Lads reshuffles exec team again as online profit halves
Online profit falls to £15m in H1 2012 " Glynn initiates third restructure of executive team since joining business in 2010.
The delayed launch of Ladbrokes’ new sportsbook, trading, mobile and CRM platforms has led to online profits halving in a year, forced CEO Richard Glynn (pictured) to restructure his executive team for the third time in two years and admit that only a “concerted effort” will improve “disappointing digital revenues”.
Announcing first half results this morning and following the firing of head of product Richard Ames earlier this week Glynn reshuffled his key lieutenants for the third time since he joined the business from Sporting Index in April 2010. In a new “flatter” structure, according to chairman Peter Erskine, from today former Ladbrokes director of channels Nick Rust assumes responsibility for both retail and online P&L in the UK and Ireland with recent appointment and former Gala Coral executive Damian Cope in charge of international P&L and head of IT Mark Grimes solely focused on delivering the £50m technology projects Glynn instigated last year.
The restructuring sees Glynn take direct responsibility for technology and trading. Ladbrokes is “in the final stages” of appointing a replacement for trading director John Thompson, who is currently appealing his dismissal.
Ames’ directorship does not end until 30 November 2012, but the former director of product will be placed on gardening leave until then. He will be awarded compensation of £506,585, half of which has been paid upon his departure, with the other half to be paid in monthly instalments. With no non-compete agreement in place, Ames will continue to receive payments should he find a new role in that time.
Operating profit for the ‘digital’ division fell to £15m for the six months ending 30 June 2012, down 49.5% year-on-year from H1 2011’s profit of £29.7m after costs rose significantly, up 30% to £72.8m for the period. This was attributed to increased marketing spend and higher personnel costs, with start-up losses from the newly-regulated Danish and Spanish markets and its Greek exit also contributing. This was described as “broadly in line” with the board’s expectations, though speaking to analysts this morning Glynn admitted that the increased costs were likely to continue into the second half of the year.
The launch of the sportsbook platform developed by Hybris and using OpenBet’s sportsbook after the companies renewed their supplier agreement in March was originally scheduled for the second quarter of the year, but has now been delayed until Q4. The beta-testing of its mobile platform “ also due to take place in Q2 “ is now set to begin in the first quarter of 2013, with players to be migrated once this process has been completed.
Both Glynn and Erskine remained bullish during an analyst call this morning with the CEO calling it a “delay but not a derailment”. Fortunately the company’s retail operations again saved the day with UK retail operating profit up 21.1% to £91.3m compared the first half last year and now contributing 80% of the company’s overall profit.
“Ladbrokes today is a far stronger business than it was. Our goal over the next six months is the completion of the phase of our digital programme and to accelerate it in 2013 and beyond,” Glynn said adding he was “pleased” with the operator’s performance in retail and promising to “deliver in digital”.
As the call drew to a close Erskine backed his under-fire CEO who has overseen solid growth in retail but rapidly declining online numbers and said he is “confident” Glynn can deliver. “We have taken retail from being off the pace to setting the pace and we’re very confident that retail will continue to improve and deliver for long while. Yes digital has been disappointing but we are confident all the plans Richard [Glynn] has put in place to give us a turnaround will work. He has now flattened the structure so decisions can be taken faster, and IT into him is great, Nick Rust has seen his responsibilities reduce and he has been given UK and Ireland P&Ls. Yes, the board is impatient for success but confident that digital can be as successful as retail. The business feels it’s on the right track.
As a result James Hollins of Investec retained his firm’s Hold recommendation, saying that the delay “gives material scope for its competitors to continue to enhance their market share gains over Ladbrokes, making catch-up harder to achieve for Ladbrokes into 2013.”
Commenting on the delayed launch, new director of UK and Ireland Nick Rust told eGaming Review that the complexity of the system had caused the delay: “We saw the capabilities of the technology, and got pretty excited about the possibilities, so we set very high standards for the system. It’s an ambitious platform based on very flexible technology, so it’s a very complex procedure and it has taken longer than we would have liked to deliver.
“We are really disappointed with the delays, but once the system is in place I’m confident that it will be successful,” Rust added.
The delay was exacerbated by unexpectedly weak sportsbook margins. Despite seeing sports betting revenues increase 10.7% year-on-year to £37.3m, margins were poor after adverse horse racing and football results and a muted impact from the summer’s European football championships. Speaking to analysts this morning, Ladbrokes CFO Ian Bull revealed that the company lost £1.5m on the final day of the English Premier League season, when the title was decided by almost the last kick of the season.
However, Rust explained that the increase in active accounts “ up 21% year-on-year “ showed that the flat growth was a due to the results “rather than fundamental weaknesses in the business.”
In contrast to online, retail continued to perform strongly, with operating profit for the division up 21.1% year-on-year to £91.3m. This was aided by strong growth in machine revenues, managed by John Pettit who was recruited from Gala Coral in December 2011, achieving weekly gross win per terminal of £970 in Q2. This helped group net revenue grow slightly, up 8.4% to £529.3m, with operating profit growing 11% from H1 2011 to £106.9m.
Simon French of Panmure Gordon reiterated his firm’s Buy recommendation, citing strong current trading and Rust’s promotion as a key move:
“Current trading is better than feared with group revenue up 6.3% in July driven by Retail up 9.0%, led by machines and Digital revenue up 4.2%. Nick Rust has assumed P&L responsibility for the Digital division which we view as a strong positive,” French explained.