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By KATHY GORDON, WSJ.com
LONDON-U.K. betting group William Hill PLC Friday posted a 7% drop in full year profit, slightly ahead of guidance provided in January, and said its 2010 expectations are unchanged as the unusually severe winter weather in the U.K. in January only pushed revenue down 0.6% in the first seven weeks of 2010.
Still, given the weak state of the economy, "we expect trading conditions will continue to be challenging in 2010," the company said, particularly in terms of the lower amounts wagered in its retail stores.
The bulk of William Hill's revenue comes from its network of retail stores, the over-the-counter bets taken in its gaming shops as well as revenue from gaming machines that now offer an extensive range of games in-store. Growing machine revenue has helped to temper a fall in the amounts bet over the counter, resulting from the tough economic conditions.
For 2010, the company expects the soccer World Cup in South Africa in July to benefit results. The last World Cup generated an estimated £5 million to £6 million of extra over-the-counter operating profit for the company.
The operator of 2,300 betting shops in the U.K. and Ireland said net profit for the year fell to £61.1 million (about $93 million) from £234 million last year, predominantly because of exceptional items, including its William Hill online deal with Playtech PLC, which added £88 million to net profit in the 2008 year, and exceptional charges in 2009 related to difficult trading in Northern Ireland and the groups telephone betting service.
The company reported earnings before interest, tax and amortization of £258.5 million, down from £278.6 million a year earlier, but just ahead of company guidance of £255 million provided in January.
The fall in profit, which comes despite a 4% rise in net revenue to £997.9 million, was the result of particularly unfavorable football results in the third quarter which hit margins in the period. Still football margins swung to higher than normal levels in the fourth quarter, the company said.
Chief Executive Ralph Topping told reporters on a conference call he expects this figure to rise this year and would be disappointed if the company didn't get a double-digit boost from the World Cup this year, although this will depend on the outcome of the football matches.
Retail revenue is also expected to benefit from the rollout of new gaming machines instore, although the return of value added tax to 17.5% will cost the group around GBP8 million, predominantly because of VAT on the gaming machines.
