1st Aug 2006 07:01
William Hill PLC01 August 2006 Tuesday, 1st August 2006 WILLIAM HILL PLC ANNOUNCEMENT OF INTERIM RESULTS William Hill PLC (the 'Group') today announces its results for the 26 weeksended 27 June 2006 ('the period'). Highlights include the following: • Gross win up 24.8% to £478.3m (2005: £383.4m) • Profit on ordinary activities before finance charges and exceptional items up 29.8% at £160.0m (2005: £123.3m) • Cash generated from operations before tax and interest up 45.1% to £193.9m (2005: £133.6m), which represents 121.2% of operating profit • Basic earnings per share (EPS) pre exceptionals up 32.8% to 25.5 pence (2005: 19.2 pence) and basic EPS post exceptionals up 48.3% on the comparative period (2005: 17.2 pence) • Interim dividend up 18.9% to 7.25 pence per share (2005: 6.1 pence per share) payable on 5 December 2006 to shareholders on the register on 3 November 2006 • The Group has purchased 29m shares for £167.2m via on-market share buy-backs between July 2005 and June 2006. The Group has arranged a new additional debt facility of £250m and a further £150m-£225m of share buy-backs is targeted for completion by the end of 2007. This would increase the total buy-back programme from the previously announced target of £200m - £300m, to circa £320m - £400m. • The Group estimates that the World Cup generated a total gross win of £17.5m across all three channels and that £10.7m of this arose in the period ended 27 June 2006 • William Hill has signed a memorandum of understanding with the Spanish gaming group Codere. The parties plan to create a joint venture to develop a sports betting business in Spain, subject to the joint venture receiving the relevant licences once regulation is passed • In the four weeks to 25 July 2006, the Group's gross win has increased by 13.3% in line with management expectations as the period includes the completion of the World Cup and some weak comparators for 2005. For the year as a whole, 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 profit beforefinance charges and exceptional items 29.8% higher than last year. The Group hassuccessfully integrated the Stanley Retail business and is on course to deliverthe £20m of synergy and other benefits forecast at the end of 2005 for thisacquisition. We remain confident of the Group's future prospects and are committed todelivering value to shareholders. The Board has resolved to increase the interimdividend by 18.9% to 7.25p per share and remains committed to its programme ofshare buy-backs. Having already completed £167.2m share repurchases out of theproposed buy-back programme of £200m-£300m announced in September 2005, we arenow increasing our target to £320m to £400m". Enquiries: David Harding, Chief Executive Tel: 0208 918 3910Tom Singer, Chief Operating Officer Tel: 0208 918 3910Simon Lane, Group Finance Director Tel: 0208 918 3910Fiona Antcliffe, 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 561 263. 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 3534469#. The slide presentation will be available on the Investor Relations section ofthe website: www.williamhillplc.co.uk. CHIEF EXECUTIVE'S REVIEW The Group has produced a strong profit performance in the first half of 2006,leveraging the benefits of the Stanley Retail acquisition, which was completedin June last year. Strong performances from FOBTs and poker and the group stagesof the World Cup, have boosted year-on-year gross win growth while operatingexpenses have been kept under tight control. Consequently, profit on ordinaryactivities before taxation and exceptional items was up 22.9% to £133.5m (2005:£108.6m) and earnings per share were 25.5p, a rise of 32.8% (after adjusting forlast year's exceptional items) compared to the first half of 2005. We have continued to invest in our business across all channels. Within theRetail estate, we have continued the development of our existing estate and havecompleted the replacement of text systems and electronic point of sale (EPOS)terminals within the Stanley Retail estate. The whole Retail estate now operateson identical operating systems and procedures. We have made good progress on thethree-year programme to update our core bookmaking systems, started last year.We remain confident that this investment in our technology infrastructure willsignificantly improve the efficiency of our operations and will give us theflexibility to introduce more quickly new betting opportunities across all ofour channels. Retail channel The Retail channel grew gross win by 29.4% to £374.4m (3.7% excluding StanleyRetail) and pre-exceptional profit increased by 39.4% to £124.1m (8.9% excludingStanley Retail). Within the original William Hill estate, excluding Stanley Retail, total grosswin increased by 3.7%. In this part of the estate, gross win from over thecounter (OTC) and amusement with prizes machines (AWPs) fell by 1.3% and 45.2%,respectively, but this was more than compensated for by an increase in FOBTgross win of 17.1%. LBOs in the Stanley Retail estate performed better year-on-year in the periodthan those in the original William Hill estate with total gross win growing by4.5%. FOBT gross win grew by 26.9% and OTC gross win showed a small 1.1%increase. These more than offset a 37.6% drop in AWP gross win. The average number of FOBTs in the original William Hill estate increased to6,033 (FY 2005: 5,892) in the period and in the Stanley Retail estate theaverage number of FOBTs was 1,554 compared to 1,539 in the second half of lastyear. The average net profit per machine per week in the William Hill estate was£493 (FY 2005: £402) in the first half and in the Stanley Retail estate was £348(second half of 2005: £287). The improved profitability in the William Hillestate was due to a combination of greater gross win per machine and bettercontractual terms with our main FOBT supplier Leisure Link, which were effectivefrom May 2005. The Stanley Retail estate's improved profitability is driven bysimilar factors. However, the imposition of Amusement Machine Licence Duty inAugust 2006 will adversely affect average profitability of each terminal in thesecond half of the year. The average number of AWPs traded in the period fell to 292 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 336 inthe first half of this year. Non-exceptional costs in the channel were up 28.7% (4.2% excluding StanleyRetail). Excluding Stanley Retail, there were minimal increases in staff costsdue to reduced overtime and premium payments under the new shop 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 shop numbers and rent reviews; higher energycosts reflecting general market conditions; a recharge for WHTV, which is beingtrialed in the LBOs; and depreciation and maintenance charges as a result ofintroducing new text and EPOS systems. We completed 83 development and shop fitting projects during the first halfincluding 14 new licences, 30 extensions and resites and 39 shop fittings.Overall, we spent £17.9m on estate development in the first half of the year. At 27 June 2006, we had 2,135 LBOs in the United Kingdom, 9 in the ChannelIslands, 2 in the Isle of Man and 52 in the Republic of Ireland; a total of2,198. We have introduced the capability to take a wider range of Tote Direct betsacross the estate, which has been favourably received by our customers. We alsocompleted the rollout of our new text system and an EPOS system throughout theStanley Retail estate during the period and the entire estate has been runningon identical systems since the end of March. Telephone channel Telephone gross win grew by 4.5% to £29.9m but operating profit fell 17.9% to£6.4m. The channel benefited from the World Cup and football betting in general as wellas more normal horseracing results including a good result from the GrandNational. Costs in the channel were up 21.4% principally due to higher marketing spend, ahigher allocation of Information System costs and an increase in staff bonusprovisions. We ended the half-year with 167,000 active telephone customers (27 December2005: 174,000). Interactive channel Interactive gross win increased 14.2% to £70.7m and operating profit grew 13.2%to £35.9m. Growth in gross win was seen across all major products. The strongest growth wasin poker, which increased 44% during the period, although the rate of growthmoderated during the World Cup. Both the casino and arcade have continued toexperience strong growth, boosted by the introduction of new games andadvertising. We continue to expand our range of in-running betting opportunities on oursportsbook and we launched 6 new arcade games during the period that expandedour offering to 16 games. We are engaged in a trial broadcast of Channel 854 (WH TV) content into ourbetting shops and we will finish evaluating the benefits of the Channel 854 shopbroadcast in the second half of 2006. Total active accounts increased to 395,000 as at 27 June 2006 (27 December 2005:341,000). Costs in the channel increased 13.5% mainly due to higher marketing spend and anincrease in staff bonus provisions. Operating expenses Half-year expenses (net of operating income) for the Group were £221.2m, anincrease of 25.8% (5.1% excluding Stanley Retail). Excluding Stanley Retail, staff costs (which represented roughly half of ourtotal costs) increased 6.9% in the period mainly reflecting provisions forprofit based incentive schemes. Excluding these provisions from this period andthe comparative period, staff costs have risen by only 0.4% reflecting aninflationary pay award partly offset by the new staffing contract introducedinto the Retail estate last year and the improvement in productivity as a resultof the rollout of EPOS. Property costs, which represented 16.0% of our totalcosts, were up 9.8% over the comparable period reflecting increases in rent andrates, in part driven by an increase in average shop size and an increase in thenumber of shops, as well as higher energy costs. Depreciation and equipment maintenance costs increased 35.5% with the rollout ofEPOS and text systems along with the supporting technology, although this wasoffset by staff costs savings. The cost of providing pictures and data to ourLBOs was up 4.7% over the comparable period due to the size of the estate andprice increases. Advertising and marketing costs, including the cost of casinobonus cash payments that are expensed in arriving at gross profit, were up 32.7%over the comparable period reflecting World Cup and other more general web-basedadvertising and promotions. Other cost increases relate to our ongoing investment in information technology,EPOS capabilities and core bookmaking systems. All expenditure on informationtechnology continues to be subject to rigorous cost benefit analysis and istightly managed through formalised project and programme management systems. Stanley acquisition The integration of the Stanley Retail estate was completed by the end of March2006 in accordance with the plans we drew up last year. Key tasks achieved inthe period were the completion of the re-branding of the shops, installationthroughout the Stanley estate of the same version of EPOS and audio-visual textsystems already deployed in the William Hill estate and the closure of theStanley Retail head office. We remain confident that the acquisition willdeliver the synergies and other benefits of £20m we forecast at the end of lastyear. This compares with the original estimated synergies at the time of theacquisition of £13m. Regulatory development Following the passing by Parliament of the 2005 Gambling Act, the GamblingCommission has initiated its work in ensuring that its rules and regulationswill be fit for purpose in preparation for when the Act becomes enforceable in2007. We will continue to work with our trade associations to assist the GamblingCommission to develop appropriate and proportionate regulations in this area andwe look forward to the proposed deregulation that the Gambling Commission willeventually introduce, such as extended betting shop opening hours and theinstallation of higher payout gaming machines. International activities William Hill has signed a memorandum of understanding with the Spanish gaminggroup Codere. The parties plan to create a joint venture to develop a sportsbetting business in Spain, subject to the joint venture receiving the relevantlicences once regulation is passed. Spain is one of the largest gambling marketsin Europe, and several of Spain's regions are now developing legislation toregulate sports betting, allowing the establishment of land-based businesses. Itis widely anticipated that the first of these regions will license sportsbetting in the next few months. Codere is a Spanish company dedicated to the private gaming sector in Europe andLatin America. With more than 25 years experience, it operates slot machines,bingo halls, sports betting outlets, racetracks and casinos in Spain, Italy,Central and South America. Dividends and capital structure The Company will pay an interim dividend of 7.25 pence per share (2005: 6.1pence per share) on 5 December 2006 to shareholders on the register on 3November 2006. The 18.9% increase in the proposed interim dividend reflects thepositive trading in the first half of 2006 and our confidence about the Group'sfuture prospects. Following the acquisition of Stanley Retail in June 2005 the Board consideredthe optimal capital structure and financing arrangements for William Hill as apublic company. In September 2005, the Board announced it intended to maintainan efficient and flexible capital structure and would achieve these objectivesby targeting 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 June 2006, £167.2m had been returned by means of on-market sharebuy-backs. The Board reconfirms its commitment to maintaining an efficient and flexiblecapital structure and its target net debt to EBITDA ratio of approximately 3.5times to be achieved using a combination of dividend payments and sharebuy-backs. A new five-year bank facility of £250m has been arranged to underpinthis objective. The net debt to EBITDA ratio at the period end was 3.1 times.The Board has targeted to return £150m-£225m in further share buy-backs by theend of 2007. This would increase the total buy-back programme from thepreviously announced target of £200m - £300m, to circa £320m - £400m. Adoption of International Financial Reporting Standards (IFRS) The Group has prepared its interim statements for the 26 week period ended 27June 2006 using accounting policies consistent with IFRS. The main impacts of the IFRS adoption are set out in note 11 of the financialinformation. As previously indicated, the impact on Group profitability isnegligible and the adjustment to the balance sheet reflect primarily timingdifferences on the recognition of dividends and the presentation 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 three periods presented between grosswin and revenue as disclosed in the attached financial information: 26 weeks to 26 weeks to 52 weeks to 27 June 2006 28 June 2005 27 Dec 2005 £m £m £m Gross win 478.3 383.4 807.7VAT on AWPs and FOBTs (18.1) (0.4) (2.4) -------- -------- --------Revenue 460.2 383.0 805.3 -------- -------- -------- Current trading In the four weeks to 25 July 2006, the Group's gross win has increased by 13.3%in line with management expectations as the period includes the completion ofthe World Cup and some weak comparators for 2005. For the year as a whole, theBoard remains comfortable with consensus expectations. The Group estimates that the World Cup generated a total gross win of £17.5macross all three channels, of which £10.7m was included in the first half of theyear and £6.8m will be included in the second half. We estimate that roughlyhalf of the gross win generated by this competition represented substitution ofbetting on other sports events. Unaudited Unaudited 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 Notes £m £m £m---------------------------- ------ --------- --------- --------- Amounts wagered 2 6,561.0 5,054.5 10,746.1---------------------------- ------ --------- --------- --------- Revenue 2 460.2 383.0 805.3Cost of sales (80.7) (85.2) (174.1)---------------------------- ------ --------- --------- ---------Gross profit 2 379.5 297.8 631.2Other operating income 3.8 3.0 5.9Other operating expenses (225.0) (178.9) (394.7)Share of results ofassociate 1.7 1.4 2.6Exceptional items 3 - (7.2) (26.9)---------------------------- ------ --------- --------- ---------Operating profit 2 160.0 116.1 218.1Investment income 4 6.6 5.6 11.1Finance costs 5 (33.1) (22.6) (54.6)---------------------------- ------ --------- --------- ---------Profit before tax 2 133.5 99.1 174.6Tax 6 (38.1) (31.5) (61.5)---------------------------- ------ --------- --------- ---------Profit for the period 95.4 67.6 113.1---------------------------- ------ --------- --------- --------- Earnings per share (pence)Basic 8 25.5 17.2 29.0Diluted 8 25.1 16.9 28.6---------------------------- ------ --------- --------- --------- All amounts relate to continuing operations for the current financial period. Consolidated Statement of Recognised Income and Expensefor the 26 weeks ended 27 June 2006 Unaudited Unaudited 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m ---------------------------- --------- --------- --------- Gain/(loss) on cash flow hedges 9.5 (1.3) (0.5)Actuarial gain/(loss) ondefined benefit pension scheme 9.0 (5.7) (1.6)Exchange difference ontranslation of foreignoperations - (0.1) -Tax on items taken directlyto equity (5.8) 2.2 0.2Change in associate netassets due to sharerepurchase (1.6) - ----------------------------- --------- --------- ---------Net income/(loss) recognised directly in equity 11.1 (4.9) (1.9)Transferred to income statement on cash flow hedges 0.6 0.4 1.4Profit for the period 95.4 67.6 113.1---------------------------- --------- --------- ---------Total recognised income andexpense for the period 107.1 63.1 112.6---------------------------- --------- --------- --------- Unaudited Unaudited 27 June 28 June 27 December 2006 2005 2005 Notes £m £m £m------------------------------- ----- --------- --------- --------- Non-current assetsGoodwill 865.7 876.4 865.7Other intangible assets 471.9 477.7 467.0Property, plant and equipment 190.6 162.6 174.5Interest in associate 3.5 4.3 3.4Deferred tax assets 14.0 25.5 17.5------------------------------- ----- --------- --------- --------- 1,545.7 1,546.5 1,528.1------------------------------- ----- --------- --------- ---------Current assetsInventories 0.7 0.3 0.4Trade and other receivables 34.4 19.2 20.4Assets held for resale - 14.5 -Cash and cash equivalents 87.6 160.1 76.6------------------------------- ----- --------- --------- --------- 122.7 194.1 97.4------------------------------- ----- --------- --------- --------- Total assets 2 1,668.4 1,740.6 1,625.5------------------------------- ----- --------- --------- --------- Current liabilitiesTrade and other payables (108.6) (86.1) (87.0)Tax liabilities (80.6) (58.4) (56.7)Bank overdraft and loans (0.8) - -------------------------------- ----- --------- --------- --------- (190.0) (144.5) (143.7)------------------------------- ----- --------- --------- --------- Non current liabilitiesBank loans due after more than oneyear (1,048.2) (1,075.6) (1,016.1)Retirement benefit obligations (41.2) (62.3) (49.3)Other provisions (1.7) - (7.5)Deferred tax liabilities (163.9) (161.8) (160.3)------------------------------- ----- --------- --------- --------- (1,255.0) (1,299.7) (1,233.2)------------------------------- ----- --------- --------- --------- Total liabilities 2 (1,445.0) (1,444.2) (1,376.9)------------------------------- ----- --------- --------- --------- Net assets 223.4 296.4 248.6------------------------------- ----- --------- --------- --------- EquityCalled up share capital 9 37.6 40.5 39.1Share premium account 9 311.3 311.3 311.3Capital redemption reserve 9 4.6 1.7 3.1Merger reserve 9 (26.1) (26.1) (26.1)Own shares held 9 (51.4) (59.3) (57.5)Hedging and translation reserves 9 6.0 (2.9) (1.1)Retained earnings 9 (58.6) 31.2 (20.2)------------------------------- ----- --------- --------- ---------Total equity 9 223.4 296.4 248.6------------------------------- ----- --------- --------- --------- Unaudited Unaudited 26 weeks 26 weeks ended 52 weeks ended ended 27 June 28 June 27 December 2006 2005 2005 Notes £m £m £m-------------------------------- ---- --------- --------- --------- Net cash from operatingactivities 10 145.2 91.7 156.6-------------------------------- ---- --------- --------- --------- Investing activitiesDividend from associate - - 2.1Interest received 1.4 1.4 2.6Proceeds on disposal ofproperty, plant andequipment 2.3 0.4 0.7Purchases of property,plant and equipment (30.2) (23.1) (52.0)Purchases of bettinglicences (1.1) (0.9) (1.9)Expenditure on computersoftware (4.8) (2.0) (2.5)Acquisition ofsubsidiary - (500.2) (498.6)Disposal of LBOs net ofcosts - - 34.4-------------------------------- ---- --------- --------- ---------Net cash used ininvesting activities (32.4) (524.4) (515.2)-------------------------------- ---- --------- --------- --------- Financing activitiesPurchase of own shares (88.9) - (76.8)SAYE share optionredemptions 0.1 - 2.7Dividends paid (45.4) (43.1) (66.6)Repayments of borrowings - (500.0) (500.0)New bank loans raised 32.4 1,080.0 1,020.0New facility debt issuecosts - (4.6) (4.6)-------------------------------- ---- --------- --------- ---------Net cash used infinancing activities (101.8) 532.3 374.7-------------------------------- ---- --------- --------- --------- Net increase in cash and cash equivalents in the period 11.0 99.6 16.1Cash and cash equivalents at start of period 76.6 60.5 60.5-------------------------------- ---- --------- --------- ---------Cash and cash equivalents at end of period 87.6 160.1 76.6-------------------------------- ---- --------- --------- --------- 1. Basis of accounting 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. Prior to this accounting period, the Group prepared its audited annual financialstatements under UK Generally Accepted Accounting Principles (UK GAAP). Forperiods commencing 28 December 2005, the Group is required to prepare its annualconsolidated financial statements in accordance with International FinancialReporting Standards (IFRS) including International Accounting Standards (IAS)and interpretations issued by the International Accounting Standards Board(IASB) and its committees, and as endorsed by the European Commission. As thefinancial statements for the 52 weeks ended 26 December 2006 will includecomparatives for the 52 weeks ended 27 December 2005, the Group's date oftransition to IFRS under IFRS 1 'First-time Adoption of International FinancialReporting Standards' is 29 December 2004 and the comparatives will be restatedunder the provisions of IFRS. Note 11 of this interim financial information setsout how the Group's previously reported performance and financial position areaffected by the change to IFRS. The interim financial information for the 26 weeks ended 27 June 2006, whichhave been approved by a committee of the board of directors on 31 July 2006, hasbeen 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. This interimreport should therefore be read in conjunction with the 2005 pro-formainformation. The accounting policies used in the preparation of the interim financialinformation have been consistently applied to all periods presented. The Grouphas not adopted all of the provisions of IAS 34 'Interim Financial Reporting' inthis interim financial information. 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 will be required to establish its IFRSaccounting policies as at 26 December 2006 and, in general, apply theseretrospectively to determine the IFRS opening balance sheet at its date oftransition, 29 December 2004. IFRS 1 provides a number of optional exceptions tothis general principle. The most significant of these are set out below,together with a description in each case of whether an exception has beenadopted 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. 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 but not fullyvested at 29 December 2004. 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. The interim report for the 26 weeks ended 27 June 2006 does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The results for the 52 week period ended 27 December 2005 have been filed withthe Registrar of Companies. The auditors' report contained therein, wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. 2. Segmental information For management purposes, the Group is currently organised into three principaloperating divisions - retail, telephone and interactive. These divisions are thebasis on which the Group reports its primary segment information. Business segment information for the 26 weeks ended 27 June 2006: Retail Telephone Interactive Other Corporate Group £m £m £m £m £m £m------------------ ------- ------- ------- ------- ------- ------- Amounts wagered 5,695.8 324.4 526.9 13.9 - 6,561.0Payout (5,339.5) (294.5) (456.2) (10.6) - (6,100.8)------------------ ------- ------- ------- ------- ------- -------Revenue 356.3 29.9 70.7 3.3 - 460.2GPT, duty, levies and other cost ofsales (58.9) (7.6) (13.8) (0.4) - (80.7)------------------ ------- ------- ------- ------- ------- -------Gross profit 297.4 22.3 56.9 2.9 - 379.5Depreciation (11.8) (0.7) (1.1) (0.1) (0.5) (14.2)Other administrativeexpenses (161.5) (15.2) (19.9) (3.8) (6.6) (207.0)Share of resultof associate - - - - 1.7 1.7------------------ ------- ------- ------- ------- ------- -------Operatingprofit/(loss) 124.1 6.4 35.9 (1.0) (5.4) 160.0Investment income - - - - 6.6 6.6Finance costs - - - - (33.1) (33.1)------------------ ------- ------- ------- ------- ------- -------Profit/(loss)before tax 124.1 6.4 35.9 (1.0) (31.9) 133.5------------------ ------- ------- ------- ------- ------- ------- Balance sheetinformationTotal assets 1,339.4 88.4 123.6 12.3 104.7 1,668.4Total liabilities (63.8) (6.6) (25.5) (0.5) (1,348.6) (1,445.0)Investment inassociate - - - - 3.5 3.5Capital additions 26.3 0.3 7.8 - 1.1 35.5------------------ ------- ------- ------- ------- ------- ------- 2. Segmental information (continued) Business segment information for the 26 weeks ended 28 June 2005: Retail Telephone Interactive Other Corporate Group £m £m £m £m £m £m------------------ ------- ------- ------- ------- ------- ------- Amounts wagered 4,298.7 331.8 409.7 14.3 - 5,054.5Payout (4,009.7) (303.2) (347.8) (10.8) - (4,671.5)------------------ ------- ------- ------- ------- ------- -------Revenue 289.0 28.6 61.9 3.5 - 383.0GPT, duty, levies and other cost ofsales (65.3) (7.7) (11.7) (0.5) - (85.2)------------------ ------- ------- ------- ------- ------- -------Gross profit 223.7 20.9 50.2 3.0 - 297.8Depreciation (8.0) (0.3) (0.5) (0.1) (0.4) (9.3)Other administrativeexpenses (126.7) (12.8) (18.0) (3.2) (5.9) (166.6)Share of resultof associate - - - - 1.4 1.4Exceptional items (4.4) - - - (2.8) (7.2)------------------ ------- ------- ------- ------- ------- -------Operating profit/(loss) 84.6 7.8 31.7 (0.3) (7.7) 116.1Investment income - - - - 5.6 5.6Finance costs - - - - (22.6) (22.6)------------------ ------- ------- ------- ------- ------- -------Profit/(loss)before tax 84.6 7.8 31.7 (0.3) (24.7) 99.1------------------ ------- ------- ------- ------- ------- ------- Balance sheetinformationTotal assets 1,317.1 79.6 138.1 15.4 190.4 1,740.6Total liabilities (48.6) (6.5) (16.7) (0.6) (1,371.8) (1,444.2)Investment inassociate - - - - 4.3 4.3Capital additions 18.6 - 3.8 - 0.4 22.8------------------ ------- ------- ------- ------- ------- ------- 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 and other 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)Other administrativeexpenses (283.1) (25.3) (37.3) (6.3) (15.2) (367.2)Share of resultof associate - - - - 2.6 2.6Exceptional items (23.9) a - - - (3.0) (26.9)------------------ ------- ------- ------- ------- ------- -------Operatingprofit/(loss) 160.3 13.0 61.2 (0.1) (16.3) 218.1Investment income - - - - 11.1 11.1Finance costs - - - - (54.6) (54.6)------------------ ------- ------- ------- ------- ------- -------Profit/(loss)before tax 160.3 13.0 61.2 (0.1) (59.8) 174.6------------------ ------- ------- ------- ------- ------- ------- (a) Included in £23.9m of exceptional items relating to the Retail channel are asset impairments of £5.4m in respect of technology and fascia assets acquired as part of Stanley Retail but of limited subsequent value to the integrated Group. 2. Segmental information (continued) Business segment information for the 52 weeks ended 27 December 2005(continued): Retail Telephone Interactive Other Corporate Group £m £m £m £m £m £m ------------------ ------- ------- ------- ------- ------- -------Balance sheetinformationTotal assets 1,316.9 87.0 120.3 14.8 86.5 1,625.5Total liabilities (208.5) (4.8) (20.4) (0.5) (1,142.7) (1,376.9)Investment inassociate - - - - 3.4 3.4Capital additions 46.6 2.1 3.6 - 1.0 53.3------------------ ------- ------- ------- ------- ------- ------- 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 and pension liability aswell as any assets and liabilities that cannot be allocated to a particularchannel other than on an arbitrary basis. Included within total assets bysegment are £681.0m, £80.4m, £97.2m and £7.1m (28 June 2005 - £691.7m, £80.4m,£97.2m and £7.1m; 27 December 2005 - £681.0m, £80.4m, £97.2m and £7.1m), whichrelates to goodwill allocated to the retail, telephone, interactive and stadiaoperations respectively. There are no inter-segmental sales within the Group. In accordance with IAS 14 'Segment Reporting', segmental 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 relevant to anunderstanding of the Group's financial performance. Exceptional operating costs are as follows: 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m --------------------------- --------- --------- --------- Costs of implementation ofEPOS and text systems 1 - 2.7 7.4Costs of integration ofStanley acquisition 2 - 1.7 19.0Costs of aborted return ofcapital scheme 3 - 2.8 3.0Profit on sale of LBOsdisposed 4 - - (2.5)--------------------------- --------- --------- --------- - 7.2 26.9 --------------------------- --------- --------- --------- (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 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. (4) Gain made on the disposal of the 12 William Hill LBOs, as part of the sale of 76 LBOs undertaken after the Office of Fair Trading review of the purchase of Stanley Retail. 3. Exceptional items (continued) Exceptional interest costs are as follows: 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m------------------------ --------- --------- --------- Write off of previouslycapitalised bank facilityfee - 2.2 2.3Breakage fee - 0.1 0.1------------------------ --------- --------- --------- - 2.3 2.4------------------------ --------- --------- --------- Following the negotiation of new banking arrangements and the consequentrepayment of the old bank facility, the unamortised costs associated with theold facility were written off. A tax credit of £1.8m was recognised in respect of the exceptional operatingcosts and interest costs in the 26 weeks ended 28 June 2005 and a tax charge of£0.6m was recognised in the 52 weeks ended 27 December 2005. These representedthe corporation tax attributable to these exceptional items. 4. Investment income 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m------------------------ --------- --------- --------- Interest on bank deposits 1.4 1.4 2.5Expected return on pensionscheme assets 5.2 4.2 8.6------------------------ --------- --------- --------- 6.6 5.6 11.1------------------------ --------- --------- --------- 5. Finance costs 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m------------------------ --------- --------- --------- Interest on bank loans andoverdrafts 27.2 15.0 41.5Amortisation of financecosts 0.5 0.4 1.0------------------------ --------- --------- --------- 27.7 15.4 42.5Interest on pension schemeliabilities 5.4 4.9 9.7------------------------ --------- --------- --------- 33.1 20.3 52.2Exceptional interest (note3) - 2.3 2.4------------------------ --------- --------- --------- 33.1 22.6 54.6------------------------ --------- --------- --------- 6. Tax on profit on ordinary activities The expected effective rate in respect of ordinary activities before exceptionalcosts and excluding associate income is 28.9% (26 weeks ended 28 June 2005 -31.1%; 52 weeks ended 27 December 2005 - 30.3%). The tax charge on ordinaryactivities after taxation has been calculated by applying this rate to theinterim profit (excluding associate income) of £131.8m. This is lower than thestatutory rate of 30% due to adjustment in respect of prior periods. 7. Dividends proposed and paid 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m------------------------ --------- --------- ---------Equity shares:- final dividend of 12.2p per share for the 52 weeks ended 27 December 2005 (11.0p per share for the 52 weeks ended 28 December 2004) 45.4 43.1 43.1 - interim dividend of 6.1p per share for the 26 weeks ended 28 June 2005 - - 23.5------------------------ --------- --------- --------- 45.4 43.1 66.6------------------------ --------- --------- ---------Proposed interim dividendof 7.25p per share for the26 weeks ended 27 June 2006 26.2 23.8 46.1------------------------ --------- --------- --------- The proposed interim dividend was approved by a committee of the board ofdirectors on 31 July 2006 and has not been included as a liability in thisfinancial information. The proposed interim dividend of 7.25p will be paid on 5December 2006 to all shareholders on the register on 3 November 2006. Under an agreement signed in November 2002, The William Hill Holdings 2001Employee Benefit Trust agreed to waive all dividends. As at 27 June 2006, thetrust held 1.2m ordinary shares. In addition, the Company does not pay dividendson the 9.4m shares held in Treasury. The Company estimates that 361.9m shareswill qualify for the interim dividend. 8. Earnings per share The earnings per share figures for the respective periods are as follows: 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 Pence Pence Pence------------------------ --------- --------- --------- Basic - adjusted 25.5 19.2 36.6Basic 25.5 17.2 29.0Diluted 25.1 16.9 28.6------------------------ --------- --------- --------- 8. Earnings per share (continued) The basic and diluted earnings per share are calculated based on the followingdata: 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m--------------------------- --------- --------- --------- Profit after tax for thefinancial period 95.4 67.6 113.1Exceptional items -operating expenses - 7.2 26.9Exceptional items -interest - 2.3 2.4Exceptional items - tax - (1.8) 0.6--------------------------- --------- --------- ---------Profit after tax for thefinancial period beforeexceptional items 95.4 75.3 143.0 ------------------------------------------------- 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 Number (m) Number (m) Number (m)---------------------------- --------- --------- --------- Basic weighted average number of shares 374.8 392.1 390.5Dilutive potential ordinary shares:Employee share awardsand options 5.6 7.1 5.5---------------------------- --------- --------- ---------Dilutive weightedaverage number of shares 380.4 399.2 396.0---------------------------- --------- --------- --------- 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 in the 26 weeks ended 27 June 2006 by 11.2m (26 weeksended 28 June 2005 - 13.3m; 52 weeks ended 27 December 2005 - 12.7m). 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. 9. Reserves Share Share Capital Merger Own Hedging Retained Total capital premium redemption reserve shares reserve earnings account reserve held £m £m £m £m £m £m £m £m At 29 December 2004 40.5 311.3 1.7 (26.1) (59.3) (1.7) 9.9 276.3Profit for the financialperiod - - - - - - 113.1 113.1Dividends (note 7) (66.6) (66.6)Items taken directly tostatement of recognisedincome and expense - - - - - 0.6 (1.1) (0.5)Expense recognised inrespect of shareremuneration - - - - - - 2.2 2.2Treasury shares purchased and cancelled (1.4) - 1.4 - - - (78.3) (78.3)Transfer of own shares torecipients - - - - 1.8 - 0.6 2.4 At 27 December 2005 39.1 311.3 3.1 (26.1) (57.5) (1.1) (20.2) 248.6Profit for the financialperiod - - - - - - 95.4 95.4Dividends (note 7) - - - - - - (45.4) (45.4)Items taken directly tostatement of recognisedincome and expense - - - - - 7.1 4.6 11.7Expense recognised inrespect of shareremuneration - - - - - - 2.0 2.0Treasury shares purchased and cancelled (1.5) - 1.5 - - - (88.9) (88.9)Transfer of own shares torecipients - - - - 6.1 - (6.1) - At 27 June 2006 37.6 311.3 4.6 (26.1) (51.4) 6.0 (58.6) 223.4 Own shares held at 27 June 2006 amounting to £51.4m comprise 9.4m shares(nominal value - £0.9m) held in treasury purchased for £50.0m 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 June 2006 the total market value of ownshares held was £63.2m. 10. Notes to the cash flow statement 26 weeks ended 26 weeks ended 52 weeks ended 27 June 28 June 27 December 2006 2005 2005 £m £m £m--------------------------- --------- --------- --------- Operating profit 160.0 116.1 218.1Adjustments for:Share of result of associate (1.7) (1.4) (2.6)Depreciation of property,plant and equipment 13.2 8.3 24.3Depreciation of computer software 1.0 1.0 2.7Gain on disposal of property, plant and equipment (3.5) (0.3) (0.2)Gain on disposal of LBOs - - (2.5)Cost charged in respect ofshare remuneration 2.0 0.9 2.2Defined benefit pension cost less cash contributions 0.7 0.6 (8.7)Movement in provisions (5.9) - 7.2--------------------------- --------- --------- --------- 165.8 125.2 240.5Operating cash flows beforemovements in working capital:Increase in inventories (0.3) - -Increase in receivables (2.4) (0.3) (1.6)Increase in payables 30.8 8.7 3.1--------------------------- --------- --------- ---------Cash generated by operations 193.9 133.6 242.0Income taxes paid (21.5) (26.6) (49.4)Interest paid (27.2) (15.3) (36.0)--------------------------- --------- --------- ---------Net cash from operating activities 145.2 91.7 156.6--------------------------- --------- --------- --------- 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 date of three months or less. Analysis and reconciliation of net debt: 28 December Cash Other 27 June flow non-cash 2005 items 2006 £m £m £m £m---------------------- -------- -------- -------- -------- Analysis of net debtCash and cash equivalents atbank and in hand 76.6 11.0 - 87.6Debt due within one year - (0.8) - (0.8)Debts due after more than oneyear (1,016.1) (31.6) (0.5) (1,048.2)---------------------- -------- -------- -------- --------Total (939.5) (21.4) (0.5) (961.4)---------------------- -------- -------- -------- -------- Other non-cash items of £0.5m comprise written off and amortised debt issuecosts. 11. Explanation of transition to IFRSs 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: UK GAAP Effects of IFRS transition to 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 other receivables 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 benefit obligations 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------------------------ ------ -------- ---------- ---------- 11. Explanation of transition to IFRS (continued) Reconciliation of equity at 28 June 2005: UK GAAP Effects of IFRS transition to IFRS Notes £m £m £m------------------------- ------ --------- ---------- ---------- Goodwill f,h 1,193.9 (317.5) 876.4Other intangible assets a,h - 477.7 477.7Property, plant andequipment a 178.3 (15.7) 162.6Interest in associate 4.3 - 4.3Deferred tax assets b,c,d,g 1.6 23.9 25.5------------------------- ------ --------- ---------- ----------Total non-current assets 1,378.1 168.4 1,546.5------------------------- ------ --------- ---------- ---------- Inventories 0.3 - 0.3Trade and other receivables 19.2 - 19.2Assets held for resale 14.5 - 14.5Cash and cash equivalents 160.1 - 160.1------------------------- ------ --------- ---------- ----------Total current assets 194.1 - 194.1------------------------- ------ --------- ---------- ----------Total assets 1,572.2 168.4 1,740.6--------------------- ------ ---------- ---------- ---------- Trade and other payables d,e,f (103.8) 17.7 (86.1)Tax liabilities (58.4) - (58.4)Bank loans due after morethan one year (1,075.6) - (1,075.6)Retired benefit obligations b,g (43.4) (18.9) (62.3)Deferred tax liabilities c,h,i - (161.8) (161.8)------------------------- ------ --------- ---------- ----------Total liabilities (1,281.2) (163.0) (1,444.2)------------------------- ------ --------- ---------- ---------- Net assets 291.0 5.4 296.4------------------------- ------ --------- ---------- ---------- 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 translationreserves d - (2.9) (2.9)Retained earnings e,f,g,i 22.9 8.3 31.2--------------------- ------ ---------- ---------- ----------Total equity 291.0 5.4 296.4--------------------- ------ ---------- ---------- ---------- 11. Explanation of transition to IFRS (continued) Reconciliation of equity at 27 December 2005: UK GAAP Effects of IFRS transition to 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 other receivables 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 benefit obligations 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------------------------- ------ --------- ---------- ---------- 11. Explanation of transition to IFRS (continued) Notes to the reconciliation of equity (a) Software classification - application software, which can be run independently from any specific hardware configuration, is typically included within other intangibles under IFRS rather than tangible assets as is the norm under UK GAAP. The effect of this is to reclassify software of £14.2m (28 June 2005 - £15.7m; 29 December 2004 - £14.8m) from tangible assets to intangible assets. Total net assets are not affected by this adjustment. (b) Deferred tax associated with pension liabilities - under IFRS deferred tax relating to the pension scheme cannot be netted off against the pension liability as it is under UK GAAP. This has the effect of increasing the Group's deferred tax asset by £13.6m (28 June 2005 - £18.6m; 29 December 2004 - £16.5m) with a consequent increase in the net pension liability presented. Net assets are not affected by this adjustment. (c) Deferred tax offset - due to more restrictive rules on the ability to offset deferred tax liabilities and assets, the deferred tax liabilities and assets are grossed up by £2.2m (28 June 2005 - £3.9m; 29 December 2004 - £1.3m). (d) Financial instruments - all derivative instruments are required by IFRS to be carried on the balance sheet at fair value. Under IFRS, hedge accounting for derivatives is only allowed where detailed documentation in accordance with IAS 39 is in place. This allows the movements in fair values of the relevant derivative instrument (but not the related borrowings) to be recognised directly in reserves and therefore not impact earnings. This issue will have no impact on the Group's earnings as acceptable hedge accounting documentation has been in place since 30 December 2003. However the balance sheet does reflect a financial liability of £1.6m (28 June 2005 - £4.2m; 29 December 2004 - £2.5m) representing the fair value of the relevant derivatives, as well as a related deferred tax asset of £0.5m (28 June 2005 - £1.3m; 29 December 2004 - £0.8m) offset by corresponding entries in a new 'hedging reserve'. (e) Dividends - under IFRS dividends payable may only be recorded as a liability 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 on the announcement of the Group's results. Currently under UK GAAP, dividends are recorded in 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 of the proposed dividend of £46.1m (28 June 2005 - £23.8m; 29 December 2004 - £43.1m). (f) Holiday pay - it is accepted practice under IFRS to provide for pay for holidays to which staff are entitled but which they have not yet taken. This has resulted in the recognition of an accrual for holiday pay of £1.9m, £0.4m of which arises from the Stanley acquisition and therefore affects goodwill calculation (28 June 2005 - £1.9m; 29 December 2004 - £1.5m). (g) Pensions - a difference arises in the valuation of the pension scheme assets under IFRS, because pension assets must be valued using bid prices rather than using mid-market prices as is the convention under UK GAAP and there are also differences in measuring the value of life assurance schemes. This results in an increase in the pension scheme liability of £3.9m (28 June 2005 - £0.3m; 29 December 2004 - £0.3m) and a consequent adjustment to deferred tax assets of £1.2m (28 June 2005 - £0.1m; 29 December 2004 - £0.1m). (h) Acquisitions - the Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that took place before 30 December 2003. The Group has adopted IFRS 3 'Business combinations' in full for all acquisitions that have occurred after this date. This has resulted in the recognition of additional intangible fixed assets of £452.8m (28 June 2005 - £462.0m; 29 December 2004 - £3.9m) and related deferred tax liabilities of £141.0m (28 June 2005 - £144.1m; 29 December 2004 - £1.0m). Under UK GAAP the intangible fixed assets would have been recognised in goodwill and the deferred tax liability would not have arisen. (i) Deferred tax on properties acquired via business combinations - under IFRS, a tax timing difference of £12.1m (28 June 2005 - £13.8m; 29 December 2004 - £13.8m) has been recognised in respect of properties previously acquired via acquisitions. 11. Explanation of transition to IFRS (continued) Reconciliation of profit or loss for 26 weeks ended 28 June 2005: UK GAAP Effects of IFRS transition to IFRS Notes £m £m £m---------------------- ------ ---------- ---------- ----------Revenue a 5,054.5 (4,671.5) 383.0Cost of sales a (4,756.7) 4,671.5 (85.2)---------------------- ------ ---------- ---------- ----------Gross profit 297.8 - 297.8Other operating income 3.0 - 3.0Other operating expenses (186.1) - (186.1)Share of results ofassociate b 2.0 (0.6) 1.4---------------------- ------ ---------- ---------- ----------Operating profit 116.7 (0.6) 116.1Investment income 5.6 - 5.6Finance costs (22.6) - (22.6)---------------------- ------ ---------- ---------- ----------Profit before tax 99.7 (0.6) 99.1Tax c (32.1) 0.6 (31.5)---------------------- ------ ---------- ---------- ----------Profit for the period 67.6 - 67.6---------------------- ------ ---------- ---------- ---------- Reconciliation of profit or loss for 52 weeks ended 27 December 2005: UK GAAP Effects of IFRS transition to 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---------------------- ------ ---------- ---------- ---------- 11. Explanation of transition to IFRS (continued) Notes to the reconciliation of profit or loss (a) Revenue and cost of sales - under IFRS revenue represents gains and losses on betting activity for all revenue streams. This is different from UK GAAP where revenue from retail, telephone and internet sportsbook (including FOBTs, games on the online arcade and other numbers bets) represents total amounts wagered by customers. The effect of this change is to reduce both revenue and cost of sales by £9,940.8m (26 weeks ended 28 June 2005 - £4,671.5m). This has no impact on operating profit. (b) Associate profit - under IFRS, the share of the associate's result included 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 UK GAAP. This has the effect of reducing operating profit by £1.0m (26 weeks ended 28 June 2005 - £0.6m), representing interest income of £0.1m (26 weeks ended 28 June 2005 - £nil) and the tax charge of the associate (see (c) below). (c) Tax charge - the tax charge is £2.8m (26 weeks ended 28 June 2005 - £0.6m) lower under IFRS compared to UK GAAP reflecting a combination of: • £1.1m reduction (26 weeks ended 28 June 2005 - £0.6m) arising from the different treatment of associate tax highlighted in (b) above; and • £1.7m reduction (26 weeks ended 28 June 2005 - £nil) 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 and 2004 There are no significant adjustments between the cash flow statements producedunder IFRS as against UK GAAP. Introduction We have been instructed by the Company to review the financial information forthe 26 week period ended 27 June 2006 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, theconsolidated balance sheet, the consolidated cash flow statement and relatednotes 1 to 11. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended27 June 2006. Deloitte & Touche LLPChartered AccountantsLondon 1 August 2006 A review does not provide assurance on the maintenance and integrity of thewebsite, including controls used to achieve this, and in particular whether anychanges may have occurred to the financial information since first published.These matters are the responsibility of the directors but no control procedurescan provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination offinancial information differs from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WMH.L