2nd Mar 2005 07:00
William Hill PLC02 March 2005 Wednesday, 2 March 2005 WILLIAM HILL PLC PRELIMINARY ANNOUNCEMENT OF RESULTS William Hill (the 'Group') today announces its results for the 52 weeks ended 28December 2004 (the 'period') and a proposed return of surplus capital toshareholders by way of a capital reorganisation (the 'Return of Capital'). Results highlights: • Profit on ordinary activities before finance charges up 16% to £232.0m (2003: £200.4m) • Basic earnings per share up 22% to 36.2 pence (2003: 29.7 pence) • Interim dividend of 5.5 pence per share (paid on 2 December 2004) and proposed final dividend of 11.0 pence per share (payable on 2 June 2005 to shareholders on the register on 6 May 2005) giving a total dividend up 32% to 16.5 pence per share (2003: 12.5 pence per share) Return of capital: • In addition to the final dividend, we propose to return capital of £453m (equating to 115 pence per share or c.20% of market capitalisation) via a B share scheme with full choice between income and capital elections subject to shareholder and court approval • Total returned to shareholders since flotation in June 2002 will amount to £752m (including dividends, share buy backs and proposed Return of Capital) • Intention to maintain an efficient capital structure through a combination of dividends and share buy backs • New £1.2bn bank facilities with a five year term • Special contribution of £40m over three years to eliminate pension fund deficit • Full details of these proposals will be contained in a circular to be posted to shareholders in mid April 2005 and will require shareholder approval at the Annual General Meeting on 19 May 2005 Current trading: • Satisfactory start to the current trading year with Group gross win in the eight week period ended 22 February 2005 up 4% against the comparative period despite tough comparators Commenting on these results and the proposed Return of Capital, Charles Scott,Chairman, said: "The Group's focus on profitable organic growth has delivered another excellentset of results with profit, earnings per share and dividends all showing strongdouble digit rates of increase over the comparable period. We have announced the Return of Capital in light of William Hill's strongfinancial performance since the time of flotation and in order to re-establishan efficient capital structure as well as maximise returns to shareholders. The Gambling Bill now appears less likely to offer opportunities for expansionof the UK casino industry, and synergies between casino and betting operators,than were originally anticipated. Consequently, the Board is not inclined tocommit significant capital to potential acquisitions outside of its corebookmaking and gaming businesses at the current time. However, our proposedcapital structure will still give us the ability to finance bolt onacquisitions. The Group continues to focus successfully on channels and markets which offergood growth prospects and to maintain sound financial disciplines with a view tomaximising shareholder value." Enquiries: David Harding, Chief Executive (Tel: 020 8918 3910)Tom Singer, Group Finance Director (Tel: 020 8918 3910)James Bradley, William Cullum, Brunswick (Tel: 020 7404 5959) There will be a presentation to analysts at 9.00 am today at the Lincoln Centre,18 Lincoln's Inn Fields, London WC2. Alternatively, it will be possible tolisten to the presentation by dialling 44 (0) 20 8515 2303. The presentationwill be recorded and will be available for a period of one week by dialling 44(0) 208 515 2499 and using the replay access number 641827#. The slidepresentation will be available on the Investor Relations section of the websitewww.williamhillplc.co.uk CHIEF EXECUTIVE'S REVIEW In 2004, despite fluctuating sporting results, the Group continued to performstrongly whilst investing in its capabilities for the future. Once again, ourability to increase the Group's gross win faster than operating costs hasallowed us to exploit the operating leverage in our business model and deliverstrong growth in profits and earnings per share. The most significant variation in sporting results occurred in football, wherethe first half of the year saw very favourable results for the bookmaker,particularly in the Euro 2004 series of matches where a number of favoured teamsfell victim to underdogs, whilst in the second half we have seen a long run offavourites winning, both in the domestic leagues and key European matches. We have also experienced some fluctuations in horseracing results, which alsosaw a lower level of gross win across the Group in the second half, but thistrend was exacerbated by lower theoretical margins, which are the direct resultof on course bookmakers hedging into betting exchanges. Retail The Retail division grew gross win by 8% to £548.1m and profit by 9% to £165.5m. We largely completed our rollout of fixed odds betting terminals (FOBTs) by theend of 2004, finishing the year with 5,573, although we will continue tooptimise numbers, siting and product. Average net profitability per terminalreduced during the second half, partly due to the impact of the voluntary codeof conduct, but mainly due to the dilution effect of adding the third or fourthterminal into shops and our winter trading hours. During the year, we traded anaverage of 4,442 terminals (2003: 2,454) and achieved a full year average netprofitability per terminal of £370 per week (2003: £380). We hope to improveprofitability in 2005 through a combination of product innovation and improvedcontractual terms with our suppliers. The number of Amusement With Prizes machines (AWPs) in the estate has beenreduced through the year to accommodate more FOBTs, and the Group finished theyear with 530 AWPs (2003: 2,454). Over the counter gross win fell in the second half, partly due to adversesporting results, partly due to low theoretical margins and partly due tosubstitution into self service machine betting via FOBTs. For the full year,over the counter business was flat against last year. During the year werecognised that we could improve our manual settlement procedures to speed upthe recycling of winnings. Consequently, we have accelerated our roll out ofelectronic point of sale (EPOS) tills and the replacement of text systems andfully expect to have them deployed by the end of 2005. During the year we acquired 10 licensed betting offices, opened 17 licensedbetting offices and closed seven units bringing our total number of tradingshops to 1,606 at the year end. In addition to the new licence activity, weextended or resited a further 39 shops and shopfitted a further 86 shops. Totalproperty related capital expenditure on the estate for the year was £13.3m. Telephone Telephone gross win grew by 7% to £60.3m, but profit was flat at £22.1m. Thechannel continues to benefit from the increasing popularity ofbetting-in-running but was the worst hit by the profile of results in the secondhalf being the most vulnerable to higher staking customers who are less inclinedto recycle winnings. It is also the channel most vulnerable to the impact ofbetting exchanges. The main cost increases that resulted in a lower conversion of gross win toprofit were higher levy charges due to an increase in gross win on horseracing,and higher IT recharges reflecting the development of back office accountmanagement and trading systems. We ended the year with 184,000 active telephone customers (2003: 171,000). Interactive Strong underlying growth in poker, the online casino, and arcade products helpedcounteract the impact of adverse sporting results and the division finished theyear with gross win of £106.1m, up 25%, and profit of £51.7m, up 39%. 2004 also saw the launch of our own TV station on Sky Channel 425. This was adeliberately low cost, low risk entry strategy into interactive digitaltelevision. The platform has made an encouraging start and we will be expandingour coverage of live sporting events, as well as introducing coverage of livepoker tournaments, to attract more viewers and use the medium to promote thebrand and other growth areas for the Group. Towards the end of the year, we also introduced a new range of java based casinoand slot products suitable for GPRS and 3G generation mobiles to complement ouralready successful WAP sportsbook and arcade offering. The launch of these two initiatives in addition to our already successfulinternet sites provides UK domiciled customers with unrivalled access to ourbusiness and the brand with a distribution ubiquity few competitors can match. We ended the year with 292,000 active Interactive customers (2003: 247,000). Cost of content In November 2004, the European Court of Justice (ECJ) delivered its judgement onthe interpretation of the Database Directive, which had been referred by theCourt of Appeal in relation to the dispute with the British Horseracing Board onthe use of certain racing data. This judgement supported the Group's position,in contrast to the position adopted by the initial High Court ruling. The ECJinterpretation will be applied by the Court of Appeal and the case decided at ahearing which has been fixed for June 2005. In the meantime, the Group continuesto contribute 10% of gross win on UK horseracing via the statutory levy. The betting industry has contractual arrangements in place with 52 of thecountry's 59 racetracks for the supply of horseracing pictures into licensedbetting offices. The duration of these contracts varies from between three andfive years. During the year the bookmaking industry agreed to an increase in the voluntarylevy to support the greyhound industry. This three year agreement will see aphased increase in contributions from 0.4% of turnover on greyhound betting in2003 to 0.6% of turnover in 2006. It is the intention of the British GreyhoundRacing Fund that the majority of the increase will be directed at improvedwelfare for greyhounds. The Group paid £2.8m under the voluntary levy in 2004(2003: £2.4m). Despite the increase in greyhound funding, we believe that the ECJ rulinggreatly reduces pressure for increases in the cost of content across all sports. Operating costs Full year expenses for the Group were £332.5m, an increase of 6% on thecomparable period. The rate of cost increases slowed through the course of theyear and whilst costs increased 8% in the first half against the comparableperiod, the rate of increase fell to 4% in the second half against thecomparable period. Much of the increase was due to higher staff costs that were up 10% over thecomparable period reflecting extended opening hours in our shops, inflationbased pay awards and higher pension costs. Property costs were up 5% over thecomparable period reflecting increases in rent and rates, an increase in averageshop size, and an increase in the size of the estate. The costs of providingpictures to our licenced betting offices were up 9% over the comparable perioddue to increases in trading hours, the size of the estate, and charges.Advertising and sponsorship costs, including the cost of free bets and casinobonus cash payments that are expensed in arriving at gross profit, were up 30%over the comparable period reflecting incremental spend on the Euro 2004football championship and increased sponsorship and web advertising andpromotions. Other increases relate to network and communication costs, up 33%over the comparable period, as we improve links between administrative centresand licensed betting offices, partly to support FOBT business, but also inpreparation for EPOS rollout. In contrast, depreciation, bank charges (includingcharge backs) and AWP rentals decreased compared to the comparative period. A number of the cost increases are driven by our ongoing investment ininformation technology as we strengthen development and support capabilities inpreparation for the introduction of EPOS and new back end systems. Allexpenditure on information technology is subject to rigorous cost-benefitanalysis, and tightly managed through formalised project and programmemanagement systems. Going forward we expect underlying costs to be contained to annual rates ofgrowth of between 4% and 6%, although there will be a short term increase in oneoff costs in 2005 resulting from the introduction of the EPOS system and costsassociated with the capital reorganisation. Competition issues The Office of Fair Trading has taken the administrative decision to discontinueits investigation into and close its case file on the formula used to calculatepayouts on computer straight forecasts and tricast bets. Its review of the rulesof racing led to a number of changes which were reflected in the BritishHorseracing Board's modernisation plans. These are now subject to further changefollowing the ECJ's ruling and subsequent reviews of the future funding andgovernance of the sport. William Hill is a major employer and pays significant taxes and therefore webelieve that it is in the national interest to address the unfair advantageenjoyed by layers on betting exchanges who compete directly with traditionalbookmakers without paying a comparable level of gross profit tax or horseracinglevy. This inequitable taxation of layers on betting exchanges enables them tooffer better prices than the traditional bookmaker. We continue to lobbyaggressively for a 'level playing field', and were pleased to note that, in itsrecent review of gross profit tax, the National Audit Office reiterated the needto assess the potential duty at risk across the betting industry resulting fromthe tax advantages enjoyed by layers on betting exchanges. This opinion followsthe Chancellor's statement in 2004 that the taxation of betting exchanges wouldbe subject to a full review. Whilst the Gambling Bill has yet to complete its passage through both Houses ofParliament, it is evident that the potential opportunities and threats for theGroup resulting from a rapid expansion of the gaming sector are receding.Potential synergies between the betting and gaming sectors are reduced by theproposed structure of the legislation. This reduces the likelihood of any crosssector merger or significant acquisition activity for the Group at the currenttime, and hence our need for flexibility in the potential use of capital.Accordingly, we are intending to return a significant amount of surplus capitalto shareholders. Regulatory development The Gambling Bill will be put before the House of Lords during February andMarch 2005. Assuming it passes into law, we are advised that it is unlikely tobe fully implemented until the Gambling Commission is fully resourced andoperational, which is unlikely to be before the end of 2006, or early 2007. Proposed regulations concerning remote gaming and the new licensing regime forbetting operators are the principal areas of the Bill that will impact onWilliam Hill. We have been lobbying through our trade associations, theAssociation of Remote Gambling Operators (ARGO) and the Association of BritishBookmakers (ABB), to ensure that the new measures are effective in accomplishingthe government's regulatory objectives, without imposing undue compliance costs. CAPITAL REORGANISATION Background to the Proposed Return of Capital William Hill was listed on the London Stock Exchange in June 2002 and at thattime the Group put in place a capital structure and financing arrangements toprovide the optimum capital structure for William Hill as a public company,consistent with the Board's strategy. These financing arrangements were designedto support a strategy focused on maximising organic growth opportunities butalso provided the flexibility to pursue selectively value-enhancing acquisitionsand enable the Group to adopt a progressive dividend policy. Since listing, the Group has pursued a strategy aimed at delivering sustainableearnings growth and value for its shareholders. The key elements of thisstrategy have been to continue to enhance traditional earnings and maximiseorganic growth opportunities, profitably exploit new platforms across allbetting channels, and capitalise on opportunities arising from regulatory,fiscal and technological change. Although the Group has reviewed a number ofpotential investment and acquisition opportunities, in particular in the contextof potential gambling deregulation in the UK, the Board has maintained strictfinancial discipline and avoided pursuing opportunities unless they weredemonstrably value enhancing for shareholders. The Group has made a number ofsmall acquisitions of licensed betting offices and greyhound stadia that havebeen funded out of operating cash flow. In light of William Hill's strong financial performance and to help preserve anefficient capital structure and maximise returns to shareholders, the Boardsecured the authority at its last Annual General Meeting to buy back 10% of theGroup's issued share capital. Since this time William Hill has bought backapproximately 6.5% of its share capital. However, the Board has concluded that William Hill could support a significantlyhigher amount of debt and to do so would be in the interest of shareholders. TheReturn of Capital will restore the Group's financial coverage ratios to levelsbroadly consistent with those established at the time of the listing. In view ofthe substantial quantum of capital which the Board believes should be returned,the Board has concluded that the optimal mechanism would be a B share schemewhich offers pro rata participation to all shareholders with full choice betweenincome and capital elections. In order to facilitate the proposed Return of Capital, a new holding companywill need to be introduced as part of a scheme of arrangement and reduction ofcapital that will require the approval of shareholders and the High Court. Theobjective of these steps is to create sufficient distributable reserves tofacilitate the Return of Capital and future dividends and share buy backs. Funding of Return of Capital In order to fund the Return of Capital and take advantage of the currentfavourable conditions in credit markets, the Group has secured new bankfacilities of £1.2bn with a consortium of banks. On 2 March 2005, £600m of thenew facilities became available and will be used to repay the existing bankfacilities in March 2005 at which time they will be cancelled. Subject to the satisfaction of various conditions precedent, a further £600m ofnew facilities will become available once the scheme of arrangement andreduction of capital have been approved by shareholders and the High Court. Allthe new facilities have been provided on a committed and underwritten basis andhave a five year term. Pension plan Subject to the Return of Capital being approved by shareholders, the Board hasundertaken to make a special contribution of £40m to the Group's defined benefitpension scheme. The contribution will be spread over a period of three years andis designed to eliminate the deficit calculated on a continuing basis by theactuary as at September 2004. The Board and pension scheme trustee haveconsulted on this specific proposal and believe it represents an appropriatecourse of action that properly balances the legitimate interests ofshareholders, and members and pensioners. Future strategy and dividend policy The Board intends to maintain an efficient and flexible capital structure afterthe return of capital and will use a combination of dividend payments and sharebuy backs to achieve this objective. For 2005, the Board expects to maintain dividend cover on a per share basisbroadly in line with the level in 2004. In addition, the Board will be seekingauthority from shareholders for a renewal of the on market share buy backmandate. Timetable of events The Board will be posting a circular to shareholders in mid April 2005 settingout full details of its proposal to return capital and the timetable of events. At this early stage, the Board anticipates that shareholders will be invited tovote on this and other proposals at the Annual General Meeting and Court meetingon 19 May 2005, with the High Court sanctioning the scheme of arrangement andreduction of capital in June 2005, and payments being received by shareholdersin early July 2005. 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 (restated) Notes £m £m-------------------------------------------------------------------------------------------------------- Turnover 2 8,287.7 5,945.8Cost of sales (7,726.3) (5,434.7)--------------------------------------------------------------------------------------------------------Gross profit 2 561.4 511.1Net operating expenses (332.5) (313.6)--------------------------------------------------------------------------------------------------------Operating profit 2 228.9 197.5Share of associate's operating profit 3.1 2.9--------------------------------------------------------------------------------------------------------Profit on ordinary activities before finance charges 232.0 200.4Net interest payable 3 (25.2) (29.2)Other finance charges (1.5) (1.7)--------------------------------------------------------------------------------------------------------Profit on ordinary activities before tax 205.3 169.5Tax on profit on ordinary activities 4 (57.0) (45.2)--------------------------------------------------------------------------------------------------------Profit on ordinary activities after tax for the financial period 148.3 124.3Dividends proposed and paid 5 (65.1) (52.2)--------------------------------------------------------------------------------------------------------Retained profit for the financial period 83.2 72.1--------------------------------------------------------------------------------------------------------Earnings per share (pence)Basic 6 36.2 29.7Diluted 6 35.5 29.3-------------------------------------------------------------------------------------------------------- All amounts relate to continuing operations for the current and precedingfinancial periods. Consolidated Statement of Total Recognised Gains and Lossesfor the 52 weeks ended 28 December 2004 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 (restated) Notes £m £m-------------------------------------------------------------------------------------------------------- Profit for the financial period 148.3 124.3Actuarial loss recognised in the pension scheme (10.7) (3.7)Deferred tax attributable to actuarial loss 3.2 1.1Currency translation differences on foreign currency net investments - 0.1--------------------------------------------------------------------------------------------------------Total recognised gains and losses relating to the period 140.8 121.8 -------------Prior period adjustment 1 (1.9)--------------------------------------------------------------------------------------------------------Total recognised gains and losses since last annual report 138.9-------------------------------------------------------------------------------------------------------- 28 December 30 December 2004 2003 (restated) Notes £m £m-------------------------------------------------------------------------------------------------------- Fixed assetsIntangible assets - goodwill 736.2 732.3Tangible assets 119.0 101.0Investments 2.9 0.8-------------------------------------------------------------------------------------------------------- 858.1 834.1--------------------------------------------------------------------------------------------------------Current assetsStocks 0.3 0.4Debtors: amounts recoverable within one year 15.4 15.7Debtors: amounts recoverable after one year 6.5 6.2Cash at bank and in hand 60.5 46.4-------------------------------------------------------------------------------------------------------- 82.7 68.7Creditors: amounts falling due within one year (203.6) (187.1)--------------------------------------------------------------------------------------------------------Net current liabilities (120.9) (118.4)-------------------------------------------------------------------------------------------------------- Total assets less current liabilities 737.2 715.7Creditors: amounts falling due after more than one year (447.7) (366.6)--------------------------------------------------------------------------------------------------------Net assets excluding pension liability 289.5 349.1Pension liability (38.5) (31.7)--------------------------------------------------------------------------------------------------------Net assets including pension liability 251.0 317.4-------------------------------------------------------------------------------------------------------- Capital and reservesCalled-up share capital 7 40.5 42.2Share premium account 7 311.3 311.3Capital redemption reserve 7 1.7 -Merger reserve 7 (26.1) (26.1)Other reserve 7 - 2.1Own shares held 7 (59.3) (5.0)Profit and loss account 7 (17.1) (7.1)--------------------------------------------------------------------------------------------------------Equity shareholders' funds 8 251.0 317.4-------------------------------------------------------------------------------------------------------- 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 Notes £m £m-------------------------------------------------------------------------------------------------------- Net cash inflow from operating activities 9 247.3 224.5Returns on investments and servicing of finance 10 (23.3) (22.4)Taxation (57.4) (21.7)Capital expenditure and financial investment 10 (27.3) (18.5)Acquisitions 10 (3.8) (4.9)Equity dividends paid (59.6) (38.8)--------------------------------------------------------------------------------------------------------Net cash inflow before financing 75.9 118.2Financing 10 (61.8) (116.4)--------------------------------------------------------------------------------------------------------Increase in cash in the period 11 14.1 1.8-------------------------------------------------------------------------------------------------------- 1. Changes in accounting policies and restatement of comparatives The Group has adopted Abstract 38 'Accounting for ESOP trusts' and the related amendments to Abstract 17 'Employee share schemes' issued by the Urgent Issues Task Force in December 2003. The provisions of Abstract 38 change the presentation of an entity's own shares held in trust from requiring them to be recognised as assets (within investments), to requiring them to be deducted in arriving at shareholders' funds. As a result of the change in accounting policy in respect of Abstract 38, the comparatives have been restated as follows: 30 December 2003 £m --------------------------------------------------------------------------------------------------- Investments As previously reported 3.6 Reclassification of own shares held (2.8) --------------------------------------------------------------------------------------------------- As restated 0.8 --------------------------------------------------------------------------------------------------- Shareholders funds As previously reported 320.2 Reclassification of own shares held (2.8) --------------------------------------------------------------------------------------------------- As restated 317.4 --------------------------------------------------------------------------------------------------- The amount representing own shares held was £4.4m at 31 December 2002. Amended Abstract 17 requires that the minimum expense recognised in respect of share awards and options should be the difference between the fair value of the shares at the date of award and the amount that an employee may be required to pay for the shares ('the intrinsic value'). The expense was previously determined either as the intrinsic value or, where purchases of shares had been made by a trust at fair value, by reference to the cost of shares that were available for the award. The impact of adopting the amended Abstract 17 amounted to an additional charge of £1.0m against profit before tax in the 52 weeks ended 28 December 2004 (52 weeks ended 30 December 2003 - £1.3m). In addition to the £1.3m charged in 2003, £0.6m was charged in periods prior to this, giving a total prior period adjustment of £1.9m reported in the Statement of Total Recognised Gains and Losses. 2. Segmental information The Group's turnover, profits and operating net assets primarily arise from customers in the United Kingdom and therefore segmental information by geographical location is not presented. Segmental information by distribution channel is shown below: 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Turnover - Retail 7,020.7 4,751.8 - Telephone 540.8 570.5 - Interactive 696.3 592.6 - Other activities 29.9 30.9 --------------------------------------------------------------------------------------------------- 8,287.7 5,945.8 --------------------------------------------------------------------------------------------------- Gross win - Retail 548.1 505.6 - Telephone 60.3 56.5 - Interactive 106.1 84.9 - Other activities 7.6 7.3 --------------------------------------------------------------------------------------------------- 722.1 654.3 --------------------------------------------------------------------------------------------------- Operating profit - Retail 165.5 152.4 - Telephone 22.1 22.2 - Interactive 51.7 37.1 - Other activities (0.3) 0.9 - Central costs (10.1) (15.1) --------------------------------------------------------------------------------------------------- 228.9 197.5 --------------------------------------------------------------------------------------------------- Net assets/(liabilities) - Retail 73.4 59.5 - Telephone 0.7 (0.5) - Interactive 2.7 1.4 - Other activities 7.1 6.9 - Corporate 167.1 250.1 --------------------------------------------------------------------------------------------------- 251.0 317.4 --------------------------------------------------------------------------------------------------- The retail distribution channel comprises all activity undertaken in LBOs including AWPs and FOBTs. Other activities include on-course betting and greyhound stadia operations. The directors believe that gross win and operating profit are more important performance metrics than turnover. Net assets/(liabilities) have been allocated by segment where assets and liabilities can be identified with a particular channel. Corporate net assets include goodwill, corporation and deferred tax, borrowings net of cash balances, pension liability and dividends payable as well as any assets and liabilities that cannot be allocated to a particular channel other than on a relatively arbitrary basis. Turnover of £3.3m and a small operating loss of £0.1m has been consolidated into these results in respect of the acquisitions made by the Group in the period. 2. Segmental information (continued) The segmental analysis of gross win set out above is shown before deducting GPT, duty, levies, VAT and other cost of sales to arrive at gross profit. A reconciliation from gross win to gross profit as presented in the profit and loss account is set out below: 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Gross win 722.1 654.3 GPT, duty, levies, VAT and other cost of sales (160.7) (143.2) --------------------------------------------------------------------------------------------------- Gross profit 561.4 511.1 --------------------------------------------------------------------------------------------------- 3. Net interest payable and similar charges 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Interest receivable: Interest receivable 1.9 1.6 Interest payable and similar charges: Interest on bank loans and overdrafts (25.6) (28.7) Interest on guaranteed unsecured loan notes 2005 (0.2) (0.3) Interest on high yield bonds - (0.3) Share of associate's net interest payable - (0.1) Amortisation of finance costs (1.3) (1.4) --------------------------------------------------------------------------------------------------- Net interest payable (25.2) (29.2) --------------------------------------------------------------------------------------------------- 4. Tax on profit on ordinary activities The tax charge comprises: 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- UK corporation tax at 30% 57.4 50.3 UK corporation tax - prior periods (1.7) (0.8) Consortium relief receivable - prior periods - (1.1) Overseas tax 0.3 (0.2) Share of associated undertaking tax charge 1.0 0.8 --------------------------------------------------------------------------------------------------- Total current tax charge 57.0 49.0 Deferred tax - origination and reversal of timing differences - (3.8) --------------------------------------------------------------------------------------------------- Total tax on profit on ordinary activities 57.0 45.2 --------------------------------------------------------------------------------------------------- 4. Tax on profit on ordinary activities (continued) 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Effective tax rate 27.8 26.7 --------------------------------------------------------------------------------------------------- The effective tax rate is lower than the statutory tax rate of 30% mainly due to relief for brought forward losses for which deferred tax was not previously recognised and prior year adjustments. 5. Dividends proposed and paid 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Equity shares: - interim dividend paid 22.0 14.6 - final dividend proposed/paid 43.1 37.6 --------------------------------------------------------------------------------------------------- 65.1 52.2 --------------------------------------------------------------------------------------------------- Dividend per ordinary share (pence) 16.5 12.5 --------------------------------------------------------------------------------------------------- The interim dividend of 5.5p (52 weeks ended 30 December 2003 - 3.5p) was paid on 2 December 2004. The proposed final dividend of 11.0p (52 weeks ended 30 December 2003 - 9.0p) will be paid on 2 June 2005 to all shareholders on the register on 6 May 2005. Under an agreement signed in November 2002, The William Hill Holdings 2001 Employee Benefit Trust agreed to waive all dividends. As at 28 December 2004, the trust held 2.8m ordinary shares. In addition, the Company has not provided for dividends on the 10.5m shares held in Treasury. The Company estimates that 391.6m shares will qualify for the final dividend. 6. Earnings per share The basic, adjusted and diluted earnings per share are calculated based on the following data: 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 (restated) £m £m --------------------------------------------------------------------------------------------------- Profit after tax for the financial period 148.3 124.3 --------------------------------------------------------------------------------------------------- Number (m) Number (m) Basic weighted average number of shares 410.1 418.7 Dilutive potential ordinary shares: Employee share awards and options 7.4 5.3 --------------------------------------------------------------------------------------------------- Dilutive weighted average number of shares 417.5 424.0 --------------------------------------------------------------------------------------------------- The basic weighted average number of shares excludes shares held by The William Hill Holdings 2001 Employee Benefit Trust and those shares held in treasury as such shares do not qualify for dividends. The effect of this is to reduce the average number of shares in the 52 weeks ended 28 December 2004 by 8.7m (52 weeks ended 30 December 2003 - 4.4m). 7. Capital and reserves Group: Capital Share redemp Own Profit Share premium -tion Merger Other shares and loss capital account reserve reserve reserves held account Total £m £m £m £m £m £m £m £m ------------------------------------------------------------------------------------------------------------ At 31 December 2003 (as previously reported) 42.2 311.3 - (26.1) 2.1 - (9.3) 320.2 Prior period adjustment (note 1) - - - - - (5.0) 2.2 (2.8) ------------------------------------------------------------------------------------------------------------ As restated 42.2 311.3 - (26.1) 2.1 (5.0) (7.1) 317.4 Retained profit for the financial period - - - - - - 83.2 83.2 Actuarial loss recognised in the pension scheme - - - - - - (10.7) (10.7) Deferred tax arising thereon - - - - - - 3.2 3.2 Shares repurchased and cancelled (1.7) - 1.7 - - - (89.3) (89.3) Treasury shares purchased - - - - - (56.1) - (56.1) Expense recognised in respect of share remuneration - - - - - - 3.3 3.3 Movements on reserves due to transfer of own shares to recipients - - - - (2.1) 1.8 0.3 - ------------------------------------------------------------------------------------------------------------ At 28 December 2004 40.5 311.3 1.7 (26.1) - (59.3) (17.1) 251.0 ------------------------------------------------------------------------------------------------------------ Own shares held at 28 December 2004 amounting to £59.3m comprise 10.5m shares (nominal value - £1.1m) held in treasury purchased for £56.1m and 2.8m shares (nominal value - £0.3m) held in The William Hill Holdings 2001 Employee Benefit Trust purchased for £3.2m. The shares held in treasury were purchased at a weighted average price of £5.32. At 28 December 2004 the total market value of own shares held was £74.5m. 8. Reconciliation of movements in equity shareholders' funds 28 December 30 December 2004 2003 (restated) £m £m --------------------------------------------------------------------------------------------------- Profit for the financial period 148.3 124.3 Other recognised gains and losses relating to the period (net) (7.5) (2.5) --------------------------------------------------------------------------------------------------- 140.8 121.8 Dividends (65.1) (52.2) Own shares purchased during period (145.4) - Expense recognised in respect of share remuneration 3.3 2.9 --------------------------------------------------------------------------------------------------- Net (reduction)/addition to equity shareholders' funds (66.4) 72.5 --------------------------------------------------------------------------------------------------- Opening equity shareholders' funds (as previously reported) 317.4 249.3 Prior period adjustment - reclassification of opening balance of own shares held (note 1) - (4.4) --------------------------------------------------------------------------------------------------- As restated 317.4 244.9 --------------------------------------------------------------------------------------------------- Closing equity shareholders' funds 251.0 317.4 --------------------------------------------------------------------------------------------------- 9. Reconciliation of operating profit to net cash inflow from operating activities 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 (restated) £m £m --------------------------------------------------------------------------------------------------- Operating profit 228.9 197.5 Depreciation 16.2 18.4 Profit on sale of fixed assets (0.6) - Amortisation of EDIP and LTIP 3.3 2.9 Decrease/(increase) in debtors 0.5 (1.5) Increase in creditors 1.6 7.2 Defined benefit pension cost less cash contributions (2.6) - --------------------------------------------------------------------------------------------------- Net cash inflow from operating activities 247.3 224.5 --------------------------------------------------------------------------------------------------- None of the acquisitions made by the Group during the period generated significant cash flows during the period of their ownership by the Group. 10. Analysis of cash flows 52 weeks ended 52 weeks ended 28 December 30 December 2004 2003 £m £m --------------------------------------------------------------------------------------------------- Returns on investments and servicing of finance: Interest received 1.9 1.6 Interest paid (25.2) (24.0) --------------------------------------------------------------------------------------------------- Net cash outflow (23.3) (22.4) --------------------------------------------------------------------------------------------------- Capital expenditure and financial investment: Purchase of fixed assets (28.2) (18.8) Sale of tangible fixed assets 0.9 0.3 --------------------------------------------------------------------------------------------------- Net cash outflow (27.3) (18.5) --------------------------------------------------------------------------------------------------- Acquisitions: Purchase of subsidiary undertaking (3.9) (5.7) Net cash acquired with subsidiary undertaking 0.1 0.8 --------------------------------------------------------------------------------------------------- Net cash outflow (3.8) (4.9) --------------------------------------------------------------------------------------------------- Financing: Purchase of own shares (145.5) - Repayment of Guaranteed unsecured loan notes 2005 (6.3) - Loan facilities drawn down/(repaid) 90.0 (116.4) --------------------------------------------------------------------------------------------------- Net cash outflow (61.8) (116.4) --------------------------------------------------------------------------------------------------- 11. Analysis and reconciliation of net debt OtherRelated Shares:
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