Company Announcements

 

Revenue

Group revenue decreased by 12.8% to £332.1 million (H1 2021: £380.9 million), driven by a 13.6% decrease in B2C revenue. The decline was principally driven by a 25% decrease in revenue from the UK, reflecting the implementation of more stringent safer gambling policies and in line with the wider market trends, with the prior period having also benefitted from digital entertainment migration during COVID related restrictions. Alongside this the Group temporarily closed the Netherlands while it awaits licensing, which represented approximately 3% of H1 2021 revenue.

 

B2B revenue increased by 7.8% to £15.0 million (H1 2021: £13.9 million) following the launch of World Series of Poker in Pennsylvania in July 2021 and Michigan in March 2022, partially offset by market driven declines in the bingo business. The Group completed the disposal of its bingo business in July 2022.

 

The table below shows the Group's revenue by geographical market:

 

	H1 2022	H1 2021	Change	% of reported
	£ million	£ million	from previous year	Revenue (H1 2022)
UK	120.8	160.4	(25%)	36%
EMEA (excluding the UK and Italy)	112.9	119.5	(5%)	34%
Italy	46.5	49.0	(5%)	14%
Americas	46.6	46.9	(1%)	14%
Rest of world	5.3	5.1	5%	2%
Revenue	332.1	380.9	(13%)	100%

 

UK

UK revenue decreased 25% during the period, partly driven by a very strong comparative that was inflated by digital entertainment migration during COVID related lockdowns in the prior year, but primarily as a result of more stringent safer gambling policies and increased player protections. During the past year the Group has implemented a range of additional safer gambling measures including lower affordability thresholds and reduced slots stakes limits, and 47% of UK actives in Q2 2022 now have limits to help ensure a safe and entertaining betting and gaming environment. The Group believes it has maintained market share despite this, with the wider market also seeing similar trends, and that the strong player protections in place lay the foundations for sustainable growth.

 

EMEA (excluding the UK and Italy)

EMEA (excluding the UK and Italy) revenue decreased 5% year over year, principally driven by the closure of the Netherlands, which represented approximately 3% of H1 2021 group revenue. Performance in the rest of the region was positive, despite a strong comparative period driven by COVID related restrictions. Of the core and growth markets of the Group, Romania performed very strongly but this was offset by markets such as Spain and Germany, where regulatory changes impacted year over year comparisons.

 

Italy

Italy revenue declined by 5% year over year, primarily as a result of a strong comparative period where COVID related restrictions enforced the closure of retail venues, driving online migration. According to H2 Gambling Capital, online gambling reflected approximately 27% of the total Italian gambling market in 2021, having increased significantly from only 11% in 2019. Despite the direct benefit of retail migration being very strong in Italy compared to most markets, the Group has further increased its market share during H1 2022 even with retail being fully open.

 

Americas

Revenue from Americas decreased by 1% to £46.6 million (H1 2021: £46.9 million). US revenue increased 29% to £10.0 million driven by growth in B2B revenues related to the Group's partnership with World Series of Poker (WSOP), and the launch in Pennsylvania and Michigan in July 2021 and March 2022 respectively. B2C revenues in the US declined 4%, with growth in casino offset by investment in promotional activity to support the launch of SI Sportsbook in Colorado and Virginia. Outside of the US, Americas revenue was down 7%, primarily driven by an increase in promotional investment to support the launch of Ontario on a locally regulated basis from April 2022.

 

Gaming taxes and duties

Gaming duties decreased by 14.0% to £62.3 million (H1 2021: £72.5 million) as a result of the Group's revenue decrease. Gaming duties ratio decreased slightly from 19.0% in H1 2021 to 18.8% in H1 2022 reflecting the slightly different country mix in each period.

 

Other cost of sales

Other cost of sales¹ decreased by 1.0% to £53.9 million (H1 2021: £54.4 million). The ratio of cost of sales to revenue increased to 16.2% (H1 2021: 14.3%), due to higher costs related to operational risk management and customer due diligence services.

 

¹       Excluding foreign exchange differences of £4.3 million.

 

Gross profit

Gross profit decreased by 15.0% to £215.9 million (H1 2021: £254.0 million) and gross margin decreased from 66.7% to 65.0%.

 

Marketing expenses

Marketing expenses decreased by 15.6% to £103.9 million (H1 2021: £123.1 million) driven mainly by the decline in revenue. The Group's data-driven marketing approach means it can quickly adapt its marketing to suit demand.  The marketing ratio as a proportion of revenue was 31.3% (H1 2021: 32.3%), with continued investment in growth markets offset by optimising spend in non-focus markets, in line with the Group's strategic framework.

 

Contribution

Contribution, which represents Gross profit less Marketing expenses, decreased by 14.4% to £112.0 million (H1 2021: £130.9 million). Contribution margin decreased slightly to 33.7% (H1 2021: 34.4%), reflecting mainly the decrease in gross margin in the period.

 

Operating expenses

Operating expenses¹ (which mainly comprise employment costs, professional services, development costs, IT services and infrastructure maintenance) amounted to £62.0 million (H1 2021: £60.6 million), reflecting an operating expenses margin of 18.7% (H1 2021: 15.9%). The increase compared to the previous period reflects continued R&D investment and investing for expansion in the US market.

 

¹ Excluding depreciation of £4.8 million (H1 2021: £5.3 million), amortisation of £7.2 million (H1 2021: £7.8 million) and share benefit charges of £2.2 million (H1 2021: £4.1 million).

 

Adjusted EBITDA

Adjusted EBITDA for the period decreased 28.8% to £50.0 million (H1 2021: £70.3 million), resulting in an Adjusted EBITDA margin of 15.1% (H1 2021: 18.4%). Adjusted EBITDA was primarily impacted by the trends noted above, including the decrease in Revenue and Contribution. The reduction in Adjusted EBITDA margin primarily reflects the increase in operating expenses as a % of revenue, with these costs being predominantly fixed, so not decreasing in line with the reduction in revenue.

 

Exceptional items

 

	H1 2022	H1 2021
	£ million	£ million
Exceptional legal and professional costs1	7.4	1.2
Retroactive duties and associated charges2	(2.2)	4.8
Loss on reclassification of Bingo business to Held for sale3	11.2	-
Restructuring and integration costs4	-	2.2
Total exceptional items	16.4	8.2

 

1      The Group incurred legal and professional costs of £7.4 million associated with the acquisition of the international (non-US) business of William Hill (H1 2021: £1.2 million).

 

2      Net credit of £2.2 million in exceptional provision for retroactive duties and associated charges following a reassessment of potential gaming duties relating to activity in prior years (H1 2021: charge of £4.8 million).

 

3      On 7 July 2022, the Group announced that it had completed the sale of its entire Bingo business to Saphalata Holdings Ltd., a member of the Broadway Gaming group, for a total cash consideration of £37.4 million (US$45.25 million), out of which £35.7 million was paid on completion and a further £1.7 million will unconditionally be paid in one year. As a result, the Group reclassified Bingo assets and liabilities as 'Held for sale' and recognised an impairment loss of £11.2 million.

 

4      Restructuring costs in H1 2021 comprises of £1.9 million employee redundancy costs related to the Group's decision to close its Antigua office, additional £0.3 million relates to the disposal of property, plant and equipment.

 

Finance income and expenses

Finance expenses and foreign exchange losses of £5.1 million (H1 2021: £3.1 million) less finance income of £0.1 million (H1 2021: £0.1 million) resulted in a net expense of £5.0 million (H1 2021: £3.0 million).

 

Finance expenses mainly comprised of £4.3 million non-cash currency exchange differences which are presented in the consolidated income statement as part of the other cost of sales, £0.4 million non-cash interest expenses resulting from IFRS 16, and £0.3 million interest charge.

 

Profit before tax

Profit before tax was £14.4 million (H1 2021: £41.9 million) mainly as a result of lower contribution, increased legal and professional costs associated with the acquisition of William Hill and costs related to the disposal of the Bingo business. Adjusted Profit before tax amounted to £33.0 million (H1 2021: £54.2 million).

 

Taxation

Taxation for the period was £2.4 million (H1 2021: £ 5.2 million) as a result of the lower profit generated in the period.

 

Net Profit and adjusted net profit

Net profit was £12.0 million (H1 2021: of £36.7 million) and Adjusted profit¹ was £30.6 million (H1 2021: £49.0 million).

 

¹ As defined in note 4 to the H1 2022 financial statements.

 

Earnings per share

Basic earnings per share for the period was 2.9p (H1 2021: 9.9p per share). Adjusted basic earnings per share was 7.5p (H1 2021: 13.2p). Further information on the reconciliation of adjusted basic earnings per share is provided in Note 4 to the H1 2022 financial statements.

 

Dividend

The Board has not declared any interim dividend in respect of the six months ended 30 June 2022.

 

Balance sheet

Total assets as at 30 June 2022 amounted to £529.9 million (31 December 2021: £400.1 million).

Current assets as at 30 June 2022 amounted to £402.1 million (31 December 2021: £240.2 million) and current liabilities were £199.2 million (31 December 2021: £251.9 million).

 

888's net cash position as at 30 June 2022 was £299.5million (31 December 2021: £189.4 million).

The balance of cash owed to customers as at 30 June 2022 was £53.1 million (31 December 2021: £60.1million).

 

Cash flow

Net cash used in operating activities was £39.4 million (H1 2021: Net cash generated from operating activities was £51.2 million). Net cash generated from operating activities before working capital movement was £20.7 million (H1 2021: £62.9 million) with the decrease mainly impacted by £25.0 million corporate tax payment in respect of previous years. The change in working capital was mainly attributed to timing issues, resulting in a £35.8 million decrease in trade and other accounts payable, mainly arising from the reduction in revenue driving a related reduction in gaming taxes, payment providers and third-party revenue share balances, together with the payment of accrued employee's annual bonus. Alongside this there was an £11.3 million decrease in customer deposits, and a £10.5 million decrease in provisions, principally reflecting the payment of a £9.4 million fine to the UKGC.

 

Net cash used in investing activities was £14.3 million (H1 2021: £13.0 million) and mainly includes the acquisition of property, plant and equipment of £3.6 million (H1 2021: £3.3 million) and internally generated intangible assets of £9.7 million (H1 2021: £8.5 million).

 

Net cash generated from financing activities was £151.9 million (H1 2021: Net cash used in financing activities was £34.9 million) mainly related to net proceeds from the issue of shares during the period of £158.5 million, while in the previous year, an amount of £31.4 million was distributed as dividend.

 

Going concern

The Group closely monitors and carefully manages its liquidity risk. Following a review of the Group's forecasts, the respective sensitivity analysis and its access to financing, the Directors have a reasonable expectation that the enlarged Group has adequate resources to continue in operational existence for the next 18 months, until 31 December 2023. Therefore, the Directors continue to adopt the going concern basis in preparing these interim financial statements. Further detail on the considerations of the Directors is given in note 1.1.

 

Board changes

Post the period end, and following the completion of the acquisition of William Hill, the Group announced an expansion of the board of directors with the appointments of Andrea Gisle Joosen, Andria Vidler and Randy Freer as Independent Non-Executive Directors with effect from 6 July 2022. The Group also announced its intention to appoint Ori Shaked to the board of directors, subject to the receipt of certain regulatory approvals.

 

Each new board member brings extensive and highly relevant skills and experience to our Board which will be of significant benefit to the Group as it delivers its long-term strategic objectives as an enlarged business post the completion of our acquisition of William Hill.

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

As part of the acquisition of the non-US business of William Hill on 1 July 2022 (the "Acquisition"), the directors carried out a revised assessment of the risks pertaining to the enlarged Group, with particular attention to those risks to which the Group has not previously been exposed, or to which the Group's exposure has materially increased.

 

888 notes that it has issued a prospectus dated 29 April 2022, which is available on the Group's website, and which sets out in detail the Group's assessment of the risks to which the Group is exposed following completion of the Acquisition.

 

In addition, the directors believe that several of the key principal risks and uncertainties pertaining to the enlarged Group remain consistent with those included on pages 50-59 of the 2021 Annual Report and Accounts.

 

In this section, a summary is provided of the areas of new or materially increased risk to the Group following the Acquisition, as well as any significant developments in existing risks since 31 December 2021.

 

1.    Financial risks arising from the Acquisition and its financing

 

On 1 July 2022, the completion of the Acquisition, including the refinancing of certain existing indebtedness of William Hill and its subsidiaries and the payment of certain transaction costs, was financed utilising a combination of sources. These loan facilities were refinanced on 19 July 2022. Full details of the debt facilities, including the floating interest rate component, are set out in note 10 to the financial statements.

 

Financial risks arising in connection with the Acquisition and its financing include:

 

(a)   Interest rate risk

 

A portion of the Group's debt is subject to a variable interest rate and therefore the Group will be exposed to fluctuations in market interest rates. The Group is currently exploring options to mitigate this risk by entering into hedging arrangements.

 

(b)   Foreign exchange risk

 

The Group is exposed to foreign exchange rate fluctuations and risks in its financial reporting. A substantial part of the Group's deposits and revenues are and will be generated in GBP, EUR and other currencies, whilst the Group's operating expenses are and will be largely incurred in local currencies, primarily GBP, EUR, NIS and Romanian leu with incremental exposure to operating expenses in Swedish krona and Polish zloty. The Group will also have debt servicing costs which are denominated in USD and EUR.

 

The Group has mitigated this risk by adopting policies to hedge certain costs. Going forward the Group may enter into FX or cross currency swaps in order to hedge its ongoing USD and EUR exposure arising due to the Acquisition financing and its ongoing EUR exposure under outstanding notes described in note 10.

 

(c)    Debt covenants

 

As a result of the arrangements described above, the Group will be subject to certain restrictive covenants which are customary for debt facilities of this type, in addition to certain customary affirmative covenants. These include a financial ratio covenant which applies while amounts exceeding a certain threshold remain outstanding under the RCF; the RCF is presently undrawn.

 

2.    Integration risks arising from the Acquisition

 

The Group is in the process of integrating the non-US William Hill business into its corporate group, with the goal of integrating operations, realizing cost reductions and retaining qualified personnel and customers. The integration is supported by a strong management team; however, no assurance can be given that the integration process will deliver all or substantially all of the expected benefits or realize such benefits in a timely manner.

 

There will inevitably be a cost involved in revising current systems and structures and the risk is that these costs could exceed current estimates, which would adversely affect anticipated integration benefits.

 

Key integration risks include the unexpected loss of key personnel and customers, difficulties in integrating the LBO portfolio of William Hill retail, difficulties in integrating financial, technological and management standards, processes, procedures and controls, challenges in managing the increased scope, geographic diversity and complexity of the Group's operations, attempts by third parties to terminate or alter their existing contracts with the Group, management of conflicting interests within the Group and failure to mitigate contingent or assumed liabilities, as well as diversion of management and resources from the Group's core business activity due to personnel being required to assist in the integration process.

 

3.    Military action in Ukraine

 

On 24 February, 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in customer preferences or discretionary spending and increases in cyberattacks and espionage, and has led to an unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People's Republic and the so-called Luhansk People's Republic.

 

The Group has taken action to comply with the existing and potential additional measures imposed in connection with the conflict in Ukraine and is actively monitoring the situation and assessing its impact on its business, including to block access to all its products by all Russians, as well as all IP addresses in Russia, the Crimea Region of Ukraine, the so-called Donetsk People's Republic or the so-called Luhansk People's Republic, and, in adhering to EU and UK of limitations on amounts able to be held by Russians in EU and UK bank accounts, the Group has adopted a similar idea for Belarussian players and limited deposit sums in a player's account as well as blocking accounts of its Russian and Belarussian customers and taking steps to remove Russian sporting fixtures from its product offering.

 

4.    Exposure to risks relating to LBOs in the UK

 

(a)   Fixed overhead costs

 

Unlike the previous business of the Group, which provided an online-only offering to its customers, the William Hill retail segment operates a sizeable portfolio of LBOs in the UK. This portfolio consists of primarily leasehold sites, with a small number of freehold sites at which over 10,000 (over 6,000 full-time and almost 4,000 part-time) staff are employed, resulting in significant fixed overhead costs.

 

(b)   Additional regulation

 

The operation of LBOs depends on operating licenses, personal management licenses and premises licenses in the UK. Under the UK regime, licenses are given for an indefinite period, subject to the payment of annual fees, and are normally only terminated in the event of a breach of the terms of the license or other regulatory violation by the holder. There can be no assurance, however, that the UKGC will not terminate licenses already granted, or otherwise change its licensing requirements or that the UK government will not introduce new laws or regulations applicable to gambling companies or change existing laws or regulations. In addition, regulation of gaming machines in the UK continues to have a high profile in the media and among politicians.

 

5.    Increased exposure to risks relating to sport betting in the UK

 

Risks relating to sport betting in the UK to which the Group is already exposed by operating its sport betting business in the UK, but to which it is anticipated that exposure will increase in light of the William Hill group's business, include:

 

(a)   Requirement to make payments to sporting bodies and event rights holders

 

The Group is and will be liable to make contributions to sporting bodies such as the Horserace Betting Levy Board and the British Greyhound Racing Fund in the UK, whether under regulations or agreement, as a way of ensuring certain revenues generated from betting on sports are used to benefit those sports or related interests. Furthermore, the Group does and will enter into contracts with rights holders with regard to the provision of video and video streams, audio and other data for use in its business for the provision of live coverage of sports events.

 

The Group cannot predict with any certainty what future payments may be required for the success of its businesses in the future and what other additional resources will need to be made available to address any conditions, which impose levies, fees or royalties, the level of which will be outside the control of the Group.

 

(b)   Fluctuation of revenues as a result of individual events or betting outcomes

 

A significant proportion of the Group's revenue is and will be derived from fixed-odds betting which means winnings are paid on the basis of the stake placed and the odds quoted before the conclusion of the event (rather than, for example, being determined after the event from a pool of stake money from which the operator's revenue is deducted). While the odds offered to customers are intended to provide a target average return (or gross win percentage) to the bookmaker over a large number of events, this outcome is not guaranteed, particularly over a smaller number of events. From time to time, the Group could experience significant losses caused by unfavorable outcomes in individual events, a series of outcomes skewed towards its customers' betting selections in events, or failures of the people, processes or systems which the Group has in place to manage its bookmaking risk.

 

6.    Regulatory risks

 

(a)   Regulatory developments in the UK

 

In December 2020, the UK government commenced a review of the Gambling Act, with the objective of: (i) examining whether changes are needed to the system of gambling regulation in the UK to reflect changes to the gambling landscape since 2005 when the Gambling Act was introduced, particularly due to technological advances; (ii) ensuring there is an appropriate balance between consumer freedoms and choice on the one hand, and prevention of harm to vulnerable groups and wider communities on the other; and (iii) ensuring customers are suitably protected whenever and wherever they are gambling, and that there is an equitable approach to the regulation of the online and the land based industries.

 

The UK government's review of the Gambling Act is extensive in scope. Key areas under review include:

 

·      the effectiveness of the existing online protections in preventing gambling harm and an evidence-based consideration of, by way of example, imposing greater control on online product design such as stake, speed, and prize limits and the introduction of deposit, loss and spend limits;

 

·      the benefits or harms caused by allowing licensed gambling operators to advertise and make promotional offers and the positive or negative impact of gambling sponsorship arrangements across sports, esports and other areas;

 

·      the effectiveness of the regulatory system currently in place, including consideration of whether the UKGC has sufficient investigative, enforcement and sanctioning powers both to regulate the licensed market and address the unlicensed market;

 

·      the availability and suitability of redress arrangements in place for an individual consumer who considers it may have been treated unfairly by a gambling operator, including consideration of the introduction of other routes for consumer redress, such as a gambling ombudsman; and

 

·      the effectiveness of current measures to prevent illegal underage gambling and consideration of what extra protections may be needed for young adults in the 18-25 age bracket.

 

The UK government launched a 16-week call for evidence alongside the commencement of its review into the Gambling Act. The call for evidence closed on 31 March 2021. The UK government's findings will be informed by the data and evidence from the call for evidence. It is anticipated that the UK government will issue its white paper in the second half of 2022 and any proposals to amend the Gambling Act could follow.

 

This review is in addition to recent reforms introduced by the UKGC.

 

For example, in 2020, the UKGC introduced a ban on the use of credit cards to place bets and issued industry guidance regarding high-value customer schemes (often referred to as VIP programs) which include, among other things, a requirement for licensed operators to undertake checks to establish that a high value customer's spending is affordable and sustainable, whether there is any evidence of gambling related harm or heightened risk linked to vulnerability, and that the operator has in place up to date evidence relating to the individual's identity, occupation and source of funds. Further, in February 2021, the UKGC also announced a number of measures that have impacted the design and offer of online slots games, including the banning of the following features with effect from 31 October 2021: (i) features that speed-up play; (ii) slot spin speeds faster than 2.5 seconds; (iii) auto-play, which can lead to players losing track of their play; and (iv) sounds or imagery which give the illusion of a win when the return is in fact equal to, or below, a stake.

 

In addition, in response to a ban in the UK on television advertising during sporting events that air before 9 p.m., the Group has and will continue to voluntarily stop broadcasting television adverts within five minutes of the start of a sporting event until after the event ends.

 

As a result of the UKGC reforms, the Group also has increased its focus on better assessing affordability of its customers on an ongoing basis, and developing mechanisms that will allow them to be more in control of their customer experience. For example, the Group has lowered the maximum wager amount per spin that a customer can bet via its video slot portfolio of games and has developed a new dynamic product that enables customers to play more responsibly through better accessibility of tools providing them their own live user data, an easy link to define a deposit limit, which helps facilitate enhanced control over their gameplay. Since the introduction of the UKGC reforms and the associated modifications and controls the Group has introduced to its product offerings, management has observed an increase in the number of customers adding deposit limits to their accounts, with 47% of active customers utilizing deposit limits during the second quarter of 2022.

 

In September 2021, the UK Department of Health issued a report dealing with the costs of gambling related harm, in response to which Public Health England has urged the UK government to treat gambling harm as a public health issue. In November 2021, the UKGC opened a consultation on changes and updates to its Licensing, Compliance and Enforcement Policy, aimed at bringing certain gambling products which the UKGC consider to contain financial elements under the regulation of the Financial Conduct Authority. The consultation closed in February 2022, but the results of the consultations are yet to be published.

 

Further on 5 April 2022, the UK Committee for Advertising Practice ("CAP") announced the introduction of new rules intended to prevent adverts for gambling products and services from featuring people likely to have a strong appeal for children and young people, such as celebrities and sports persons.

 

(b)   Regulatory developments in other key markets

 

Austria

 

From time to time, the Group is the target of claims letters and litigation from players seeking to recover losses and attempting to rely on arguments pertaining to the legality of its respective offering in their jurisdiction or to allege claims such as failure to follow responsible gambling procedures or breach of license conditions. Since 2020, the industry has seen a rising trend of such civil litigation claims in Austria, backed by case law amongst the higher Austrian courts, resulting in such courts being inclined to find in favour of such claims. Certain claim-financing bodies have also started gathering claims against operators. In addition to the uncertain outcome of these cases relating to the compatibility or otherwise of local licensing regimes with applicable EU law, there are also additional uncertainties arising from consumer claims related to (i) the applicable law under which claims in cross border cases should be determined and (ii) the enforceability of disputed judgements obtained in jurisdictions in which the Group has neither assets or presence. The claim financing bodies seek to use differing methods of enforcement of judgements against the Group, however none of which have yet been successful.

 

Germany

 

Germany has recently introduced federal sports betting licenses, adopted a temporary toleration regime for online casino products (such as virtual slots and poker) and, during 2021, introduced an online slots and poker licensing regime in the state of Saxony-Anhalt. Compliance with the conditions of these new regimes and the license applications required various modifications and alignments of the Group's German offering, which has impacted and will impact the profitability of the Group's operations in Germany. The Group is also subject to certain prohibition orders issued against it in various German states, which the company is challenging in court.

 

The Netherlands

 

Regulatory developments have also occurred in the Netherlands where, on 1 April 2021, the new Online Gambling Act entered into force, launching an online gambling licensing regime on 1 October 2021. Operators who wish to apply for an online license in the Netherlands must ensure they are in compliance with the "prioritization criteria," which is a list of conditions that, if adhered to by an operator, effectively mean that such operator will not be the subject to enforcement action by the regulator prior to the entry into force of the new regulatory regime. Operators are also subject to a "cooling off" period of 33 months prior to their eligibility to submit a license application, during which time they must not have breached the prioritization criteria.

 

During September 2021, the Dutch Gambling Authority published new enforcement rules in relation to the prioritization criteria, that entered into force commencing 1 November 2021. Any operator not adhering to the requirements may be subjected to monetary fines. Compliance with the conditions of the "prioritization criteria" have required various modifications and alignments of the Group's offering.

 

In light of the foregoing policy changes published by the Dutch Gambling Authority during September 2021, the Group announced its decision to cease provision of services in the Netherlands from 1 October 2021, until such time as it is awarded a local license. The Group is in the process of applying for such a local license in the Netherlands, and although the timing of any license award within the Netherlands remains unclear, the Group aims to be operational within the country during the second half of 2022.

 

Canada

 

The Canadian province of Ontario introduced an online licensing process available to offshore operators, and the Group has recently acquired such a license. It is still uncertain if and how such licensing and local operations will affect the offering in the rest of Canada, however any potential implication may significantly impact the profitability of the Group's operations in Canada.

 

Brazil

 

Brazil adopted a federal framework legislation late in 2018, which would bring commercial online gambling to this significant jurisdiction. However, it has not yet adopted the necessary regulatory instruments to implement the regime. The authorities conducted a consultation process with industry stakeholders in 2021, and are in the process of drafting legal instruments for implementing the new regime. Once enacted, the new regime will allow for the licensing of commercial sports betting operators. There are, however, still many open questions as to how the regime will operate in practice. In late 2021, Brazilian government officials expressed that the new sports betting market in Brazil will be launched before the 2022 FIFA World Cup.

 

Regulatory reform is also taking place on the state level in Brazil (which may potentially lead to parallel licensing requirements for operators). While federal regulations were expected to be finalized in the first half of 2022, regulatory reforms on the state level are continuing to quickly evolve. This is due to a decision rendered by the Brazilian Federal Supreme Court in December 2020, which set out that states may regulate lottery activities and decide whether these will be run by the state, via a concession or via local licenses awarded to private operators. Lotteries at the federal level encompass sports betting, and it is widely thought that this will also be the case on the state level. It is currently uncertain if and how such regulatory reform will affect the offering of online betting and gaming services in Brazil, which may, in turn, significantly impact the profitability of the Group's operations in Brazil.

 

(c)    Increased physical presence

 

The regulatory risks to the Group may be greater where it has a physical presence. The Group now has a physical presence in more jurisdictions than previously. The Group's headquarters is located in Gibraltar, its licensed entities are located in Gibraltar, Malta, Spain (Ceuta) and the US, and the IT functionality to run its betting and gaming operations is located in Gibraltar and Ireland. Additional service functions are located in Israel, Romania, Ireland, Spain (Ceuta), the US (New Jersey) and the UK, as well as Bulgaria, Poland, India, Italy, Spain and the Philippines.

 

(d)   UK compliance assessments

 

Following a compliance assessment concluded in October 2020, the UKGC imposed a financial penalty of £9.4 million on the Group in respect of social responsibility and anti-money laundering failings. The Board continually reviews and considers the regulatory risks faced by the Company (including any potential regulatory and compliance sanctions and associated costs) and has historically recorded appropriate provisions for such risks in its accounts.

 

Similarly, following a compliance assessment conducted in July and August 2021, the William Hill group is subject to an ongoing license review and is addressing certain action points raised by the UKGC in relation to William Hill's social responsibility and anti-money laundering obligations. It has provided the UKGC with an action plan to address the action points raised by them and is in the process of implementing that action plan. In addition, in November 2021, the William Hill group notified the UKGC of separate areas it plans to address arising from challenges implementing cross-brand self-exclusion processes.

 

In May 2022, the UKGC issued preliminary findings from its license review. The UKGC's preliminary findings did not include any new matters. The Group is in the process of preparing responses to the preliminary findings that are expected to be sent to the UKGC in July, ahead of the UKGC issuing the final findings.

 

During the COVID-19 pandemic, the UKGC published aggregated data from operators in the market to add an additional layer of insight on its monitoring and understanding of the risks and impact of the pandemic on gambling behaviour. However on 23 December 2021, the UKGC advised caution when analysing this data after it emerged it had been supplied incorrect data points by the William Hill group between March 2020 and September 2021. As a result the UKGC has confirmed that it is reviewing the regulatory consequences, if any, of the William Hill group's failure to submit accurate data. The UKGC has a wide range of possible sanctions that it can impose. The William Hill group continue to work with them to ensure all necessary actions are being taken to address the Commission's concerns.

 

 

Condensed Consolidated Income Statement

For the six months ended 30 June 2022

 

		Six months ended 30 June	Six months ended 30 June
		2022	2021
		£ million	£ million
	Note	(unaudited)
Revenue	2	332.1	380.9
Gaming duties		(62.3)	(72.5)
Other cost of sales		(58.2)	(54.4)
Cost of sales		(120.5)	(126.9)
Gross profit		211.6	254.0
Marketing expenses		(103.9)	(123.1)
Operating expenses		(76.2)	(77.8)
Exceptional items	3	(16.4)	(8.2)
Operating profit		15.1	44.9
Adjusted EBITDA1		50.0	70.3
Exceptional items		(16.4)	(8.2)
Foreign exchange differences		(4.3)	-
Share benefit charges		(2.2)	(4.1)
Depreciation and amortisation		(12.0)	(13.1)
Operating profit		15.1	44.9
Finance income		0.1	0.1
Finance expenses		(0.8)	(3.1)
Profit before tax		14.4	41.9
Taxation		(2.4)	(5.2)
Net profit for the period attributable to equity holders of the parent		12.0	36.7
Earnings per share	4
Basic		2.9p	9.9p
Diluted		2.9p	9.7p

¹ Adjusted EBITDA is an Alternative Performance Measures ("APMs") which does not have an IFRS standardised meaning. The Group present Adjusted EBITDA since it is the main measure the analyst community uses to evaluate the Company and compare it to its peers. The Group presents adjusted measures because it allows for a further understanding of the underlying financial performance of the Group.

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2022

	Six months ended 30 June	Six months ended 30 June
	2022	2021
	£ million	£ million
	(unaudited)
Profit for the period	12.0	36.7
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations	13.5	(1.8)
Items that will not be reclassified to profit or loss
Remeasurement of severance pay liability	1.0	1.3
Total other comprehensive income for the period	14.5	(0.5)
Total comprehensive income for the period attributable to equity holders of the parent	26.5	36.2

 

The notes below form part of these condensed consolidated financial statements.