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REG - William Hill PLC - Final Results - Part 1 Released: 2010-02-26 07:01:00
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William Hill PLC
26 February 2010
William Hill PLC
Solid performance in a year of transformational change
26 February 2010
William Hill PLC (William Hill or the Group) (LSE: WMH) announces its results for the 52 weeks ended 29 December 2009 (the
period).
Financial highlights 52 weeks ended 29 Dec 2009 (£m) 52 weeks ended 30 Dec 2008 (£m) Change
vs 2008 (%)
Net revenue 997.9 963.7 4%
- Retail net revenue 757.5 790.7 -4%
- William Hill Online net revenue(1) 203.5 125.1 63%
EBITA(2) 258.5 278.6 -7%
Profit before tax (pre-exceptionals) 197.5 216.1 -9%
Exceptional items -76.6 77.2 -
Profit before tax (post-exceptionals) 120.9 293.3 -59%
Earnings per share - basic, adjusted(3) 20.6p 31.9p -35%
Earnings per share - basic (3) 9.5p 47.3p -80%
Dividend per share 7.5p 7.75p -3%
293.3
-59%
Earnings per share - basic, adjusted(3)
20.6p
31.9p
-35%
Earnings per share - basic (3)
9.5p
47.3p
-80%
Dividend per share
7.5p
7.75p
-3%
The Group has delivered a solid performance in a year characterised by significant volatility in sporting results and tough
economic conditions. Group net revenue was up 4% to £997.9m and pre-exceptional earnings before interest, tax and
amortisation (EBITA) was down by 7% to £258.5m. Underlying performance in Retail was robust and William Hill Online made
good progress against the backdrop of its transformational activities.
Whilst reported post-exceptional pre-tax profit and earnings per share (EPS) are substantially lower than in 2008, this is
a result of the exceptional charges and the increased number of shares in issue following the rights issue. The
year-on-year change is largely driven by the swing from a profit on the transfer of 29% of William Hill Online to Playtech
in 2008 to the exceptional charges for accounting adjustments in 2009. Of the exceptional charges, only £9.1m are cash
items in 2009.
Overall, however, 2009 was a year of transformation across the Group. At William Hill Online we have integrated the assets
acquired from Playtech, expanded our operations and transformed our product offering. In Retail, we will shortly complete
the roll-out of the 'Storm' cabinets, delivering state-of-the-art gaming machines across much of the estate. We also have a
stronger balance sheet, with a substantially lower net debt position, diversified sources of funding and longer
maturities.
Key points on 2009 performance vs 2008:
· Strong fourth quarter with higher than average football margins
· Robust Retail performance in tough economic conditions - OTC gross win -12% - Gaming machines gross win +8% - OTC gross win margin of 17.7% within normal trading range
· William Hill Online platform for growth established
- Integration completed - Sportsbook net revenue flat but good growth in amounts wagered +19%
and customer accounts +30% - Gaming net revenue +95% (pro forma +11%) - Unique active players +31% and new accounts +28%
· Net debt for covenant purposes reduced by £419.5m to £602.6m, reflecting successful rights issue and strong operating cash flow
- Integration completed
- Sportsbook net revenue flat but good growth in amounts wagered +19%
and customer accounts +30%
- Gaming net revenue +95% (pro forma +11%)
- Unique active players +31% and new accounts +28%
· Net debt for covenant purposes reduced by £419.5m to £602.6m, reflecting successful rights issue and strong
operating cash flow
Notes:
(1) 2009 period includes assets acquired from Playtech.
(2) Earnings before interest, tax and amortisation relating to trade names, affiliate relationships and non competition
agreements as described in note 12 to the Group Financial Statements, excluding exceptional items.
(3) 2008 EPS numbers are restated to reflect the rights issue completed in April 2009. EPS is based on 641.3 million
shares for 2009 and 494.4 million shares for 2008.
(4) Pro forma numbers compare William Hill Online's 2009 results with the combined 2008 results of William Hill's
existing online business and the assets acquired from Playtech, as detailed in the announcement issued on 20 October 2008.
Ralph Topping, Chief Executive of William Hill, commented:
"In terms of 2009, the scale and breadth of our business ensured that we were well-placed to ride out the extra volatility
in sporting results and the areas affected by the economy were counteracted by good growth in gaming machines and our
improving online performance.
"We have transformed key parts of William Hill in the last year. William Hill Online is almost unrecognisable from a year
ago, with highly competitive gaming products, proven marketing expertise and a Sportsbook that has more pre-match and live
betting products. 'Storm' machines will shortly be available across much of the estate, giving us 22-inch HD technology to
enhance the customer experience. In addition, we have addressed the balance sheet issues to leave us in a much stronger
position."
Analyst and investor presentation
Meeting: 9.00 a.m. GMT The Lincoln Centre 18 Lincoln's Inn Fields London WC2A 3ED Live conference call: Tel: 0845 634 0041 Int'l: +44 (0)20 8817 9301 Passcode: 2426517 Archive conference call: Tel: +44 (0)20 7769 6425 Int'l: +44 (0)20 7769 6425 PIN: 2426517 (available after the meeting until 5 March 2010) Video webcast: www.williamhillplc.com Available live and until
26 February 2011 as an archive
18 Lincoln's Inn Fields
London
WC2A 3ED
Live conference call:
Tel: 0845 634 0041
Int'l: +44 (0)20 8817 9301
Passcode: 2426517
Archive conference call:
Tel: +44 (0)20 7769 6425
Int'l: +44 (0)20 7769 6425
PIN: 2426517
(available after the meeting until 5 March 2010)
Video webcast:
www.williamhillplc.com
Available live and until
26 February 2011 as an archive
Enquiries:
William Hill PLC Ralph Topping, Chief Executive Simon Lane, Group Finance Director Lyndsay Wright, Head of IR Today: tel +44 (0) 20 7404 5959 Thereafter: tel +44 (0) 20 8918 3600
Brunswick Simon Sporborg Justine McIlroy Tom Williams Tel: +44 (0) 20 7404 5959
Today: tel +44 (0) 20 7404 5959
Thereafter: tel +44 (0) 20 8918 3600
Brunswick
Simon Sporborg
Justine McIlroy
Tom Williams
Tel: +44 (0) 20 7404 5959
Notes to editors:
William Hill is one of the UK's leading betting and gaming companies and employs more than 16,000 people. It is one of the
UK's largest bookmakers, and also operates in Ireland, with over 2,300 LBOs that provide betting opportunities on a wide
range of sporting and non-sporting events and, in the UK, offer gaming machines. The Group's online business, William Hill
Online, is one of the leading European online betting and gaming businesses by profitability, providing sports betting,
casino games, poker, bingo, numbers betting and skill games.
Cautionary note regarding forward-looking statements
These results include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in
each case, their negative or other variations or comparable terminology. These forward-looking statements include all
matters that are not historical facts. They appear in a number of places throughout these results and the information
incorporated by reference into these results and include statements regarding the intentions, beliefs or current
expectations of the directors, William Hill or the Group concerning, amongst other things, the results of operations,
financial condition, liquidity, prospects, growth, strategies and dividend policy of William Hill and the industry in which
it operates.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future and may be beyond William Hill's ability to control or predict.
Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial
condition, liquidity, dividend policy and the development of the industry in which it operates may differ materially from
the impression created by the forward-looking statements contained in these results and/or the information incorporated by
reference into these results. In addition, even if the results of operations, financial condition, liquidity and dividend
policy of the Group and the development of the industry in which it operates, are consistent with the forward-looking
statements contained in these results and/or the information incorporated by reference into these results, those results or
developments may not be indicative of results or developments in subsequent periods.
Other than in accordance with its legal or regulatory obligations (including under the Listing Rules, the Disclosure and
Transparency Rules and the Prospectus Rules), William Hill does not undertake any obligation to update or revise publicly
any forward-looking statement, whether as a result of new information, future events or otherwise.
Overview
The Group has delivered a solid performance in a year characterised by significant volatility in sporting results and tough
economic conditions. Group net revenue was up 4% to £997.9m and pre-exceptional earnings before interest, tax and
amortisation (EBITA) was down by 7% to £258.5m. Underlying performance in Retail was robust and William Hill Online made
good progress against the backdrop of its transformational activities.
Whilst reported post-exceptional pre-tax profit and earnings per share (EPS) are substantially lower than in 2008, this is
a result of the exceptional charges and the increased number of shares in issue following the rights issue. The
year-on-year change is largely driven by the swing from a profit on the transfer of 29% of William Hill Online to Playtech
in 2008 to the exceptional charges for accounting adjustments in 2009. Of the exceptional charges, only £9.1m are cash
items in 2009.
Overall, however, 2009 was a year of transformation across the Group. At William Hill Online we have integrated the assets
acquired from Playtech, expanded our operations and transformed our product offering. In Retail, we will shortly complete
the roll-out of the 'Storm' cabinets, delivering state-of-the-art gaming machines across much of the estate. We also have a
stronger balance sheet, with a substantially lower net debt position, diversified sources of funding and longer
maturities.
Summary of 2009 trading performance
While we would normally expect fluctuations in sporting results during a year, these were more extreme in 2009 than we had
experienced previously. We were negatively impacted by the cancellation of horseracing fixtures in January and February and
results going in the customers' favour at the Cheltenham Festival, offset by an exceptional Grand National result in April.
For the first time, we recorded a loss on football in May and were further impacted at the start of the 2009/10 football
season by an unusually low level of draws. However, football results favoured us in the fourth quarter, with the margin
significantly ahead of the 20-25% average. In spite of these extreme fluctuations, we delivered an OTC gross win margin of
17.7% in line with our normal 17-18% OTC margin range.
As the UK's leading bookmaker, the scale and breadth of our business ensured that we were well-placed to ride out the
unusually pronounced fluctuations in sports-betting that we saw during the year. As a result of the economy, we saw both a
decline in Retail OTC amounts wagered and some weakness in player yields in Online, in common with the rest of the online
industry. These were counteracted by good growth in gaming machines and our improving Online performance.
Retail
Overall, our Retail business delivered a robust performance in the challenging economic environment. There was an 8%
decline in amounts wagered, comprised of a 3% fall in the number of slips and a 5% reduction in the average pence per slip.
OTC gross win/net revenue declined by 12% as a result of the fall in amounts wagered and higher than usual margin in the
2008 comparator year. This was partially offset by a continuing good performance from gaming machines, with gross win
growing by 8%. We are on track to complete the roll-out of the new 'Storm' cabinets across much of the estate by the end of
the first quarter of 2010. Costs continued to be tightly controlled, increasing by just 1% on an underlying basis. As a
consequence of these factors, EBIT (pre-exceptional items) fell by 16% to £202.7m. We remain focused on increasing our
market share through organic growth and expanded the estate during the year by adding 55 new licences.
Online
Our goal for William Hill Online is to create a leading international business that is competitive not only in the UK but
also across Europe and the rest of the world. We are building a business based on a strong sports-betting offering,
high-quality gaming products and specialist marketing and customer services capabilities.
William Hill Online made good progress during the year, integrating the assets we acquired from Playtech in December 2008
and expanding these operations while delivering a good financial performance. We established our headquarters in Gibraltar,
including transferring approximately 100 employees from the UK and moving both the Sportsbook and our remaining UK-based
gaming activities. We have established a highly competitive product portfolio, launching new poker and casino sites on
williamhill.com using Playtech's market-leading software and continuing to enhance the Orbis-based Sportsbook that we
launched in December 2008 by expanding the breadth and depth of our product range. Against the backdrop of this substantial
integration and development, William Hill Online delivered good net revenue growth, up 8% on a pro forma basis, and saw
significant growth in new accounts and the number of unique active players, up 28% and 31%, respectively. Reflecting the
investment in creating the platform for growth, operating costs increased by £13.7m and marketing costs by £4.8m in 2009.
EBITA was 36% higher year-on-year but 2% lower on a pro forma basis at £74.4m.
As we outlined in the analyst and investor day presentations in November 2009, we are confident that the online market
presents a substantial growth opportunity for the Group. Having now developed an internationally focused platform and
highly competitive product suite, we are increasingly focusing on building our brand awareness and market share both in the
UK and across international markets. As part of this initiative, we intend to increase our investment in marketing from the
current level of around 21% of online net revenue to around 25%. This investment will be a critical component in achieving
our goal of enhancing William Hill Online's position as one of Europe's top three online betting and gaming businesses and
will, we believe, underpin our focus on driving revenue and profit growth over the coming years.
Telephone
Our Telephone business has continued to be impacted by the uneven playing field benefitting offshore competitors and
betting exchanges. Net revenue declined by 25% and we recorded a loss of £1.8m. We are committed to continuing to operate
this business, which particularly serves a higher-staking and loyal customer base, and are reviewing our options for
returning this channel to an acceptable level of profitability.
International joint venture
William Hill Online remains the focus for our expansion outside the UK. Following our withdrawal from the Italian
land-based joint venture in 2008, we completed the withdrawal from our Spanish joint venture in January 2010 with the sale
of our share in the joint venture to our partner, Codere S.A.
Exceptional items
We recorded exceptional costs totalling £76.6m, of which £67.5m are non-cash items in 2009. Exceptional operating expenses
included £10.2m for William Hill Online integration costs. Given the performance of Telephone and our Republic of Ireland
estate, we have written-off £34.8m of the £80.4m Telephone goodwill and taken a £8.2m impairment charge relating to
Ireland, both of which are non-cash items.
The largest other exceptional cost is a £20.5m fair-value loss on our legacy hedging arrangements. This reflects our
reduced requirement for hedging of floating rate interest costs following the reduction in our bank debt after the rights
issue and substitution of £300m of bank debt with the corporate bond in November 2009. The exceptional item is in line with
the guidance given at the time of announcing the corporate bond. This is a non-cash item in 2009 as the payments under the
hedging contracts will continue to be made across the term of the contracts. The cost of the ongoing effective hedging
arrangements is included in our effective interest rate guidance.
Current trading
In the seven weeks from 30 December 2009 to 16 February 2010, Group net revenue was down 0.6%. Although the severe weather
led to fixture cancellations in early January, this is broadly in line with the number of weather-related cancellations in
the first two months of 2009.
In Retail, gross win was down 5% (net revenue was down 6%, reflecting the return to 17.5% VAT on machines). OTC amounts
wagered were down 6% but OTC gross win was down 13% as there was a higher than normal margin in 2009. However, gaming
machines have continued to deliver good growth, with gross win up 7% in the period.
Online is showing encouraging signs of delivering the benefits of the platform established in 2009. Net revenue was up 22%,
with Sportsbook the strongest performer delivering a 74% increase in net revenue. Gaming net revenue increased by 8%.
As a result the Board's overall expectations for the current financial year remain unchanged.
Outlook and priorities for 2010
Given the macro-economic position, we expect trading conditions will continue to be challenging in 2010, particularly in
terms of the weakness in OTC amounts wagered seen in 2009.
As 2010 is a World Cup year, we would expect some benefit in terms of traffic and, subject to results, net revenue. The
last World Cup generated an estimated £5-6m contribution OTC in Retail, net of marketing costs and assuming a level of
substitution.
We also expect Retail to benefit from continued growth in gaming machine revenue following the roll-out of the new 'Storm'
cabinets, which will be complete by the end of the first quarter. The return to 17.5% VAT will cost us approximately £8m in
2010, predominantly from gaming machines. We aim to keep operating cost increases in Retail to approximately 4%, including
estate development. We are also planning to restart refurbishment spend on the Retail estate, having cut back while
addressing our refinancing.
We are continuing to enhance our product offering on williamhill.com including launching a further 21 localised Sportsbook
sites during 2010 and substantially expanding our in-play offering. We are also building an international team with
dedicated trading and management resources to support our expansion into key countries.
As discussed above, we intend to increase our marketing investment in 2010, including investing in online marketing
campaigns and offline brand-building activities as we seek to increase our profile and market share in both the UK and key
territories in Europe. In many cases, this will be the first time the William Hill brand and Sportsbook have been promoted
in these countries.
Regulation and gaming taxation
During the year, the regulatory spotlight was on gaming machines with the conclusion of the Gambling Commission's report on
high-stake, high-prize gaming machines and the Treasury's consultation on a proposed change to the basis of machines
taxation.
The conclusions of the Gambling Commission's report were broadly positive. It highlighted that the range of stakes and
prizes permitted in Britain is relatively low and that the existing regulatory framework contains a number of measures to
protect players. The Commission proposed a programme of further research focused on improving education, information and
player control, which is expected to take as much as five years to complete. We welcome this report, which takes a
data-driven view of problem gambling. It should help to support a more measured approach to machines in future and to
separate the questions of regulation and tax, which are often linked erroneously.
In 2009, HM Treasury proposed to simplify the gaming tax regime by replacing VAT and Amusement Machine Licence Duty (AMLD)
on machines with Gross Profits Tax (GPT). HM Treasury indicated that it aimed to effect this transition on a tax neutral
basis and consulted with the gambling industry to identify tax neutral rates. The Association of British Bookmakers
conducted econometric modelling of bookmakers and identified a tax neutral rate of around 18%. However, other parts of the
gambling industry are believed to have a tax neutral rate closer to 15% and the bookmakers have lobbied for a single
industry-wide rate of 15% to support a low margin business in recessionary times. The consultation closed in October 2009
and a decision is not expected ahead of the General Election.
In 2010, the latest Prevalence Study is due to be published by the Gambling Commission. The last report, published in
October 2007, indicated that problem gambling had not changed significantly since the 1999 report, with an estimated 0.6%
of Britain's adult population believed to have a propensity to be problem gamblers.
In January 2010, DCMS announced a proposed policy change that online operators who are outside the UK but who contract with
or target UK consumers should be licensed by the UK Gambling Commission. This is intended to ensure that offshore operators
comply with the reporting standards of the Gambling Commission and contribute to the funding of the Gambling Research
Education and Treatment (GREaT) Foundation. A 12-week consultation with the industry is expected to start in the first
quarter of 2010. William Hill as a group already makes very significant payments to the GREaT Foundation and William Hill
Online has no issues with meeting UK regulatory standards.
The regulation of online betting and gaming businesses is continuing to develop across the world and we expect further
shifts to come during the course of 2010, both in Europe and in the rest of the world.
Refinancing
During 2009, we completed a series of refinancing activities that have strengthened our balance sheet by reducing our debt
levels and diversifying our sources of funding.
In February 2009, we entered into new bank debt facilities that, together with an existing £250m facility, provided
aggregate funding of £838.5m. At the same time, we announced a one-for-one rights issue to raise £350m, which filled the
funding gap left by the reduced facilities available from the bank debt market. This, coupled with strong operating cash
flow, reduced our net debt for covenant purposes from £1,022.1m at 30 December 2008 to £636.7m at 30 June 2009.
In November 2009, we completed our debut corporate bond issue, raising £300m (before expenses) from a seven-year bond at a
coupon rate of 7.125%. The bond was five times oversubscribed. The proceeds of the bond have been used to pay down bank
debt to diversify our sources of funding.
We have continued to pay down debt from operating cash flows and, in conjunction with the rights issue, have reduced our
net debt for covenant purposes by £419.5m to £602.6m. Our net debt to EBITDA ratio has been reduced from 3.2 times at 30
December 2008 to 2.2 times at 29 December 2009.
Dividend
The Board has approved a second interim dividend, in lieu of a 2009 final dividend, of 5.0p per share
(2008 - no final dividend). It will be payable on 1 April 2010 so that it will be received in the current tax year. The
ex-dividend date is 10 March 2010 and the record date is 12 March 2010. Together with the first interim dividend of 2.5p
per share, this makes a total dividend of 7.5p per share for 2009. This year's dividend reflects the increased number of
shares in issue following the rights issue and is calculated on the number of shares in issue at 29 December 2009 which,
excluding shares held in Treasury, totalled 697.2 million.
As we continue to be highly cash generative, our policy is to pay a dividend at approximately 2.5 times dividend cover,
reducing over time to approximately 2.0 times.
Board changes
On 24 November 2009, we announced that Neil Cooper will be joining us as Group Finance Director. He is currently Group
Finance Director of Bovis Homes, where his role encompasses external and management reporting, financing and treasury, IT,
Internal Audit and investor relations. He joined Bovis Homes in 2007 after an eight-year career with Whitbread plc. Mr
Cooper succeeds Simon Lane, who has been Group Finance Director for four years. Mr Lane decided that he wanted to seek a
fresh challenge to develop his career and plans to leave the Group on 31 March 2010. Mr Cooper is expected to join the
Group and to be appointed to the Board on 10 May 2010.
On 20 January 2010, we announced that Charles Scott, who has been with the Group as a director since 1999 and Chairman
since 2004, has informed the Board that he will be standing down as Chairman by the end of 2010. The Board has started the
process to appoint Mr Scott's successor and a further announcement will be made when appropriate.
Operating review
The following table provides a summary of the key financial results from William Hill's principal activities:
Net revenue Operating profit before exceptional items
2009 2008 Change 2009 2008 Change
£m £m % £m £m %
Retail 757.5 790.7 -4% 202.7 240.1 -16%
Online 203.5 125.1 +63% 74.4 54.6 +36%
Telephone 29.7 39.8 -25% (1.8) 5.9 -131%
Other 7.2 8.1 -11% 0.6 1.2 -50%
JVs # # # (3.1) (5.8) +47%
Associates # # # 2.8 2.9 -3%
Central overheads # # # (17.1) (20.3) +16%
EBITA # # # 258.5 278.6 -7%
Amortisation # # # (5.5) # #
Total 997.9 963.7 +4% 253.0 278.6 -9%
#
#
#
(17.1)
(20.3)
+16%
EBITA
#
#
#
258.5
278.6
-7%
Amortisation
#
#
#
(5.5)
#
#
Total
997.9
963.7
+4%
253.0
278.6
-9%
Retail
Our Retail business, comprising over-the-counter (OTC) betting and gaming machines, accounts for approximately 80% of the
Group's EBIT. Gross win/net revenue in Retail was down 4% compared with 2008, comprised of a 12% decline in OTC gross
win/net revenue and an 8% gross win increase in gaming machines (gaming machine net revenue increased by 10%, which is
higher than the gross win growth as a result of the lower VAT rate in 2009). Operating profit fell by 16%.
Trading overall was strong in Q4 after a run of more favourable football results in October and November. As a result, the
OTC gross win/net revenue margin for the full year returned to normal trading levels at 17.7% (2008 - 18.3%).
Gaming machines continued to perform strongly in 2009. The average number of machines grew by 2% to 8,716 (2008 - 8,549).
The total number of machines at 29 December 2009 was 8,772. The gross win per machine per week increased by 6% to £758
(2008 - £716). We continued to promote higher margin category B3 games and category C content and increased the gross win
margin from 3.0% in 2008 to 3.1%.
In October 2009, we started the roll-out of the new 'Storm' cabinets produced by Inspired Gaming. We are on track to
replace all the Inspired Gaming cabinets with the high-definition, 22-inch dual screen 'Storm' cabinets by the end of the
first quarter of 2010. By the end of 2009, 3,375 of the c.6,300 cabinets had been installed in a total of 866 shops.
We have continued to control costs rigorously in Retail, including implementing an all-employee pay-freeze since March
2009. Overall costs increased by 3% compared with 2008, in line with management expectations, but by only 1% on an
underlying basis excluding development and one-off impacts. The overall cost growth included higher energy costs, an extra
month of fees under the Turf TV contract, which started in February 2008, and estate development.
We continue to invest in developing and expanding our retail estate in order to increase market share and drive incremental
growth in the Retail channel. During 2009, we invested £14.4m in estate development and completed 93 projects, which
included opening 55 new shops and re-siting or extending 38 existing shops. We increased the average number of LBOs by 1%
to 2,324 (2008 - 2,299). The total number of LBOs at 29 December 2009 was 2,342 (2008 - 2,319).
Online
We successfully completed the extensive integration of William Hill Online in the second half of 2009, following the
acquisition of certain assets from Playtech in December 2008. This included:
· building a new management team and headquarters operation in Gibraltar;
· transferring employees from the UK and Israel to Gibraltar and other locations worldwide;
· transferring Sportsbook and fixed-odds games from the UK to Gibraltar;
· improving our gaming offering by launching new poker and casino websites using Playtech's software;
· improving our Sportsbook offering by developing localised sites for key European targets as well as the UK
and expanding the size and quality of our in-play betting product range; and
· expanding our marketing reach by connecting our market-leading affiliates network to williamhill.com.
Against this backdrop, William Hill Online performed well, increasing net revenue by 63% (pro forma - up 8%) and operating
profit by 36% (pro forma - decrease of 2%). We acquired 665,000 new accounts, up 28%, and increased our unique active
players by 31% to 1.3 million.
Sportsbook turnover grew by 19%, driven by the enhanced product range and improved bet-in-play offering. However, the
margin was 6.6% (2008 - 7.5%), reflecting sporting results and weak racing and in-play margins. As a result, Sportsbook net
revenue was flat year on year. The in-play margins are now improving as a result of the steps we have taken to increase our
content and automate our systems.
As part of our preparations for expanding Sportsbook internationally, we have invested in developing our international
team, including additional traders with specialist European sports knowledge to support the international growth of the
Sportsbook. In December, we launched a fifth fully localised site. During the first half of 2010, we will launch a further
21 localised sites, adding 16 further languages and five English-language sites for different territories around the
world.
We have substantially improved our in-play product offering in football and tennis, leveraging our core sports-betting
expertise to develop a proprietary, market-leading and differentiated service. By replacing existing data feeds and
developing in-house algorithms, we are already the in-play market leader in tennis and aim to have the dominant offering in
in-play football by the middle of 2010.
In August 2009, we completed the transfer of the Sportsbook and our fixed-odds games from the UK to Gibraltar as part of
the integration. This gives us access to a unique talent base, an established regulatory environment and a competitive tax
regime. We saved approximately £4m in 2009 and expect to make a fully annualised saving of approximately £10m in 2010.
Our gaming products performed strongly in 2009, achieving net revenue growth of 95% (pro forma - up 11%). Casino and
bingo/skill continued to perform well, increasing net revenue by 120% and 41% respectively (pro forma - up 14% and 37%
respectively).This reflects strong growth in new accounts, up 39% in casino and 63% in bingo. Poker declined after we
migrated our customers in March to an integrated site on the Playtech i-Poker network. It was also affected by the uneven
playing field created by US-facing sites that is impacting much of the online poker industry at this time. Net revenue from
poker increased by 36% compared with William Hill's standalone online business but declined 14% on a pro forma basis. We
are confident the benefits of this more liquid platform will be demonstrated in due course and have continued to enhance
the product by adding Sterling- and Euro-based tables to the existing US dollar-denominated ones.
We invested in expanding William Hill Online's operations in 2009 and will invest in increasing our marketing activities in
2010. Operating costs were £13.7m higher on a pro forma basis, including increases of £4.8m for staff, £2.2m for the
Gibraltar office and £5.1m for depreciation of the Sportsbook, and we invested an additional £4.8m in marketing costs. The
average cost per customer acquisition reduced by 12% on a full-year basis.
Telephone
Telephone is the most mature channel of our business and contributes approximately 3% of Group net revenue. With
approximately 113,700 active customers as at 29 December 2009, it is one of the largest telephone-based betting businesses
in the UK.
During 2009, telephone betting generated net revenue of £29.7m - a 25% decline from 2008 - and an operating loss of £1.8m
(2008 - profit of £5.9m). This included some high-roller losses and the impact of adverse sporting results but, more
broadly, Telephone is suffering from the uneven tax and regulatory playing field that is benefitting betting exchanges and
offshore operators. We are currently reviewing the situation with a view to returning Telephone to profitability.
Following an impairment review, we have written-off £34.8m of the £80.4m asset relating to Telephone goodwill.
International
In January 2010, we announced the completion of our withdrawal from our Spanish joint venture with the sale of our interest
in the joint venture to our partner, Codere, for E1. In 2009, our share of the loss in the joint venture was £3.1m (2008 -
share of loss of £5.8m).
Financial review
Net revenue
Group net revenue in 2009 was £997.9m (2008 - £963.7m), an increase of 4% that was attributable, primarily, to the expanded
online business.
Cost of sales
Cost of sales includes taxes, levies and royalties relating to the operation of a betting and gaming company such as the
horseracing levy, greyhound racing levy, gross profit tax on the Group's net revenue, AMLD payable on gaming machines and
royalties to third parties for software. Costs of sales decreased by 5% to £158.2m (2008 - £166.2m).
Net operating expenses
Net operating expenses, excluding exceptional items but including operating income, for the Group were £586.4m, an increase
of 14%. Of this increase, approximately half relates to the Uniplay assets acquired from Playtech. Staff costs, which
represent approximately half of our total costs, increased by 4%, with increased staff costs in William Hill Online
partially offset by rigorous cost control in Retail. Other increases include property costs, reflecting the higher average
number of LBOs trading, depreciation, which now includes the costs of the Sportsbook investment, and marketing investment
in William Hill Online.
Other operating income
Other operating income in 2009 was £6.1m (2008 - £6.9m), which includes revenues from the rental of properties and
vending.
Exceptional operating expenses
There were exceptional operating expenses of £53.2m in the period (2008 - £10.8m), of which £47.0m are non-cash items.
These exceptional expenses comprise £10.2m for William Hill Online integration costs, a write-off of £34.8m of the goodwill
held on the balance sheet for Telephone and an £8.2m impairment relating to our estate in the Republic of Ireland. The
integration costs are in line with previous guidance. The Telephone and Republic of Ireland charges reflect weaker trading
in both areas. We closed 14 shops in the Republic of Ireland during the course of 2009 and are reviewing the remaining 35
shops. As stated above, we are reviewing ways to return Telephone to profitability during the course of 2010.
Share of results of associates and joint ventures
These relate to the Group's share of profit from our associate SIS and our share of losses in respect of the joint venture
in Spain. In January 2010, the Group completed the sale of our share in the joint venture to our partner, Codere S.A., for
E1. The operating loss recorded from the Spanish joint venture was £3.1m in 2009 (2008 - £5.8m). Our share of profit from
SIS was £2.8m (2008 - £2.9m).
Non-operating exceptional items
We recorded exceptional costs of £23.4m (2008 - exceptional profit of £88.0m) in 2009. This included £20.5m fair value loss
on the portion of our legacy hedging arrangements that are deemed to be ineffective. Of this, £2.4m was recorded in the
first half and £18.1m in the second half as a result of completing our £300m corporate bond. This is in line with the
expected range highlighted at the time of the corporate bond announcement. In addition, £2.9m in exceptional finance costs
were incurred as a result of the rights issue and bond issue.
Finance costs
Pre-exceptional net finance costs in 2009 were £55.5m (2008 - £62.5m), reflecting the reduction in our average net debt.
Taxation
Tax on profit was £39.7m (2008 - £59.3m) or £48.5m pre-exceptional (2008 - £58.3m) in the year. The Group's effective tax
rate reduced to 24.5% as a result of a greater proportion of operating profit coming from online activities based outside
the UK. The effective tax rate post exceptional items is 32.8%. This is above the expected rate due to the fact that there
is no tax relief for many of the exceptional items. Going forward, the Board expects the Group's pre-exceptional effective
tax rate to be similar to the 2009 effective rate of 24.5%, reflecting the lower tax rate for William Hill Online.
Earnings per share
Basic pre-exceptional earnings per share decreased to 20.6p against 31.9p in 2008. On a post-exceptional basis, basic
earnings per share fell to 9.5p against 47.3p in 2008. The 2008 earnings per share has been restated to reflect the rights
issue in April. Under accounting guidelines, the average number of shares was 641.3 million for 2009 and 494.4 million for
2008. The difference between the basic EPS to the comparator relates to the exceptional gain in 2008, predominately the
non-cash gain on transferring 29% of William Hill Online to Playtech, versus an exceptional loss in 2009.
Cash flow and net debt
The Group generated net cash inflow from operating activities before financing and tax of £279.9m, a reduction of £27.5m or
9% on 2008. This decrease was a result of a lower pre-exceptional operating profit.
We invested £36.5m in capital expenditure in 2009, including £14.4m in our LBO estate development programme and £14.0m in
William Hill Online integration and product development. We paid £60.2m in net debt service costs, £49.3m in corporation
tax, £17.5m in dividends and £17.4m in minority interest to Playtech.
Net debt for covenant purposes decreased to £602.6m at 29 December 2009 (30 December 2008 - £1,022.1m) as a result of using
the proceeds of the rights issue and operating cash flow to pay down debt.
Risks and uncertainties
The principal risks and uncertainties for the Group remain consistent with those published on the corporate governance
section within the investor section of the corporate website at www.williamhillplc.co.uk. The key risks for 2010 identified
through our corporate risk management process are as follows:
· the impact of the challenging economic climate on trading;
· change to a gross profits tax on machines in Retail at a rate higher than our tax neutral position;
· ineffective brand identity hinders growth, particularly in Online;
· failure to take advantage of online international markets;
· countries fail to regulate online gambling or do so in a way that prevents William Hill Online from operating effectively; and
· failure to establish a market-leading in-play betting product online.
For a fuller discussion of these risks and how we are addressing them, please refer to our 2009 Annual Report and
Accounts.
2009 Annual Report and Accounts
The 2009 Annual Report and Accounts, incorporating the audited financial statements, have been published today and are
available as a PDF document on the Group's corporate website at www.williamhillplc.co.uk. In March, copies will be posted
to shareholders or notifications will be sent to shareholders who have opted for electronic communication, at which point
an HTML version will be provided via the corporate website.
Directors' responsibility statement
The directors confirm that to the best of their knowledge:
1. the financial statements, prepared in accordance with the applicable set of accounting standards give a true and fair
view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the
consolidation taken as a whole; and
2. the Business Review, which is incorporated into the Directors' Report, includes a fair review of the development and
performance of the business and the position of the company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties they face.
This statement is in accordance with DTR 6.3 to cover our dissemination requirements.
Glossary and abbreviations
AMLD Amusement Machine Licence Duty, payable on gaming machines. For the B2/B3 gaming machines available in William Hill shops, we pay £2,215 per machine per year.
Category B2 With gaming machines, Category B2 games have a maximum stake of £100, maximum payout of £500 and each game is a minimum of 20 seconds.
Category B3 With gaming machines, Category B3 games have a maximum stake of £1, maximum payout of £500 and each game is a minimum of 2.5 seconds.
Category C With gaming machines, Category C games have a maximum stake of 50 pence, maximum payout of £70.
EBIT Earnings before interest and tax.
EBITA Earnings before interest, tax and amortisation relating to trade names, affiliate relationships and non competition agreements as described in note 12 to the Group Financial Statements, excluding exceptional items.
Gross win and net revenue Gross win and net revenue are used internally as key performance indicators of the Group's business. The Board believes presentation of gross win/net revenue enhances an investor's understanding of the Group's underlying financial condition and results of
operations. Gross win is calculated as the total amount that the Group retains from customers after paying out any winnings but before deducting VAT payable on income from gaming machines. For William Hill Online, it includes certain marketing-type costs,
such as free bets. Gross win is being used as the primary top-line reporting measure for Retail OTC and machines in 2009 as the machines net revenue number is distorted by the temporarily lower VAT rate in 2009. Net revenue is the primary measure for
Telephone and William Hill Online. This is defined as gross win less fair-value adjustments for free bets, promotions and bonuses, which are used extensively in online operations but less so in Retail. In Retail, net revenue is relevant to machines and
represents gross win less VAT. All other betting tax charges in the Group are recorded in cost of sales.
Gross win margin / net revenue margin This is a measure, inter alia, of the effect of sporting results on the business. The margin is defined as gross win/net revenue divided by amounts wagered. The margin is also affected by the mix of products with different margins and the amount of
concessions or free bets offered to customers.
Pro forma On 30 December 2008, William Hill acquired certain assets from Playtech and combined these with its existing interactive business to create William Hill Online. The pro forma numbers compare William Hill Online's 2009 performance with the combined 2008
results of William Hill's existing online business and the assets acquired from Playtech, as detailed in the announcement issued on 20 October 2008. All other numbers compare William Hill Online with William Hill's standalone interactive business.
William Hill Online William Hill Online is a joint venture between William Hill and Playtech. William Hill owns 71% and Playtech 29%.
Gross win and net revenue
Gross win and net revenue are used internally as key performance indicators of the Group's business. The Board believes
presentation of gross win/net revenue enhances an investor's understanding of the Group's underlying financial condition
and results of operations.
Gross win is calculated as the total amount that the Group retains from customers after paying out any winnings but before
deducting VAT payable on income from gaming machines. For William Hill Online, it includes certain marketing-type costs,
such as free bets. Gross win is being used as the primary top-line reporting measure for Retail OTC and machines in 2009 as
the machines net revenue number is distorted by the temporarily lower VAT rate in 2009.
Net revenue is the primary measure for Telephone and William Hill Online. This is defined as gross win less fair-value
adjustments for free bets, promotions and bonuses, which are used extensively in online operations but less so in Retail.
In Retail, net revenue is relevant to machines and represents gross win less VAT. All other betting tax charges in the
Group are recorded in cost of sales.
Gross win margin / net revenue margin
This is a measure, inter alia, of the effect of sporting results on the business. The margin is defined as gross win/net
revenue divided by amounts wagered. The margin is also affected by the mix of products with different margins and the
amount of concessions or free bets offered to customers.
Pro forma
On 30 December 2008, William Hill acquired certain assets from Playtech and combined these with its existing interactive
business to create William Hill Online. The pro forma numbers compare William Hill Online's 2009 performance with the
combined 2008 results of William Hill's existing online business and the assets acquired from Playtech, as detailed in the
announcement issued on 20 October 2008. All other numbers compare William Hill Online with William Hill's standalone
interactive business.
William Hill Online
William Hill Online is a joint venture between William Hill and Playtech. William Hill owns 71% and Playtech 29%.
William Hill PLC
Consolidated Income Statement
for the 52 weeks ended 29 December 2009
Notes Before Exceptional items 52 weeks Before Exceptional items 52 weeks
exceptional (note 3) ended exceptional (note 3) ended
items £m 29 December items £m 30 December
£m 2009 £m 2008
Total Total
£m £m
Continuing Operations
Amounts wagered 2 15,489.1 - 15,489.1 15,553.9 - 15,553.9
Revenue 2 997.9 - 997.9 963.7 - 963.7
Cost of sales 2 (158.2) - (158.2) (166.2) - (166.2)
Gross profit 2 839.7 - 839.7 797.5 - 797.5
Other operating income 6.1 - 6.1 6.9 - 6.9
Other operating expenses (592.5) (53.2) (645.7) (522.9) (5.4) (528.3)
Share of results of associates and joint ventures (0.3) - (0.3) (2.9) (5.4) (8.3)
Operating profit 253.0 (53.2) 199.8 278.6 (10.8) 267.8
Profit on disposal of non-current assets 3 - - - - 88.0 88.0
Investment income 4 11.0 - 11.0 27.0 - 27.0
Finance costs 3,5 (66.5) (23.4) (89.9) (89.5) - (89.5)
Profit before tax 2 197.5 (76.6) 120.9 216.1 77.2 293.3
Tax 3,6 (48.5) 8.8 (39.7) (58.3) (1.0) (59.3)
Profit for the period 10 149.0 (67.8) 81.2 157.8 76.2 234.0
Attributable to:
Equity holders of the parent 128.4 (67.3) 61.1 157.8 - 234.0
Minority interest 11 20.6 (0.5) 20.1 - - -
149.0 (67.8) 81.2 157.8 - 234.0
Earnings per share (pence)
Basic (as restated) 8 9.5 47.3
Diluted (as restated) 8 9.4 47.1
Attributable to:
Equity holders of the parent
128.4
(67.3)
61.1
157.8
-
234.0
Minority interest
11
20.6
(0.5)
20.1
-
-
-
149.0
(67.8)
81.2
157.8
-
234.0
Earnings per share (pence)
Basic (as restated)
8
9.5
47.3
Diluted (as restated)
8
9.4
47.1
Consolidated Statement of Recognised Income and Expense
for the 52 weeks ended 29 December 2009
Notes 52 weeks ended 52 weeks
29 December ended
2009 30 December 2008
£m £m
Loss on cash flow hedges (20.0) (32.0)
Charged to income statement on de-designation 18.5 -
Actuarial loss on defined benefit pension scheme (24.2) (31.5)
Tax on items taken directly to equity 1.3 20.5
Net loss recognised directly in equity (24.4) (43.0)
Charged to income statement on cash flow hedges 21.2 (9.6)
Profit for the period 81.2 234.0
Total recognised income and expense for the period 78.0 181.4
Attributable to:
Equity holders of the parent 57.9 181.4
Minority interest 11 20.1 -
78.0 181.4
Equity holders of the parent
57.9
181.4
Minority interest
11
20.1
-
78.0
181.4
William Hill PLC
Consolidated Balance Sheet
as at 29 December 2009
Notes 29 December 2009 30 December
£m 2008
£m
Non-current assets
Intangible assets 1,446.1 1,491.5
Property, plant and equipment 197.6
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