Bookmaker Paddy Power has reported strong profit growth last year, despite an early season profit warning. Turnover rose 35.6 per cent to €913.6 million with pre-tax profits 14.5 per cent stronger at a record €20.4 million.

All three of its main business areas - licensed betting offices, telephone betting and online betting - performed well, the company said, announcing its results yesterday.

Earnings per share rose 17.8 per cent to 36.97 cents.

Finance director Mr Ross Ivers said the end-year figures showed a marked turnaround from the first half, when it was forced to issue a profit warning after a run of luck for punters at the Cheltenham Festival and the Aintree Grand National.

"To still be able to do that after our poor run at Cheltenham and the Grand National shows the strength of the group," he said.

At the time of the profit warning, Irish brokers adjusted operating profit forecasts for the company down about 17 per cent to €18.5-€19.3 million and earnings per share to 31.7-33 cents per share. Operating profits came in at €19.6 million.

The company was particularly pleased with the performance of its online operation, which had been targeted to break even in 2003, but was showing a €400,000 loss in the first half. By the year-end, the online business turned in an operating profit of almost €1.4 million on turnover of €185.1 million, up 80 per cent on 2002. Mr Ivers said the division was "the star of the show" in 2003, with a 76 per cent increase in the number of bets accompanied by a 2 per cent rise in the average stake.

The Dial-A-Bet telephone business is also doing well, with bet volume jumping 44 per cent to 2.6 million as the business moves into the mass market, with only a slight fall in the average stake size. Turnover rose 44.4 per cent to €177.4 million, generating operating profit of €900,000, three times the 2002 figure.

Operating profits in the betting shop division fell slightly to €17.4 million from €19.2 million in 2002 as the company more than trebled its investment programme and incurred start-up costs in Britain. Turnover was 22.9 per cent ahead at €551.1 million.

Group margins in the second half rose to 11.3 per cent for the group as a whole, compared with 9.4 per cent in the first six months and 10.9 per cent in the same period in 2002. Over the 12 months, gross margins slipped to 10.4 per cent from 11.7 per cent in 2002.

The company announced a final dividend of 8.59 cents per share, bringing the full-year dividend to 12.89 cents, up 26.4 per cent.

Paddy Power shares rose more than 11 per cent on the back of the news yesterday, hitting €8.40 before retreating to close at €8.15, up 60 cents on the day.

Chief executive Mr John O'Reilly said the group consolidated its position as the leading Irish bookmaker, opening more outlets than any of its rivals. Paddy Power now has 137 shops in Ireland.

It also met its target of opening nine stores in London during the year, bringing its total there to 12. A further two stores have opened in the first few weeks of 2004, with three more due to start business before Cheltenham week.

"Our development strategy for Ireland and the UK is very much on track," said Mr O'Reilly. He said the company would continue to open outlets in Ireland, bringing the number to 170 over the next few years.

It will also more than double its British presence this year, opening 18 stores to bring the total number to 30.

Paddy Power has set up a separate British head office to manage the London business. While development investment means that London has yet to turn a profit, the group said it was comfortable that profit margins were moving closer to those in the more mature Irish business.

"We now have a better understanding of how the UK works and are adjusting our offering accordingly," said Mr O'Reilly, pointing out that football bets accounted for up to 20 per cent of business in the London shops against around 5 per cent in Ireland.

Mr O'Reilly said 2004 had started well and the company was on course to meet its targets.