22nd Apr 2015 10:10
LONDON (Alliance News) - FTSE 250-listed bookmaker Ladbrokes on Wednesday said its profit in the first quarter dropped heavily on the back of unfavourable sporting results and the implementation of tax hikes in the UK, as its new chief executive pushes ahead with plans to restructure the business.
Group net revenue was up 3.3% in the quarter, with UK retail net revenue up 4.3% and digital net revenue up by 9.5%, despite the latter taking a big hit from a sharp fall in revenue from its Sportsbook business which was offset by a good performance in Australia.
Earnings before income and taxation in the first quarter fell to GBP14.3 million, down 22% year-on-year as a result of customer-friendly results, the implementation of the point-of-consumption tax in the UK, increased Machines Games Duty, and the company's withdrawal from unregulated digital markets in line with guidelines issued by the UK Gambling Commission.
Shares in Ladbrokes were down 2.8% to 103.10 pence on Wednesday, one of the worst performers in the FTSE 250.
In its digital business, Ladbrokes.com Sportsbook, gross win margin dropped significantly due to unfavourable sporting results, falling 2.5 percentage points to 4% in the quarter. Adverse football results, a weaker Cheltenham race, and a significant loss to a small number of high-stakes customers was incurred in the quarter and is not expected to reverse over the year, Ladbrokes said. Those factors drove lower margins and a sharp decline in net revenue in the business, down 32% year-on-year.
Trends in the Ladbrokes.com Gaming business, however, improved in the first half, with net revenue up 13%, driven by 35% growth in active players. The digital business was also given a boost by the strong performance of its Australian business, where net revenue more than doubled in constant currencies on the back of active players more than doubling and the amounts staked rising by 78%.
The UK retail business also was hit by punter-friendly results and gross win margin in the first quarter was well below its 16.5% to 17% target at 15.7%, down half a percentage point year-on-year. Over-the-counter stakes in the UK retail business fell 4.8% in the quarter, or 3.2% when adjusted for shop closures. Ladbrokes closed 15 shops in the first quarter, in line with plans to close around 60 this year.
OTC staking trends in UK retail improved compared to the third and fourth quarters of 2014, Ladbrokes said, with an improvement in horse racing and staking growth around Cheltenham, with football amounts broadly stable. The amounts staked via its self-service betting terminals (SSBTs) more than doubled year-on-year in the quarter, and Ladbrokes said it expects to complete the roll out of a further 2,000 SSBTs before the start of the 2015-16 football season.
Machine performance overall in the UK was strong, benefiting from a good customer response to Ladbrokes' new Clarity terminals and from good activity on lower-staking slots-based games. Gross win per terminal rose 16% year-on-year in the quarter to GBP1,033, Ladbrokes added.
In its European retail business, the group said it has benefited in Belgium from investments made in SSBTs, while its Spain joint venture is benefiting from its expansion made in 2014. Northern Ireland saw similar product trends and net revenue growth to the UK, while Republic of Ireland revenue declined by 1% in the quarter.
On Tuesday, Ladbrokes had outlined plans to restructure the loss-making Irish business, in a move expected to result in redundancies at all levels of the operation. Ladbrokes had been reviewing its options in Ireland after the business saw declines of 11% in revenue and 57% in operating profit in 2014. Costs have become an issue for its operations in Ireland as a result of leaseholds for shops agreed on deals struck during the Irish economy's boom years, meaning that their terms are no longer sustainable.
Ladbrokes, which employs 840 people in the Republic of Ireland, could close about one third of its 196 stores in the country, a person close to the process told Alliance News.
"In the first quarter, many of our customer metrics are encouraging, but results have favoured customers and profits are materially down. These results demonstrate the challenges we continue to face. We need to change the way we run the business, build scale, primarily in Digital and respond faster to the customer and changes in the market place," said Jim Mullen, Ladbrokes' chief executive, who was appointed to the post in March from his previous role as the managing director of its digital business.
"I will complete my review of the wider business quickly, and I will present some of the principal changes that I intend to make, in June, earlier than planned. Shareholders should expect me to focus on how we will build an effective competitive position, develop scale and resilience over the medium-term," Mullen added.
"I believe strongly in Ladbrokes. We have laid solid operational foundations, but there is still a lot to be done. The decision to seek examinership in Ireland demonstrates the seriousness of our intent and the speed with which we will execute," Mullen said.
Mullen is leading a review of Ladbrokes following the hefty drop in pretax profit the company posted in 2014, hit by shop closures and impairment charges which more than offset revenue growth over the year. The company said at the time, still under the leadership of former CEO Richard Glynn, it intends to expand its international operations, close more betting shops, improve its online proposition, and bolster its competitive position in 2015.
Numis said it is retaining a cautious stance on Ladbrokes, saying its earnings were below both its expectations and consensus forecasts. It is also concerned about the possibility of a Labour win in the General Election, given its manifesto included an intention to give local authorities in the UK the power to reduce the number of, or eliminate, gaming machines from betting shops.
However, analyst Ivor Jones believes there is upside potential. "An in-form online gambling business could benefit from the density of Ladbrokes shops on the UK high street and gain a much larger market share than it has presently," he said. "The new CEO could close the profit per shop gap on William Hill. A take-over offer could emerge from a potential owner with the regulatory risk appetite to exploit the Ladbrokes brand in more geographic markets than currently."
By Sam Unsted; [email protected]; @SamUAtAlliance
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