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William Hill Plc

William Hill PLC Could lose up to £100m in Revenues

William Hill PLC (LON:WMH) today noted the announcement by the Department for Digital, Culture, Media and Sport (DCMS) on the Triennial Review.

DCMS is reducing the maximum stake on B2 games from £100 to £2. Given the Government has specified its intended outcome, William Hill is providing preliminary guidance on the potential impact in order to help investors and analysts with their own modelling. However, a regulatory change of this nature is unprecedented and its impact on customer behaviour will not be fully known until some years after implementation. The initial guidance provided, therefore, is necessarily based upon a series of assumptions based on William Hill’s knowledge at the time of writing. We will update the market as appropriate during and after implementation.

· In the first four months of the current financial year, c70% of our total gaming machine net revenue was generated by stakes in excess of the proposed £2 threshold.

· After making a number of assumptions on revenue substitution back into gaming machines and other products, and capture of revenue from other shops closing across the industry, we estimate that the annualised impact of a £2 staking limit could be a reduction in total gaming net revenue of 35-45%.

· At this point, preliminary estimates suggest that the stake limit could result in c900 William Hill shops (c38% of our existing Retail estate) becoming loss-making. A proportion of these would be at risk of being closed within a relatively short time of the proposed staking change being implemented and, for the remainder of the estate, we will monitor the actual impact on the estate and performance over the medium and long term.

· We currently estimate that this could reduce William Hill Retail’s annualised adjusted operating profit1 following mitigation measures by c£70-100m. We have assumed a degree of mitigation but will continue to look at further ways to reduce the longer term impact on profitability.

Notwithstanding this change, the Board’s current intention is to retain the existing dividend policy to pay out approximately 50% of underlying earnings. The Group’s balance sheet remains strong with net debt to EBITDA currently c0.5 times following the receipt of proceeds from the Australia and NYX transactions.

Philip Bowcock, Chief Executive Officer, said: “William Hill has a long and proud heritage as part of the UK high street and we know how important betting shops are to our customers and their local economies. The Government has handed us a tough challenge today and it will take some time for the full impact to be understood, for our business, the wider high street and key partners like horseracing. We will continue to evolve our Retail business in order to adapt to this change and we will support our colleagues as best we can. Despite the challenges presented by this decision, our teams will compete hard and offer great service to William Hill customers.”

Paddy Power Betfair Plc (LON:PPB) also made an announcement regarding the maximum stake saying that they estimate that the direct, pre-mitigation, impact of this new stake limit would be a 33% to 43% decrease its total machine gaming revenue. In 2017, this would have equated to a £35m to £46m revenue impact, representing 2.0% to 2.6% of Group revenue.

Potential mitigation factors on the Group’s profitability include reduced direct variable costs (including Machine Gaming Duty at 25% and supplier revenue share), product development, substitution to other betting products and market consolidation.

Peter Jackson, Paddy Power Betfair CEO, said: “We have previously highlighted our concern that the wider gambling industry has suffered reputational damage as a result of the widespread unease over stake limits on gaming machines. We welcome, therefore, the significant intervention by the Government today, and believe this is a positive development for the long-term sustainability of the industry.”