William Hill is a company which specialises in providing gambling and betting opportunities to people in a range of sports from horse racing to football. The company was founded in 1934 and provides gambling and betting opportunities on the high street, online and by phone, William Hill (2010). Furthermore, the latter states that the company has been listed on the London Stock Exchange since 2002 and employs around 16000 people mainly in the UK, Israel, Bulgaria and Ireland. Moreover, the company has 2200 shops in the UK and Ireland and offers betting and gambling facilities seven days of the week, processing an average of over 1 million bets per day, William Hill (2010). Indeed, the latter suggests that the company has gaming machines within its shops which allows customers to play gambling games such as Poker, Roulette and random number generator games. Nevertheless, in addition to the high street presence with its shops the company also has a number of call centres which allows it to process up to 600 calls simultaneously, William Hill (2010). In this case it is clear that not only does William Hill have a diversified product base in terms of gambling and betting products, it also has a diversified means of delivering these services to its customers. It is in this context that this paper will assess the financial performance of William Hill from 2006 to 2009 and what tools are available from Management Accounting for William Hill to manage its performance.
Financial Performance Assessment: 2006-2009
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The financial performance of William Hill is dependent upon a number of factors. These include the extent of competition in the gambling and betting industry, the level of demand in the external economy, the impact of weather conditions on sports events, the level of the company's costs as well as government regulatory efforts. In this case, adverse weather conditions which lead to the cancellation of sports events such as horse racing and football will see a decline in the company's profits. However, William (2003) suggests that insider trading activity within the sports industry itself can have consequences on the financial performance of William Hill and other gambling and betting companies.
Patton et al (2003) states that the biggest impact on the financial performance of traditional bookmakers such as William Hill came about with the advent of the National Lottery in 1996 and the growing market share of off shore online gaming companies. In this case, Patton et al (2003) suggests that the off shore online gambling companies are not subject to the betting taxes which traditional UK bookmakers are subject to. In this regards, the traditional UK bookmakers such as William Hill are under a considerable competitive disadvantage. This led to a considerable debate within the gambling industry as well as within UK government circles. This debate subsequently resulted in a wide ranging investigation of the competitiveness of the UK gambling and betting industry, in 2000, especially with regards to the incidence of taxes. This investigation led to a dramatic change in the way in which gambling and booking establishments were taxed. In this case the tax which was charged as a percentage of each bet was replaced with a unified tax on the gross profits of the gambling and betting company. This changed reduced the impact of the taxes which were levied on the bookmakers and led to the shift away from a tax which was levied on bettors, Patton et al (2003). To some extent this alleviated the decreased competition of bookmakers such as William Hill. Furthermore, Butler (2007) suggests that while the Gambling Act 2005 became active on 1st September 2007, the budget in 2007 proved beneficial to the online gaming companies, which includes William Hill. In this case, the UK government announced in its budget that a flat 15% tax rate would be levied on all online gaming companies. It was hoped that in conjunction with a flat corporation tax of 28%, many internet gaming companies would be attracted to relocate their business to the UK, Butler (2007). It was hoped that these tax changes would alleviate the detrimental effect of US tax changes in 2006 on the financial performance of UK internet gambling companies. Moreover, these tax changes will help William Hill because of the fact that it has expanded into the online games sector by merging part of its operations with Playtech, a software developer based in Ireland, O'Halloran (2008).
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According to William Hill (2009) the impact of the National Lottery has not has been as severe as one would like to think. This is due to the fact that the specialised License Betting Shops represent a market that is larger than the National Lottery itself. This is despite the fact that the National Lottery is available online and through almost every newsagent and grocery retailer in the UK. However, the extent of the impact of the National Lottery tends to be overestimated and needs to be the interpretation of its impact needs to be balanced by the fact that it offers only online games. Moreover, in this context, William Hill offers online gaming facilities as well as betting facilities thorough its Licence Betting Offices. In this case, William Hill has a market share of 25%, William Hill (2009). Furthermore, the barriers to entry in the UK gambling and betting industry are high for a number of reasons. These include the fact that the Licensed Betting Offices entail a highly capital intensive operation, the regulatory requirements are high, trading infrastructure of a specialised nature is needed and content costs are increasing, William Hill (2009).
Adverse weather conditions can also have an impact on the financial performance of William Hill, Ranscombe(2010). In this case, the latter suggests that the financial performance of William Hill was impacted heavily in the fourth quarter 0f 2009 and the first quarter of 2010 with cold weather and heavy snow falls which reduced the number of horse races and football games which were held. In this case, Ranscombe (2010) suggests that the number of horse races fell by as much as 5% in the last month of 2009 with further reductions in the first quarter of 2010.
Nevertheless, it is not only adverse weather conditions which can affect the profitability of William Hill. For example, the Global Economic Crisis of 2008 as also affected the financial performance of William Hill.
This illustrates the fact that the general economic environment also has an impact on William Hills financial performance because a recessionary economic environment necessarily reduces the disposable incomes of consumers so that they have less money to spend. In this case, Wearden (2009) suggests that due to fall in UK employment levels, fewer people are going to William Hills Licensed Betting Offices and this trend can only be expected to continue. However, the increasing contribution from the company's online sales can be expected to ensure that sales revenues in 2010 will increase, Hyperion (2010).
Having discussed the various factors which may impact on the financial performance of William Hill, it now seems appropriate to assess William Hills financial performance from 2006 to 2009 utilising the profitability, liquidity and investment ratios of the company for this period. Indeed, these ratios as well as the financial information used to calculate the ratios are shown in Table 1, above. On the basis of the values of the profitability ratios, it can be clearly seen that from 2006 to 2009, the profitability of William Hill has declined. This is essentially because of the fact that the net profit is the numerator of all three profitability ratios; a reduction of the overall ratio must imply that the denominator has increased at the expense of the numerator. With regards to the liquidity of William Hill, the liquidity ratios suggests that the current ratio and the quick ratio for the company has declined from 2006-2009. These ratios are essentially an indication of the company's ability to pay its short term liabilities. Therefore, deterioration in these ratios suggests that the company is less able to meet its short term liabilities than it was in the previous period. It can also be seen that the decline in these ratios has been more severe from 2008 to 2009. The decline in these ratios may be suggestive of the impact of the global economic crisis, the UK recession and the subsequent fall in consumer demand and incomes. On the other hand the debt/equity ratio of William Hill from 2006 to 2009 shows a steady and significant improvement. This improvement has been largely due to an ever increasing equity shareholder base, with the number of shares issued almost doubling from 2008 to 2009. Furthermore, the increase in the equity share base from 2008 to 2009 has also affected the investment ratios. This is due to the fact that the number of shares which have been allocated by William Hill is a component of the Earnings per Share ratio, which fell from 2008 to 2009, which is a component of the other two investment ratios which have seen a fall from 2008 to 2009. Having accessed the factors which have been responsible for the financial performance of William Hill from 2006 to 2009, this paper will next assess the Management Accounting tools which can prove to be useful to a company such as William Hill.
Management Accounting and William Hill
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Needles et al (2007) suggests that the purpose of Management Accounting is to provide the appropriate financial information which can be used by management to ensure that the company's resources are used adequately. Therefore, in this context it is necessary for the financial specialists within a firm to 'identify, measure, accumulate, analyse, prepare, interpret ate and communicate' the relevant financial information so that the management within a company can 'plan, evaluate and control' the organisations resources so that these resources can be used to ensure that the company's financial performance is maximised, Needles et al (2007). In this context, from the point of view of the profitability ratios in Table 1, it is necessary for the company to increase its net profits with regards to its net sales, total assets and owners equity. In this way the company's profit margin, return on assets and return on equity ratios will rise from one period to another. The way to increase the net profits of William Hill will be to increase its revenues and cut its costs. In this context the financial specialists will need to identify the areas of the business which are showing signs of increasing revenue and those areas of the business which are showing increasing costs. On this basis, once this information is at hand and communicated to senior management decisions can be made on how William Hill can best allocate its resources so that those parts of the business which are showing increasing revenues are allocated more resources in terms of managerial time and capital investment while those areas of the business which are showing increasing costs are allocated fewer resources and reduced in size. As was discussed in the previous section the company's Licensed Betting Offices entail a significant capital investment, William Hill(2009), while online sales represents a source of increasing revenue, Hyperion(2010). In this context, Management Accounting information will assist the management of a company to set objectives and budgets for the forthcoming financial year, Needles et al (2007). Furthermore, according to the latter in order to meet its objectives, the management of the company will formulate a plan for the financial year which will be guided by each department and business units allocated budget.
The value chain is a tool which can be provided by Management Accounting so that William Hill may improve its financial performance. In this case the value chain acts to determine how value is added to the final product or delivery of service by a company at each stage of the production of that product or service, Needles et al (2007). In this case, the latter suggests that the value chain can be divided into the primary processes and the secondary processes. In this case the former includes activities such as research and development, production, marketing, distribution and customer service. For a company such as William Hill, the research and development sector is likely to be important because of the need to develop software which offers more technological ability which can entice people to make bets online. On the other hand customer service is likely to important when people call William Hill call centres or visit the company's Licenced Betting Offices to place bets. However, the marketing function is important irrespective of whether a sales opportunity exists for the company through an online facility or through a retail outlet. Therefore, it is in this context that the concept of value chain analysis is important in determining where the greatest and least value is added in the delivery of service by William Hill. Once these areas have been identified then management had redirect resources has appropriate so that value within business segments can be bolstered or improved.
Management Accounting also provides other tools which can be used by William Hill to improve its business performance, Needles et al (2007). In this case the latter suggests that these tools include the Just-In-Time operating philosophy, Total Quality Management, Activity Based Management and the Theory of Constraints. According to Needles et al (2007) these tools provide a means whereby William Hill can identify and so reduce waste and cost while ensuring that quality of the service is improved at all times in order to ensure that customer satisfaction is maximised. In the case of a Just-In -Time [JIT] Operating System, Management Accounting will provide information to management which will help it to adjust the delivery of the service. This is due to the fact that JIT is responsive to changes in the delivery of service as well as to changes in the operating environment. Therefore, if short term costs rise or revenues fall then the JIT system will be able to assist the management of William Hill in making subtle short term changes. On the other hand with Total Quality Management, management is provided with information on the costs of quality. Nevertheless, in order to identify the appropriate business sectors to which overhead costs should be allocated, the tool which Management Accounting provides is Activity Based Management. However, in order to identify the constraints which may be faced by William Hill, in the delivery of its services, the appropriate tool to use will be the Theory of Constraints. For example, a constraint may arise because William Hill is unable to expand its online service capability because not enough money has been invested in server capacity.
This paper has evaluated and analysed the financial performance of William Hill as well as identifying the factors which will be responsible for affecting the financial performance of William Hill. In this context, it was identified that adverse weather conditions and an externally deteriorating economic environment can have serious consequences for the financial performance of William Hill. This was clearly illustrated by the decline in the company's profitability, as measured by the three profitability ratios of its profit margin, return on assets and return on equity. This decline was especially more significant in the period 2008-2009, in the financial period just after the global economic crisis of 2008. Furthermore, the analysis of the company's liquidity ratios suggested that it was in the period 2008-2009 that William Hill saw a significant drop in its ability to pay its short term debts as measured by its current and quick ratio. However, in the same period the company's debt-equity ratio improved quite significantly. This was in essence due to the fact that William Hill issued a large number of shares over the period 2008-2009 to inject more money into the company. Indeed, this increase in equity was by nearly 50%. This paper also discussed the Management Accounting tools which are available to William Hill. These include the value chain analysis, JIT, Total Quality Management, Activity Based Management and the Theory of Constraints.
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