Although apparently the William Hill 2022 Annual Report has not aroused great interest in the British financial press or even in the specialized gambling media, the reality is that scrutinizing the data provided in what is considered the "year of recovery" after the pandemic, we can find the answer to one of the most recurring questions after announcing the acquisition of William Hill in the terms in which it took place between the months of September 2021 and July 2022.
1 - Introduction and overview of the 2022 Annual Report. This annual financial report offers a comprehensive view of the economic situation and the performance of William Hill in the year after the pandemic, a year of 2022 that also served to initiate a business plan aimed at optimizing the recently launched merger with 888 Holdings.
At the level of economic data, a 0.5% reduction in William Hill's income to reach 1,240 million pounds stands out. However, this drop in revenue in the online business was largely offset by the strong resurgence of the face-to-face business.
The good news, then, came from the income obtained from the excellent performance of retail trade, especially in the United Kingdom (which increased by 52.7% year-on-year to reach 514.2 million pounds). However, a 19% drop in income from the online sector in the United Kingdom and -23% in income from internet activity internationally could be verified.
But we will not stop at the numbers, but we will also review very striking qualitative aspects of the Report, especially in relation to the existing threats to the company and the future plans already integrated in 888 Holdings.
2 - William Hill Financial Year Key Facts. Obviously, in the almost 80 pages of the document we find endless accounting data. But the most important are those related to the following variables:
• - Net income (net revenue): the total amount of income generated by the company after deducting any discounts, rebates, or sales taxes.
• - Adjusted EBITDA: showing adjusted Earnings before interest, taxes, depreciation and amortization, which expresses a company's operating profitability before considering interest, taxes, depreciation and amortization. It is adjusted to eliminate certain non-recurring items or items not related to the main operations of the company.
• - Operating loss: understood as the amount of money that a company loses in its regular business operations, before considering other income or non-operating expenses.
• - Adjusted profit after tax: The amount of net profit a business earns after adjusting income and expenses to eliminate non-recurring items or items not related to the business's core operations.
• - The profit after taxes (Profit after tax): the net profit that a company obtains after deducting all the taxes applicable to its income.
But what is significant in any case is dividing these figures from William Hill Limited into its three major divisions: face-to-face business in the UK, online business in the UK and online business in regulated markets outside the UK.
a. Presential in the UK . Total net income from the face-to-face business in FY2022 was £514 million. An increase of 53% compared to 2021, a year marked by the pandemic. These revenues contributed to total EBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization) of £95.7 million.
b. Online United Kingdom In the UK online business, historically the strongest
representing almost 80% of its results, it stayed at 590 million. 19% less than in 2021 with 628 million pounds. This contributed 112 million more to adjusted EBITDA.
c. International Online Net income slightly exceeded 212 million pounds (-23% compared to 276 million in 2021). Therefore, regulated markets such as Italy, Spain... only contributed 33 million in EBITDA. The bottom line is that Net Revenues fell by 0.5% (from £1,241m in 2021 to £1,235m in 2022) and adjusted EBITDA rose as operating profitability grew from the excellent performance of the on-site division.
In addition, the data that most attracts our attention in 2022 will be the obvious cost reductions that we will share in the section dedicated to the merger with 888.
3- Threats to be aware of. In addition to the stagnation in revenue and the attempt to curb costs, the 2022 Report becomes an illustrative document on the realities that should concern both the company and the entire sector.
Among the widely developed warnings in the document is a concern about the growing Inflation figures and the increase in Interest Rates in the United Kingdom, although extendable to all European countries. A reality that materializes with a significant increase in costs related to energy, transport and services. Something that was already generating a very negative impact not only on the global economy but on the average spending of citizens dedicated to entertainment.
In addition, the difficulty of meeting the objectives established in the markets in which William Hill is present is verified due to the greater restrictions at the level of commercial communications. For this reason, he recognizes that the regulated markets are being monitored by the Company's Management to determine their viability. Emphasis is placed on the impact that a strict revision of the Gambling Act could have in the United Kingdom.
And also as an internal threat, but with an expected relevant impact, the uncertainty at the level of human resources and talent in the company that the merger with 888 and the necessary reduction of personnel due to aspects such as duplication of positions could represent. Retaining key employees and continuing to hire qualified and experienced employees within the sector was going to be one of the challenges for 2023 and 2024.
4 - About the union with 888 and the Growth Plans. The 2022 Financial Report also shows the guidelines on which the merger between the two giants in the sector, William Hill and 888, will take place. A reality in which we must not lose sight of the progressive fall in the price of William Hill's shares in recent years, and which ended the last few months of trading marked by stability but without any sign of recovery.
The reality then was that after the acquisition announcement, the increase in the share price was focused solely on 888 Holdings, hoping that after the merger there would be a period of growth in the value of the new company on the Stock Market. However, as we have already seen since the end of 2022, the price of the shares of 888 Holdings with William Hill already integrated into the company has been highly variable: with an obvious collapse until in 2023 it has gone from 86 pounds to go over 100 again.
In any case, the importance of the economies of scale resulting from the union of the two companies is confirmed and the focus is placed on the obvious opportunities that appear in the form of regulated markets: especially in Latin America and Ontario (Canada). The reality that the experts anticipated regarding a total migration at the technological level to a single gaming platform by all the brands of the new corporation, especially WH, Mr Green and 888, is also qualified.
But as we have already anticipated, it is the reduction of costs that is evident in the data of this 2022 Report. While the own sales expenses (operating expenses) remained without significant variations, the cuts came in marketing, making it possible for the operating losses were significantly reduced. Legal costs, especially related to corporate movements, also rose significantly.
Analyzing the data in this 2022 Report, we observe a stagnation in William Hill's ability to generate profits and be able to pass it on to its shareholders. And although in a first reading we can see an improvement in the post-covid reality, it is also evident that the online division was incapable of continuing to ensure that William Hill continued to occupy a leading position in market share in the United Kingdom and the main regulated jurisdictions European. In addition, high operating costs are observed, which, although they are not specified in detailed information on the reality by country, do show a total dependence on what happens in the United Kingdom, a market for which important regulatory changes were anticipated. Thus, only the union with 888 could serve to maintain its competitive position in the market.
That is why, despite how striking it was that 888 took over all of William Hill's business in his native market, the British, in addition to the rest of Europe, the creation of a gaming group with a turnover of more than 2,000 millions of euros like the current one was a necessity. In addition, demonstrating how important it is to have a diversified business both at the brand level and a balance between face-to-face and online.
