Analysis: Ladbrokes poised for make or break H2
The time has arrived to come good on its promise of online growth after a "disappointing" 2013 with big hopes placed on mobile growth
Ladbrokes executive team was very much ‘on message’ this morning with everyone keen to stress they have been taking the tough decisions required to return its online business to long-term growth.
However, the operator is ready to admit it isn’t out of the woods just yet, and nothing says that more than a mighty reduction in full-year profits.
Ladbrokes this morning announced a near wipe out of profits for its digital business after 74% was slashed from its 2012 total. With revenues remaining relatively static at £175m, total profits were just £8.2m.
“We’ve made some big decisions in the year that gave us some short-term pain but they were right for Ladbrokes,” Jim Mullen (pictured), Ladbrokes’ digital director, tells eGaming Review.
“There were no surprises there [in the results] and they pretty much confirmed what everyone else knew, that 2013 was a tough year, but they actually don’t reflect the operational progress that we’ve made,” he adds.
There’s no hiding from the fact that it’s been a tumultuous year for the operator with more than 100 jobs being cut over three redundancy rounds, while a slump in performance resulted in the issue of repeated profit warnings.
According to Ladbrokes, a key factor behind this dip has been its ongoing migration from Microgaming to Playtech following a deal struck with the latter last March.
The migration has been plagued by issues; prompting Ladbrokes CEO Richard Glynn to last year admit he had “underestimated” the upheaval it would cause while there have also been significant cost implications to running dual platforms not to mention a seven-figure fee for writing off its in-house mobile technology.
Only last week Playtech CEO Mor Weizer described the incumbent supplier Microgaming as being “less than helpful” with the transition process, however, Mullen insists Ladbrokes remains on course to have the full Playtech suite ready and available in time for the World Cup.
“I can’t comment on Mor’s comment, all I can say is that we are progressing on our plans and we are on track for the delivery for Q2 for the World Cup and that’s what we should focus on,” Mullen says.
In making his point, Mullen adds that the migration timetable has yet to suffer delays with the transfers to mobile sports betting platform Mobenga, iPoker and live casino all being delivered on time as originally scheduled.
Asked whether Ladbrokes had now hit rock-bottom and the only way is up, Mullen responds: “H1 is all about operational delivery, getting the products and getting customer management in place to allow us to bounce off the implementation of IMS for growth into H2, and that’s how we are looking at it from a business perspective.
“Post World Cup we’ll see the benefits of all the integration and migration work that we are doing in Q1 and Q2 in 2014,” he adds.
However, the operator has already seen some early benefits of its December switch to the Mobenga platform, with Mullen describing a 37% increase in actives as “really encouraging” initial signs.
Taking into account its tie-up with the Chelsea Apps Factory and the appointment of new director of mobile and devices Andrew Bagguley, the operator is focused on driving mobile growth throughout 2014 and beyond.
“We took a big step forward in mobile and we have really focused on mobilising our business,” Mullen says.
“We think that it [the Mobenga sportsbook] is at least on parity with our competitors and I would argue that it’s one of the best mobile sportsbook products out there.”
The next stage is to aggressively market the product and the company has pledged to invest 25-30% of revenues into its marketing budget, with perhaps one eye on the what is expected to be marketing battle ahead of December’s point of consumption tax.
Karl Burns, analyst at Panmure Gordon, says the uncertainty surrounding Ladbrokes’ online operations leaves it hard to assess its potential however believes only “significant double-digit growth” in H2 can be deemed a success.
“The PoC tax will create an annual £30m headwind while the suggestion is the company will only have about ten weeks leading into the World Cup to ramp up its Playtech offering once Microgaming exits and the World Cup will be pivotal to the performance of the digital business in H2,” Burns says.
“Ladbrokes has also said it will invest 25-30% of revenues into marketing which, when you consider it only made about £8m in profits this year, is a sizeable chunk as it aims to grab market share,” he adds.
A lot rests on Ladbrokes’ H2 performance and the time has come to deliver. Anything other than significant growth is unlikely to be seen as good enough and that is something the executive team is well aware of.
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