Analysis: Budget surprise highlights Ladbrokes' task at hand
The surprise increase in machine game duty has only emphasised the need for Ladbrokes to deliver on its digital promises
With the Point of Consumption tax looming the likes of William Hill and Ladbrokes will have already been readying themselves last Wednesday afternoon, however little would have prepared them for what chancellor George Osborne had in store.
A surprise increase in machine game duty “ which had not been discussed with gambling firms prior to the Budget announcement “ wiped around £500m off the value of Lads and Hills and as a result laid fresh scrutiny over their digital operations.
Ladbrokes appeared particularly irked by the surprise increase and said it will seek a government review, claiming it to be “based on commercial success of a product, not on any strategy or basic taxation principles”.
The bookmaker may well have a point in condemning Osborne’s fairly transparent cash grab, but the way it impacted the Ladbrokes’ share price in comparison to William Hill’s demonstrates the dangers of being so highly-geared towards land-based revenue.
Ladbrokes’ digital business made up just 16% of total net revenues in 2013 while Hills’ totalled 30%. This will explain why Ladbrokes share price, which stood at 161p prior to the tax announcement, tumbled to as low as 131.1p on Friday morning, a loss of around 18.5%. Hills’ price, meanwhile, has fallen around 9%.
Ladbrokes’ annual report, released last Tuesday, gave more insight into its disappointing digital performance throughout 2013. Digital net revenue had remained largely flat at £175m, yet operating profit sank 74.2% to £8.2m and unique active users had fallen by around 14% to 836,000.
Mobile revenues managed to climb by 35% to £40.9m, but compared to the increases recorded by its direct rivals on the channel it should still be regarded as something of an underperformance. It’s now clearer than ever the extent of the task at hand for Ladbrokes CEO Richard Glynn to turn things around.
A significant transformation
This has not been lost on Glynn or other management at Ladbrokes, with all hands seemingly on deck to finish the migration to Playtech software as soon as it can. Noting that the last year had seen “significant progress in transforming our digital business”, Glynn has made it clear in Ladbrokes’ annual report that 2014 is the year it must deliver.
“The focus for 2014 is simple; mobilise our business, deliver a single wallet and then deliver best in class CRM and growth in customer lifetime value,” Glynn said, having reiterated the need to “deliver a more competitive and sustainable business in a rapidly evolving market”.
The priorities revolve around making the most of its digital products and integrating them as much as possible. The delivery of a single wallet across its mobile and web products is key, as is the enhanced CRM capabilities Playtech’s IMS back-end delivers.
Thankfully for Ladbrokes, much of the transitional change has now been concluded and the operator remains defiant against the sceptics that doubt the migration will complete in time for it to make the most of this year’s betting bonanza in Brazil.
“This represents a fundamental shift for the business which will then be able to compete on a more level footing,” Glynn said.
The diversification the operator has achieved by launching in both Spain and Australia is also promising, with the early progress made by Ladbrokes Australia understood to be particularly pleasing in what has been a particularly tough market to crack.
Given the hit Ladbrokes has taken at the hands of the UK Government this week, the operator’s investors better hope its CEO is finally on the right track.