Digital transition - Ladbrokes reports first loss in 10 years

Profile picture for user ddpreez By Derek du Preez February 22, 2016
Summary:
British bookmaker Ladbrokes has reported a mixed bag of results, with digital posing both interesting challenges and opportunities for the company.

ladbrokees
British bookmaker Ladbrokes has reported its first loss in a decade. Whilst the £43.2 million loss is attributed to a number of factors, it’s fair to say that the company’s transition to becoming a digital-first business has had a significant impact.

Ladbrokes' annual report, out today, cites shop closures, the government’s point-of-consumption tax, software write downs and increased digital marketing spend as all causing a dent on the bottom line.

This is all despite the company also signalling progress in attracting and retaining multi-channel digital customers that are making using of the company’s new, digitally integrated ‘One Ladbrokes’ platform.

Labrokes said that its results today reflect the implementation of the strategy it introduced following a “short and intense internal review”, which highlighted that it needed to change the way it ran its business, by building scale, responding faster to the customer and creating a “sense of urgency”.

The three year investment programme focuses on building its UK retail, digital and Australian recreational customer base. The report states:

The plan was not without challenges and came at a cost as we sought to address urgently the need to invest more heavily in the business, with an inevitable and significant reduction in our profit expectations and cutting the dividend to finance our strategy for growth.

Chief Executive Jim Mullen’s comments were upbeat, despite the losses:

I am pleased to be able to report a good start to the delivery of the strategy outlined in July. Although it remains early days there is positive progress to report. In UK Retail, self-service betting terminals are delivering growth, football is up and our Retail team are delivering strong Multi-channel growth. In Digital in Q4, increased marketing delivered more customers and more staking with Ladbrokes.com net revenue up over 25% and Australia, where the business goes from strength to strength, up over 75%(3).

The full year figures reflect the costs needed to undertake significant investment to deliver the strategy as well as facing circa £50 million of increased taxation.

While it is pleasing to report that after two quarters we have made a good start, we are only at the beginning of the journey. Therefore, 2016 will see the same focus on winning more recreational customers, excellent operational delivery and a performance driven approach as the basis for delivering on our clear 2017 financial targets.

Implementing the plans

Labrokes reported that it’s digital business - which comprises of ladbrokes.com and digital exchanges, Ladbrokes Australia and other regulated operations in Belgium, saw net revenue increase by 12.9% to £242.8 million, which compares to £215.1 million in 2014.

It said that this was driven by a combination of strong customer KPIs, as well as favourable sporting results in Q4 resulting in the company’s highest ever level of quarterly net revenue in ladbrokes.com.

However, despite the increase in revenues, costs were high. The company’s annual report notes:

As a result of the introduction of the POC (point-of-consumption) tax in the UK, substantial losses to HVC’s in Ladbrokes.com in Q1 and increased marketing investment in H2 in line with the strategic plan, we recorded an operating loss before exceptional items of £23.8m (2014: profit £14.0m).

Not only this but Ladbrokes suffered impairment losses of £58.3 million, which mostly relates to the closing down of physical stores, but also reports to a £4.9 million software write down.

The positives

It’s obvious from the above points that Ladbrokes is experiencing some pain as it transitions towards becoming a more digitally focused business, which will also relate to playing catch up with some of the online only betting sites that are seeing a great deal of success.

However, despite this, the company also signalled that investments in a new multi-channel strategy, via its integrated ‘One Ladbrokes’ platform, could be showing some early signs of success.

The annual report notes that sign ups to the platform have been strong and that Ladbrokes sees significantly more value being delivered from these users than those that just use the Ladbrokes website. It notes:

Late in Q2 we launched our multi-channel (One Ladbrokes) offer following successful regional trials to attract the recreational customer and specifically targeted our launch to coincide with the football season. We are focused on growing digital actives through the combination of digital and OTC (over the counter) oriented technology products.

The One Ladbrokes appeal is focused on a product driven strategy and already customers can take advantage of products such as retail cash out, bet status trackers, my Accas, live scoreboards and the ability to transfer winnings online.

These facilities have proved incredibly popular with over one million bet tracker checks by the year end. The product appeals typically to the younger recreational customer, 56% of signs ups are under 35, and so far we have seen the value of these customers is greater than a pure Ladbrokes.com only customer.

The report notes that it has signed 35,000 of these ‘digital actives’ since the Q2 launch and to date they appear to be delivering twice as much value as standalone digital customers. The report highlights how it is using it’s physical infrastructure and in-store staff to push the multi-channel strategy:

All selling of the multichannel offer has been via our High Street shop estate utilising a retail distribution network of over 2,000 shops. We have allied market leading product

ladbrokes
with a cost effective cash incentive to our retail colleagues to recruit customers.

I have been delighted by the response of our retail teams to our multi-channel offer and they have been central to us recruiting over 35,000 new digital actives by year end. Customer recruitment continues to progress well. We believe that this combination can continue to grow our multi channel customer base further, a view backed up by the first few weeks of 2016 and further re enforces our view that the retail estate still has a very active role in the modern High Street.

My take

A tough year and plenty of work to be done.