9th Mar 2011 10:00
Ladbrokes plc (the "Company")
Annual Financial Report
The following documents are today being posted or otherwise made available to shareholders:
1. Annual report and accounts 2010
2. Notice of 2011 Annual General Meeting
3. Proxy notice for the 2011 Annual General Meeting
4. Forms of direction for the 2011 Annual General Meeting
In accordance with Listing Rule 9.6.1 a copy of each of these documents is being uploaded to the National Storage Mechanism and will be available for viewing shortly.
The documents will also be available from today on the Company's website at www.ladbrokesplc.com/investor-centre and in hard copy upon request to the Company Secretary, Ladbrokes plc, Imperial House, Imperial Drive, Rayners Lane, Middlesex HA2 7JW.
Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR 6.3.5") - Extracts from the Annual report and accounts 2010.
The information contained in appendices A and B to this announcement, which is extracted from the Annual report and accounts 2010, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on how to make public, Annual Financial Reports. It should be read in conjunction with the Company's Preliminary Announcement issued on 17 February 2011 (available at www.ladbrokesplc.com/investor-centre). Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual report and accounts 2010. All page numbers and cross-references in the extracted information below refer to page numbers in the Annual report and accounts 2010.
The information contained in this announcement and in the Preliminary Announcement does not constitute the Group's statutory accounts, but is derived from those statutory accounts. The statutory accounts for the year ended 31 December 2010 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's AGM. The auditors have reported on those statutory accounts and their report was unqualified, with no matters by way of emphasis, and did not contain statements under Section 498(2) of the Companies Act 2006 (regarding adequacy of accounting records and returns) or under Section 498(3) of the Companies Act 2006 (regarding provision of necessary information and explanations).
Appendix A - Risk factors
Risks and how we manage them
Risk governance and responsibilities | Risk management process | Risk methodology |
·; The Board has overall responsibility for risk management as an integral part of strategic planning ·; The Operations Board (made up of executive directors and senior executives) makes recommendations on the overall approach to risk management and identifies the key risks. The Operations Board is assisted by a Risk Committee made up of Group and divisional senior executives ·; The Audit Committee is responsible for assessing the scope and effectiveness of the systems established to identify, assess, manage and monitor risks ·; Each key risk is assigned Operations Board member ownership | ·; The key risks are assessed by the Risk Committee using a bespoke risk methodology and reviewed by the Operations Board ·; At each Board meeting any changes to key risks are identified and all key risks are reviewed formally by the Board twice yearly ·; The risk management processes are reviewed by the Audit Committee annually ·; Risk management forms an integral part of the Group's internal control, planning and approval process
| ·; The Risk Committee considers the following impact areas in assessing risks: - Legal and regulatory - Betting and gaming compliance - Financial management and bookmaking - Reputation - Technology - Data integrity and fraud protection - Customers - Employees ·; For each risk identified within these impact areas the likelihood, consequence, mitigating controls and actions, risk owner and forecast residual risk are identified by the Risk Committee ·; The overall risk level is quantified and assessed to ensure that the appropriate mitigation measures and future actions have been indentified |
Strategy
Achieving the strategy outlined in the Chief Executive's review will deliver long-term growth for the benefit of all stakeholders whilst minimising some of the key risks that Ladbrokes faces. Failure to achieve the strategy has the potential to affect the business and its performance. How strategy is established and the associated risks are managed are described in Corporate governance.
Principal risks and uncertainties
There are general business risks faced by Ladbrokes that are comparable to those faced by most other businesses. In addition, there are more specific risks which are either unique to Ladbrokes or apply to the industry it operates in. The risks outlined here are those principal risks and uncertainties that are material to the Group. They do not include all those associated with Group activities and are not set out in any order of priority.
General business risks include:
·; Marketplace - changes in the economic environment, changes in consumer leisure spend.
·; Financial - availability of debt financing and costs of borrowing, taxation, pension fund liability.
·; Operational - recruitment and retention of key talent, execution of international expansion.
Specific risks that are material to Ladbrokes are:
Risks | Mitigation |
Marketplace | |
Competition Ladbrokes faces competition primarily from other land-based bookmakers, online betting exchanges and other online gambling operators. In particular, the online gambling market is characterised by intense and substantial competition and by relatively low barriers to entry for new participants. In addition, Ladbrokes faces competition from market participants who benefit from greater liquidity as a result of accepting bets and wagers from jurisdictions in which Ladbrokes does not operate (because of legal reasons or otherwise). | Ladbrokes' performance and competitive position are continuously monitored and, where appropriate, changes are instituted, including in relation to marketing, product development, yield management, cost control and investment. Acquisition opportunities, with a view to taking advantage of market consolidation, are continuously evaluated. |
Betting and gaming industry | |
Taxes, laws, regulations and licensing Regulatory, legislative and fiscal regimes for betting and gaming in key markets around the world can change, sometimes at short notice. Such changes could benefit or have an adverse effect on Ladbrokes and additional costs might be incurred in order to comply with any new laws or regulations. |
Regulatory, legislative and fiscal developments in key markets are monitored closely (see page 21 for further details), allowing Ladbrokes to assess and adapt quickly to changes in the environment and minimise risks to the business. Ladbrokes engages with its regulators and the relevant trade organisations with regard to the betting and gaming regulatory framework and other issues of shared concern, such as problem gambling. |
Increased cost of product Ladbrokes is subject to certain financing arrangements intended to support industries from which it profits. Examples are the horseracing and the voluntary greyhound racing levies which respectively support the British horseracing and greyhound industries. In addition, Ladbrokes enters into contracts for the distribution of television pictures, audio and other data that are broadcast into Ladbrokes' betting shops. |
Ladbrokes engages with the relevant trade associations and the principal bodies of sport and event industries with regard to sports rights payments, including the statutory horseracing levy, animal welfare and other issues. |
Operational and bookmaking | |
Bookmaking Ladbrokes may experience significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of its risk management processes. |
Ladbrokes' core expertise is risk management and it has developed the skills and systems to be able to offer a wide range of betting opportunities and accept large bets. There is in place a highly experienced trading team and risks are spread across a wide range of events. A bookmaker's odds are determined so as to provide an average return to the bookmaker over a large number of events and therefore, over the long-term, Ladbrokes' gross win percentage has remained fairly constant. |
Sporting schedules and cancellations There are certain high profile sporting events which attract significant betting activity e.g. the Grand National and the FIFA Football World Cup. Cancellation or curtailment of such events, for example due to adverse weather conditions, or the failure of certain sporting teams to qualify for sporting events, can adversely impact Ladbrokes' results. |
In addition to gaming machines, Ladbrokes has a number of alternative products to fill gaps in the schedules including virtual horseracing. |
High fixed cost base Ladbrokes has a relatively high fixed cost base as a proportion of its total costs, consisting primarily of employee and rental costs associated with its betting shop estate. This means that falls in revenue could have a significantly adverse effect on Ladbrokes' profitability unless the Group reduces its costs substantially in the short to medium term. |
Business re-engineering initiatives have been implemented to reduce the cost base. Structural contingency plans have been put in place and where possible central facilities have been co-located. The future strategy to increase online revenues will limit the dominance of the fixed costs. |
Loss of key locations Ladbrokes has a number of key sites, in particular Imperial House at Rayners Lane in London, its head office and main operations centre, and its premises in Europort in Gibraltar from where the online gaming operations are based. |
Existing business continuity plans and arrangements for offsite data storage, alternate system availability and remote working for key operational and senior management are currently under review as part of an ongoing process. |
Information technology and communications | |
Technology changes The market for online gambling products and services is characterised by technological developments, new product and service introductions and evolving industry standards. Failure by Ladbrokes to use leading technologies effectively, develop its technological expertise, enhance its products and services and improve the performance, features and reliability of its technology and advanced information systems, could have a material adverse effect on its competitive position. |
Ladbrokes has committed considerable resources into upgrading its existing technology, IT infrastructure, communication systems and application systems, as well as developing and acquiring new platforms. Rigorous testing regimes are utilised to ensure a continued high quality of product offerings and services are maintained. |
Technology failure Ladbrokes' operations are highly dependent on technology and advanced information systems and there is a risk that such technology or systems could fail. In particular, any damage to, or failure of online systems and servers, electronic point of sale systems and electronic display systems could result in interruptions to financial controls and customer service systems. |
Ladbrokes has a level of resilience in place which seeks to eliminate single points of failure within key technology locations. |
Data disclosure Ladbrokes processes sensitive personal customer data (including name, address, age, bank details and betting and gaming history) as part of its business and therefore must comply with strict data protection and privacy laws in all jurisdictions in which the Group operates. Ladbrokes is exposed to the risk that this data could be wrongfully appropriated, lost or disclosed, or processed in breach of data protection regulation. This could also result in prosecutions and the loss of the goodwill of its customers and deter new customers. |
Advanced security systems are deployed to protect transactional data. Sophisticated hardware and security mechanisms are used to ensure all sensitive and confidential data is fully encrypted. To provide fail-safe integrity of all data, a series of storage systems are used to replicate all data processed by online services. In respect of fraud protection, an extensive programme of data monitoring is in place with both prevention and detection audit controls. |
Failure in the supply chain Ladbrokes is dependent on a number of third parties for the operation of its business. The withdrawal or removal from the market of one or more of these major third party suppliers, or failure of third party suppliers to comply with contractual obligations could adversely affect our operations. |
Infrastructure suppliers, network and telecommunication suppliers and application service providers are long-term partners in providing an infrastructure which seeks to ensure the delivery of sophisticated and high performance transaction processing systems. There is continual communication with these suppliers and providers at an operating level and service level agreements have been established to maintain high service levels. The ongoing review of business continuity plans will include key supplier alternatives and the future strategy is to bring more of the value chain in-house. |
Appendix B - Statements of the Directors' Responsibilities pursuant to Disclosure and Transparency Rule 4
The following statements are extracted from pages 99 and 111 of the Annual report and accounts 2010 and are repeated here for the purposes of compliance with DTR 6.3.5. These statements relate solely to the Annual report and accounts 2010 and are not connected to the extracted information set out in this announcement or the Preliminary Announcement.
Statement of directors' responsibilities in relation to the consolidated financial statements
Each of the directors, whose names and functions are listed in pages 30 and 31 of this Annual Report, confirm that, to the best of each person's knowledge and belief:
·; the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
·; the directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face.
Statement of the directors' responsibilities in relation to the Company financial statements
Each of the directors, whose names and functions are listed in pages 30 and 31 of this Annual Report, confirm that, to the best of each person's knowledge and belief:
·; the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
·; the Directors' Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.
9 March 2011
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