Proposed Acquisition of Stanley Leisure’s Retail Bookmaking Operations
16 May 2005
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This presentation provides a summary of the relevant transaction. Any decision by
shareholders on whether to vote in favour of the transaction should be based on the
circular to be distributed to shareholders of the company in due course, and not on this
summary.
This presentation does not constitute or form part of any offer or invitation or solicitation
to purchase shares, nor should this presentation or any part of it form the basis of any
investment decision.
Any synergies or enhanced earnings anticipated in this presentation should not be taken
to be a forecast of profits and should not be interpreted to mean that the earnings per
share for any period following the acquisition will necessarily be greater that for any
prior period.
Disclaimer
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Agenda
1. Introduction and Overview - David Harding
2. Stanley’s Retail Bookmaking – Overview and Integration - Tom Singer
3. Cost Savings and Revenue Opportunities - Tom Singer
4. Funding and Capital Structure - Tom Singer
5. Timetable and Summary - Tom Singer
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Agreement of the terms of the proposed acquisition of Stanley Leisure’s domestic retail bookmaking operations for £504 million
Stanley’s Retail Bookmaking comprises of 624 Licensed Betting Offices (“LBOs”) in Great Britain, Northern Ireland, the Republic of Ireland, Jersey and the Isle of Man
Stanley’s Retail Bookmaking is fourth largest operator of LBOs in the UK
William Hill is assuming the UK competition risk
Subject to shareholder approval at EGM to be held in mid June 2005
Anticipated completion shortly thereafter
Board commitment to review enlarged Group’s capital structure following the acquisition and competition authorities’ review
Introduction
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Key Messages
(1) This statement should not be interpreted to mean that future earnings per share of William Hill following the proposed acquisition will necessarily be higher than historical earnings per share
A rare opportunity for William Hill to increase the scale of its UK retail betting estate, creating the UK’s leading network of LBOs
Significant scope for synergies and improvement in the profitability of Stanley's Retail Bookmaking
Stanley's Retail Bookmaking has EBITDA of £37.2 million after adjustment for year ended 2 May 2004 – expected to be slightly lower in the year ended 1 May 2005 in line with all bookmakers including William Hill
Expected to deliver pre-tax synergies of circa £13 million in 2006
Expected to enhance earnings per share(1) before exceptional items and generate returns in excess of William Hill’s cost of
capital in 2006, the first full financial year following the transaction
Enhances opportunity to grow profitability of core business in medium term
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Strategy since listing of delivering sustainable earnings growth for its shareholders
Profit on ordinary activities after tax (before exceptionals) has grown 153% over last two financial years
Proposed return of capital announced in absence of suitable acquisition opportunities
Subsequently, opportunity to acquire Stanley's Retail Bookmaking arose
Background to the Proposed Acquisition
7Note: Stanley LBO breakdown conformed to William Hill’s divisional split
Addition of 624 LBOs in Great Britain, Northern Ireland, the Republic of Ireland, Jersey and the Isle of Man
Highly complementary estate (North West of England, Ireland)
Limited number of comparable opportunities
Reasons for the Proposed AcquisitionA rare opportunity to substantially increase distribution reach
William Hill Stanley's Retail Bookmaking
Scotland and North East: 269 LBOs Scotland and North East: 120 LBOs
North: 316 LBOs
London North: 366 LBOs
Mid West, including Midlands, Liverpool, Wales and South West: 296 LBOs
North: 145 LBOs
London North: 22 LBOs
Mid West, including Midlands, Liverpool, Wales and South West : 191 LBOs
Offshore: 100 LBOs
Total: 1,613 Total: 624
London South: 366 LBOs London South: 46 LBOs
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Completed due diligence
Confident of substantial synergies by applying William Hill’s disciplines and approach to the enlarged group...
- ...pre-tax synergies of £13 million
- ...combination of hard synergies (cost and contract improvements) and operational (revenue enhancement) synergies
Benefits of the Proposed Acquisition Significant scope for synergies
Attractive immediate financial returns
- Expected to enhance earnings per share and generate returns in excess of WACC in 2006, first full financial year
Fundamental strategic benefits not provided by previously allocated return of capital
Attractive financial and strategic benefits
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#1 or #3 - Offensive or Defensive
- New markets/competitive challenge
- Buying power and influence
- Partner of choice - UK consolidation
- International deregulation
Strategic benefits of extended distribution/scale
- Product range/depth in low margin environment
- Increased limits/improved liability management
- Single account - cross sell product/channel proposition
- Maximum leverage of investments in technology
- Long term - Tote/Lottery licenses?
Strategic Benefits not Quantified in Synergies
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Tom Singer to be promoted to Chief Operating Officer
- Full responsibility for integration
- Extensive experience of business integration projects
Shai Wasani will assume some of Tom’s responsibilities for finance function
Instigating a search for new Finance Director
David Harding to continue role as Chief Executive
At EGM will seek shareholder approval for new share based incentivisation arrangements for David Harding and Tom Singer
Management
Board believes the Proposed Acquisition is in the best interests of the Company
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Agenda
1. Introduction and Overview
2. Stanley’s Retail Bookmaking – Overview and Integration
3. Cost Savings and Revenue Opportunities
4. Funding and Capital Structure
5. Timetable and Summary
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52 weeks ended 28 April
52 weeks ended 27 April
53 weeks ended 2 May
2002 2003 2004
£ million £ million £ million
Turnover 568.4 771.8 1,365.7
Gross Win 117.6 114.8 151.4
EBITDA 26.2 24.3 37.2
Net Assets 127.6 131.8 121.8
The amounts above are extracted from the unaudited combined financial information of Stanley's RetailBookmaking for the relevant years presented in accordance with the accounting policies of William Hill PLC
Stanley operates 624 LBOs in Great Britain, Northern Ireland, the Republic of Ireland, Jersey and the Isle of Man
Proposed acquisition does not include Stanley’s telephone and interactive betting operations or international business
EBITDA of £37.2 million after adjustments for year ended 2 May 2004
Marginally lower level of profitability expected for year ended 1 May 2005 due to unfavourable horseracing and football results
Stanley Betting Overview
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Due diligence completed
Business plan for combined business going forward
First 6-8 weeks post completion doing further analysis
Pace of integration subject to possible competition issues
After competition issues resolved, early focus on:
- Rebranding of LBOs (William Hill more recognisable national betting brand)
- Rationalisation of central functions and removal of duplicate structures
- Harmonisation of prices and product offering
- IT integration issues
Integration
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Agenda
1. Introduction and Overview
2. Stanley’s Retail Bookmaking – Overview and Integration
3. Cost Savings and Revenue Opportunities
4. Funding and Capital Structure
5. Timetable and Summary
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2005E
£ million
Business Integration 10
Advisors and written off bank fees 10
Total Acquisition related 20.0
Roll out of EPOS in William Hill estate 10.0
Total 30.0
Expected total synergies of circa £13 million in 2006
£7.5 million from cost synergies and £5.5 million from revenue synergies
Exceptional revenue costs:
Overview of Synergies, Costs and Capex
Upfront capex investment of £10m principally to harmonise IT systems
Further capex investment of £20 million to improve retail estate over the next three years
(already announced)
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Immediate opportunity to improve efficiency of enlarged business through elimination of duplicate:
- Back office functions
- Line management structures
Reduce corporate overheads
Net reduction in aggregate expenditure on branding, marketing and sponsorship
Seek to improve commercial terms with suppliers
Synergies – cost savings and economies of scale
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Rebranding under the more recognisable William Hill brand
Introduction of William Hill’s full range of products, prices and risk management systems
Development of additional services that provide more betting opportunities for LBO customers
Optimisation of FOBT / AWP mix
Leveraging of investment in new and existing shop technology
Cross sell William Hill’s remote channels to LBO customers
Synergies – revenue synergies and profitability improvement
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Agenda
1. Introduction and Overview
2. Stanley’s Retail Bookmaking – Overview and Integration
3. Cost Savings and Revenue Opportunities
4. Funding and Capital Structure
5. Timetable and Summary
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Funded through existing resources and increasing borrowings (previously to be used for return of capital)
Review of capital structure will be undertaken by the Directors of William Hill
View to establish efficient capital structure for the enlarged Group
Directors will outline proposals following completion of the Proposed Acquisition and after competition authorities’ review is complete
Proposals may include a combination of one-off returns of capital, share buy-backs and dividends
Funding and Capital Structure
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Agenda
1. Introduction and Overview
2. Stanley’s Retail Bookmaking – Overview and Integration
3. Cost Savings and Revenue Opportunities
4. Funding and Capital Structure
5. Timetable and Summary
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Proposed Acquisition is conditional on EGM vote
Circular to be sent to shareholders shortly
EGM to be held in mid June 2005
Completion shortly after EGM
Trading update to market in July
Mid August at the earliest to be free of significant competition risk
Update on progress at interim results announcement (provisionally re-scheduled for 5 September 2005)
Timetable
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Summary
(1) This statement should not be interpreted to mean that future earnings per share of William Hill following the proposed acquisition will necessarily be higher than historical earnings per share
A rare opportunity for William Hill to increase the scale of its UK retail betting estate, creating the UK’s leading network of LBOs
Significant scope for synergies and improvement in the profitability of Stanley's Retail Bookmaking
Stanley's Retail Bookmaking has EBITDA of £37.2 million after adjustment for year ended 2 May 2004
Expected to deliver pre-tax synergies of circa £13 million in 2006
Expected to enhance earnings per share(1) before exceptional items and generate returns in excess of William Hill’s cost of
capital in 2006, the first full financial year following the transaction
Enhances opportunity to grow profitability of core business in medium term
Q & A
Proposed Acquisition of Stanley Leisure’s Retail Bookmaking Operations
16 May 2005