5th Mar 2007 09:37
William Hill PLC05 March 2007 Monday, 5th March 2007 The following amendment has been made to 2837s issued today at 0700GMT: "William Hill PLC (the 'Group') today announces its results for the 52 weeks ended 26 December 2006 ('the period')." Please find the amended release below. WILLIAM HILL PLC ANNOUNCEMENT OF PRELIMINARY RESULTS William Hill PLC (the 'Group') today announces its results for the 52 weeksended 26 December 2006 ('the period'). Highlights include the following: • Gross win up 15% to £931.3m (2005: £807.7m) • Profit on ordinary activities before finance charges and exceptional items up 19% at £292.2m (2005: £245.0m) • Cash generated from operations before tax and interest up 30% to £313.9m (2005: £242.0m) which represents 107% of operating profit • Basic earnings per share (EPS) pre exceptionals up 24% to 45.5 pence (2005: 36.6 pence) • Proposed final dividend up 19% to 14.5 pence per share (2005: 12.2 pence per share) payable on 5 June 2007 to shareholders on the register on 27 April 2007 • The Group has purchased 43.3m shares for £257.0m via on-market share buy-backs between July 2005 and December 2006 • Plans well developed to exploit opportunities in Spain and Italy in conjunction with our partners, Codere • In the nine weeks to 27 February 2007, the Group's gross win has increased by 11%. At this early stage of the year, the Board remains comfortable with consensus expectations Commenting on the results, Charles Scott, Chairman, said: "The Group has seen strong profit growth in the period, with the Group realisingthe full-year benefits of the Stanley Retail acquisition and benefiting fromgood organic growth throughout the rest of the business. Profit before financecharges and exceptional items was 19% higher than last year and earnings pershare excluding exceptional items increased by 24%. We remain confident of the Group's future prospects and are committed todelivering value to shareholders. The Board has resolved to increase the finaldividend by 19% to 14.5 pence per share." David Harding, Chief Executive, added: "I am delighted with the performance of the Group, particularly the Retailbusiness, which has prospered this year following the successful integration ofStanley Retail and the completion of the roll-out of EPOS". Enquiries: David Harding, Chief Executive Tel: 0208 918 3910 Simon Lane, Group Finance Director Tel: 0208 918 3910 James Bradley, Deborah Spencer, Brunswick Tel: 0207 404 5959 There will be a presentation to analysts at 9.00 am today at the Lincoln Centre,18 Lincoln's Inn Field, London WC2. Alternatively, it is possible to listen tothe presentation by dialling +44 (0) 1452 541 076. The presentation will berecorded and will be available for a period of one week by dialling +44 (0) 1452550 000 and using the replay access number 1161115#. The slide presentation will be available on the Investor Relations section ofthe website: www.williamhillplc.co.uk. CHIEF EXECUTIVE'S REVIEW 2006 has seen the Group's strategy of generating organic growth, exploiting newplatforms and executing value-enhancing acquisitions continue to deliverlong-term value for shareholders. The Group produced a strong profit performancein the period, fully leveraging the benefits of the Stanley Retail acquisition,which was completed in June 2005. The year has also seen a strong performancefrom FOBTs and the impact of the World Cup, both of which have boostedyear-on-year gross win growth while operating expenses continue to be kept undertight control. Consequently, profit on ordinary activities before net financecosts, taxation and exceptional items was up 19% to £292.2m (2005: £245.0m) andearnings per share were 45.5p, a rise of 24% (after adjusting for last year'sexceptional items) compared to 2005. In recognition of these excellent results, the Board is recommending a finaldividend of 14.5 pence per share, taking the full year dividend to 21.75 pence,an increase of 19% on last year. Retail channel The Retail channel's gross win grew by 18% to £736.0m (6% excluding StanleyRetail) and pre-exceptional profit increased by 24% to £225.9m (9% excludingStanley Retail). Within the original William Hill estate (excluding Stanley Retail), total grosswin increased by 6% year-on-year. In this part of the estate, gross win fromover the counter (OTC) was flat while FOBT/AWP gross win was up 18%. LBOs in the Stanley Retail estate performed better year-on-year than those inthe original William Hill estate with gross win growing by 7% for the full yearand second half gross win growth of 10% achieved. For the year as a whole, FOBTgross win grew by 18% and OTC gross win increased by 4%. The average number of FOBTs in the original William Hill estate increased to6,034 (FY 2005: 5,892) in the period and in the Stanley Retail estate theaverage number of FOBTs was 1,567 compared to 1,539 in the second half of lastyear. The average net profit per machine per week in the William Hill estate was£494 (FY 2005: £402) and in the Stanley Retail estate was £346 (second half of2005: £287). The improved profitability in both estates was due to a combinationof greater gross win per machine and better contractual terms with our main FOBTsupplier Leisure Link, which were effective from May 2005. However, theimposition of Amusement Machine Licence Duty in August 2006 has adverselyaffected average weekly profitability of each terminal by £38. The average number of AWPs traded in the period fell to 303 in 2006 (FY 2005:353) within the William Hill estate. In the Stanley Retail estate, the averagenumber traded also fell from 386 AWPs in the second half of last year to 314 in2006. Non-exceptional costs in the channel were up 16% (5% excluding Stanley Retail).Excluding Stanley Retail, there were minimal increases in staff costs due toreduced overtime and premium payments under the new LBO staff employmentcontracts and productivity improvements resulting from the investment in EPOS.FOBT rentals fell due to more favourable contractual terms, which areexclusively profit-share based, and AWP rentals fell due to the reduction in thenumber of machines in the estate. Savings were also made due to a higher portionof VAT expense being recoverable following the change in tax regime for FOBTs.These savings were offset by increased provisions for staff bonuses; increasesin rent and rates due to increased LBO numbers and rent reviews; higher energycosts reflecting general market conditions; and depreciation and maintenancecharges as a result of introducing new text and EPOS systems. There were noexceptional costs in the current year. The prior period exceptional costsrelated to the integration of the Stanley Retail acquisition. We completed 233 development and LBO refurbishment projects in 2006 including 50new licences, 70 extensions and resites and 113 LBO fittings. Overall, we spent£40.1m on estate development in 2006. At 26 December 2006, we had 2,165 LBOs in the United Kingdom, 9 in the ChannelIslands, 2 in the Isle of Man and 48 in the Republic of Ireland; a total of2,224. 2006 has seen the introduction of the capability to take a wider range of ToteDirect bets across the estate, which has been favourably received by ourcustomers. We also completed the rollout of our new text system and an EPOSsystem throughout the Stanley Retail estate during the period and in consequencethe entire estate has been running on identical systems since the end of March. Telephone channel Telephone gross win grew by 8% to £57.5m and operating profit increased by 28%to £16.7m. The channel benefited from the World Cup and increased football betting ingeneral as well as more normal horseracing results. In addition there was somefavourable high roller activity especially in the second half of the year. Costs in the channel were up 5% principally due to higher marketing spendfocused around the World Cup. We ended the year with 160,000 active telephone customers (27 December 2005:174,000). Interactive channel Interactive gross win increased 6% to £130.5m and operating profit showed asmall increase to £61.5m. Growth in Interactive sportsbook gross win was modest in the period whencompared to our expectations at the beginning of the year. Since we launched ourInteractive channel in 1999, we have fully exploited our legacy bookmaking andclient management systems but it has become increasingly clear that theInteractive sportsbook is being impacted by the relative inflexibility of ourcurrent technology configuration. Our NextGen technology programme is designedto rectify these issues and deliver systems clearly superior to anythingcurrently available to our major competitors. By the end of 2007, this programmeis expected to deliver a number of enhancements and give us a flexible platformto more easily introduce better products going forward. We anticipate that thesechanges will be undertaken alongside the technical changes required by theGambling Commission, which are yet to be finalised. Despite the limitations of our current systems, we continued to increase ourrange of in-running betting opportunities on our sportsbook and we launched 10new arcade games during the period that expanded our offering to 20 games. Poker and Casino has also had a challenging second half after an encouragingstart to the year. These products have been affected by strong competitionparticularly following the withdrawal of many operators from the US market inSeptember 2006, which has impacted poker site liquidity in general and made thecompetition for European customers more intense. We continue to have confidencein the long-term prospects of these products and in December 2006, we extendedour contract with our poker and casino software partner, Cryptologic. As part ofthe new contract, Cryptologic have made a significant commitment in respect ofgame and other product development. In October 2006, we decided to close our Interactive TV channel (WHTV) followinga review of its operations and the conclusion of a trial broadcast of itscontent into our LBOs. Whilst we have exited this particular arrangement, weremain committed to the strategy of supplying customers with a means to placebets on an interactive TV platform and of supplying tailored content to our ownLBOs, once we have identified a profitable and cost effective means of doing so. In January 2007, we launched internet skill gaming in partnership withGameAccount, the world's largest integrated network of skill-based games.Accessible through a tab on William Hill's homepage, the fully integratedbrowser based skill games available on the site include multiplayer blackjack,gin rummy and backgammon. We also launched an interactive bingo game inpartnership with Virtue Fusion in January. Early indications of trading fromboth these ventures are encouraging. Total active accounts increased to 405,000 as at 26 December 2006 (27 December2005: 341,000). Costs in the channel increased 10% mainly due to higher marketing spend, highertechnology charges and closure costs of WHTV. Operating expenses Expenses (net of operating income) for the Group were £445.3m, an increase of15% (6% excluding Stanley Retail). Excluding Stanley Retail, staff costs (which represented roughly half of ourtotal costs) increased 7% in 2006, mainly reflecting provisions for profit basedincentive schemes. Excluding these provisions from this period and thecomparative period, staff costs have risen by 2% reflecting a 3% general payaward and an increase in the number of LBOs now trading, partly offset by animprovement in productivity driven by the rollout of EPOS. Property costs, whichrepresented 17% of our total costs, were up 12% over the comparable periodreflecting higher energy costs and increases in rent and rates, in part drivenby an increase in average LBO size and an increase in the number of LBOs. Depreciation costs increased 38% with the full year effects of the rollout ofEPOS and text systems along with the supporting technology, although this waspartly offset by staff costs savings. The cost of providing pictures and data toour LBOs was up 7% over the comparable period due to the increased size of theestate and price increases. Advertising and marketing costs were up 22% over thecomparable period reflecting World Cup and other more general web-basedadvertising and promotions. Stanley acquisition The integration of the Stanley Retail estate was completed by the end of March2006 in accordance with the plans we drew up in 2005. Key tasks achieved in 2006were the completion of the re-branding of the LBOs, installation throughout theStanley Retail estate of the same version of EPOS and audio-visual text systemsalready deployed in the William Hill estate and the closure of the StanleyRetail head office. The Stanley Retail estate has delivered strong gross wingrowth in 2006, particularly in the second half with gross win growth of 10%achieved year-on-year. We remain confident that the acquisition will deliver thesynergies and other benefits of up to £20m we anticipated at the end of 2005,which compares favourably with the original estimated synergies at the time ofthe acquisition of £13m. Regulatory development The Gambling Commission has now been established and the Commission and DCMS arein the process of developing the regulations, conditions, standards and guidanceunder the Gambling Act 2005 and the Commission will take over its duty topromote the licensing objectives under the Act with effect from 1 September2007. The Group is preparing for the implementation of these detailed requirements. Wehave been heavily involved in dialogue with the Commission both by ourselves andvia our trade associations, with a view to ensuring that appropriate andproportionate regulations are implemented. However, we remain concerned thatcertain requirements have yet to be finalised, while the technical standards forthe remote businesses have recently been published for consultation withfinalised documentation not expected to be available until June. We areconcerned that insufficient time is being given to the industry to enable fullcompliance with these technical standards from the beginning of September. Wewill continue to hold discussions with the Commission to press for this andother issues to be resolved in a practical way. We also look forward to the proposed deregulation that the Gambling Act enables,such as extended betting shop opening hours and the installation of higherpayout gaming machines, both of which will be permitted from 1 September 2007. Cost of content On 14 December 2006, the Government announced that it had decided to retain theHorserace Betting Levy Board and the associated horserace betting levy scheme.This follows the publication of the findings of a report compiled by anindependent committee under the chairmanship of Lord Donoghue. This committeewas established to investigate whether there was any alternative commercialarrangements that could replace the current levy scheme but concluded that,currently, there was not a secure and alternative funding mechanism forhorseracing. At the same time, the Government announced its intention tomodernise the existing levy mechanism by reducing as many of the administrativeburdens as possible. We welcome the Government's intentions to modernise thescheme and we remain committed to providing a fair and equitable financialcontribution supporting the UK horseracing industry. SIS, a company partly owned by the Group is currently the sole provider of UKhorse racing pictures and data content to bookmakers. SIS (via the bettingindustry) has contracts, which expire at the end of 2007 with a number of UKracecourses to broadcast pictures and data to LBOs. Recently a proposed jointventure between Alphameric and Racing UK has claimed to have secured exclusivetransmission rights from up to 30 UK racecourses from the beginning of 2008.This would mean that SIS would not be able to transmit pictures from these 30tracks (except when they are generally available via terrestrial coverage) onceits current contracts expire. If this happens, we will have to decide whether tohave two different sources of pictures from the beginning of 2008 if we want tomaintain coverage of these horse tracks within our LBOs. This could imply anextra cost for us but also an inferior service for customers, as theco-ordination of the timing and broadcasting of events achieved by SIS would notbe possible with two different transmission sources. In the event that we decideto take the service offered by the proposed joint venture, we plan to seek anappropriate reduction in the level of our current funding of the UK horseracingindustry via the levy scheme. International activities In July 2006, the Group signed a non-binding memorandum of understanding withthe Spanish gaming group Codere. Codere is a company dedicated to the privategaming sector in Europe and Latin America. With more than 25 years experience,it operates slot machines, bingo halls, sports betting outlets, racetracks andcasinos in Spain, Italy, Central and South America. The parties plan to create a joint venture to develop a sports betting businessin Spain. Spain is one of the largest gambling markets in Europe and the regionof Madrid has recently published (and several of Spain's regions are nowdeveloping) legislation to regulate sports betting, allowing the establishmentof land-based businesses. The parties are planning to apply jointly for alicence in Madrid shortly and intend to apply in other regions in Spain ifregulations are passed which make such applications attractive. The Group has established a joint venture company with Codere relating to theItalian gambling sector. Following a tendering process in 2006, the Group andCodere were jointly awarded concessions to exploit licences issued as part ofthe tender process launched in August 2006 by the Italian regulatory authority.The award comprises 20 concessions to operate horseracing betting shops, 7concessions to operate sports betting shops and 28 concessions relating tosports betting points. Remote licences relating to horseracing and sportsbetting were also applied for and granted. In addition to activating these unitsthe proposed joint venture intends to evaluate other opportunities for growth inthe Italian market. Dividends and capital structure The Company is proposing to pay a final dividend of 14.5 pence per share (2005:12.2 pence per share) on 5 June 2007 to shareholders on the register on 27 April2007. The 19% increase in the proposed final dividend reflects the strongperformance achieved in 2006 and our confidence about the Group's futureprospects. Following the acquisition of Stanley Retail in June 2005, the Board consideredthe optimal capital structure and financing arrangements for William Hill. InSeptember 2005, the Board announced it intended to maintain an efficient andflexible capital structure and would achieve these objectives by targeting aratio of net debt to earnings before exceptional items, interest, tax,depreciation and amortisation (EBITDA) of approximately 3.5 times to be achievedover the medium term. A new five-year bank facility of £250m was arranged inJune 2006 to underpin this objective and the Board announced with its interimresults that they were increasing the total buy-back programme from thepreviously announced target of £200m - £300m, to circa £320m - £400m by the endof 2007. By the end of December 2006, the Group net debt to EBITDA ratio was 3.3and £257.0m had been returned by means of on-market share buy-backs. As we are now close to our target leverage and as we have current investmentcommitments, both internationally through our joint ventures with Codere anddomestically in respect of some retail bolt-on acquisitions, we currentlyestimate that the pace of our rolling share buyback programme in 2007 is likelyto slow. We remain committed to returning surplus capital to shareholders andour buyback programme will be kept under regular review. Adoption of International Financial Reporting Standards (IFRS) The Group has prepared its financial statements for the 52 week period ended 26December 2006 using accounting policies consistent with IFRS. The main impacts of the IFRS adoption are set out in note 11 of thesepreliminary financial statements. As previously indicated, the impact on Groupprofitability is negligible and the adjustment to the balance sheet reflectsprimarily timing differences on the recognition of dividends and thepresentation of goodwill, intangible assets and deferred tax balances. In addition to these differences, there is a further presentational issuerelated to IFRS that impacts the financial information. Sportsbook bets havemany of the characteristics of a derivative transaction as defined by IAS 39'Financial Instruments: Recognition and Measurement' and consequently the Grouphas accounted for them under the provisions of that accounting standard. Themain effect of this is that the amount recognised as revenue/turnover is now theprofit and loss of trading those sportsbook bets rather than the amountoriginally staked. This is quite close to the gross win as previously disclosedby the Group except for a difference in respect of the treatment of VAT leviedon FOBTs and AWPs. To prevent distortions in the year-on-year growth ratesachieved by the Group, we have continued to disclose gross win in the abovecommentary as previously defined. The following is a reconciliation for the periods presented between gross winand revenue as disclosed in the attached financial statements: 52 weeks to 26 52 weeks to 27 Dec 2006 Dec 2005 £m £mGross win 931.3 807.7VAT on AWPs and FOBTs (37.1) (2.4) -------- --------Revenue 894.2 805.3 -------- -------- Current trading In the nine weeks to 27 February 2007, the Group's gross win has increased by11% and costs remain under control. At this early stage of the year, the Boardremains comfortable with consensus expectations. Consolidated Income Statement52 Weeks Ended 26 December 2006 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 Notes £m £m-------------------- -------- ---------- ---------- Amounts wagered 2 13,235.9 10,746.1-------------------- -------- ---------- ---------- Revenue 2 894.2 805.3Cost of sales (160.3) (174.1)-------------------- -------- ---------- ----------Gross profit 2 733.9 631.2Other operating income 6.3 5.9Other operating expenses (451.6) (394.7)Exceptional operating expenses 3 - (26.9)Share of results of associate 3.6 2.6-------------------- -------- ---------- ----------Operating profit 2 292.2 218.1Investment income 4 13.0 11.1Finance costs 3,5 (69.8) (54.6)-------------------- -------- ---------- ----------Profit before tax 2 235.4 174.6Tax 3,6 (68.6) (61.5)-------------------- -------- ---------- ----------Profit for the period 166.8 113.1-------------------- -------- ---------- ------------------------------ -------- ---------- ----------Earnings per share (pence)Basic 8 45.5 29.0Diluted 8 44.9 28.6-------------------- -------- ---------- ---------- Consolidated Statement of Recognised Income and Expensefor the 52 weeks ended 26 December 2006 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 Notes £m £m---------------------------------- ------ ---------- ---------- Gain/(loss) on cash flow hedges 14.3 (0.5)Actuarial gain/(loss) on defined benefitpension scheme 16.7 (1.6)Tax on items taken directly to equity (9.5) 0.2Change in associate net assets due toshare repurchase (1.7) ----------------------------------- ------ ---------- ----------Net income recognised directly in equity 19.8 (1.9)Transferred to income statement on cashflow hedges 0.7 1.4Profit for the period 166.8 113.1---------------------------------- ------ ---------- ----------Total recognised income and expense forthe period 187.3 112.6---------------------------------- ------ ---------- ---------- Consolidated Balance Sheetas at 26 December 2006 26 December 27 December 2006 2005 Notes £m £m-------------------------------------- ---------- ---------- ---------- Non-current assetsIntangible assets 1,342.7 1,332.7Property, plant and equipment 207.0 174.5Interest in associate 5.3 3.4Deferred tax asset 8.5 17.5----------------------------------- ------ ---------- ---------- 1,563.5 1,528.1----------------------------------- ------ ---------- ----------Current assetsInventories 0.5 0.4Trade and other receivables 30.4 20.4Cash and cash equivalents 98.7 76.6Derivative financial instruments 14.4 ------------------------------------ ------ ---------- ---------- 144.0 97.4----------------------------------- ------ ---------- ----------Total assets 2 1,707.5 1,625.5----------------------------------- ------ ---------- ---------- Current liabilitiesTrade and other payables (108.6) (79.5)Current tax liabilities (66.3) (56.7)Borrowings (0.9) -Derivative financial instruments (5.6) (7.5)----------------------------------- ------ ---------- ---------- (181.4) (143.7)----------------------------------- ------ ---------- ---------- Non-current liabilitiesBorrowings (1,141.2) (1,016.1)Retirement benefit obligations (25.1) (49.3)Long term provisions - (7.5)Deferred tax liabilities (169.3) (160.3)----------------------------------- ------ ---------- ---------- (1,335.6) (1,233.2)----------------------------------- ------ ---------- ---------- Total liabilities 2 (1,517.0) (1,376.9)----------------------------------- ------ ---------- ---------- Net assets 190.5 248.6----------------------------------- ------ ---------- ---------- EquityCalled-up share capital 9 36.2 39.1Share premium account 9 311.3 311.3Capital redemption reserve 9 6.0 3.1Merger reserve 9 (26.1) (26.1)Own shares held 9 (46.9) (57.5)Hedging reserve 9 9.4 (1.1)Retained earnings 9 (99.4) (20.2)----------------------------------- ------ ---------- ----------Total equity 9 190.5 248.6----------------------------------- ------ ---------- ---------- Consolidated Cash Flow Statement52 weeks ended 26 December 2006 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 Notes £m £m -------------------------------------- ---- ---------- ---------- Net cash from operating activities 10 204.6 156.6------------------------------------ ---- ---------- ---------- Investing activitiesDividend from associate - 2.1Interest received 2.9 2.6Proceeds on disposal of property, plantand equipment 5.9 0.7Purchases of property, plant andequipment (55.2) (52.0)Purchases of betting licences (1.9) (1.9)Expenditure on computer software (10.8) (2.5)Acquisition of subsidiary - (498.6)Disposal of LBOs net of costs - 34.4------------------------------------ ---- ---------- ----------Net cash used in investing activities (59.1) (515.2)------------------------------------ ---- ---------- ---------- Financing activitiesPurchase of own shares (178.4) (76.8)SAYE share option redemptions 1.0 2.7Dividends paid 7 (70.9) (66.6)Repayments of borrowings (125.0) (500.0)New bank loans raised 250.0 1,020.0New facility debt issue costs (2.2) (4.6)New finance leases 2.1 ------------------------------------- ---- ---------- ----------Net cash (used in)/from financingactivities (123.4) 374.7------------------------------------ ---- ---------- ---------- Net increase in cash and cash equivalentsin the period 22.1 16.1Cash and cash equivalents at start ofperiod 76.6 60.5------------------------------------ ---- ---------- ----------Cash and cash equivalents at end ofperiod 98.7 76.6------------------------------------ ---- ---------- ---------- Notes to the Group Financial Statement 1. Basis of accounting General information William Hill PLC is a company incorporated in the United Kingdom under theCompanies Act 1985. The address of the registered office is Greenside House, 50Station Road, London N22 7TP. These financial statements are presented in pounds sterling because that is thecurrency of the primary economic environment in which the Group operates.Foreign operations are included in accordance with the policies set out below. The Group has historically prepared its financial statements in accordance withUK Generally Accepted Accounting Practices (UK GAAP). A European Union (EU)Regulation issued in 2002 now requires the Group to report its results for theperiod ending 26 December 2006 in accordance with International FinancialReporting Standards (IFRS) as adopted by the European Commission. The date ofadoption and transition for the Group was the 29 December 2004 being the startof the period of comparative information. At the date of authorisation of these Group financial statements, the followingStandards and Interpretations which have not been applied in these financialstatements were in issue but are not yet effective: IFRS 7 Financial instruments: disclosures; IFRS 8 Operating segments; IFRIC 7 Applying the restatement approach under IAS 29; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of embedded derivatives; IFRIC 10 Interim financial reporting and impairment; IFRIC 11 IFRS 2: group and treasury share transactions; and IFRIC 12 Service concession arrangements. The Directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group except for additional disclosures on capital andfinancial instruments when the relevant standards come into effect for periodscommencing on or after 1 January 2007. The financial statements for the 52 weeks ended 26 December 2006, which havebeen approved by a committee of the Board of directors on 4 March 2007, havebeen prepared on the basis of the accounting policies set out in pages 5 to 11of the Group's pro-forma IFRS accounts for the 52 weeks ended 27 December 2005,which can be found on the Group's website www.williamhillplc.co.uk. Thispreliminary report should therefore be read in conjunction with the 2005 pro-forma information. The financial statements set out in this preliminary announcement does notconstitute the Company's statutory accounts for the 52 week period ended 26December 2006 or the 52 week period ended 27 December 2005, but is derived fromthose accounts. Statutory accounts for the 52 week period ended 27 December 2005have been delivered to the Registrar of Companies and those for the 52 weekperiod ended 26 December 2006 will be delivered following the Company's AnnualGeneral Meeting. The auditors have reported on those accounts and their reportswere unqualified and did not contain statements under section 237(2) or (3)Companies Act 1985. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRS. The Company expects to publish fullfinancial statements that comply with IFRS in April 2007. Basis of accounting under IFRS The Group financial statements have been prepared in accordance with IFRS. TheGroup financial statements have also been prepared in accordance with IFRSadopted by the European Union and therefore the Group financial statementscomply with Article 4 of the EU IAS Regulation. First-time adoption of International Financial Reporting Standards The financial statements have been prepared in accordance with IFRS for thefirst time. The disclosures required by IFRS 1 'First-time Adoption ofInternational Financial Reporting Standards' concerning the transition from UKGAAP to IFRS are given in note 11. IFRS 1 sets out the procedures that the Group must follow when it adopts IFRSfor the first time as the basis for preparing its consolidated financialstatements. Under IFRS 1 the Group is required to establish its IFRS accountingpolicies as at 26 December 2006 and, in general, apply these retrospectively todetermine the IFRS opening balance sheet at its date of transition, 29 December2004. IFRS 1 provides a number of optional exceptions to this general principle. Themost significant of these are set out below, together with a description in eachcase of whether an exception has been adopted by the Group. Business combinations The Group has elected not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that took place before the 30 December2003. As a result, in the opening balance sheet, goodwill arising from pastbusiness combinations amounting to £733.3m remains as stated under UK GAAP at 30December 2003. Employee benefits The Group has recognised actuarial gains and losses in relation to employeebenefit schemes at 29 December 2004. The Group has recognised actuarial gainsand losses in full in the period in which they occur in the Statement ofRecognised Income and Expense in accordance with the amendment to IAS 19'Employee Benefits', issued on 16 December 2004. Share-based payments The Group has elected to apply IFRS 2 'Share-based Payment' to all relevantshare based payment transactions granted after 7 November 2002 that wereunvested as of 1 January 2005. Financial instruments The Group has applied IAS 32 'Financial Instruments: Disclosure andPresentation' and IAS 39 'Financial Instruments: Recognition and Measurement'for all periods presented and has therefore not taken advantage of the exemptionin IFRS 1 that would enable the Group to only apply these standards from 28December 2005. General The Group financial statements have been prepared on the historical cost basis,except for the revaluation of certain financial instruments. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to26 December 2006. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity so as to obtainbenefits from its activities. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-Group transactions, balances, income and expenses areeliminated on consolidation. Business combination On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to profit and loss in the period ofacquisition. 2. Segment information For management purposes, the Group is currently organised into three operatingdivisions - Retail, Telephone and Interactive. These divisions are the basis onwhich the Group reports its primary segment information. Business segment information for the 52 weeks ended 26 December 2006: Retail Telephone Interactive Other Corporate Group £m £m £m £m £m £m ------------------ ------- ------- ------- ------- ------- ------- Amounts wagered 11,486.0 659.9 1,060.3 29.7 - 13,235.9Payout (10,787.1) (602.4) (929.8) (22.4) - (12,341.7)------------------ ------- ------- ------- ------- ------- -------Revenue 698.9 57.5 130.5 7.3 - 894.2GPT, duty,levies and other cost of sales (120.5) (12.9) (26.0) (0.9) - (160.3)------------------ ------- ------- ------- ------- ------- -------Gross profit 578.4 44.6 104.5 6.4 - 733.9Depreciation (23.5) (0.7) (2.2) (0.2) (0.5) (27.1)Otheradministrativeexpenses (329.0) (27.2) (40.8) (6.8) (14.4) (418.2)Share of resultof associate - - - - 3.6 3.6------------------ ------- ------- ------- ------- ------- -------Operatingprofit/(loss) 225.9 16.7 61.5 (0.6) (11.3) 292.2Investmentincome - - - - 13.0 13.0Finance costs - - - - (69.8) (69.8)------------------ ------- ------- ------- ------- ------- -------Profit/(loss)before tax 225.9 16.7 61.5 (0.6) (68.1) 235.4------------------ ------- ------- ------- ------- ------- ------- Balance sheetinformationTotal assets 1,360.9 95.8 127.1 18.9 104.8 1,707.5Totalliabilities (54.7) (4.4) (26.6) (0.5) (1,430.8) (1,517.0)Investment inassociate - - - - 5.3 5.3Capitaladditions 52.5 9.1 9.1 - 1.0 71.7------------------ ------- ------- ------- ------- ------- ------- Business segment information for the 52 weeks ended 27 December 2005: Retail Telephone Interactive Other Corporate Group £m £m £m £m £m £m------------------ ------- ------- ------- ------- ------- ------- Amounts wagered 9,285.5 605.8 826.0 28.8 - 10,746.1Payout (8,664.5) (552.4) (702.7) (21.2) - (9,940.8)------------------ ------- ------- ------- ------- ------- -------Revenue 621.0 53.4 123.3 7.6 - 805.3GPT, duty,levies andother cost ofsales (136.3) (13.8) (23.0) (1.0) - (174.1)------------------ ------- ------- ------- ------- ------- -------Gross profit 484.7 39.6 100.3 6.6 - 631.2Depreciation (17.4) (1.3) (1.8) (0.4) (0.7) (21.6)Otheradministrativeexpenses (285.7) (25.3) (37.3) (6.3) (12.6) (367.2)Share of resultof associate - - - - 2.6 2.6Exceptionalitems (23.9) a - - - (3.0) (26.9)------------------ ------- ------- ------- ------- ------- -------Operatingprofit/(loss) 157.7 13.0 61.2 (0.1) (13.7) 218.1Investmentincome - - - - 11.1 11.1Finance costs - - - - (54.6) (54.6)------------------ ------- ------- ------- ------- ------- -------Profit/(loss)before tax 157.7 13.0 61.2 (0.1) (57.2) 174.6------------------ ------- ------- ------- ------- ------- ------- Balance sheetinformationTotal assets 1,316.9 87.0 120.3 14.8 86.5 1,625.5Totalliabilities (208.5) (4.8) (20.4) (0.5) (1,142.7) (1,376.9)Investment inassociate - - - - 3.4 3.4Capitaladditions 46.6 2.1 3.6 - 1.0 53.3------------------ ------- ------- ------- ------- ------- ------- a Included in £23.9m of exceptional items relating to the Retail channel areasset impairments of £5.4m in respect of technology and fascia assets acquiredas part of Stanley Retail but of limited subsequent value to the integratedGroup. The retail distribution channel comprises all activity undertaken in LBOsincluding AWPs and FOBTs. Other activities include on-course betting andgreyhound stadia operations. Net assets/(liabilities) have been allocated by segment where assets andliabilities can be identified with a particular channel. Corporate net assetsinclude corporation and deferred tax, net borrowings, pension liability anddividends payable as well as any assets and liabilities that cannot be allocatedto a particular channel other than on an arbitrary basis. Included within totalassets by segment are £681.0m, £80.4m, £97.2m and £7.1m (27 December 2005 -£681.0m, £80.4m, £97.2m and £7.1m), which relates to goodwill allocated to theRetail, Telephone, Interactive and Stadia operations respectively. There are no inter-segmental sales within the Group. In accordance with IAS 14 'Segment Reporting', segment information bygeographical location is not presented as the Group's revenue and profits ariseprimarily from customers in the United Kingdom with significantly less than 10%(the minimum required by IAS 14 to necessitate disclosure) of revenue andprofits generated from customers outside of this jurisdiction. Similarly, only asmall portion of the Group's net assets is located outside of the UnitedKingdom. 3. Exceptional items Exceptional items are those items the Group considers to be one-off or materialin nature that should be brought to the readers' attention. Exceptional operating costs are as follows: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Costs of implementation of EPOS and textsystems 1 - 7.4Costs of integration of Stanley Retailacquisition 2 - 19.0Costs of aborted return of capital scheme 3 - 3.0Profit on sale of LBOs disposed 4 - (2.5)------------------------------ --------- --------- - 26.9------------------------------ --------- --------- 1 Costs arose from the roll out of electronic point of sale and text systemsacross the LBO network and primarily encompass training and consultancy costs. 2 Costs arose from the due diligence on and the integration of StanleyRetail and comprise primarily external consultancy costs, redundancy and relatedstaff costs and asset impairments. 3 Costs represent professional fees incurred in respect of an aborted planto return capital. 4 Gain made on the disposal of the 12 William Hill LBOs, as part of the saleof 76 LBOs undertaken after the Office of Fair Trading review of the purchase ofStanley Retail. Exceptional interest costs are as follows: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Write off of previously capitalised bank facility fee - 2.3Breakage 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 in the period ended 27 December 2005. 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Capital gain on disposal of 76 LBOs 1 - 7.1Tax relief expected in respect ofexceptional operating and interest costs - (6.5)------------------------------ --------- --------- - 0.6------------------------------ --------- --------- 1 Due to the accounting rules governing the subsequent disposal of acquiredoperations, the income statement bears the full tax charge relating to thecapital gain on the disposal of 76 LBOs, while the gain on disposal is onlyrecognised in the income statement in respect of the sale of the 12 William Hillshops. The net proceeds of the remaining 64 Stanley Retail LBOs have been usedto determine fair values and hence have been reflected through adjustedintangibles recognised. 4. Investment income 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Interest on bank deposits 2.9 2.5Expected return on pension scheme assets 10.1 8.6------------------------------ --------- --------- 13.0 11.1------------------------------ --------- --------- 5. Finance costs 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Interest payable and similar charges:Bank loans and overdrafts 57.8 41.5Amortisation of finance costs 1.3 1.0------------------------------ --------- --------- 59.1 42.5Exceptional interest costs (note 3) - 2.4------------------------------ --------- ---------Net interest payable 59.1 44.9Interest on pension scheme liabilities 10.7 9.7------------------------------ --------- --------- 69.8 54.6------------------------------ --------- --------- 6. Tax on profit on ordinary activities The tax charge comprises: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- UK corporation tax at 30% 66.5 51.4UK corporation tax - prior periods (6.4) -Overseas tax - 0.5------------------------------ --------- ---------Total current tax charge 60.1 51.9Deferred tax - origination and reversal oftiming differences 8.5 9.6------------------------------ --------- ---------Total tax on profit on ordinary activities 68.6 61.5------------------------------ --------- --------- The effective tax rate in respect of ordinary activities before exceptionalcosts and excluding associate income is 29.6% (52 weeks ended 27 December 2005 -29.5%). There were no exceptional items in the period and therefore theeffective tax rate in respect of ordinary activities after exceptional items was29.6% (52 weeks ended 27 December 2005 - 35.7%). The current period's charge islower than the statutory rate of 30% due to adjustments in relation to priorperiods. The prior period rate after exceptional items was higher than thestatutory 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; and • The Group incurred a number of expenses on which it did not get tax relief. The differences between the total current tax shown above and the amountcalculated by applying the standard rate of UK corporation tax to the profitbefore tax is as follows: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m % £m %---------------------------- -------- -------- -------- ------- Profit before tax 235.4 174.6Less: share of associate income (3.6) (2.6)---------------------------- -------- -------- -------- ------- 231.8 100.0 172.0 100.0---------------------------- -------- -------- -------- ------- Tax on Group profit at standard UKcorporation tax rate of 30% 69.5 30.0 51.6 30.0 Adjustment in respect of prior periods (3.0) (1.3) - -Permanent differences 2.1 0.9 3.5 2.0Tax on profits credited against goodwill - - 6.4 3.7---------------------------- -------- -------- -------- -------Total tax charge 68.6 29.6 61.5 35.7---------------------------- -------- -------- -------- ------- The Group earns its profits primarily in the UK, therefore the tax rate used fortax on profit on ordinary activities is the standard rate for UK corporationtax, currently 30%. 7. Dividends proposed and paid 26 December 27 December 26 December 27 December 2006 2005 2006 2005 Per share Per share £m £m-------------------- -------- --------- -------- --------- Equity shares: - current year interim dividend paid 7.25p 6.1p 25.6 23.5 - prior year final dividend paid 12.2p 11.0p 45.3 43.1-------------------- -------- --------- -------- --------- 19.45p 17.1p 70.9 66.6-------------------- -------- --------- -------- --------- Proposed dividend 14.5p 12.2p 51.2 46.1-------------------- -------- --------- -------- --------- The proposed final dividend of 14.5p will, subject to shareholder approval, bepaid on 5 June 2007 to all shareholders on the register on 27 April 2007. Inline with the requirements of IAS 10 - 'Events after the Balance Sheet Date',this dividend has not been recognised within these results. Under an agreement signed in November 2002, The William Hill Holdings 2001Employee Benefit Trust agreed to waive all dividends. As at 26 December 2006,the trust held 0.4m ordinary shares. In addition, the Company does not paydividends on the 8.7m shares held in treasury. The Company estimates that 352.9mshares will qualify for the final dividend. 8. Earnings per share The earnings per share figures for the respective periods are as follows: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 Pence Pence------------------------------ --------- --------- Basic - adjusted 45.5 36.6Basic 45.5 29.0Diluted 44.9 28.6------------------------------ --------- --------- An adjusted earnings per share, based on profit for the prior period beforeexceptional items, has been presented in order to highlight the underlyingperformance of the Group. The calculation of the basic and diluted earnings per share is based on thefollowing data: 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Profit after tax for the financial period 166.8 113.1Exceptional items - operating expenses - 26.9Exceptional items - interest - 2.4Exceptional items - tax charge - 0.6------------------------------ --------- ---------Profit after tax for the financial periodbefore exceptional items 166.8 143.0------------------------------ --------- --------- Number (m) Number (m)------------------------------ --------- --------- Weighted average number of ordinary sharesfor the purposes of basic earnings per share 366.7 390.5Effect of dilutive potential ordinary shares:Employee share awards and options 4.7 5.5------------------------------ --------- ---------Weighted average number of ordinary sharesfor the purposes of diluted earnings pershare 371.4 396.0------------------------------ --------- --------- 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 10.4m in the 52 weeks ended 26 December 2006 (52weeks ended 27 December 2005 - 12.7m). 9. Reserves Called-up Share Capital Own share premium redemption Merger shares Hedging Retained capital account reserve reserve held reserve earnings Total £m £m £m £m £m £m £m £m----------------- ------ ------ ------ ------ ------ ------ ------ ------ At 29 December2004 40.5 311.3 1.7 (26.1) (59.3) (1.7) 9.9 276.3Profit for thefinancial period - - - - - - 113.1 113.1Dividends paid(note 7) (66.6) (66.6)Items taken directly to statement ofrecognised income and expense - - - - - 0.6 (1.1) (0.5)Expense recognised in respect ofshare remuneration - - - - - - 2.2 2.2Shares purchased and cancelled (1.4) - 1.4 - - - (78.3) (78.3)Transfer ofown shares torecipients - - - - 1.8 - 0.6 2.4---------------- ------ ------ ------ ------ ------ ------ ------ ------At 27 December2005 39.1 311.3 3.1 (26.1) (57.5) (1.1) (20.2) 248.6Profit for thefinancial period - - - - - - 166.8 166.8Dividends paid(note 7) - - - - - - (70.9) (70.9)Items takendirectly to statement of recognisedincome and expense - - - - - 9.8 10.0 19.8 Expense recognised in respect ofshare remuneration - - - - - - 3.0 3.0Shares purchased and cancelled (2.9) - 2.9 - - - (178.4) (178.4)Transfer to income - - - - - 0.7 - 0.7Transfer ofown shares torecipients - - - - 10.6 - (9.7) 0.9---------------- ------ ------ ------ ------ ------ ------ ------ ------At 26 December2006 36.2 311.3 6.0 (26.1) (46.9) 9.4 (99.4) 190.5---------------- ------ ------ ------ ------ ------ ------ ------ ------ The shares were cancelled during the period as part of the Company's share buyback programme. Own shares held at 26 December 2006 amounting to £46.9m comprise 8.7m shares(nominal value - £0.9m) held in treasury purchased for £46.4m and 0.4m shares(nominal value - £0.04m) held in The William Hill Holdings 2001 Employee BenefitTrust purchased for £0.5m. The shares held in treasury were purchased at aweighted average price of £5.32. At 26 December 2006 the total market value ofown shares held in treasury and in the Trust was £58.0m. 10. Notes to the cash flow statement 52 weeks ended 52 weeks ended 26 December 27 December 2006 2005 £m £m------------------------------ --------- --------- Operating profit 292.2 218.1Adjustments for:Share of result of associate (3.6) (2.6)Depreciation of property, plant andequipment 27.1 24.3Depreciation of computer software 2.7 2.7Gain on disposal of property, plant andequipment (0.5) (0.2)Gain on disposal of LBOs (4.0) (2.5)Cost charged in respect of shareremuneration 3.0 2.2Defined benefit pension cost less cashcontributions (8.1) (8.7)Movement in provisions (7.5) 7.2------------------------------ --------- ---------Operating cash flows before movements in working capital: 301.3 240.5Increase in inventories (0.1) -Increase in receivables (11.0) (1.6)Increase in payables 23.7 3.1------------------------------ --------- ---------Cash generated by operations 313.9 242.0Income taxes paid (53.9) (49.4)Interest paid (55.4) (36.0)------------------------------ --------- ---------Net cash from operating activities 204.6 156.6------------------------------ --------- --------- Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. This is the first period that the Group has presented its financial informationunder IFRS. The following disclosures are required in the year of transitionunder the provisions of IFRS 1 and show the effects of the transition to IFRS onthe Group's reported performance and financial position for the comparativeperiods and on the date of transition. The last financial statements prepared under UK GAAP were for the 52 weeks ended27 December 2005 and the date of transition to IFRS is therefore 29 December2004. Reconciliation of equity at 29 December 2004: Effects of transition UK GAAP to IFRS IFRS Notes £m £m £m-------------------------- ---------- ---------- ---------- ---------- Goodwill h 736.2 (2.9) 733.3Other intangible assets a,h - 18.7 18.7Property, plant andequipment a 119.0 (14.8) 104.2Interest in associate 2.9 - 2.9Deferred tax assets b,c,d,g 5.9 18.7 24.6--------------------- ------ ---------- ---------- ----------Total non-current assets 864.0 19.7 883.7--------------------- ------ ---------- ---------- ---------- Inventories 0.3 - 0.3Trade and otherreceivables 15.4 - 15.4Cash and cash equivalents 60.5 - 60.5--------------------- ------ ---------- ---------- ----------Total current assets 76.2 - 76.2--------------------- ------ ---------- ---------- ----------Total assets 940.2 19.7 959.9--------------------- ------ ---------- ---------- ---------- Trade and other payables d,e,f (106.9) 39.1 (67.8)Tax liabilities (46.9) - (46.9)Bank overdraft and loans (49.8) - (49.8)Bank loans due after morethan one year (447.7) - (447.7)Retired benefitobligations b,g (38.5) (16.8) (55.3)Deferred tax liabilities c,h,i - (16.1) (16.1)--------------------- ------ ---------- ---------- ----------Total liabilities (689.8) 6.2 (683.6)--------------------- ------ ---------- ---------- ---------- Net assets 250.4 25.9 276.3--------------------- ------ ---------- ---------- ---------- EquityCalled-up share capital 40.5 - 40.5Share premium account 311.3 - 311.3Capital redemption reserve 1.7 - 1.7Merger reserve (26.1) - (26.1)Own shares (59.3) - (59.3)Hedging and other reserves d - (1.7) (1.7)Retained earnings e,f,g,i (17.7) 27.6 9.9--------------------- ------ ---------- ---------- ----------Total equity 250.4 25.9 276.3--------------------- ------ ---------- ---------- ---------- Reconciliation of equity at 27 December 2005: Effects of transition UK GAAP to IFRS IFRS Notes £m £m £m-------------------------- ---------- ---------- ---------- ---------- Goodwill f,h 1,177.1 (311.4) 865.7Other intangible assets a,h - 467.0 467.0Property, plant andequipment a 188.7 (14.2) 174.5Interest in associate 3.4 - 3.4Deferred tax assets b,c,d,g - 17.5 17.5--------------------- ------ ---------- ---------- ----------Total non-current assets 1,369.2 158.9 1,528.1--------------------- ------ ---------- ---------- ---------- Inventories 0.4 - 0.4Trade and otherreceivables 20.4 - 20.4Cash and cash equivalents 76.6 - 76.6--------------------- ------ ---------- ---------- ----------Total current assets 97.4 - 97.4--------------------- ------ ---------- ---------- ----------Total assets 1,466.6 158.9 1,625.5--------------------- ------ ---------- ---------- ---------- Trade and other payables d,e,f (129.6) 42.6 (87.0)Tax liabilities (56.7) - (56.7)Bank overdraft and loans - - -Bank loans due after morethan one year (1,016.1) - (1,016.1)Retired benefitobligations b,g (31.8) (17.5) (49.3)Other provisions (7.5) - (7.5)Deferred tax liabilities c,h,i (5.0) (155.3) (160.3)--------------------- ------ ---------- ---------- -----------Total liabilities (1,246.7) (130.2) (1,376.9)--------------------- ------ ---------- ---------- ----------- Net assets 219.9 28.7 248.6--------------------- ------ ---------- ---------- ---------- EquityCalled up share capital 39.1 - 39.1Share premium account 311.3 - 311.3Capital redemption reserve 3.1 - 3.1Merger reserve (26.1) - (26.1)Own shares (57.5) - (57.5)Hedging and other reserves d - (1.1) (1.1)Retained earnings e,f,g,i (50.0) 29.8 (20.2)--------------------- ------ ---------- ---------- ----------Total equity 219.9 28.7 248.6--------------------- ------ ---------- ---------- ---------- Notes to the reconciliation of equity (a) Software classification - application software, which can be runindependently from any specific hardware configuration, is typically includedwithin other intangibles under IFRS rather than tangible assets as is the normunder UK GAAP. The effect of this is to reclassify software of £14.2m (29December 2004 - £14.8m) from tangible assets to intangible assets. Total netassets are not affected by this adjustment. (b) Deferred tax associated with pension liabilities - under IFRS deferredtax relating to the pension scheme cannot be netted off against the pensionliability as it is under UK GAAP. This has the effect of increasing the Group'sdeferred tax asset by £13.6m (29 December 2004 - £16.5m) with a consequentincrease in the net pension liability presented. Net assets are not affected bythis adjustment. (c) Deferred tax offset - due to more restrictive rules on the ability tooffset deferred tax liabilities and assets, the deferred tax liabilities andassets are grossed up by £2.2m (29 December 2004 - £1.3m). (d) Financial instruments - all derivative instruments are required by IFRSto be carried on the balance sheet at fair value. Under IFRS, hedge accountingfor derivatives is only allowed where detailed documentation in accordance withIAS 39 is in place. This allows the movements in fair values of the relevantderivative instrument (but not the related borrowings) to be recognised directlyin reserves and therefore not impact earnings. This issue will have no impact onthe Group's earnings as acceptable hedge accounting documentation has been inplace since 30 December 2003. However the balance sheet does reflect a financialliability of £1.6m (29 December 2004 - £2.5m) representing the fair value of therelevant derivatives, as well as a related deferred tax asset of £0.5m (29December 2004 - £0.8m) offset by corresponding entries in a new 'hedgingreserve'. (e) Dividends - under IFRS dividends payable may only be recorded as aliability of the Group when a legal or constructive liability has been incurred.This is likely to be when the dividend proposed by the Board is made public onthe announcement of the Group's results. Under UK GAAP, dividends are recordedin the period to which they relate, even if only proposed after the period end.This has the effect of increasing the net assets of the Group by the amount ofthe proposed dividend of £46.1m (29 December 2004 - £43.1m). (f) Holiday pay - it is accepted practice under IFRS to provide for payfor holidays to which staff are entitled but which they have not yet taken. Thishas resulted in the recognition of an accrual for holiday pay of £1.9m, £0.4m ofwhich arises from the Stanley acquisition and therefore affects goodwillcalculation (29 December 2004 - £1.5m). (g) Pensions - a difference arises in the valuation of the pension schemeassets under IFRS, because pension assets must be valued using bid prices ratherthan using mid-market prices as is the convention under UK GAAP and there arealso differences in measuring the value of life assurance schemes. This resultsin an increase in the pension scheme liability of £3.9m (29 December 2004 -£0.3m) and a consequent adjustment to deferred tax assets of £1.2m (29 December2004 - £0.1m). (h) Acquisitions - the Group has elected not to apply IFRS 3 'BusinessCombinations' retrospectively to business combinations that took place before 30December 2003. The Group has adopted IFRS 3 'Business combinations' in full forall acquisitions that have occurred after this date. This has resulted in therecognition of additional intangible fixed assets of £452.8m (29 December 2004 -£3.9m) and related deferred tax liabilities of £141.0m (29 December 2004 -£1.0m). Under UK GAAP the intangible fixed assets would have been recognised ingoodwill and the deferred tax liability would not have arisen. (i) Deferred tax on properties acquired via business combinations - underIFRS, a tax timing difference of £12.1m (29 December 2004 - £13.8m) has beenrecognised in respect of properties previously acquired via acquisitions. 11. Explanation of transition to IFRS(continued) Reconciliation of profit or loss for 52 weeks ended 27 December 2005: Effects of transition to UK GAAP IFRS IFRS Notes £m £m £m-------------------------- ------ ---------- ---------- ---------- Revenue a 10,746.1 (9,940.8) 805.3Cost of sales a (10,114.9) 9,940.8 (174.1)---------------------- ------ ---------- ---------- ----------Gross profit 631.2 - 631.2Other operating income 5.9 - 5.9Other operating expenses (421.6) - (421.6)Share of results ofassociate b 3.6 (1.0) 2.6---------------------- ------ ---------- ---------- ----------Operating profit 219.1 (1.0) 218.1Investment income b 11.2 (0.1) 11.1Finance costs (54.6) - (54.6)---------------------- ------ ---------- ---------- ----------Profit before tax 175.7 (1.1) 174.6Tax c (64.3) 2.8 (61.5)---------------------- ------ ---------- ---------- ----------Profit for the period 111.4 1.7 113.1---------------------- ------ ---------- ---------- ---------- Notes to the reconciliation of profit or loss (a) Revenue and cost of sales - under IFRS revenue represents gains andlosses on betting activity for all revenue streams. This is different from UKGAAP where revenue from Retail, Telephone and Internet sportsbook (includingFOBTs, games on the online arcade and other numbers bets) represents totalamounts wagered by customers. The effect of this change is to reduce bothrevenue and cost of sales by £9,940.8m. This has no impact on operating profit. (b) Associate profit - under IFRS, the share of the associate's resultincluded in the Group's operating profit is after a charge for interest and tax.These items were shown within the Group's interest and tax charges under UKGAAP. This has the effect of reducing operating profit by £1.0m, representinginterest income of £0.1m and the tax charge of the associate (see (c) below). (c) Tax charge - the tax charge is £2.8m lower under IFRS compared to UKGAAP reflecting a combination of: • £1.1m reduction arising from the different treatment of associate tax highlighted in (b) above; and • £1.7m reduction reflecting a deferred tax movement on properties acquired via business combinations, which are ignored under UK GAAP but provided for under IFRS. Explanation of material adjustments to the cash flow statement for 2005 There are no significant adjustments between the cash flow statements producedunder IFRS as against UK GAAP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WMH.L