebec Sales Tax (QST) #1000-043-172 20-Jun 2011 960.00
300.00 25.91 52.24 1,338.15 149.00 149.00 55.00 55.00
Fare Rules
Voluntary changes to your itinerary may require the payment of additional fees and fare upgrades. If you are travelling on a non-refundable ticket, Air Canada will be unable to make exceptions in the event of an unexpected trip cancellation or medical emergency. We recommend the purchase of travel insurance. Tickets are non transferable and name changes are not permitted. Advance seat assignments are not guaranteed and may be changed without notice. If your pre-assigned seat is unavailable, we will try to accomodate you in a comparable seat in the same class of service and will refund any applicable refundable fees.
Important Information
This is your E-ticket itinerary/receipt. Keep this document for your travel. Your flight coupons are stored in our reservation system. The Conditions of Contract and other legal notices are provided with this itinerary/receipt. Please review this itinerary/receipt and should you have any questions, please call 1-888-247-2262 within 24 hours of receipt. Travel Documents Air Canada is required by federal government regulations to check identification at the departure gate for all passengers who appear to be 18 years of age or older. The name on the identification must match the name used on the reservation or ticket. The passenger
Page 795 PSS-201102158
must present: one (1) piece of government-issued ID with photo or two (2) pieces of government-issued ID without photo. For air travel between Canada and the United States, all passengers including Canadian and U.S. citizens, are required to present a valid passport or other valid travel document such as a Nexus card. Nexus members are required to carry appropriate immigration and identity documents in addition to their Nexus card. In addition, passengers must present this Itinerary/receipt to immigration authorities upon request. For air travel to a foreign country, passengers must ensure that they have all necessary travel documents such as a passport or visa, as directed by embassies and consulates. All passengers are advised to view the Travel documentation page for important information on documentation required for travel. YOU CANNOT TRAVEL IF YOU DO NOT HAVE ALL REQUIRED TRAVEL DOCUMENTS, SUCH AS PASSPORT AND VISA (if applicable). Secure Flight For travel to, from or via the United States you are required by the Transportation Security Administration (TSA) to provide full passenger name (as it appears on your travel document), date of birth and gender for each traveller at least 72 hours prior to departure, or at time of booking if you book your flight within 72 hours of departure. Carry-On Baggage Policy Oversized carry-on bags are not permitted on our aircraft, and may cause flight delays for all passengers. Please ensure your carry-on bags are within the maximum allowed size as indicated below; they are required to fit in the double-size verification device at check-in and boarding gates. You may carry onboard items which fall within the 2-piece carry on allowance: one (1) carry-on bag or suitcase (wheels and handles included in the size) and one (1) personal article like a briefcase, laptop computer, diaper bag, camera case, cartons or other similar item. Learn more about Carry-on Baggage restrictions. Maximum Size 1 standard article 1 personal article 23cm x 40cm x 55cm 9" x 15.5" x 21.5" 16cm x 33cm x 43cm 6" x 13" x 17" Maximum Weight 10 kg 22 lbs 10 kg 22 lbs
Checked Baggage Policy Passengers travelling with Air Canada and Air Canada Express are entitled to a free checked baggage allowance, depending on route, fare purchased, cabin class and/or frequent flyer status. When the number, weight and/or overall dimensions of your checked baggage exceed the limits of your free checked baggage allowance, additional checked baggage charges will apply. Ensure your checked bags are properly identified. Please do not pack valuables in your checked baggage. Excess valuation may be declared on certain types of articles. Special rules apply for fragile, valuable, or perishable articles. Maximum overall measurement (Length + Width + Height) Economy Class (view complete baggage allowance) Executive Class TM Executive First 3 bags 158 cm 62" 158 cm 62" 23 kg 50 lbs 32 kg 70 lbs Maximum Weight
Bags weighing more than 23kg (50lbs) to a maximum of 32kg (70 lbs) will be subject to additional charges payable at the airport.
Bags weighing more than 32 kg (70 lbs), exceeding 292 cm (115 cm) in overall measurements or exceeding 203 cm (80in) in length will not be accepted as checked baggage. If more than one carrier is providing the transportation for your journey, each carrier may apply different rules on baggage (both checked and carry-on baggage).
It is recommended that documents and medication be packed in your carry-on baggage. All prescription medications must be properly labelled with the names of the patient, the medication and the issuing medical office or pharmacy. For safety reasons, dangerous goods must not be packed in checked or carry-on baggage, except as specifically permitted. Dangerous goods include, but are not limited to: compressed gases, corrosives, explosives, flammable liquids and solids, radioactive materials, oxidizing materials, poisons, infectious substances, and briefcases with installed alarm devices. For security reasons, other restrictions may apply. Please refer to Security Requirements and Dangerous Goods page for more information.
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Flight Confirmation Although reconfirmation of flights is not required, we strongly recommend that you check your flight status online at aircanada.com or by calling our flight information system at 1-888-422-7533 prior to your departure. Travel Insurance RBC Travel Insurance Company offers Canadian travellers an easy way to purchase travel insurance. Whether you're traveling by yourself or with your family, it's important to get protection against the high cost of medical expenses, trip cancellation or other unforeseen circumstances. Residents of Canada can purchase travel insurance from RBC Travel Insurance Company via www.aircanada.com/insurance or by calling 1-866-530-6021. To make sure you get the best possible protection, it's best to purchase insurance when you book your trip. American travellers - if you are a resident of the United States and are interested in purchasing travel insurance, please call 1-800-835-7566 to be referred to an insurance specialist who can help you purchase the proper protection. Information and Services Visit our Information and Services section at aircanada.com to find all the information you'll need to plan your trip. Carriage of pets Please read important information regarding carriage of pets in the Travelling with your Pet section.
Important Conditions
Check-in and Boarding Times You must obtain your boarding pass and check in any baggage by the check-in deadline shown below. Additionally, you must be available for boarding at the boarding gate by the boarding gate deadline shown below. Failure to respect check-in and boarding gate deadlines may result in the reassignment of any pre-reserved seats, the cancellation of reservations, and/or ineligibility for denied boarding compensation. Travel Within Canada Recommended Check-in Time 60 min. Check-in Deadline 30 min. Boarding Gate Deadline 20 min.
To/From the US 90 min. 60 min. 20 min. International (incl. Mexico & Caribbean) 120 min. 60 min. 55 min. Exceptions Due to local conditions, some airports suggest longer recommended check-in times. Please take note of specific check-in and boarding gate deadlines for flights departing from those locations. Flights departing from: Recommended Check-in Deadline Boarding Gate Check-in Time Deadline Tel Aviv 180 min. 75 min. 60 min.
NOTICE - SOLD SUBJECT TO TARIFF REGULATIONS CONDITIONS OF CONTRACT AND OTHER IMPORTANT NOTICES
PASSENGERS ON A JOURNEY INVOLVING AN ULTIMATE DESTINATION OR A STOP IN A COUNTRY OTHER THAN THE COUNTRY OF DEPARTURE ARE ADVISED THAT INTERNATIONAL TREATIES KNOWN AS THE MONTREAL CONVENTION, OR ITS PREDECESSOR, THE WARSAW CONVENTION, INCLUDING ITS AMENDMENTS (THE WARSAW CONVENTION SYSTEM), MAY APPLY TO THE ENTIRE JOURNEY, INCLUDING ANY PORTION THEREOF WITHIN A COUNTRY. FOR SUCH PASSENGERS, THE APPLICABLE TREATY, INCLUDING SPECIAL CONTRACTS OF CARRIAGE EMBODIED IN ANY APPLICABLE TARIFFS, GOVERNS AND MAY LIMIT THE LIABILITY OF THE CARRIER. NOTICE of Liability Limitations The Montreal Convention or the Warsaw Convention system may be applicable to your journey and these Conventions govern and may limit the liability of air carriers for death or bodily injury, for loss of or damage to baggage, and for delay.
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Where the Montreal Conventions applies, the limits of liability are as follows: 1. 2. 3. There are no financial limits in respect of death or bodily injury. In respect of destruction, loss of, or damage or delay to baggage, 1,131 Special Drawing Rights (approximately EUR 1,357; US $1,663) per passenger in most cases. For damage occasioned by delay to your journey, 4,694 Special Drawing Rights (approximately EUR 5,655; US $6,786) per passenger in most cases. 16,600 Special Drawing Rights (approximately EUR 20,000;US $20,000) in respect of death or bodily injury if the Hague Protocol to the Convention applies, or 8,300 Special Drawing Rights (approximately EUR 10,000; US $10,000) if only the Warsaw Convention applies. Many carriers have voluntarily waived these limits in their entirety, and US regulations require that, for journeys to, from or with an agreed stopping place in the US, the limit may not be less than US $75,000. 17 Special Drawing Rights (approximately EUR 20; US $20) per kg for loss of or damage or delay to checked baggage, and 332 Special Drawing Rights (approximately EUR 400; US $400) for unchecked baggage. The carrier may also be liable for damage occasioned by delay.
Where the Warsaw Convention system applies, the following limits of liability may apply: 1.
2. 3.
Where neither the Montreal Convention nor the Warsaw Convention system applies: For travel wholly between points in Canada, the liability limit is $1,500 CAD per passenger. Further information may be obtained from the carrier as to the limits applicable to your journey. If your journey involves carriage by different carriers, you should contact each carrier for information on the applicable limits of liability. Regardless of which Convention applies to your journey, you may benefit from a higher limit of liability for loss of, damage or delay to baggage by making at check-in a special declaration of the value of your baggage and paying any supplementary fee that may apply. Alternatively, if the value of your baggage exceeds the applicable limit of liability, you should fully insure it before you travel. Time limit for action: Any action in court to claim damages must be brought within two years from the date of arrival of the aircraft, or from the date on which the aircraft ought to have arrived. Baggage claims: Written notice to the carrier must be made within 7 days of the receipt of checked baggage in the case of damage, and, in the case of delay, within 21 days from the date on which it was placed at the disposal of the passenger. Notice of Contract Terms Incorporated by Reference 1. Your contract of carriage with the carrier that provides you with carriage by air, whether international, domestic or a domestic portion of an international journey is subject to this notice; to any notice or receipt of the carrier; and to the carrier's individual terms and conditions (Conditions), related rules, regulations and policies (Regulations) and any applicable tariffs. If your carriage is by more than one carrier, different Conditions, Regulations and any applicable tariffs may apply for each carrier. The Conditions, Regulations and any applicable tariffs of each carrier are, by this notice, incorporated by reference into and made part of your contract of carriage. The Conditions may include, but are not restricted to: Conditions and limits on the carrier's liability for the bodily injury or death of passengers. Conditions and limits on the carrier's liability for the loss of, damage to or delay of goods and baggage, including fragile or perishable goods. Rules for declaring a higher value for baggage and for paying any supplementary fee that may apply. Application of the carrier's Conditions and limits of liability to the acts of the carrier's agents, servants and representatives, including any person providing either equipment or services to the carrier. Claims restrictions, including time limits by which passengers must file claims or bring actions against the carrier. Rules about reconfirmations or reservations; check in times; the use, duration and validity of air transaportation services; and the carrier's right to refuse carriage. Rights of the carrier and limits on the carrier's liability for delay or failure to perform a service, including schedule changes, substitution of alternative carriers or aircraft and re-routing, and, when required by applicable law, the obligation of the carrier to notify passengers of the identity of the operating carrier or substituted aircraft.
2. 3. 4.
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5.
Rights of the carrier to refuse carriage to passengers who fail to comply with applicable laws or who fail to present all necessary travel documents. You can obtain more information about your contract of carriage, and find out how to request a copy, at places where transportation on the carrier is sold. Many carriers also have this information on their websites. When required by applicable law, you have the right to inspect the full text of your contract of carriage at the carrier's airport and sales offices, and upon request, to receive a copy by mail or other delivery service from each carrier free of charge. If a carrier sells air transportation services or checks baggage specifying carriage with another carrier, it does so only as agent for the other carrier.
6.
GOVERNMENTS MAY REQUIRE YOUR CARRIER TO PROVIDE INFORMATION ON OR PERMIT ACCESS TO PASSENGER DATA.
OVERBOOKING NOTICE
Airline flights may be overbooked, and there is a slight chance that a seat will not be available on a flight for which a person has a confirmed reservation. If the flight is overbooked, no one will be denied a seat until airline personnel first ask for volunteers willing to give up their reservation in exchange for a payment of the airlines choosing. If there are not enough volunteers, the airline will deny boarding to other persons in accordance with its particular boarding priority. With few exceptions, persons denied boarding involuntarily are entitled to compensation. The complete rules for the payment of compensation and boarding priorities are available at airport ticket counters and boarding locations.
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TRAVEL/ACCOMMODATION WORKSHEET
COMPANY:
1. Paddy Power plc 2.
CREG # 87 CREG #
PROJECT #: 1503681 PROJECT #:
INVESTIGATOR(S):
Smith Turner
(LEAD) (SECOND)
EXPENSE TYPE Air Fare Meals Accommodation Parking Kilometres Car Rental Other transportation Miscellaneous
COST ESTIMATE* $7,000.00 $1,700.00 $3,000.00 $0.00 $0.00 $0.00 $400.00 $400.00 0.00 TOTAL $12,500.00
NOTES Air Canada Business Class - Dublin via Toronto.
* Includes total number of investigators travelling
Page 800 PSS-201102158
INVESTIGATION HOURS WORKSHEET

COMPANY: PERSONS:
1 Paddy Power plc

CREG # 87
PROJECT #:
1503681
2 CORCORAN, Breon 3 KENNEDY, Patrick 4 MASSEY, John 5 SIRRS, Ian 6 NORTHRIDGE, Nigel 7 POWER, David 8 GOLDEN, Dermot Kevin Smith
(LEAD)
INVESTIGATOR(S): Background Investigation * Date

Cost Recovery Estimates Disclosure Review Financial Review Research
Cam Turner
(SECOND)
Interviews and Travel *

Indices Search Correspondence / Question Liaison Development Planning & Scheduling Interviews Travel
Other *
Applicant Name
Investigator
Follow up
Report Writing
Daily Hours
Account Balance
18-May-11 24-May-11 25-May-11 01-Jun-11 02-Jun-11 03-Jun-11 06-Jun-11 09-Jun-11 09-Jun-11 14-Jun-11 15-Jun-11 20-Jun-11 22-Jun-11 22-Jun-11 27-Jun-11 28-Jun-11 29-Jun-11 30-Jun-11 04-Jul-11 05-Jul-11 05-Jul-11 06-Jul-11 06-Jul-11 07-Jul-11 08-Jul-11 08-Jul-11 11-Jul-11 11-Jul-11 12-Jul-11 12-Jul-11 Smith Turner Smith Smith Turner Smith Turner Turner Smith Smith Turner 2 2 3 2 2 2 5 1 1 1 1 Smith Smith Smith Smith Smith 2 2 5 4 4 Smith Bate 1 3 Smith Smith Smith 1 2 2 Smith Turner Smith 3 Turner 2 2 Turner 3 1 Turner 2 Smith 2 Smith 1 2
Smith
2 1
1 1
2 1 1 1 0.5 1 1 2 2 2 3 3 4 1 1 7
0.5
$33,246.01 32,796.01 32,196.01 31,746.01 31,446.01 30,846.01 30,546.01 30,246.01 29,796.01 29,646.01 29,346.01 29,046.01 28,596.01 28,521.01 28,371.01 27,771.01 27,321.01 26,721.01 25,971.01 25,071.01 24,171.01 23,871.01 23,121.01 22,671.01 21,921.01 21,021.01 20,571.01 19,671.01 19,371.01 19,071.01
7 Page 801 18,021.01 PSS-201102158
13-Jul-11 15-Jul-11 18-Jul-11 18-Jul-11 19-Jul-11 19-Jul-11 20-Jul-11 20-Jul-11 21-Jul-11 21-Jul-11 22-Jul-11 22-Jul-11 23-Jul-11 23-Jul-11 11-Aug-11 16-Aug-11 08-Sep-11 13-Sep-11 20-Sep-11 04-Oct-11 17-Oct-11 20-Oct-11 25-Oct-11 04-Nov-11 17-Nov-11 Smith Smith Smith Smith Smith Smith Smith Smith Smith Smith Smith Turner Smith Turner Smith Turner Smith Turner Smith Turner Smith Turner Smith Turner
Turner
1.5
3 7 7 7 7 7 7 7 7 7 5 5 7 7
4.5
17,346.01 16,296.01 15,246.01 14,196.01 13,146.01 12,096.01 11,046.01 9,996.01 8,946.01 7,896.01 7,146.01 6,396.01 5,346.01 4,296.01 3,846.01 3,396.01 2,946.01 2,646.01 2,196.01 1,596.01 1,296.01 846.01 246.01 96.01 -53.99
TOTALS 2 31
* Round off time to nearest .5 hours
28.5
0.5
23
66
28
28
222
-53.99
Page 802 PSS-201102158
CORPORATE REGISTRATION PROJECT RECOVERY FORM

COMPANY: PROJECT #:
DATE 13-Jun-2011 Paddy Power plc 1503681 DESCRIPTION Investigation Fees Travel & Accommodation
CREG File#: 87 CREG App#: 186740 ER #: 1405924 & 1406645

AMOUNT TOTAL(S) $ 25,000.00 15,000.00 - Total Investigation Fees (Add Line 1 to 3) $ 40,000.00 $ 1,789.55 2,232.49 1,046.99 1,602.23 82.73 Line 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Recovery of travel/accommodation charges: Air fare: (Smith) 12-Jul-2011 (Turner) Expenses: ER1405924 (Turner) to ER1406645 (Smith) Cell Phone - Euro Plan 23-Jul-2011
Total travel/accommodation charges (Add Line 5 to 10) $ 6,753.99 Recovery of background investigation fees: 222 hours x $150/hour 17-Nov-2011 $ 33,300.00 - - - - - Total background investigation fees (Add Line 12 to 17) $ 33,300.00 Total Recovery Amount (Add Lines 11 and 18) $ 40,053.99 CLOSING BALANCE (Line 4 minus Line 19) -$ 53.99 CLOSING BALANCE (Line 20) - Please complete (a) or (b) Compliance Manager/Officer to: (a) Submit 'Request for Refund' Yes X No
If 'No', provide a brief explanation and anticipated date for conclusion:
(b) Submit 'Request for Funds'
Yes
X No
If 'No', provide a brief explanation and anticipated date for conclusion:
Minimal amount oustanding. Registration granted (Dec. 9/11).
SUBMITTER(S):

(Investigator's signature)
Kevin Smith
(print name)
Dec. 15, 2011 DATE Dec. 15, 2011 DATE 20-Jan-2012 DATE
Page 803 PSS-201102158

(Investigator's signature)
Cam Turner
(print name)
DIRECTOR APPROVAL:

(signature)
Ron Merchant
Director/Deputy Registrar, Corporate Registration
From: To: Subject: Date:
Zeleny, Karen SG:EX Smith, Kevin M SG:EX; Turner, Cameron J SG:EX FW: Paddy Power plc (CREG 87) - Invoice #BI-22 Friday, June 10, 2011 10:47:12 AM
Hi Kevin/Cam: FYI, our May bank statement is showing $40,000 from Paddy Power plc was deposited on May 27 th so you are good to make your travel plans. We will post the funds in GOS once the bank confirmation form is received .
Karen Zeleny Manager, Corporate Compliance
Registration and Certification Gaming Policy and Enforcement Branch ' (250) 356-2971
7 (250) 356-0782
karen.zeleny@gov.bc.ca Website: www.pssg.gov.bc.ca/gaming
Know your limit, play within it

_____________________________________________ From: Zeleny, Karen SG:EX Sent: Friday, June 10, 2011 10:42 AM To: 'O'Loughlin, Mary' Subject: Paddy Power plc (CREG 87) - Invoice #BI-22
Hello Mary. Further to your email of May, 2011 advising payment of Invoice #BI-022 was being forwarded, please be reminded that a copy of the bank confirmation form showing the wire transfer transaction must be sent to me by email or fax. Could you please arrange to have a copy of the bank confirmation sent to me as soon as possible? Thanks kindly.
Karen Zeleny Manager, Corporate Compliance
Registration and Certification Gaming Policy and Enforcement Branch ' (250) 356-2971
7 (250) 356-0782
karen.zeleny@gov.bc.ca Website: www.pssg.gov.bc.ca/gaming
Page 804 PSS-201102158
Know your limit, play within it
Page 805 PSS-201102158
From: To: Subject: Date:
Lori Nalewanyj Smith, Kevin M SG:EX Fare from Victoria to Dublin Monday, June 27, 2011 10:53:12 AM
Hi Kevin.... I calculated the fare for a flight direct from Victoria to Dublin incorrectly when I was speaking with you. The fare with no stopover would have been $1665.68. Cam paid $1859.41 so the difference is $193.73....Lori
Lori Nalewanyj MARLIN TRAVEL G3-1001 Douglas Street Victoria, B.C. V8W 2C5 Phone: (250) 383-6101 Fax: (250) 383-6169 Toll Free: 1-866-383-6101 lori.nalewanyj@marlintravel.ca
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W ireless Services f or LIN D A WRIG HT

Re g ular ch arg es
Ending Aug 01 Wireless usage
s.17
Account Number: Invoice Number: Invoice Date:
s.17, s.22
4731576981 Aug 01, 2011
Sa vin gs
You saved $7.70 on your Wireless services.
3.85 20.00 0.20 0.75 -0.75 0.00 6.95 -6.95 0.00 50.00 ............. 8.88
Aug 02 - Sep 01
Corporate Pooling Plan BC Purchasing Serv. Admin. Fee 9-1-1 Emergency Access Fee Sa vin gs: 9-1-1 Emergency Access Cr Pooling Fee System Access Fee Sa vin gs: System Access Fee Credit Corporate Basic Voicemail 40 European Travel Minutes
LEGEN D
LD = Long Distance M MS = Multimedia Msg KB = Kilobyte MB = Megabyte GB = Gigabyte
O t h er ch arg es a n d cre dits

Jul 14
To t al b e f ore t a x es:
HST (862395381 RT0001)
$74.05 $82.93
To t al f or W ireless: W ireless usa g e su m m ary e n din g A u g 01/11

Ty p e o f usa g e Usa g e D escrip tio n Y o u use d U nit o f m e asure
To t al cost ($)
Voice Voice (S) Voice Text Msg
40 European Travel Minutes 200 Anytime Inclusive Minutes Long Distance Charges While Roaming Intl - Sent
32:00 1:00 5
Min:Sec Min:Sec Msgs
To t al W ireless Usa g e : (S) Shared Services
0.00 0.00 0.10 3.75 .......... $3.85
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12 of 127
Ra t e p erio d
WD = Weekday WN = Weeknight
Ty p e o f call
G&P = Roaming call placed outside Canada to within your home province - incurs federal and provincial sales taxes IRI
Account Number: Phone Number: Invoice Number: Invoice Date: = Roaming call received - outside Canada - does not incur Canadian Taxes RO M = Outgoing Call - Outside Local Calling Area
s.17, s.22 s.17 4731576981 Aug 01, 2011
D e t ails o f W ireless usa g e

Date 1 Wed Jul 13 Call Tim e 19:21 Call fro m TORONTO ON N u m b er calle d Loca tio n calle d ABBOTSFORD BC Ra t e Call prd t y p e WD RO M Le n g t h o f call (min:sec) 01:00 01:00 Cost p er min u t e ($) 0.00 A irtim e ch arg es ($) 0.00 0.00 LD / o t h er ra t e ($) 0.10 LD / o t h er ch arg es ($) 0.10 0.10 To t al ch arg es ($) 0.10 0.10
s.22
To t al W ireless Usa g e:
D e t ails o f airtim e ro a min g usa g e o u tsid e Ro g ers n e t w ork

Date Call Tim e Call fro m IRELAND IRELAND INC O MING INC O MING IRELAND IRELAND N u m b er calle d Loca tio n calle d VANC OUVER VICTORIA BC BC BC BC Ra t e Call prd t y p e WD WD WD WD WN WN G&P G&P IRI IRI G&P G&P Le n g t h o f call (min:sec) 01:00 01:00 04:00 08:00 01:00 17:00 32:00 Cost p er min u t e ($) 0.00 0.00 0.00 0.00 0.00 0.00 A irtim e ch arg es ($) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Lo n g dist a nce ch arg es ($) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 To t al ch arg es ($) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
From IRELAND, VODAFONE 1 Thu Jul 14 14:00 2 Thu Jul 14 14:04 3 Thu Jul 14 15:21 4 Thu Jul 14 17:22 5 Mon Jul 18 20:08 6 Mon Jul 18 20:15 Gra n d To t al
s.22
ABBOTSFOR ALDERGROV
D e t ails o f rollo v er usa g e

Ty p e o f usa g e Voice Usa g e D escrip tio n 40 European Travel Minutes Bala nce fro m pre vio us month 0:00 Added t his month 40:00 To t al a v aila ble 40:00 To t al use d 32:00 Ex pire d as o f 08/01 0:00 Bala nce rollin g t o next month 8:00 Ex pirin g as o f 09/01 N/A M a xim u m rollo v er allo w a nce N/A Rollo v er * pla n e x piry d a t e 08/14/2011
* Some rollover options may have a single, pre-defined expiry date. Please visit w w w.rogers.com for your option details.
Su m m ary o f usa g e e n din g A u g 01/11

W it hin Ro g ers N e t w ork O u tsid e Ra t e Perio d A irtim e 01:00 (Mins) 00:00 (Mins) 01:00 (M ins) Ro g ers N e t w ork 14:00 (Mins) 18:00 (Mins) 32:00 (M ins) To t al
Weekday Weeknight To t al min u t es use d:
15:00 (Mins) 18:00 (Mins) 33:00 (M ins)
Lo n g dist a nce usa g e hist ory

D estin a tio n Canada To t al: En din g Ju n 01 36:00 (Mins) 36:00 (M ins) En din g Jul 01 00:00 (Mins) 00:00 (M ins) En din g A u g 01 01:00 (Mins) 01:00 (M ins)
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Licensing, compliance and enforcement policy statement

September 2009
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Contents 1 2 3 4 5 6 Introduction Assessing risk Licensing Compliance Regulatory enforcement Investigation and prosecution of offences under the Gambling Act 2005
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Introduction
The role of the Commission

1.1 The Gambling Commission (the Commission) regulates commercial gambling in Great Britain. The principal ways in which the Commission does this are by: licensing operators and key personnel setting appropriate licence conditions and codes of practice carrying out compliance activities enforcement and prosecution work providing advice.
The licensing objectives

1.2 The Gambling Act 2005 (the Act) sets out the licensing objectives, which are: preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime ensuring that gambling is conducted in a fair and open way protecting children and other vulnerable people from being harmed or exploited by gambling. In carrying out its functions, the Commission is under a statutory duty to pursue and have regard to the licensing objectives. The Commission must also permit gambling, in so far as it thinks it reasonably consistent with pursuit of the licensing objectives.
1.3
Statement of principles for licensing and regulation

1.4 The Commission is required to prepare, publish, and keep under review, a statement that sets out the principles which will govern the exercise of its functions, and, in particular, explains how those principles will assist the Commission in its pursuit of the licensing objectives. The statement of principles for licensing and regulation underpins all of the work of the Commission and can be found on the Commissions website at www.gamblingcommission.gov.uk.
Purpose of this document

1.5 This document should be read in conjunction with Statement of principles for licensing and regulation, which it builds on by setting out the Gambling Commissions regulatory policies in relation to: assessing risk licensing operators and key personnel carrying out compliance activities enforcement.
Other policy documents

1.6 The Commission has also developed a number of further documents which build on the statement of principles for licensing and regulation and govern how it carries out its functions: Statement of principles for determining financial penalties Corporate governance framework Regulatory panel procedures. These documents are available online at www.gamblingcommission.gov.uk.
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2.1
Assessing risk
The Commissions approach to risk underpins its licensing, compliance and enforcement functions. This chapter sets out the key elements of the Commissions risk methodology, including the processes for addressing and reviewing risk. The Commissions risk methodology is applied in order to establish a regulatory risk rating for licence holders. This informs the level and nature of regulatory engagement by the Commission with those operators. The methodology is based upon assessing the likelihood of risk presented by operators and the potential impact that the risk if realised will have upon the licensing objectives. The assessment of likelihood will relate to key regulatory risk groups within the operators control, whilst the assessment of impact will be related to the size and market scope of an operators activity.
2.2
2.3
Regulatory risk groups

2.4 The Commission has identified key regulatory risk groups - those related to the suitability of the licence holder, those which relate to the gambling facilities themselves, and finally those which relate to the manner in which the gambling facilities are provided. Each risk group will contain information elements to which an assessment will address itself. The risks related to suitability of the licence holder include: staff and management integrity and competence controller1 integrity business integrity: o financial circumstances o governance, structure and resource. The risks related to the type of gambling facility offered include: gambling product or facility market scope. The risks presented through the provision of gambling facilities include: location and operating environment consistency with the licensing objectives.
2.5
2.6
2.7
Identifying risk
2.8 With any aspect of regulatory engagement (licensing, compliance and so on), an initial identification of the risk(s) presented will be made. For example, with a licence application the consideration will necessarily involve a wide range of risks. A compliance visit may involve a similar broad assessment or may relate to specific potential risks identified as a result of information received or previous operator engagement. The assessment of risk may focus upon any combination of the regulatory risk groups and the elements there within. An example of risk related to employees or management integrity would be the risk posed by a personal management licence holder being convicted of a relevant criminal offence indicating dishonesty. An example of risk related to the provision of gambling facilities would be the manner in which a licensed operator might seek to comply with the requirements of the Act and the Commissions Licence Conditions and Codes of Practice (LCCP).
2.9
Assessing risk
2.10 Having identified relevant risks, the next consideration is the likelihood of a risk or risks occurring (provided it has not already occurred) and the likely impact.
Within the meaning of section 422 of the Financial Services and Markets Act 2000 4
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2.11
The Commissions focus will determine the risk categories and elements against which information will be sought. The elements assessed in respect of likelihood may include how compliant an operator is, or is likely to be, with the requirements of the Act, the LCCP and also organisational considerations such as accountability and governance, competence and integrity of staff, and effectiveness of policies and procedures in minimising risk to the licensing objectives. A significant part of this relates to the assessment of suitability. The assessment of suitability is a key element of the Commissions licensing process and continues, after a licence has been granted, in the Commissions compliance processes2. The Commission will assess the likely impact of a risk based primarily on the size and market scope of an operator (actual or potential). This may include size of customer base, number of premises, turnover or gaming yield and extent of licensed activity. This latter consideration covers not only those operators which offer gambling across more than one sector but also those where the nature of a single licensed activity extends across multiple sectors. Gambling software development and gaming machine manufacture are examples of this where the potential market impact is high if the end product presents risk to the licensing objectives once it is made available.
2.12
2.13
Addressing the risk

2.14 The impact and likelihood of a given risk (or risks) is then taken into account as part of an overall risk assessment rating. This will determine the degree and type of regulatory engagement that may be required, although impact will be the primary consideration in this determination. The Commission considers that some operators will always be higher impact because of the size and scale, or nature of their operations. Those who have extensive operations (in terms of impact) or a significant market share will always receive a greater degree of regulatory oversight due to the market impact (actual or potential) should regulatory risk materialise or be identified. This is why additional information may be required at the licensing application stage and also why the Commission has adopted a relationship management approach (through the National Compliance Managers) for certain licensed operators. Once an assessment has been completed, the Commission will, as appropriate, share with the operator its considerations as to the level of risk considered to exist. This will provide the basis of the Commissions further engagement and operators should use the information to inform their risk controls. The Commission will, as appropriate, provide information about its assessments to operators. Assessments will not be shared with other operators or parties. The approach will allow a focused approach to managing risk to the licensing objectives, and the Commission would expect this to facilitate a productive engagement and assist operators in developing effective risk management strategies. By building up a picture over time, the Commission would expect to be able to identify risk movements within individual operators and identify major issues within sectors or impact groups. Those operators which demonstrate good governance and a high level of compliance at all levels are less likely to present a risk to the licensing objectives and will receive less regulatory oversight as a result, although this reduced oversight will be proportionate to their potential impact.
2.15
2.16
2.17
Reviewing the risk

2.18 Once any regulatory action is completed, the risk is re-assessed to determine whether the desired outcome has been met in addressing the risk(s) or further attention is needed.
Further details of the Commissions current risk modelling and compliance visit programme can be found in the document The Compliance process; the Risk Modelling System (RMS) and Annual Visit Programme (AVP).
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3.1
Licensing
This chapter sets out the Commissions approach to considering operating and personal licence applications, the kinds of evidence considered when assessing an application, and the process for assessing applications and notifying the outcome.
Who needs a licence?

3.2 Most providers of commercial gambling based in Great Britain require an operating licence. Further guidance as to the types of operation or activity that might be exempt from requiring an operating licence can be found on the Commissions website at www.gamblingcommission.gov.uk. Personal licences are required by those performing a specified management or operational function. The Commission consulted on the definitions of those who needed personal licences and of small scale operators3 (where personal licence holders are not required) in 2006. The definitions subsequently adopted are outlined in the Licence Conditions and Codes of Practice (LCCP), a copy of which can be obtained from the Commissions website. Those seeking a licence are required to submit an application form with the prescribed fee and supporting documentation.
3.3
3.4
Information and evidence

3.5 All applicants are required to supply the Commission with sufficient and complete information to support their application and in particular information that will enable an assessment on their suitability to be made. However, the Commission takes a risk based and proportionate approach to the amount and detail of information an applicant is required to provide. Guidance on the type of information required is included in the guidance notes that accompany the application form4. The Commission may also seek evidence or opinions from other sources where that is appropriate or where its initial review has highlighted areas of concern. The sources the Commission may access include, but are not restricted to: Criminal Records Bureau (CRB) and Disclosure Scotland Court records Company Watch Companies House Dun & Bradstreet Equifax Financial Services Authority HMRC The Insolvency Service The Solicitors Regulation Authority The Law Society of Scotland Serious Organised Crime Agency sports governing bodies open source internet searches other regulators overseas gambling regulators police forces in UK and abroad references provided to the Commission. If an application is incomplete or information required to support the application is missing or not provided upon request then it may be determined on the basis of the information the
3.6
3.7
The Gambling Act 2005 (Definition of Small-scale Operator) Regulations 2006 Operating Licence Application Forms Guidance Notes and the Personal Licence Application Forms Guidance Notes (as amended from time to time)
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Commission has available to it. This may affect the decision on whether a licence can be granted.
Assessment and determination of the application

3.8 Each application is considered on merit and on the evidence available. In considering an application the Commission has regard to the licensing objectives and whether they are likely to be compromised, and the suitability of an applicant to carry out the licensed activities. In considering operating licence applications the Commission will include assessment of the suitability of those persons considered relevant to the application. Those persons considered relevant may vary depending on the information provided in the operating licence application and on company structure but are likely to exercise a function in connection with, or to have an interest in, the licensed activities. General guidance on who may be considered relevant is available on the Commissions website and in regulations5.
3.9
Suitability
3.10 When considering the suitability of an applicant the Commission has regard to the following elements and seeks evidence to support and enable an assessment to be made against each one: Identity and ownership the identity of the applicant and or person(s) relevant to the application and in the case of an application for an operating licence, who ultimately owns a corporate applicant. Finances financial and other circumstances of the applicant past and present and or person(s) relevant to the application. For operating licences this will include the resources likely to be available to carry out the licensed activities. Integrity the honesty and trustworthiness of the applicant and or persons relevant to the application. Competence The experience, expertise, qualifications and history of the applicant and or persons relevant to the application. Criminality criminal record of the applicant and or person(s) relevant to the application.
Upholding the licensing objectives

3.11 Applicants for an operating licence are asked about their policies for ensuring that the licensing objectives will be adhered to. Guidance is provided on the Commissions website and in the guidance notes that accompany the application form. In assessing policies the Commission is looking for understanding of the legislation overall and evidence that arrangements will address the social responsibility requirements.
3.12
Considering applications
3.13 On considering an application for a licence the Commission is required to either: grant it; reject it; or, grant it in respect of one or more of the specified activities and reject it in respect of the others. In some circumstances the Commission may attach specific conditions to the licence, which may, for example, have the effect of restricting the activities that may be carried out in reliance of the licence. The Commission evaluates the information it receives on each element of the assessment on a four point scale. The categories are as follows: Inadequate This indicates that an applicant poses a substantial risk to the licensing objectives; or there are significant concerns about an applicants suitability; or there is a risk of significant noncompliance with the requirements of the Act and the Commissions LCCP.
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3.14
The Gambling Act 2005 (Definition of Small-scale Operator) Regulations 2006
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Just adequate This indicates that there is less risk to the licensing objectives; the applicant meets the minimum expectations regarding suitability; the applicant just meets the requirements of the Act and the Commissions LCCP. Adequate This indicates that the applicant is unlikely to pose a risk to the licensing objectives; the applicant appears to be suitable to carry on the licensed activities in question; the applicant appears likely to be able to meet the requirements of the Act and the Commissions LCCP. Good This indicates that the applicant is unlikely to pose a risk to the licensing objectives; the applicant has a proven track record of being able to carry on the licensed activities in question; the applicant has a proven track record of being able to meet the requirements of the Act and the Commissions LCCP. 3.15 The Commission will keep applicants up to date with the progress of their application. Where the initial assessment gives rise to any concerns or doubts, the Commission will, if it is possible to do so, seek to address those concerns or doubts with the applicant by requesting additional information or clarification. The one possible exception to this would be the criminal record of the applicant where the Act6 allows for the refusal of an application if the applicant or a person relevant to the application has a conviction for a relevant offence7.
Identity and ownership

3.16 The Commission requires individuals to provide identification information, as recommended by the CRB, which is checked in accordance with their advice. The Commission will seek to follow up and resolve any inconsistencies, such as an indication on the CRB record that states aliases have been used by an applicant. The Commission also asks for current photographs of personal licence applicants and will check that these are consistent with any photographs on identity documents. The Commission will check records about companies and directors records to ensure that we are clear that the correct entity is being licensed and to check whether there are any other related companies in a group, or historically related or common Directors across a number of companies. If this is the case we may investigate related companies to understand the relationship. The Commission will also want to ensure that it can establish who benefits from the gambling provided and therefore require that any shareholders with a 3% holding are listed and that those with over 10% holding complete an Annex A form to enable further checks to be carried out on them. If the beneficiary of any business is a Trust then the Commission will want to know who the beneficiaries of that Trust are. If the applicant is a company based overseas or part of the company structure is based overseas then we would want a full description of the company structure and would satisfy ourselves that the overseas elements were either listed companies or that we knew of nothing untoward about them. We might carry out checks with overseas regulators.
3.17
3.18
3.19
Finances
3.20 For operating licence applications, the Commission will ask for accounts from existing businesses or financial projections where the applicant is a new business. Our main focus is on assessing the resources likely to be available to enable a licensee to carry on the licensed activities.
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Section 71 Gambling Act 2005 Schedule 7 Gambling Act 2005
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3.21
The Commissions approach is slightly different depending on whether an applicant is a new start up or an existing business. With new businesses we consider the overall viability of the business and may wish to make further enquiries if it appears that the resources available are inadequate or not properly secured. With existing businesses the Commission will consider the resources devoted to the gambling operation and the degree to which they could deliver the necessary arrangements for the provision to be compliant with the Act.
Integrity
3.22 The Commission will consider whether the information it collects raises any concerns about integrity. This involves an assessment of an applicants criminal record (further details of which appear below) or past involvement in civil or regulatory investigations or proceedings. The Commission will consider the evidence and findings of complaints about the applicant and investigations by other regulators. The Commission will look into the applicant and other relevant persons to see if there has been a history of problems or business failure and will use open source checks to assist with that.
3.23
Competence
3.24 The Commission will take up references and may review the CVs of the applicant or other relevant persons to assess their work experience and the training they have received which demonstrates their competence to carry out the role required of them. For individuals who are likely to fulfil key senior roles, the Commission will look for evidence that the individual has some demonstrable experience, where appropriate, of working in a regulated industry and, if an individual has had no gambling experience, that suitable training or briefing in gambling regulation is planned.
3.25
Criminality
3.26 The fact that an applicant has been convicted of a relevant offence will result in the criminality element of the assessment being marked inadequate. This does not mean that the application will automatically be refused. Each case will be considered on its individual facts and merits and consideration will be given to the seriousness, relevance and date of the conviction. The Commission may consider relevant offences which would otherwise be considered spent under the Rehabilitation of Offenders Act 1974 when considering an application for a licence.8 More information on the treatment of criminal convictions is set out below. Once the assessment has been completed for each element of the application then an overall view is taken and marked on the same basis. The fact that one or more elements are just adequate or less does not always mean that the licence will be refused. The overall evaluation is judged on a case by case basis having regard to the importance of the matters to which it relates and risk to the licensing objectives. When considering the relevance of an offence the Commission will start from the basis that it will accept the information it receives regarding convictions from the Criminal Records Bureau or Disclosure Scotland or the Police as likely to be accurate. If there is any doubt about the accuracy of the information then it is the responsibility of the applicant to rectify the error with the reporting body. In any event, the Commissions processes are not a forum for running arguments which could have been put in a criminal appeal.
3.27
3.28
Section 125 Gambling Act 2005
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3.29
The fact that a person has been convicted of an offence will be considered as a contraindicator of that persons suitability as it raises a question about the character and behaviour of the individual in question. In evaluating the seriousness and relevance of an offence, the Commissions assessment will focus on whether the conviction has a potential bearing on suitability to hold a licence and will have regard to the public interest, which includes taking account of: the protection of the public the maintenance of public confidence the importance of upholding proper standards of conduct and competence by licensees. Broadly, the Commission considers that the impact of a conviction on an applicants suitability to hold a licence is likely to be a function of: the nature and seriousness of the offence the relevance of the offence in the context of the licensed activities. In order to assess the nature and seriousness of the offence the Commission will take account of all the evidence and information available about the offence. This will involve consideration of the facts and circumstances of the offence, including the individuals explanation and any further information about the offence, for example through any Amplified Police Report (APR) and sentencing remarks made by a Court. Consideration of the nature and seriousness of an offence includes consideration of: the seriousness of the offence, its legal definition, the relevant criminal behaviour, including the degree of dishonesty, intent or recklessness involved the sentence imposed whether there is repeat offending or a pattern of offending, including the time period over which the offending occurred and the age and experience of the applicant at the time evidence of rehabilitation or the lack of a capacity for rehabilitation harm or loss suffered by any victim(s) of the crime and the nature of any victim(s). The assessment of relevance will include consideration of whether, if at all: the offence is a relevant offence listed in Schedule 7 of the Act the behaviour which led to the conviction was not only criminal but was also inconsistent with the licensing objectives the relevance of the offence to the activities which the applicant would be permitted to carry out if granted a licence. The Rehabilitation of Offenders Act provides that, after a prescribed period of time, certain convictions become spent. This means that a person who was convicted of an offence is after that time rehabilitated and is to be treated for all purposes in law as if he had never been charged with, convicted of or sentenced for the offence. However, as indicated above, by virtue of section 125 of the Gambling Act 2005, the Rehabilitation of Offenders Act does not apply to any offence specified in Schedule 7 of the Gambling Act 2005 as a relevant offence. Therefore applicants must disclose relevant offences even if they would normally be spent and the Commission may refuse a licence on the grounds that the applicant (or a person relevant to the application) has a conviction for a relevant offence. When deciding what weight is to be attached to a conviction for a relevant offence, the Commission will take into account the passage of time since the offence was committed, the applicants explanations of the circumstances of the offences and any information or reports which are available relating to the conviction.
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
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3.38
When considering the applicants suitability to carry on the licensed activities, as required by section 70 of the Act, the Commission will also have regard to the applicants unspent convictions. Again, the Commission will take into account the passage of time since the offences were committed and the applicants explanations of the circumstances of the offences. The Commission will disregard spent convictions that do not relate to relevant offences.
3.39
Communicating the final decision

3.40 All applicants will be informed in writing of the decision on their application. Where the Commission is minded to make a decision to refuse the application, grant in part or to attach specific conditions to the licence the applicant will be given the opportunity to make representations before that decision is finalised. Details of these arrangements and subsequent appeals processes including appeals to the Gambling Appeal Tribunal are contained on the Commissions website. If the applicant is successful then a licence will be issued either by email or in hard copy. For operating and personal licences relevant details of the licence will be published in the public register9 on the Commissions website.
3.41
What happens after the licence has been issued?

3.42 Once a licence has been granted and issued, it is important that licensees read though it to check that the details on the licence are correct and that they are familiar with the conditions attached to the licence and the changes and matters that licensees must keep the Commission informed of whilst they are the holder of a licence10. The Act requires the holders of operating licences to pay an annual fee for their licence, in advance. The first annual fee is due within 30 days of the licence being issued. Subsequent payments will be required before the anniversary date, that is the date of issue of the licence11. The Commission will remind licensees about the need to pay their annual fee approximately six weeks before each fee is due. Failure to pay annual fees by the due date may lead to the revocation of a licence. Holders of personal licences will be required to pay a fee every five years to maintain their licence.12 Full details of the fee to be paid and any additional information the Commission may require will be requested at least six weeks before the fee is due. Failure to pay the fee will ultimately lead to the revocation of a licence.
3.43
3.44
The Commission maintains a register of operating licences relating to each licence under the provisions of Section 106 of the Act Licence Conditions and Codes of Practice (as amended from time to time) 11 The Gambling (Operating Licence and Single-Machine Permit Fees) Regulations 2006 (as amended) 12 The Gambling (Personal Licence Fees) Regulations 2006 (as amended)
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4.1
Compliance
Once an operator or individual holds a licence, the Commission seeks to ensure, through its compliance work, that the licensee remains suitable to hold licences and that they conduct themselves in a way which is consistent with the licensing objectives, the requirements of the Act and the conditions of their licences and related codes of practice. This chapter of the document outlines the manner in which the Commission will carry out its compliance activities.
Advice and assessment

4.2 The Commission will undertake compliance activity in a variety of ways. The Commission will provide advice to licensees to help them comply with the requirements of the legislation and the licence conditions and codes of practice which apply to them. The Commission may also undertake desk based assessment, or may telephone licensees to assess compliance.
4.3
The purpose of assessments and visits

4.4 The purpose of an assessment and visit is to: ensure that the licensee remains suitable to hold a licence check that the licensee is conducting their activities in a manner which is consistent with the licensing objectives ensure that the licensee is complying with the requirements of the Act and relevant regulations ensure that the licensee is complying with the Commissions LCCP that apply to the licence held. Assessments and visits will be used proportionately, as the Commission will seek to target those areas of greatest risk to the licensing objectives. Assessments and visits also offer an opportunity for the Commission to promote good practice, as well as offering licensees an opportunity to seek advice and to provide feedback to the Commission, which can be used to continually improve its processes and procedures.
4.5 4.6
Notification
4.7 The Commission may give advance notice of its intention to visit a licensee and provide details of the process and procedures to be followed. This will provide the licensee with clarity about what will be required and gives the licensee an opportunity to prepare and to minimise potential disruption to the licensed activities being undertaken. However, assessment visits may be made without prior notice.
The frequency of assessments and visits

4.8 The frequency and focus of assessments and visits is based on the risk assessment of the licensee, which takes into account a variety of factors, including the likelihood and potential impact of non compliance by the licensee.
General conduct
4.9 The Commission will: act reasonably in discharging its powers under the Act and conducting assessments and visits
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exercise its powers under the Act fairly, responsibly and with due respect for other parties involved explain what information is required, and why, to ensure requests are appropriate, proportionate, minimise disruption to the business, and enable the relevant person to comply fully with the request seek the co-operation of others wherever possible and only use its statutory powers when necessary.
Requests for information

4.10 A request for the production of any records or to provide an explanation of records will be made either orally or in writing, dependent upon the individual circumstances of each case. Wherever possible, licensees will be given a reasonable period of time to comply with the request. The Commission will seek to take into account the burden placed on the individual or business when removing records so that it causes minimal disruption. The Commission will only ask a licensee to produce documents or records which it needs and will only remove them if it is necessary. Generally, the Commission will copy documents or records and leave the original records with the licensee. When any document or record is removed, the Commission will give an explanation of why this is necessary and provide a receipt. Any documents which have been removed will be returned as soon as possible after the need for their retention has passed. Where an information request is made orally on a visit a record will be made of the request, what has been requested and the time and place for its production.
4.11
The Data Protection Act

4.12 The Commission considers that licensees will not breach the requirements of the Data Protection Act if they supply information that the Commission has requested even if this relates to personal information that they hold. The Commission has the power to request this information under the Act.
Publication of assessment reports

4.13 When an assessment has been carried out, the licensee will be notified of the result and any further action that is being taken, or should be taken, as soon as possible. The Commission will not normally give, either orally or in writing, any indication as to the result of the assessment at the time it is conducted.
Dealing with compliance issues Required improvements

4.14 During the course of an assessment visit, compliance issues may be identified which require improvements to be made. Wherever possible, the Commission will explain to the licensee why any changes need to be made, the basis for requiring the changes and a timeframe in which required improvements should be carried out.
Complaints about licensees

4.15 Whilst the Commission does not have a specific statutory duty to investigate complaints about licensees, depending on the issues raised the Commission may decide to look into matters relating to the complaint. Further details of the Commissions approach to complaints can be found in the Commissions Complaints Policy which is on the Commissions website.
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Risk Assessment and proportionality

4.16 The decision about how best to deal with any issues will be informed by an assessment of risk. This will ensure that the Commissions resources are focussed primarily on those operators, individuals and activities which present the greatest risks to the licensing objectives.
Evaluation
4.17 As part of its compliance activities, the Commission will: assess and evaluate compliance consistently and in accordance with the Commissions Risk Assessment methodology consider the ongoing suitability of the licensee by looking at the following factors, plus other matters, where appropriate (the list is not exhaustive): o finances o integrity o competence o criminality consider whether the licensed activities are being conducted in a manner which is consistent with the licensing objectives check that the licensee is complying with the requirements of the Act ensure compliance with the licence conditions and codes of practice that apply to the licence, amongst other things by reference to the controls which the licensee has put in place. In carrying out this assessment, the Commission will use the following framework, which mirrors the framework for assessing licence applications: Inadequate This indicates that a substantial risk to the licensing objectives; or significant concerns about the licensees suitability; or significant non-compliance with the requirements of the Act and the Commissions LCCP. Just adequate This indicates that there is less risk to the licensing objectives; the licensee meets the minimum expectations regarding suitability; the licensee just meets the requirements of the Act and the Commissions LCCP. Adequate This indicates that the licensee is unlikely to pose a risk to the licensing objectives; the licensee appears to be suitable to carry on the licensed activities in question; the licensee appears to be meeting the requirements of the Act and the Commissions LCCP. Good This indicates that the licensee is unlikely to pose a risk to the licensing objectives; the licensee is able to clearly demonstrate that the licensed activities in question are being conducted in accordance with the requirements of the Act and the Commissions LCCP.
4.18
Providing advice
4.19 Where the assessment of a licensee identifies an issue which needs to be addressed, where appropriate the Commission will seek to encourage the licensee to take action to address the issue. This may be done by officials, in addition to issuing standard
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documentation required under the inspection regulations, providing information to the licensee. Where such information is provided, the Commission will endeavour to distinguish between what are mandatory requirements and what is advice or guidance about what is desirable but not mandatory.
Concerns about suitability

4.20 Where the Commissions compliance activities give rise to concerns about the suitability of the licensee to carry out the licensed activities, or concerns about the circumstances under which the licensed activities are being carried on, the matter may be dealt with in accordance with the Commissions procedures for enforcement, which are set out below in Chapters 5 and 6.
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5
5.1
Regulatory Enforcement
In its widest sense, enforcement includes the regulatory or criminal investigation processes, which may result in the exercise of the Commissions regulatory powers under the Act, or the commencement of a prosecution and the laying of criminal charges. Enforcement forms an essential part of the Commissions work to keep gambling fair and safe for all. This chapter sets out the Commissions policy in relation to its regulatory enforcement functions, namely: licence reviews the exercise of the Commissions regulatory powers after a licence review the exercise of the Commissions other regulatory powers.
5.2
Licence reviews What are licence reviews?

5.3 Section 116 of the Act gives the Commission the power to review, over time, the performance of licence holders and the operation of licence conditions. The section provides for two different types of review. Under section 116(1) of the Act the Commission may review matters relating to a class, or type, of licence. The purpose of such a review will be to review the manner in which a particular class of licensees carry on the licensed activities authorised by their licences, and, in particular, how the licensees in question comply with the conditions attached to the class of operating licence. Section 116(2) of the Act gives the Commission the power to review any matter relating to an individual licence if the Commission: suspects that conditions of a licence have been or are being breached believes that the licence holder or any person connected with the gambling activities, has been convicted of a relevant offence in Great Britain or abroad; or for any reason: o suspects that the licence holder may be unsuitable to perform the licensed activities o thinks that a review would be appropriate. A review can be carried out even if there is no suspicion or belief about the licence holder's activities. This means that a licence could be reviewed solely on the grounds that the Commission considers a review would be appropriate. There will, however, always be a reason for a review to be commenced and the Commission will ensure that the letters sent to licensees when a review is being initiated clearly explain the grounds for the review.
5.4
5.5
5.6
The process for reviewing a class or type of licence

5.7 The Commission may decide to review a class or type of licence. There are many reasons why the Commission may wish to do this. For example, the Commission may wish to assess the manner in which the licensed activities authorised by a class or type of licence are being carried out; the Commission may wish to review whether the conditions attached to the class of operating licence are being complied with; or, the Commission may decide to review a class of licences in order to ensure that the conditions that apply to those licences remain appropriate. In practice, most reviews carried out under section 116 of the Act remain likely to take place in relation to individual licences.
5.8
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The process for reviewing an individual licence

5.9 At any stage in the review process the Commission has the option to: decide that there should be no further action decide to issue advice to the licensee rather than continue the review agree to a licensees proposals regarding voluntary settlement. There may also be occasions when information gathered during the review leads the Commission to conclude that it should commence a criminal investigation, or should refer the matter to the police or another regulatory body for consideration by them.
5.10
Commencing a review of an individual licence

5.11 Before commencing a review of an individual operating or personal licence, the Commission must notify the licensee and inform him or her of the procedure to be followed in the conduct of the review. In most cases the Commission will fulfil this obligation by issuing a notice to the licensee, which sets out: the grounds for commencing a review the procedure to be followed confirmation of the licensees right to make representations, the form of those representations (oral and written) and when those representations should be made. The Commission will normally include an indication of whether it intends to give other persons an opportunity to make representations. The notice will confirm the fact that the Commission is undertaking a licence review, as opposed to a criminal investigation, and that the Commission will only take criminal action where, in response to a request for information, the licensee or any person appointed to act on behalf of the licensee provides false or misleading information to the Commission. In the case of reviews of operating licences, the holder of an operating licence will also be reminded that it is an offence, under section 122 of the Act, to fail without reasonable excuse to comply with a request to produce written or electronic records or information about the licensed activities.
5.12
5.13
Initial meeting
5.14 The Commission may, either when it is considering whether to commence a licence review, or after notifying a licensee that it proposes to commence a review but, before proceeding with the review or requesting specified information, hold an initial meeting with the licensee to clarify and narrow the issues and to establish exactly what information will be required by the Commission if it commences a review.
Interviews
5.15 In addition to requesting specified information, the Commission may wish to interview persons who it considers can supply relevant information in connection with the review. Such interviews may be recorded on tape and where necessary the person being interviewed will be reminded that the Commission may draw adverse inferences if they do not provide answers to the Commissions questions. In Scotland, where the Commission determines to carry out an interview of an individual suspected of committing an offence that person will be issued with a caution but under Scottish law no adverse inference may be drawn from a failure to answer questions.
5.16
Preliminary finding
5.17 At the conclusion of the review, the Commission will send a preliminary findings letter to the licensee. The letter and documents which accompany it will contain details of: the facts found during the review where relevant, how those facts relate to any apparent breach of a licence condition or a code of practice
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a preliminary assessment of the seriousness of the case in terms of possible outcomes any relevant policy considerations in appropriate cases, that the decision what (if any) regulatory action should follow the review will be taken by a Regulatory Panel. 5.18 The preliminary findings letter will also normally set out the details of the documents, and other evidence on which the Commission relies and details of any documents which might be said to undermine the Commissions or assist the licensees case.
Representations by the licensee

5.19 The licensee will then be offered the opportunity to make written representations in response to the Commissions preliminary findings. Licensees will normally be given 28 days to make representations, but there may be occasions when a shorter period is appropriate. Personal licensees who feel unable to prepare a written response will be offered the opportunity to make oral representations, which will be recorded in writing by the Commission.
5.20
The Commissions regulatory powers

5.21 Following a review under section 116(1) or (2) of the Act, the Commission may: decide to take no further action decide to give the licensee advice as to conduct give the licensee a warning add, remove or vary a condition to the licence suspend a licence revoke a licence impose a financial penalty.
Financial penalties
5.22 A financial penalty can be imposed either following a review, or without a review having taken place, but may only be imposed where the Commission thinks that a condition of a licence has been breached (which by virtue of section 82 of the Act includes a breach of a social responsibility provision of a code of practice). Section 121(6) of the Gambling Act 2005 requires the Commission to prepare a statement setting out the principles to be applied by the Commission in exercising its powers to impose financial penalties and to have regard to the statement when exercising a power under this section. A copy of the Statement of Principles for Determining Financial Penalties can be found on the Commissions website.
5.23
Suspension at the outset or during a review

5.24 The Commission has the power to suspend a licence at the outset of, or during, a review if the Commission suspects that: a licensed activity is being or has been carried on in a manner which is inconsistent with the licensing objectives a condition of the licence has been breached a licensee has failed to cooperate with a review the licensee is unsuitable to carry on the licensed activities. Therefore, if the Commission considers a matter sufficiently serious, it can require an operator to suspend all or part of the activities authorised by the licence pending the outcome of the review. If the Commission decides to suspend a licence in such circumstances, the licensee will be informed that they may have that decision reviewed by the Commissions Regulatory
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5.25
5.26
Panel. If such a review is requested, a meeting of the Regulatory Panel will be convened as soon as practical, normally within three days. 5.27 As an alternative to suspension the Commission may be prepared to agree conditions under which the licensee may continue to operate or work, for example subject to the Commission receiving satisfactory undertakings restricting, or accepting supervision arrangements in respect of, the activities which will be carried on whilst the review is in progress.
Suspension or revocation of a licence following a review

5.28 The Commission may suspend or revoke a licence if, following a review, the Commission considers that: a licensed activity is being or has been carried on in a manner which is inconsistent with the licensing objectives a condition of the licence has been breached a licensee has failed to co-operate with a review the licensee is unsuitable to carry on the licensed activities.
Assessing suitability
5.29 In assessing the suitability of an applicant to carry on licensed activities, section 120 of the Act provides that the Commission may, in particular, have regard to: the integrity of the licensee or of any person who exercises a function in connection with or is interested in the licensed activities the competence of the licensee, or of any person who exercises a function in connection with the licensed activities, to carry on the licensed activities in a manner consistent with pursuit of the licensing objectives the financial and other circumstances of the licensee or of any person who exercises a function in connection with or is interested in the licensed activities (and, in particular, the resources available for the purpose of carrying on the licensed activities). This means that the Commission will consider, amongst other things, a licensees integrity (which includes an assessment of his or her honesty and openness), his or her competence and any other relevant financial or other circumstances including the resources available to carry on the licensed activities (for example, human resources, financial resources and the adequacy and effectiveness of the systems and controls which are in place). The assessment of suitability in relation to the Commissions enforcement functions will assess many of the same matters which were assessed when the licence was originally granted. However, the Commission may also look at other matters as circumstances require. As such the factors described above are not intended to be an exhaustive list of the factors to be considered.
5.30
5.31
Assessing whether the licensed activities are being carried out in a manner which is inconsistent with the licensing objectives
5.32 In deciding whether or not a person has carried on a licensed activity in a manner which is inconsistent with the licensing objectives, the Commission will have regard to its own codes of practice and any other statements it has made (for example, through guidance notes or advice as to conduct letters) about pursuing the objectives.
Voluntary settlement in relation to licence reviews

5.33 Carrying out licence reviews can be expensive and time-consuming. The Commission is therefore keen to encourage licensees to come forward and make full disclosure of all the relevant facts relating to a matter, at as early a stage as possible.
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5.34
Where a licensee makes a full disclosure of all the relevant facts, the Commission will consider whether its investigations need to continue, or whether the Commission is prepared to agree the facts and the nature of the sanction (if any) which ought to be imposed, or in appropriate cases what action short of formal sanction should be taken. The earlier disclosure is made in the investigation process, the more credit will be given to the licensee for making full disclosure of all the relevant facts. Licensees will also be given credit for disclosing a regulatory breach to the Commission before a licence review has commenced. The Commission will not initiate the voluntary settlement process, but will remind licensees at the outset of the review process, that such an option exists.
5.35
5.36
Voluntary settlement in relation to criminal investigations

5.37 The voluntary settlement process will not apply where the Commission decides to carry out a criminal investigation.
The Commissions other regulatory powers What other regulatory powers does the Commission have?
5.38 The Commission has regulatory powers which it can exercise without carrying out a licence review. The Act gives the Commission the power to: impose a financial penalty, where the Commission thinks that a condition of a licence has been breached void a bet decide that a licence has lapsed if a licensee becomes incapable of carrying on the licensed activities by reason of mental or physical incapacity, revoke a licence for non-payment of an annual fee.
Financial penalties
5.39 The Commission has the power to impose a financial penalty, without a review having taken place, where the Commission considers that a condition of a licence has been breached (which by virtue of section 82 of the Act includes a breach of a social responsibility provision of a code of practice). As indicated above, the Commission has prepared a Statement of Principles for Determining Financial Penalties which can be found on the Commissions website at www.gamblingcommission.gov.uk.
5.40
Voiding bets
5.41 The Commission has the power to make an order voiding an individual bet accepted by, or through, the holder of a general betting operating licence, a pool betting operating licence, or a betting intermediary operating licence. Where the Commission exercises this power, any contract or other arrangement relating to the bet will be void, and any money paid in relation to the bet must be returned to the person who paid it. Such repayments will be enforceable as a debt. The power to void a bet only applies to the parties to a specific bet; it does not apply to all bets placed on an event. The Commission may only make an order to void a bet if it is satisfied that the bet was substantially unfair. In considering whether a bet is substantially unfair, the Commission must, in particular, have regard to any of the following factors: that one or both of the parties to the bet (whether they made or accepted the bet) supplied information in connection with it that was insufficient, false or misleading that one or both of the parties to the bet believed, or ought to have believed, that the race or event about which the bet was made was, or would be, conducted in contravention of the industry rules that apply to the event
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5.42
the fact that one or both of the parties to the bet believed, or ought to have believed, that the offence of cheating (as set out in section 42) had been, or was likely to be, committed in relation to the bet the fact that one or both parties to the bet have been convicted of the offence of cheating as set out in section 42 of the Act. 5.43 5.44 It follows that the Commission will not automatically void a bet where one of the factors listed above exists; it will only void a bet where it is satisfied that it was substantially unfair. The power to void a bet will be available to the Commission for a period of six months from the day on which the result of the bet is determined, except where there has been a conviction for cheating, in which case there is no time limit. The Commission also has the power, under section 338 of the Act, to make an order freezing any obligation to pay money in relation to a bet, where it suspects that it may need to make an order that the bet is void under section 336. The effect of this interim moratorium is to protect any payments that would otherwise have been made in relation to a bet. The Commission need not be certain that a voiding order will be made before imposing the interim moratorium. An interim moratorium will last for a period of 14 days, beginning on the day that it is made. The Commission may extend an interim moratorium by a further period of up to 14 days and there is no limit to the number of interim moratoria that the Commission may impose in relation to any bet, although the time limit of six months for making an order to void a bet will continue to apply during any period when an interim moratorium is in place. The Commission may cancel an order for an interim moratorium before it expires; and must cancel it if it ceases to think that it might want to make an order to void the bet.
5.45
5.46
5.47
Surrender of a licence
5.48 5.49 A licence ceases to have effect if it is surrendered to the Commission. This provides a voluntary procedure for a licence holder to give up their licence if they so wish. However, if a licensee surrenders the licence whilst a licence review under section 116 of the Act is underway, the Commission may decide to continue its investigations in order to determine the facts of the case so that they can be referred to in the future, for example if the licensee subsequently applies for a new licence.
Lapse
5.50 A licence will lapse, and is not transferable, if the licence holder dies or becomes bankrupt or goes into liquidation. A licence will also lapse if, in the Commissions view, the licensee becomes incapable of carrying out the licensed activities by reason of mental or physical incapacity. In such cases, the Commission will consider all of the circumstances of the case before making a decision, which may involve seeking medical advice about the licensee.
Revocation for non-payment of annual fee

5.51 Failure to pay annual fees by the fee due date may lead to the revocation of an operators licence.
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6
6.1
Investigation and prosecution of offences under the Gambling Act 2005

This chapter sets out the Commissions policy in relation to the investigation and prosecution of offences under the Act, including the Commissions powers, and the relationship between criminal and regulatory investigations.
The prevention of illegal gambling

6.2 The general framework set by the Act is that providing facilities for gambling is illegal unless provided: in accordance with certain specific exemptions in the Act in certain cases (for example, machine gaming in pubs and clubs and small scale lotteries) under permits or other arrangements administered by local authorities by a person who holds a licence issued by the Commission. The prevention of illegal gambling is a key priority for the Commission. The Commissions Strategic Assessment and Tactical Assessments will set the Commissions enforcement priorities. Those priorities will alter to meet changes in the assessment of risks and the Commission will allocate enforcement resources to the areas of greatest risk. Combating illegal gambling also benefits licensed operators, as the provision of illegal unregulated gambling has both a reputational and economic impact on the gambling industry as a whole.
6.3
6.4
The Commissions powers to investigate offences under the Act

6.5 Under section 27 of the Act the Commission may undertake activities for the purpose of assessing compliance with provision made by or by virtue of the Act and whether an offence is being committed under the Act. By virtue of section 28 of the Act the Commission has the power to investigate whether an offence has been committed under the Act and may institute criminal proceedings in respect of offences under the Act in England and Wales. In Scotland, the power to institute criminal proceedings rests solely with the Crown Office and Procurator Fiscal Service (COPFS). At the conclusion of an investigation in Scotland, the Commission may prepare a report to COPFS recommending criminal proceedings.
The relationship between regulatory and criminal investigations

6.6 As a general rule the Commission will not normally pursue a criminal investigation into a licensed operator, as in most cases the matter under investigation is likely to be capable of being dealt with by the exercise of the Commissions regulatory powers. However, there might be circumstances where the commencement of a criminal investigation was merited, for example, if a licensee were suspected of cheating under section 42 of the Act (which carries the possibility of a longer period of imprisonment, if convicted), or if a licensee knowingly misled or provided false information to the Commission, contrary to section 342 of the Act. There may be circumstances where the Commissions investigations uncover evidence that a serious criminal offence may have been committed, which falls outside the Commissions jurisdiction to investigate. In such cases the Commission may pass the information it possesses to the Police, or another body, for consideration by them.
6.7
Deciding whether to institute criminal proceedings

6.8 The Commission recognises that there should be a separation of functions between the investigative process and the decision regarding whether or not a criminal prosecution
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should take place. At the conclusion of a criminal investigation, the case will be thoroughly reviewed before a decision is taken. In Scotland, this review will take place before a decision is taken on whether or not to report a case to COPFS. 6.9 The Commission will apply the Code for Crown Prosecutors when deciding whether criminal proceedings should be commenced, which involves a two-stage test: first, the evidence will be reviewed and an assessment made about whether there is a realistic prospect of conviction secondly, if there is sufficient evidence to mean that there is a realistic prospect of conviction, an assessment will be made about whether it is in the public interest for a prosecution to take place. The Code for Crown Prosecutors lists a number of common public interest factors which either favour or are against prosecution. A copy of the code can be found on the Crown Prosecution Services website13 and in the event that the Code is revised the Commission may need to review its own processes accordingly. In Scotland the Commission will follow the guidance to Specialist Reporting Agencies in the preparation of reports to COPFS.
6.10
6.11
Time limits
6.12 Section 347 of the Act establishes prosecution time limits for relevant offences and disapplies section 127(1) of the Magistrates Courts Act 1980. This means that any information in connection with an offence committed under the Act has to be laid before the Magistrates within the period of 12 months beginning with the date (or last date) on which the offence was alleged to have been committed. Where an offence is continuing in nature then the relevant date is the last date on which the offence was committed. This time limit does not apply to the offence of cheating, under section 42 of the Act as cheating is triable either way. Conviction on indictment also carries the possibility of a longer sentence of imprisonment than other offences under the Act.
6.13
Cautions
6.14 In appropriate cases, where the Commission has investigated a matter and both the evidential and public interest tests are met, the Commission may decide to issue a caution to the alleged offender, rather than pursue a prosecution. Where a caution is administered, details of the caution will be kept on file and may be taken into account in the future if further breaches occur.
Prosecutions in Scotland
6.15 The Commission does not have the power to commence criminal proceedings in Scotland, but as a Specialist Reporting Agency can recommend criminal proceedings to the COPFS. Therefore the Commission has the power to carry out investigations in Scotland and where it does so it will investigate the matter in accordance with the requirements of the Scottish legal system and in accordance with the COPFS Guidance to Specialist Reporting Agencies. A case file/report will be prepared for submission to the COPFS, who will make the decision on whether or not to prosecute. The Commission will work towards presenting the file/report to the Crown Office Procurator Fiscal Service within six months of the alleged offence(s).
6.16
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6.17
The capacity to issue a formal caution for a criminal offence does not exist in Scotland. The COPFS has the power to issue warnings and impose financial penalties as a direct alternative to prosecution.
Proceeds of Crime
6.18 6.19 The Commission is committed to a multi-agency approach to ensuring that crime does not pay. The Commission is an accredited agency and has powers under the Proceeds of Crime Act 2002 (POCA)14. Where the Commission has secured a criminal conviction in respect of an offence under the Act, it will use its powers under POCA and will work with other agencies to take appropriate action to ensure that the proceeds of gambling crime are confiscated. The Commission will also bear in mind the possibility that some regulatory cases could meet the Assets Recovery Agency (ARA) referral criteria. The Commission is already the supervisory body for the casino industry for the purposes of the money laundering rules and uses its powers under the Act to exchange information on proceeds of crime issues with the Serious Organised Crime Agency and other law enforcement partners involved in taking action under the POCA.
6.20
Gambling Commission September 2009
Keeping gambling fair and safe for all

For further information or to register your interest in the Commission please visit our website at: www.gamblingcommission.gov.uk Copies of this document are available in alternative formats on request. Gambling Commission Victoria Square House Victoria Square Birmingham B2 4BP T 0121 230 6666 F 0121 230 6720 E info@gamblingcommission.gov.uk SOP 09/03
14
The Commissions powers under POCA do not extend to Scotland. 24

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The Gambling betting integrity decision making framework

December 2010
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Contents
1 2 Introduction Summary Betting Integrity investigations process flowchart 3 The Gambling making framework
Sources of information SBIU development and assessment Decisions on how to progress intelligence gathered Case conference Effective use of resources Investigation (Gambling Commission or Police) Information to SGBs and operators during investigations Voiding Prosecution SBIU dissemination Sharing information with partners
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3 4 5 6
6 6 7 8 9 10 10 10 10 11 11
1
1.1
Introduction
Under the Gambling Act 2005 (the Act) the Gambling Commission (the Commission) has powers to prosecute offences of cheating and to void bets. Our powers to prosecute cheating offences apply where a person cheats at gambling or where they do anything for the purposes of enabling or assisting another (person) to cheat at gambling. We also have powers to make an order voiding an individual bet accepted by, or through, the holder of a betting specific licence. Where the Commission exercises this power, any contract or other arrangement relating to the bet will be void, and any money paid in relation to the bet must be returned to the person who paid it. The power to void a bet only applies to the parties to a specific bet; it does not apply to all bets placed on an event. condition (15.1)1 which requires betting operators to share information on suspicious transactions with the Commission and sports governing bodies (SGBs). In March 2009, the Commission published a policy position paper on betting integrity2 that summarised the work we had done to date with sports governing bodies, the betting industry and others and outlined our commitment to strengthen the deterrents against corruption with a view to profit from betting. Following on from the policy paper, in mid 2009, the then Minister for Sport, brought together a panel of experts, including key people from the principal organisations involved from the betting industry, the police, players, fans, SGBs, the legal profession and the Commission, to look at a wide range of issues relating to sports betting integrity. They were asked to make recommendations on how the various bodies concerned could work together more effectively. The main focus was the design and implementation of an integrated strategy to uphold integrity in sports and associated betting. One of the recommendations of the Panel was that: publish its decision making framework in the area of betting related corruption. This would provide greater clarity of expectation over when a particular incident might be treated as a criminal investigation or a sports disciplinary matter; and the circumstances under which police cooperation or, indeed, a police lead would be appropriat
1.2
1.3
1.4
1.5
1.6
1.7 making processes, most notably the Licensing, Compliance and Enforcement policy statement (September 2009)3, or provide relevant information, such as the Sports Betting Intelligence Unit Terms of Reference (June 2010)4. This document sets , in the context of betting integrity and, in parts, in greater detail, from when it first receives a piece of information following the development of the Sport Betting Intelligence Unit (SBIU), another recommendation of the Panel. This document is aimed at those bodies the Commission might work with in respect of betting integrity. 1.8 This document may be revised from time to time to reflect any developments in the

1 2 3
Licence Conditions and Code of Practice- October 2008 Betting Integrity: Policy position paper - March 2009 Licensing, Compliance and Enforcement policy statement- September 2009 4 Sports Betting Intelligence Unit terms of reference- June 2010
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2
2.1
Summary
The overall aim of the Commission, and its partners, is to reduce the likelihood of corruption and where it is discovered to cause it to end. This is best achieved by working together on a combination of prevention, disruption, deterrence and sanction opportunities. Pursuing a criminal sanction will not always be possible, and often will not be the most effective or efficient approach to take. It is usually not possible to prove that the result of an event has been manipulated simply by watching the event; instead, a criminal case will very often rely on establishing relationships between those involved and following flows of money. As a result it can be both very time consuming and costly. The Commission noted in its policy position paper of March 2009 that investigation and sanction by the SGB may be a more appropriate approach to achieve our aim, be quicker than criminal investigation and therefore may be the more frequently taken approach. A SGB sanction can act as a timely deterrent. In short this is because the standards of proof required for a civil sanction are lesser than those required for a criminal sanction and an ly applied can be an effective control to achieve our joint aims. Our decision making framework reflects this aim and these issues. However, each case will be considered on its merits and appropriate action taken dependent on the charge brought in an appropriate case.
2.2
2.3
2.4
Once a piece of information is received there are broadly four key partners who can be involved in a case the Commission, SGBs, betting operators and the police (and/or other law enforcement agencies). The flow chart overleaf, in general terms, sets out how a case progresses and the decision making processes. However, it should be noted that this model does not purport to capture all circumstances and the approach may vary according to the occasion. The flow chart will be useful to understand the structure, and different sections, of this document.
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The Co framework
Sources of information
The Commission receives information from a variety of sources, including: betting operators sports governing bodies law enforcement other Commission work or other regulators Co media. The majority of information comes from betting operators. They are required to provide us with information about suspicious betting as one of their licence conditions (15.1). Not doing so would threaten their licence. Betting operators are also obliged by this condition to pass information to SGBs where appropriate. However, betting operators can also pass other information that they consider might be of relevance to the SBIU, whether or not it reaches their criteria of suspicious . The SBIU has been working closely with operators to embed this approach. The Commission is currently considering whether there is a need to amend licence condition 15.1 and related matters (a further recommendation of the Panel)5. The Commission can also request specific information under licence condition 15.3.
3.1
3.2
SGBs pass information to the Commission which can be information gained through their own means or that originally passed by a betting operator to which they have been able to add further detail. Law enforcement and the media are other potential source of information, as are other regulators (for example gambling regulators overseas). The Commission might also develop information in the course of other work that is relevant to betting integrity (other betting integrity cases or regulatory work with operators) including that from our confidential hotline.
3.3
SBIU development and assessment

3.4 Having received the information, the SBIU will look to establish whether there is any potential criminal activity by ascertaining: whether there is an identifiable event (or events) whether there is an identifiable participant (or participants) whether there is an identifiable betting party (or parties) the scope and scale of activity any links to other intelligence or cases (Commission or otherwise). The SBIU will also consider whether the activity falls within its terms of reference, in particular whether the activity: relates to a sporting event that occurred in Great Britain, and/ or involves parties based within Great Britain, and/ or occurred with a Gambling Commission licensed operator. 3.5 The quality and detail of information provided may vary substantially. Whilst the SBIU will assess all information provided it must prioritise its use of resources. Accordingly, it may be that not enough information is provided to warrant further work on an issue at that stage. For example, if a single individual or organisation considers a particular event as suspicious, but the SBIU is unable to verify important elements then it may not be
Whilst nothing in such a review would undermine the principles here this section may be expanded in due course if necessary to reflect any changes made.
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considered appropriate for the SBIU to investigate it further at that stage. However, the information will be logged and if further relevant information came to light the issue could be looked at again. 3.6 The relevant SGB is often contacted at this stage. Where there is sufficient information to warrant further work the SBIU will attempt to ascertain the information set out at section 3.4. It is important that those providing information to the Commission provide as much relevant detail as possible and provide it as early as possible (most notably the event/s, participant/s, betting party or parties and scope and scale of activity as set out in section 3.4). The more comprehensive the information that can be gained, and the quicker it is provided, the more efficiently and effectively the Commission can determine an appropriate course of action. Speed is important in processing information as the longer the period between the incident and investigation the greater the likelihood that certain evidence may no longer exist.
3.7
Decisions on how to progress the intelligence gathered

3.8 It may be quickly established that a referral is not suitable for investigation focused upon a criminal prosecution for example, a player betting on themself to win might be against the offence. The SBIU would be unlikely to look into this further, unless there were other issues of relevance. Our investigatory powers, such as those under Regulation of Investigatory Powers Act 2000 (RIPA) and Proceeds of Crime Act 2002 (POCA), can only be utilised when investigating (which covers intelligence work as well as enforcement work) a potential crime. As such we could not use our powers once we consider an issue unsuitable for investigation. Once it has been established to the satisfaction of the SBIU that there is potential criminal activity (by reference to the information in section 3.4) a decision (by the Commis intelligence and enforcement teams in collaboration is taken as to how to progress the issue. Broadly speaking this establishes whether the Commission could progress a case, whereas the case conference stage establishes whether it should. There may be situations where the necessary information to establish whether there is any potentially criminal activity cannot be secured or cannot be secured in a reasonable time or without disproportionate effort. These situations would also be considered at this formal decision making stage as it is important to consider whether there may be sufficient information to make a decision on how to progress anyway. The decision of how to progress an issue is based on an assessment of whether there is a potential criminal activity by considering whether there are/is: identifiable events identifiable participants identifiable betting patterns and activity identifiable links between them. If there is no potential criminal activity the options are to go to the SGB, betting operator or take no further action. If there is potentially criminal activity the options are to progress this to a case conference, engage in further SBIU development or take no further action at this time There are five decisions that could be made at this point: no further action for example, this could be because there was an appropriate explanation for a suspicious pattern or insufficient information is available to proceed (in which case the information would be logged on our intelligence database)
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3.9
3.10
3.11
3.12
3.13

refer to SGB this could be where there is potentially a
approach to sharing information with partners can be found at section 3.35-3.39 refer to betting operator/s this could be where there is potentially a breach of a approach to sharing information with partners can be found at section 3.35-3.39 progress to a case conference this is where there is sufficient intelligence and evidence to progress the matter. There may be times where the significance of an issue might mean it is escalated to the case conference stage before all of the elements at 3.11 have been identified further SBIU development to secure additional intelligence and evidence.
Case conference
3.14 The Statement of Principles for Licensing and Regulation (September 2009) sets out the . As noted in paragraph 2.1 a SGB applying a sanction is likely to be a quicker and less costly deterrent than the Commission or police pursuing a criminal sanction. As such there is a presumption that only more serious cases would potentially be appropriate for a criminal sanction. Decisions on how to proceed from a case conference are based on what would be the most proportionate way to address an issue and will take into account: what would be the most effective and timely deterrent and sanction scope and scale of criminality harm to/ impact on victims, including the sport or betting customers scale of potential winnings evidential prospects available resources the need to collaborate with other law enforcement agencies or partners wider factors that may override these in certain circumstances. 3.15 To give an indication of how the criteria might be used: if the scope and scale of criminality is high (for example, a number of participants and betting parties are involved) and/ or there is a need for collaborations the Commission is likely to try to engage the police, most likely as the lead body. If the relevant if a swift and significant sanction could be applied by the SGB (which offers an effective deterrent to others) then that might be the most appropriate route if the scale of criminality is low or the scale of the potential winnings and harm/ impact on victims is low it is more likely that the Commission will pass this to SGBs or operators to take disruptive action rather than prosecute. One example might be where the outcome of the event has not been influenced; another might be where those betting fairly have not been disadvantaged a theoretical example of an overriding factor might be where it is considered appropriate to take a case to prosecution in a particular sport (or against a particular type of participant) where a theme has developed to provide a deterrent effect it is possible that a case might be taken where it would normally not be, based on the other factors alone a further example of an overriding factor might be where a precedent could be set and needs to be legally tested. The Commission is more likely to take such a case. 3.16 All of the factors above are taken into account when making a decision. There are no set limits for each or a sequential way in which they are considered. It is important to retain flexibility in what is progressed.
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3.17 The potential outcomes from a case conference are: investigation (Commission or police led) disruptive (including disciplinary) action by SGBs or betting operators further development by the SBIU no further action. escalated appropriately dependent on the scale of resources that may need to be committed to conclude a case. 3.19 corrupt sports betting integrity and can occur before the event has taken place, before winnings are collected or later, such that a repeat occurrence is made less likely. Even when an issue is potentially criminal, disruptive action might often be the most effective way of addressing it. Disruptive action would normally (but not exclusively) be carried out by the relevant SGB or betting operator on the basis of information provided by the Commission. Most frequently this would take the form of a disciplinary sanction which would have an impact on the participant and provide a wider deterrent within the sport. It might also take the form of pre-game warnings if the SGB is aware of an issue before the game or of the betting operator withholding payment on a bet. 3.20 Further SBIU development to gather additional information necessary might be required to take a decision as to how to proceed. This particularly might be the case if an issue had been escalated in the absence of all the necessary information (for example because it was taking longer to gather or the issue warranted early escalation), perhaps just to gather the full range of information (as noted at 3.10 and 3.13). considered the issue and decided it is not appropriate or feasible for them to take disruptive action.
3.18
3.21
Effective use of resources

3.22 An underlying aim of this approach is to ensure that criminality activity ceases and that the partners involved use their resources in the most effective and efficient way possible to achieve an effective combination of prevention, deterrence, disruption and sanction. The issue of available resources applies to all parties. For example, it is feasible that something that might most appropriately be led by the police cannot be because the relevant force does not have the available resources at that time. Similarly, the a budget of 13m (which is reducing in the current economic climate) which is based on the workloads created by the operators we regulate.
3.23
Investigation (Commission or police)

3.24 T in the Licensing, Compliance and Enforcement policy statement (September 2009)3. Investigations in respect of betting integrity can be taken singularly by the police or Commission or the lead can be taken by one and supported by the other. This arrangement can change during the course of a case depending on developments. 3.25 The investigation process will seek to convert that intelligence into evidence and develop further lines of enquiry as required. The Commission will use the investigative resources available to it to establish whether the activity in question is consistent with cheating, for example our powers under RIPA or POCA. The Commission will generally work with relevant SGBs and betting operators during the investigation process.
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3.26 The Commission may at times use expert witnesses to inform our understanding of a situation (or during a prosecution). The Commission will generally discuss with the relevant SGB (or potentially betting operator, depending on circumstances) who an appropriate expert witness might be. The Commission will not necessarily seek a definitive statement that an individual has cheated or not performed to the best of their abilities, but just a view on whether the performance is consistent with the allegation made.
Information to SGBs and operators during investigations

3.27 The Commission may, where appropriate, share information with SGBs and betting operators during investigations (more information on information sharing is available from paragraph 3.35). It may be feasible for a SGB to prepare or progress disciplinary cases under sports rules at the same time as a criminal investigation (as noted in The British Horseracing Authority and Integrity in Horseracing Review by Dame Elizabeth Neville6) and it may be appropriate for betting operators to take appropriate action in their own right. These should be the subject of joint discussions to ensure neither the criminal nor the disciplinary action could negatively impact on the other.
Voiding
3.28 The Commission has powers to void individual bets either as a disruptive end in itself or as a stage on the way to a prosecution. More detail about this power is set out in section 5.41 to 5.47 of Licensing, Compliance and Enforcement policy statement (September 2009)3. The Commission would normally only contemplate suspending or voiding bets where our investigations have established a pattern of apparently corrupt behaviour. This is because, evidential strands to substantiate a con broadly the same. In such circumstances the Commission, and/ or others, may monitor those suspected so that it is able to move to impose interim moratoria or void bets more swiftly in the future on the basis of the accumulated evidence and a pattern of suspicious activity or repeated suspicious circumstances.
3.29
Prosecution
3.30 Following an investigation the Commission may proceed to prosecution, issue a caution or decide to take no further action. Information concerning the framework for deciding how to proceed following a criminal investigation is set out in section 6.8 to 6.111 of Licensing, Compliance and Enforcement policy statement (September 2009)3. The Commission will apply the Code for Crown Prosecutors when deciding whether criminal proceedings should be commenced, which involves a two-stage test: first, the evidence will be reviewed and an assessment made about whether there is a realistic prospect of conviction secondly, if there is sufficient evidence to mean that there is a realistic prospect of conviction, an assessment will be made about whether it is in the public interest for a prosecution to take place. If either of those tests is not met no further action relating to a criminal prosecution would be taken although referral to the relevant SGB may be considered appropriate. 3.32 Whilst the Commission can take prosecutions itself, often such court cases will be led by the Crown Prosecution Service (CPS), particularly where a police force has been involved,
3.31
The British Horseracing Authority and Integrity in Horseracing Review, May 2008
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so whether or not to prosecute will often be a decision for them in the first instance. If the CPS does not think it appropriate to prosecute, the Commission is unlikely to proceed independently unless there are exceptional circumstances (for example, the need to set a legal precedent). 3.33 Section 6.14 of Licensing, Compliance and Enforcement policy statement (September 2009)3 notes that in appropriate cases, where the Commission has investigated a matter and both the evidential and public interest tests are met, the Commission may decide to issue a caution to the alleged offender, rather than pursue a prosecution. Where a caution is administered, details of the caution will be kept on file and may be taken into account in the future if further offences occur.
SBIU dissemination
3.34 Following the outcome of a case, including where there is no further action, the SBIU may disseminate information to other parties. The information that can be shared will be dependent on the case and any legal restrictions which may apply. More information on this is set out in the section below. The SBIU would also welcome any relevant information from partners on the completion of any action taken by them regarding lessons learnt or emerging themes.
Sharing information with partners

3.35 The Commission will generally look to share information with partners where it is considered appropriate to do so and having made the decision will do so as soon as possible. Generally, and particularly for non-law enforcement partners, this will be in a summarised format. The Commission is usually more able to share data with law enforcement agencies for the purpose of criminal investigations. However, there are constraints as to the circumstances in which the Commission can share data. Section 307 and schedule 68 (which names a number of SGBs) of the Act provide a limited list of third parties with whom the Commission may provide information received by it in the course of its duties. However the Commission may choose to provide information to parties not listed where this is considered appropriate in furtherance of the licensing objectives and is not prohibited by any statutory provision or legal principle. Where necessary information provided by the Commission to third parties may be subject to conditions, including the requirement to apply good information handling procedures. The Commission would not be able to pass data to those that do not have appropriate information handling procedures. All disclosures of personal data made by the Commission will be subject to the requirements of the Human Rights Act 1998 and the Data Protection Act 1998. This includes the principles of data protection as well as the data protection non-disclosure provisions which provide for the disclosure of personal data to third parties in particular circumstances. We will only share data which the recipient is clearly lawfully entitled to access to in pursuance of their duties. We will also be mindful of the source of our information, the powers under which we secured it and, in light of that, whether it is proportionate to disclose. For example, if we secure information under RIPA in the course of investigating a potentially criminal action that identifies a relatively minor sports rule infraction it may not be appropriate to share that information .It would not be good practice to routinely pass information secured under criminal powers to other bodies to take a civil sanction; this could call into question the use of our powers.
3.36
3.37
3.38

7 8
Section 30, Gambling Act 2005 Schedule 6, Gambling Act 2005
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However, it also should be noted that we do receive a significant amount of useful information from other sources, such as licence condition 15.1 or through our hotline which, subject to the restrictions noted in paragraph 3.37, we are able to pass to partners with less constraints. 3.39 Principle 8 of data protection states that personal data shall not be provided outside of the European Economic Area (EEA) unless an adequate level of protection is applied. The Commission will be particularly vigilant when sharing personal data in these circumstances.
Gambling Commission December 2010

For further information or to register your interest in the Commission please visit our website at: www.gamblingcommission.gov.uk Copies of this document are available in alternative formats on request. Gambling Commission Victoria Square House Victoria Square Birmingham B2 4BP T 0121 230 6666 F 0121 230 6720 E info@gamblingcommission.gov.uk GUI 10/04
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Sports Betting Intelligence Unit terms of reference

June 2010 1
1.1
Introduction
In the summer of 2009 the Department for Culture, Media and Sport (DCMS) established a Sports Betting Integrity Panel (the Panel), bringing together experts from the betting industry, the police, players, fans, Sports Governing Bodies (SGBs), the legal profession and the Gambling Commission (the Commission), to make recommendations as to the design and implementation of an integrated strategy to uphold integrity in sport and associated betting. One set of the recommendations of the Panels report concerned the Commission, building on its existing work, establishing a Sports Betting Intelligence Unit (SBIU)1. The Commission welcomed this recommendation and the SBIU is operational. This document sets out the terms of reference for the SBIU, based on the recommendations of the Panel.
2
2.1
Terms of Reference
The terms of reference for the SBIU are: The SBIU will produce intelligence products to inform investigative decision making on the prosecution or disruption of criminal offences (eg cheating) or regulatory action under the Gambling Act. Where relevant and appropriate, these intelligence products may be made available to third parties to assist disciplinary action.2 The intelligence products will also inform strategic analysis on Sports Betting Integrity issues. The SBIU will focus upon collecting and analysing information and intelligence relating to potentially criminal activity in respect of sports betting, where that activity: relates to a sporting event that occurred in Great Britain, and/ or involves parties based within Great Britain, and/ or occurred with a Gambling Commission licensed operator. The SBIU will undertake targeted monitoring of betting on specific events and by specific individuals. It will not undertake general, pre-emptive monitoring of betting markets or sporting events. This remains the role of betting operators and sports governing bodies respectively.
The report can be found at http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/images/publications/reports_sports_be tting_integrity_panel.pdf. Recommendations 1.12-1.15 of chapter one concern the SBIU. 2 A criminal investigation for cheating may be undertaken by the Commission, police or jointly as appropriate. Regulatory action may be taken by the Commission against one of its licensees. Disciplinary action may be taken by a SGB under a sports rule or by a betting operator against an employee. Other disruptive action may be taken by any of the parties.
Victoria Square House Victoria Square Birmingham B2 4BP T 0121 230 6666 F 0121 230 6720
www.gamblingcommission.gov.uk
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Gambling Commission Sports betting Intelligence Unit terms of reference June 2010
The SBIU will act as the Commissions gateway for sports betting intelligence matters by establishing national and international channels of communication for the receipt and dissemination of information and intelligence with relevant partners. The SBIU will undertake debriefings of sports betting integrity cases conducted by the Commission and partners to develop and share knowledge, working practices and techniques.
3
3.1 3.2
Further information
If you would like more information about the SBIU please consult the Commissions website (www.gamblingcommission.gov.uk) or contact the enquiries line (0121 230 6666). If you have information concerning illegal gambling activity that you would like to report please contact the Commission on our confidential intelligence line on 0121 230 6655. Gambling Commission June 2010
For further information or to register your interest in the Commission please visit our website at: www.gamblingcommission.gov.uk Copies of this document are available in alternative formats on request. Gambling Commission Victoria Square House Victoria Square Birmingham B2 4BP T 0121 230 6666 F 0121 230 6720 E info@gamblingcommission.gov.uk INFO 10/45
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Isle of Man Gambling Supervision Commission Online Gambling Guidance Notes for the Prevention of Money Laundering and Countering of Terrorist Financing
Whilst this publication has been prepared by the Isle of Man Gambling Supervision Commission for general guidance, it is not a legal document and should not be relied upon in respect of points of law. Reference for that purpose should be made to the appropriate statutory provisions. To be used as guidance notes for the following legislation: (a) Online Gambling Regulation Act 2001 (b) Proceeds of Crime Act 2008 (c) Proceeds of Crime (Money Laundering - Online Gambling) Code 2010
Contact: Isle of Man Gambling Supervision Commission 4th Floor, St Andrews House Finch Road Douglas Isle of Man IM1 2PX Tel: 01624 623355 Fax: 01624 621298 Website: www.gov.im/gambling Email: gaming@gov.im Page 1 of 92
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CONTENTS
SUMMARY .............................................................................................................. 3 SECTION 1 - INTRODUCTION ................................................................................ 5 1.1 Purpose.......................................................................................................... 5 1.2 Offences......................................................................................................... 6 1.3 Role of the GSC and status of guidance notes ............................................ 9 SECTION 2 CORPORATE GOVERNANCE AND RISK BASED APPROACH ............ 11 2.1 Statutory responsibility .............................................................................. 11 2.2 A risk based approach ................................................................................ 11 2.3 What is risk?................................................................................................ 12 2.4 Risk assessment under the Code ............................................................... 14 2.5 Monitoring ................................................................................................... 15 2.6 Guidance for risk assessment .................................................................... 16 2.7 Higher risk ................................................................................................... 17 SECTION 3 KNOW YOUR PARTICIPANT ........................................................... 19 3.1 Introduction ................................................................................................... 19 3.2 A risk-based approach to CDD ......................................................................... 21 3.3 Collecting Relationship Information .................................................................. 26 3.4 Source of funds, income and wealth taking a risk based approach (Stages 1 and 2) ....................................................................................................... 27 3.5 PEPs .............................................................................................................. 27 SECTION 4 - IDENTIFICATION AND VERIFICATION ........................................... 30 4.1 Identification of individual participants ............................................................. 30 4.2 Evidence of identity ........................................................................................ 31 4.3 Evidence of identity for business participants.................................................... 33 4.4 Enhanced participant Due Diligence ................................................................. 35 4.5 Additional checks ............................................................................................ 37 4.6 Other matters ................................................................................................. 38 4.7 Introduced business........................................................................................ 39 SECTION 5 - ONGOING MONITORING OF PARTICIPANTS ACCOUNTS............... 40 5.1 Introduction ................................................................................................... 40 5.2 Monitoring Taking a risk-based approach ...................................................... 41 5.3 Monitoring Methods and Procedures ............................................................. 42 5.4 Electronic payment and message systems ........................................................ 43 5.5 Recognising and evaluating suspicious transactions and activity and suspicious attempted transactions ............................................................................. 44 SECTION 6 - REPORTING SUSPICIONS AND CONTINUED SUSPICIONS ............ 47 6.1 Reporting Suspicions and Continued Suspicions ................................................ 47 6.2 The Timing of Disclosures ............................................................................... 48 6.3 Internal Reporting Procedures ......................................................................... 48 6.4 Reporting declined business ............................................................................ 51 6.5 Reporting suspicions Liaising with law enforcement ....................................... 51 6.6 Recording disclosures to the FCU ..................................................................... 52 Page 2 of 92
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6.7 Actions after reporting .................................................................................... 52 6.8 Avoiding committing a Tipping Off offence ....................................................... 54 SECTION 7 - RECORD KEEPING ........................................................................... 58 7.1 Introduction ................................................................................................... 58 7.2 Records ......................................................................................................... 58 7.3 Contents of transaction records ....................................................................... 59 7.4 Establishment of registers ............................................................................... 60 7.5 Responding to production orders ..................................................................... 61 SECTION 8 - STAFF SCREENING, TRAINING AND AWARENESS ......................... 62 8.1 The Need for Vigilance .................................................................................... 62 8.2 New employees Vetting ................................................................................ 62 8.3 Employee awareness and training .................................................................... 63 8.4 Awareness of legislation and procedures .......................................................... 64 8.5 Ongoing awareness raising techniques ............................................................. 64 8.6 Timing and content of training programmes ..................................................... 65 8.7 New Employees .............................................................................................. 65 8.8 Front Line Employees...................................................................................... 66 8.9 Training for Managerial Employees .................................................................. 67 8.10 Training for the Money Laundering Reporting Officer ........................................ 67 8.11 Monitoring the effectiveness of training ............................................................ 68 APPENDICES ........................................................................................................ 69 APPENDIX A - PROCEEDS OF CRIME (MONEY LAUNDERING ONLINE GAMBLING) CODE 2010 ............................................................................................ 69 APPENDIX B - SUSPICIOUS TRANSACTIONS .............................................................. 90 APPENDIX C - USEFUL CONTACT REFERENCES .......................................................... 92
SUMMARY
The Isle of Man is a well regulated and progressive jurisdiction, as confirmed by various IMF reports, the latest being the report of September 2009 1. These guidance notes have been produced by the Gambling Supervision Commission (GSC) to assist licence holders with their duties and obligations under the Online Gambling Regulation Act 2001 (OGRA), Proceeds of Crime Act 2008 (POCA) and Proceeds of Crime (Money Laundering - Online Gambling) Code 2010 (the Code) in relation to the detection and prevention of money laundering and terrorist financing.
http://www.imf.org/external/pubs/cat/longres.cfm?sk=23269.0
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All licence holders must have appropriate systems and processes in place to detect and prevent money laundering and the financing of terrorism. To achieve this they should: Adopt a risk-based approach which is flexible and proportionate; Ensure total commitment from senior management; Develop and implement systems which are appropriate for the business; Maintain appropriate records of participants/business participants and transactions that meet the needs of law enforcement investigations tackling money laundering and the financing of terrorism; Provide appropriate initial and ongoing training to all staff; Ensure nominated officers have adequate support/resources and authority; Regularly assess the adequacy of their systems and controls; Ensure business engages in an appropriate manner with the GSC and relevant law enforcement bodies; and Apply industry best practice across the business. In developing and implementing their systems and processes, licence holders should have consideration of these guidance notes. However, these guidance notes do provide for licence holders to implement other systems and processes which may achieve the same goal.
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SECTION 1 - INTRODUCTION
1.1 Purpose The purpose of these guidance notes is to: Outline the legal and regulatory framework for anti money laundering and countering of terrorist financing in relation to online gaming; Outline best industry practice; Outline proportionate risk based procedures and approaches; Set out the procedures to be followed by licence holders where there is suspicion, knowledge or reasonable grounds to suspect money laundering or terrorist financing; Outline the particular money laundering and terrorist financing risks that apply to some of the services and products offered by licence holders; Assist operators to design and implement policies and procedures to mitigate the risks of being used in connection with money laundering and the financing of terrorism; Ensure adherence to international standards; and Outline the role of the GSC. These guidance notes provide guidance to those who have responsibility for setting the operators risk management policies and procedures in relation to money laundering and the financing of terrorism. They are not intended to provide an exhaustive list of recommended anti-money laundering/combating the financing of terrorism (AML/CFT) controls. It is intended that operators have the flexibility to develop systems and controls which are based on the risk profile of their business.
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Throughout these guidance notes we have used the term must where the requirements are statutory or are regulatory requirements placed on licence holders and should where the guidance is advisory and the licence holder has discretion. Also, where reference is made to participant, this will mean participant and business participant. 1.2 Offences To ensure that a licence holder complies with their legal and regulatory obligations in relation to money laundering and the financing of terrorism (ML/FT) it is important that it understands what the terms mean and what offences a licence holder and the staff of a licence holder could commit. 1.2.1 Money Laundering Money Laundering is defined in the Code as an act which falls within section 158(11) of the Proceeds of Crime Act 2008. Section 158(11) of POCA states that: Money Laundering is an act which:(a) constitutes an offence under section 139, 140 or 141; (b) constitutes an attempt, conspiracy or incitement to commit an offence specified in paragraph (a); (c) constitutes aiding, abetting, counselling or procuring the commission of an offence specified in paragraph (a); or (d) would constitute an offence specified in paragraph (a), (b) or (c) if done in the Island.
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1.2.2 Terrorist Financing Terrorist Financing is defined in section 3 of the Terrorism (Finance) Act 2009 as meaning(a) the use of funds, or making available of funds, for the purposes of terrorism; or (b) the acquisition, possession, concealment, conversion or transfer of funds that are (directly or indirectly) to be used or made available for those purposes. The Terrorism (Finance) Act 2009 contains various offences. In particular, section 13 of the Terrorism (Finance) Act 2009 provides that a person who fails to comply with a requirement of a direction imposed by the Treasury under Part 2 of the Schedule to the Terrorism (Finance) Act 2009 commits an offence. Terrorism is defined in section 1 of the Anti-Terrorism and Crime Act 2003, which provides that: (1) 'terrorism' means the use or threat of action where(a) (b) the action falls within subsection (2), the use or threat is designed to influence the government or to intimidate the public or a section of the public, and the use or threat is made for the purpose of advancing a political, religious, racial or ideological cause.
(c)
(2) Action falls within this subsection if it(a) (b) involves serious violence against a person, involves serious damage to property, Page 7 of 92
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(c)
endangers a person's life, other than that of the person committing the action, creates a serious risk to the health or safety of the public or a section of the public, or is designed seriously to interfere with or seriously to disrupt an electronic system.
(d)
(e)
(3) The use or threat of action falling within subsection (2) which involves the use of firearms or explosives is terrorism whether or not subsection (1)(b) is satisfied. (4) In this section(a) (b) 'action' includes action outside the Island; a reference to any person or to property is a reference to any person, or to property, wherever situated; a reference to the public includes a reference to the public of a country or territory other than the Island; and 'the government' means the government of the Island, of the United Kingdom, of a part of the United Kingdom or of any other country or territory. In this Act a reference to action taken for the purposes of terrorism includes a reference to action taken for the benefit of a proscribed organisation.
(c)
(d)
(5)
1.2.3 Contravention of the Code Paragraph 21 of the Code (a copy of which is attached as appendix A to these guidance notes) states that a person who contravenes the Code shall be guilty of an offence. It also clarifies the extent to which Page 8 of 92
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individuals will be held responsible for an offence committed by a body corporate. 1.3 Role of the GSC and status of guidance notes Pursuant to section 11 of OGRA, the GSC must, subject to the provisions of OGRA and of regulations: (a) supervise the operation of any online gambling conducted in the Island; investigate the character and financial status of any person applying for or holding any licence or otherwise concerned with the operation of any online gambling conducted in the Island; and ensure that all fees payable to the Treasury by a person conducting online gambling in the Island are duly paid and accounted for;
(b)
(c)
with a view to securing that online gambling is fairly and properly conducted, and that the provisions of OGRA and regulations, and the conditions of any licences, are complied with. The GSC is therefore entrusted with a supervisory function in regard to the operation of any online gambling conducted in the Island, and this includes the prevention of ML/FT. Specifically, in relation to the prevention of ML/FT, the Code refers to situations where guidance issued by the GSC is relevant: (a) under paragraph 5(2)(e) of the Code, the risk assessment must estimate the risk of money laundering and terrorist financing on the part of the participant or business participant, having regard to [amongst others] any relevant supervisory or regulatory guidance given by the GSC (emphasis added); and under paragraph 21(2)(a) of the Code, in determining compliance with the Code, a court may take account of any relevant supervisory or regulatory guidance given by the GSC (emphasis added). Page 9 of 92
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(b)
It is therefore critical for all licence holders to incorporate these guidance notes when developing and implementing systems, controls and procedures. The GSC recognises that licence holders may have systems and procedures in place which, whilst not identical to those outlined in these guidance notes, nevertheless impose controls and procedures which are at least equal to if not higher than those contained in these guidance notes. This will be taken into account by the GSC when assessing the adequacy of a licence holders systems and controls. The GSC will regularly review the guidance provided and, where appropriate, will amend these guidance notes in light of changing practices, legislative changes and the development of international standards.
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SECTION 2 CORPORATE GOVERNANCE AND RISK BASED APPROACH

2.1 Statutory responsibility
Paragraph 3 of the Code sets out the responsibilities all licence holders have in relation to detecting and preventing ML/FT. It is the responsibility of the officers of the licence holder to ensure the business establishes, maintains and operates appropriate policies and procedures. Where an offence is committed with the consent or connivance of, or is attributable to neglect on the part of an officer of the business, he too shall be deemed to have committed a criminal offence. An officer includes a director, manager or secretary or a person purporting to act as such; if the affairs of the business are managed by its members, a member; in relation to a limited liability company constituted under the Limited Liability Companies Act 1996, a member, the companys manager, or registered agent; and an operations manager as set out in section 10A of OGRA. 2.2 A risk based approach
To accompany the legal regime that underpins the detection and prevention of ML/FT, a risk based approach is necessary to ensure that individual licence holders respond to current and future risks that could leave their businesses vulnerable to ML/FT. A risk based approach aims to direct resources where they are perceived to be most needed. As such, licence holders and employees of those licence holders must use their acumen, skills and experience to make useful and sound decisions in implementing a risk based approach. A risk based approach essentially involves recognising key areas of risk and adopting procedures and policies to mitigate against that risk. It does not involve a rigid, formulaic approach but instead involves constant analysis and revision. Key issues and guidance will be highlighted in this section as to how to comply with the requirements of the Code regarding risk assessment. It is for each licence holder,
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however, to conduct risk analysis and implement its own policies and procedures in relation to the specific risks that it may face. 2.3 What is risk? Risk can be categorised in a number of ways. One such way is to categorise risk as risk to the organisation or business, risk posed by the type, nature and number of participants and risk posed by the type, nature and number of products. This categorisation is not definitive. 2.3.1 Organisational/business risk and outsourcing Organisational risk may include external factors that impact on the business of a licence holder such as geographic location of participants, monetary policies, fluidity of business and outsourcing. The geographic location of a participant may present a higher risk if the participant is located in a country or territory: (a) which is classified by the Financial Action Task Force (FATF) as non-cooperative; (b) where important public officials are listed on recognised sanctions lists; (c) with insufficient AML/CFT controls; (d) with a large amount of white collar crime or which is known for being susceptible to corruption; or (e) which is perceived to be strongly associated with terrorism. To assist in the risk assessment for geographic location, the licence holder should consult data from the IMF, FATF, US Department of State (International Narcotics Control Strategy Report), US Treasury Office of Foreign Assets Control and other relevant organisations.
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In relation to outsourcing, delegating licence holders remain responsible for their statutory and regulatory requirements to prevent and detect ML/FT. The delegating licence holder must ensure that the provider it delegates to has sufficient policies and procedures to prevent and detect ML/FT. 2.3.2 Participant risk Participant risk depends on the level of risk each participant poses to the licence holder. A list of the type of participants that could pose a risk of ML/FT should be compiled and maintained. Participants who have a steady source of income from a traceable source, which they use to participate in online gambling, are likely to present a lower risk. Licence holders should also be aware that seemingly innocent participants may be used by known criminals to place bets on their behalf and so policies and procedures should be implemented as far as possible to guard against the risk of ML/FT occurring. Key risk factors include: (a) Type of participant - a politically exposed person (PEP), high net worth individual, or a non-quoted company will potentially present a higher risk; Complexity of the relationship, including unexplained use of corporate structures and express trusts and the use of nominees; Delegation of authority (e.g. power of attorney, mixed boards and representative offices); Request to use numbered accounts; The public profile of the participant or involvement with, or connection to, PEPs; Any linked accounts or business partners; Page 13 of 92
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(b)
(c)
(d) (e)
(f)
(g)
Whether participants are high spenders or participants who have large amounts of money;
business
(h)
Reputation of the business participant- for example, a wellknown, reputable company, with easily available independent information about it and its beneficial owners and controllers is likely to present a lower risk; Behaviour of the participant. -for example, where there is no commercial rationale for a business participant using the products/services that he seeks, where there are requests for undue levels of secrecy, or where it appears that a relationship or transaction is being made unnecessarily complex; and Whether there is a large volume of transactions composed of a lot of low value amounts or a low volume of transactions composed of a lot of high value amounts.
(i)
(j)
2.3.3 Product risk Licence holders should be aware that the nature of their products may leave them more vulnerable to money laundering and the financing of terrorism due to the paucity of face to face business. As part of the risk assessment, the types of products that the licence holder offers to participants should be evaluated in line with participant risk to see the type of participant who is using that product. 2.4 Risk assessment under the Code Paragraph 5(1) of the Code provides that a licence holder must carry out a risk assessment as soon as reasonably practicable. Paragraph 5(2) of the Code provides that the risk assessment must estimate the risk of money laundering and terrorist financing on the part of the participant or business participant, having regard to Page 14 of 92
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(a) (b) (c) (d)
value of funds deposited with the licence holder; jurisdiction of participant; source of funds deposited; any other relevant matter brought to the attention of the licence holder during the account opening process for the participant; any relevant supervisory or regulatory guidance given by the Isle of Man Gambling Supervision Commission; the legal nature of the business participant.
(e)
(f)
Each licence holder should therefore carefully record and monitor its risk assessment, having particular regard to the matters listed in paragraph 5(2) of the Code. The requirement to undertake a risk assessment is not static and as such, should be a continual process that is repeated as and when necessary. How often risk assessment is required may well depend on the nature and size of the licence holder, as an expanding business is likely to require more frequent risk assessment than an established business with no new products or participants. 2.5 Monitoring 2.5.1 Monitoring of transactions As part of the risk assessment process, transactions should be monitored so that licence holders may detect suspicious activity at an early stage. In particular, higher risk participants should be monitored more thoroughly and frequently than lower risk ones. 2.5.2 Compliance monitoring Paragraph 20 of the Code provides that a licence holder must maintain adequate procedures for monitoring and testing compliance with statutory requirements. Regard must be had to: Page 15 of 92
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(a) (b)
the risk of ML/FT; and the nature and size of the organisation of the licence holder.
As part of the risk assessment, licence holders should therefore regularly monitor transactions and must ensure that they have procedures in place for monitoring and testing their policies and procedures for preventing ML/FT. If determined fit, having regard to the risk of money laundering and terrorist financing and the nature and size of the organisation of the licence holder, the senior management should ensure that a regular (annually, as a minimum) report from the Compliance Officer or MLRO is made. Such a report will assist the licence holder to evaluate whether it is compliant with ML/FT requirements and should include what level of compliance has been achieved. 2.6 Guidance for risk assessment The key steps in a risk assessment should include: 1. Identifying and categorising the relevant ML/FT risks to a licence holder; 2. Producing policies and procedures that would reduce the risks to the licence holder of ML/FT occurring (as identified in the first step); 3. Implementing these policies and procedures and ensuring that employees receive sufficient training, where necessary; 4. Documenting the identification, policy planning and implementation and the reasons behind why particular choices have been made; and 5. Determining a timescale for when the risk assessment should be revisited and ensuring that this is appropriately diarised and followed up.
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Please note that the above is not definitive and licence holders should tailor their risk assessment in accordance with the individual nature and size of their business. 2.7 Higher risk Paragraph 5(3) of the Code provides that where in accordance with the risk assessment, a licence holder determines that a participant poses a higher risk, the licence holder must carry out enhanced participant due diligence in accordance with paragraph 9 of the Code. Pursuant to paragraph 9(2) of the Code, matters which pose a higher risk include but are not restricted to a participant or business participant who is or has a substantial connection with (a) (b) a PEP; or a person, legal person or legal arrangement resident or located in a country which the licence holder has reason to believe does not apply, or insufficiently applies, the FATF Recommendations; a person, legal person or legal arrangement that is the subject of any notices or warnings issued from time to time by the Isle of Man Gambling Supervision Commission.
(c)
Paragraph 9(2) does not contain an exhaustive list, and so the individual licence holder should always be aware of other matters that may pose a higher risk, as determined by its risk assessment. Similarly, even if a participant is categorised as a higher risk, this alone does not mean that the participant is a money launderer or financer of terrorism. The same principle applies if a participant is categorised as a lower risk, as although the risk of ML/FT occurring may be low, there is still a risk and the licence holders employees should remain cautious and alert. Where a participant is categorised as a higher risk, it is necessary to take additional steps under paragraph 9(3) of the Code, namely
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(a)
considering whether additional identification data needs to be obtained; considering whether additional aspects of the participants identity or the identity of the business participant need to be verified; taking reasonable measures to establish the source of any funds and of the wealth of the participant and any beneficial owner and underlying principal; and considering what ongoing monitoring should be carried on in accordance with paragraph 10.
(b)
(c)
(d)
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SECTION 3 KNOW YOUR PARTICIPANT

3.1 Introduction It is important for licence holders to design and implement procedures and policies to identify and verify participants using appropriate measures. The overall process of knowing who you are dealing with is commonly referred to as customer or client due diligence (CDD), and appropriate measures involve: (a) Identifying a participant and verifying their identity using reliable, independent source documents, data or information; (b) Identifying the beneficial ownership and control of a business participant and taking reasonable measures to verify the identity of the beneficial owners and controllers such that a business is satisfied that it knows who the beneficial owners and controllers are; (c) Obtaining information on the nature of the participants circumstances; economic
(d) Obtaining information on the purpose and intended nature of the relationship; (e) Obtaining information on the type, volume and value of the activity that can be expected within the relationship; (f) Obtaining information on the source of funds and, subject to the risk assessment, obtaining information on the source of wealth; (g) Monitoring activity and transactions undertaken within the relationship to ensure that the activity or transaction being conducted is consistent with the licence holders knowledge of the participant; and (h) Keeping the information relevant and up to date. Inadequate or absent satisfactory CDD standards and controls can subject a licence holder to serious participant and counterparty risks, especially reputational, operational, legal and concentration risks, which can result in significant financial cost to a licence holders business. CDD information is also a vital tool for employees in recognising whether there are grounds for knowledge or suspicion of money laundering or where there are reasonable grounds to suspect terrorist financing. The information is also essential for the MLRO in assessing whether an internal report has foundation. It is only through knowledge of what constitutes normal activity for a participant that unusual activity can be recognised and, from the unusual that suspicious transactions or activity can be determined. Page 19 of 92
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In relation to CDD, the GSC believes that it is prudent practice for licence holders to be clear about the risk that individual participants or categories of participants represent. The criteria used in assessing participant risk will vary from licence holder to licence holder, based on each institutions operations. Licence holders therefore should have clear, documented participant acceptance policies and procedures which are based on their assessment of risk. Licence holders should apply a graduated participant acceptance policy which requires more extensive CDD procedures to be undertaken on participants who represent a higher risk. However, even where a participant is considered to represent a lower risk of money laundering; a minimum standard of due diligence procedures must always be applied. It is important to distinguish between the identification and verification of identity procedures on the one hand, and the wider CDD procedures which entail much more than the identification of a participant, whether a legal or natural person. The general CDD requirements and the nature of the information to be collected for each different participant type are covered in this Section of these guidance notes. The persons for whom information is to be obtained and the identification and verification of identity procedures which the GSC expects licence holders to apply are detailed in Section 4 of the Guidance. Exemptions and concessions from the identification requirements are also contained within Section 4. CDD requirements apply at the outset of a participant relationship. They also apply, in relation to existing and continuing business relationships, when there is/are: (a) A transaction that is suspected may be related to ML/FT. (b) A pattern of behaviour that causes a licence holder to know or suspect that the behaviour is or may be related to ML/FT. (c) Transactions or patterns of transactions that are complex or unusually large and which have no apparent economic or visible lawful purpose. (d) Unusual patterns of transactions that have no apparent economic or visible lawful purpose. (e) The licence holder becomes aware of anything which causes them to doubt the identity of the person who, in relation to the formation of the relationship, was the applicant for business. (f) The licence holder becomes aware of anything which causes them to doubt the veracity or adequacy of CDD information and documentation already produced. (g) A suspicion of ML/FT in respect of a person for whom identification evidence is not already held. (h) A change in identification information of a participant. Page 20 of 92
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(i) A change in underlying principals or third parties on whose behalf a business participant acts. (j) A change in the beneficial ownership and control of a business participant. (k) An absence of meaningful originator information on wire transfers. 3.2 A risk-based approach to CDD There are five stages within a risk-based approach to CDD requirements. 3.2.1 Stage 1- Collection of relevant information CDD information comprises both identification and relationship information. To enable a participant profile to be prepared, licence holders must collect relevant CDD information on a risk sensitive basis to determine how and how far this should be done on the following: (a) (b) (c) (d) (e) The participant; The beneficial ownership and control of the business participant; The nature of the participants business and the participants economic circumstances; The anticipated relationship with the licence holder; and The source of funds.
Whereas a participant will always be an individual natural person, a business participant will be one of the following: (a) (b) An individual natural person; The trustee of an express trust or other similar legal arrangements where they are acting on behalf of these entities; A legal person bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent business participant relationship with a licence holder.
(c)
Underlying principals of a business participant are the individuals who ultimately own or control a relationship, and/or the individuals on whose behalf the relationship is being conducted. Page 21 of 92
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The Isle of Man Government considers it vitally important for the international standing and economic well-being of the Isle of Man that it conforms to established international standards for combating ML/FT. The FATF Recommendations and the Basel CDD principles both state the importance of knowing the identity of the beneficial owner and/or underlying principals and of not operating anonymous accounts. Licence holders must, in all cases, know the identity of underlying principals and/or beneficial owners at the outset of a business relationship. This is irrespective of the geographical origin of the client, or of the complexity of a legal structure. As per paragraph 4 of the Code, licence holders must not keep anonymous accounts or accounts in fictitious names. Licence holders must properly identify and verify the identity of the participant in accordance with the Code and the guidance notes. In all cases the participant identification and verification records should be available to the Compliance Officer, MLRO, other appropriate staff and competent authorities.
P rofiling participants
Certain types of product or service may provide an opportunity to build generic templates that predict expected patterns of activity. More complex products or services will require individual participant profiles. It is important that participant profiles are kept up to date to reflect changing circumstances (see Section 5). The participant profile must contain sufficient information on the rationale for the relationship and the nature of the activity that the participant expects to undertake in order for a licence holder to be able to: (a) predict a pattern relationship; of expected activity within each participant
(b) Identify unusual complex or higher risk activity that may indicate ML/FT. Identification information and the relationship information to be collected for each of the above participant types are described in the following Sections.
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The following situations 1 to 4 will apply to licence holders: Situation 1: Where the participant is a natural person (a) Obtain identification information on the natural person. Situation 2: Where the business participant is a legal person (a) Obtain identification information on the legal person. (b) Obtain identification information on the underlying principals i.e. persons exercising control over the management of the legal person, or any person(s) having power to direct the activities of the legal person. This will include directors or persons in equivalent roles, and account signatories. (c) Obtain identification information on any person(s) purporting to act on behalf of the legal person or by whom binding obligations may be imposed on the legal person. This will include persons holding powers of attorney. (d) Obtain identification information on the beneficial owners i.e. any individual who ultimately owns or controls a business participant. Situation 3: Where the business participant is a trustee of an express trust (a) Obtain identification information on the business participant i.e. the trustee(s) or other persons controlling the applicant. (b) Obtain identification information on the trust (c) Obtain identification information on the underlying principals i.e. the settlor(s) or other persons by whom the arrangement is made, protector(s), any other person having power to direct the activities of the applicant, any person(s) whose wishes the trustee may be expected to take into account, known beneficiaries and potential beneficiaries presenting a higher risk. (d) Obtain identification information on any person(s) purporting to act on behalf of the trustee(s) or by whom binding obligations may be imposed on the trustee(s). Situation 4: Where the business participant is acting other than as principal (except as trustee) (a) Obtain identification information on the participant. Page 23 of 92
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(b) Obtain identification information on the underlying principals (natural person, legal person or trustee of an express trust) on whose behalf the applicant is acting). (c) Obtain information concerning the relationship between the business participant and the underlying principals. In all of the above situations, relationship information must be obtained (for express trusts, the relationship information to be obtained is on the express trust). Relationship information to be collected is outlined at Section 3.3. The identification information that must be collected in respect of each type of participant is contained in Section 4. 3.2.2 Stage 2 Assess and evaluate relevant information On the basis of the information collected at Stage 1, or on the basis of the nature of the relationship, licence holders must evaluate the information against the risk areas identified by the risk assessment required by the Code. Consideration must then be given to whether it is appropriate to collect further information on the applicant, on any underlying principals and on the relationship to be established. In respect of any proposed relationship, licence holders must always ensure they understand: (a) why an applicant for business has requested a particular product or service; (b) details of any existing relationships with the licence holder; (c) the nature and frequency of the participants expected activity paying due regard to any linked accounts or other activity; (d) the ownership and control structure of legal persons and arrangements. For companies this would include identifying the underlying principals and beneficial owners as outlined above. For trusts this would include identifying the Settlor or other person by whom the arrangement is made, the Trustee or other person(s) controlling the applicant, any other person whose wishes the trustee may be expected to take into account and the beneficiaries; (e) the various relationships between signatories and underlying principals; (f) the nature of a participants business activities or occupation; (g) the source of the funds for the product or transaction in question; and Page 24 of 92
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(h) where relevant, the source of income or wealth of the participant (see Section 3.4). For many simple relationships the reasons for a relationship may be self evident. However, for more complex products/services they may not be. Not all participants, products or services carry the same ML/FT risk and a riskbased and proportionate approach should be adopted in determining the amount of CDD information required in each case.
3.2.3 Stage 3 Determine initial risk profile On the basis of Stages 1 and 2, licence holders must determine and record a risk profile for the relationship. This should show whether the participant is to be treated as standard risk or where additional CDD is required. It will determine which underlying principals identity needs to be verified, how identity is to be verified and the ongoing CDD to be conducted throughout the course of the relationship. For higher risk relationships, enhanced CDD must be performed. Licence holders should consider whether inconsistencies between the CDD information obtained, specific information concerning source of funds or source of wealth, and the nature of transactions increases the participants risk classification. The risk profile should be reviewed and updated throughout the relationship.
3.2.4 Stage 4 Verify the identity of the participant and any underlying principals Licence holders must satisfactorily verify the identity of the participant where appropriate as required by the Code or where the risk profile indicates that verification should be carried out, but must always verify identity in all relationships with a business participant (including the identity of any underlying principals). Identity should normally be verified before or during the course of establishing a relationship. Sometimes, in the normal course of business and where there is little risk of ML/FT occurring, it is necessary to start a relationship before the verification of identity procedure can be completed. In such cases, verification procedures must be completed as soon as reasonably practicable. Licence holders must ensure that the money laundering risks are effectively managed. Controls must be placed on the nature of the activity that can be undertaken before the verification of
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identity procedures have been completed. Requirements for verifying identity are set out in Section 4.
3.2.5 Stage 5 Conduct ongoing due diligence Licence holders should review the CDD information held in relation to all participants on a periodic basis, and for higher risk ones, at least annually. The opening of a new account or a meeting with the participant may provide an opportunity to confirm or update the information held in respect of that participant. Further detailed guidance is contained in Section 5. Procedures should ensure that up-to-date CDD information is readily accessible to the MLRO (and any designated person), and to the GSC and the Financial Crime Unit (FCU) on request.
3.3 Collecting Relationship Information Unless it is obvious from the product being provided, the following must be established: In all situations (a) (b) (c) (d) (e) Purpose and intended nature of relationship Expected type, volume and value of activity Expected geographical sphere of the activity Activity providing the source of funds for the relationship and geographical sphere of the activity Details of any existing relationships with the licence holder
Express Trusts Additional information (business participants) (a) (b) (c) (d) Type of trust (e.g. fixed interest, discretionary, testamentary) Structure of any underlying companies (if applicable) and nature of activities undertaken by the trust and any underlying companies (having regard for sensitive activities and trading activities) Classes of beneficiaries, including charitable causes named in the trust deed. Name of trustees regulator, if applicable
Legal Persons Additional information (business participants) (a) Company and, if applicable, group ownership and structure enough to understand the ownership and control structure Page 26 of 92
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(b) (c) (d)
Nature of activities undertaken (having regard for sensitive activities and trading activities) Geographical sphere of the legal persons activities and assets Name of regulator, if applicable
3.4 Source of funds, income and wealth taking a risk based approach (Stages 1 and 2) A licence holder is expected to understand the source of funds for all applicants. When entering a new relationship licence holders must understand the source of income or wealth for higher risk applicants. Source of funds includes the immediate source of funds from which property has derived i.e. a bank account. Knowing who provided the funds and the account is necessary in every case. Licence holders are reminded that no third party funding is permitted. Source of wealth is distinct from source of funds and describes the origins of a participants financial standing or total net worth i.e. those activities which have generated a participants funds and property. Information regarding source of income or wealth should be obtained for all higher risk relationships. 3.5 PEPs
Much international attention has been paid in recent years to PEP risk, the term given to the risk associated with providing financial and business services to those with a high political profile or who hold public office. PEP status itself does not automatically mean that the individual is corrupt nor that they have been incriminated in any corruption. However, their office and position can leave them vulnerable to corruption. The risks increase when the person concerned is from a country with widely-known problems of bribery, corruption and financial irregularity within their governments and society. This risk is even more acute where such countries do not have adequate AML/CFT standards, or where these do not meet international financial transparency standards. PEPs are defined in the Code in paragraph 2 and include natural persons, resident outside the Isle of Man, entrusted with prominent public functions and their immediate family members, and close associates. This definition would include royal families as well as persons entrusted with prominent public functions. Prominent public functions include: (i) a head of state, head of government, minister or deputy or assistant minister; (ii) a senior government official; (iii) a member of parliament; (iv) a senior politician; Page 27 of 92
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(v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (i) (ii) (iii) (iv) (v) (vi) (vi) (vii)
an important political party official; a senior judicial official; a member of a court of auditors or the board of a central bank; an ambassador, charg d'affaires or other high-ranking officer in a diplomatic service; a high-ranking officer in an armed force; and a senior member of an administrative, management or supervisory body of a state-owned enterprise; a senior official of an international entity or organisation; and an honorary consul. a spouse; a partner considered by national law as equivalent to a spouse; a child or the spouse or partner of a child; a brother or sister (including a half-brother or half-sister); a parent; a parent-in-law; a grandparent; and a grandchild.
Immediate family members include:
Close associate includes any natural person: (i) (ii) (iii) who is known to have joint beneficial ownership of a legal entity or legal arrangement, or any other close business relations, with such a person; who has sole beneficial ownership of a legal entity or legal arrangement which is known to have been set up for the benefit of such a person; and who is in a position to conduct substantial financial transactions on behalf of such a person.
Licence holders that handle the proceeds of corruption, or handle illegally diverted government, supranational or aid funds, face the risk of severe reputational damage and the possibility of criminal charges for having assisted in laundering the proceeds of crime. Licence holders also face the risk of constructive trust suits in such situations. The Isle of Man as a jurisdiction faces considerable reputational damage should any of its licence holders have a relationship of this nature involving the proceeds of foreign corruption. Licence holders can reduce risk by conducting detailed CDD at the outset of the relationship and on an ongoing basis where they know or suspect that the business relationship is with a PEP.
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All licence holders must assess which countries with which they have financial relationships are most vulnerable to corruption. Licence holders that are part of an international group might also use the group network as another source of information. Where licence holders do have business in countries vulnerable to corruption, they must establish who are the senior political figures in that country and, must seek to determine whether or not their participant has any connections with such individuals (e.g. they are immediate family or close associates). Licence holders should note the risk that individuals may acquire such connections after the business relationship has been established. The Code requires licence holders to have in place enhanced CDD measures to address PEP risk. In particular, detailed CDD must include: (a) Appropriate procedures to determine, as far as reasonably practicable, whether a participant, any natural person having power to direct the activities of a business participant, a beneficial owner or a known beneficiary of a legal arrangement is a PEP. (b) Close scrutiny of any complex structures (e.g. involving companies, trusts and multiple jurisdictions) so as to establish that there is a clear and legitimate reason for using such structures. It should be borne in mind that most legitimate political figures would expect their personal affairs to be undertaken in a more than usually open manner, rather than the reverse. (c) Every effort to establish the source of income/wealth (including the economic activity that created the wealth) as well as the source of funds involved in the relationship, establishing that these are legitimate, both at the outset of the relationship and on an ongoing basis. (d) Approval of senior management before commencing the business relationship and regular review, on at least an annual basis, of the development of the relationship. (e) Close scrutiny of any unusual features, such as very large transactions, the use of government or central bank accounts, particular demands for secrecy, the use of cash or bearer bonds or other instruments which break an audit trail, the use of small and unknown financial institutions in secrecy jurisdictions and regular transactions involving sums just below a typical reporting amount. There should be full documentation of the information collected in line with the above. Given the above safeguards, the GSC would not necessarily expect licence holders to avoid or close relationships with PEPs. If the risks are understood and
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properly addressed, then the acceptance of such persons becomes a commercial decision as with all other types of participant. New and existing participants may not initially meet the definition of a PEP. Licence holders should, as far as practicable, be alert to public information relating to possible changes in the status of its participants with regard to political exposure. Where an existing participant is subsequently found to be a PEP, senior management approval to continue the relationship must be sought. Licence holders may wish to make use of independent electronic data sources which can be of particular value in the context of business relationships with PEPs. Licence holders should not enter into or continue a business relationship where they know or have reasonable grounds to suspect that the funds derive from bribery, corruption or the misuse of national or supranational assets, without prejudice to any other obligation they may have under criminal law or other applicable laws. However, closing out any such relationship must be subject to preliminary discussion with the FCU.
SECTION 4 - IDENTIFICATION AND VERIFICATION

The Code requires licence holders to establish, maintain and operate procedures which require participants to provide satisfactory information as to their identity. The GSC has set out below guidance on how licence holders should identify and verify participants' identity. Licence holders must use their risk assessment to determine the measures to be taken when carrying out due diligence as required by paragraph 6, 7, 8 and 9 of the Code. Licence holders must determine the extent of participants due diligence measures over and above the minimum requirements to be undertaken, on a risk sensitive basis and depending on the risk posed by the participants and their level of gambling. A licence holder should be alert to any relevant matter that may arise during the account opening process for the player and also ensure that their policies and procedures for managing ML/FT risks are kept under regular review.
4.1 Identification of individual participants In accordance with Paragraph 6 of the Code, the GSC expects licence holders to identify all players before they open an account or accept any money from them,
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and before any online gambling takes place. In order to do this, licence holders must obtain the following information concerning all players: (i) (ii) (iii) (iv) (v) full name; residential address including postcode (or equivalent); date of birth; place of birth; and nationality
It is necessary to establish the participants nationality in order to establish whether the player is a citizen of a nation which is subject to the sanctions by the United Nations or any other official body or government which would prohibit them partaking. The participant should be required by the terms and conditions of business between the licence holder and the participant, to advise the licence holder immediately or as soon as practical thereafter, of any changes in the above information to that provided on registration.
4.2
Evidence of identity For those players whose withdrawals from their account exceed 3,000, in any 30 day rolling period (defined in Paragraph 7(3) of the Code as a qualifying payment), licence holders must establish, maintain and operate procedures to obtain satisfactory documentary evidence of the players identity and their address. The GSC considers that the following evidence should be obtained: (a) Documentation for evidence of identity Before making a qualifying payment, documentation should be obtained and retained to support, or give evidence to support, the identity of the player. Identification documents, either originals, photocopies, faxed or computer scanned copies should be clear and legible, bear a signature of the player, be within the expiry period, and show valid and clear document numbering (e.g. Passport Numbers). Where reliance is being placed on faxed or computer scanned copies, licence holders need to be vigilant, as such copies can be altered or modified. Examples of acceptable identification documents are as follows:(i) (ii) (iii) (iv) current valid full passport; or Armed Forces ID card; or known employer ID card; or provisional or full driving licence; or Page 31 of 92
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(v)
government issued national identity card
All documents should be plainly legible. Where players put forward documents with which a licence holder is unfamiliar, either because of origin, format or language, the licence holder must take reasonable steps to verify that the document is indeed genuine, which may include contacting the relevant authorities. (b) Documentation for evidence of address Licence holders should take appropriate steps to evidence the residential address of each player. The GSC has set out below some examples of acceptable methods to evidence the players residential address: (i) requesting either an original, photocopy, faxed or computer scanned copy of a recent rates, council tax or utility bill. Care must be taken that the document is not more than 3 months old. Mobile telephone bills are not acceptable as evidence of address; an account statement from a recognised bank or recognised bank credit card. The statement should be the most recent available. Statements featuring a care of or accommodation address are not acceptable. Non-bank cards, such as store cards are not acceptable; checking a register of electors; making a credit bureau check which should validate various address and identity details; using an address validation/verification service, whether stored electronically or by other means; a recent mortgage statement from a recognised lender.
(ii)
(iii) (iv) (v) (vi)
Whichever method or combination of methods are followed, a copy of any relevant document or documents should be retained, either physically or electronically, to evidence that this has been undertaken (see Section 7 of these guidance notes). Where a players address is temporary accommodation, (for example an expatriate on a short term contract in the Middle East) or is a Post Office (PO) Box number, licence holders should adopt flexible procedures to obtain evidence.
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Irrespective of the method used, the GSC expects licence holders to be able to produce evidence of the procedures followed, and that these procedures are adequate, together with any documentary or electronic evidence arising from such procedures.
(c)
Additional player information required for qualifying payments Prior to making a qualifying payment to a player, the licence holder should also obtain the following further information: (i) (ii) (iii) any former names, any aliases used and reason for any aliases; place of birth; and nationality.
It should be noted that this additional information need not be specifically evidenced by the licence holder. However, depending on the jurisdiction of the player, part of this information is likely to be contained in the evidence obtained from the player under section 4.2 of these guidance notes. The GSC recognises that licence holders may have alternative systems to evidence a players identity and address, which provide the same degree of comfort and assurance as the procedures set out above. If a licence holder wishes to use such alternative systems, the GSC has no objection, provided that they all fully comply with the Code. The participant should be required by the terms and conditions of business between the licence holder and the participant, to advise the licence holder immediately, or as soon as practical thereafter, of any changes in the above information to that provided on registration. 4.3 Evidence of identity for business participants In accordance with paragraph 8 of the Code, licence holders must require a business participant to produce satisfactory evidence of its identity before they open an account or accept any money from it. A business participant means any player that is participating in online gambling in the course of business. This will include (but is not limited to) any corporate body, trust or other entity or organisation set up on behalf of a beneficial owner. An individual participant not acting in the course of business need only provide satisfactory evidence of their identity if they make a qualifying payment. This differs from business participants as business participants must provide satisfactory Page 33 of 92
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evidence of their identity as soon as reasonably practicable after first contact is made. Paragraph 8(2) of the Code provides that a licence holder must, in the case of all business participants: understand the ownership and control structure of the business participant; determine the legal status of the business participant and who is the ultimate beneficial owner; verify that any person purporting to act on behalf of the business participant is authorised to do so; obtain satisfactory evidence to identity and take reasonable steps to verify the identity of those persons or any natural persons having power to direct the business participants activities, using relevant information or data obtained from a reliable source; and obtain satisfactory evidence to identify and take reasonable steps to verify the identity of the beneficial owner, using relevant information or data obtained from a reliable source. Documentation for evidence of identity Before entering into a business relationship with any business participant, documentation should be obtained and retained to support the identity of the business participant. Identification documents should be originals, photocopies, faxed or computer scanned copies and must be clear and legible. Where reliance is being placed on faxed or computer scanned copies licence holders need to be vigilant as such copies can be altered or modified. Examples of acceptable identification documents are as follows: Certificates of incorporation in respect of a company; Constitutional documents e.g. Memorandum and Articles of Association, trust deeds; Details and nature of the business participants business; An indication as to the activity to be expected i.e. details of volume and value of transactions anticipated; Satisfactory evidence of each of the beneficial owners and any persons on whose instructions the signatories may act; Satisfactory evidence of the directors or trustees; Satisfactory evidence of the identity of account signatories; A copy of a board resolution authorising the opening of the account in respect of a company; Copies of powers of attorney or any other authority affecting the operation of the account. Page 34 of 92
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A risk based approach must be applied in respect of satisfactory evidence. Satisfactory evidence is as per 3.3 of these guidance notes and should be obtained in respect of beneficial owners, signatories and directors and/or trustees. In the case of numerous beneficial owners, directors and/or trustees a common sense approach should be applied. The business participant should be required, by the terms and conditions of business between the licence holder and the business participant, to advise the licence holder immediately, or as soon as practical thereafter, of any changes in the above information to that provided on registration. In addition the licence holder should conduct periodic checks to ensure the information they hold is correct and up to date such as by conducting company searches. 4.4 Enhanced participant Due Diligence Paragraph 9 of the Code requires that where a licence holder has assessed a participant as posing a higher risk of ML/FT the licence holder must conduct enhanced due diligence in respect of that participant. 4.4.1 PEPs A participant will be assessed as posing a higher risk if he is or has a substantial connection with a PEP. A person will be deemed to be a PEP if he falls within the definition as set out in paragraph 2 of the Code and includes any person outside the Isle of Man who is or has been entrusted with prominent public functions and specific members of their family. Establishing whether individuals are PEPs is not always straightforward and can present difficulties. Resources such as Transparency Internationals Corruption Perceptions Index which ranks approximately 180 countries and territories according to their perceived level of corruption, may be helpful in terms of assessing the risk or subscription to a specialist PEP database. It is important to monitor the status of a participant as although a party may not be a PEP at the time of registration he may later become a PEP and vice versa. If a PEP ceases to be so, this does not automatically indicate that enhanced due diligence is no longer required. A risk based approach should be applied. All licence holders should assess who are the senior political figures within the countries in which they do business and seek to determine whether or not any participant has any connections with such individuals. Licence
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holders should note the risk that parties may acquire such connections after the business relationship has been established. The participant should be required by the terms and conditions of business between the licence holder and the participant, to advise the licence holder immediately, or as soon as practical thereafter, of any changes in the above information to that provided on registration. 4.4.2 Countries Non- compliant with FATF Recommendations FATF has issued recommendations with a view to combating ML/FT within jurisdictions. The IMF determines whether a particular jurisdiction is compliant with these recommendations. A list of countries which are currently compliant with the FATF Recommendations can be found at Schedule 1 to the Code, which is Appendix A to these guidance notes. Any participant which is resident or conducting business in a country other than those listed in Schedule 1 to the Code (i.e. countries non-compliant with the FATF Recommendations) should be assessed as posing a higher risk of money laundering and or terrorist financing. As such enhanced player due diligence may need to be carried out in respect of that relationship. A risk based approach should be adopted: the higher the risk perceived by the licence holder to be posed by a particular country, greater levels of due diligence should be carried out. 4.4.3 Notices Issued by Isle of Man Government and/or the GSC From time to time the Isle of Man Government and the GSC may issue notices or warnings in respect of certain persons, legal persons or legal arrangements. The licence holder must take all steps reasonable to ascertain whether any such person, legal person or legal arrangement has any connection and/or business relationship with the licence holder. This should include making appropriate staff aware of the fact that such a notice or warning has been given. Where a notice or warning has been given in respect of a participant, the licence holder should carry out enhanced due diligence.
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4.4.4 Paragraph 9(3) of the Code Under Paragraph 9(3) of the Code, enhanced participant due diligence means (in addition to the checks contained in Paragraphs 6, 7, and 8 of the Code): (a) (b) (c) considering whether additional identification data needs to be obtained; considering whether additional aspects of the participants identity or the identity of the business participant need to be verified; taking reasonable measures to establish the source of any funds and of the wealth of the participant and any beneficial owner and underlying principal; and considering what ongoing monitoring should be carried on in accordance with paragraph 10 of the Code.
(d)
4.5 Additional checks The GSC considers that in addition to the information provided by the player in Sections 3.1, 3.2 and 3.3 of these guidance notes, and as a form of additional verification of players, licence holders should ensure that, as part of their online registration process, the following types of controls should be in place to know their player: (i) An Internet Protocol (IP) address check of the registrant login. This will assist in denying a participant from taking part in online gambling from sanctioned countries or unknown addresses, based on this IP address. This control should also check for consistency against the country/region of registration details supplied by a player; A participant database check, which should test for duplicate registration details of a player or previous accounts held; A validation of the participant registration data against the licence holders blacklisted persons; A validation of registration data against recent/previous attempts.
(ii) (iii) (iv)
The licence holder must maintain a record of when any automated check is overridden. A complete explanation of the reason for overriding the check must form part of the record, and must be signed by the person authorising the system override, or if electronic means are used, then the identity of the person authorising the override must be shown, e.g. by means of a password, or electronic signature.
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4.6 Other matters (a) Persons without standard identification documentation Due to the worldwide nature of licence holders businesses, the GSC is aware that some players may not be able to produce the usual types of evidence of identity, such as a driving licence or passport. In these circumstances, the GSC recommends that licence holders adopt a common sense approach and some flexibility. Such participants are generally able to provide an original, photocopy, faxed or computer scanned copy of other documents, which cumulatively give licence holders comfort regarding the identity and address of the player. Licence holders may apply some flexibility in evidencing a participants identity and residential address, but it must always be remembered that the rigorous anti-money laundering procedures must not be compromised. It is expected that such procedures should only be used sparingly, and only in the limited circumstances described above. In each case there should be a review and sign off procedure undertaken by either the MLRO or a person of an appropriate level of authority. (b) Translation of documents in a foreign language Licence holders should ensure that, where appropriate, any documents in a foreign language can be adequately translated into a language that is understood by the licence holders MLRO or their staff, so that the true significance of the document may be appreciated. Licence holders who employ staff fluent in more than one language may hold such documentation in a non-translated form only if it has been signed off by a person of adequate authority, and if a translation into a language understood by the MLRO (and also understandable to the authorised officers of the GSC) can be obtained at any time. All staff members translating the documents must be fluent in both the language it is to be translated into, as well as in the language of the document received. (c) Existing Accounts Licence holders must obtain full identity details of all of their players, and evidence of identity, where applicable, to comply with the Code. All accounts established prior to the implementation of the Code, which are still in use, must comply fully with the Code. (d) Face-to-face Where there is any direct face-to-face contact between a participant and a member of the licence holders staff, or its groups staff, the participant can Page 38 of 92
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show such staff original documents, and copies can be taken immediately and retained.
4.7 Introduced business When considering an introduced application for business, licence holders should note that an introducer procedure does not represent an exemption from a licence holders obligations under the legislation. All information and documentation must still be received and maintained by the licence holder.
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SECTION 5 ONGOING PARTICIPANTS ACCOUNTS
MONITORING
OF
5.1 Introduction Once the identification and verification procedures have been completed and the relationship is established, licence holders must monitor the conduct and activities of the participant to ensure that they are consistent with the risk profile, source of funding and estimated turnover that was determined when the relationship was established. Effective ongoing monitoring is vital to maintain a proper understanding of a participants activities, and is an integral part of any effective AML/CFT programme. It is key to allowing a licence holder to detect unusual or suspicious activity. An unusual transaction may be in the form of activity that is inconsistent with the expected pattern for that relationship, or with the normal activities for the type of product or service that is being delivered. Complex, large and unusual transactions or patterns of transactions that have no apparent visible or economic purpose may indicate ML/FT. Failure to adequately monitor participants activities could expose a licence holder to potential abuse by criminals, and may call into question the adequacy of the systems and controls, as well as the prudence, the integrity, the competence or the character and status of the management of licence holders. Licence holders must give special attention to relationships and transactions with countries that do not sufficiently apply the FATF Recommendations. Particular attention must be paid to transactions and business connected with countries and territories assessed as higher risk or which have been classified by the FATF as non-cooperative in the fight against money laundering and terrorist financing. In determining which jurisdictions do not, or insufficiently apply the FATF Recommendations, a licence holder may consider: (a) Findings of reports conducted by the FATF, FATF-style regional bodies, the Offshore Group of Banking Supervisors, the IMF, and the World Bank. (b) Its own experience or the experience of other group entities (where part of a multi-national group) which may have indicated weaknesses in other jurisdictions. Where the basis of the relationship changes significantly, licence holders must carry out further CDD procedures to ensure that the revised risk and basis of the relationship is fully understood. Ongoing monitoring procedures must take account of these changes.
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Licence holders must ensure that any updated CDD information obtained through meetings, discussions, or other methods of communication with the participants is recorded and retained with the participants' records. That information must be available to the MLRO. Ongoing monitoring of a participants activities will allow licence holders to continue to build a profile of the participants, and will entail the ongoing collection of CDD information. The GSC is aware that some or all duties of participants support staff may be subcontracted by licence holders. In these instances, the GSC expects the licence holders to ensure that their sub-contractors staff are aware of their responsibilities concerning the monitoring of participants accounts. This function may be carried out either by the licence holder or by the sub-contractor, but the responsibility to ensure that it has been carried out rests with the licence holder.
5.2
Monitoring Taking a risk-based approach
The extent of monitoring will be linked to the risk profile of the participants which has been determined through the risk assessment required by paragraph 5 of the Code. To be most effective, resources should be targeted towards relationships presenting a higher risk of ML/FT. Licence holders should have particular regard to whether a relationship poses a higher risk. High risk relationships, for example (but not limited to) those involving PEPs, will generally require more frequent intensive monitoring. In order to monitor high risk situations, a licence holder must consider: (a) whether it has adequate procedures or management information systems in place to provide relationship managers and reporting officers with timely information, including information on any connected accounts or relationships; (b) how it will monitor the sources of funds, wealth and income for higher risk participants and how any changes in circumstances will be recorded; (c) conducting regular independent review of CDD information, activity and transactions.
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5.3
Monitoring Methods and Procedures Under paragraph 10 of the Code all licence holders must have systems and controls in place to monitor and record, on an ongoing basis, the activity on all participant accounts. The purpose of this monitoring is to enable licence holders to detect any transactions which are significantly different to the normal pattern of transactions or player behaviour or are suspicious, which may be indicative of money laundering and terrorist financing activities. Possible areas for consideration when monitoring may include: (a) (b) (c) (d) (e) (f) (g) (h) transaction type frequency amount geographical origin/destination of funds attempted payment into accounts by/to third parties unusual gambling strategies different names on debit/credit cards used failed debit/credit card transactions
A copy of policies and procedures should be available to the GSC if requested, and the licence holder should be able to provide a demonstration of these procedures if requested. The GSC believes that the most effective method for the monitoring of participant accounts is achieved through a combination of computerised and manual solutions. A corporate compliance culture, and properly trained, vigilant staff through their day-to-day dealing with participant accounts, should form an effective monitoring method. An additional computerised approach may be to include the setting of floor levels for monitoring the accounts by amount. Whilst some licence holders may wish to invest in expert computer systems specifically designed to assist in the detection of fraud and money laundering, the GSC recognises that this may not be a practical option for many licence holders for the reasons of cost, the nature of their business, or difficulties of systems integration.
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It is not just new business relationships which may be used to launder money. Relationships with existing and long-standing players should also be monitored closely for money laundering.
5.4
Electronic payment and message systems In order to comply with the requirements of the FATF and EU Regulations which have been adopted by the Isle of Man, licence holders must ensure that details of senders and beneficiaries are incorporated in all payment messages sent via electronic payment and message systems. The GSC expects that the following information should be included as a minimum: (a) Bank account number (b) Name of account (c) Name of bank (d) Address of branch (e) Branch sort code Where the required information is not present, or the information is not precise (e.g. the remitter of the funds is not shown as the player, due to the funds having been first passed through an intermediarys suspense account), licence holders should reject the transfer of funds. Licence holders may, however, hold the received funds on a (non-interest paying) suspense account for a period of no more than seven bank working days, while ascertaining the source of the funds. If the origin and source of the funds have not been ascertained at the end of that time, the funds should be rejected. Licence holders should be vigilant of attempts to obscure the ownership or origin of funds, and in particular should be cautious where the payment originates in any jurisdiction known to apply secrecy provisions to its banking and financial operations and their dealings with account holders, which could include countries that are FATF members. Records of all electronic payments and messages must be retained in accordance with Paragraphs 13 and 14 of the Code. (See Section 7 of these guidance notes).
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5.5 Recognising and evaluating suspicious transactions and activity and suspicious attempted transactions 5.5.1 The importance of CDD information to the recognition and evaluation of suspicious activity and suspicious attempted activity Satisfactory CDD procedures provide the basis for recognising unusual and suspicious transactions and events. An effective way of recognising suspicions is knowing enough about participants, their particular circumstances and their normal expected activities to recognise when a transaction or instruction, or a series of transactions or instructions, is abnormal. Sufficient guidance must be given to staff to enable them to form a suspicion or to recognise when ML/FT is taking place. This should involve training that will enable appropriate staff, adequately and responsibly, to seek and assess the information that is required for them to judge whether a transaction or instruction is suspicious in the circumstances. Guidance and training will need to take account of the nature of the transactions and instructions that staff are likely to encounter, the type of product or service. Further guidance on staff training is provided at Section 8. 5.5.2 What constitutes knowledge and suspicion of money laundering or terrorist financing? Licence holders have an obligation to report where there is knowledge or suspicion of money laundering or terrorist financing (see Section 6 below). Generally speaking, knowledge under POCA means actual knowledge, which came to that person in the course of a business in the regulated sector or (for the nominated officer) in consequence of a disclosure made by another employee. Knowledge may be imputed however, such as if there has been a failure to ask obvious questions. Suspicion is more subjective. Suspicion is personal and falls short of proof based on firm evidence. Suspicion has been defined by the courts as being beyond mere speculation and based on some foundation. For example, it has been held that:
the essential element in the word suspect and its affiliates is that the Defendant must think that there is a possibility, which is more
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than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. 2
As the types of transactions which may be used by money launderers are almost unlimited, it is difficult to determine what will constitute a suspicious transaction. However, it is important to properly differentiate between the terms unusual and suspicious. The key is knowing enough about the participant to recognise that a transaction, or a series of transactions, is unusual and from an examination of the unusual, whether there is a suspicion of ML/FT. Where a transaction is inconsistent in amount, origin, destination, or type with a participants known activities, the transaction must be considered unusual, and the licence holder put on enquiry. Where the licence holder conducts enquiries and obtains what he considers to be a satisfactory explanation of the activity or transaction, he may conclude that there are no grounds for suspicion, and therefore take no further action as he is satisfied with matters. However, where the licence holders enquiries do not provide a satisfactory explanation of the activity or transaction, he may conclude that there are grounds for suspicion, and must make a disclosure. One issue that should arouse the licence holders attention is if the transaction or series of transactions has no commercial reason, or does not constitute the most logical, convenient or secure way to do business. For a person to have knowledge or be suspicious, he does not need to know the exact nature of the criminal activity underlying the money laundering, or that the funds themselves were definitely those arising from the criminal offence. 5.5.3 What constitutes reasonable grounds for knowledge or suspicion? In addition to establishing a criminal offence when suspicion or actual knowledge of money laundering or terrorist financing is proved, Section 14 of the Anti-Terrorism and Crime Act 2003 provides for an offence to be committed where there are reasonable grounds to know or suspect that property relates to the funding of terrorism. This introduces an objective test of suspicion. The test would be likely to be met when there are facts or circumstances, known to an employee of a licence holder, from which another person in similar circumstances would have inferred knowledge or formed the suspicion that terrorist financing was involved.
2
Per Longmore, LJ., R v Da Silva [2006] EWCA Crim 1654
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To defend themselves against a charge of failing to meet the objective test of suspicion licence holders and their employees would need to be able to demonstrate that they took reasonable steps in the particular circumstances to know the participants and the rationale for the transaction or instruction.
5.5.4 The type of situations giving rise to suspicion An illustration of the type of situations that might give rise to suspicion in certain circumstances are: (a) unusual patterns of gambling; and (b) gambling involving significantly large amounts of money. This is not, however, an exhaustive list. The MLRO or relevant senior management should consider all the circumstances and be prepared to ask further questions, if necessary.
5.5.5 Questions to ask w hen assessing suspicious activity

The following factors should be borne in mind when seeking to identify a suspicious transaction: (a) (b) (c) (d) (e) (f) (g) (h) (i) is the transaction in keeping with the participants normal activity known to the licence holder? does the IP address check indicate that the country/region in which the participant is located has changed? is the transaction coming from, or going to, an unusual financial institution? is it a significant transaction (relative to a relationship)? has there been a material change in the operation of the account? is the operation of the account operated in a normal fashion? has there been a change in the existing participants details which increases a risk profile? is the participant known personally? is the transaction or pattern of transactions unusually complex?
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(j) (k)
does the transaction or pattern of transactions have an apparent economic or visible lawful purpose? are there a number of transactions taking place at a value just below that of a Qualifying Transaction under paragraph 7(3) of the Code?
This list is not intended to be exhaustive and is only to provide examples.
SECTION 6 - REPORTING CONTINUED SUSPICIONS

6.1
SUSPICIONS
AND
Reporting Suspicions and Continued Suspicions
POCA makes it an offence to fail to disclose knowledge or suspicion or reasonable grounds for knowledge or suspicion that another person is engaged in money laundering. Likewise the Anti-Terrorism and Crime Act 2003 makes it an offence to fail to disclose where a person knows or suspects or has reasonable grounds for knowing or suspecting that a terrorist financing offence has been committed. Once knowledge or suspicion (or in the case of terrorist financing, reasonable grounds for knowledge or suspicion) has been formed the following general principles must be applied: (a) In the event of suspicion of money laundering, a disclosure must be made even where there has been no transaction by or through the licence holder. (b) Disclosures must be made as soon as is practicable after the suspicion was first identified (See Section 6.2 below). (c) Licence holders must ensure that they do not commit the offence of tipping off the participant or any other person who is the subject of the disclosure. Licence holders should also take care that their line of enquiry with participants is such that tipping off cannot be construed to have taken place. (Further guidance concerning tipping off is available under Section 6.8 below).
(d) Licence holders must ensure that any disclosure is made in good faith, as an absence of good faith may leave the licence holder open to legal action from the participant who may sue for breach of confidentiality or duty of care. Paragraph 16(3)(c) of the Code provides that licence holders must establish, maintain and operate written internal procedures which will require staff to make
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any report in the light of all other relevant information available to him for the purpose of determining whether or not it gives rise to a knowledge or suspicion of money laundering or terrorist financing or attempted money laundering or attempted terrorist financing. This
must also include staff of any sub-contractors, who may be providing support services to the licence holders.
reports to the MLRO with any information or attention and in their opinion gives rise to participant is engaged in ML/FT or an attempt paragraph 16(3)(d) of the Code to consider
other matter which comes to their a suspicion or knowledge that a of ML/FT. The MLRO is required by
6.2 The Timing of Disclosures When a licence holder has suspicion or knowledge that money laundering is taking place, a disclosure must be made to the FCU as soon as is practicable. Disclosures can be made either before a suspicious transaction or activity occurs in circumstances where an intended transaction appears suspicious, or after a transaction or activity has been completed if the transaction appears suspicious only with the benefit of hindsight. Disclosures that are made after the activity or transaction has taken place are not intended as alternatives to reports that should have been made prior to the transaction or activity being processed or completed. Licence holders must make the submission of a disclosure a priority, whilst at the same time ensuring that the disclosure itself is comprehensive and meaningful. When a licence holder has suspicion or knowledge that ML/FT is taking place, the need for prompt disclosures is especially important where a participant has instructed the licence holder to move funds, close the account, or carry out significant changes to the business relationship. In the case of significant movement of funds licence holders must contact the FCU urgently, before funds are moved. This may be vital to avoid a constructive trust claim where it is suspected that the funds in question have been fraudulently obtained (see Section 6.8.2 below).
6.3
Internal Reporting Procedures
It is the responsibility of the MLRO (or if appropriate the deputy MLRO) to consider all internal disclosures he/she receives in the light of full access to all relevant documentation and other parties. All licence holders must ensure that the MLRO receives full co-operation from all staff and full access to all relevant documentation so that he/she is in a position to decide whether money laundering or terrorist financing is suspected or known.
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Failure by the MLRO to diligently consider all relevant material may lead to vital information being overlooked and the suspicious transaction or activity not being disclosed to the FCU in accordance with the requirements of the legislation. Alternatively, it may also lead to vital information being overlooked which may have made it clear that a disclosure would have been unnecessary. As a result, the MLRO must document internal disclosures made by employees to record the results of the assessment of each disclosure and pursuant to paragraph 15(1)(b) of the Code, establish and maintain in the Isle of Man, a register of all money laundering and financing of terrorism reports made to the MLRO or deputy MLRO. The register established and made pursuant to paragraph 15(1)(b) of the Code must be kept separate from other records and must contain details of: (a) the date on which the report is made; (b) the person who makes the report; (c) whether it is made to the MLRO or deputy MLRO; and (d) information sufficient to identify the relevant papers.
6.3.1 Setting internal reporting procedures Licence holders must ensure that: (a) All employees are made aware of the identity of the MLRO and his/her deputy, and of the procedure to follow when making an internal disclosure report to the MLRO. (b) All disclosure reports must reach the MLRO without any undue delay. Under no circumstances should reports be filtered out by supervisors or managers such that they do not reach the MLRO. Reporting lines should be as short as possible with the minimum number of people between the employee with the suspicion and the MLRO. This ensures speed, confidentiality and accessibility to the MLRO. Larger groups may choose to appoint an assistant MLRO within divisions or subsidiaries to enable the validity of disclosure reports to be examined before being passed to a central MLRO. In such cases, the role of the assistant MLRO must be clearly specified and documented. All procedures and responsibilities must be documented in appropriate manuals and job descriptions.
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All suspicions reported to the MLRO must be documented (in urgent cases this may follow an initial discussion by telephone). The report should include the full details of the participants and as full a statement as possible of the information giving rise to the suspicion. The MLRO must acknowledge receipt of the report and at the same time provide a reminder of the obligation to do nothing that might prejudice enquiries i.e. tipping off the participant or any other third party. The reporting of a suspicion in respect of a participant, does not remove the need to report further suspicions that arise subsequently in respect of that participant. If other suspicious transactions or events occur, whether of the same nature or different to the previous suspicion, these new suspicions must continue to be reported to the MLRO as they arise. The MLRO must make repeated disclosures to the FCU when suspicious activity continues or re-occurs. The requirement to report also covers situations where the business or transaction has not proceeded and as a result there is a suspicion of money laundering or terrorist financing (see Section 6.4).
6.3.2
Evaluating internal disclosures When evaluating an internal disclosure, the MLRO must take reasonable steps to consider all relevant CDD information available within the licence holder concerning the participants, to whom the report relates. This may include making a review of other transaction patterns and volumes through connected accounts, any previous patterns of instructions, the length of the business relationship and reference to CDD information and documentation. As part of the review, other connected accounts or relationships may need to be examined. Connectivity can arise through commercial connections e.g. linked accounts, introducers etc, or through connected individuals. The need to search for information concerning connected accounts or relationships should not delay making a report to the FCU. The MLRO should document the evaluation process that they follow in each case and their reasons for their conclusions. If after completing the evaluation, the MLRO decides that there are grounds for knowledge, suspicion or reasonable grounds to suspect ML/FT, he must disclose the information to the FCU as soon as practicable after his evaluation is complete. Nevertheless, care should be taken to guard against a report being submitted as a matter of routine to the FCU without
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undertaking reasonable internal enquiries to determine that all available information has been taken into account. The MLRO will be expected to act honestly and reasonably and to make their determinations in good faith. Providing they do act in good faith in deciding not to pass on any suspicious transaction report, it is unlikely that there will be any criminal liability for failing to report.
6.4
Reporting declined business
The GSC understands that it is normal practice for licence holders to turn away business that they know is, or suspect might be, criminal in intent or origin. In such a circumstance licence holders must also make a disclosure to the FCU, albeit that no transaction or activity has taken place. Reporting of such events will allow the FCU to build a clearer picture of the money laundering threat to the Isle of Man, and to use such intelligence on a proactive basis. A further benefit of reporting such declined business is that money launderers will perhaps be discouraged from trying to place criminal business on the Isle of Man in future. This approach is consistent with developing international best practice. 6.5 Reporting suspicions Liaising with law enforcement The FCU acts as the central clearing point for all suspicious transaction disclosures, and therefore any disclosure that is Customs & Excise related should still be made to the FCU. Any Customs & Excise related disclosures will be passed on accordingly. However, officers at the Isle of Man Customs and Excise, prior to any formal disclosure being made, would welcome contact and dialogue with licence holders who believe there is a Customs and Excise element to a transaction or transactions under scrutiny. Disclosures should be sent directly to the following address and not to any other regulating authority:The Officer in Charge The Isle of Man Constabulary Financial Crime Unit PO Box 51 Douglas Isle of Man IM99 2TD
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Tel: (01624) 686000 (Office hours) Fax: (01624) 686039 Email: fcu@gov.im The disclosure of suspicious transactions should only be made on the FCUs prescribed disclosure form. This form should then be forwarded directly to the FCU, at the address mentioned above. Licence holders are encouraged to provide as much detail as possible and may wish to send supporting documentation with the prescribed disclosure form. In cases where licence holders inform the GSC of matters surrounding an imminent disclosure, it is not sufficient to merely state on the disclosure to the FCU that the GSC has been informed, and nothing more. Failure to provide sufficient information at the outset may hinder the commencement or progress of an investigation by the authorities, and may result in a consent letter being initially withheld.
6.6
Recording disclosures to the FCU
Under paragraph 15(1)(c) of the Code licence holders must establish and maintain a register of all disclosures made to the FCU. The register must include details of the date of the disclosure, the person making the disclosure, the constable to whom the disclosure is being made (by reference to the disclosure acknowledgement from the FCU), and information to allow the papers relevant to the disclosure to be located.
6.7
Actions after reporting
6.7.1 Acknowledgment of a disclosure Disclosing institutions will receive an acknowledgement in every case and appropriate advice and feedback wherever possible. 6.7.2 Investigation and the use of court orders Following the receipt of a disclosure and initial enquiries by the FCU, reports are allocated to trained financial investigation officers for further investigation. Intelligence from reports submitted to the FCU may be disseminated by the FCU to other law enforcement or government agencies.
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Where additional information is required from a reporting institution following a suspicious transaction report, it will generally be obtained pursuant to a production order issued by the court under POCA or an account monitoring order under the anti-terrorism legislation. Licence holders must ensure that they respond to all court orders within the required time limit and provide all of the information or material that falls within the scope of such orders. Licence holders are advised to check that the information supplied in compliance with an order is restricted to the information that is covered by the order. It cannot be assumed that nondisclosable or privileged material, e.g. copies of legal advice, will be filtered by the authorities before the information leaves the Isle of Man. During the course of an investigation, a licence holder may be served with a restraint order, designed to freeze particular funds or property pending the outcome of an investigation. A licence holder must ensure that it is able to freeze the relevant property that is the subject of the order. It should be noted that the restraint order may not apply to all funds or assets involved within a particular business relationship and licence holders should consider what if any property may be utilised subject to having obtained the appropriate consent from the FCU. Upon the conviction of a defendant, a court may order the confiscation of his criminal proceeds and a licence holder may be served with a confiscation order in the event that it holds funds or other property belonging to that defendant that are deemed by the courts to represent his benefit from criminal conduct. Property may also be forfeited in the Isle of Man utilising civil proceedings under anti-terrorism legislation.
6.7.3 Feedback from the FCU Because a significant proportion of disclosures/STRs received by the FCU relate to the accounts or transactions of non-Isle of Man residents, it is not always possible for the FCU to provide detailed feedback on individual disclosures. However, on a regular basis, the FCU will provide statistics and give information on identified trends, as well as giving advice on common mistakes or other misunderstandings which will serve to enhance the quality of disclosures.
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6.8
Avoiding committing a Tipping Off offence
6.8.1 Communicating with suspected participants and their advisers The refusal to act upon a participants request for a transaction to take place may lead to civil proceedings being instituted by the participant/business participant. In such cases a licence holder must notify the FCU. Licence holders should also seek legal advice on the information that they should disclose without tipping off a suspected participant and/or his advisers. It may be necessary in such circumstances for the licence holder to seek the directions of the court. Licence holders can reduce the potential threat of civil proceedings being instigated by suspected participants for breach of contract by ensuring that the terms of business governing their participant relationships specifically exclude breaches in circumstances where following a participant instruction may lead to the commission of an offence. 6.8.2 Managing a constructive trust scenario A licence holder holding property that it knows, or suspects, or has reasonable grounds to suspect does not belong to its participant may be regarded in law as a constructive trustee. In such a situation the licence holder is deemed to hold the property on a constructive trust for the benefit of the actual owner of the property (referred to as the constructive beneficiary). In such circumstances, a transfer of the property by a licence holder may constitute a breach of trust, even where the transfer is made with the consent of the FCU. Although each case should be considered on its facts, effective use of CDD information including verification of source of funds and source of wealth where necessary can help licence holders to guard against potential constructive trust liability arising out of fraudulent misuse or misappropriation of funds as well as against money laundering and terrorist financing. 6.8.3 Terminating a relationship The consent letter issued by the FCU following a disclosure is provided to a licence holder as a defence against a charge of assisting to launder criminal funds or to assist in terrorist financing. It is not intended to override normal commercial judgement, and licence holders are not obliged to continue
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relationships with participants if such action would place them at commercial risk. However, it is recommended that, before terminating a relationship that has been the subject of a report, licence holders may wish to consider liaising with the FCU to enquire whether termination will place it in danger of tipping off the participant or prejudicing the investigation in any other way.
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6.8.4
Tipping Off
The offence of tipping off is set out in section 145 of POCA, which provides that: 145 Tipping off: regulated sector (1) A person commits an offence if(a) (b) (c) the person discloses any matter within subsection (2); the disclosure is likely to prejudice any investigation that might be conducted following the disclosure referred to in that subsection; and the information on which the disclosure is based came to the person in the course of a business in the regulated sector.
(2) The matters are that the person or another person has made a disclosure under this Part [of the Code](a) (b) to a constable or customs officer serving (in either case) with the Financial Crime Unit of the Isle of Man Constabulary; or to a nominated officer,
of information that came to that person in the course of a business in the regulated sector. (3) A person commits an offence if(a) the person discloses that an investigation into allegations that an offence under this Part [of the Code] has been committed, is being contemplated or is being carried out; the disclosure is likely to prejudice that investigation; and the information on which the disclosure is based came to the person in the course of a business in the regulated sector.
(b) (c)
(4)
A person guilty of an offence under this section is liable(a) (b) on summary conviction, to custody for a term not exceeding 3 months, or to a fine not exceeding 5,000, or to both; on conviction on information, to custody for a term not exceeding 2 years, or to a fine, or to both.
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(5) This section is subject to(a) (b) (c) section 146 (disclosures within an undertaking or group); section 147 (other permitted disclosures between institutions); and section 148 (other permitted disclosures etc).
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SECTION 7 - RECORD KEEPING

7.1 Introduction Paragraphs 11 to 15 of the Code provide obligations for a licence holder regarding record keeping. Where a disclosure is made to a constable, records should be kept in accordance with Paragraph 13(3) of the Code. (i.e. retained for as long as required by the constable.) Paragraph 14 of the Code provides that a licence holder must ensure that any records that are required to be established and maintained under the Code are: (a) (b) if the records are in the form of hard copies kept on the Isle of Man, capable of retrieval without undue delay; if the records are in the form of hard copies kept outside the Isle of Man, capable of being sent to the Isle of Man and made available within 7 days; and in the case of other records (e.g. copies kept on a computer system), readily accessible in or from the Isle of Man and that they are capable of retrieval without undue delay
(c)
A licence holder may rely on the records of a third party in respect of the details of transactions, provided that the licence holder is satisfied that the third party is willing and able to retain (in accordance with paragraph 13 of the Code) and, if asked, to produce copies of the records required.
7.2 (a)
Records Identification information and evidence records Paragraph 11 of the Code requires the licence holder to establish and maintain a record in the Isle of Man containing identification information and evidence of participants. The record must indicate the nature of the information held and comprise either a copy of the information or, where this is not reasonably practicable, contain such information as would allow a copy of such evidence to be obtained. [Such records must be retained for the period of the business relationship with the participant or business participant plus at least 6 years from the date that the relationship is formally ended or where the relationship has not been formally ended, the date of the last transaction.]
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(b)
Transaction records Licence holders are required by the Code to maintain a record of all transactions undertaken. These records may be in the form of electronic transaction reports, original documents or copy form. (It is recommended that such copies should be of a form admissible in Court proceedings.) These will be records in support of entries in the accounts of whatever nature is appropriate to the business of the licence holder, and must be retained for a period of at least 6 years from the date of the transaction. Paragraph 12 of the Code provides that Transaction Records must be sufficient to identify the source and recipient of payments from which
investigating authorities will be able to compile an audit trail for suspected money laundering or terrorist financing.
(c) Training records
So that licence holders can demonstrate that they have complied with the provisions of Paragraphs 17 and 18 of the Code concerning staff screening and training, they should maintain records which include: (i) (ii) (iii) details of the content of the training programmes provided; the names of staff who have received the training; the date on which the training was delivered.
Although the Code does not state over what period training records must be retained, the GSC considers that licence holders should retain such records for a minimum of 6 years from the date the training took place.
7.3
Contents of transaction records
Licence holders are required by regulations made under OGRA, to maintain certain records relating to participant or business participants and their transactions. It is necessary to ensure that a satisfactory audit trail can be established for antimoney laundering purposes and that a financial profile of any suspected account can be established. To satisfy this requirement, the following additional information may be sought as appropriate, and transaction records retained of: (a) (b) the volume of funds flowing through the account/turnover of the participant or business participant; the origin of the funds where known;
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(c) (d) (e) (f)
the form in which the funds were deposited or withdrawn, i.e. credit card, cheque, etc. to/by the participant or business participant; the identity of the person undertaking the transaction; the form of instruction and authority; the external financial account details from which the funds were paid (including, bank name, sort code, account number and name of account holder); the form and destination of payments made by the licence holder to the participant; a record of all deposits, both successful and unsuccessful, made to the participants account.
(g) (h)
7.4 (a) (b) (c)
Establishment of registers money laundering enquiries from the authorities; ML/FT reports made to the MLRO and deputy MLRO; and ML/FT reports made to the authorities.
The Code requires licence holders to establish and maintain registers as follows:
Licence holders must keep, in the Isle of Man, registers in accordance with the requirements of Paragraph 15 of the Code. The Code requires that such registers must be kept separate from other records. The register must contain the following information as a minimum: (a) in respect of enquiries made from the authorities: (i) the date of the enquiry; (ii) the nature of the enquiry; (iii) the name of the agency; (iv) the name of the inquiring officer; (v) the powers being exercised by that officer; (vi) details of the participants and/or business participants involved; and (vii) details of the transactions involved; (b) in respect of enquiries made to the MLRO or deputy MLRO: (i) the date of the report; (ii) the person making the report; Page 60 of 92
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(iii) whether it is made to the MLRO or deputy MLRO; and (iv) information sufficient to identify the relevant papers; and (C) in respect of reports made to the authorities: (i) date of the report; (ii) the person making the report; (iii) the Constable to whom the report was made; (iv) information sufficient to identify the relevant papers; and (v) acknowledgment of receipt of report from the FCU (once received). The GSC requires that registers should be readily accessible to authorised officers of the GSC.
7.5
Responding to production orders
The GSC expects all licence holders to be in a position to retrieve relevant information without undue delay in response to any request, production order, warrant etc. Much international damage may be done to the Isle of Mans reputation if requests for international assistance, duly authorised by the Isle of Man Attorney Generals Chambers, are not serviced within the time period specified in the notice. Due to the importance the Isle of Man Government places on its mechanisms for international cooperation, in circumstances of repeated failure by a licence holder to comply with such requests or notices, the GSC will consider that the licence holder is not complying with Paragraph 14 of the Code (i.e. records to be retrievable without undue delay), which can only impact upon the view held by the GSC of the licence holders prudence, integrity, competence or the character and status of the management of the licence holder.
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SECTION 8 - STAFF SCREENING, TRAINING AND AWARENESS

8.1 The Need for Vigilance Successful AML/CFT strategies rely on effective communication of a licence holders policies and procedures to prevent and detect money laundering and terrorist financing. Communication of policies and procedures, and training in how to apply those procedures, provides the basis from which licence holders ensure compliance with AML/CFT legislation and guidance. In particular, participant facing employees and those who handle or are managerially responsible for the handling of participant transactions or business relationships will provide the business with its strongest defence or its weakest link. Licence holders must ensure that all directors, and all appropriate employees receive induction training and on-going training on money laundering and terrorist financing prevention on a regular basis. Licence holders must also ensure all staff fully understand the policies and procedures of the licence holder and their importance, and that they will be committing criminal offences if they contravene the provisions of the legislation. Licence holders must have a clear and well articulated policy for ensuring that their appropriate employees are: (a) competent and have integrity; (b) aware of their personal obligations and liabilities under POCA, the Terrorism (Finance) Act 2009, section 9 of the Prevention of Terrorism Act 1990, the Anti-Terrorism and Crime Act 2003, the Code and guidance; (c) aware of any new developments including current techniques, methods and trends in money laundering and terrorist financing; and (d) trained in the identification and reporting of anything that gives grounds for knowledge or suspicion or reasonable grounds to know or suspect that money laundering or terrorist financing is taking place. The term employee should not be read as to be limited to individuals working under a contract of employment, but should also include temporary and contract staff and the staff of any third parties under an outsourcing agreement.
8.2
New employees Vetting Paragraph 17 of the Code requires that licence holders maintain and operate appropriate procedures in order to satisfy themselves of the integrity of all new directors and new appropriate employees. The extent of procedures undertaken Page 62 of 92
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must take into account the role of the employee and should be appropriate to the risk of ML/FT, the size and complexity of the business. The term appropriate employees is not unique to high level staff such as the MLRO, deputy MLRO and compliance officers, it may also include other members of staff (e.g. frontline staff) where there are money laundering or terrorist financing risks. In order to meet these requirements, licence holders must where possible: (a) obtain and confirm references; (b) confirm employment history and the qualifications advised; (c) request details of any regulatory action taken against the individual (or the absence of such action); (d) request details of any criminal convictions (or the absence of such convictions) and verify where possible. Licence holders must document the steps taken to satisfy these requirements including the information and confirmations obtained. Licence holders must also document where it has not been possible to obtain such information including the reasons why this is the case.
8.3
Employee awareness and training
Under paragraph 18 of the Code employee awareness raising and training must cover: (a) the provisions of AML/CFT legislation; (b) employees personal obligations under AML/CFT legislation; (c) the licence holders internal reporting procedures; (d) the licence holders policies and procedures to prevent money laundering and terrorist financing including: (e) CDD requirements and the need to know the participants true identity and enough about the type of business activity expected in relation to the participant at the outset (and on an ongoing basis) so that unusual and suspicious activity can be identified in the future and record keeping and other procedures for AML/CFT; (f) the recognition and handling of suspicious transactions; and (g) employees personal liability for failure to report information or suspicions in accordance with the statutory requirements and the internal procedures of the licence holder relating thereto.
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8.4 Awareness of legislation and procedures Employee awareness can be achieved and demonstrated in a number of ways and licence holders should consider the following means of demonstrating and monitoring awareness: (a) Providing employees with a document consolidating information outlining the licence holders and their own obligations and potential criminal liability under AML/CFT legislation; (b) Requiring employees to acknowledge that they have received and understood the information contained in the above document; and (c) Providing relevant employees with a copy of the licence holders procedures manual for AML/CFT. It is not sufficient solely to provide employees with a copy of these guidance notes; one of the purposes of these guidance notes is to enable licence holders to design policies and procedures that are appropriate to their business.
8.5
Ongoing awareness raising techniques
Consideration must be given to maintaining employee vigilance between training initiatives. This may be achieved in a variety of ways including: (a) Keeping employees aware of AML/CFT developments (such as updates issued by the GSC or developments in international standards) as they occur. Ongoing employee training to keep employees informed of new developments, including information on current ML/FT techniques, methods and trends (including sources of information such as the FATFs Typologies); Advising employees of sanitised case studies that illustrate how suspicions may have been formulated in certain relationships; Advising employees of current news stories involving money laundering and terrorist financing activity; and Emailing reminders of the need to remain vigilant at all times.
(b)
(c) (d) (e)
With the passage of time between training initiatives the level of employee awareness of the risk of money laundering and terrorist financing will decrease. Using techniques to maintain a high level of awareness can greatly enhance the effectiveness of a licence holders defences against ML/FT.
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8.6
Timing and content of training programmes Training should be structured to ensure compliance with all of the requirements of the applicable legislation including the requirement under paragraph 18 of the Code that it be undertaken at least annually. Each licence holder can tailor its training programmes to suit its own needs and those of their employees to whom it is delivered, depending on size, resources and the type of business they undertake. Smaller organisations with no in-house training function may wish to approach competent third parties e.g. specialist training agencies. If an employees role within a business changes and, as a result, they become exposed to new products and services with money laundering vulnerabilities with which they are not familiar, or high-risk participant relationships, additional relevant training should be provided. Training will need to take account of the nature of the transactions and instructions that employees are likely to encounter, the type of product or service and the means of delivery of that product or service, i.e. whether face-to-face or remote. Relevant employees should be able to distinguish between activity that is consistent with relationships that exist for legitimate purposes and activity that is not. They must also be able to understand the legitimate commercial rationale for the existence of the types of relationship to which they are exposed. Relevant employees should be trained to think risk in their day-to-day activities and to understand the basis of their employers risk-based strategy. Training should highlight to employees the importance of the contribution that they can individually make to the prevention and detection of money laundering and terrorist financing. There is a tendency, in particular on the part of more junior employees to mistakenly believe that the role that they play is less pivotal than that of more senior colleagues. Such an attitude can lead to failures to report important information because of mistaken assumptions that the information will have already been identified and dealt with by more senior colleagues. The guiding principle of all AML/CFT training should be to encourage employees, irrespective of their level of seniority, to understand and accept their responsibility to contribute to the protection of the business against the threat of money laundering and terrorist financing.
8.7
New Employees Irrespective of seniority, training for all new employees who will be dealing with participants or their transactions must cover: (a) a general introduction to the background to money laundering and terrorist financing; (b) a clear indication of the importance placed on AML/CFT issues by the organisation; Page 65 of 92
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(c) the legal requirement to make disclosures and their personal legal obligations in this regard; and (d) the procedures for reporting suspicious transactions to the MLRO. This training must be provided prior to them becoming actively involved in day-today operations.
8.8
Front Line Employees
Employees who deal directly with participants are the first point of contact with potential money launderers. Their efforts are vital to an organisations effectiveness in combating money laundering at the new business stage, and as the business relationship progresses. Employees who are responsible for dealing with new participants must receive relevant training in: (a) the need to obtain satisfactory information and verification for all areas of CDD including documentary evidence of the participants identity; (b) their obligation to make disclosures even if the transaction or business relationship does not proceed, in respect of both new and existing business relationships. (c) factors that may give rise to suspicions about a participant; and (d) the procedures to follow when a transaction is considered to be suspicious. Employees should also be vigilant when dealing with occasional participants. Employees involved in processing deals or transactions must receive relevant training in: (e) processing and verification procedures; (f) recognising abnormal activity, abnormal settlement, payment instructions, or any change in the normal pattern of business; (g) the type of suspicious transactions that may need reporting to the relevant authorities regardless of whether the transaction was completed; and (h) the procedures to follow when a transaction is considered to be suspicious. All employees should be vigilant in circumstances where a known, existing participant changes the existing known profile. Whilst the licence holder may have previously obtained satisfactory evidence of the participants identity, the licence holder should not presume that he knows the participant, as his knowledge is limited to the participants previous and different circumstances. Page 66 of 92
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Therefore, in terms of CDD requirements, the licence holder must treat the participant as if the applicant for business were unknown to him, and should take steps to learn as much as possible about the participants new activities.
8.9
Training for Managerial Employees
Employees who are managerially responsible for handling participant transactions or business relationships must receive a higher level of training covering all aspects of AML/CFT procedures including: (a) offences and penalties arising from relevant legislation for non-reporting or for assisting money launderers; (b) procedures for dealing with production and restraint orders; (c) requirements for verification of identity and retention of records; and (d) in particular, the application of the licence holders risk-based strategy and procedures.
8.10 Training for the Money Laundering Reporting Officer The MLRO and any deputies must receive in depth training on all aspects of money laundering and terrorist financing prevention and detection including: (a) AML/CFT legislative and regulatory requirements; (b) the international standards and requirements on which the Isle of Man strategy is based; (c) the identification and management of ML/FT risk; (d) the design and implementation of internal systems of AML/CFT control; (e) the design and implementation of AML/CFT compliance testing and monitoring programs; (f) the identification and handling of suspicious activity and arrangements; (g) the money laundering and terrorist financing vulnerabilities of relevant services and products; (h) the handling and validation of internal disclosures; (i) liaising with law enforcement; (j) ML/FT trends and typologies; (k) the risk of constructive trusteeship; (l) managing the risk of tipping off; (m) the handling of monitoring, production and restraint orders. Page 67 of 92
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The role of the MLRO is critical. The MLRO acts as the final arbiter on whether internal disclosures have substance and thus whether they should form the basis of reports to the FCU. MLRO training must reflect the seriousness of the role.
8.11 Monitoring the effectiveness of training Licence holders must monitor the effectiveness of training provided. This may be achieved by: (a) Testing employees understanding of the licence holders policies and procedures to combat ML/FT, the understanding of their statutory and regulatory obligations, and also their ability to recognise money laundering and terrorist financing activity. (b) Monitoring the compliance of employees with the licence holders AML/CFT systems, controls, policies and procedures and taking any remedial action that may be necessary. (c) Monitoring internal reporting patterns and taking any remedial action that may be necessary. (d) Assessing any court orders to determine whether relevant suspicions were recognised and disclosed.
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APPENDICES
APPENDIX A - PROCEEDS OF CRIME (MONEY LAUNDERING ONLINE GAMBLING) CODE 2010 Statutory Document No. 509/10
PROCEEDS OF CRIME ACT 2008 PROCEEDS OF CRIME (MONEY LAUNDERING ONLINE GAMBLING) CODE 2010
INDEX 1. 2. 3. Title and commencement Interpretation General requirements IDENTIFICATION PROCEDURES Anonymous accounts Risk assessment Identity of prospective participants Evidence of identity for participants Evidence of identity for business participants Enhanced participant and business participant due diligence Ongoing monitoring RECORD KEEPING 11. 12. 13. 14. 15. Identity Records Records of transactions Retention of records Format and retrieval of records Register of money laundering enquiries and reports Page 69 of 92
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4. 5. 6. 7. 8. 9. 10.
INTERNAL PROCEDURES Recognition and reporting of suspicious transactions STAFF, EDUCATION, TRAINING AND DEVELOPMENTS Staff screening Staff training Technological Developments Monitoring and testing compliance
16.
17. 18. 19. 20.
PROCEEDINGS 21. 22. Offences Revocation
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Statutory Document No. 509/10
PROCEEDS OF CRIME ACT 2008 PROCEEDS OF CRIME (MONEY LAUNDERING ONLINE GAMBLING) (CODE 2010
Approved by Tynwald: 14th July 2010 Coming into operation: 1st September 2010 The Department of Home Affairs makes this Code under section 157(1) of the Proceeds of Crime Act 2008 3 and after consulting such persons and bodies that appeared to it to be appropriate. 1. Title and commencement The title of this Code is the Proceeds of Crime (Money Laundering Online Gambling) Code 2010 and, subject to Tynwald approval 4, it shall come into operation on the 1 September 2010 2. Interpretation In this Code authorised person means any person which carries on deposit taking under the provisions of the Financial Services Act 2008 5; or, is on the register maintained by the Isle of Man Treasury as a money service operator, holds an e-money licence from the Isle of Man Financial Supervision Commission; or, is a regulated party carrying on deposit taking in any of the jurisdictions detailed in Schedule 1 of this Code; or, is on the list of persons detailed in
2008 c.13 As required by section 223(3) of the Proceeds of Crime Act 2008. 5 2008 c.8 Price Band B 2.00
3 4
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Schedule 2 of this Code deemed to be authorised persons for the purposes of this Code; "beneficial owner" means the natural person who ultimately owns or controls a business participant; business participant means a party participating, in the course of business, in online gambling other than as a licence holder; competent authority means all Isle of Man administrative and law enforcement authorities concerned with combating money laundering and terrorist financing, including; the Financial Supervision Commission, the Insurance and Pensions Authority, the Isle of Man Gambling Supervision Commission, the Department of Home Affairs, the Financial Crime Unit of the Isle of Man Constabulary, the Office of Fair Trading, Customs and Excise; constable includes an officer under the Customs and Excise Management Act 1986 6; FATF Recommendations means the 40 Recommendations of the Financial Action Task Force on Money Laundering and the Task Forces 9 Special Recommendations on Terrorist Financing; "licence holder" means a person conducting online gambling in accordance with a licence granted under the Online Gambling Regulation Act 2001 7; money laundering means an act which falls within section 158(11) of the Proceeds of Crime Act 2008; "the Money Laundering and Terrorist Financing Requirements" means (a) (b) (c) (d) (e)
6 7
part 3 of the Proceeds of Crime Act 2008; part 2 of the Terrorism (Finance) Act 2009 8; section 9 of the Prevention of Terrorism Act 1990 9; sections 7 to 11 and section 14 of the Anti-Terrorism and Crime Act 2003 10; and this Code,
1986 c.34 2001 c.10 8 2009 c.8 9 1990 c.19 (Although the Act is repealed, it is possible for proceedings to be taken in respect of acts undertaken when it was in force) 10 2003 c.6
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and includes, in the case of anything done otherwise than in the Island, anything which would constitute an offence under the provisions specified in paragraphs (a) to (e) if done in the Island; "online gambling" means online gambling within the meaning given in section 1(1) of the Online Gambling Regulation Act 2001; "participant means any person (other than a business participant) participating as a player in online gambling other than as a licence holder; "payment means a payment in money or money's worth, but does not include the credit of winnings to an account operated by the licence holder for the benefit of the participant or business participant to whom the winnings are payable; peer to peer gambling means online gambling between two or more participants or online gambling where participants are not hazarding payments against the bank which is facilitated (in both cases) by a licence holder; "politically exposed person" means any of the following resident in a country outside the Isle of Man (a) a natural person who is or has been entrusted with prominent public functions, including (i) (ii) (iii) (iv) (v) (vi) (vii) a head of state, head of government, minister or deputy or assistant minister; a senior government official; a member of parliament; a senior politician; an important political party official; a senior judicial official; a member of a court of auditors or the board of a central bank;
(viii) an ambassador, charg d'affaires or other high-ranking officer in a diplomatic service; (ix) (x) a high-ranking officer in an armed force; and a senior member of an administrative, management or supervisory body of a state-owned enterprise; Page 73 of 92
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(xi) (xii) (b)
a senior official of an international entity or organisation; an honorary consul.
any of the following family members of a person mentioned in sub-paragraph (a) (i) (ii) (iii) (iv) (v) (vi) (vii) a spouse; a partner considered by national law as equivalent to a spouse; a child; the spouse or partner of a child; a sibling; a parent; a parent in law;
(viii) a grandparent; (ix) (c) a grandchild;
any close associate of a person mentioned in sub-paragraph (a) or sub-paragraph (b), including (i) any natural person who is known to be a joint beneficial owner of a legal entity or legal arrangement, or any other close business relations, with such a person; any natural person who is the sole beneficial owner of a legal entity or legal arrangement which is known to have been set up for the benefit of such a person; any natural person who is in a position to conduct substantial financial transactions on behalf of such a person;
(ii)
(iii)
terrorism has the same meaning as in section 1 of the Anti-Terrorism and Crime Act 2003 "transaction" includes (a) payments made by a participant or business participant to a licence holder;
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(b) (c) 3.
payments made by a licence holder to a participant or business participant; participation in online gambling.
General requirements (1) In conducting online gambling a licence holder shall (a) establish, maintain and operate (i) (ii) (iii) (iv) (v) identification procedures paragraphs 4 to 10; in accordance with
record keeping procedures in accordance with paragraphs 11 to 15; internal reporting procedures in accordance with paragraph 16; staff screening and training procedures in accordance with paragraph 17 to 18; internal controls and communication procedures which are appropriate for the purposes of forestalling and preventing money laundering and terrorist financing; and, procedures and controls in accordance with paragraphs 19 and 20.
(vi) (b)
take appropriate measures from time to time for the purpose of making employees aware of (i) (ii) the procedures established, maintained and operated under sub-paragraph 1(a); and, the provisions of the Money Laundering and Terrorist Financing Requirements.
(2) A licence holder shall not accept, and shall not permit any third party to accept on its behalf, cash from, or on behalf of a participant or business participant in relation to online gambling. (3) Any winnings from online gambling due to a participant or business participant from a licence holder shall only be paid to the account held with the
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licence holder in the name of the relevant participant or business participant as required by the Online Gambling (Registration and Accounts) Regulations 2008 11. IDENTIFICATION PROCEDURES 4. Anonymous accounts (1) A licence holder must not in relation to online gambling maintain (a) (b) 5. Risk assessment an anonymous account; or, an account in a fictitious name.
(1) For the purpose of determining the measures to be taken when carrying out participant or business participant due diligence, under the terms of paragraphs 6, 7 and/or 8 and enhanced participant and business participant due diligence (as such is defined in paragraph 9) under paragraph 9, a licence holder shall carry out a risk assessment in accordance with this paragraph as soon as reasonably practicable. (2) The risk assessment must estimate the risk of money laundering and terrorist financing on the part of the participant or business participant, having regard to (a) (b) (c) (d) value of funds deposited with the licence holder; jurisdiction of participant or business participant; source of funds deposited; any other relevant matter brought to the attention of the licence holder during the account opening process for the participant or the business participant; any relevant supervisory or regulatory guidance given by the Isle of Man Gambling Supervision Commission; the legal nature of the business participant.
(e) (f)
(3) Where in accordance with the risk assessment, a licence holder determines that a participant or business participant poses a higher risk, the licence holder must carry out enhanced participant and business participant due diligence in accordance with paragraph 9.
11
SD 283/08
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6. Identity of prospective participants
(1) A licence holder shall establish, maintain and operate procedures which require the prospective participant to provide satisfactory information as to his identity (either online or in writing) as soon as reasonably practicable after contact is first made between them. (2) Procedures comply with this paragraph and paragraph 5 if they require that unless satisfactory information as to the prospective participant's identity is provided (a) (b) (c) 7. no account will be opened for him, no money will be accepted from or on behalf of him, and no participation in online gambling by him will be permitted.
Evidence of identity for participants
(1) Subject to the terms of sub-paragraph 5, this paragraph applies in respect of the first occasion on which a qualifying payment is to be made to a participant in relation to online gambling. (2) A licence holder shall establish, maintain and operate procedures which require the participant to produce satisfactory evidence of his identity before making the qualifying payment. (3) (a) (b) the payment exceeds Euro 3,000; or when taken with all other payments made to the participant within the 30 days immediately preceding the date on which the payment is to be made, the aggregate amount exceeds Euro 3,000. In relation to online gambling, a payment is a qualifying payment if
(4) Procedures comply with this paragraph if they require that if satisfactory evidence is not produced (a) (b) (c) the qualifying payment will not be made unless that evidence is produced; no further participation in online gambling by the participant will be permitted; and a licence holder considers whether a suspicious transaction report should be made Page 77 of 92
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(5) In relation to peer to peer gambling, provided that the licence holder complies with paragraph 3(2), and accepts only payments from an authorised person and makes payments to an authorised person on behalf of a participant , a licence holder shall not be required to comply with paragraphs 7 (1) to (4). 8. Evidence of identity for business participants
(1) A licence holder shall establish, maintain and operate procedures which require the business participant to produce satisfactory evidence of its identity before a business relationship is entered into. (2) A licence holder must, in the case of all business participants (i) (ii) (iii) (iv) understand the ownership and control structure of the business participant; determine the legal status of the business participant and who is the beneficial owner; verify that any person purporting to act on behalf of the business participant is authorised to do so; obtain satisfactory evidence to identify and take reasonable steps to verify the identity of those persons or any natural persons having power to direct the business participants activities, using relevant information or data obtained from a reliable source; and obtain satisfactory evidence to identify and take reasonable steps to verify the identity of the beneficial owner, using relevant information or data obtained from a reliable source.
(v)
9. Enhanced participant and business participant due diligence
(1) Where in accordance with the risk assessment in paragraph 5, a licence holder determines that a participant or business participant poses a higher risk, the licence holder must carry out enhanced participant and business participant due diligence. (2) Matters which pose a higher risk include but are not restricted to a participant or business participant who is or has a substantial connection with (a) a politically exposed person; or Page 78 of 92
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(b)
a person, legal person or legal arrangement resident or located in a country which the licence holder has reason to believe does not apply, or insufficiently applies, the FATF Recommendations. a person, legal person or legal arrangement that is the subject of any notices or warnings issued from time to time by the Isle of Man Gambling Supervision Commission.
(c)
(3) In this Code "enhanced participant and business participant due diligence" means steps, additional to the measures specified in paragraphs 6, 7 and 8 of this Code, namely (a) (b) considering whether additional identification data needs to be obtained; considering whether additional aspects of the participants identity or the identity of the business participant need to be verified; taking reasonable measures to establish the source of any funds and of the wealth of the participant and any beneficial owner and underlying principal; and considering what ongoing monitoring should be carried on in accordance with paragraph 10.
(c)
(d)
10. Ongoing monitoring (1) A licence holder shall establish, maintain and operate procedures which require the ongoing and effective monitoring of any transactions undertaken by a participant or business participant, including (a) (b) review of information provided as to the participants identity which has been provided under paragraph 6 (1) of this Code; review of evidence of identity which has been provided under paragraphs 7, 8 and/or 9 of this Code.
(2) This paragraph applies where transactions are undertaken by a participant or business participant which are significantly different (in number or value) to the normal pattern of previous transactions undertaken, or appear complex, or have no apparent economic or lawful purpose. (3) A licence holder shall establish and maintain procedures which, as soon as reasonably practicable after the variation in the pattern of transactions Page 79 of 92
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(a) (b)
require satisfactory confirmation of the information as to identity provided under paragraph 6; and in cases in which evidence of identity has been produced under paragraphs 7, 8 and 9, require satisfactory verification of the evidence of identity produced under those paragraphs.
(4)
Procedures comply with this paragraph if they require that (a) (b) when satisfactory confirmation of the information as to the participant's identity is not provided; or when satisfactory verification of the evidence of the participant's or business participants identity is not provided, no further participation in online gambling by such will be permitted; and the licence holder considers whether a suspicious transaction report should be made.
(c)
RECORD KEEPING 11. Identity Records
(1) Where a licence holder is required under this Code to obtain information as to the identity of a person or confirm such information, the licence holder shall establish and maintain a record in the Island which (a) (b) indicates the nature of the information obtained; and comprises either a copy of the information or, where this is not reasonably practicable, contains such information as would enable a copy of the information to be obtained in accordance with paragraph 14.
(2) Where a licence holder is required under this Code to verify the identity of a person, the licence holder shall establish and maintain a record in the Island which (a) (b) indicates the nature of the evidence obtained; and comprises either a copy of the evidence or, where this is not reasonably practicable contains such information as would enable a copy of the evidence to be obtained in accordance with paragraph 14.
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12.
Records of transactions
The licence holder shall establish and maintain a record of all transactions carried out by or on behalf of participants or business participants (for example, records sufficient to identify the source and recipient of payments from which investigating authorities will be able to compile an audit trail for suspected money laundering or terrorist financing) and such other records as are sufficient to demonstrate that the Money Laundering and Terrorist Financing Requirements have been complied with. 13. Retention of records
(1) A licence holder shall keep the records required by paragraph 12 for at least 6 years from the date when (a) (b) the person concerned formally ceases to be participant or business participant; or if sub-paragraph (1) (a) does not apply, when the last transaction was carried out by the former participant or business participant.
(2) A licence holder shall maintain the records required by paragraph 12 for at least 6 years from the date of the transaction. (3) Where a report has been made to a constable under paragraph 16 (3)(f), or the person knows or believes that a matter is under investigation, that person shall, without prejudice to sub-paragraph (1), retain all relevant records for as long as required by the constable. 14. Format and retrieval of records
(1) A licence holder shall ensure that any records that are required to be established and maintained under this Code are (a) where the records are in the form of hard copies kept on the Island, then ensure that they are capable of retrieval without undue delay. where the records are in the form of hard copies kept outside the Island, then ensure that the copies can be sent to the Island and made available within 7 days; and
(b)
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(c)
in the case of other records (e.g. copies kept on a computer system), then ensure that they are readily accessible in or from the Island and that they are capable of retrieval without undue delay.
(2) A licence holder may rely on the records of a third party in respect of the details of transactions, provided that the licence holder is satisfied that the third party is willing and able to retain (in accordance with paragraph 13) and, if asked, to produce copies of the records required. 15. Register of money laundering enquiries and reports (1) A licence holder shall establish and maintain, in the Island (a) a register of all money laundering and financing of terrorism enquiries made of it by law enforcement or other competent authorities; A register of all money laundering and financing of terrorism reports made to the MLRO or deputy MLRO in accordance with paragraph 16(3)(c); a register of all money laundering and financing of terrorism reports made to a constable in pursuance of paragraph 16(3)(f).
(b)
(c)
(2) The registers maintained under sub-paragraph (1) shall be kept separate from other records and (a) the register maintained under sub-paragraph (1)(a) shall contain as a minimum the date and nature of the enquiry, the name and agency of the inquiring officer, the powers being exercised, and details of the participants, business participants and transactions involved; the register maintained under sub-paragraph (1)(b) shall contain details of the date on which the report is made, the person who makes the report, whether it is made to the MLRO or deputy MLRO and information sufficient to indentify the relevant papers; and the register maintained under sub-paragraph (1)(c) shall contain details of the date on which the report is made, the person who makes the report, the constable to whom it is made and information sufficient to identify the relevant Page 82 of 92
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(b)
(c)
papers. The register shall also contain details of acknowledgement of receipt of report from the Financial Crime Unit. INTERNAL PROCEDURES 16. Recognition and reporting of suspicious transactions and suspicious attempted transactions
(1) A licence holder shall appoint a Money Laundering Reporting Officer (MLRO) to exercise the functions conferred on him by this paragraph. (2) The MLRO must be (a) (b) (c) sufficiently senior in the organisation of the licence holder; or if not within that organisation, have sufficient experience and authority; and must have a right of direct access to the directors or the managing board (as the case may be) of the licence holder.
(3) A licence holder shall establish, maintain and operate written internal reporting procedures which, in relation to his online gambling business, will (a) enable all its directors or, all other persons involved in its management, and all appropriate employees to know to whom they should report any knowledge or suspicions of money laundering or terrorist financing or attempted money laundering or attempted terrorist financing; ensure that there is a clear reporting chain under which those suspicions will be passed to the MLRO; require reports to be made to the MLRO of any information or other matter which comes to the attention of the person handling that business and which in that persons opinion gives rise to a suspicion or knowledge that another person is engaged in money laundering or terrorist financing or attempted money laundering or attempted terrorist financing; require the MLRO to consider any report in the light of all other relevant information available to him for the purpose of determining whether or not it gives rise to a knowledge or Page 83 of 92
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(b) (c)
(d)
suspicion of money laundering or terrorist financing or attempted money laundering or attempted terrorist financing; (e) ensure that the MLRO has reasonable access to any other information which may be of assistance to him and which is available to the licence holder; and require that the information or other matter contained in a report is disclosed as soon as is practicable to a constable who is for the time being serving with the Financial Crime Unit on the Island where the MLRO knows or suspects that another is engaged in money laundering or terrorist financing or attempted money laundering or attempted terrorist financing.
(f)
STAFF, EDUCATION AND TRAINING 17. Staff screening
A licence holder shall establish, maintain and operate appropriate procedures to enable the licence holder to satisfy itself of the integrity of new directors and new appropriate employees of the licence holder. 18. Staff training
A licence holder shall provide or cause to be provided, education and training including refresher training ( not less than annually) for all directors or all other persons involved in its management, all key staff and all appropriate employees to ensure that they are aware of (a) (b) (c) (d) (e) the provisions of the Money Laundering and Terrorist Financing Requirements; their personal obligations under the Money Laundering and Terrorist Financing Requirements; the internal reporting procedures established under paragraph 16; the licence holders policies and procedures to prevent money laundering and terrorist financing; the licence holders participant and business participant identification, verification, record-keeping and other procedures to prevent money laundering and terrorist financing; the recognition and handling of suspicious transactions; Page 84 of 92
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(f)
(g)
their personal liability for failure to report information or suspicions in accordance with the Money Laundering and Terrorist Financing Requirements and the internal procedures of the licence holder relating thereto.
19. Technological developments A licence holder must maintain appropriate procedures and controls for the purpose of preventing the misuse of technological developments for the purpose of money laundering or the financing of terrorism. 20. Monitoring and testing compliance
A licence holder must maintain adequate procedures for monitoring and testing compliance with the Money Laundering and Terrorist Financing Requirements, having regard to PROCEEDINGS 21. Offences (a) (b) the risk of money laundering and terrorist financing; and the nature and size of the organisation of the licence holder.
(1) Any person who contravenes this Code shall be guilty of an offence and liable (a) (b) on summary conviction to a fine not exceeding 5,000 or to custody not exceeding 6 months, or to both; on conviction on information to custody not exceeding 2 years or to a fine, or to both.
(2) In determining whether a person has complied with any of the requirements of any part of this Code a court may take account of (a) any relevant supervisory or regulatory guidance which applies to that person and which is given by the Isle of Man Gambling Supervision Commission; or in a case where no guidance falling within sub-paragraph (a) applies, any other relevant guidance issued by a body that regulates, or is representative of, any trade, business, profession or employment carried on by that person. Page 85 of 92
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(b)
(3) In proceedings against a person for an offence under this Code, it shall be a defence for that person to show that he took all reasonable steps and exercised all due diligence to avoid committing the offence. (4) Where an offence under this Code is committed by a body corporate and it is proved that the offence (a) (b) body; was committed with the consent or connivance of an officer of the body, or was attributable to neglect on the part of an officer of the
the officer, as well as the body, shall be guilty of the offence. (5) Where a person is convicted of an offence under sub-paragraph (4) he shall be liable (a) (b) on summary conviction to a fine not exceeding 5,000 or to custody not exceeding 6 months, or to both;
on conviction on information to custody not exceeding 2 years or to a fine, or to both. (6) In this paragraph, "officer" includes (a) (b) (c) (d) a director, manager or secretary a person purporting to act as a director, manager or secretary if the affairs of the body are managed by its members, a member, and in relation to a limited liability company constituted under the Limited Liability Companies Act 1996 12, a member, the company's manager, or registered agent; an operations manager as such is set out in section 10A of the Online Gambling Regulation Act 2001 13.
(e) 22.
14
Revocation
The Criminal Justice (Money Laundering - Online Gambling) (No. 2) Code 2008 is revoked.
1996 c.19 2001 c.10 14 SD 945/08
12 13
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Made June 2010 Minister for Home Affairs
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Paragraph 2 SCHEDULE 1 Argentina Italy Australia Japan Austria Jersey Belgium Luxembourg Bermuda Malta British Virgin Islands Mauritius Brazil Monaco Canada Netherlands Cayman Islands New Zealand Cyprus Norway Denmark Portugal Finland Singapore France South Africa Germany Spain Gibraltar Sweden Guernsey Switzerland Hong Kong Taiwan Iceland United Kingdom Ireland United States of America # Aruba and the Netherlands Antilles should not be treated as part of the Kingdom of the Netherlands
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Paragraph 2 SCHEDULE 2 [Intentionally left blank] Explanatory Note (This note is not part of the Code) The Proceeds of Crime (Money Laundering Online Gambling) Code 2010 is made under section 157(1) of the Proceeds of Crime Act 2008 and revokes and replaces the Criminal Justice (Money Laundering Online Gambling) (No. 2) Code 2008 (SD 945/08). The provisions of the Code impose requirements on the online gambling businesses to establish anti-money laundering procedures, training and record keeping. Failure to comply is a criminal offence.
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APPENDIX B - SUSPICIOUS TRANSACTIONS The below list of examples that might constitute suspicious circumstances is not intended to be exhaustive and only provides examples of the most basic ways by which money may be laundered. However, identification of any of the types of transactions listed below may prompt an internal report to the MLRO for further enquiry. Nominal play levels: 1. 2. 3. 4. Significant deposits, with minimal play (or no play) followed by withdrawal. Multiple deposits (adding up to a significant amount) with minimal play (or no play) followed by withdrawal. Large deposits with no play record after significant time period. Suspicious ID Details: (a) (b) (c) 5. The provision of identification details a licence holder believes to be false or altered. A change of ID details or repeated significantly incorrect verification of ID details. Attempts to bribe, corrupt or unduly influence licence holders staff to change transaction data, sensitive ID data etc. Attempts to transfer to third parties. Attempts to transfer to jurisdictions of concern.
Significant re-routing of funds: (a) (b)
6.
Attempts to create a false handle with a significant deposit. The issue of significant deposit is important as it will sort out the real suspicious activity from the common bonus hunting activity where first time depositors try to convert welcome bonus money into real money balances via the same method. Even money betting strategies as applied typically to Roulette, Baccarat and Craps, as follows: (a) Roulette Placing equal bets on Black and Red, Red and Black, Odd and Even, High and Low and suffering the loss of half the stakes each time zero appears. Placing the same bet on every number (0-36) and suffering the loss of 2.7% of the total stake each spin. Page 90 of 92
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7.
Variations of these bets to achieve the same reduction of risk. For example, on roulette backing the first dozen for 2 units, the six line 13/18 for one unit and High for 3 units. There are other variations that achieve a similar outcome and these will be apparent to an experienced casino supervisor. (b) Baccarat Playing both participant and banker. (c) Craps Playing both Pass and Dont Pass lines or Come and Don't Come lines. 1. Collusive attempts by two or more participant or business participants, in multi-participant or business participant mode of the casino, to affect even-money betting strategies (e.g. one bets odd and the other even and at the end of the day the kitty is intact). Any deposits by participant or business participants that a licence holder has good reason to suspect of being involved in illicit business.
2.
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APPENDIX C - USEFUL CONTACT REFERENCES The GSC encourages use of the Internet as an information resource for anti-money laundering, and encourages licence holders and other interested parties to periodically access the GSC website at www.gov.im for information relating to money laundering and due diligence issues. Licence holders may also find the following sites useful for due diligence or general information purposes. The list is not exhaustive, and licence holders are encouraged to use other Internet resources: www.gov.im/treasury/customs for information on sanctions. customs@gov.im to email IOM Customs & Excise. www.fsc.gov.im/aml identity documents. for information on anti-money laundering and false
www.dti.gov.uk for information on embargoes. http://dailynews.yahoo.com/fc/business/money_laundering laundering news stories and related web sites. FATF. www.occ.treas.gov/ for helpful information about money laundering prevention and detection from the Office of the Comptroller of the Currency in the USA; and www.treas.gov/ for information about the activities of the Financial Crimes Enforcement Network of the US Department of the Treasury. Access to some sites requires Adobe Acrobat Reader software, which can be obtained at www.adobe.com. for money
www.oecd.org/fatf for anti-money laundering information and updates from
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Paddy Power To Re-Power B.C. Lottery Corporation Online Gambling

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Paddy Power To Re-Power B.C. Lottery Corporation Online Gambling

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Obtained by Bob Mackin via Freedom of Information 2010goldrush@gmail.com twitter.

Bricks & Clicks

Annual Report 2010

PPad Manual Report

Paddy Power plc Annual Report 2010

7. Tips and Troubleshooting Directors Report

Total amounts staked *

0.800 0.600 0.400 0.200 0. 00 00 01 02 03 04 05 06 07 08 09 10

Paddy Power plc Annual Report 2010

+39% +50% +49% +46% +56% +55% +40% +28%

+34% +45% +44% +42% +48% +48%

Zooming in on wee objects

Paddy Power plc Annual Report 2010

Bricks & Clicks

Paddy Power plc Annual Report 2010

pour homme, pour femme,

Paddy Power plc Annual Report 2010

iPad iPhone Android

Paddy Power plc Annual Report 2010

Paddy Power: An International Company

Paddy Power: An Online Company

of profit from online

Paddy Power plc Annual Report 2010

Nigel Northridge Chairman 4 March 2011

Paddy Power plc Annual Report 2010

Getting the Basics Right

Grow Share in All Our Existing Markets

Paddy Power plc Annual Report 2010

Pursue Multi-channel Growth in the UK

UK Retail Shops Opened By Year

UK Retail Operating Profit (m) 141

+7.4 +1.3 +0.3 +1.2

Paddy Power plc Annual Report 2010

Getting the Basics Right

Paddy Power plc Annual Report 2010

Paddy Power plc Annual Report 2010

Getting the Basics Right

Enter Other Attractive Regulated Markets

average EPS growth since 2000

Patrick Kennedy Chief Executive 4 March 2011

Paddy Power plc Annual Report 2010

20.10 Operating System

57.5 19.5 17.6 7.4 1.8 103.8

55% 19% 17% 7% 2% 100%

45.7 4.6 16.3 1.3 (1.2) 66.7

69% 7% 24% 2% (2%) 100%

45.7 19.5 38.6 103.8

44% 19% 37% 100%

29.4 4.6 32.7 66.7

44% 7% 49% 100%

Sporting Results and Trading

Paddy Power plc Annual Report 2010

20.10 Operating System

Paddy Power plc Annual Report 2010

Paddy Power plc Annual Report 2010

20.10 Operating System

176.7 72.8 249.5 75.0 72% 838,043

80.3 52.5 132.8 49.4 74% 537,202

+120% +39% +88% +52% +56%

+105% +34% +77% +44%

ONLINE DIVISION (Excluding Australia)

1,126.0 90.9 8.6% 72.8 163.7 143.0 (85.5) 57.5

856.4 55.3 6.9% 52.5 107.8 94.6 (48.9) 45.7