25th Apr 2014 07:36
LONDON (Alliance News) - UK bookmaker William Hill PLC Friday said it will close 109 loss-making betting shops before the end of the year, in a bid to maintain profits, in response to the UK government's decision to increase the tax rate on high-speed, high-stake gambling machines next year.
William Hill said the shop closures could result in around 420 employees being made redundant.
"Whilst every effort will be made to redeploy individuals this may not be possible in every location," it said.
UK Chancellor of Exchequer George Osborne said in his annual budget statement last month that the government will raise duty on gambling machines, also known as fixed-odds betting terminals, to 25% from 20%. The new rate will take effect from March 1, 2015.
The terminals affected are also known as B2 and B3 gaming machines, and include fruit machines and slot machines. On B2 gaming machines, a player can bet up to GBP2 per spin on slot games, while on B3 slot games, a player can bet up to GBP100 per spin every 20 seconds, although both types of machines are capped at a maximum prize per spin of GBP500.
Last month William Hill said that based on its B2 gaming machine gross wins in 2013, the new rate, if applied during that year, would have cost the business GBP22 million.
William Hill said Friday that with the increase in machine gaming duty, it is unlikely that the performance of current and expects loss-making ships can be realistically turned around, and has therefore decided to shut 109 of its betting stores.
"As a result of the closure of this loss-making portfolio, the group currently estimates it will incur around GBP23 million to GBP24 million of exceptional costs," the betting firm said in a statement.
The FTSE 100 company said that out of those costs, around GBP6 million would be made up of non-cash asset write-offs, and provisions of up to GBP18 million against future cash expenses such as rent and redundancies.
Alongside the announcement, William Hill released its trading results for the first quarter, reporting a 7% increase in group net revenue, but a 14% drop in its operating profit, as football results in the beginning and end of the first quarter went heavily against it. However, its business continues to be driven by strong online growth and mobile.
The group said its gross win margin performance was hit by two substantial loss-making weeks, driven by football results, where an unusually high number of favourites won their football matches, meaning bookmakers had to pay out large amounts.
It said that the major wins for football punters hit profit progression in the quarter, despite good growth in wagering in both its online business and retail stores, and a significantly improved gaming performance in both channels.
"While there is no guarantee we can make up the difference, we continue to believe the increased customer confidence from such wins should be good for business, especially in this World Cup year," said Chief Executive Ralph Topping in a statement.
The group said it is well placed to take advantage of the upcoming World Cup in Brazil later this year. It also said it is seeing further good growth in Italy, Spain and the US, and with most of the major components of its digital Australian platform now in place, will be driving further improvements in that business's performance.
William Hill said its online business represented 32% of group revenue in the first quarter, while its retail business represented 57%, and the rest made up of its Australia and US businesses.
It said its US business continues to perform strongly, with amounts wagered up 23% in the first quarter, and gross win 35% higher with a strong gross win margin of 8.7%, boosted by positive Super Bowl results.
In Australia, amounts wagered during the period was up 11%, with net revenue up 3%, although its operating profit declined 9%.
The betting firm has been investing in its online business, which hit its profits in 2013.
It said Sportsbook amounts wagered continued to grow strongly in the first quarter, with 78% growth in mobile Sportsbook revenue, of which mobile accounted for 45% of the total Sportsbook revenue in the period.
The group's retail business saw strong growth in football staking in the quarter, up 20%, and flat UK horse racing staking. It said overall staking was up 3%, boosted by a 4% increase in the number of horse race fixtures against the comparable weather-affected period.
It said that operating costs were in line with expectations during the period, opening ten shops and closing eight in the period, giving an average of 2,431 shops and 2,434 at the period end.
William Hill shares were one of the biggest gainers on the FTSE 100 in early trading Friday, up 1.4% at 337.80 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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