William Hill earnings slide as it adjusts to regulatory changes

William Hill said the next few years "will require careful navigating and investment" as it reported results in line with expectations on Friday.

A 2% improvement in its group net revenue for 2018 to £1.62bn fed through to adjusted operating profit from existing operations down 3% to £266.8m on an adjusted basis, which it had indicated when profit expectations were pre-released in January.

The FTSE 250 gambling operator said the costs of its US expansion operations during the year totalled £33.2m, with its adjusted operating profit falling 15% to £233.6m for the 53 weeks ended 1 January.

Exceptional charge and adjustments were £922.1m including, as the firm had previously reported, an £882.8m non-cash impairment to its retail business, which lead to a statutory loss before tax of £721.9m - swinging from a profit of £146.5m a year earlier.

Operating cash flow before movements in working capital was up 9% to £275.0m, with net debt for covenant purposes of £308.1m, which was 1.0x EBITDA at period-end.

The board confirmed a full-year dividend of 12.0p per share, which was in line with its policy to pay out around 50% of underlying earnings, based on adjusted earnings per share before its US expansion costs in 2018.

On the operational front, William Hill reported “good” underlying online performance, with active customers ahead 25%, underlying net revenue up 6% and operating profit rising 11% before the £17m impact of the new, enhanced customer due diligence measures.

The acquisition of Sweden's Mr Green for £242m was completed post-period end in January, which the board said would build the company’s international base and capabilities.

Stateside, the board said the US existing business delivered continued strong momentum, with 42% net revenue and 91% adjusted operating profit growth on a dollar-denominated basis. The US expansion business was now live in six states, with access secured to 17 states in total, with the company claiming a 34% market share by revenue across all seven regulated states in the early stages.

In its UK retail division, William Hill said the operation put in a “resilient” performance, with net revenue down 2% amid a “challenging trading backdrop” on the UK high street as the company claimed to be “ready” for the implementation of the new £2 stake limit on fixed-odds betting products in April, and the reshaping of its retail estate.

“2018 was a busy and decisive year for us,” said William Hill chief executive officer Philip Bowcock. “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.

“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.”

Bowcock added: “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 said the next few years “will require careful navigating and investment”, but felt that with a clear strategy and experienced leadership teams in place “we are ready to capitalise on the opportunities available to us”.

Shares in the group edged down less than 1% to 186.65p on Friday morning.

There are no surprises with today’s results, said broker Peel Hunt, though the dividend "was a little lower than we had expected" having eyed 13.6p.

"There is no material new information about the future; UK retail profits will fall sharply in April once the £2 maximum stake is imposed but we will not have any fresh information about the magnitude of the decline until then. William Hill will invest heavily in its US business this year, in headcount, marketing and technology but the payoff remains some way in the future and we are sceptical about whether any analysis of the potential upside is investable."

Analysts added that regulation was the "key wildcard" with Deputy Labour Leader Tom Waston on Thursday night setting out policies including limits on online gambling spending.

"The industry appears to be trying to build a political response, a new representative organisation is looking for a Chair and CEO but it will take time to have a chance of influencing the agenda.

"We believe the route to underlying profit recovery in FY20 is clear but it remains uncertain when the share price will start to give credit for that potential."