William Hill reports first quarter of decline

Online and land gambling group William Hill plc reported a decline in operating profit Thursday, posting a 19 percent decline due to GBP 20 million in additional taxation and sports results that favoured the punters.

The company saw operating profit shrink by GBP 16 million in the 13 weeks to March 31 as it started to feel the pain of the UK point of consumption tax on online gambling income. Cost of sales increased to 22 percent of net revenue (Q1 2014: 9 percent) following the introduction of the UK POCT.

Group net revenue grew by just 1 percent in the quarter as the sports betting division suffered its largest ever loss-making week in January at GBP 14 million following a series of punter-friendly results.

The usually buoyant online revenue growth of 9 percent was almost wiped out by higher costs and taxes.

Nevertheless, the company reported continued strong growth in mobile gaming, up 48 percent and now comprising 37 percent of gaming net revenue.

The Will Hill results follow similarly disappointing Ladbrokes postings earlier this week .

Key highlights of the Hill quarterly include:

* Group net revenue up 1 percent.

* Operating profit down GBP 16 million (-19 percent).

* Additional GBP 20 million cost from Point of Consumption Tax (POCT) and 5 percent increased rate of Machines Games Duty (MGD).

* Continued strong growth in mobile gaming, up 48 percent and now comprises 37 percent of gaming net revenue.

* 11 percent growth in Sportsbook net revenue.

* Gaming net revenue broadly in line with internal expectations at +8 percent, with Casino up 10 percent, Bingo up 8 percent but Poker down 32 percent.

* Operating costs were 11 percent higher, in line with expectations.

* William Hill brand launched in Australia: migration of Sportingbet customers successfully completed.

* William Hill US continues to deliver strong wagering growth of 30 percent, but gross win growth was flat as sporting results, driven by the Super Bowl, were less favourable than in 2014.

* Gaming machine ‘GBP 50 Journey’ implemented as planned by 2 April 2015.

* The report flags the UK Chancellor’s latest budget speech, in which he announced his intention to introduce a ‘racing right’. No further detail on the intended structure or rate has been provided.

CEO James Henderson said that after a weak January the group saw improved wagering trends over the remainder of the quarter, with online wagering up 20 percent in February and March, and 29 percent for the Cheltenham (horse racing) festival.

“Gross win margins were below our expected trading range for what is typically a stronger quarter, impacted by – amongst other things – our largest ever loss-making week in Week 3,” he said.

Henderson said that the group’s international strategy continued to make progress, with the migration of Sportingbet punters to the William Hill.com.au site and more than 85 percent of migrated punters continuing to bet.

“Looking forward, as the end of the football season draws closer, we have not as yet made up the shortfall arising from the GBP 14 million loss in Week 3 given the relatively weak first quarter sports betting margin,” he said.

Henderson added that good progress is being made on key projects, including the in-house development of a responsive design front-end through Project Trafalgar; an enhanced bonus engine to further increase the competitiveness of the proprietary Vegas casino platform; and the completion of the Eclipse machine roll-out in Retail.

In Australia, quoted on a local currency basis, wagering reduced 20 percent, primarily affected by the reshaping of the client base following increases in race field fees in July 2014.

Net revenue fell 8 percent as the improvement in the gross win margin from 8.7 percent to 10.2 percent did not fully offset the wagering decline, and free bets increased as planned following the launch of the William Hill brand.

Cost of sales was 6 percent higher, including higher race field fees, whilst operating costs were 4 percent lower, with the expected higher marketing costs offset by synergies from the tomwaterhouse.com integration in April 2014.

Operating profit was down 37 percent.

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