Chief Executive’s strategic overview

William Hill is already the UK’s leading high-street bookmaker, with approximately 25% market share by number of licensed betting offices. We are a diversified business with almost half our revenues now coming from gaming. Our goal is to be the UK customer’s number one choice, on the high street, on the phone, online and, increasingly, on the move. Whether the customer is a new punter or an old one, big or small, experienced or novice, we want to be the organisation that best understands their needs, the way they bet and the way they want to bet.

In Retail, we are the market leader in a mature, stable UK market. Competition law prevents us from doing major acquisitions of land-based bookmakers but we can continue to expand organically and through small bolt-on acquisitions. Retail has changed out of all recognition over the last decade. Customers enjoy longer opening hours, a broader product range and gaming on machines as well as sports-betting. They demand quick result products such as virtual racing and want to bet on a live event within minutes of entering the shop. They expect a friendly service from knowledgeable and efficient staff. We are constantly seeking innovative ways to deliver to them our ever-increasing product range and to engage with them through unique services such as our dedicated TV service, William Hill TV. This business is highly cash generative, delivering a high-quality earnings stream. The industry is capital intensive and highly regulated, requiring a specialist trading expertise, so increasingly favours those, such as William Hill, with a significant scale.

In Telephone, we have struggled against betting exchanges and offshore telephone operators which benefit from an uneven tax and regulatory environment but we remain one
of the UK’s leading operators. We have a core group of customers, many of whom have
held accounts with William Hill for years, and we are committed to continuing to service their betting needs. During 2010 we are reviewing Telephone’s customer base, cost base and location to determine how best to maximise the unique service this channel offers.

Online, we were originally the market leader in the UK, having launched one of the first Sportsbooks in 1998. Back then, we supplied a no-frills service that recognised the limitations of the technology and sought to deliver customers a rapid route to place their bets. Now, the technology has caught up and we are competing against aggressive, technology-driven online specialists. In 2008, we changed our strategic approach and started investing to build a leading online betting and gaming business. We’re playing to our core strength – sports-betting – and turning it into a competitive advantage and differentiator in this highly competitive and fragmented industry. At the same time, we have acquired the skills and products we lacked in gaming to deliver high-quality poker, casino and bingo products able to compete with the very best gaming pure-play operators. Now, we’re well-placed to compete, to regain UK market share and to become a dominant player.

While we’re already strong in the UK, we’re only starting to tap into the potential for expansion elsewhere. Online is the most rapid and cost-effective route to deliver our products and services to millions of customers around the world.

The growth potential is huge and the structural factors are all in our favour: online betting and gaming is becoming more socially acceptable; increasing broadband penetration and mobile usage is making online entertainment more accessible; and countries around the world are starting to regulate online gambling, establishing a regulatory system and permitting advertising in return for tax revenues.

The online gambling industry is highly fragmented. In Europe, there is no dominant player and only a handful of high-quality Sportsbook operators, such as William Hill. We believe this will be a key driver of change: the European sector is likely to consolidate into a small number of substantial players, each of which will be looking to offer Sportsbook, poker, bingo and casino. Across the industry, consolidation deals will look to fill product gaps, to expand into different geographies and to deliver cost synergies. We are well-placed, having addressed our gaming and marketing gaps through the Uniplay acquisition, software licensing deals and our own product development.

Outside the UK, our primary target is Europe. Currently, approximately 40% of William Hill Online’s revenues come from outside the UK, predominantly from our gaming websites in Europe. We have transformed our williamhill.com product offering and, from 2010, will start expanding our customer base in Europe by using our established and proven marketing channels to promote these enhanced products and by building our brand profile. At the same time, we are looking further abroad to opportunities outside Europe wherever other countries are regulating online gambling.

We have a range of options for targeting international markets: promoting our williamhill.com site; taking a local licence; establishing local partnerships; or acquiring established brands and operators. Our approach in each country is defined by many factors, including the risk/reward profile of the market, the nature of the tax and regulatory regime, the need for a locally based partner either legally or in terms of expertise, and the cost effectiveness of building a brand presence versus acquiring an established business.

The way people want to place a bet is changing rapidly, driven by continuous technological advances. Most of all, betting and gaming must be easy to do. Any time, any place, any sport, any game.

We have three major advantages: our brand, our sports-betting expertise and our marketing team. Gaming is marketing- and technology-led, with operators reliant on competitive offers to acquire customers motivated by sign-up deals and incentives. Through the Uniplay deal with Playtech we acquired the expertise we need to be effective in this area. Sports-betting is more complex. Online Sportsbook customers are brand-biased, price-sensitive and event-driven. They are also the lowest-cost customers to acquire, have the longest average lifespan and the greatest potential for cross-selling. The company that supplies the right product at the right time wins. We understand these customers and have the core expertise to deliver a vast product range, broad and deep enough to reach internationally, and we are recognised as one of the leading, most trusted brands in this space.

In 2010, we intend to become the market leader in football in-play betting, with more opportunities to bet on more matches than anyone else. This will differentiate William Hill Online and help to make it the place to bet online. With this breadth of product, effective delivery becomes critical. At last, the advances in technology and our product potential are now coming together. We want to deliver our products to the customer in a fast, efficient and tailored way. First, mobile betting, which is currently a very small part of our revenues but which, with the right technology, becomes an ideal medium for delivering products such as in-play betting. Second, personalisation. Our Online customers bet with us, on average, 16 times a week. We are building the technology systems to enable us to identify customers’ preferred products and to deliver it to them at the right time in the right format. We will also capitalise on the increasing acceptance of gambling as a leisure activity, reaching out through mainstream media through media partnerships and through online media such as social networking sites.

Our culture needs to embrace change, to understand customers’ changing needs and to use the latest innovations to reach more customers more often in a more effective way. We have a strong track record of internally grown talent but now we are supplementing that strength with new expertise from outside. Since I was appointed as Chief Executive in February 2008, I have made changes to the executive management team and some key appointments are shown on these pages.

Now, we’re driving cultural change through the rest of the organisation focused on customers, colleagues and change. Retail customers now tell us service is more important than location. We are competing for customers’ leisure pound, euro or dollar and we have to be more exciting, more interesting and more relevant than anywhere else they can spend their money. With colleagues, I want to reward passion, enthusiasm and results. Our new bonus schemes, introduced in 2010, now reward individual as well as Group results. We want to get the best out of our people, to inspire our teams to be fanatical, to hire the next generation of enthusiasts and to tackle performance head on. Change is our mantra. In fact, continuous change because standing still is going backwards. We want more innovation, more opportunities.

By embracing change, understanding our customers and having a performance driven team, we will build the right culture to deliver continued growth.

Through our three channels, we are constantly adapting to the changing environment, with different strategies for each to capitalise on the opportunities available.

Retail: Constantly evolving and improving

William Hill is already the leader in UK high street betting and gaming, with approximately 25% of a mature, stable LBO market. We will continue to increase our market share by investing to improve and expand our estate, by enhancing the range of products we offer and by providing high-quality customer service. We maximise the cash flows from our Retail business through tight cost control and careful capital expenditure.

Online: Maximising new opportunities

In creating William Hill Online, we established one of Europe’s top three online betting and gaming companies. In the last year, we have built the necessary infrastructure and products to continue to be a market leader in this high growth market. We aim to grow our UK market share and to expand into new territories, particularly in Europe, using our strong brand name, sports-betting knowledge, market-leading gaming products and marketing expertise.

Telephone: Focusing on the positives

Telephone is our most mature channel, serving loyal, long-standing and sophisticated customers. The competitive environment for Telephone has been changed by offshore operators and betting exchanges, affecting profitability in this channel. To return this channel to an acceptable level of profitability, we will focus on the needs of the core customer base for whom Telephone is the preferred channel and tailor the size and
location of our operations appropriately.

Ralph Topping
Chief Executive