WILLIAM HILL PLC HALF-YEAR RESULTS ANALYST PRESENTATION 2 August - PDF document

WILLIAM HILL PLC HALF-YEAR RESULTS ANALYST PRESENTATION 2 August 2017 Philip Bowcock, CEO SLIDE 1: TITLE SLIDE Good morning, everyone. Thank you for joining us. I’ll do a quick intro first and then hand over to Mark Summerfield for the numbers. SLIDE 2: OVERVIEW Overall, we’ve had a positive start to the year with wagering growth across all four divisions. Gro up net revenue is up 3%, even though we’re rolling over our best ever EURO tournament and had tough football results in H1. The trends for Online are very encouraging, Retail is outperforming its competitors, Australia is pushing hard on product innovatio ns and the US is starting to look really quite interesting. We’re making good progress on our strategic priorities and I’ll talk about the UK, international and the transformation project later. So, while adjusted operating profit was down slightly, thanks to a substantial hit from the gross win margins, we’re feeling very good about the full year given the underlying performance. In financial terms, the balance sheet remains strong at 1.7x net debt to EBITDA, down from 1.8x at the full-year. Adjusted EPS was up 7% as interest costs are now lower. And the Board has increased the dividend to 4.26p, reflecting confidence in the progress we’re making against our strategy. As Ruth Prior, who is in the audience today, is joining us as CFO on 2 October, this will be the last time Mark presents to you for William Hill. So just let me say a huge thank you, Mark, for your support and hard work as our Interim CFO. I really appreci ate what you’ve given to the business over the last 12 months. Mark Summerfield, Interim CFO SLIDE 3: FINANCIAL REVIEW Thank you, Philip for those kind words. And good morning, everyone. SLIDE 4: GROUP INCOME STATEMENT Starting with the Group income statement, as Philip said, Group net revenue was up 3% despite unfavourable football results. With cost of sales up 8%, reflecting more gambling duty on higher UK

revenue as well as the racing levies in Australia and Online, and operating costs up 2%, adjusted operating profit declined 1%. Although there have been significant forex swings period on period, they are not material to the Group’s profit. On a constant currency basis, the Group’s profit would have been less than £1m lower. Net finance costs were significantly lower as a result of the bond refinancing we completed in 2016. As a reminder, net finance costs will come down by around £11m in 2017. Our effective tax rate on adjusted profits was 13.7%, in line with previous guidance. We continue to expect our full-year effective tax rate to be around14%. Exceptional items included £14.7m of restructuring costs relating to the transformation programme. Full year exceptional costs are estimated to be some £32m. Overall, then, adjusted EPS was up 7% at 11.2p and our proposed dividend is up 4% at 4.26p. SLIDE 5: GOOD UNDERLYING PERFORMANCE EXCLUDING EURO 2016 PERIOD Clearly last year benefited from our most successful ever EURO tournament. It’s impossible to be definitive on what proportion of revenues was substituted from other events in 2016 but it is likely to have been substantial. It would therefore be meaningless to just deduct the entire EURO related net revenue from a proforma comparative. To better show the improvement in performance we’ve excluded the three weeks of the EUROs from H1 2016 and compared it to the same 23 weeks in 2017. In Online, excluding the three weeks of overlap, the amounts wagered in the 23 weeks was up 13% against the +11% we have reported, not bad in itself. And Sportsbook net revenue grew 9% compared to the reported decrease of 1%. You will recall that our trading update in May on the first four months recorded wagering up 9%, so you can get a sense of the acceleration in wagering growth. Growth rates in gaming also continued to improve, up 9% after 23 weeks and 10% in H1 as a whole. Retail suffered the brunt of the poor football results in Q2, as you can see from the margin being down 1.5 percentage points even before rolling over the EUROs. Wagering and net gaming revenue were positive, +3% and +4% respectively over the first 23 weeks as well as being up over the half. SLIDE 6: GROSS WIN MARGINS HIT BY FOOTBALL RESULTS As we’ve said, football results were weaker than expected in the period. We’ve said that a lot recently and I suspect you’re as tired of hearing it as I am of saying it. However, we’re constantly reviewing whether unusual margins are results driven or something more structural. You can see from the charts that H1 is behind prior years. Margins of 21.5% for Retail and 7.3% for Online football are significantly below the averages over the previous five years. We were particularly hit in the later stages of the football season, not just by UK and European results but also by the number of goals scored and number of games with both teams scoring. So in Online, while we reported 7.5% for the first four months of the year, May and June delivered a margin of only 5.8%.

Retail over indexes on football compared to our peers, and so was particularly impacted. However, we always need to balance margin with competitiveness and in Retail we looked to cement the content advantage we had in H1 with a competitive proposition on our SSBTs. Going into H2, our SSBTs will have more content and we have replicated our Retail coupons and bet slips. As such, we will look to finesse margins. SLIDE 7: ONLINE INCOME STATEMENT Turning to the divisions. Online saw an 11% growth in amounts wagered o n the back of the significant improvements we’ve made to product and user experience. Within this, core markets grew 14%, with the UK up 13% and Italy and Spain up 9% in local currency, 20% in reported terms. Other markets declined 6% but were net revenue positive because of margin swings. Free bets were equivalent to 1.3% of amounts wagered, up from 1.1% last year. This was higher because, now we’re confident in our product, we’re backing it with strong campaigns. On a full -year basis, we’re likely to come back to be slightly closer to last year’s level. In Gaming, net revenue was up 10%, with 10% growth in both core and other markets and the UK up 9%. Cost of sales is higher given the increase in UK and gaming revenues, attracting Point of Consumption tax and revenue share payments. We’ve also been paying the horseracing levy since April; that will cost Online c£6 -7m on a full-year basis. As a reminder, from August we’ll be charged Point of Consumption Tax on gaming free bets, which is likely to cost £3.5m this year and around £8m on a full-year basis. Turning to operating costs. Employee costs were up 17% as we’ve increased headcount in some key areas, particularly the customer experience and data teams. We’ve spent a similar amount on mark eting year-on-year, including redeploying the £8m we invested in the EUROs in H1 of 2016. SLIDE 8: ONLINE KPIS Moving to the KPIs for Online. As expected, actives and new accounts are down, CPA is up and average revenue per user is up 9%. This very much reflects the changes we were making this time last year. But, importantly, the trends are continuing to improve. We’re seeing actives and new accounts grow in Q2 and the trend in H1 over the prior year is clear from the graph. This means ARPU will return to a more normal profile and CPA will improve over the next six to 12 months. SLIDE 9: RETAIL INCOME STATEMENT Retail continues to grow well with amounts wagered up 2%, driven by SSBTs and more horseracing fixtures, and gaming up 3%. As I said, the Sportsbook gross win margin was hurt by football results, with a good Cheltenham festival and Royal Ascot helping partially mitigate that. Operating costs are up 2%. The rise in employee costs has been pared back to inflationary levels through our restructuring. This has absorbed National Living Wage increases, which would otherwise be