Thursday, October 27, 2011 :  Online operations continue to grow, especially in Italy, with more investment in prospect
 
William Hill plc has released its third quarter 2011 management statement, noting that a continuation of key first half trends in Q3 leaves the UK online gambling group on track to realise full-year expectations. The report covers the 13 weeks ended 27 September 2011, compared with the same period in 2010.
 
Key financial highlights include:
 
• Group net revenue grew by 2 percent and was up 5 percent in the year to date;
• Retail net revenue decreased by 3 percent and was flat in the year to date;
• Online net revenue grew by 28 percent and was 25 percent up in the year to date; and
• Group Operating profit was 22 percent lower in the period, 3 percent lower in the year to date.
 
Ralph Topping, chief executive, commented: “We have delivered a solid performance in Q3, in spite of a highly competitive market place and a tough consumer environment. We continue to invest in product, pricing and innovation.
 
“Pleasingly, online net revenue growth accelerated in the quarter, as did underlying amounts staked over-the-counter in Retail, and our long-term track record of growth in machines continued in Q3. Internationally, the initial performance of William Hill Online’s new Italian casino website is beating expectations having taken around 8-9 percent market share and we are the most successful of the non-domestic new entrants.
 
“The Q3 margin is broadly in line with our long-term average for this quarter but is below the unusually high margin seen in Q3 2010, driven up by football results. Accordingly, Group profits are lower year-on-year, primarily as a result of this and the planned significant increase in Online investment.
 
“With our leading brand, strong technology, differentiated products and understanding of our consumer, we have a unique opportunity right now to invest to take market share. In the UK, we will be trialling second-generation Storm gaming machines, new self-service betting terminals and high-definition video walls in the shops before the end of the year.
 
"Across Europe, we are now investing in a highly focused way in key territories such as Italy and Spain for the long-term benefit of the business.”
 
Topping said that the combined effect of the weaker year-on-year margin, planned increases in Online investment levels and a loss-making performance from the Group’s Telephone channel has led to a 22 percent decline in group operating profit in Q3, although this results in only a 3 percent decline year-to-date.
 
The Group’s net debt for covenant purposes fell to GBP426.8 million at the end of the period (GBP460.1 million as at 28 June 2011).
 
William Hill Online’s net revenue growth remains strong, up 28 percent compared with Q3 2010, Topping revealed.
 
"Sportsbook continues to perform strongly with amounts staked 51 percent higher than in the same period of 2010, including growth of 61 percent in in-play turnover and more than 250 percent in mobile betting amounts staked. The Sportsbook gross win margin was 6.9 percent, which was 200 basis points lower than in the same period in 2010. As a result, net revenue grew 17 percent.
 
"On the gaming side, Casino growth has been excellent, up 41 percent, including 40 percent growth from products designed for cross-sell from sportsbook operations. Overall, gaming net revenue grew 34 percent, including 14 percent growth from Poker and 9 percent from Bingo.
 
"William Hill Online launched a licensed internet Casino site in Italy at the start of the quarter. Initial performance has been above expectation, with early figures from the Italian regulator, AAMS, indicating William Hill Online is the strongest performing of the non-domestic new Casino entrants to the Italian market.
 
"Mobile continues to grow strongly following the launch of the new mobile Sportsbook. Sports-betting turnover was up more than 250 percent in the quarter and total net revenue from mobile betting and gaming increased by more than 300 percent."
 
Regulation can be expensive; the statement notes that costs overall are higher because William Hill Online is paying gaming duty in Italy and accruing payments for Spain and Greece and, as planned, is making significant marketing investments, primarily in the UK and Italy.
 
The Online business delivered GBP 24.5 million in operating profit in Q3, down 7 percent on the prior year. Playtech’s non-controlling interest in the WHO joint venture was GBP7.4 million.
 
Referring to the recent operational disruptions in Israel, Bulgaria and the Philippines, Topping noted that he is confident that his company has now tightened its control of the WHO operation.
 
Topping additionally confirmed that William Hill plc is applying for a Nevada Gaming Commission licence following its acquisition of three land-based sports-betting businesses in the US, which is conditional on the granting of local regulatory licences.
 
Initial reviews of the business have been undertaken and further meetings with the Nevada Gaming Commission are planned for the coming months. The process is expected to complete in 2012.
 
The deal with mobile supplier Probability plc  is also progressing, with a stock exchange deadline of November 14 for a firm offer to be made. Discussions between William Hill and Probability are continuing.
 
The statement also dwells on the UK government's intention to establish a new licensing regime for offshore online operators in order to provide enhanced protection for UK consumers.
 
"In the Group’s view, there is no public protection risk in the current regime and, therefore, no real justification for the proposed dual regulation," the statement observes. "However, should the DCMS pursue this route, the Group is well placed as William Hill Online already operates to UK standards. The Group intends to be fully involved in shaping a proportionate and effective regime, including appropriate enforcement measures.
 
"Arising from this announcement, HM Treasury announced that they would review the current legalization and framework of taxation as it relates to offshore companies targeting UK consumers. The Group’s Online and Telephone businesses are currently based in Gibraltar and, as such, the Group could be affected by any changes but it is too early to assess the impact as HM Treasury has not yet advocated any specific proposal."