Accounting -- Financial Statement Analysis Comparison of gaming industry leader Ladbrokes PLC to William Hill PLC and then comparison of both those companies to the rest of the gaming industry reveals the burgeoning market of online/digital gaming. Comparison of the companies' histories, markets and ratios, shows a still-impressive industry titan Ladbrokes PLC being increasingly outgained by another market giant, William Hill PLC, and varying degrees of success among industry also-rans. It appears that the degrees of success or failure are intimately tied to the provision of online/digital gaming experiences to consumers.

Histories and Markets:

Ladbrokes PLC

In 1886 Messrs. Schwind and Pennington formed a partnership as commission agents primarily backing horses trained by Pennington at Ladbroke Hall in Worcestershire. In 1902 they were joined by Arthur Bendir, who named the venture "Ladbrokes" and shifted the focus from backing horses to betting against them, acting as bookmaker and punter (bet placer). The organization was purchased by Cyril Stein and Max Parker in 1956, opening its first legal betting shop in 1962, eventually accepting bets on horseraces, greyhound races, sports such as football and even political contests. Ladbrokes expanded to international operations during the 1970s and 1980s by acquisitions and/or mergers in Amsterdam, Brussels, Paris and the U.S. In the 1990s the company strategically focused on betting, gaming and hotels, changing its name to Hilton Group, with two divisions: Hilton International and Ladbrokes Betting and Gaming. During the 2000s, Ladbrokes went online with Ladbrokes.com, expanded into more international markets such as China, Italy and Spain, divested its interests in many brick-and-mortar casinos and sold its Hilton International Hotel division to the U.S.-based Hilton Hotel Corporation. In 2010, Richard Glynn was appointed CEO of a reorganized Board of Operations and in 2013 the company partnered with Playtech to drive digital growth via gaming software. In 2015 Jim Mullen, who largely propelled the company's digital focus, was named CEO and remains at the company's helm to this day (Ladbrokes PLC, 2016).

Today, Ladbrokes PLC employs approximately 14,700 and its market consists of: retail Over the Counter (OTC) betting on football, horse and greyhound racing as well as other sports and by machines, in the UK, Ireland, Belgium and Spain; traditional telephone betting; and digital betting, which comprises 71% of the company's sportsbook (Ladbrokes Ltd., 2016). Ladbrokes is publicly traded on the London Stock Exchange as LAD at a current price per share of 117.10 and is a member of the FTSE 250 Index (Ladbrokes PLC, 2016). In July 2015, Ladbrokes agreed to merge with rival Gala Coral Group, with Mullen expected to become CEO of the newly formed Ladbrokes Coral (BBC News, 2015).

2) William Hill PLC

In 1934, William Hill founded the business as a postal/telephone betting service. In 1966 William Hill began buying into betting shops and acquiring existing betting businesses, with acquisitions becoming the major driver for the business' growth. The company becomes part of the Sears Holding Group in 1973. In 1988, Grand Metropolitan, owner of Mecca Bookmakers, acquires William Hill, merging the two companies under the William Hill name. By 1989, William Hill has 1,800 betting shops and the world's largest credit betting operations and is purchased by Brent Walker. In 1997, Nomura (through Grand Bookmaking Company Ltd.) purchases William Hill for £700m from Brent Walker. In 1998 the company launches Sportsbook, an online betting service. In 1999 the company is sold to Cinven and CVC Partners for £825 million. In 2000 the company becomes the first major bookmaker to offer tax-free betting through offshore online betting services and an online casino. In 2002 William Hill floated on the London Stock Exchange at an offer price of 225 pence per ordinary share and the offer was oversubscribed in excess of 10 times. The company purchased the Brough Park Greyhound Stadium in 2003 and the Stanley Leisure PLC's retail bookmaking ops in The UK, Republic of Ireland, Jersey and the Isle of Man in 2005. In 2008 the company combines its online business with purchased assets from online software company Playtech, to create William Hill Online and launched a new Sportsbook with Orbis technology. In 2009, the company relocated its Sportsbook and online fixed odds games to Gibraltar, sold 50% stake of its joint venture in Spain and established a new telephone betting operation based in Gibraltar. In 2011 the company acquired American Wagering, Inc., Cal Neva Sportsbook Operations and Brandywine Bookmaking in the U.S. In 2012 William Hill became the first European gaming operator to be awarded a full gaming license in Nevada by the Nevada Gaming Commission and completed pending acquisitions of three U.S. land-based businesses. William Hill acquired the outstanding 29% stake in William Hill Online from Playtech PLC, Sportingbet's Australian business, and Australian online betting business, tomwaterhouse.com in 2013 (William Hill PLC, 2016).

Today William Hill employs approximately 16,000 and its market consists of four businesses: the highly cash-generative Retail land-based operation in the UK; Online betting and gaming business, claiming to account for 15% of all online wagering vs. Ladbrokes PLC's 5% share by revenues; William Hill Australia which offers digital betting in the Australian market; and William Hill U.S. which operates sports books in Nevada and is the exclusive bookmaker to the Delaware state sports lottery. It is publicly traded on the London Stock Exchange as WMH.L at a current price per share of 330.00 and is a member of the FTSE 250 Index (William Hill PLC, 2016).

3) 32 Red PLC

32 Red PLC was founded in 2002 as a British online casino company licensed in Gibraltar. Deliberately restricted to online gaming, the company employs approximately 75 and its market consists of online casino games, sports betting and poker. The business is registered on the Alternative Investment Market section of the London Stock Exchange as TTR.L at a current price per share of 137.75 (32Red PLC, n.d.).

4) Sportech PLC

Sportech PLC arose from a small electronics company called Rodime PLC and founded in Scotland in 1979. In 2000 the company acquired Littlewoods Pools and changed its name to Sportech PLC. At that point, it became an online gambling and entertainment company headquartered in the United Kingdom. In 2010 the company acquired Scientific Games Racing, one of three large bet-processing companies in the United States horse-racing industry, serving major racetracks in California and New Jersey and off-track betting companies in parts of New York State. The company employs approximately 1,000 and its market consists of 3 business divisions: Sportech Racing and Digital; Sportech Venues; and The Football Pools. It is currently traded on the London Stock Exchange as SPO.L and its current price per share is 66.75 (Sportech PLC, n.d.).

5) Nektan PLC

Nektan PLC was founded in 2011 by Gary Shaw to provide mobile gaming platforms and white label implementations to organizations having established online audiences. It operates under a full Remote Gambling license from Gibraltar. In 2014 the company launched its own-brand RMG casino and Chomp Casino. Later that year, the company signed a joint venture agreement with SpinGames LLC targeting U.S. land-based casinos through in-venue mobile technology. It currently employs approximately 25 its market consists of mobile gaming. It is traded on the London Stock Exchange as NKTN with a price per share of 73.09 (Nektan PLC, 2015).

B. Reformulated Balance Sheets, Income Statements and Ratios

1) Ladbrokes PLC

a) Ladbrokes PLC Reformulated Balance Sheets (Millions)

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

Net operating assets (NOA):

Operating assets

Accounts receivable, less allowance for doubtful account

25

11.3

13.7

20.6

25.9

Inventories

0

0

0

0

0

Property, plant and equipment, net

Other assets

Total operating assets

Operating liabilities

Accounts payable

52.7

22.5

17.4

12.6

14.5

Income taxes payable

7.4

0.1

0.7

0.7

26.2

Other liabilities

Total operating liabilities

Net operating assets (NOA):

Net financial assets (obligations) (NFA/NFO):

Financial assets

Cash equivalent

62

24

19.4

26.4

17.9

Total financial assets

62

24

19.4

26.4

17.9

Financial liabilities

Current portion of long-term debt

27.1

22.8

0.1

Long-term debt

Preferred Stock

0.0

0.0

0.0

0.0

0.0

Total financial liabilities

Net financial assets (obligations) (NFA/NFO)

-404.4

-420.8

-386.9

-453.9

-492

less minority interest

0.1

1.3

1.3

0.7

0.4

Common Shareholders' Equity (CSE)

CSE as per Thomson Analytics

b) Ladbrokes PLC Reformulated Income Statement (Millions)

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

Operating Income

Revenues

1,174.60

1,117.70

1,084.40

Cost of sales

0.00

Gross margin

1,174.60

Operating expenses

1,034.80

64.80

Other operating...

erating income (expense)
-78.30

-117.60

-10.30

-25.10

-42.50

Dirty surplus items

Equity Earnings

0.00

0.00

2.60

1.00

3.30

Operating income from sales (before tax)

61.50

88.90

Taxes

Tax as reported

-3.30

0.60

10.40

16.80

-228.30

Other tax adjustments

0.00

0.00

0.00

-0.40

27.10

Tax on financial items

0

0

0

0

0

Operating income from sales (after tax)

64.80

88.30

Financing Expense (Income)

Interest expense

23.90

21.30

25.30

28.60

31.20

Interest income

0.10

0.00

0.20

0.60

20.60

Other interest adjustments

0.00

0.00

0.00

0.00

0.00

Tax effect

0

0

0

0

0

Net interest expense

23.80

21.30

25.10

28.00

10.60

Preferred dividends

0

0

0

0

0

Net Financial Expense

23.80

21.30

25.10

28.00

10.60

Minority interest

0.00

0.00

0.00

0.00

0.00

Comprehensive income to Common

41.00

67.00

Comprehensive Income to Common as per Thomson Analytics

41.00

67.00

c) Ladbrokes PLC Ratios

No.

Ratios

12/31/14

12/31/13

12/31/12

12/31/11

1

RNOA

7.88%

10.65%

27.11%

19.24%

2

NBC

-5.77%

-5.27%

-5.97%

-5.92%

3

PM

5.52%

7.90%

19.62%

14.88%

4

Net Comprehensive Profit Margin

3.49%

5.99%

17.55%

12.11%

5

OLLEV

35.74%

29.63%

27.11%

28.27%

6

FLEV

-100.81%

-95.25%

-115.65%

-168.13%

7

SPREAD

13.65%

15.92%

33.08%

25.16%

8

ATO

9

ROCE

10.02%

15.80%

52.35%

42.02%

2) William Hill PLC

a) William Hill PLC Reformulated Balance Sheets (Millions)

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

Net operating assets (NOA):

Operating assets

Accounts receivable, less allowance for doubtful account

17.1

20.5

6.1

10.5

14.2

Inventories

0.1

0.2

0.2

0.2

0.3

Property, plant and equipment, net

Other assets

1903

1918.7

Total operating assets

Operating liabilities

Accounts payable

82.1

69.2

59.1

Income taxes payable

44

37.6

65.9

56.3

52.6

Other liabilities

Total operating liabilities

Net operating assets (NOA):

Net financial assets (obligations) (NFA/NFO):

Financial assets

Cash equivalent

Total financial assets

Financial liabilities

Current portion of long-term debt

0

0.1

0.1

0.1

0.1

Long-term debt

Preferred Stock

0.0

0.0

0.0

0.0

0.0

Total financial liabilities

Net financial assets (obligations) (NFA/NFO)

-494

-689.4

-250.6

-346.3

-439.1

less minority interest

0.0

0.0

14.6

11.8

11.5

Common Shareholders' Equity (CSE)

1,160.3

1,023.3

1,022.4

CSE as per Thomson Analytics

b) William Hill PLC Reformulated Income Statement (Millions)

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

Operating Income

Revenues

1,609.30

1,486.50

1,276.90

1,136.70

1,071.80

Cost of sales

Gross margin

1,434.10

1,286.10

1,153.40

1,015.40

Operating expenses

66.20

Other operating income (expense)

-1,035.60

-919.30

-12.60

-49.90

-40.10

Dirty surplus items

Equity Earnings

0.00

0.00

3.70

2.40

3.30

Operating income from sales (before tax)

Taxes

Tax as reported

27.60

30.50

46.70

40.90

37.30

Other tax adjustments

0.00

0.00

0.00

0.00

0.00

Tax on financial items

0

0

0

0

0

Operating income from sales (after tax)

Financing Expense (Income)

Interest expense

46.30

44.70

31.20

31.80

35.10

Interest income

1.00

1.10

0.60

0.50

0.60

Other interest adjustments

0.00

0.00

0.00

0.00

0.00

Tax effect

0

0

0

0

0

Net interest expense

45.30

43.60

30.60

31.30

34.50

Preferred dividends

0

0

0

0

0

Net Financial Expense

45.30

43.60

30.60

31.30

34.50

Minority interest

0.00

15.30

41.20

31.30

26.30

Comprehensive income to Common

Comprehensive Income to Common as per Thomson Analytics

c) William Hill PLC Ratios

No.

Ratios

12/31/14

12/31/13

12/31/12

12/31/11

1

RNOA

14.95%

18.00%

20.36%

13.81%

2

NBC

-7.66%

-9.28%

-10.25%

-7.97%

3

PM

15.63%

18.17%

20.20%

15.43%

4

Net Comprehensive Profit Margin

12.82%

14.21%

14.86%

10.13%

5

OLLEV

28.73%

29.99%

33.83%

33.11%

6

FLEV

-54.19%

-45.95%

-31.25%

-45.37%

7

SPREAD

22.60%

27.28%

30.61%

21.78%

8

ATO

95.6%

99.1%

89.5%

9

ROCE

18.90%

20.65%

19.87%

13.31%

3) 32 Red PLC

a) 32 Red PLC Reformulated Balance Sheets (Millions)

12/31/14

12/31/13

12/31/12

12/31/11

12/31/10

Net operating assets (NOA):

Operating assets

Accounts receivable, less allowance for doubtful account

0.002431

0.005876

0.00402

0.00637

0.00637

Inventories

0

0

0

0

0

Property, plant and equipment, net

0.805937

0.907609

0.59183

0.53348

0.12308

Other assets

2.832828

3.45232

1.77254

1.86866

1.67284

Total operating assets

3.641196

4.365805

2.36839

2.40851

1.80228

Operating liabilities

Accounts payable

3.1336

2.115542

1.68236

1.32545

1.50123

Income taxes payable

0.058832

0

0

0

0

Other liabilities

1.751755

1.880036

1.03151

1.68593

1.18284

Total operating liabilities

4.944187

3.995578

2.71386

3.01139

2.68407

Net operating assets (NOA):

-1.302991

0.370227

-0.3455

-0.6029

-0.8818

Net financial assets…