Online operations continue to boost William Hill plc

The major UK online and land gambling group William Hill plc released its annual results Friday, again showcasing a stellar performance from its online operations.

Whilst overall revenues across the group were up 6 percent year-on-year at GBP 1136.7 million, group profit after tax declined 6 percent to GBP 146.5 million, thanks mainly to a GBP 9 million increase in VAT and the lack of a major international event like the World Cup football in 2011. The company has also made significant investment in future technology and operations.

Highlights of the 52 weeks ended December 27th 2011 included:

* Positive performance with Group net revenue up 6 percent and pre-exceptional profit before tax up 9 percent

* Basic, adjusted earnings per share in growth by 12 percent and dividend per share by 16 percent

* William Hill Online delivered a second consecutive year of +20 percent net revenue growth and mobile innovations increased sportsbook bets by c500 percent

* Online operations generated net revenues of GBP 321.3 million, 28 percent up on 2010.

* International expansion progressed with the launch of an Italian website and impending land-based sports betting acquisitions in the US

* Net debt for covenant purposes reduced by GBP 83 million to GBP 416 million

William Hill Online delivered a particularly strong performance, recording net revenue 28 percent higher than in the preceding year and operating profit up 17 percent, reflecting additional marketing investment.

Online sportsbook performance delivered significant year-on-year growth with amounts wagered increasing by 51 percent, and a 75 percent growth in in-play betting, helped by increased advertising. Pre-match betting online advanced by 38 percent, with football betting up 54 percent despite the lack of a major international tournament.

Online sportsbook gross win margin was 7.0 percent (2010: 8.0 percent), in line with expectations and reflecting a weaker performance from football and horseracing.

Sportsbook net revenue grew 36 percent, whilst online gaming net revenue advanced by 24 percent in total. Within gaming, all verticals grew net revenue, with Playtech Casino up 8 percent, Vegas Casino games up 54 percent, Bingo up 19 percent and Poker 7 percent higher.

Management report that innovation continues to be a key driver for online operations. In 2011, William Hill Online launched a new text betting service, introduced a new mobile Sportsbook and expanded its horseracing product, which helped in driving 46 percent growth in horseracing wagers.

The company also improved existing algorithmic models, thereby creating a greater variety of bet types and improving margins. As an example, Online’s new basketball algorithm delivered a 66 percent increase in wagering in total and a 149 percent increase in in-play betting together with a 1.3 percentage point increase in the gross win margin.

Online costs were up 31 percent, primarily as a result of a step-up in marketing investment as well as increased employee costs, particularly in IT, Marketing and Operations teams. Marketing investment was equivalent to 27 percent of net revenue.

The Tel Aviv and Sofia operations, which saw some personnel disruption in October , are now functioning normally, Management reports. Key leadership appointments have been made and the majority of vacant positions have been filled through both internal promotions and external recruitment.

Operating profit, at GBP 106.8 million, was 17 percent higher than in the prior year (2010: GBP 91.1 million). This resulted in a non-controlling interest for the year for Playtech of GBP 31.3 million (2010: GBP 26.3 million).

The online section of the report notes that the regulation of online betting and gaming has continued to develop across the world during the last year and Management expects further changes to come during 2012.

“In the UK, DCMS has indicated that it will be moving to regulate online operators on a ‘point-of-consumption’ basis by means of a limited online gambling bill. DCMS are currently bidding for a legislative slot and it is likely that timescales will be announced in the Queen’s speech, potentially in May 2012. Following this, a Gambling Commission consultation process is expected to take place, with implementation in 2013 the most likely outcome,” Management reports.

“Following this announcement, HM Treasury instigated a review of taxation of operators servicing UK-based online customers. An initial pre-consultation closed last year and the outcome of that review is awaited. We have sought to highlight to HM Treasury the issues that must be considered in implementing such a change by providing detailed economic modelling and legal and regulatory analysis generated for William Hill by Deloitte and Gambling Compliance.”

Substantial investment of around GBP 56 million by the group has seen the Online division benefit in product development and business infrastructure. This has enabled WHO to build on the momentum and success of 2010 by further expanding its online offerings through new mobile and text-betting channels, maximising customer reach.

Commenting on the group’s operations as a whole, chief executive Ralph Topping said:

“This is a very positive performance, particularly in a year without a significant international football tournament and with a cGBP 9 million increase in VAT payments as a result of the rate change. It reflects the underlying strength of the business and benefits from our innovations and investments.

“Our strategic focus continues to be on developing our products to enhance the customer experience, on broadening and strengthening our channels to maximize our customer reach and on developing the business internationally. In the last year, we have built on the momentum and success of 2010 by further expanding our Online offering through new mobile and text-betting channels and are continuing to invest in innovations to enhance the customer experience across all channels.

“We have great confidence that, as a multi-channel gambling company with a strong management team, we are well placed to leverage the advantages of the William Hill brand. We believe there are more opportunities to grow in our core market in the UK and also for the business to expand internationally beyond our traditional roots as more governments open up their regulated gambling markets.

“We will, therefore, seek to invest selectively in taking our brand and our capabilities beyond the UK over the coming years.”