Ladbrokes gets plaudits for turnaround

Ladbrokes gets plaudits for turnaround

Thursday, August 4, 2016 Posted by Andy McCarron
Online the driver as Coral merger nears completion

Ladbrokes’ financial performance for the first half was lauded by the analysts today (Thursday) as the company prepares to enter the final straight of its marathon merger deal with Coral.

Gavin Kelleher at Goodbody in Dublin said the results represented a “positive outcome” for the company. “It’s good to see Ladbrokes standalone performing considerably better than it has in the past and ahead of expectations,” he added.

Meanwhile, James Ainley at Citi said this was a “strong performance that adds further credibility to Ladbrokes building turnaround”. Tim Ramskill from Credit Suisse said the results were “robust”. “The (revenue) beat reflects strength in all businesses driven by a combination of favourable results and clear strategic gains,” he added.

The company saw improvements across the board with group revenue rising over 13% ex-high-rollers and exceptionals to £661.8m with the reinvigorated digital operation leading the charge with a near 41% rise in revenues to £158.1m while the retail business was up over 6% to £436.6m.

A focus on sportsbook, mobile, bet-in-play and football was credited with driving a 30% increase in online sportsbook staking and a 38% rise in actives. In retail, it was the SSBT estate – now named BetStation – that drove a 1.3% rise on like-for-like OTC stakes. The BetStation product accounted for circa 10% of all OTC revenues.

While mentioning the caveat of not taking anything for granted, Jim Mullen, chief executive, said at the analyst meeting that accompanied the results that Ladbrokes was “winning back it’s pride and belief”.

That positive spirit has come at a cost in terms of marketing where the money spent on advertising and promotion as a percentage of revenues rose to 35.5%, an increase of 7.1 percentage points over the first-half last year. The company said it hoped the marketing spend in the second half would return to more normalised levels of circa 30%.

In the first half, Ladbrokes announced significant long-term sponsorship deals including new long-term partnerships with the English FA (taking over from rival William Hill) and the Scottish Premier League. But Mullen gave a hint of the pressures within the current marketing environment when he suggested that sponsorships were seen as a means of partly avoiding spending on advertising spots on Sky Sports and around other TV sports where he said that the going rate had “gone through the roof”.

Citi’s Ainley noted that the online operation made an EBIT loss in the period of £9.6m, which was worse than Citi expected, but suggested the marketing spend had “capped profit progression”.

Ladbrokes added very little in the announcement or accompanying meeting on the merger with Coral, with Mullen only adding that the company had received multiple offers for the parcel of 350 to 400 shops that the Competition and Markets Authority (CMA) has insisted the merged entity will have to divest itself of in order for the deal to gain clearance. This hints there might be new competition on the high street – which Mullen welcomed in his comments today – but the cost of marketing also proves the competitive nature of the online market.

Just this week saw the launch of Tabcorp and News International’s offering. A spokesperson for Ladbrokes told that like with the retail business welcomed the competition. “We will watch them with interest,” he added. “I dare say they aiming their product at the same recreational customer that are concentrating on but we are confident in the strength of our brand.”

Ladbrokes share also reacted positively to the results this morning, rising nearly 4% on the day to the 144p level.

Totally Gaming says: Ladbrokes will be very happy with today’s results, likely the last before the company completes its merger with Coral. That process of integration will no doubt test the capabilities of the managements of both companies. The strategy of the new entity will likely remain much the same – a football-focused sportsbook, multi-channel and aimed at the recreational end of the customer spectrum. But the comments from Mullen on the cost of TV advertising spots “going through the roof” hint at just how competitive the UK market has become.

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