William Hill swings to £721m loss after retail write-down

1 March 2019

William Hill has posted a £721.9m (€840.3m/$955.8m) pre-tax loss for 2018, as a result of an £882.8m write-down of the value of its retail business ahead of maximum B2 machine stakes being cut to £2 from April.

Despite this, the operator hailed good underlying progress achieved over the year, with 2018 revenue up 2% year-on-year to £1.6bn.

William chief executive Philip Bowcock (pictured) described 2018 as “a busy and decisive year” for the business.

“Key regulatory decisions in the UK and US gave us much needed clarity to set a new five-year strategy and a goal to double profits by 2023,” he said. “We have three businesses at different stages, with online growing in the UK and diversifying internationally, retail being remodelled in response to the new £2 stake limit, and rapid expansion in the US sports betting market."

Against this backdrop, Bowcock said the underlying online performance had been good, the US had grown strongly, and retail had proved “resilient” in the face of difficult high street conditions.
  
"We have started delivering on our strategy with the expansion of our US business, being first out of the blocks in all states that have regulated sports betting, and with the acquisition of Mr Green, which will support the build-out of our international digital business,” he continued. “We have also put our weight behind reducing the amount of TV gambling advertising seen by under 18s through a voluntary whistle-to-whistle advertising ban before the watershed.
 
"We know the next few years will require careful navigating and investment, but with a clear strategy and diverse, experienced leadership teams in place we are ready to capitalise on the opportunities available to us."

The operator’s online division saw revenue grow 3% to £616.9m, with this total split almost equally between sports betting (up 3% to £318.7m) and gaming (up 2% to £315.7m). Growth in online sports betting came despite a marginal decline in amounts wagered to £4.7bn.

William Hill noted that this was largely down to enhanced customer due diligence checks introduced in the wake of a £6.2m settlement with the GB Gambling Commission for social responsibility failings in February 2018. Excluding the impact of these checks, amounts wagered would have been up 2% year-on-year.

The geographic revenue split skewed heavily towards the UK, which accounted for £484.0m of the total, with £150.4m coming from other international markets. Active user numbers grew strongly in 2018, growing 25% to 3m unique active accounts, with the operator using offers and incentives to develop a mass market customer base.

Mobile further established itself as the channel of choice for William Hill customers, responsible for 83% of sportsbook net revenue, up six percentage points, and 80% of gaming net revenue, an eleven percentage point rise.
 
The operator’s William Hill US subsidiary, meanwhile, saw revenue grow 38% year-on-year to £79.7m for its existing business, with amounts wagered up 21% on a statutory reporting basis to £1.1bn. This marked the division’s six consecutive year of revenue growth, driven by a strong mobile performance, with amounts wagered via the channel up 42%, which helped offset the flat retail channel.

The mobile growth was driven by a 20% increase in new customers, and average bet size growing by 46%.

The operator’s US expansion arm, comprising revenue generated from newly-regulated sports betting markets following the repeal of the Professional and Amateur Sports Protection Act (PASPA) in May, made an £11.8m contribution.

Since May 2018, William Hill US has launched or expanded operations in New Jersey, Delaware, Rhode Island, Mississippi, Pennsylvania and West Virginia. This rapid expansion did incur significant costs, of £43.4m, which resulted in the division making a £33.2m loss for the year.

The operator’s retail division was the only one to see revenue decline in 2018, falling 2% year-on-year to £895.2m. The operator saying that the impact of the summer’s Fifa World Cup was offset by racing fixture cancellations in the first half of the year, which led to sportsbook stakes falling 5% to £2.2bn.

Looking at revenue by product, retail sports betting was down 4% to £398.9m, with gaming flat at £496.3m.

Cost of sales, including gross profit tax, duties and levies for 2018 amounted to £389.7m, which left the operator with a gross profit of £1.2bn for the period, up 3.6% from 2017. Once other administrative expenses of £927.3m, depreciation of £24.5m and amortisation of £49.1m were stripped out, William Hill’s operating profit for the year was £233.6m.

The operator was, however, hit by significant exceptional items and adjustments, including the £882.8m impairment of the retail division, following the UK government’s decision to cut B2 maximum stakes from £100 to £2.

“A regulatory change of this nature is unprecedented and its impact on customer and competitor behaviour will not be known until some years after implementation but we currently estimate this could reduce the retail division's annualised adjusted operating profit following mitigation measures by £70-£100m,” William Hill said.

This resulted in the operator posting a pre-tax loss of £721.9m. As a result of this loss William Hill recognised a tax credit of £5.8m, as well as a £3.8m profit on discontinued operations. This resulted in a net loss of £712.3m for the period.

Looking ahead to 2019, William Hill said his outlook was in line with market expectations, with the group expecting an effective tax rate of 12% for the year. This, it said, reflected the evolution of the business, with the acquisition of MRG Group and the growth of William Hill US.
 
“With rapid expansion underway in the US and the acquisition of Mr Green now complete, we are excited and focused on the opportunity to make further operational and strategic progress this year,” the operator explained. “In 2019 we are remodelling our Retail offer while building a digitally-led and internationally diverse business, underpinned by a sustainable approach as part of our Nobody Harmed ambition.”