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Rating Action:

Moody's changes outlook on William Hill's Ba1 CFR to stable from positive; affirms ratings

19 May 2016

London, 19 May 2016 -- Moody's Investors Service has changed to stable from positive the outlook on the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR) of leading UK gaming company William Hill Plc (William Hill). At the same time, Moody's has affirmed the ratings.

"Our decision to stabilise the outlook reflects weakened trading in William Hill's online division, the slow turnaround of its underperforming Australian business, which will result in further operating profit declines in fiscal 2016.The outlook change also factors in the impact the company's share buy-back programme turning free cash flow negative despite strong credit metrics and liquidity," says Donatella Maso, a Moody's Vice President - Senior Analyst.

The rating agency also affirmed the Ba1 rating of the GBP375 million senior unsecured notes due 2020 and the Ba1 rating of the GBP300 million senior unsecured notes due 2016, both issued by William Hill.

RATINGS RATIONALE

-- CHANGE OF OUTLOOK TO STABLE FROM POSITIVE

Today's outlook change to stable from positive primarily reflects William Hill's weakened online operating performance since the second half of fiscal year (FY) 2015 and the turnaround risk associated with its Australian online business, which will result in a further 10%-15% reduction in the group operating profit for the current year.

While Moody's expects that William Hill's credit metrics (particularly leverage and interest coverage) and liquidity will remain strong for the rating category, free cash flow generation will turn negative in FY2016 owing to the GBP200 million share buy-back programme.

FY2015 was a challenging year for William Hill due to weakness in its non-core online markets, increased tax and regulatory requirements for UK gaming machines, the full impact of the Point of Consumption tax and underperformance of its Australian online operations, which more than offset strong cost control and UK online growth, albeit this is lower than its peers.

The group reported an operating profit of GBP291 million representing a 22% decrease compared to prior year. However, due to the high cash flow generative nature of the business and repayment of the drawn revolving credit facility (RCF), William Hill's credit metrics and liquidity remained strong.

Uniquely among the company's divisions, William Hill Online continued to experience negative trends in the first seventeen week trading of FY2016, both in its core and non-core markets, with revenues down by 11% and margin by 0.9 percentage points. This downward movement was due to large pay-outs at the 2016 Cheltenham Festival horse races but also to an unexpected increase in the number of time-outs and automatic self-exclusions from customers.

Moody's acknowledges management's efforts to mitigate these trends by improving customer experience and refocusing marketing activities in order to acquire and retain profitable customers. Given the fierce competition underpinning the online gambling industry, it will take time to achieve the targeted results.

Similarly, Moody's expects a slow and gradual recovery of the Australian online business, albeit underway, as company stated a 22% increase in wagered amounts and a 46% increase in new accounts under the core William Hill brand since the beginning of the year.

As a result, profits and profit margins will be further pressured in the current financial year, Moody's adjusted leverage and interest coverage will slightly worsen, while still remaining better than the triggers set for the rating category. Conversely, free cash flow will turn negative primarily due to the share buy-back programme, to return positive in FY 2017, with liquidity being ample in both financial years.

William Hill's Ba1 CFR continues to reflect (1) its mature premises-based retail business; (2) the recent weakened operating performance of its online division, which continues to rely heavily on a rising marketing and technological spend; (3) the turnaround of its underperforming Australian online business and more broadly the execution and integration risk associated with its M&A activity into new products and geographies; and (4) ongoing exposure to evolving regulatory and fiscal regimes.

More positively, the Ba1 CFR is supported by (1) William Hill's leadership positions in the UK retail betting industry, with the company reporting a market share of around 26%, as measured by number of licensed betting offices, and in the UK online betting and gaming segments as well as its growing international presence; (2) the company's strong brand name and the retail segment's high barriers to entry; and (3) the underlying positive industry fundamentals underpinning online gambling wagers growth.

LIQUIDITY

The company's liquidity profile is robust as it is underpinned by GBP190 million of unrestricted cash and short-term deposits, full availability of its GBP540 million committed revolving credit facility as of 31 December 2015. These resources are likely to more than cover expected cash outflows over the next 12 to 18 months, including the GBP200 million share buy-back programme and the GBP90 million planned investment to support NYX Gaming Group's (unrated) acquisition of the software company Openbet (unrated).

Under its five-year GBP540 million committed multi-currency revolving facility, maturing May 2019, William Hill has to comply with two financial covenants, a maximum leverage ratio of 3.5x and a minimum interest cover of 3.0x. At 31 December 2015, the company reported ample headroom under both tests.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook reflects Moody's expectation that William Hill will maintain strong credit metric and liquidity for its rating category over the next 12 to 18 months, despite weakness in its online division and the turnaround of its Australian operations from FY2015 underperformance. Moody's also expects that the company will generate positive free cash flow from FY2017 onwards and there will be no further material regulatory changes.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure could be exerted on the rating if William Hill's adjusted debt/EBITDA is maintained below 3.0x and its retained cash flow/ debt well above 15%, while generating meaningful free cash flow generation. For an upgrade, William Hill will have to publicly commit to a conservative financial policy.

Negative pressure could be exerted on the rating if the company's credit metrics become weaker than the targets set for the rating category, with the ratio of adjusted debt/EBITDA increasing towards 4.0x. Challenges to the company's liquidity risk profile could also have negative rating implications.

LIST OF AFFECTED RATINGS:

Affirmations:

..Issuer: William Hill plc

....Corporate Family Rating, Affirmed Ba1

....Probability of Default Rating, Affirmed Ba1-PD

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 (LGD 4)

Outlook Actions:

..Issuer: William Hill plc

....Outlook, Changed To Stable From Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Gaming Industry published in June 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Established in 1934, William Hill plc is a leading sports betting and gaming company that operates predominantly in the UK, a market that provided approximately 85% of the company's net revenues in fiscal year 2015. William Hill's main delivery channels are retail and online: the former through 2,371 licensed betting shops in the UK with over-the-counter betting and gaming machines, and the latter offering sports betting, casino games, poker, bingo and live casino via mobile and internet connections.

In fiscal year 2015, William Hill generated revenues of GBP1.6 billion and EBITDA of GBP429 million on a Moody's adjusted basis. The company has been listed on the London Stock Exchange since 2002.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Donatella Maso
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Patrick Mispagel
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on William Hill's Ba1 CFR to stable from positive; affirms ratings
No Related Data.
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