H1 operating profit plunges at Ladbrokes

On Thursday, one of Britain’s biggest online and land gambling groups, Ladbrokes plc, turned in the lacklustre H1-2013 results it had earlier warned on, posting a plunge in operating profits of almost 20 percent to GBP 85.7 million, caused primarily by slow business in the group’s over 2,000 retail betting outlets, higher costs and taxes.

Unlike rival William Hill, which has a flourishing and expanding internet and mobile business, Ladbrokes’ online activities were not sufficient to make up the deficit.

Ladbrokes reported that Digital operating profit fell 28 percent to GBP 10.8 million, with only the sports betting vertical rising, and all other verticals in decline.

One-off costs of GBP 21.8 million associated with the company’s move to Playtech plc, with more to come over the full year added to costs, although Ladbrokes has maintained its interim dividend of 4.3 cents a share.

For the half-year to end June 2013, the company reported:

* Group net revenue up 6.4 percent or 0.9 percent when adjusted to reflect change in machine taxation from VAT to MGD

* Group operating profit GBP 85.7 million down 19.8 percent

* Underlying EPS of 7.2p down 23.4 percent

* Net debt of GBP 375.5 million reduced by GBP 11.4 million

* H1 exceptional cost of GBP 21.8 million (FY est. GBP 33 million) associated mainly with transition to Playtech product and platforms

* Digital profit down but in line with expectations

* Increased machine taxation and like for like content costs in UK Retail total c.GBP 9 million in H1

* Decline in OTC gross win per shop driven by Q1-2013 staking decline; Q2-2013  trend improved

* Machine gross win up 3.2 percent driven by expansion in number of shops and increase in density

* Slowdown in machines market greater than expected; decline in gross win per shop per week of 0.5 percent for H1-2013

* Machine Q1-2013 exit rate of c. 3 perent like-for-like growth not maintained and inconsistent in Q2 with 5.5 percent decline in June

Ladbrokes claims that its UK Retail operations remain resilient, pointing out that:

* Underlying metrics are positive – footfall and gross win per shop is stable, and average customer profile is younger

* New shops continue to deliver payback (c. 30 percent IRR) – net 73 opened during H1, c. 30 expected in H2-2013

* H2-2013 rollout of over 1,500 Self Service Betting Terminals, Sky Sports and improved broadcast capability on track

* Full rollout of new 4 screen machine cabinet in Q1 2014 expected to drive growth

In similar fashion, the company claims that its performance in the internet and mobile (Digital) sector is now well positioned for growth:

* Transformational product and marketing services agreement signed with Playtech – integration progressing well

* Ladbrokes Israel operational from 1 May, now with circa 60 employees

* ‘Vegas’ tab launched with 70 new games online and 25 available on mobile

* Foundation release of new mobile offer on Mobenga platform completed

* New Openbet agreement facilitates use of Playtech’s IMS back office, for sportsbook

* Recent product agreement with Net Entertainment broadens range of games for online and mobile

Chief executive Richard Glynn acknowledged that the first half performance was disappointing, but said that the company will continue to expand retail operations.

“Having established a position of market leadership in machines, with like for like revenue increasing by c.40 percent in the last 3 years, we always planned for a slowdown this year,” Glynn said. “We continue to compete strongly in a highly competitive market and have a number of initiatives in place for H2, including a new cabinet rollout starting in Q4.”

He blamed good weather for exacerbating the retail volatility the company recently experienced, but said that he expected to see a positive machines contribution from new shop openings and increased density.

Turning to Ladbrokes online and mobile activities, Glynn reported:

“In Digital, our partnership with Playtech will see us deliver a compelling online and mobile offer for customers underpinned by proven software, operated by experts. During H2 we will build on early progress already made by adopting Playtech products and technology and expect to benefit from new marketing and CRM capabilities. We aim to finalise the integration early in 2014, thereby enabling significant growth in earnings.”

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