NOTES TO THE GROUP FINANCIAL STATEMENTS
12. Intangible assets
Earnings per share (pence) 23.6 (0.2) 23.4 25.2 (0.5) 24.7
Amortisation adjustment (pence) 0.8 – 0.8 1.1 – 1.1
Exceptional adjustment (pence) 5.5 (0.1) 5.4 2.5 – 2.5
Earnings per share – adjusted (pence) 29.9 (0.3) 29.6 28.8 (0.5) 28.3
An adjusted earnings per share, based on profit for the period before exceptional items and before the amortisation of specific intangible assets arising on acquisitions, has been presented in order to highlight the underlying performance of the Group.
The basic weighted average number of shares excludes shares held by The William Hill Holdings 2001 Employee Benefit Trust and those shares held in treasury. The effect of this was to reduce the average number of shares by 0.3 million in the 52 weeks ended 30 December 2014 (52 weeks ended 31 December 2013: 0.8 million).
12. Intangible assets
Goodwill
£m
Licence value
£m
Brands, trade names and customer relationships
£m
Acquired technology platforms
£m
Computer software
£m Total
£m
Cost:
At 1 January 2013 932.0 484.6 32.5 2.9 104.3 1,556.3
Acquisitions 353.9 – 166.7 7.6 0.4 528.6
Additions – – – – 35.0 35.0
Effect of foreign exchange rates (73.6) – (34.8) (1.9) – (110.3)
At 31 December 2013 1,212.3 484.6 164.4 8.6 139.7 2,009.6
Additions – – – – 42.1 42.1
Transferred from property, plant and equipment – – – – 13.2 13.2
Disposals (0.3) (0.3) – – – (0.6)
Effect of foreign exchange rates (5.0) – (2.2) – (0.2) (7.4)
At 30 December 2014 1,207.0 484.3 162.2 8.6 194.8 2,056.9
Accumulated amortisation:
At 1 January 2013 41.6 – 17.2 0.5 63.6 122.9
Charge for the period – – 9.2 1.7 21.0 31.9
At 31 December 2013 41.6 – 26.4 2.2 84.6 154.8
Charge for the period – – 52.7 2.8 30.3 85.8
At 30 December 2014 41.6 – 79.1 5.0 114.9 240.6
Net book value:
At 30 December 2014 1,165.4 484.3 83.1 3.6 79.9 1,816.3
At 31 December 2013 1,170.7 484.6 138.0 6.4 55.1 1,854.8
The amortisation period for the Group’s computer software is between three and ten years. The use of a ten-year life in respect of some of the software assets is supported by warranties written into the relevant software supply contract.
Licences are judged to have an indefinite life and are accordingly not amortised but are subject to annual impairment reviews. The directors consider that the Group’s licences have an indefinite life owing to: the fact that the Group is a significant operator in a well-established market;
the proven and sustained demand for bookmaking services; and the Group’s track record of successfully renewing its betting permits and licences.
Acquired technology platforms include bookmaking-related software platforms and systems recognised at fair value in business combinations.
There are no individually material items within this category.
Brands, trade names and customer relationships
This category of assets includes brands, trade names and customer relationships recognised in business combinations. These include the following significant items:
(i) US assets
In 2012, the Group acquired three US businesses. Brands and customer relationships of £13.1m were recognised and are being amortised over lives of between three and ten years.
(ii) Sportingbet assets
In March 2013, the Group acquired businesses and assets from the Sportingbet group, including operations under the Centrebet brand.
Brand and customer relationship assets were recognised of £163.1m. These assets are being amortised over lives ranging between two and 12 years. Following the decision to rebrand the operations of William Hill Australia, the UELs of certain assets have been revised, including one asset which had previously been allocated an indefinite life. There are no longer any assets with an indefinite life arising from this acquisition.
(iii) tomwaterhouse.com assets
The Group acquired tomwaterhouse.com in August 2013. An identifiable brand of £3.6m was recognised and is being amortised over three years.
Impairment reviews
The Group performs an annual impairment review for goodwill and other intangible assets with indefinite lives, by comparing the carrying amount of these assets with their recoverable amount. The most recent test was conducted at 30 December 2014. Testing is carried out by allocating the carrying value of these assets to cash generating units (CGUs) and determining the recoverable amounts of those CGUs through value in use calculations. Where the recoverable amount exceeds the carrying value of the assets, the assets are considered as not impaired.
Value in use calculations are based upon estimates of future cash flows derived from the Group’s long range operating profit forecasts by division. Operating profit forecasts are derived from the Group’s annual strategic planning or similarly scoped exercise. These are high level forecasts, looking four years ahead, with separate extrapolation of net revenue and expense by division based on a combination of recently observable trends, management expectations and known future events. For the purposes of the value in use calculation, the long range operating forecast is extended to cover a five year period and year one of the long range operating profit forecast is replaced immediately prior to use if an annual budget for that year has been subsequently approved. This is done to ensure that year one of the test reflects the latest detailed planning for that period. The implications, if any, of a materially different operating profit outcome for annual budget versus the relevant year of the long range forecast are also considered at that point. Cash flows beyond that five year period are extrapolated using long-term growth rates as estimated for each CGU separately, which do not exceed expectations of long-term growth in the local market. Both the following year’s budget and the long range operating profit forecasts are approved by management.
Discount rates are applied to each CGU’s cash flows that reflect both the time value of money and the risks that apply to the cash flows of that CGU. These are estimated by management on the basis of typical debt and equity costs for listed gaming and betting companies, with samples chosen where applicable from the same markets or territories as the CGU. Further risk premia and discounts are applied, if appropriate, to this rate to reflect the risk profile of the specific CGU relative to the market in which it operates. Our discount rates are calculated on a pre-tax basis and the calculations incorporate estimates of the tax rates that will apply to the future cash flows of the applicable CGU.
William Hill PLC Annual Report and Accounts 2014
NOTES TO THE GROUP FINANCIAL STATEMENTS
106
12. Intangible assets
The principal assumptions underlying our cash flow forecasts are as follows:
1. We assume that the underlying business model will continue to operate on a comparable basis, as adjusted for key sporting events, expected regulatory or tax changes and planned business initiatives.
2. Our forecasts anticipate the continuation of recent growth or decline trends in staking, gaming net revenues and expenses, as adjusted for changes in our business model or expected changes in the wider industry or economy.
3. We assume that we will achieve our target sports betting gross win margins as set for each territory, which we base upon our experience of the outturn of sports results over the long term, given the tendency for sports results to vary in the short term but revert to a norm over a longer term.
4. In our annual budget process, expenses incorporate a bottom-up estimation of our cost base. For employee remuneration, this takes into account staffing numbers and models by division, while other costs are assessed separately by category, with principal assumptions including an extrapolation of recent cost inflation trends and the expectation that we will incur costs in line with agreed contractual rates.
The other significant assumptions incorporated into our impairment reviews are those relating to discount rates and long-term growth assumptions, as noted below separately for each CGU.
CGUs
Cash generating unit Discount rate
%
Long-term growth rate
%
Retail 9.8 2.6
Online 8.7 2.6
Stadia 9.8 2.6
US 12.6 3.0
Australia 10.2 2.9
No impairment was identified in any of the CGUs tested.
The Retail CGU is defined as the Retail segment, which we describe in note 2. The CGU holds goodwill of £680.7m and other intangibles with indefinite lives of £484.3m.
The Online CGU is defined as the Online segment, which we describe in note 2, and holds goodwill of £183.9m.
The Stadia CGU is defined as the combined assets and operations of the two greyhound stadia operated by the business, which are included within the Other segment as described in note 2. Goodwill allocated to this CGU is £7.1m.
The US CGU is defined as the US segment, which we describe in note 2. Goodwill at the balance sheet date was valued at £19.3m.
The Australia CGU is defined as the Australia segment as described in note 2. This CGU includes goodwill of £274.4m at the balance sheet date. Previously, impairment reviews of Australian assets were based upon smaller aggregations of assets within Australia. However, the increasing integration of Australian operations has led the directors to conclude that the CGU supporting Australian goodwill comprises the Australia segment.
Sensitivity of impairment reviews
For CGUs reviewed at December 2014, no impairment would occur under any reasonably possible changes in assumptions upon which the recoverable amount was estimated.
Land and buildings
£m
Fixtures, fittings and equipment
£m Total
£m
Cost:
At 1 January 2013 347.5 107.8 455.3
Acquisitions – 4.7 4.7
Additions 37.5 16.0 53.5
Disposals (7.5) (0.1) (7.6)
Effect of foreign exchange rates – (1.0) (1.0)
At 31 December 2013 377.5 127.4 504.9
Additions 21.7 6.5 28.2
Disposals (12.7) (0.6) (13.3)
Transferred to intangible assets – (13.2) (13.2)
Effect of foreign exchange rates – 0.4 0.4
At 30 December 2014 386.5 120.5 507.0
Accumulated depreciation:
At 1 January 2013 156.3 71.3 227.6
Charge for the period 24.3 10.0 34.3
Disposals (6.0) (0.2) (6.2)
At 31 December 2013 174.6 81.1 255.7
Charge for the period 24.5 9.0 33.5
Disposals (7.4) (0.2) (7.6)
At 30 December 2014 191.7 89.9 281.6
Net book value:
At 30 December 2014 194.8 30.6 225.4
At 31 December 2013 202.9 46.3 249.2
The net book value of land and buildings comprises:
30 December 2014£m
31 December 2013
£m
Freehold 40.0 40.0
Long leasehold 9.8 7.6
Short leasehold 145.0 155.3
194.8 202.9
Of the total net book value of land and buildings, £4.8m (31 December 2013: £4.0m) relates to administrative buildings and the remainder represents LBOs in the UK and betting locations in Nevada. The cost of assets on which depreciation is not provided amounts to £5.4m, representing freehold land (31 December 2013: £5.5m).
There are no assets within property, plant and equipment held under finance leases at 30 December 2014 or 31 December 2013.
At 30 December 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £3.0m (31 December 2013: £4.0m).
William Hill PLC Annual Report and Accounts 2014
NOTES TO THE GROUP FINANCIAL STATEMENTS
108
14. Subsidiaries
The principal subsidiaries of the Company, their country of incorporation, the ownership of their share capital and the nature of their trade are listed below:
Country of incorporation
Proportion of all classes of issued share capital owned
by the Company Nature of trade
Directly owned:
William Hill Holdings Limited Great Britain 100% Holding company
Held through intermediate companies:
William Hill Investments Limited Great Britain 100% Holding company
Will Hill Limited Great Britain 100% Holding company
William Hill Organization Limited Great Britain 100% Retail betting and gaming machines
Willstan Limited Northern Ireland 100% Retail betting and gaming machines
BJ O’Connor Limited Jersey 100% Retail betting and gaming machines
Willstan (IOM) Limited Isle Of Man 100% Retail betting and gaming machines
The Regal Sunderland Stadium Limited Great Britain 100% Stadium operation
Team Greyhounds (Brough Park) Limited Great Britain 100% Stadium operation
American Wagering, Inc. USA 100% Holding company
William Hill Nevada I USA 100% Retail and mobile betting
Brandywine Bookmaking, LLC USA 100% Retail betting
William Hill Nevada II USA 100% Retail betting
Computerized Bookmaking Systems, Inc. USA 100% Bookmaking software sales
William Hill Australia Trading Pty Limited Australia 100% Online and telephone betting
Centrebet International Limited Australia 100% Online and telephone betting
Tom Waterhouse N.T. Pty Limited Australia 100% Online and telephone betting
WHG Trading Limited Gibraltar 100% Online betting and gaming
WHG (International) Limited Gibraltar 100% Online betting and gaming
WHG Spain PLC Gibraltar 100% Online betting and gaming
William Hill (Malta) Limited Malta 100% Online betting and gaming
WHG Services (Bulgaria) EOOD Bulgaria 100% Customer services
Cellpoint Investments Limited Cyprus 100% Holding company
Ad-gency Limited Israel 100% Marketing services
The proportion of voting rights held is the same as the proportion of shares held.