2nd Mar 2006 07:00
William Hill PLC02 March 2006 WILLIAM HILL PLC PRELIMINARY ANNOUNCEMENT OF RESULTS William Hill (the 'Group') today announces its results for the 52 weeks ended 27December 2005 (the 'period'). Period highlights: • Profit on ordinary activities before exceptional items and finance charges up 5% to £246.0m (2004: £234.1m) • Adjusted basic earnings per share (before exceptional items) were 36.2 pence (2004: 36.5 pence). Basic earnings per share were 28.5 pence (2004: 36.5 pence) • Interim dividend of 6.1 pence per share (paid on 5 December 2005) and proposed final dividend of 12.2 pence per share (payable on 6 June 2006 to shareholders on the register on 5 May 2006) giving a total dividend up 11% to 18.3 pence per share (2004: 16.5 pence per share) • Integration of the Stanley Retail business into the existing William Hill estate will be complete by the end of the first quarter 2006. Annualised synergies and other benefits will exceed initial estimate of £13m and could exceed £20m over the medium term. • Total returned to shareholders since flotation in June 2002 amounts to £446.0m (including dividends and share buy backs). £78.3m of shares purchased in 2005 out of proposed buy back programme of £200-300m announced in September 2005. Intention to renew mandate for a 10% share buy back. • Successful installation of replacement text and EPOS systems in the William Hill LBOs Current trading: Trading in the first eight weeks of 2006 has been mixed, with some strong weeks,aided by more favourable football results and some poor weeks, particularly forhorseracing which has been impacted by both unfavourable results and fixturecancellations. Online gaming continues to grow strongly. Costs remain undertight control. After this relatively short trading period, and with the World Cup and the fullyear benefits of both the Stanley acquisition and EPOS rollout still to come,the Board remains confident in the prospects for the Group. Commenting on these results, Charles Scott, Chairman, said: "In 2005, our third full year as a public company, we took a number of keystrategic steps, including the acquisition of Stanley Leisure plc's bettingshops and the investment in EPOS and new text systems in our LBOs. Earnings pershare excluding exceptional items fell slightly but as a sign of the Board'sconfidence for the future, we are proposing to increase total dividends by 11%." Enquiries: David Harding, Chief Executive (Tel: 020 8918 3910) Tom Singer, Chief Operating Officer (Tel: 020 8918 3910) James Bradley, Deborah Spencer, Brunswick (Tel: 020 7404 5959) There will be a presentation to analysts at 10.30 am today at the LincolnCentre, 18 Lincoln's Inn Fields, London WC2. Alternatively, it will be possibleto listen to the presentation by dialling 44 (0) 1452 561 263. The presentationwill be recorded and will be available for a period of one week by dialling 44(0) 1452 550 000 and using the replay access number 5845021#. The slidepresentation will be available on the Investor Relations section of the websitewww.williamhillplc.co.uk . CHIEF EXECUTIVE'S REVIEW Profit on ordinary activities before taxation and exceptional items was £246.0m(2004: £234.1m) and included a contribution of £15.6m from our acquisition ofStanley Leisure plc's retail betting operations (Stanley Retail) in June 2005.Earnings per share excluding exceptional items were 36.2p, broadly level with2004. We continued to invest in our business across all three channels. We invested inthe ongoing development of our estate, the replacement of our text systems andthe installation of electronic point of sale (EPOS) terminals. In addition wecommenced a three-year programme to update our core bookmaking systems. As thisprogresses our technology infrastructure will improve significantly with acommon architecture across our business which will allow prices, results andproducts to be distributed easily, provide a consolidated risk managementcapability and give our customers a single account with which to gamble acrossall channels. In 2005, the Group's sports betting activities, in common with other bookmakers,were adversely affected by sporting results compared to generally morefavourable results in 2004. In addition, the Group continued to experiencedownward pressure on theoretical margins on horseracing, which we first reportedon in 2004. This adverse trend was largely offset by particularly strongperformances in the Fixed Odds Betting Terminals (FOBT) and poker businesses.Operating expenses were kept under tight control. Acquisition of Stanley Retail The acquisition of Stanley Retail was completed on 18 June 2005 adding 624 LBOsto the existing William Hill estate. The headline price for the acquisition was £504m, which after a working capitaladjustment, professional fees and stamp duty resulted in total cashconsideration of £506.6m. Subject to William Hill providing satisfactory undertakings, the OFT decided notto refer the acquisition to the Competition Commission. The undertakings relatedto the disposal of 77 LBOs (and potentially another two LBOs) out of thecombined estate. 76 LBOs (64 Stanley Retail shops and 12 William Hill shops)have been sold to the Tote for net consideration of £34.4m. The LBOs sold to theTote were on average less profitable than the rest of the estate. A dedicated multi-disciplinary team was established to take control of StanleyRetail and set about the task of integrating the operation into the enlargedWilliam Hill Group. Post OFT clearance, the Group started to integrate the two businesses. Key tasksincluded the harmonisation of products, prices, and betting rules; progressiverebranding of the shops; installation of the same version of electronic point ofsale and audiovisual text systems recently deployed in the William Hill estate;renegotiation of contracts with key suppliers; and wind down of the StanleyRetail head office. We remain confident of achieving synergies and otherbenefits in excess of the £13m that we estimated at the time of the acquisitionand we believe that these could exceed £20m over the medium term. Incrementalbenefits include a reduction in betting tax in the Republic of Ireland from 2%to 1% of turnover from 1 July 2006; the removal of pre-race data charges payableto the British Horseracing Board in certain jurisdictions following a judgmentin the Republic of Ireland; and benefits arising from a management restructurerelating to the combined retail estate. Retail The Retail division grew gross win by 13.7% to £623.4m (0.8% excluding StanleyRetail) and profit increased by 9.7% to £181.6m (0.3% excluding Stanley Retail). Excluding Stanley Retail, gross win on over the counter (OTC) and amusement withprizes machines (AWPs) fell by 6.9% and 69.0%, respectively, but this wascompensated for by an increase in FOBT gross win of 33.5%. In the William Hill estate total gross win declined 1.3% and increased 3.3% inthe first and second half years, respectively, against the comparative periods. LBOs in the Stanley estate performed better year-on-year than those in theoriginal William Hill estate in the period from their acquisition through to theyear end. The pattern of a reduction in OTC and AWP gross win and an increase inFOBT gross win was also seen in Stanley Retail. The average number of FOBTs in the William Hill estate increased to 5,892 in theperiod (2004: 4,442). We finished the year with 6,078 FOBTs (2004: 5,573) in theWilliam Hill estate and 1,613 FOBTs in the Stanley estate. The average netprofit per machine per week in the William Hill estate was £402 (2004: £373) forthe year and in the Stanley Retail estate was £293 for the period since itsacquisition. The improved profitability in the William Hill estate was mainlydue to better contractual terms with our main FOBT supplier Leisure Linkeffective from May 2005. The number of AWPs in the William Hill estate at the end of year was 276 (2004:530) and the average number traded in the period fell from 1,392 in 2004 to 353in 2005. In Stanley Retail, there were 335 AWPs at the end of the year. Costs in the channel were up 17.0% (1.5% excluding Stanley Retail). ExcludingStanley Retail, there were savings in staff costs due to reduced overtime andpremium payments under the new employment contracts with shop staff andproductivity improvements resulting from the investment in EPOS. FOBT rentalsfell due to more favourable contractual terms, which are exclusively royaltybased, and AWP rentals fell due to the reduction in the number of machines inthe estate. These savings were offset by increases in rent and rates due toincreased shop numbers and rent reviews; energy costs; communications costsincurred to provide EPOS infrastructure; picture and data costs due toadditional shop numbers, increased charges from SIS and the number of LBOsshowing Sky Sports; and depreciation and maintenance charges as a result ofintroducing new text and EPOS systems. We completed 138 development and shop fitting projects during the year including31 new licences, 53 extensions and resites and 54 shopfittings. We spent £23m onestate development in the year. At the end of the year we had 2,121 LBOs in the United Kingdom, 9 in the ChannelIslands, 2 in the Isle of Man and 52 in the Republic of Ireland; a total of2,184. We completed the installation of a new text system and an EPOS system in theWilliam Hill estate in the year with minimal disruption and extended the rolloutof the same systems to the Stanley Retail estate. The total cash investment inrespect of these projects is expected to be £53m. Telephone Telephone gross win fell by 11.4% to £53.4m and profit fell by 41.2% to £13.0m.This channel is the most vulnerable to adverse sporting results and the declinein theoretical horseracing betting margins as its higher staking customers tendto back a higher proportion of favourites and are less likely to recyclewinnings. There was a fall in gross win against the comparative period in both the firstand second half of 2005, although the fall in the second half was lesspronounced than in the first half. Costs in this channel were up 10.9% due to increases in bank charges and ahigher allocation of central technology costs. We ended the year with 174,000 active telephone customers (2004: 184,000). Interactive Interactive gross win increased 16.2% to £123.3m and profit grew 18.4% to£61.2m. Growth in gross win was seen across all products with the strongest growth inpoker, which increased 90%. Sportsbook gross win grew despite adverse sportingresults, on the back of an increase in turnover and active accounts. Our arcadeexperienced strong growth and the casino showed a small increase in gross win. In October 2004 we launched William Hill TV (WHTV) on Sky Channel 425. Gross wingenerated through the interactive games arcade remains low. However, we haveseen an increase in stakes placed through the Interactive and Telephonesportsbooks on greyhound racing shown live on Channel 425. We have commenced atrial broadcast of Channel 425 content into our betting shops and we hope thatthis will increase shop gross win as well as draw shop punters to interactivetelevision outside shop hours. We will evaluate the benefits of Channel 425 inmid 2006. Gross win grew against the comparative periods in both the first and secondhalf-years of 2005 and the growth achieved in the second half was just belowthat achieved in the first half. Betting grew at 4.6% in the first half and15.6% in the second half and gaming (casino and poker) grew at 30.9% in thefirst half and 15.3% in the second half. We continue to expand our range of in running betting opportunities and launcheda live betting console on our sportsbook, which enables the rapid update ofprices during play. We enhanced our single account proposition and internet andtelephone customers can now bet on sports, poker, casino, and arcade from asingle wallet. We launched 5 new arcade games that expanded our offering to 10games. Our mobile sportsbook service is supported on the majority of WAP enabledhandsets. We upgraded our poker product through our partner Cryptologic and they now havethe fifth largest poker room on the internet. As a result, our players competefor over $3.5m in guaranteed tournament prize pools each month. Players can alsoqualify for the World Series of Poker and European Poker Tour events. WilliamHill continues to build its poker brand and is the official sponsor of theEuropean Poker Rankings. The finals of the William Hill Grand Prix attracted topplayers from around the world with a prize pool of £450,000. The finals arebeing broadcast on Sky television. As part of our international strategy we launched a Greek language poker room tocomplement our Greek download and instant casinos. We added 31 new games to our Boss and Cryptologic download casinos, including 6Marvel Comic themed games targeted at the slot machine market and blackjack androulette variants aimed at the European market. We now offer over 140 games andpaid out over £750,000 in shared progressive jackpots in 2005. Total active accounts increased to 341,000 as at 27 December 2005 (28 December2004: 292,000). Costs in the channel increased 20.7% due to increased marketing activities tosupport the growth of our poker business and to fund the costs of Channel 425production and content. Cost of content In July 2005 the Court of Appeal agreed with the European Court of Justice (ECJ)interpretation of the Database Directive, which had previously been referred tothe ECJ by the Court of Appeal in relation to our dispute with the BHB on theuse of certain racing data. This judgment supported the Group's position.Subsequently, the BHB has decided not to challenge this judgment thus bringingto an end the dispute that commenced in 2001. Had the BHB been successful, their database would have been the basis of acommercial deal between racing and betting that would have allowed the statutorylevy scheme to end. As a result of the decision, the Government has extended thestatutory levy until 2009 and appointed a committee, under the chairmanship ofLord Donoughue, to find an alternative basis for a commercial arrangement. Thecommittee issued its draft report in December 2005. It is anticipated thatdiscussion will take place between interested parties during 2006 in order toassess whether a viable alternative to the current statutory levy can bedeveloped from the options identified by the committee. The betting industry has contractual arrangements in place with the country's 59racetracks for the supply of horseracing pictures into LBOs. These contractsexpire between spring 2007 and summer 2009. With regard to football, the Retail division continues to make payments to thefootball authorities as part of an ongoing agreement. It should be noted that atthe same time as delivering its judgment on the interpretation of the DatabaseDirective in relation to horseracing, the ECJ took a similar line on threefootball related cases. We are still in discussion with the football authoritiesconcerning future arrangements for LBOs, as well as remote channels. In November 2005 the BHB settled a long running dispute with Irish bookmakersover data rights. The settlement came during a hearing in Dublin's CommercialCourt and allowed the BHB to keep the £30m it had collected from Irishbookmakers since March 2001. However the BHB accepted that no further paymentsunder the previous contract would be made after 9 January 2006. Accordingly,from that date, William Hill has ceased to make any payment to the BHB inrespect of horseracing betting in its LBOs in certain jurisdictions. Previouslythe company had paid 10% of gross win arising from betting on UK horseracing inLBOs outside of Great Britain. Operating costs Full year expenses for the Group were £418.2m an increase of 26.6% (5.5%excluding Stanley Retail and exceptional costs). Excluding Stanley Retail and exceptional costs, staff costs, which representedroughly half of our total costs, fell 1.2% reflecting the introduction of ournew staffing contract in the retail estate and improvement in productivity as aresult of the rollout of EPOS. Property costs, which represented 16.0% of ourtotal costs, were up 10.9% over the comparable period reflecting increases inrent and rates in part driven by an increase in average shop size and anincrease in the number of shops, and higher energy costs. Depreciation andequipment maintenance costs increased 21.2% with the rollout of EPOS and textsystems along with the supporting technology, although this was offset by staffcosts savings. The cost of providing pictures and data to our LBOs was up 8.5%over the comparable period due to the size of the estate and price increases.Advertising and marketing costs, including the cost of casino bonus cashpayments that are expensed in arriving at gross profit, were up 19.5% over thecomparable period reflecting increased web advertising and promotions, inparticular focusing on poker and WHTV. Other cost increases relate to our investments in WHTV and our ongoinginvestment in information technology, EPOS capabilities and core bookmakingsystems. All expenditure on information technology is subject to rigorous costbenefit analysis, and tightly managed through formalised project and programmemanagement systems. Exceptional costs of £26.9m were incurred in 2005 of which £19.0m (including£5.4m of non-cash charges) related to the integration of Stanley Retail withinthe William Hill estate, £3.0m related to the aborted return of capital exerciseand £7.4m related to the installation of EPOS and text systems. A profit of£2.5m was recorded on the disposal of 12 William Hill LBOs. Regulatory development In April 2005 the new Gambling Act was enacted. We are advised that it isunlikely to be fully implemented before Autumn 2007 pending the setting up ofthe Gambling Commission. Proposed deregulation, including extended betting shop opening hours, theinstallation of higher payout gaming machines and the removal of the demandcriteria, will impact our estate. The new Act also opens up the possibility of aUK based remote gaming industry and over the next two years the Government aimsto establish both regulatory and taxation regimes to enable this to occur. Wewill continue to work with our trade associations to assist the GamblingCommission to develop appropriate regulation. Capital structure 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. Since flotation, William Hill's strongfinancial performance has led the Board to conclude that William Hill couldsupport a significantly higher amount of debt and to do so would be in theinterest of shareholders. In March 2005 the Company announced a return ofcapital to shareholders of £453m and a £40m additional contribution to theGroup's defined benefit pension scheme to address the actuarial deficit in thescheme. In light of the acquisition of Stanley Retail, the Company decided not toproceed with the return of capital but secured new facilities of £1.2bn in orderto fund the acquisition, refinance the facilities put in place at flotation andmake a £47m additional contribution to the Group's defined benefit pensionscheme over a five year period. Subsequent to receiving clearance from the OFT on the Stanley Retailacquisition, the Board gave further consideration to the appropriate financingarrangements for the enlarged Group. In September 2005, the Board announced itwill target a ratio of net debt to earnings before exceptional items, interest,tax, depreciation and amortisation (EBITDA) of approximately 3.5 times to beachieved over the medium term. The Board also announced that consistent withthis target, it expected to return £200m - £300m within an 18 month period. Bythe end of 2005, £78.3m had been returned by means of on-market share buy-backs. Taxation In its Pre-Budget Report on 5 December 2005, HM Treasury announced theconclusions it had reached on gambling taxation. HM Treasury concluded thatcurrent tax arrangements are generally working well at present and thatmaintaining stability in the overall structure of taxation is desirable in aperiod of transition. In these circumstances the Government decided to maintainthe current tax regimes which are working well for betting, betting exchanges,lottery and bingo. Gross profit tax HM Treasury concluded that gross profit tax has been a success and theGovernment has decided not to increase the rate of gross profit tax or make anychanges to it at this time. Betting exchanges The Government concluded that the fairest way to tax betting exchanges is to taxcommission earned by them. It also concluded that taxing layers on exchanges,purely on the basis that they lay bets, would not be fair or proportionate. Onthis basis it concluded that the current taxation arrangements remainappropriate. As a result of the Government's decision we expect to see continued pressure ontheoretical margins and to address, in part, this issue we recently started tohedge directly into betting exchanges as a means of improving the effectivenessof our hedging activities. In addition, the Starting Price Regulatory Commission(SPRC) is undertaking an independent review of how starting prices are formed.The SPRC has appointed PricewaterhouseCoopers to conduct a full review of theprocess and is expected to announce its findings in the early summer. FOBTs FOBTs were classified as gaming machines for VAT purposes from 6 December 2005.From this date, income earned from these machines is subject to VAT rather thangross profits tax. This is in line with other types of gaming machine. From the 2006 Budget, AMLD will be payable in addition to VAT and furtherdiscussions are taking place between the Government and the gambling industryprior to the rate being set. Remote gaming HM Treasury announced that in order to align taxation policy with the GamblingAct 2005, remote gaming will be brought into the gambling duty net, with theintention of announcing the rate in the 2006 Budget. HM Treasury has committedto further discussion with the industry and other stakeholders prior toannouncing the rate. Republic of Ireland In December 2005 the Irish Government announced a reduction in the tax rate from2% to 1% of turnover to apply from 1 July 2006. Pension plan The Board undertook during the year to make a special contribution of £47m tothe Group's defined benefit scheme. The contribution will be spread over aperiod of five years and is designed to eliminate the deficit calculated on acontinuing basis by the actuary as at September 2004. The first payment of £9.4mwas made in October 2005. The Board and pension scheme Trustee have consulted onthis specific proposal and believe it represents an appropriate course of actionthat properly balances the legitimate interests of shareholders, members andpensioners. Future capital structure and dividend policy The Board intends to maintain an efficient and flexible capital structure andwill use a combination of dividend payments and share buy-backs to achieve thisobjective. For 2006, the Board expects to maintain dividend cover on a per share basisbroadly in line with the level in 2005. In addition, the Board will be seekingauthority from shareholders for a renewal of the on-market share buy-backmandate. This announcement contains certain statements that are or may be forward-lookingregarding the Group's financial position and results, business strategy, plansand objectives. Such statements involve risk and uncertainty because they relateto future events and circumstances and there are accordingly a number of factorswhich might cause actual results and performance to differ materially from thoseexpressed or implied by such statements. William Hill PLC Consolidated Profit and Loss AccountFor the 52 weeks ended 27 December 2005 52 weeks ended 52 weeks Before Exceptional 27 December ended exceptional items 2005 28 December items (note 3) Total 2004 (restated) Notes £m £m £m £m_____________________________________________________________________________________________ Turnover Existing operations 9,812.3 - 9,812.3 8,287.7 Acquisitions 933.8 - 933.8 -_____________________________________________________________________________________________ 2 10,746.1 - 10,746.1 8,287.7Cost of sales (10,114.9) - (10,114.9) (7,726.3)_____________________________________________________________________________________________Gross profit 2 631.2 - 631.2 561.4Net operating expenses (388.8) (29.4) (418.2) (330.4)Operating profit_____________________________________________________________________________________________ Existing operations 226.8 (10.4) 216.4 231.0 Acquisitions 15.6 (19.0) (3.4) -_____________________________________________________________________________________________ 2 242.4 (29.4) 213.0 231.0Share of associate's operating profit 3.6 - 3.6 3.1Profit on disposal of fixed assets - 2.5 2.5 -_____________________________________________________________________________________________Profit on ordinary activities before finance charges 246.0 (26.9) 219.1 234.1Net interest payable 4 (39.9) (2.4) (42.3) (25.2)Other finance charges (1.1) - (1.1) (1.5)_____________________________________________________________________________________________Profit on ordinary activities before tax 205.0 (29.3) 175.7 207.4Tax on profit on ordinary activities 5 (63.7) (0.6) (64.3) (57.6)_____________________________________________________________________________________________Profit on ordinary activities after tax for the financial period 141.3 (29.9) 111.4 149.8Dividends proposed and paid 6 (69.6) - (69.6) (65.1)_____________________________________________________________________________________________Retained profit for the financial 8 period 71.7 (29.9) 41.8 84.7_____________________________________________________________________________________________ Earnings per share (pence)Basic 7 28.5 36.5Basic - adjusted 7 36.2 36.5Diluted 7 28.1 35.9_____________________________________________________________________________________________ Consolidated Statement of Total Recognised Gains and Lossesfor the 52 weeks ended 27 December 2005 52 weeks 52 weeks ended ended 27 December 28 December 2005 2004 Notes £m £m_______________________________________________________________________________________________ Profit for the financial period 111.4 149.8Actuarial gain/(loss) recognised in the pension scheme 2.0 (10.7)Deferred tax attributable to actuarial gain/(loss) (0.6) 3.2_______________________________________________________________________________________________Total recognised gains and losses relating to the period 112.8 142.3 __________Prior period adjustment 1 (0.6)________________________________________________________________________________Total recognised gains and losses since last annualreport and financial statements 112.2________________________________________________________________________________ William Hill PLC Consolidated Balance Sheetas at 27 December 2005 27 December 28 December 2005 2004 (restated) Notes £m £m_____________________________________________________________________________________________ Fixed assetsIntangible assets - goodwill 1,177.1 736.2Tangible assets 188.7 119.0Investments 3.4 2.9_____________________________________________________________________________________________ 1,369.2 858.1_____________________________________________________________________________________________Current assetsStocks 0.4 0.3Debtors: amounts falling due within one year 20.4 15.4Debtors: amounts falling due after one year - 5.9Cash at bank and in hand 76.6 60.5_____________________________________________________________________________________________ 97.4 82.1Creditors: amounts falling due within one year (186.3) (203.6)_____________________________________________________________________________________________Net current liabilities (88.9) (121.5)_____________________________________________________________________________________________ Total assets less current liabilities 1,280.3 736.6Creditors: amounts falling due after more than one year (1,016.1) (447.7)Provisions for liabilities and charges (12.5) -_____________________________________________________________________________________________Net assets excluding pension liability 251.7 288.9Pension liability (31.8) (38.5)_____________________________________________________________________________________________Net assets including pension liability 219.9 250.4_____________________________________________________________________________________________ Capital and reservesCalled up share capital 8 39.1 40.5Share premium account 8 311.3 311.3Capital redemption reserve 8 3.1 1.7Merger reserve 8 (26.1) (26.1)Own shares held 8 (57.5) (59.3)Profit and loss account 8 (50.0) (17.7)_____________________________________________________________________________________________Equity shareholders' funds 8,9 219.9 250.4_____________________________________________________________________________________________ William Hill PLC Consolidated Cash Flow Statementfor the 52 weeks ended 27 December 2005 52 weeks 52 weeks ended ended 27 December 28 December 2005 2004 Notes £m £m_____________________________________________________________________________________________ Net cash inflow from operating activities 10 242.0 247.3Dividend from associate 2.1 -Returns on investments and servicing of finance 11 (33.4) (23.3)Taxation (49.4) (57.4)Capital expenditure and financial investment 11 (53.8) (27.3)Acquisitions and disposals 11 (466.1) (3.8)Equity dividends paid (66.6) (59.6)_____________________________________________________________________________________________Net cash (outflow)/inflow before financing (425.2) 75.9Financing 11 441.3 (61.8)_____________________________________________________________________________________________Increase in cash in the period 12 16.1 14.1_____________________________________________________________________________________________ William Hill PLC Notes to the Financial Statementsfor the 52 weeks ended 27 December 2005 1. Changes in accounting policies and restatement of comparatives As encouraged by the Accounting Standards Board, the Group has adopted FRS 20'Share-based Payment' in the 52 weeks to 27 December 2005, although it is notmandatory in this period. FRS 20 changes the basis of charging the profit and loss account for share-basedremuneration. Under the provisions of FRS 20, options granted are valued andcharged to the profit and loss account on the basis of fair values as calculatedby an option pricing model rather than on the basis of the intrinsic value ofthe share on which the option was granted, as was the case previously. Inaddition the costs of SAYE schemes are chargeable under FRS 20 whereas formerlythey were exempt. The transitional arrangements of FRS 20 also mean that alloptions granted before 7 November 2002 do not attract a charge. The effect of these changes is that in the 52 weeks ended 27 December 2005 thecharge under FRS 20 is £1.3m more than the charge that would have been reportedunder UK GAAP prior to the introduction of FRS 20 (52 weeks ended 28 December2004 - £2.1m less than under UK GAAP prior to FRS 20). In addition, there is arelated increase in the tax charge and a reduction of deferred tax asset of£0.4m in the 52 weeks ended 27 December 2005 (52 weeks ended 28 December 2004 -£0.6m reduction in the tax charge and increase in the deferred tax asset). Asthe deferred tax adjustment is the only one that affects cumulative reserves,£0.6m is shown as the prior period adjustment in the statement of totalrecognised gains and losses. 2. Segmental information The Group's turnover, profits and operating net assets primarily arise fromcustomers in the United Kingdom and therefore segmental information bygeographical location is not presented. Segmental information by distribution channel is shown below: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 (restated) £m £m________________________________________________________________________________ Turnover- Retail 9,285.5 7,020.7- Telephone 605.8 540.8- Interactive 826.0 696.3- Other activities 28.8 29.9________________________________________________________________________________ 10,746.1 8,287.7________________________________________________________________________________Gross win- Retail 623.4 548.1- Telephone 53.4 60.3- Interactive 123.3 106.1- Other activities 7.6 7.6________________________________________________________________________________ 807.7 722.1________________________________________________________________________________Operating profit- Retail 181.6 165.5- Telephone 13.0 22.1- Interactive 61.2 51.7- Other activities (0.1) (0.3)- Central costs (13.3) (8.0)________________________________________________________________________________ 242.4 231.0Exceptional items (1) (note 3) (29.4) -________________________________________________________________________________ 213.0 231.0________________________________________________________________________________Net assets- Retail 127.7 73.4- Telephone 1.8 0.7- Interactive 2.8 2.7- Other activities 7.2 7.1- Corporate 80.4 166.5________________________________________________________________________________ 219.9 250.4________________________________________________________________________________ (1) £26.4m of exceptional items incurred relates to the Retail channel and £3.0m relates to central costs. The Retail distribution channel comprises all activity undertaken in LBOsincluding AWPs and FOBTs. Other activities include on-course betting andgreyhound stadia operations. Net assets have been allocated by segment where assets and liabilities can beidentified with a particular channel. Corporate net assets include goodwill,corporation and deferred tax, borrowings net of cash balances, pension liabilityand dividends payable as well as any assets and liabilities that cannot beallocated to a particular channel other than on a relatively arbitrary basis. 2. Segmental information (continued) The directors believe that gross win and operating profit are more importantperformance metrics than turnover. 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. Areconciliation from gross win to gross profit as presented in the profit andloss account is set out below: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Gross win 807.7 722.1GPT, duty, levies, VAT and other cost ofsales (176.5) (160.7)________________________________________________________________________________Gross profit 631.2 561.4________________________________________________________________________________ 3. Exceptional items Exceptional operating items are as follows: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Costs of implementation of EPOS and textsystems (1) 7.4 -Costs of integration of Stanley Retailacquisition (2) 19.0 -Costs of aborted return of capital scheme (3) 3.0 -________________________________________________________________________________ 29.4 -________________________________________________________________________________ (1) Costs arose from the roll out of electronic point of sale and text systems across the LBO network and primarily encompass training and consultancy costs. (2) Costs arose from the due diligence on and the integration of Stanley Retail (as defined in note 13) and comprise primarily external consultancy costs, redundancy and related staff costs and asset impairments. (3) Costs represent professional fees incurred in respect of an aborted plan to return capital. 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Profit on disposal of fixed assets 2.5 -________________________________________________________________________________ Gain made on the disposal of the 12 William Hill LBOs, as part of the sale of 76LBOs undertaken after the Office of Fair Trading review of the purchase ofStanley Retail. 3. Exceptional items (continued) Exceptional interest costs are as follows: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Write off of previously capitalised bankfacility fee 2.3 -Breakage fee 0.1 -________________________________________________________________________________ 2.4 -________________________________________________________________________________ Following the negotiation of new banking arrangements and the consequentrepayment of the old bank facility, the unamortised costs of £2.3m associatedwith the old facility were written off. A tax charge of £0.6m was recognised in respect of the exceptional items. Thisrepresents the net increase in corporation tax payable, which the Group expectsto incur in respect of these exceptional items and comprises: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Capital gain on disposal of 76 LBOs (1) 7.1 -Tax relief expected in respect of operatingand interest costs (6.5) -________________________________________________________________________________ 0.6 -________________________________________________________________________________ (1) Due to the accounting rules governing the subsequent disposal of acquired operations, the profit and loss account bears the full tax charge relating to the capital gain on the disposal of 76 LBOs, while the gain on disposal is only recognised in the profit and loss account in respect of the sale of the 12 William Hill shops. The net proceeds of the remaining 64 Stanley Retail LBOs have been used to determine fair values and hence have been reflected through adjusted goodwill recognised as set out in note 13. 4. Net interest payable and similar charges 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Interest receivable: Interest receivable 2.5 1.9 Share of associate's net interest receivable 0.1 -Interest payable and similar charges: Bank loans and overdrafts (41.5) (25.6) Guaranteed unsecured loan notes 2005 - (0.2) Amortisation of finance costs (1.0) (1.3)________________________________________________________________________________ (39.9) (25.2)Exceptional interest costs (note 3) (2.4) -________________________________________________________________________________Net interest payable (42.3) (25.2)________________________________________________________________________________ 5. Tax on profit on ordinary activities The tax charge comprises: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 (restated) £m £m________________________________________________________________________________ UK corporation tax at 30% 51.4 57.4UK corporation tax - prior periods - (1.7)Overseas tax 0.5 0.3Share of associated undertaking tax charge 1.1 1.0________________________________________________________________________________Total current tax charge 53.0 57.0Deferred tax - origination and reversal oftiming differences 11.3 0.6________________________________________________________________________________Total tax on profit on ordinary activities 64.3 57.6________________________________________________________________________________ The effective tax rate in respect of ordinary activities before exceptionalitems was 31.1% (52 weeks ended 28 December 2004 - 27.8%). The effective taxrate in respect of ordinary activities after exceptional items was 36.6%. Thisis higher than the statutory rate of 30% due to: • Chargeable gains arising on the sale of the Stanley Retail LBOs being treated as part of the tax charge whereas for accounting purposes the gains are dealt with in arriving at goodwill (note 3); and • The Group incurred a number of expenses on which it will not get tax relief. The relatively low tax rate in the prior period resulted from the utilisation ofcertain tax losses in that period. 6. Dividends proposed and paid 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________Equity shares: - interim dividend paid 23.5 22.0 - final dividend proposed/paid 46.1 43.1________________________________________________________________________________ 69.6 65.1________________________________________________________________________________Dividend per ordinary share (pence) 18.3 16.5________________________________________________________________________________ The interim dividend of 6.1p (52 weeks ended 28 December 2004 - 5.5p) was paidon 5 December 2005. The proposed final dividend of 12.2p (52 weeks ended 28December 2004 - 11.0p) will, subject to shareholder approval, be paid on 6 June2006 to all shareholders on the register on 5 May 2006. Under an agreement signed in November 2002, The William Hill Holdings 2001Employee Benefit Trust agreed to waive all dividends. As at 27 December 2005,the trust held 1.2m ordinary shares. In addition, the Company has not providedfor dividends on the 10.5m shares held in treasury. The Company estimates that378.2m shares will qualify for the final dividend. 7. Earnings per share The basic, adjusted and diluted earnings per share are calculated based on thefollowing data: 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 (restated) £m £m________________________________________________________________________________ Profit after tax for the financial period 111.4 149.8Exceptional items - operating expenses 29.4 -Exceptional items - profit on sale of fixedassets (2.5) -Exceptional items - interest 2.4 -Exceptional items - tax charge 0.6 -________________________________________________________________________________Profit after tax for the financial periodbefore exceptional items 141.3 149.8________________________________________________________________________________ Number (m) Number (m)________________________________________________________________________________ Basic weighted average number of shares 390.5 410.1Dilutive potential ordinary shares: Employee share awards and options 5.5 7.4________________________________________________________________________________Dilutive weighted average number of shares 396.0 417.5________________________________________________________________________________ The basic weighted average number of shares excludes shares held by The WilliamHill Holdings 2001 Employee Benefit Trust and those shares held in treasury assuch shares do not qualify for dividends. The effect of this is to reduce theaverage number of shares by 12.7m in the 52 weeks ended 27 December 2005 (52weeks ended 28 December 2004 - 8.7m). An adjusted earnings per share based on profit for the financial period beforeexceptional items has been presented in order to highlight the underlyingperformance of the Group. 8. Capital and reserves Group: Share Share Capital Merger Own Profit Total capital premium redemption reserve shares and loss account reserve held account £m £m £m £m £m £m £m________________________________________________________________________________________________ At 28 December 2004(as previouslyreported) 40.5 311.3 1.7 (26.1) (59.3) (17.1) 251.0Prior periodadjustment (note 1) - - - - - (0.6) (0.6)________________________________________________________________________________________________As restated 40.5 311.3 1.7 (26.1) (59.3) (17.7) 250.4Retained profit forthe financial period - - - - - 41.8 41.8Actuarial gainrecognised in thepension scheme - - - - - 2.0 2.0Deferred tax arisingthereon - - - - - (0.6) (0.6)Shares repurchased andcancelled (1.4) - 1.4 - - (78.3) (78.3)Expense recognised inrespect of shareremuneration - - - - - 2.2 2.2Movement on reservesdue to transfer of ownshares to recipients - - - - 1.8 0.6 2.4________________________________________________________________________________________________At 27 December 2005 39.1 311.3 3.1 (26.1) (57.5) (50.0) 219.9________________________________________________________________________________________________ 8. Capital and reserves (continued) Own shares held at 27 December 2005 amounting to £57.5m comprise 10.5m shares(nominal value - £1.1m) held in treasury purchased for £56.1m and 1.2m shares(nominal value - £0.1m) held in The William Hill Holdings 2001 Employee BenefitTrust purchased for £1.4m. The shares held in treasury were purchased at aweighted average price of £5.32. At 27 December 2005 the total market value ofown shares held in treasury and in the Trust was £63.8m. 9. Reconciliation of movements in equity shareholders' funds 27 December 28 December 2005 2004 (restated) £m £m________________________________________________________________________________ Profit for the financial period 111.4 149.8Other recognised gains and losses relating to theperiod (net) 1.4 (7.5)________________________________________________________________________________ 112.8 142.3Dividends paid and proposed (69.6) (65.1)Own shares purchased during period (78.3) (145.4)Expense recognised in respect of shareremuneration 2.2 1.2Movement on reserves due to transfer of shares torecipients 2.4 -________________________________________________________________________________Net reduction to equity shareholders' funds (30.5) (67.0)________________________________________________________________________________ Opening equity shareholders' funds (as previouslyreported) 251.0 317.4Prior period adjustment - deferred tax related toshare remuneration (note 1) (0.6) -________________________________________________________________________________As restated 250.4 317.4________________________________________________________________________________Closing equity shareholders' funds 219.9 250.4________________________________________________________________________________ 10. Reconciliation of operating profit to net cash inflow from operating activities 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 (restated) £m £m________________________________________________________________________________ Operating profit before operatingexceptional items 242.4 231.0Depreciation 27.0 16.2Profit on sale of fixed assets (0.2) (0.6)Amortisation of EDIP and LTIP 2.2 1.2Exceptional costs (22.2) -(Increase)/decrease in debtors (1.6) 0.5Increase in creditors 3.1 1.6Defined benefit pension cost less cashcontributions (8.7) (2.6)________________________________________________________________________________Net cash inflow from operating activities 242.0 247.3________________________________________________________________________________ Stanley Retail has generated a total net cash inflow since its acquisition of£4.3m, comprising an operating profit of £15.6m, offset by exceptional costsincurred of £19.0m and with depreciation and impairment provisions added back of£7.7m. None of the other acquisitions detailed in note 13 generated significant cashflows during the period of their ownership by the Group. 11. Analysis of cash flows 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Returns on investments and servicing of finance: Interest received 2.6 1.9 Interest paid (35.4) (25.2) Premium paid on interest rate collar (0.6) -________________________________________________________________________________ Net cash outflow (33.4) (23.3)________________________________________________________________________________ Capital expenditure and financial investment: Purchase of fixed assets (54.5) (28.2) Sale of tangible fixed assets 0.7 0.9________________________________________________________________________________ Net cash outflow (53.8) (27.3)________________________________________________________________________________ Acquisitions and disposals: Purchase of subsidiary undertakings and sundry LBOs (508.5) (3.9) Net cash acquired with subsidiary undertaking 8.0 0.1 Disposal of LBOs net of costs 34.4 -________________________________________________________________________________ Net cash outflow (466.1) (3.8)________________________________________________________________________________ Financing: Purchase of own shares (76.8) (145.5) SAYE share redemptions 2.7 - Repayment of Guaranteed unsecured loan notes 2005 - (6.3) Loan facilities drawn down 1,020.0 90.0 Loan facility repaid (500.0) - New facility debt issue costs (4.6) -________________________________________________________________________________ Net cash inflow/(outflow) 441.3 (61.8)________________________________________________________________________________ 12. Analysis and reconciliation of net debt Other 29 December non-cash 27 December 2004 Cash flow items 2005 £m £m £m £m________________________________________________________________________________ Analysis of net debt Cash at bank and in hand 60.5 16.1 - 76.6 Debts due within one year (49.8) 50.0 (0.2) - Debts due after more than one year (447.7) (565.4) (3.0) (1,016.1)________________________________________________________________________________ Total (437.0) (499.3) (3.2) (939.5)________________________________________________________________________________ Other non-cash items of £3.2m comprise amortised debt issue costs. 52 weeks ended 52 weeks ended 27 December 28 December 2005 2004 £m £m________________________________________________________________________________ Increase in cash in the period 16.1 14.1Cash inflow from increase in net debt (515.4) (83.7)________________________________________________________________________________Change in net debt resulting from cash flows (499.3) (69.6)Debt issue costs written off and amortised (3.2) (1.3)________________________________________________________________________________ (502.5) (70.9)Opening net debt (437.0) (366.1)________________________________________________________________________________Closing net debt (939.5) (437.0)________________________________________________________________________________ 13. Acquisition of investments Stanley Retail On 18 June 2005, the Group acquired Stanley Leisure plc's retail bookmakingoperations in Great Britain, Northern Ireland, the Republic of Ireland, Jerseyand the Isle of Man (Stanley Retail) for total cash consideration of £506.6mincluding costs of £6.6m. The capitalised goodwill on this transaction was£440.7m representing licence value and goodwill. This goodwill is subject to anannual impairment review in accordance with FRS 10 and FRS 11. Stanley Retail earned a profit after taxation but before exceptional items of£15.2m in the period from 2 May 2005 to 27 December 2005 (year ended 1 May2005 - £17.3m), of which £3.8m arose in the period from 2 May 2005 to 18 June2005. The summarised profit and loss account for the period from 2 May 2005 to 18 June2005, shown on the basis of the accounting policies of Stanley Retail prior tothe acquisition, was as follows: £m________________________________________________________________________________ Turnover 88.3________________________________________________________________________________ Profit on ordinary activities before tax 5.3Tax on profit on ordinary activities (1.5)________________________________________________________________________________Profit on ordinary activities after tax 3.8________________________________________________________________________________ 13. Acquisitions (continued) The following table sets out the amalgamated book values of the acquiredidentifiable assets and liabilities of Stanley Retail and their provisional fairvalue to the Group: Book Fair value Fair value value adjustments to Group £m £m £m________________________________________________________________________________Fixed assets Tangible assets 257.9 (214.0) a,b,c 43.9Current assets Stocks 0.2 (0.1) d 0.1 Debtors and prepayments 3.2 (0.3) b 2.9 Assets held for resale - 31.1 b 31.1 Cash 8.1 (0.1) b 8.0________________________________________________________________________________Total assets 269.4 (183.4) 86.0________________________________________________________________________________Creditors Creditors and accruals (15.6) (1.2) b,e (16.8)Provisions Onerous contracts - (1.4) e (1.4) Deferred tax (1.9) - (1.9)________________________________________________________________________________Total liabilities (17.5) (2.6) (20.1)________________________________________________________________________________Net assets 251.9 (186.0) 65.9________________________________________________________________________________ Less: cash consideration 506.6________________________________________________________________________________Goodwill arising 440.7________________________________________________________________________________ The explanations for the fair value adjustments are as follows: a. Adjustment of £206.1m to property valuation reflecting the disaggregation of betting licence value which under Stanley Retail's accounting policy was included in tangible assets, while under the Group's accounting policy, it remains part of goodwill; b. Adjustments to various assets and liabilities reflecting the disposal in July 2005 of 28 LBOs to Tote Bookmakers Limited for total net consideration of £14.7m and the subsequent disposal in December 2005 of 36 LBOs also to Tote Bookmakers Limited for a total net consideration of £15.3m. In addition £1.1m has been included in this adjustment in respect of the profits earned by the disposed of Stanley Retail LBOs in their period of ownership by the Group; c. Reduction of £7.8m to reflect the depreciated replacement cost of the assets and a £2.6m increase in values representing IS assets in use in Stanley Retail which were previously shown as having no net book value; d. Adjustment of £0.1m to stock items reflecting the Group's policy in respect of certain consumables; and e. Adjustment for ante post and sleeper bets (£0.8m), dilapidations and vacant properties (£0.7m) and onerous contracts (£1.4m). The cash consideration for the purchase of Stanley Retail comprised the headlinefigure of £504.0m, less adjustment for working capital of £4.0m plusprofessional fees and stamp duty of £6.6m. 13. Acquisitions (continued) Other acquisitions The Group also purchased another two LBOs in the period for a total cashconsideration of £1.9m, principally representing goodwill and the value of therelevant licences. The other net assets acquired with these LBOs werenegligible. Stanley Retail and other acquisitions Net cash outflows in respect of the acquisitions comprised: £m________________________________________________________________________________ Cash consideration (508.5)Cash at bank and in hand acquired 8.0________________________________________________________________________________ (500.5)________________________________________________________________________________ Included in cash consideration of £508.5m is £6.6m in respect of professionalfees and stamp duty. 14. Basis of preparation The financial information set out above does not constitute the Company'sstatutory accounts for the 52 week period ended 27 December 2005 or the 52 weekperiod ended 28 December 2004, but is derived from those accounts. Statutory accounts for the 52 week period ended 28 December 2004 have been delivered tothe Registrar of Companies and those for the 52 week period ended 27 December2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts and their reports were unqualified anddid not contain statements under section 237(2) or (3) Companies Act 1985. The financial information within this preliminary announcement has been preparedon the basis of the accounting policies in the Group's statutory accounts forthe 52 weeks ended 28 December 2004 (except as outlined in note 1). Thepreliminary results should therefore be read in conjunction with the 2004 reportand accounts. 15. Introduction of International Financial Reporting Standards (IFRS) The Group is preparing for the adoption of IFRS as its primary accounting basisfor the 52 week period ending 26 December 2006. However, financial statementsfor the 52 week period ended 27 December 2005 prepared in accordance with IFRShave been prepared for illustrative purposes only and will be available frommid-April on the Group's corporate information web site www.williamhillplc.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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