Ladbrokes: Five key questions
CEO Richard Glynn is bullish about Ladbrokes' digital H2 growth prospects but a number of question marks remain
After announcing a 72% slump in H1 digital operating profit chief executive Richard Glynn yesterday said Ladbrokes was ready to turn the corner and now had the right platform, the right products and the right people in place to grow the business in H2. But it will be left to the numbers to do the talking in six months’ time.
With H1 profit of just £3m “ compared to £29.1m when Glynn took over in 2010 “ there certainly appears to be plenty of room for growth and results in H2 and beyond are widely expected to be vastly improved. However, a number of question marks remain surrounding its performance in the coming months and the answers will dictate just how big the improvement will be.
1) Can Ladbrokes maintain World Cup momentum? Ladbrokes said it had a “good” World Cup with sportsbook stakes of £31.6m at a win margin of 18.7% – well ahead of overall H1 margin of 7.8%. Coupled with this were 78,000 new account sign-ups and it will be imperative to build on this number early in the new football season.
Ladbrokes invested 31% of its top line on marketing during H1 and the World Cup and expects full-year spend to be between 25%-30%, meaning a slightly more prudent approach will be taken in H2. Whether this will be enough, particularly in light of an ever increasing competitive market ahead of the Point of Consumption tax, remains to be seen.
2) Can Ladbrokes successfully cross-sell its customers into other products? With 78,000 new customers and a lower yield than William Hill the cross sell is vital to improve revenues in the long term. With Ladbrokes’ complete product portfolio now in place on Playtech’s much heralded IMS back-office system, the operator says cross-sell and CRM will be vital for H2 and beyond.
If Ladbrokes is to increase actives’ LTVs, channelling sportsbook customers into its overhauled gaming portfolio will be important to return the likes of casino and bingo to growth. Ladbrokes believes it has the right personnel in its Israel team to achieve this but the proof will be in the pudding.
3) Can Ladbrokes mitigate the PoC tax hit? CFO Ian Bull says if PoC had been in place during H1 it would have set Ladbrokes back around £11m. Chief executive Richard Glynn says he hopes criminal charges will be handed down to those who flout the law in the UK, as was the case in the US post-UIGEA and, if that happens, customers would then naturally migrate to trusted brands.
Glynn also believes that Ladbrokes can shift some of the forthcoming levy cost by, amongst other things, renegotiating supplier contracts and marketing “more cleverly”. Of course, the PoC question mark is set against the whole industry, and although not publically behind the action, Ladbrokes and others will benefit if the GBGA judicial review results in the tax failing to be implemented as planned.
4) How quickly can Ladbrokes grow its international arm? With recently launched online businesses in the ultra-competitive markets of Australia and Spain, the latter through a JV, Ladbrokes will have to ramp-up its marketing if it is to gain enough market share to turn what are currently loss making operations into profit.
Although the early signs from Australia are promising with H1 revenues of £13.6m, an estimated 6% share of the Spanish sportsbook market will have to be improved upon with analysts suggesting around 15-20% is needed just to break even. A Belgium site launched in April should go well bearing in mind its market leading retail position but question marks remain over its delayed Mexico launch. All eyes will be on the operator to see if it attempts to gain upcoming licences in Germany and the Netherlands.
5) Is Richard Glynn’s job safe? Ongoing speculation around the future of Ladbrokes’ embattled chief executive creates another element of uncertainty around the firm. Major shareholders briefing to the press will only fuel rumours but it would appear Glynn is drinking in the last chance saloon “ although this has been said before.
The party line “ that Ladbrokes is now in position to deliver in H2 “ suggests that there can be no more hiding behind migration issues and no more excuses in general should H2 not go to according to plan. If the need arises, who replaces Glynn? There are no obvious external candidates. Digital MD Jim Mullen was touted as a potential successor in the weekend press, however, some may consider him a gamble considering his experience to-date is in digital, which is currently just 10% of Ladbrokes’ overall business.