VAT refund boosts William Hill profit after H1 Covid-19 hit
William Hill has reported a 31.7% year-on-year decline in revenue for the first half of its financial year, though a £230.7m (€255.8m/$302.3m) value added tax (VAT) refund allowed the operator to post a £115.6m net profit for the period.
Revenue for the six months ended 30 June declined to £554.4m, in a period that saw the operator’s retail business shuttered, and sports betting disrupted by cancellations and suspensions, as a result of the novel coronavirus (Covid-19) pandemic.
The online division provided the bulk of first half revenue, and actually grew marginally year-on-year, thanks to the strong performance of igaming, which was unaffected by Covid-19. Total online revenue rose 1% to £369.3m, with a 13.1% drop in sports’ contribution to £132.4m offset by a 10.2% improvement in gaming revenue to £236.9m.
Online international net revenue benefitted from product developments launched in late 2019, and a general customer shift from retail to online, with some substitution from sports betting. It noted that after a year of struggles in 2019, Sweden returned to growth, while Danish net revenue nearly doubled.
Sportsbook stakes declined 28.5% to £1.63bn, though in non-UK markets, had recovered thanks to the return of top-flight football from mid-May. UK staking, on the other hand, was boosted by the return of horse racing and the English Premier League and Championship from mid-June.
Retail, meanwhile, saw revenue fall 61.4% to £432.2m. On a like-for-like basis, taking out the 713 shops closed in September 2019 following the introduction of the £2 fixed odds betting terminal (FOBT) stake, and 119 shops that did not reopen following the Covid-19 lockdown, this decline was reduced to 48%.
During the first half, 35 shops in Northern Ireland and the Isle of Man were sold to Boylesports, meaning the retail estate was reduced by 33.2%, to 1,541 venues.
While this remodelling of the retail estate led to an £81.9m impairment charge, William Hill stressed that retail still had an important role to play in the operator’s future.
“With the potential for regulations around advertising to get tighter, the retail estate will play a key role in keeping the William Hill brand in the forefront of customers' minds,” it explained. “A dynamic approach to the shopfronts, including digital content, has the potential to reach a wider audience.
“When combined with the opportunity to train our shop colleagues in the online product offering, the shops have the potential to become support centres for the entire UK customer base,” William Hill continued. “The merger of retail and UK online [divisions], with a single view of our UK customer, is thus the next step in the development of the UK business.”
Turning to the US, revenue was down 27.8% at £38.2m, with amounts wagered declining 29.3% to £550.0m. The operator is live in 12 states, but following the completion of Eldorado Resorts’ mega-merger with Caesars Entertainment, has access to 25 jurisdictions in total, as regulation permits.
It will look to grow this presence further through its partnership with CBS Sports, which launched after the half year’s end in July with the return of Major League Baseball, the National Basketball Association and National Hockey League.
The operator is also rolling out proprietary technology across a number of states, with a new retail platform live in West Virginia, and an igaming offering in New Jersey to follow.
“I am delighted with William Hill’s performance in these extraordinary times,” William Hill chief executive Ulrik Bengtsson said. “Our team has been remarkable, supporting each other and our customers throughout the pandemic, and I would like to thank them for their continuing efforts.
“We are pleased with the moves we have taken to further strengthen customer protection, sending over 1.2 million player safety messages, and we are fully supportive of an evidence-based approach to the review of the Gambling Act, as suggested by the recent House of Lords report.”
Looking at costs in H1, the operator saw cost of sales decline 28.9% to £140.2m, while its cross profit was boosted by a £230.3m VAT refund, after a UK court concluded the tax was incorrectly applied to revenue earned from certain gaming machines prior to 2013. The sum awarded is significantly above the £150m it had initially suggested it was owed.
This resulted in gross profit actually rising year-on-year, to £644.5m.
The business then recorded £4.4m in other operating income, and operating expenses of £406.6m, down from £547.9m in the prior year. It then recorded a number of exceptional items totalling £93.6m, including an £81.9m impairment charge related to the shop closures, as well as a £1.1m benefit from shop sales, and £9.8m of amortisation charges related to acquired assets.
This left a profit before interest and tax of £148.5m, compared to a £38.1m loss in the first half of 2019. Without these exceptional items, profit before interest and tax would have amounted to £11.8m.
After £20.5m in investment income - including a further £18.6m in exceptional items - and finance costs of £27.9m, pre-tax profit stood at £141.1m. Once taxes of £25.5m were paid, including a £3.1m benefit from the loss-making operating business and a £28.6m charge on exceptional items, William Hill’s net profit for the first half of the year was £115.6m. Were it not for the exceptional items, it would have posted an £11.1m loss for the period.
Bengtsson commented that the first half performance showed its strategy of focusing on customer, team and execution, outlined in February, is working.
“Our trading was strong before Covid-19, we controlled costs effectively during lockdown and we have recovered well post-lockdown with good performances in our online businesses throughout the first half,” he said. “The furlough scheme provided welcome and timely support and meant we could protect the jobs of our 7,000 UK retail colleagues. Therefore, given the strength of our recovery post-lockdown, we have decided to repay the furlough funds.”
This will see the operator pay back £24.5m to the UK government.
“We have continued to develop both our technology platform and our product offerings, with more significant enhancements to come in the second half,” Bengtsson added. “The balance sheet has been strengthened by the prompt actions we took to keep cash in the business, the successful placing, and the recognition of the VAT refund.
“As a result, we have the financial strength to confidently pursue our growth agenda, taking advantage of our market leading position in sports betting in the US, and the terrific opportunity that Eldorado’s merger with Caesars brings.”