William Hill PLC
05 March 2007
Monday, 5th March 2007
The following amendment has been made to 2837s issued today at 0700GMT:
'William Hill PLC (the 'Group') today announces its results for the 52 weeks
ended 26 December 2006 ('the period').'
Please find the amended release below.
WILLIAM HILL PLC
ANNOUNCEMENT OF PRELIMINARY RESULTS
William Hill PLC (the 'Group') today announces its results for the 52 weeks
ended 26 December 2006 ('the period').
Highlights include the following:
• Gross win up 15% to £931.3m (2005: £807.7m)
• Profit on ordinary activities before finance charges and exceptional
items up 19% at £292.2m (2005: £245.0m)
• Cash generated from operations before tax and interest up 30% to £313.9m
(2005: £242.0m) which represents 107% of operating profit
• Basic earnings per share (EPS) pre exceptionals up 24% to 45.5 pence
(2005: 36.6 pence)
• Proposed final dividend up 19% to 14.5 pence per share (2005: 12.2 pence
per share) payable on 5 June 2007 to shareholders on the register on 27
April 2007
• The Group has purchased 43.3m shares for £257.0m via on-market share
buy-backs between July 2005 and December 2006
• Plans well developed to exploit opportunities in Spain and Italy in
conjunction with our partners, Codere
• In the nine weeks to 27 February 2007, the Group's gross win has
increased by 11%. At this early stage of the year, 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 the Group realising
the full-year benefits of the Stanley Retail acquisition and benefiting from
good organic growth throughout the rest of the business. Profit before finance
charges and exceptional items was 19% higher than last year and earnings per
share excluding exceptional items increased by 24%.
We remain confident of the Group's future prospects and are committed to
delivering value to shareholders. The Board has resolved to increase the final
dividend by 19% to 14.5 pence per share.'
David Harding, Chief Executive, added:
'I am delighted with the performance of the Group, particularly the Retail
business, which has prospered this year following the successful integration of
Stanley Retail and the completion of the roll-out of EPOS'.
Enquiries:
David Harding, Chief Executive Tel: 0208 918 3910
Simon Lane, Group Finance Director Tel: 0208 918 3910
James Bradley, 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 to
the presentation by dialling +44 (0) 1452 541 076. The presentation will be
recorded and will be available for a period of one week by dialling +44 (0) 1452
550 000 and using the replay access number 1161115#.
The slide presentation will be available on the Investor Relations section of
the website: www.williamhillplc.co.uk.
CHIEF EXECUTIVE'S REVIEW
2006 has seen the Group's strategy of generating organic growth, exploiting new
platforms and executing value-enhancing acquisitions continue to deliver
long-term value for shareholders. The Group produced a strong profit performance
in the period, fully leveraging the benefits of the Stanley Retail acquisition,
which was completed in June 2005. The year has also seen a strong performance
from FOBTs and the impact of the World Cup, both of which have boosted
year-on-year gross win growth while operating expenses continue to be kept under
tight control. Consequently, profit on ordinary activities before net finance
costs, taxation and exceptional items was up 19% to £292.2m (2005: £245.0m) and
earnings per share were 45.5p, a rise of 24% (after adjusting for last year's
exceptional items) compared to 2005.
In recognition of these excellent results, the Board is recommending a final
dividend of 14.5 pence per share, taking the full year dividend to 21.75 pence,
an increase of 19% on last year.
Retail channel
The Retail channel's gross win grew by 18% to £736.0m (6% excluding Stanley
Retail) and pre-exceptional profit increased by 24% to £225.9m (9% excluding
Stanley Retail).
Within the original William Hill estate (excluding Stanley Retail), total gross
win increased by 6% year-on-year. In this part of the estate, gross win from
over the counter (OTC) was flat while FOBT/AWP gross win was up 18%.
LBOs in the Stanley Retail estate performed better year-on-year than those in
the original William Hill estate with gross win growing by 7% for the full year
and second half gross win growth of 10% achieved. For the year as a whole, FOBT
gross win grew by 18% and OTC gross win increased by 4%.
The average number of FOBTs in the original William Hill estate increased to
6,034 (FY 2005: 5,892) in the period and in the Stanley Retail estate the
average number of FOBTs was 1,567 compared to 1,539 in the second half of last
year. The average net profit per machine per week in the William Hill estate was
£494 (FY 2005: £402) and in the Stanley Retail estate was £346 (second half of
2005: £287). The improved profitability in both estates was due to a combination
of greater gross win per machine and better contractual terms with our main FOBT
supplier Leisure Link, which were effective from May 2005. However, the
imposition of Amusement Machine Licence Duty in August 2006 has adversely
affected average weekly profitability of each terminal by £38.
The average number of AWPs traded in the period fell to 303 in 2006 (FY 2005:
353) within the William Hill estate. In the Stanley Retail estate, the average
number traded also fell from 386 AWPs in the second half of last year to 314 in
2006.
Non-exceptional costs in the channel were up 16% (5% excluding Stanley Retail).
Excluding Stanley Retail, there were minimal increases in staff costs due to
reduced overtime and premium payments under the new LBO staff employment
contracts and productivity improvements resulting from the investment in EPOS.
FOBT rentals fell due to more favourable contractual terms, which are
exclusively profit-share based, and AWP rentals fell due to the reduction in the
number of machines in the estate. Savings were also made due to a higher portion
of VAT expense being recoverable following the change in tax regime for FOBTs.
These savings were offset by increased provisions for staff bonuses; increases
in rent and rates due to increased LBO numbers and rent reviews; higher energy
costs reflecting general market conditions; and depreciation and maintenance
charges as a result of introducing new text and EPOS systems. There were no
exceptional costs in the current year. The prior period exceptional costs
related to the integration of the Stanley Retail acquisition.
We completed 233 development and LBO refurbishment projects in 2006 including 50
new licences, 70 extensions and resites and 113 LBO fittings. Overall, we spent
£40.1m on estate development in 2006.
At 26 December 2006, we had 2,165 LBOs in the United Kingdom, 9 in the Channel
Islands, 2 in the Isle of Man and 48 in the Republic of Ireland; a total of
2,224.
2006 has seen the introduction of the capability to take a wider range of Tote
Direct bets across the estate, which has been favourably received by our
customers. We also completed the rollout of our new text system and an EPOS
system throughout the Stanley Retail estate during the period and in consequence
the entire estate has been running on identical systems since the end of March.
Telephone channel
Telephone gross win grew by 8% to £57.5m and operating profit increased by 28%
to £16.7m.
The channel benefited from the World Cup and increased football betting in
general as well as more normal horseracing results. In addition there was some
favourable high roller activity especially in the second half of the year.
Costs in the channel were up 5% principally due to higher marketing spend
focused around the World Cup.
We ended the year with 160,000 active telephone customers (27 December 2005:
174,000).
Interactive channel
Interactive gross win increased 6% to £130.5m and operating profit showed a
small increase to £61.5m.
Growth in Interactive sportsbook gross win was modest in the period when
compared to our expectations at the beginning of the year. Since we launched our
Interactive channel in 1999, we have fully exploited our legacy bookmaking and
client management systems but it has become increasingly clear that the
Interactive sportsbook is being impacted by the relative inflexibility of our
current technology configuration. Our NextGen technology programme is designed
to rectify these issues and deliver systems clearly superior to anything
currently available to our major competitors. By the end of 2007, this programme
is expected to deliver a number of enhancements and give us a flexible platform
to more easily introduce better products going forward. We anticipate that these
changes will be undertaken alongside the technical changes required by the
Gambling Commission, which are yet to be finalised.
Despite the limitations of our current systems, we continued to increase our
range of in-running betting opportunities on our sportsbook and we launched 10
new arcade games during the period that expanded our offering to 20 games.
Poker and Casino has also had a challenging second half after an encouraging
start to the year. These products have been affected by strong competition
particularly following the withdrawal of many operators from the US market in
September 2006, which has impacted poker site liquidity in general and made the
competition for European customers more intense. We continue to have confidence
in the long-term prospects of these products and in December 2006, we extended
our contract with our poker and casino software partner, Cryptologic. As part of
the new contract, Cryptologic have made a significant commitment in respect of
game and other product development.
In October 2006, we decided to close our Interactive TV channel (WHTV) following
a review of its operations and the conclusion of a trial broadcast of its
content into our LBOs. Whilst we have exited this particular arrangement, we
remain committed to the strategy of supplying customers with a means to place
bets on an interactive TV platform and of supplying tailored content to our own
LBOs, once we have identified a profitable and cost effective means of doing so.
In January 2007, we launched internet skill gaming in partnership with
GameAccount, the world's largest integrated network of skill-based games.
Accessible through a tab on William Hill's homepage, the fully integrated
browser based skill games available on the site include multiplayer blackjack,
gin rummy and backgammon. We also launched an interactive bingo game in
partnership with Virtue Fusion in January. Early indications of trading from
both these ventures are encouraging.
Total active accounts increased to 405,000 as at 26 December 2006 (27 December
2005: 341,000).
Costs in the channel increased 10% mainly due to higher marketing spend, higher
technology charges and closure costs of WHTV.
Operating expenses
Expenses (net of operating income) for the Group were £445.3m, an increase of
15% (6% excluding Stanley Retail).
Excluding Stanley Retail, staff costs (which represented roughly half of our
total costs) increased 7% in 2006, mainly reflecting provisions for profit based
incentive schemes. Excluding these provisions from this period and the
comparative period, staff costs have risen by 2% reflecting a 3% general pay
award and an increase in the number of LBOs now trading, partly offset by an
improvement in productivity driven by the rollout of EPOS. Property costs, which
represented 17% of our total costs, were up 12% over the comparable period
reflecting higher energy costs and increases in rent and rates, in part driven
by an increase in average LBO size and an increase in the number of LBOs.
Depreciation costs increased 38% with the full year effects of the rollout of
EPOS and text systems along with the supporting technology, although this was
partly offset by staff costs savings. The cost of providing pictures and data to
our LBOs was up 7% over the comparable period due to the increased size of the
estate and price increases. Advertising and marketing costs were up 22% over the
comparable period reflecting World Cup and other more general web-based
advertising and promotions.
Stanley acquisition
The integration of the Stanley Retail estate was completed by the end of March
2006 in accordance with the plans we drew up in 2005. Key tasks achieved in 2006
were the completion of the re-branding of the LBOs, installation throughout the
Stanley Retail estate of the same version of EPOS and audio-visual text systems
already deployed in the William Hill estate and the closure of the Stanley
Retail head office. The Stanley Retail estate has delivered strong gross win
growth in 2006, particularly in the second half with gross win growth of 10%
achieved year-on-year. We remain confident that the acquisition will deliver the
synergies and other benefits of up to £20m we anticipated at the end of 2005,
which compares favourably with the original estimated synergies at the time of
the acquisition of £13m.
Regulatory development
The Gambling Commission has now been established and the Commission and DCMS are
in the process of developing the regulations, conditions, standards and guidance
under the Gambling Act 2005 and the Commission will take over its duty to
promote the licensing objectives under the Act with effect from 1 September
2007.
The Group is preparing for the implementation of these detailed requirements. We
have been heavily involved in dialogue with the Commission both by ourselves and
via our trade associations, with a view to ensuring that appropriate and
proportionate regulations are implemented. However, we remain concerned that
certain requirements have yet to be finalised, while the technical standards for
the remote businesses have recently been published for consultation with
finalised documentation not expected to be available until June. We are
concerned that insufficient time is being given to the industry to enable full
compliance with these technical standards from the beginning of September. We
will continue to hold discussions with the Commission to press for this and
other issues to be resolved in a practical way.
We also look forward to the proposed deregulation that the Gambling Act enables,
such as extended betting shop opening hours and the installation of higher
payout gaming machines, both of which will be permitted from 1 September 2007.
Cost of content
On 14 December 2006, the Government announced that it had decided to retain the
Horserace Betting Levy Board and the associated horserace betting levy scheme.
This follows the publication of the findings of a report compiled by an
independent committee under the chairmanship of Lord Donoghue. This committee
was established to investigate whether there was any alternative commercial
arrangements that could replace the current levy scheme but concluded that,
currently, there was not a secure and alternative funding mechanism for
horseracing. At the same time, the Government announced its intention to
modernise the existing levy mechanism by reducing as many of the administrative
burdens as possible. We welcome the Government's intentions to modernise the
scheme and we remain committed to providing a fair and equitable financial
contribution supporting the UK horseracing industry.
SIS, a company partly owned by the Group is currently the sole provider of UK
horse racing pictures and data content to bookmakers. SIS (via the betting
industry) has contracts, which expire at the end of 2007 with a number of UK
racecourses to broadcast pictures and data to LBOs. Recently a proposed joint
venture between Alphameric and Racing UK has claimed to have secured exclusive
transmission rights from up to 30 UK racecourses from the beginning of 2008.
This would mean that SIS would not be able to transmit pictures from these 30
tracks (except when they are generally available via terrestrial coverage) once
its current contracts expire. If this happens, we will have to decide whether to
have two different sources of pictures from the beginning of 2008 if we want to
maintain coverage of these horse tracks within our LBOs. This could imply an
extra cost for us but also an inferior service for customers, as the
co-ordination of the timing and broadcasting of events achieved by SIS would not
be possible with two different transmission sources. In the event that we decide
to take the service offered by the proposed joint venture, we plan to seek an
appropriate reduction in the level of our current funding of the UK horseracing
industry via the levy scheme.
International activities
In July 2006, the Group signed a non-binding memorandum of understanding with
the Spanish gaming group Codere. Codere is a company dedicated to the private
gaming sector in Europe and Latin 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.
The parties plan to create a joint venture to develop a sports betting business
in Spain. Spain is one of the largest gambling markets in Europe and the region
of Madrid has recently published (and several of Spain's regions are now
developing) legislation to regulate sports betting, allowing the establishment
of land-based businesses. The parties are planning to apply jointly for a
licence in Madrid shortly and intend to apply in other regions in Spain if
regulations are passed which make such applications attractive.
The Group has established a joint venture company with Codere relating to the
Italian gambling sector. Following a tendering process in 2006, the Group and
Codere were jointly awarded concessions to exploit licences issued as part of
the tender process launched in August 2006 by the Italian regulatory authority.
The award comprises 20 concessions to operate horseracing betting shops, 7
concessions to operate sports betting shops and 28 concessions relating to
sports betting points. Remote licences relating to horseracing and sports
betting were also applied for and granted. In addition to activating these units
the proposed joint venture intends to evaluate other opportunities for growth in
the Italian market.
Dividends and capital structure
The Company is proposing to pay a final dividend of 14.5 pence per share (2005:
12.2 pence per share) on 5 June 2007 to shareholders on the register on 27 April
2007. The 19% increase in the proposed final dividend reflects the strong
performance achieved in 2006 and our confidence about the Group's future
prospects.
Following the acquisition of Stanley Retail in June 2005, the Board considered
the optimal capital structure and financing arrangements for William Hill. In
September 2005, the Board announced it intended to maintain an efficient and
flexible capital structure and would achieve these objectives by targeting a
ratio of net debt to earnings before exceptional items, interest, tax,
depreciation and amortisation (EBITDA) of approximately 3.5 times to be achieved
over the medium term. A new five-year bank facility of £250m was arranged in
June 2006 to underpin this objective and the Board announced with its interim
results that they were increasing the total buy-back programme from the
previously announced target of £200m - £300m, to circa £320m - £400m by the end
of 2007. By the end of December 2006, the Group net debt to EBITDA ratio was 3.3
and £257.0m had been returned by means of on-market share buy-backs.
As we are now close to our target leverage and as we have current investment
commitments, both internationally through our joint ventures with Codere and
domestically in respect of some retail bolt-on acquisitions, we currently
estimate that the pace of our rolling share buyback programme in 2007 is likely
to slow. We remain committed to returning surplus capital to shareholders and
our buyback programme will be kept under regular review.
Adoption of International Financial Reporting Standards (IFRS)
The Group has prepared its financial statements for the 52 week period ended 26
December 2006 using accounting policies consistent with IFRS.
The main impacts of the IFRS adoption are set out in note 11 of these
preliminary financial statements. As previously indicated, the impact on Group
profitability is negligible and the adjustment to the balance sheet reflects
primarily timing differences 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 issue
related to IFRS that impacts the financial information. Sportsbook bets have
many of the characteristics of a derivative transaction as defined by IAS 39
'Financial Instruments: Recognition and Measurement' and consequently the Group
has accounted for them under the provisions of that accounting standard. The
main effect of this is that the amount recognised as revenue/turnover is now the
profit and loss of trading those sportsbook bets rather than the amount
originally staked. This is quite close to the gross win as previously disclosed
by the Group except for a difference in respect of the treatment of VAT levied
on FOBTs and AWPs. To prevent distortions in the year-on-year growth rates
achieved by the Group, we have continued to disclose gross win in the above
commentary as previously defined.
The following is a reconciliation for the periods presented between gross win
and revenue as disclosed in the attached financial statements:
52 weeks to 26 52 weeks to 27
Dec 2006 Dec 2005
£m £m
Gross win 931.3 807.7
VAT on AWPs and FOBTs (37.1) (2.4)
-------- --------
Revenue 894.2 805.3
-------- --------
Current trading
In the nine weeks to 27 February 2007, the Group's gross win has increased by
11% and costs remain under control. At this early stage of the year, the Board
remains comfortable with consensus expectations.
Consolidated Income Statement
52 Weeks Ended 26 December 2006
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
Notes £m £m
-------------------- -------- ---------- ----------
Amounts wagered 2 13,235.9 10,746.1
-------------------- -------- ---------- ----------
Revenue 2 894.2 805.3
Cost of sales (160.3) (174.1)
-------------------- -------- ---------- ----------
Gross profit 2 733.9 631.2
Other operating income 6.3 5.9
Other operating expenses (451.6) (394.7)
Exceptional operating expenses 3 - (26.9)
Share of results of associate 3.6 2.6
-------------------- -------- ---------- ----------
Operating profit 2 292.2 218.1
Investment income 4 13.0 11.1
Finance costs 3,5 (69.8) (54.6)
-------------------- -------- ---------- ----------
Profit before tax 2 235.4 174.6
Tax 3,6 (68.6) (61.5)
-------------------- -------- ---------- ----------
Profit for the period 166.8 113.1
-------------------- -------- ---------- ----------
-------------------- -------- ---------- ----------
Earnings per share (pence)
Basic 8 45.5 29.0
Diluted 8 44.9 28.6
-------------------- -------- ---------- ----------
Consolidated Statement of Recognised Income and Expense
for the 52 weeks ended 26 December 2006
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
Notes £m £m
---------------------------------- ------ ---------- ----------
Gain/(loss) on cash flow hedges 14.3 (0.5)
Actuarial gain/(loss) on defined benefit
pension scheme 16.7 (1.6)
Tax on items taken directly to equity (9.5) 0.2
Change in associate net assets due to
share repurchase (1.7) -
---------------------------------- ------ ---------- ----------
Net income recognised directly in equity 19.8 (1.9)
Transferred to income statement on cash
flow hedges 0.7 1.4
Profit for the period 166.8 113.1
---------------------------------- ------ ---------- ----------
Total recognised income and expense for
the period 187.3 112.6
---------------------------------- ------ ---------- ----------
Consolidated Balance Sheet
as at 26 December 2006
26 December 27 December
2006 2005
Notes £m £m
-------------------------------------- ---------- ---------- ----------
Non-current assets
Intangible assets 1,342.7 1,332.7
Property, plant and equipment 207.0 174.5
Interest in associate 5.3 3.4
Deferred tax asset 8.5 17.5
----------------------------------- ------ ---------- ----------
1,563.5 1,528.1
----------------------------------- ------ ---------- ----------
Current assets
Inventories 0.5 0.4
Trade and other receivables 30.4 20.4
Cash and cash equivalents 98.7 76.6
Derivative financial instruments 14.4 -
----------------------------------- ------ ---------- ----------
144.0 97.4
----------------------------------- ------ ---------- ----------
Total assets 2 1,707.5 1,625.5
----------------------------------- ------ ---------- ----------
Current liabilities
Trade and other payables (108.6) (79.5)
Current tax liabilities (66.3) (56.7)
Borrowings (0.9) -
Derivative financial instruments (5.6) (7.5)
----------------------------------- ------ ---------- ----------
(181.4) (143.7)
----------------------------------- ------ ---------- ----------
Non-current liabilities
Borrowings (1,141.2) (1,016.1)
Retirement benefit obligations (25.1) (49.3)
Long term provisions - (7.5)
Deferred tax liabilities (169.3) (160.3)
----------------------------------- ------ ---------- ----------
(1,335.6) (1,233.2)
----------------------------------- ------ ---------- ----------
Total liabilities 2 (1,517.0) (1,376.9)
----------------------------------- ------ ---------- ----------
Net assets 190.5 248.6
----------------------------------- ------ ---------- ----------
Equity
Called-up share capital 9 36.2 39.1
Share premium account 9 311.3 311.3
Capital redemption reserve 9 6.0 3.1
Merger reserve 9 (26.1) (26.1)
Own shares held 9 (46.9) (57.5)
Hedging reserve 9 9.4 (1.1)
Retained earnings 9 (99.4) (20.2)
----------------------------------- ------ ---------- ----------
Total equity 9 190.5 248.6
----------------------------------- ------ ---------- ----------
Consolidated Cash Flow Statement
52 weeks ended 26 December 2006
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
Notes £m £m
-------------------------------------- ---- ---------- ----------
Net cash from operating activities 10 204.6 156.6
------------------------------------ ---- ---------- ----------
Investing activities
Dividend from associate - 2.1
Interest received 2.9 2.6
Proceeds on disposal of property, plant
and equipment 5.9 0.7
Purchases of property, plant and
equipment (55.2) (52.0)
Purchases of betting licences (1.9) (1.9)
Expenditure on computer software (10.8) (2.5)
Acquisition of subsidiary - (498.6)
Disposal of LBOs net of costs - 34.4
------------------------------------ ---- ---------- ----------
Net cash used in investing activities (59.1) (515.2)
------------------------------------ ---- ---------- ----------
Financing activities
Purchase of own shares (178.4) (76.8)
SAYE share option redemptions 1.0 2.7
Dividends paid 7 (70.9) (66.6)
Repayments of borrowings (125.0) (500.0)
New bank loans raised 250.0 1,020.0
New facility debt issue costs (2.2) (4.6)
New finance leases 2.1 -
------------------------------------ ---- ---------- ----------
Net cash (used in)/from financing
activities (123.4) 374.7
------------------------------------ ---- ---------- ----------
Net increase in cash and cash equivalents
in the period 22.1 16.1
Cash and cash equivalents at start of
period 76.6 60.5
------------------------------------ ---- ---------- ----------
Cash and cash equivalents at end of
period 98.7 76.6
------------------------------------ ---- ---------- ----------
Notes to the Group Financial Statement
1. Basis of accounting
General information
William Hill PLC is a company incorporated in the United Kingdom under the
Companies Act 1985. The address of the registered office is Greenside House, 50
Station Road, London N22 7TP.
These financial statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Group operates.
Foreign operations are included in accordance with the policies set out below.
The Group has historically prepared its financial statements in accordance with
UK Generally Accepted Accounting Practices (UK GAAP). A European Union (EU)
Regulation issued in 2002 now requires the Group to report its results for the
period ending 26 December 2006 in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Commission. The date of
adoption and transition for the Group was the 29 December 2004 being the start
of the period of comparative information.
At the date of authorisation of these Group financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but are not yet effective:
IFRS 7 Financial instruments: disclosures;
IFRS 8 Operating segments;
IFRIC 7 Applying the restatement approach under IAS 29;
IFRIC 8 Scope of IFRS 2;
IFRIC 9 Reassessment of embedded derivatives;
IFRIC 10 Interim financial reporting and impairment;
IFRIC 11 IFRS 2: group and treasury share transactions; and
IFRIC 12 Service concession arrangements.
The Directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group except for additional disclosures on capital and
financial instruments when the relevant standards come into effect for periods
commencing on or after 1 January 2007.
The financial statements for the 52 weeks ended 26 December 2006, which have
been approved by a committee of the Board of directors on 4 March 2007, have
been prepared on the basis of the accounting policies set out in pages 5 to 11
of 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
preliminary report should therefore be read in conjunction with the 2005 pro-
forma information.
The financial statements set out in this preliminary announcement does not
constitute the Company's statutory accounts for the 52 week period ended 26
December 2006 or the 52 week period ended 27 December 2005, but is derived from
those accounts. Statutory accounts for the 52 week period ended 27 December 2005
have been delivered to the Registrar of Companies and those for the 52 week
period ended 26 December 2006 will be delivered following the Company's Annual
General Meeting. The auditors have reported on those accounts and their reports
were unqualified and did not contain statements under section 237(2) or (3)
Companies Act 1985.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company expects to publish full
financial statements that comply with IFRS in April 2007.
Basis of accounting under IFRS
The Group financial statements have been prepared in accordance with IFRS. The
Group financial statements have also been prepared in accordance with IFRS
adopted by the European Union and therefore the Group financial statements
comply with Article 4 of the EU IAS Regulation.
First-time adoption of International Financial Reporting Standards
The financial statements have been prepared in accordance with IFRS for the
first time. The disclosures required by IFRS 1 'First-time Adoption of
International Financial Reporting Standards' concerning the transition from UK
GAAP to IFRS are given in note 11.
IFRS 1 sets out the procedures that the Group must follow when it adopts IFRS
for the first time as the basis for preparing its consolidated financial
statements. Under IFRS 1 the Group is required to establish its IFRS accounting
policies as at 26 December 2006 and, in general, apply these retrospectively to
determine the IFRS opening balance sheet at its date of transition, 29 December
2004.
IFRS 1 provides a number of optional exceptions to this general principle. The
most significant of these are set out below, together with a description in each
case of whether an exception has been adopted 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 December
2003. As a result, in the opening balance sheet, goodwill arising from past
business combinations amounting to £733.3m remains as stated under UK GAAP at 30
December 2003.
Employee benefits
The Group has recognised actuarial gains and losses in relation to employee
benefit schemes at 29 December 2004. The Group has recognised actuarial gains
and losses in full in the period in which they occur in the Statement of
Recognised 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 relevant
share based payment transactions granted after 7 November 2002 that were
unvested as of 1 January 2005.
Financial instruments
The Group has applied IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'
for all periods presented and has therefore not taken advantage of the exemption
in IFRS 1 that would enable the Group to only apply these standards from 28
December 2005.
General
The Group financial statements have been prepared on the historical cost basis,
except for the revaluation of certain financial instruments.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
26 December 2006. Control is achieved where the Company has the power to govern
the financial and operating policies of an investee entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the Group. All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.
Business combination
On acquisition, the assets, liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to profit and loss in the period of
acquisition.
2. Segment information
For management purposes, the Group is currently organised into three operating
divisions - Retail, Telephone and Interactive. These divisions are the basis on
which the Group reports its primary segment information.
Business segment information for the 52 weeks ended 26 December 2006:
Retail Telephone Interactive Other Corporate Group
£m £m £m £m £m £m
------------------ ------- ------- ------- ------- ------- -------
Amounts wagered 11,486.0 659.9 1,060.3 29.7 - 13,235.9
Payout (10,787.1) (602.4) (929.8) (22.4) - (12,341.7)
------------------ ------- ------- ------- ------- ------- -------
Revenue 698.9 57.5 130.5 7.3 - 894.2
GPT, duty,
levies and other cost
of sales (120.5) (12.9) (26.0) (0.9) - (160.3)
------------------ ------- ------- ------- ------- ------- -------
Gross profit 578.4 44.6 104.5 6.4 - 733.9
Depreciation (23.5) (0.7) (2.2) (0.2) (0.5) (27.1)
Other
administrative
expenses (329.0) (27.2) (40.8) (6.8) (14.4) (418.2)
Share of result
of associate - - - - 3.6 3.6
------------------ ------- ------- ------- ------- ------- -------
Operating
profit/(loss) 225.9 16.7 61.5 (0.6) (11.3) 292.2
Investment
income - - - - 13.0 13.0
Finance costs - - - - (69.8) (69.8)
------------------ ------- ------- ------- ------- ------- -------
Profit/(loss)
before tax 225.9 16.7 61.5 (0.6) (68.1) 235.4
------------------ ------- ------- ------- ------- ------- -------
Balance sheet
information
Total assets 1,360.9 95.8 127.1 18.9 104.8 1,707.5
Total
liabilities (54.7) (4.4) (26.6) (0.5) (1,430.8) (1,517.0)
Investment in
associate - - - - 5.3 5.3
Capital
additions 52.5 9.1 9.1 - 1.0 71.7
------------------ ------- ------- ------- ------- ------- -------
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 - 10,746.1
Payout (8,664.5) (552.4) (702.7) (21.2) - (9,940.8)
------------------ ------- ------- ------- ------- ------- -------
Revenue 621.0 53.4 123.3 7.6 - 805.3
GPT, duty,
levies and
other cost of
sales (136.3) (13.8) (23.0) (1.0) - (174.1)
------------------ ------- ------- ------- ------- ------- -------
Gross profit 484.7 39.6 100.3 6.6 - 631.2
Depreciation (17.4) (1.3) (1.8) (0.4) (0.7) (21.6)
Other
administrative
expenses (285.7) (25.3) (37.3) (6.3) (12.6) (367.2)
Share of result
of associate - - - - 2.6 2.6
Exceptional
items (23.9) a - - - (3.0) (26.9)
------------------ ------- ------- ------- ------- ------- -------
Operating
profit/(loss) 157.7 13.0 61.2 (0.1) (13.7) 218.1
Investment
income - - - - 11.1 11.1
Finance costs - - - - (54.6) (54.6)
------------------ ------- ------- ------- ------- ------- -------
Profit/(loss)
before tax 157.7 13.0 61.2 (0.1) (57.2) 174.6
------------------ ------- ------- ------- ------- ------- -------
Balance sheet
information
Total assets 1,316.9 87.0 120.3 14.8 86.5 1,625.5
Total
liabilities (208.5) (4.8) (20.4) (0.5) (1,142.7) (1,376.9)
Investment in
associate - - - - 3.4 3.4
Capital
additions 46.6 2.1 3.6 - 1.0 53.3
------------------ ------- ------- ------- ------- ------- -------
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.
The retail distribution channel comprises all activity undertaken in LBOs
including AWPs and FOBTs. Other activities include on-course betting and
greyhound stadia operations.
Net assets/(liabilities) have been allocated by segment where assets and
liabilities can be identified with a particular channel. Corporate net assets
include corporation and deferred tax, net borrowings, pension liability and
dividends payable as well as any assets and liabilities that cannot be allocated
to a particular channel other than on an arbitrary basis. Included within total
assets by segment are £681.0m, £80.4m, £97.2m and £7.1m (27 December 2005 -
£681.0m, £80.4m, £97.2m and £7.1m), which relates to goodwill allocated to the
Retail, Telephone, Interactive and Stadia operations respectively.
There are no inter-segmental sales within the Group.
In accordance with IAS 14 'Segment Reporting', segment information by
geographical location is not presented as the Group's revenue and profits arise
primarily from customers in the United Kingdom with significantly less than 10%
(the minimum required by IAS 14 to necessitate disclosure) of revenue and
profits generated from customers outside of this jurisdiction. Similarly, only a
small portion of the Group's net assets is located outside of the United
Kingdom.
3. Exceptional items
Exceptional items are those items the Group considers to be one-off or material
in nature that should be brought to the readers' attention.
Exceptional operating costs are as follows:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Costs of implementation of EPOS and text
systems 1 - 7.4
Costs of integration of Stanley Retail
acquisition 2 - 19.0
Costs of aborted return of capital scheme 3 - 3.0
Profit on sale of LBOs disposed 4 - (2.5)
------------------------------ --------- ---------
- 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.
Exceptional interest costs are as follows:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Write off of previously capitalised
bank facility fee - 2.3
Breakage fee - 0.1
------------------------------ --------- ---------
- 2.4
------------------------------ --------- ---------
Following the negotiation of new banking arrangements and the consequent
repayment of the old bank facility, the unamortised costs of £2.3m associated
with the old facility were written off in the period ended 27 December 2005.
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Capital gain on disposal of 76 LBOs 1 - 7.1
Tax relief expected in respect of
exceptional operating and interest costs - (6.5)
------------------------------ --------- ---------
- 0.6
------------------------------ --------- ---------
1 Due to the accounting rules governing the subsequent disposal of acquired
operations, the income statement bears the full tax charge relating to the
capital gain on the disposal of 76 LBOs, while the gain on disposal is only
recognised in the income statement in respect of the sale of the 12 William Hill
shops. The net proceeds of the remaining 64 Stanley Retail LBOs have been used
to determine fair values and hence have been reflected through adjusted
intangibles recognised.
4. Investment income
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Interest on bank deposits 2.9 2.5
Expected return on pension scheme assets 10.1 8.6
------------------------------ --------- ---------
13.0 11.1
------------------------------ --------- ---------
5. Finance costs
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Interest payable and similar charges:
Bank loans and overdrafts 57.8 41.5
Amortisation of finance costs 1.3 1.0
------------------------------ --------- ---------
59.1 42.5
Exceptional interest costs (note 3) - 2.4
------------------------------ --------- ---------
Net interest payable 59.1 44.9
Interest on pension scheme liabilities 10.7 9.7
------------------------------ --------- ---------
69.8 54.6
------------------------------ --------- ---------
6. Tax on profit on ordinary activities
The tax charge comprises:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
UK corporation tax at 30% 66.5 51.4
UK corporation tax - prior periods (6.4) -
Overseas tax - 0.5
------------------------------ --------- ---------
Total current tax charge 60.1 51.9
Deferred tax - origination and reversal of
timing differences 8.5 9.6
------------------------------ --------- ---------
Total tax on profit on ordinary activities 68.6 61.5
------------------------------ --------- ---------
The effective tax rate in respect of ordinary activities before exceptional
costs and excluding associate income is 29.6% (52 weeks ended 27 December 2005 -
29.5%). There were no exceptional items in the period and therefore the
effective tax rate in respect of ordinary activities after exceptional items was
29.6% (52 weeks ended 27 December 2005 - 35.7%). The current period's charge is
lower than the statutory rate of 30% due to adjustments in relation to prior
periods. The prior period rate after exceptional items was higher than the
statutory rate of 30% due to:
• Chargeable gains arising on the sale of the Stanley Retail LBOs being
treated as part of the tax charge whereas for accounting purposes the gains
are dealt with in arriving at goodwill; and
• The Group incurred a number of expenses on which it did not get tax
relief.
The differences between the total current tax shown above and the amount
calculated by applying the standard rate of UK corporation tax to the profit
before tax is as follows:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m % £m %
---------------------------- -------- -------- -------- -------
Profit before tax 235.4 174.6
Less: share of associate income (3.6) (2.6)
---------------------------- -------- -------- -------- -------
231.8 100.0 172.0 100.0
---------------------------- -------- -------- -------- -------
Tax on Group profit at standard UK
corporation tax rate of 30% 69.5 30.0 51.6 30.0
Adjustment in respect of prior periods (3.0) (1.3) - -
Permanent differences 2.1 0.9 3.5 2.0
Tax on profits credited against goodwill - - 6.4 3.7
---------------------------- -------- -------- -------- -------
Total tax charge 68.6 29.6 61.5 35.7
---------------------------- -------- -------- -------- -------
The Group earns its profits primarily in the UK, therefore the tax rate used for
tax on profit on ordinary activities is the standard rate for UK corporation
tax, currently 30%.
7. Dividends proposed and paid
26 December 27 December 26 December 27 December
2006 2005 2006 2005
Per share Per share £m £m
-------------------- -------- --------- -------- ---------
Equity shares:
- current year interim
dividend paid 7.25p 6.1p 25.6 23.5
- prior year final
dividend paid 12.2p 11.0p 45.3 43.1
-------------------- -------- --------- -------- ---------
19.45p 17.1p 70.9 66.6
-------------------- -------- --------- -------- ---------
Proposed dividend 14.5p 12.2p 51.2 46.1
-------------------- -------- --------- -------- ---------
The proposed final dividend of 14.5p will, subject to shareholder approval, be
paid on 5 June 2007 to all shareholders on the register on 27 April 2007. In
line with the requirements of IAS 10 - 'Events after the Balance Sheet Date',
this dividend has not been recognised within these results.
Under an agreement signed in November 2002, The William Hill Holdings 2001
Employee Benefit Trust agreed to waive all dividends. As at 26 December 2006,
the trust held 0.4m ordinary shares. In addition, the Company does not pay
dividends on the 8.7m shares held in treasury. The Company estimates that 352.9m
shares will qualify for the final dividend.
8. Earnings per share
The earnings per share figures for the respective periods are as follows:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
Pence Pence
------------------------------ --------- ---------
Basic - adjusted 45.5 36.6
Basic 45.5 29.0
Diluted 44.9 28.6
------------------------------ --------- ---------
An adjusted earnings per share, based on profit for the prior period before
exceptional items, has been presented in order to highlight the underlying
performance of the Group.
The calculation of the basic and diluted earnings per share is based on the
following data:
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Profit after tax for the financial period 166.8 113.1
Exceptional items - operating expenses - 26.9
Exceptional items - interest - 2.4
Exceptional items - tax charge - 0.6
------------------------------ --------- ---------
Profit after tax for the financial period
before exceptional items 166.8 143.0
------------------------------ --------- ---------
Number (m) Number (m)
------------------------------ --------- ---------
Weighted average number of ordinary shares
for the purposes of basic earnings per share 366.7 390.5
Effect of dilutive potential ordinary shares:
Employee share awards and options 4.7 5.5
------------------------------ --------- ---------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 371.4 396.0
------------------------------ --------- ---------
The basic weighted average number of shares excludes shares held by The William
Hill Holdings 2001 Employee Benefit Trust and those shares held in treasury as
such shares do not qualify for dividends. The effect of this is to reduce the
average number of shares by 10.4m in the 52 weeks ended 26 December 2006 (52
weeks ended 27 December 2005 - 12.7m).
9. Reserves
Called-up Share Capital Own
share premium redemption Merger shares Hedging Retained
capital account reserve reserve held reserve earnings Total
£m £m £m £m £m £m £m £m
----------------- ------ ------ ------ ------ ------ ------ ------ ------
At 29 December
2004 40.5 311.3 1.7 (26.1) (59.3) (1.7) 9.9 276.3
Profit for the
financial period - - - - - - 113.1 113.1
Dividends paid
(note 7) (66.6) (66.6)
Items taken
directly to
statement of
recognised income
and expense - - - - - 0.6 (1.1) (0.5)
Expense recognised
in respect of
share remuneration - - - - - - 2.2 2.2
Shares purchased
and cancelled (1.4) - 1.4 - - - (78.3) (78.3)
Transfer of
own shares to
recipients - - - - 1.8 - 0.6 2.4
---------------- ------ ------ ------ ------ ------ ------ ------ ------
At 27 December
2005 39.1 311.3 3.1 (26.1) (57.5) (1.1) (20.2) 248.6
Profit for the
financial period - - - - - - 166.8 166.8
Dividends paid
(note 7) - - - - - - (70.9) (70.9)
Items taken
directly to statement
of recognised
income and expense - - - - - 9.8 10.0 19.8
Expense recognised
in respect of
share remuneration - - - - - - 3.0 3.0
Shares purchased
and cancelled (2.9) - 2.9 - - - (178.4) (178.4)
Transfer to
income - - - - - 0.7 - 0.7
Transfer of
own shares to
recipients - - - - 10.6 - (9.7) 0.9
---------------- ------ ------ ------ ------ ------ ------ ------ ------
At 26 December
2006 36.2 311.3 6.0 (26.1) (46.9) 9.4 (99.4) 190.5
---------------- ------ ------ ------ ------ ------ ------ ------ ------
The shares were cancelled during the period as part of the Company's share buy
back programme.
Own shares held at 26 December 2006 amounting to £46.9m comprise 8.7m shares
(nominal value - £0.9m) held in treasury purchased for £46.4m and 0.4m shares
(nominal value - £0.04m) held in The William Hill Holdings 2001 Employee Benefit
Trust purchased for £0.5m. The shares held in treasury were purchased at a
weighted average price of £5.32. At 26 December 2006 the total market value of
own shares held in treasury and in the Trust was £58.0m.
10. Notes to the cash flow statement
52 weeks ended 52 weeks ended
26 December 27 December
2006 2005
£m £m
------------------------------ --------- ---------
Operating profit 292.2 218.1
Adjustments for:
Share of result of associate (3.6) (2.6)
Depreciation of property, plant and
equipment 27.1 24.3
Depreciation of computer software 2.7 2.7
Gain on disposal of property, plant and
equipment (0.5) (0.2)
Gain on disposal of LBOs (4.0) (2.5)
Cost charged in respect of share
remuneration 3.0 2.2
Defined benefit pension cost less cash
contributions (8.1) (8.7)
Movement in provisions (7.5) 7.2
------------------------------ --------- ---------
Operating cash flows before movements in working capital: 301.3 240.5
Increase in inventories (0.1) -
Increase in receivables (11.0) (1.6)
Increase in payables 23.7 3.1
------------------------------ --------- ---------
Cash generated by operations 313.9 242.0
Income taxes paid (53.9) (49.4)
Interest paid (55.4) (36.0)
------------------------------ --------- ---------
Net cash from operating activities 204.6 156.6
------------------------------ --------- ---------
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less.
This is the first period that the Group has presented its financial information
under IFRS. The following disclosures are required in the year of transition
under the provisions of IFRS 1 and show the effects of the transition to IFRS on
the Group's reported performance and financial position for the comparative
periods and on the date of transition.
The last financial statements prepared under UK GAAP were for the 52 weeks ended
27 December 2005 and the date of transition to IFRS is therefore 29 December
2004.
Reconciliation of equity at 29 December 2004:
Effects of
transition
UK GAAP to IFRS IFRS
Notes £m £m £m
-------------------------- ---------- ---------- ---------- ----------
Goodwill h 736.2 (2.9) 733.3
Other intangible assets a,h - 18.7 18.7
Property, plant and
equipment a 119.0 (14.8) 104.2
Interest in associate 2.9 - 2.9
Deferred 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 - 0.3
Trade and other
receivables 15.4 - 15.4
Cash 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 more
than 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
--------------------- ------ ---------- ---------- ----------
Equity
Called-up share capital 40.5 - 40.5
Share premium account 311.3 - 311.3
Capital redemption reserve 1.7 - 1.7
Merger 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
--------------------- ------ ---------- ---------- ----------
Reconciliation of equity at 27 December 2005:
Effects of
transition
UK GAAP to IFRS IFRS
Notes £m £m £m
-------------------------- ---------- ---------- ---------- ----------
Goodwill f,h 1,177.1 (311.4) 865.7
Other intangible assets a,h - 467.0 467.0
Property, plant and
equipment a 188.7 (14.2) 174.5
Interest in associate 3.4 - 3.4
Deferred 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 - 0.4
Trade and other
receivables 20.4 - 20.4
Cash 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 more
than 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
--------------------- ------ ---------- ---------- ----------
Equity
Called up share capital 39.1 - 39.1
Share premium account 311.3 - 311.3
Capital redemption reserve 3.1 - 3.1
Merger 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
--------------------- ------ ---------- ---------- ----------
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 (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 (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 (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 (29 December 2004 - £2.5m) representing the fair value of the
relevant derivatives, as well as a related deferred tax asset of £0.5m (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. 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 (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 (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 (29 December 2004 -
£0.3m) and a consequent adjustment to deferred tax assets of £1.2m (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 (29 December 2004 -
£3.9m) and related deferred tax liabilities of £141.0m (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 (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 52 weeks ended 27 December 2005:
Effects of
transition to
UK GAAP IFRS IFRS
Notes £m £m £m
-------------------------- ------ ---------- ---------- ----------
Revenue a 10,746.1 (9,940.8) 805.3
Cost of sales a (10,114.9) 9,940.8 (174.1)
---------------------- ------ ---------- ---------- ----------
Gross profit 631.2 - 631.2
Other operating income 5.9 - 5.9
Other operating expenses (421.6) - (421.6)
Share of results of
associate b 3.6 (1.0) 2.6
---------------------- ------ ---------- ---------- ----------
Operating profit 219.1 (1.0) 218.1
Investment income b 11.2 (0.1) 11.1
Finance costs (54.6) - (54.6)
---------------------- ------ ---------- ---------- ----------
Profit before tax 175.7 (1.1) 174.6
Tax c (64.3) 2.8 (61.5)
---------------------- ------ ---------- ---------- ----------
Profit for the period 111.4 1.7 113.1
---------------------- ------ ---------- ---------- ----------
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. 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, representing
interest income of £0.1m and the tax charge of the associate (see (c) below).
(c) Tax charge - the tax charge is £2.8m lower under IFRS compared to UK
GAAP reflecting a combination of:
• £1.1m reduction arising from the different treatment of associate tax
highlighted in (b) above; and
• £1.7m reduction 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
There are no significant adjustments between the cash flow statements produced
under IFRS as against UK GAAP.
This information is provided by RNS
The company news service from the London Stock Exchange