Ladbrokes H1-2012 digital results disappoint

The release of Ladbrokes’ H1-2012 numbers Thursday confirmed market fears that the digital operations of the UK online and land gambling giant had turned in a disappointing performance.

Earlier this week the abrupt resignation of senior manager Richard Ames seemed to foreshadow some dismal statistics, and the digital section of the report confirmed this:

* May delivered the lowest digital sportsbook margin in three years

* Continuing decline in online poker

* Digital profit at GBP 15 million was significantly down on last year’s GBP 29.7 million – a greater than expected decline despite net revenues being up at GBP 88.3 million (H1-2011: GBP 85.7 million).

* GBP 16.8 million increase in digital operating costs, with the expectation that these will continue to cost the company dearly in H2. There was a GBP 3 million over-run on website and mobile development.

On the bright side, active players were up 21.5 percent to 746,000; real money signups were up 37.3 percent to 342,000; although cost per acquisition rose 4 percent to GBP 129

Looking ahead, management reported that management changes will increase digital focus and accountability, with the expectation that the digital sportsbook situation will improve in Q4-2012, followed closely by mobile developments.

Players can also expect to enjoy a wider range of games content as suppliers like IGT, Playtech, Probability and Mazooma complement existing offerings.

Viewed on a broader group basis, Ladbrokes reported:

* Group net revenue grew by 8.4 percent to GBP 529 million

* Group operating profit of GBP 106.9 million, up 11 percent

* Profit before tax up 48.9 percent to GBP 106.9 million

* Underlying earnings per share up 25.3 percent to 9.4p

* 23.8 percent increase in cash generated by operations

* Net debt reduced by a further GBP 56.9 million to GBP 397 million

* 10.3 percent increase in interim dividend to 4.30 pence

Operating highlights included:

* UK Retail operating profit of GBP 91.3 million, up 21.1 percent

* 2.4 percent growth in over the counter net revenue with continued resilience in amounts staked, up 0.7 percent

* Machines net revenue up 20.1 percent with gross win per terminal week of GBP 947 for H1 and GBP 970 in Q2

* Odds On launched on machines ahead of schedule, already in use by over 100,000 customers

* Over 94 percent operating profit growth in European Retail driven by revenue growth in Ireland and Belgium

* Digital net revenue growth of 3 percent, driven by sportsbook growth of 10.7 percent

* Over 110,000 new sportsbook customers and over 65,000 new casino customers year on year

* Continued growth in Bet in Play with stakes now 58 percent of total Digital sportsbook amounts staked

* Over 25 percent of sportsbook net revenue and 37 percent of total sportsbook actives on mobile

Chief executive officer Richard Glynn reported:

“At a Group level Ladbrokes has performed strongly. We have grown revenue by 8.4 percent and operating profit by 11.0 percent, with strong cash generation continuing and a further strengthening of our balance sheet.

“Strong growth in operating profit in UK Retail and an improved performance in our European Retail and Telephone businesses was pleasing and more than outweighed a decline in Digital profits, which was greater than expected due largely to a weak sportsbook margin in Q2 and exacerbated by delays in technology.

“Looking forward we expect to see further growth in UK Retail and plan to accelerate our programme of shop openings.

“We remain committed to our Digital strategy of building a more competitive offer through a combination of ongoing investments to enhance our marketing, product and technology.

“The delivery of several key technology developments is our focus in H2. During Q4 we will deliver our new sportsbook, and begin the subsequent migration of all active customers. Our new mobile platform, which is reliant on the same technology, will then follow.

“The active data warehouse, now in use to underpin our new trading fieldbook, will be deployed further in Q4, providing enhanced customer analytics to our marketing teams. This then facilitates the subsequent development of our Customer Relationship Management capabilities. During H2 we will also extend the use of recent enhancements in our trading systems to cover further core sporting products.

“We remain confident that a combination of these developments, together with continued improvements to CRM throughout 2013, will allow us to grow our Digital business significantly.”

The company’s report notes that in order to ensure an increased focus on Digital business and delivery against targets there have been management changes.

“Nick Rust is to take responsibility for the P&L of both our UK and Ireland Retail and Digital businesses. Damian Cope (recently joined, having previously been ecommerce operations director at Gala Coral) will assume responsibility for the P&L of our international businesses. Director of IT Mark Grimes will also join the Executive Committee to ensure technology delivery is given increased profile and scrutiny.

“Richard Ames has resigned as a director of the company on 1 August 2012, and will be leaving on 30 November 2012.”

Current trading update:

Current trading is looking hopeful; management reports that in the period from 1 July 2012 to 31 July 2012 Group net revenue (excluding High Rollers) was up 6.3 percent. Net revenue in UK Retail was up 9.0 percent, marginally ahead in OTC with strong growth continuing in machines.

“Digital net revenue grew 4.2 percent, driven by growth in the sportsbook with margin comparing favourably versus the same period last year. All results are shown excluding any impact from Euro 2012.”

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