Irish bookmaker Paddy Power today reported a 4% increase in pre-tax profits for 2008 year to €79m, boosted by rising online business.

Earnings per share grew by 10% to 140.5 cent and the firm plans to raise its dividend by 6% to  54 cent for the year.

Online betting profits jumped by 34% to €42.8m and accounted for more than 70% of the group's profits in the second half of 2008, while sterling's weakness resulted ion a €5m hit against profits. The firm also took a €9m hit from unexpected sports results.

Profits at its Irish betting shops dropped by €6m to €28.3m and the firm warned that the introduction of betting tax would reduce profits by up to €7m in 2009. The company has 191 shops in the Republic and it plans to close some of them.

Paddy Power said profits at its UK shops were €1.2m and it planned to have 150 UK shops by 2011.

The company had a cash balance of €77m at 31 December 2008, after €54m of cash returns to shareholders in 2008

Commenting on the results Patrick Kennedy, Chief Executive said:"We have grown earnings per share by 10% in 2008 despite the challenging environment. Our online operations performed particularly strongly with a 48% increase in operating profit in constant currency. The results in the second half of 2008 also demonstrate the success of our strategy of geographic and channel expansion with online operating profit accounting for over 70% of Group profitability and profits from UK customers almost half of Group profitability."

The Group faces a number of headwinds again in 2009, as has already been reflected in consensus expectations. In that context, the year has got off to a satisfactory start and we remain confident of the Group's prospects."

Results detail

Goodbody analyst Liam Igoe commented today: "Paddy Power’s FY08 results, with an EPS of 137.8c, were in-line with our forecasts. As expected, online profits grew strongly, while retail was lower. Gross win was higher in the main activities (online and retail) than we had forecast and also above the average range guidance. The profits from the telephone division (7.1% GWM) were lower, in part reflecting an increase in higher stake customers (where margins would typically be lower). The online channel saw a 10% rise in amounts betted, 11% rise in gross win and a 34% rise in operating profits (48% in constant currency). Within sportsbook, amounts betted were up 20% to €646m, just 2% shy of our estimate.

 Bet volumes were up 37%, while the average stake per slip was down 20%, in-line with what we expected (-12% in constant currency terms). Gaming saw gross win increase 16% (28% in constant currency), the main growth areas were games, casino and some of its newer services (bingo and spread betting). Poker was flat in 2008. The retail business recorded an increase in amounts betted of a modest 1% higher in both the Irish and UK markets. However, behind this is a deteriorating trend from H1 to H2, reflecting the decline in the economies in which it operates, especially Ireland.

Gross win margins, at 13.3% were 0.7% better than we had expected, though operating costs were slightly higher (less than €2m). 2009 has got off to an encouraging start with amounts staked in non-retail sportsbook (i.e. online sportsbook plus telephone) up 15% in constant currency terms (suggesting that the online element is even stronger than this). Non-sportsbook (gaming and FOBTs) increased by 9%. Retail is down 5%, but within this we reckon Ireland would be down 10% yoy. The statement notes the changing landscape within the Irish retail market, with some 40 rival shop closures announced so far.

This is likely to be just the beginning of a trend that could see 250 or more shops close by the end of next year. A corollary of this would be that the remaining players, such as Paddy Power, would pick up lost sales from some of these outlets, which will mitigate some of the like-for-like sales declines forecast due to the recession. At first glance, think that with the ever darkening clouds of recession hanging over Ireland we may tighten our assumptions slightly to pull back our forecasts by c.7%."