Five things we learned from William Hill’s 2022 annual report

William Hill has published its annual report and financial statements for full-year 2022, with the report detailing the operator’s first full-year of performance under the ownership of 888 Holdings.

Published via the Financial Conduct Authority, the 77-page document provides a comprehensive breakdown of Hills’ performance following the £2.1bn acquisition by 888.

With senior leadership having departed, a record settlement with the Gambling Commission, the looming spectre of the white paper into the Gambling Act 2005 review and European headwinds, 2022 was a year of ups and downs for Hills.

Now under the tutelage of 888, with a commitment from the parent company to totally shift the makeup of the brand, from a compliance refresh to a transfer to in-house tech platform Unity, 2022 will be a benchmark from which the parent company will be able to compare how its management is running.

Here, EGR delves into the details and breaks down five key takeaways from the document, including the group’s financial performance, future concerns and hidden M&A activity.

Baked in

The report also laid out the rationale behind 888’s £2.1bn acquisition of William Hill International, and the subsequent going concerns over the combined business. Following internal calculations, the group’s management noted that the combined group could withstand a decrease in forecasted EBITDA of 31% and would be able to continue to operate given its bolstered cash reserves and attained synergies as a result of the acquisition.

The report noted that the 888 board expects a 31% reduction in EBITDA to be “remote” but did lay out five key concerns for the combined group in which there could result a material impact.

These included the VIP compliance issues in the Middle East, a potential 10% reduction in group revenue due to regulatory, macroeconomic or competitive pressures and an increase in expenses as a result of higher interest rates for the group’s debt.

Other concerns detailed included the adverse impact of measures arising from the white paper and the use of cash flows to settle regulatory and accrual settlements.

It must be noted that the five listed concerns do not reflect any certainties, with the group expecting its Middle East operations to recover well and the group has sufficient cash to meet its going concerns to 30 June 2024, as part of the evaluation it undertook. Combined group cash stands a £176.3m as of 31 December 2022, up from £129.3m in December 2021. The group also has access to a £150m Revolving Credit Facility which is currently undrawn until January 2028.

Splash the cash

The report also included details of Hills’ investments and M&A activity throughout 2022, with some interesting moves from the bookmaker. Firstly, the group completed the acquisition of slots developer Live 5 in February 2022 for £3.6m in cash and a further £700,000 in contingent consideration. Live 5 had previously supplied content for Hills as a third party. Hills noted that revenue and profit deriving from the acquisition has been “immaterial”. Live 5 did pen a distribution deal with Games Global in June 2022 to expand its reach and has also been added to 888 brands following the acquisition.

Elsewhere, Hills noted its 19.5% stake in SIS, which allows it to “exert significant influence” over the supplier, coupled with the fact it holds a seat on the firm’s board of directors. There are ongoing talks regarding a potential sale of SIS, with Hills set to be a beneficiary of any move. Reports have suggested the business could be sold for as much as £200m.

In terms of disposals, Hills sold its 25% position in Green Jade Games to William Hill Cayman Holdings Limited, a wholly owned subsidiary of Caesars, for £9m in June 2022. Green Jade Games was subsequently shuttered in April 2023.

Retail to the rescue

Breaking down the group’s financial performance for full-year 2022, Hills saw revenue dip slightly from £1.24bn to £1.235bn, with the firm’s online division suffering a 19% downturn in revenue.

UK online revenue slipped from £628.6m in 2021 to £509.1m in 2022, with the company pointing towards a return to retail post-lockdown and the use of customer safety checks ahead of the publication of the white paper into the Gambling Act 2005 review. Baking in affordability checks ahead of any proposed legislative change is hoped to stave off any further revenue downturn for the firm. UK online EBITDA decreased from £153.5m to £112.2m as a result.

Elsewhere, UK retail revenue leapt 53% to £514.2m as normal trading returned following the closure of shops due to Covid-19.

On the international side of the business, revenue fell 23% from £276m to £212m due to a series of regulatory headwinds and the group’s exit from the Netherlands.

Despite these dips, the positive return from retail helped overall group finances to a positive end. EBITDA jumped from £161.7m to £214m while operating losses fell from £65.5m to £31m, with Hills pointing towards a reduction in marketing expenses. Hills also turned a £58.9m loss in 2021 into £168.4m in profit in 2022. The caveat of retail is of course a huge asterisk against the performance, and a better metric will be studying the firm’s 2023 performance. For example, overall group EBITDA was supported by an injection of £95.7m in EBITDA from retail operations alone.

Austrian aches

Over in Austria, Hills lifted the lid on its ongoing legal challenges in the European market, with customers attempting to claim back losses in courts due to the fact the operator holds a Maltese licence and breaks Austria’s de facto monopoly. These legal cases relate back to 2020, with an increase in court cases noted in 2021 and 2022.

Hills said provisions for these claims stand at £67m, with most cases relating to its Mr Green brand. The group added that it has scope to increase provisions should there by an increase in claims against it.

Hills said: “The value of the provision and contingent liability are both estimates based on the number and individual size of claims received to date and assumptions based on such observations as can be derived from those claims and include an estimate of claims the Group assess it probable, for the provision, and possible, for the contingent liability, that it will receive in the future.”

Hills added that it has also recognised a £6.5m provision for customer claims in Germany, similar to that of Austria. The firm said the seven-figure sum best reflected its current best estimate of claims it is expected to face.

The disclosure comes as the Maltese government has moved to protect licensed operators against these types of claims. An update to the country’s Gaming Act will see Maltese courts not hear claims against operators from foreign claimants in a move to beef up the Maltese licence’s strength in Europe.

Get your money up

While Hills did not fully disclose its remuneration packages for its directors, the operator did reveal a significant base salary increase for its top team in 2022. Standard renumeration increased from a total of £4.6m to £7.4m in 2022. However, senior management’s combined package did decrease from £8.8m to £7.4m as they were not offered share-based payments in 2022, compared to £4.2m in shares in 2021.

The report confirmed that the operator’s highest paid director, who remained unnamed, received a salary of £4.9m in 2022. The highest paid director in 2021 was paid just £1.3m in comparison.

In terms of staff costs, total wages and salaries fell from £253.7m to £235.6m as cost-saving measures such as the removal of duplicated roles following 888’s acquisition of the business came into force.

Hills did also add that due to rising inflation trends it is expected that staff costs will increase in line with agreed contractual rates.