Ladbrokes Profits Slump To £27.7m In Six Months To June

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Wednesday, August 13th, 2014 | Written by Charles Washington

UK bookmaker Ladbrokes has released its results for the first half of the year ending 30th June, and while revenues were up slightly by 4% to £589 million, there was a sharp 49.7% fall in profits before tax to £27.7 million. Despite the figure being significantly lower than H1 2013, the performance was largely in line with analyst forecasts who reviewed their predictions after Ladbrokes issued a number of profit warnings last year. Commenting on the results, Ladbrokes chief executive, Richard Glynn, said:

“They’re entirely in line with what we expected. We always said [H1] was about delivery and [H2] was about growth. The operational results were encouraging; there is a lot more to play for.”

Following announcement of the news, Ladbrokes shares are currently trading at 130.60p, down from a 52 week high of 204.80p, and giving the company a market capitalization of £1.19 billion.

Online gambling yet to reap rewards

In 2013, Ladbrokes signed an agreement with gaming software firm Playtech in an attempt to develop the company’s online product and catch up with industry rivals such as William Hill. However, Ladbrokes progress has been slow and in H1 2014 the company’s online earnings had plummeted by a massive 72% to just £3 million, accounting for roughly 4.4% of Ladbrokes’ operating profits. In contrast, William Hill Online generated £92 million over the same period, making up 52% of the company’s overall profits. Commenting on the situation, Ladbrokes chief executive, Richard Glynn, stated:

“We said a few years ago that Ladbrokes needed to dramatically increase its presence in the digital and mobile world. I think I’ve been very upfront about the fact that it’s taken us a while to do that. The road has been bumpy at times..We now have the products, the platforms, the people and the brand in place to deliver. Ladbrokes today is a far stronger company and well positioned for growth.”

Mobile gaming the new battleground

Ladbrokes only launched its first mobile product six months ago and interestingly the first half of 2014 subsequently saw a doubling of its bets taken on mobile. Explaining the growth, Richard Glynn said it was less to do with an increase in gambling in general and more to do with a change in pattern by 18 to 34-year-old males, who are now more inclined to place bets via their smartphones and tablets, rather than their desktops.

World Cup bets up 20%

Investors had given Richard Glynn a deadline to ensure Ladbrokes online and mobile products were developed enough to capitalize on the 2014 FIFA World Cup which took place in June and July. Glynn made good on his promise and the company noted a 20% improvement in its bets compared with the last World Cup which took place in 2010. Furthermore, mobile bets skyrocketed compared to the previous tournament in South Africa with the number of bets up by a huge 1,100%, representing around half of Ladbrokes’ total World Cup bets.

Under performing shops shut

As part of its larger streamlining strategy, the betting company with 2,400 retail shops spread out across the UK and Ireland shut 46 of its “under performing” bookies in H1, a figure close to its stated target of 50 for the year with further shop closures in the future described as “inevitable.” In addition, the company replaced 9,000 of its older gaming machines located inside the bookies with more modern and sophisticated models.

Digital improvements predicted for H2

Looking ahead, Mr Glynn has forecast an improvement in financial results for the second half of the year as the company’s digital business starts to gain ground. An uptick in growth is viewed as even more imperative as a new 15% online betting tax is introduced in December, which has the potential to shake-up the industry and drive many of the smaller operators out of business or into the arms of a potential buyer.

Meanwhile, Numis Securities has reiterated its ‘hold’ position on Ladbrokes shares and said not to expect any major movement on its share price “until there is evidence of success at the bottom line.” As the broker commented:

“We forecast a material turnaround in group profitability in the second half (EBIT of £80m versus £57m in the first half), largely dependent on online. Trading over the next few weeks should help clarify how credible that forecast is.”