William Hill warns regulatory changes will hit 2018 profit
William Hill was under the cosh on Tuesday after twarning that 2018 profit would be down on last year as its online business takes a hit from regulatory and tax changes, while weaker footfall and challenging high street conditions also weigh.
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The group said in a trading update that full-year operating profit would come in at between £225m and £245m, below last year's operating profit of £291.3m last year and market expectations.
The bookmaker said adverse regulatory and tax changes would hit online profit growth, reducing profit by £20m this year and a further £25m in 2019.
"The net effect in 2018 is expected to be lower given the offsetting positive impact of Online's otherwise strong underlying performance, and from 2020 onwards the online business is expected to return to strong operating profit growth," it said.
As far as its second half performance so far is concerned, the company noted weaker-than-expected football and racing margins and customer-friendly football results during the international break last month. In addition, it highlighted challenging high street conditions and said sportsbook revenues have declined during the period.
Online net revenue is up 4% year-to-date, with Sportbook revenue 8% higher and revenue from gaming 1% higher. Meanwhile, retail net revenue is down 4% year-to-date, with Sportbook down 6% and gaming 2% lower.
Chief executive officer Philip Bowcock said: "We are continuing to experience a period of significant change for our industry and have already made important changes over the last two years to transform our digital business, broaden the management team and enhance our financial flexibility ahead of key regulatory changes.
"The proposed acquisition of Mr Green will accelerate the diversification of William Hill into a more digital and international business."
In a separate statement ahead of its capital markets day, William Hill said it plans to at least double profits between 2018 and 2023, focusing on driving digital growth in the UK and internationally, growing a business of scale in the US and remodelling UK Retail.
The group said its target is to grow digital revenues to around £1bn by 2023, representing a compound annual growth rate of circa 10%.
At 0920 GMT, the shares were down 4.5% to 204.10p.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "For investors, William Hill is a trade-off between almost certain pain in the short term, and possible opportunity in the long run.
"The group’s large betting shop estate means it’s going to be hit hard by changes to rules around betting machines, and declining footfall on the high street isn’t doing it any favours either. Regulation requiring increased due diligence on online customers and higher rates of tax mean profits from the online business are set to head backwards this year and next as well.
"There’s a pot of gold at the end of the rainbow though, and that’s the $5bn-$19bn US sports betting market. William’s Hill’s been fast out the stalls, an advantage of already being an established player in Nevada, and has started racking up the bets. Early gross win margins in those states suggest the market could be very lucrative in the long run. It’s not going to be a walkover though, European bookies are jetting around the US agreeing tie-ups left right and centre, and William Hill will soon be up against some stiff competition."
Russ Mould, investment director at AJ Bell, said it seems odd that William Hill has issued a profit warning when many of the negative factors in today’s announcement were already known to the market.
"It suggests that analysts weren’t on the ball when it came to forecasting, forcing William Hill to say earnings would miss estimates in the market.
"The gambling firm says adverse regulatory and tax changes are behind today’s profit warning, such as having to carry out extra checks on people betting online.
"We already knew that UK remote gaming duty would increase from 15% to 21%, as it was announced in the Budget last month. And the Gambling Commission warned in the summer that it would impose fiercer penalties on betting companies if they didn’t step up controls in areas like money laundering and problem gamblers.
"The only real new bits of information were weaker than expected football and racing margins, plus customers winning lots of bets on international fixtures in October. It also suffered challenging high street conditions, but that shouldn’t be a surprise."