William Hill PLC (WMH.L), a betting and gaming company, said Monday that third-quarter net revenue slipped 3% from last year, hurt by unfavorable results for bookmakers in football and horse-racing as well as absence of draws in the Premier League. However, the company's full-year expectations for Retail segment remain broadly unchanged on higher-than-expected turnover and lower costs.
In a trading update for the third quarter, the bookmaker noted that gross win and net revenue margins across the business were hit by sporting results going in the customers' favor. Group net revenue decreased 3% in the third quarter, and was up 3% in the year-to-date period.
As the leading clubs won consistently, football results were unfavorable for bookmakers through August and into September. Also, there was an absence of draws in the Premier League, which normally represent about 25% of outcomes, but occurred in only 6% of matches up to the end of September. Additionally, the year-over-year comparison turned out to be tougher as in August 2008, the company had achieved a higher-than-average margin on football.
The company noted that the football margins have returned to being in line with historic trading in the latter part of September and early October. Horse-racing results continued to be unfavorable in July and August, but some recovery was seen in September.
According to Ralph Topping, Chief Executive of William Hill, "Business volumes both in our shops and online since the beginning of the football season in mid-August have been good with strong turnover in our online Sportsbook and encouraging levels of recycling in Retail. In addition, our machine business continues to perform well. In what has, to date, been an extraordinary year for sporting results, football and horseracing affected us again in August and into September but margins have returned to more normal historic levels since then."
The UK-based company delivers its products through three channels: Retail, William Hill Online and telephone betting.
The Retail segment witnessed improving levels of turnover over-the-counter, or OTC, in addition to further growth from machines. In the segment, OTC gross win was down 21% in the third quarter, with a gross win margin of 15.4% as a result of the sporting results impact. However, OTC turnover improved, and was down only 4% in the quarter, compared to an 11% decline in the first six months, reflecting stronger trading since the start of the football season and recycling of customer winnings.
The company noted that machines continued to perform well against tough comparators, growing by 4% in the quarter. Overall, third-quarter retail gross win dropped 11% from last year, and is down 4% on an year-to-date basis, reflecting the impact of unfavorable sporting results.
William Hill said it has begun the roll-out of the new 'Storm' cabinets, which would be completed by the end of the first quarter 2010. The company said net revenue from William Hill Online increased by 56% in the third quarter and by 57% so far in the year. On a pro forma basis, net revenue increased by 2% in the third quarter, despite the unfavorable football results and is up 8% on an year-to-date basis.
Pre-exceptional third-quarter operating profit for the division was up 8%, bringing the total for the year to GBP 46.0 million. The company estimates that the unfavorable sporting results reduced operating profit by GBP 7 million in the third quarter.
Playtech's minority interest was GBP 3.9 million in the third quarter and GBP 13.0 million in the year-to-date period. The company noted that with the launch of a new Playtech casino on williamhill.com before the end of October integration will be complete. To ensure consistency between the division's reporting and Playtech's, the company has decided to report William Hill Online profit on a quarterly basis from now and both companies will report results around the same time where possible.
Sportsbook made good progress with turnover up 40% in the third quarter and new accounts up 23% year-to-date. However, net revenue was down 36% in the third quarter on a net revenue margin of 3.2% compared with 7.0% in 2008, affected by the sporting results.
According to the company, gaming activities, consisting of casino, poker, bingo and skill games, are performing well and in line with management expectations, delivering net revenue growth of 98% during the quarter.
In August, the company transferred its Sportsbook and fixed-odds games from the UK to Gibraltar to take advantage of the established regulatory environment and competitive tax regime available there. The company expects the move to deliver cost savings of around GBP 4 million in 2009 and around GBP 10 million on a full-year basis.
Further, the company noted that the Telephone business, representing 3% of the Group's net revenue, continues to face tough competition from overseas operators who do not pay the gaming duty and horse-racing levy applicable in the UK. Like Retail and Sportsbook, it has been affected by sporting results in the period, with net revenue down 34% in the third quarter and 22% year-to-date.
The trading update said growth in underlying costs in Retail segment will be below the company's 4% full-year target. Together with increased trading volumes, this helped to offset much of the third-quarter gross win reduction in Retail from sporting results. Costs including marketing in William Hill Online increased by 33% so far in the year on a pro forma basis, in line with the company's expectations.
Looking ahead, the company's full-year expectations for Retail remain broadly unchanged, as reduced costs and higher-than-expected turnover largely offset the gross win decline from sporting results. The company is satisfied with the overall performance of William Hill Online, especially by the strong Sportsbook turnover since the start of the football season.
In August, the company reported that its first-half pre-tax profit fell to GBP 91.5 million from GBP 111.1 million in the same period a year ago. Profit for the period attributable to equity shareholders of parent was GBP 58.7 million, compared to GBP 79.7 million in the year-ago period. Earnings per share were 9.9 pence, lower than last year's 16.1 pence. Revenue for the first half was GBP 7.75 billion, down from GBP 7.78 billion in the prior year period.
WMH.L is currently trading at 171.00 pence, up 9.90 pence or 6.15%, on 250,363 shares.
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