Retail restructuring weighs on William Hill's 2019 results

26 February 2020

William Hill’s efforts to mitigate the effects of the £2 fixed odds betting terminal (FOBT) stake cap impacted the operator’s results for a second year in 2019.

A lower contribution from its retail estate contributed to a year-on-year drop in revenue, while costs associated with the restructuring of its retail estate led to the operator posting a £32.7m (€38.9m/$42.4m) loss for the year.

Total net revenue for the year was down 2.4% to £1.58bn, of which retail contributed £717.0m, down 19.9% year-over-year. When the 713 shops closed in Q3 to mitigate the effects of the FOBT stake cut were taken out, the like-for-like decline was around 13%.

Sports betting accounted for £400.0m of the retail total, up marginally on stakes of £2.16bn (down 1.6%). Self-service betting terminals (SSBTs) accounted for 19% of all sports betting and 62% of football wagering, aided by inventory from closed shops being redistributed across the remaining estate.

Gaming, meanwhile, saw revenue fall 36.1% to £317.0m. However, William Hill noted this decline slowed over the year as players adjusted to the new machine limits, with Q4 revenue beating internal expectations.

However, as a result of retail’s decline, its contribution to group revenue fell to 45.3%, allowing the operator’s online business to become the principal source of revenue.

Online revenue was up 16.4% to £738.3m, though on a pro forma basis, incorporating MRG Group’s results from January 2018, would have been down around 3%. As a result of that deal, 35% of online revenue (£257.3m) is now derived from outside the UK, compared to 24% in 2018.

The UK, however, saw revenue decline 0.6% to £481.0m. This was blamed on headwinds in Q1, resulting from enhanced due diligence measures introduced in 2018, though the operator noted it was followed by three consecutive quarters of growth.

iGaming growth was driven by the gaming vertical, which saw revenue for the year grow 36.4% to £430.7m. Sports betting revenue, on the other hand, was down 3.5% to £307.6m.

Turning to the US, William Hill split its results into existing (Nevada) and expansion (all other states to legalise betting post-PASPA) segments. The existing business delivered its seventh consecutive year of growth, with stakes up 18.2% to £1.28bn - of which 69% was wagered via digital channels -  and revenue climbing 6.6% to £83.6m.

This looks set to grow further, after the operator agreed to acquire the assets of sportsbook solutions provider CG Technology. This will give it access to high-profile sites on the Las Vegas Strip such as The Cosmopolitan of Las Vegas, The Venetian and The Palazzo.

For the expansion segment, stakes grew 211.7% to £512.5m, with net revenue soaring 226.7% to £42.8m. This gave it a combined market share across retail and digital, and in all regulated states, of 20%, which broke down to a market-leading retail share of 35%, and a third-place online share of 9%.

Cost of sales fell marginally, to £377.9m. This was due to the increase in remote gaming duty to 21% of gross gaming yield in Great Britain, introduced in tandem with the £2 FOBT stake cap, mitigated in part by a decline in retail costs to £162.2m. This left a gross profit for the year of £1.20bn, down 2.6%.

Other operating expenses before exceptional items grew to £1.07bn, leaving a pre-interest and tax profit of £147.0m, down 81.1%. This was brought down by the exceptional items, including costs of £99.8m related to the restructuring of William Hill’s retail estate, as well as £3.5m in other restructuring costs. A further £8.2m came from in corporate transaction and integration costs, as well as charges of £18.2m relating to the amortisation of acquired intangibles.

This resulted in exceptional items of £134.1m, though this was reduced by a £13.3m tax benefit, for a total of £120.8m, and reducing the pre-interest and tax profit to £12.9m. However, this remains a marked improvement on 2018’s figure, when hefty impairment charges for the retail business set this figure at £687.9m.

After finance costs of £53.5m, and investment income of £3.0m, William Hill posted a loss before tax of £37.6m. This was reduced by a £10.6m tax benefit for a net loss for the year of £27.0m, again a significant improvement on the prior year’s £712.3m loss.

Looking back on 2019, William Hill chief executive Ulrik Bengtsson, who was appointed to the role in September 2018, described it as “a year of transition”

“The group delivered a strong operating performance, ahead of our expectations and against a challenging regulatory backdrop,” he said.

The past year allowed William Hill to move into 2020 in a stronger position, he said, with almost a quarter of group revenue now generated outside the UK, compared to 15% in 2018.

"This is an exciting time to be William Hill's CEO,” Bengtsson added. “Our industry is evolving and this brings great opportunities, underlining the importance of our efforts to reposition the business.

"We look forward to building on these foundations with a renewed focus on customer, team and execution."