William Hill PLC Annual Report and Accounts 2010 W Illia M H Ill
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William Hill PLC PLC Hill William William Hill PLC Greenside House Annual Report and Accounts 2010 50 Station Road Wood Green London N22 7TP T 020 8918 3600 Annual Report and Accounts 2010 Accounts and Report Annual F 020 8918 3775 Registered number: 421 2563 England Transforming. Innovating. Performing. Contents Overview William Hill at a glance 01 Chairman’s statement 02 Business review Business Chief Executive’s overview 04 Divisional overview 08 Financial review 16 Regulatory review 19 Managing our risks 22 Corporate responsibility 24 William Hill is the UK’s leading bookmaker and one of the most recognised and trusted betting and gaming brands in the country. Well-known for our 75-year sports-betting heritage, Governance Board of Directors 34 we also offer a full range of gaming products. Directors’ Report 36 We are continuously evolving our product range to meet the changing demands of a wide Directors’ Remuneration Report 39 and diverse customer base looking for an Statement on Corporate Governance 46 exciting and entertaining gambling experience. Report of the Nomination Committee 51 On the high street, online, on the phone and Report of the Audit and Risk on the move, William Hill offers a market-leading Management Committee 52 betting and gaming experience. Financial statements Financial Statement of Directors’ Responsibilities 54 ‘The Home of Betting’ showcases some of the ways we are developing Group Independent Auditor’s Report 55 our business through our service, Group Financial Statements 57 products, technology and our people. Parent Company Independent Auditor’s Report 106 Parent Company Financial Statements 108 Five-Year Summary 117 Shareholder Information 118 Abbreviations and Glossary 119 William Hill PLC Annual Report and Accounts 2010 William Hill at a glance William Hill at a glance Chairman’s statement We are one of Overview the best-known and most trusted names in the gambling industry. We provide gaming and £276.8m Operating profit1 generated in 2010 betting services and are in £1,071.8m the process of transforming Net revenue achieved in 2010 our brand across our two 47:53 Even balance between gaming (47%) core channels. and betting (53%) 16,900 People employed around the world Retail Online More detail The UK’s leading high-street More detail on page 08 on page 12 A leading European operator bookmaker William Hill Online is one of Europe’s We are the UK’s number one leading online betting and gaming bookmaker with 2,377 shops companies through williamhill.com across the UK and in Ireland. and a series of other gaming websites. Over-the-counter betting on sports Sportsbook and other events Casino Gaming machines Poker Bingo 1 Operating profit is defined as pre-exceptional profit before tax, interest and amortisation of £3.6m (2009: £5.5m) of certain Online intangible assets (see page 117) report2010.williamhillplc.co.uk 01 Chairman’s statement Gareth Davies Our ongoing transformation delivers strong performance Performance overview In my first statement as Chairman of William Hill PLC, I am pleased to report that the ongoing transformation of the business delivered a strong result in 2010, with outstanding growth from William Hill Online and a positive performance from the Retail channel against a backdrop of challenging economic conditions for our customers. In its second year of operation, William Hill Online achieved growth of 24% in net revenue and 22% in operating profit1, particularly benefiting from our efforts to expand and enhance our sports-betting and in-play offering. We also saw a strong performance from machines and football betting in Retail, reflecting the continued diversification of that channel and the benefit of a good World Cup result. This led to Retail growth of 8% in amounts wagered and 3% net revenue growth, with operating profit1 slightly ahead of the prior year. The restructuring of our Telephone channel, which achieved a small operating profit1, was successfully implemented in February 2011. Overall, this resulted in a 7% increase in Group net revenue and an 8% increase in pre-exceptional profit before interest and tax. Basic adjusted earnings per share and basic earnings per share were 5% and 96% higher respectively, reflecting the improved financial result and in spite of the average number of shares being 9% higher in 2010 following the rights issue in March 2009. Strong cash flow and balance sheet The Group continues to be highly cash generative, with net cash inflow from operating activities of £224m in the year and a reduction in net debt for covenant purposes of more than £100m to just under £500m. In November 2010, we further strengthened the balance sheet by refinancing our bank debt facility, which was otherwise due to mature in March 2012. Our debt maturity profile is extended, with the new £550m facility maturing in November 2015 and our £300m bond maturing in November 2016. The new revolving facility enables more efficient use of the Group’s capital and overall finance costs are expected to reduce as a result of a lower marginal cost of borrowing, lower amortisation of fees and de-designation of the remaining effective interest rate hedging arrangements. Dividend The Board has approved a final dividend of 5.8p per share (2009: second interim dividend of 5.0p per share), giving a total 2010 dividend of 8.3p per share (2009: 7.5p per share). 02 William Hill PLC Annual Report and Accounts 2010 William Hill at a glance Chairman’s statement Overview Net revenue £m Board changes +7% In August 2010, Charles Scott stood down as Chairman after six years in the role and after more than ten years’ total service on the Board. On behalf of my fellow directors, Group KPI I would like to record the Board’s thanks to Charlie for his contribution to the success 2008 963.7 and development of the Group. During his tenure, he saw not only the successful 2009 997.9 flotation of the business in 2002 but also the diversification of the Retail business, the 2010 1,071.8 acquisition of the Stanley Leisure estate and the Playtech deal, which has contributed Net revenue grew across all three channels in to the transformation of the Group’s online business. 2010. William Hill Online delivered 24% net revenue growth, driven by an outstanding 95% increase in Sportsbook. Retail benefited from 11% growth I was pleased to join the Group as non-executive Chairman on 1 September 2010. in gaming machines offsetting a 1% decline In my previous role, I was Chief Executive Officer of Imperial Tobacco Group PLC, in over-the-counter net revenue with customers a position I had held for 14 years as part of a 38-year career with the company. I am affected by the economic climate. Telephone benefited from an improved net revenue margin enthusiastic about drawing on my experience in the development and execution of offsetting lower amounts wagered. strategy to help William Hill become a significant multi-national business in its sector. As highlighted in last year’s report, Neil Cooper joined the Board as Group Finance 1 Director in May. His previous roles at Bovis Homes Group PLC and Whitbread PLC give Operating profit £m him good experience in managing the financial aspects of a complex, multi-site +7% leisure business. Group KPI I look forward to working with Ralph Topping, Neil Cooper and the non-executive directors 2008 278.6 in the continuing transformation of the well-respected and trusted William Hill business. 2009 258.5 2010 276.8 William Hill Online’s top-line growth translated into Corporate governance and responsibility a strong operating profit1 result, up 22%. In Retail, cost growth of 5% largely offset the revenue growth We are committed to high standards of corporate governance and corporate to leave operating profit1 slightly ahead year-on- responsibility in the furtherance of shareholders’ interests and protection of key 1 year. Telephone returned to a small operating profit stakeholders, including customers and employees. We have continued to make after being loss-making in 2009. Central costs increased 35%, partly as a result of higher bonus good progress in these areas, particularly in increasing our recycling, reinforcing our payments reflecting a better-than-expected Group ‘Think 21’ age-protection measures and developing and supporting our employees. performance and through other employee costs. An overview of this year’s progress is published on pages 24 to 33 and 46 to 50. Our people are key to delivering sustainable shareholder value and I would like to Earnings per share p recognise and thank them for their commitment throughout 2010. It is their efforts (basic, adjusted) that have enabled us, in spite of the challenging economic conditions, to deliver these strong results. +5% Group KPI 2008 31.9 2009 20.6 Outlook 2010 21.7 Looking forward, while we recognise the economic environment will continue to be The 5% growth in EPS reflects the improvement challenging in 2011 for all consumers, we are confident our customer-focused, in operating profit1, offset by a 9% increase in multi-channel approach, extensive product offering and our exploitation of the average number of shares in 2010 following the one-for-one rights issue in March 2009. technological advances ensure we are well placed. The number of average shares was 697.9 million in 2010, 641.3 million in 2009 and 494.4 million We are continuing to expand our product offering and to invest in technology to in 2008. enhance the customer experience, particularly in Online. We are also using our trading capability to deliver differentiating pricing and offers, and increasing the profile of our brand through continuing marketing investment.