William Hill has announced a new dividend policy alongside its full year results, with the payout ratio to rise from c. 40% to c. 50%. A share buyback of £200m has also been declared, to be completed over the next 12 months. Nevertheless, the shares fell by around 1% in early morning trading.
The group reported a 1% decline in net revenue to £1,590.9m. Operating profit fell by 22% to £291.4m, principally due to an extra £87m of UK gambling duties. Excluding these extra taxes, operating profit would have grown by 2%. Adjusted EPS was 24.7p, down 17%, benefitting from lower tax and finance charges. The full-year dividend was increased by 2.5% to 12.5p per share.
Online (35% of sales) - net revenue rose 4% to £550.7m, but operating profit fell 29% to £126.5m, as the group absorbed an additional £66.4m of Point of Consumption taxes in the UK. Excluding that additional cost, operating profit would have grown 9%.
Retail (56% of sales) - net revenue fell by 2% to £889.5, impacted by the closure of 108 shops in 2014 and the absence of the 2014 World Cup. Operating profit fell by 11% to £171.4m, mainly due to an extra £19.1m in Machine Games Duty; excluding which profit would have declined by 1%.
William Hill Australia (6% of sales) - net revenue declined by 11% on a local currency basis and operating profit declined 41%, with trading impacted by the transition to the William Hill brand. Australia exited 2015 with net revenue growth in local currency terms.
William Hill US (2% of sales) - net revenue was 12% higher (local currency: +5%) but operating profit fell 5% (local currency: -11%), reflecting higher operating costs.
The roll out of proprietary self-service betting terminals (SSBTs) in Retail, rapid innovation in the Online business and an improved outlook in Australia following recent investments, are expected to support future growth. The group is confident in the outlook for the year ahead.
2015 wasn't a great year for the bookmakers, including William Hill. The year started with tax changes that brought online earnings into the taxman's net, whilst Machine Gaming Duty was increased sharply, hitting Retail profitability too. Then there was an exceptionally unfavourable run of results earlier in the year that saw the punters walking away, pockets bulging.
The industry will always be exposed to the risk of unfavourable sporting results, but in the long run the bookie always wins. Regulation is a bigger concern. Retail profits are very dependent on fixed odds betting terminals. There is nothing to stop politicians taxing these machines more heavily in the future or introducing further measures to curb their usage.
The online gambling market is growing strongly but competition is intense. The operational challenges accompanying the launch of the new Mobile app, combined with management changes, suggest William Hill's online business isn't firing on all cylinders. However, the group is confident the investments being made in technology and innovation will support future growth.
In 2016 the group will benefit from the European Championships. Growth in the long run will depend on the success of the online and overseas ventures, while holding the retail business steady in the face of political and regulatory scrutiny. In the meantime shareholders benefit from a prospective yield of 3.3%, which looks well backed up by cash flow. The announcement of a share buyback and increased dividend payout ratio suggest the group will prioritise returning more cash to shareholders, rather than chase acquisitions; which seems a sensible strategy.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.