LONDON (Alliance News) - William Hill PLC Friday reported a drop in profit in the first half of 2015 as it was hit by tax hikes and a tough comparative period, and said it has bought a stake in online lottery company NeoGames, as its shares slumped in early trade.
Shares in William Hill were trading down 4.9% at 390.70 pence Friday morning, the worst performer in the FTSE 250.
The bookmaker reported a 35% drop in pretax profit in the 26 weeks ended June 30 to GBP78.7 million from GBP121.8 million in the first half of the prior year. Revenue, however, grew to GBP808.1 million from GBP805.2 million.
William Hill said that an increase in machine games duty and the introduction of the point of consumption tax cost the business GBP44 million in the half year, which in turn hit its profit. The half-year also faced a tough comparative which included the 2014 FIFA World Cup, the company added.
Divisionally, Online performed well with online sportsbook amounts wagered up 10%, gaming net revenue up 4% and overall net revenue up 7%. Profitability was also helped by a reduction in the marketing to net revenue ratio to 22% from 28%, following the rollover of World Cup-related spend in the first half of 2014.
The Retail division, however, saw disruption to gaming revenue following the implementation of the 'GBP50 journey', the closure of 108 shops in the second half of 2014 in response to the machine games duty rate change, as well as an increased machine games duty cost of GBP8 million. Net revenue fell 3.1% as a result, while profit fell by GBP10 million.
Back in April, the bookmaker started to roll out a 'GBP50 journey' on its gaming machines to provide greater scrutiny of customers staking at higher levels with a view to improve analysis of customer behaviour and identify potentially harmful customers.
It came in response to the government's regulations requiring customers wishing to stake over GBP50 on a gaming machine to use account-based play or load cash over-the-counter.
On Friday, it said that gaming machine gross win was up 1% in the first quarter but down 3% in the second quarter, implying a 3% to 4% decline in machines gross win run rate as a result of the implementation of the GBP50 journey. William Hill said it now expects a GBP5 million to GBP10 million hit on operating profit in the second half of the year.
Meanwhile, net revenue fell by 10% in Australia with an increase in bonusing and a 27% decline in wagering, but William Hill US continues to perform very strongly, it said, with amounts wagered up 49% and net revenue growth of 30%.
The bookmaker only recently launched in Australia and said its performance there reflects the transition of the business as it refocuses operations on the rapidly growing recreational customer base.
During what Chief Executive James Henderson referred to as a "volatile" couple of years, in April William Hill reported its largest ever loss-making week in sports betting in its first quarter, leading to a GBP14 million loss. On Friday, Henderson said that the business hasn't had another week like that and said he is confident the company is doing the right thing to mitigate volatility.
William Hill will pay an interim dividend of 4.1 pence, a 3% rise on the 4.0p it paid the year before.
"Looking ahead, the board is confident that the group remains well positioned to gain share in key markets, notwithstanding the impact of increased taxes and regulation. In UK Retail, we anticipate some further impact from the GBP50 journey during the second half. We are making good operational progress in building a leading business in Australia, repositioning William Hill Australia in the key recreational segment in that market," Henderson said in a statement.
Separately, William Hill said that it has bought a 29.4% stake in US online lottery software and services provider NeoGames for a total cash consideration of GBP16 million, and said it has an option to acquire the remaining 70.6% after three or five years.
NeoGames made total lottery sales of USD60 billion in 2014, William Hill said, adding that it has agreed to fund a USD15 million working capital facility if required.
"The emergent online lottery market is an exciting new opportunity in the gambling sector and NeoGames is a disruptive technology operator offering customers a great experience and lottery rights holders a compelling alternative to established retail lottery operators. This agreement gives William Hill good optionality in a new market that is increasingly attractive to gambling customers," Henderson said.
The move to acquire an online operator is in line with the digital push being seen across the bookmaking sector in the UK, as companies look to offset the decline in activity in traditional betting shops by buying digital players.
William Hill itself, earlier this year, held talks about acquiring 888 Holdings PLC, the online gaming company, but this collapsed after 888 failed to secure the support of a major shareholder for the bid. 888 itself then went on to agree a deal to acquire larger rival Bwin.Party Digital Entertainment PLC, though that still remains subject to possible gatecrashing by AIM-listed GVC Holdings PLC.
The biggest deal to have been agreed in the sector so far, however, was between William Hill's main rival, Ladbrokes PLC, and unlisted peer Gala Coral Group Ltd. The pair are planning to merge to create a business with a market capitalisation of GBP2.1 billion.
Merger opportunities have increased in attractiveness to the UK gambling sector as high-street operators take a hit from new gambling taxes in the UK and a margin squeeze from a need to invest in marketing and technology to keep up with the growing online gambling market, pushing them, as in the case of Ladbrokes and Coral, to look for deals that will give them scale in the market.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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