IT upgrades lead to Ladbrokes issuing profit warning

Ladbrokes is investing in its IT to enable the introduction of a new single back office system and a single betting wallet.

The betting firm hopes these improvements will help it to deliver “best in class CRM”, but the investment in its platform has led to a fall in profits in 2013 and it has also issued a profit warning for the first half of 2014.

Richard Glynn, Ladbrokes chief executive, said in the company’s preliminary results for the year ended 31 December 2013: “While our financial results for 2013 were disappointing, we made real operational progress, which has continued into this year. We remain confident about the direction of the business and the momentum we are creating.

“As we have made clear, H1 is about delivery and H2 is about growth. Our immediate focus is on the completion of our remaining platform, product and capability upgrades, notably single wallet and CRM, which will begin to deliver tangible benefits from the World Cup onwards.”

In its digital business, Ladbrokes reported an operating profit of £11.5 million, down 63.8 percent on 2012, with revenue 9.4 percent (or £16.8 million) down.

Operating profit in the first half of 2014 is expected to be lower as the firm moves all its remaining gaming products from its existing supplier over to gaming software developer Playtech.

The betting firm reported full-year exceptional costs of £56.1 million last year, largely driven by the costs of transitioning to Playtech, business restructuring and impairment of shop licences. It said it is on track to complete the transition in the first half of this year.

Ladbrokes signed a four-year deal with the software developer in May 2013 to gain access to its full product suite and technology, including the IMS back office system. Eventually, Ladbrokes will also migrate to Playtech’s download casino and poker products.

“Once complete this will allow the introduction of a new single back office system, IMS, for both gaming and sportsbook and the delivery of a single betting wallet for customers again to be delivered in H1 2014. These improvements are fundamental to enhanced CRM, the remaining key deliverable in enabling us to compete strongly and grow during H2 of 2014,” Ladbrokes said.

“It remains our intention to compete aggressively but sensibly to attract new customers and utilise CRM to improve lifetime value.”

However, Ladbrokes is also counting the costs of running its existing supplier contract alongside the new Playtech contract. The inefficiencies caused by this resulted in a 12.7 percent fall in gaming revenue.

Mobile leads

Ladbrokes has identified mobile as its area of greatest growth potential. Amounts staked via the mobile platform were up 23.3 percent, compared to a 28.6 percent fall in desktop stakes.

It launched a desktop sportsbook offering in April and a new mobile offering on the Playtech Mobenga platform in December. It described the initial customer reaction to the mobile product as “encouraging” and said the performance was good in terms of total downloads and amounts staked. Amounts staked and sign-ups increased by more than 50 percent and active players grew by more than 30 percent year-on-year since the launch, Ladbrokes said.

However, the reaction to the desktop offering were “disappointing”. The company said that customers “initially took time” to adapt to the new desktop site, although staking levels have “stabilised” after improvements to the performance and the product were made.

Mobile stakes also accounted for 31 percent of sportsbook “and that share continues to grow”, Ladbrokes said.

“The early evidence from our changes to the desktop sportsbook and to our mobile offer are encouraging, giving us confidence that where our product upgrades and improved capabilities converge behind our brand, we have a powerful proposition. We look forward to competing even harder through the course of this year,” said Glynn.

Skills investment

Ladbrokes has also invested in its digital skills, creating a separate Digital team with dedicated expert management “all of whom have clear areas of expertise and accountability”. It also set up a Ladbrokes Innovation Lab, which is designed to innovate and improve the mobile product.

“It is pleasing to report that we have already delivered a further three releases of our mobile product, including live streaming functionality,” the betting firm said.

It appointed Jim Mullen from rival William Hill as managing director of the digital business from October 2013, who is also overseeing Ladbrokes’ move to a new customer services operation based in Manila.

Ladbrokes reported a 32.9 percent fall in group operating profit of £138.3 million for the year ended 31 December 2013.

It also provided a breakdown of the exceptional costs. Business restructuring costs of £9.6 million were incurred as a result of the operational re-organisation of the group following the Playtech deal. Some £4 million of these costs were in the digital business.

In addition, the group incurred £8.4 million of costs, including processes and technology, through the integration of Ladbrokes with Playtech, Betdaq and Gaming Investments Pty Ltd.

Meanwhile, some of the impairment costs were associated with software assets. There was a £15.8 million software impairment as a result of a changes in the strategy for software development following the Playtech deal.


Copyright © 2014 IDG Communications, Inc.

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