LONDON (Alliance News) - Ladbrokes PLC Tuesday said is swung to a loss in the first half of 2015 as its revenue slipped, it slashed its interim dividend and it continues with its three-year strategy to try and turn the business around amid its planned merger with Gala Coral Group Ltd.
The FTSE 250-listed bookmaker reported a pretax loss of GBP51.4 million in the six months ended June 30, after it made a profit of GBP27.7 million in the same period of the prior year, as it was hit by exceptional costs. Stripping out the one-off costs, pretax profit fell to GBP27.5 million from GBP54.7 million.
Ladbrokes said it booked GBP78.9 million in costs associated with retail impairments, UK shop closures and examinership, along with transaction charges relating to the merger with Gala Coral, which wiped out its profit. It said that profit was also hit by tax hikes in the UK, including the increase in machine games duty and introduction of the point of consumption tax. Ladbrokes added that it expects to incur further exceptional costs in the second half of the year amounting to between GBP25 and GBP30 million.
Revenue declined slightly to GBP588.8 million from GBP589.3 million. Ladbrokes said it saw a weaker over-the-counter and digital sportsbook performance on the back of customer-friendly results and the World Cup having fallen in 2014, making for tough comparables.
The punter-friendly results which hit the group in the first quarter continued into the second, hitting its sportsbook margins once more. Its Sportsbook margin for the first half was 5.2%, down 2.7 percentage points year-on-year. A similar performance occurred in its digital sportsbook, which saw margins deteriorate significantly.
This offset a strong machine performance in UK retail and improved digital gaming performance, Ladbrokes said.
Ladbrokes will pay an interim dividend of 1.0p, a quarter of the 4.3p it paid the year before.
"Our first half results reflect the challenge facing Ladbrokes. While we have some encouraging customer trends, we need to reset the business and invest. The results clearly show why we need to change and why we need to do so quickly," Chief Executive Jim Mullen said in a statement.
Last month, Ladbrokes outlined the findings from its strategy review, tabling a three-year investment programme under which it will aim to grow its UK Digital business aggressively, increase footfall in its UK Retail business, and deliver multi-channel growth across the business in moves that it said would hit its operating profit in 2015.
Mullen, the former digital chief at Ladbrokes who joined the company from rival William Hill PLC, was charged with leading a review of the business following the hefty pretax profit drop it suffered in 2014, as shop closures and impairment charges more than offset revenue growth.
The three-year strategy outlined in July calls for the company to "aggressively" grow its UK digital recreational sportsbetting customer base, a push to be driven by "more intense brand and direct marketing" as it works to build digital scale and accelerate growth in the division.
Ladbrokes also intends to increase footfall in its UK retail business, through increased sponsorship, marketing, investments in self-service betting terminals, and selective improvements in other parts of the business in order to improve its over-the-counter betting revenue.
The group said it is targeting its net revenue per shop being higher than in 2014 by 2017, with its earnings before interest and tax also to be above 2014 levels by the same year.
Ladbrokes will target increasing its digital division's contribution to group revenue to 30% by 2017, up from 18.6% in 2014, and wants to increase active users on Ladbrokes.com to more than 1.3 million from 960,000 in 2014. Ladbrokes also said it wants to double net revenue from its Australian business over the period.
"In July, we set out an organic plan to create a better business in 2017 with clear targets. While doing this removes the short-term thinking that had come to dominate our actions, we recognise it does create short-term impacts on our profitability," Mullen said on Tuesday.
Also in July, Ladbrokes announced that it has agreed a merger with Gala Coral to create a gambling company with a market capitalisation of around GBP2.1 billion, the biggest tie-up to have emerged thus far from a flurry of merger and acquisition activity in the British gambling sector.
Under the terms of the deal, Ladbrokes will issue new shares to Gala Coral shareholders representing 48.25% of the enlarged group, with Ladbrokes shareholders to own the other 51.75% of the business. The Gala Coral businesses that Ladbrokes will merge with include Coral Retail, Eurobet Retail and its online business, but not Gala Bingo, the bingo arm that the unlisted operator has been attempting to offload in recent years.
Ladbrokes said the new business, dubbed Ladbrokes Coral PLC, will have net revenue of GBP2.1 billion and GBP392 million of earnings before interest, taxation, depreciation and amortisation, on an illustrative aggregate basis and will be listed in London. It will continue to operate both the Ladbrokes and Coral brands in the UK. It said the combined business will generate 20% of its revenue from online and will become a much more prominent player in the UK online gambling industry.
The talks to form Ladbrokes Coral emerged amid further consolidation activity in the UK gambling industry, including the ongoing battle to win control of Bwin.Party Digital Entertainment PLC being fought by smaller rivals 888 Holdings PLC and GVC Holdings PLC. 888 itself had also been the subject of takeover interest earlier in the year, when it held talks with William Hill which eventually fell apart after it failed to secure the approval of a key shareholder.
Merger opportunities have increased in attractiveness to the UK gambling sector as high street operators take a hit from new gambling taxes in the UK and a margin squeeze from a need to invest in marketing and technology to keep up with the growing online gambling market.
"The proposed merger with the Coral Group represents an exciting opportunity for the business but, with completion some way away, the focus for me and my team must be on the here and now of delivering on our organic plan, building a better Ladbrokes and driving performance towards our 2017 targets," Mullen said on Tuesday.
Shares in Ladbrokes were trading down 0.1% at 109.90 pence Tuesday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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