Shares of Ladbrokes Plc (LAD.L, LDBKY.PK) declined around 7 percent in the morning trade on London Stock Exchange after the UK-based betting and gaming company reported lower operating profit in its first quarter on higher costs, even as revenues increased from last year. Looking ahead, the company now expects group operating profit for the year 2013 to be at the bottom of the existing market range.
In its interim management statement for the three months ended March 31, the company said its first-quarter operating profit declined 13 million pounds from last year to 37.4 million pounds, largely reflecting growth in like-for-like costs and machine taxation in UK Retail as well as lower revenues from Cheltenham.
Ladbrokes said it had always planned for lower operating profit during the quarter due to known taxation and cost headwinds in UK Retail and the expected second-half weighting of growth in Digital revenues. Softer trading than expected, particularly in the second part of the quarter, added to the woes.
In the quarter, net revenue from continuing operations, excluding High Rollers, increased 3.3 percent. On a like-for-like basis, adjusted to remove impact of machine games duty, net revenues edged down 0.9 percent.
In the UK retail section, machine gross win was ahead by 3.2 percent for the quarter, with gross win per shop per week of 3,569 pounds, up 0.3 percent. Growth was lower than expected, with the impact of tougher comparatives and a more competitive market. Gross win per shop in the last four weeks has been about 3 percent higher with total gross win up about 8 percent.
In the Over the Counter or OTC section, gross win was down 2.6 percent as the quarter has been impacted significantly by weather affected lost racing and by poor results at Cheltenham amid the ongoing challenging economic environment.
However, gross win margin improved to 18.9 percent from last year's 17.2 percent as the company continued to benefit from favourable sporting results as well as ongoing improvements to trading.
In the digital segment, net revenue edged down 0.7 percent as sportsbook growth of 13.2 percent was offset by an 11.4 percent decline in gaming largely driven by lower revenues from high value customers in casino.
In the European retail segment, net revenue in Ireland was down 8.4 percent, driven wholly by the impact of Cheltenham. Net revenue in Belgium was up 3.3 percent in the period.
Ladbrokes said it continues to progress its reinvigoration strategy that it has seen further improvements in pricing trading and liability management in the quarter.
Chief Executive Richard Glynn said, "The trading environment and economic conditions since the start of the year have remained challenging, which when combined with a number of specific one off factors in the latter part of the period, have driven a softer first quarter than expected."
Looking ahead, the company said the performance of machines in recent weeks shows encouraging signs of responding to planned initiatives after a slow start. In OTC, the company will continue to implement trading developments during 2013.
The company said it expects to see Digital profits decline in the current year, but would begin to realise the full growth potential in Digital business in 2014 when all of the benefits of its partnership with Playtech can be implemented.
Glynn added, "Our partnership with Playtech aims to address our underperformance in gaming and accelerate our performance in mobile. We will also take the opportunity to drive efficiencies across all parts of the business."
In London, Ladbrokes shares are currently trading at 192.90 pence, down 14 pence or 6.77 percent.
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