Punters put dent in Ladbrokes profits

Cheltenham punters have put a dent in the profits of bookmakers Ladbrokes, which yesterday warned investors it expected annual operating profit to fall after a poor performance from horse racing and online gaming in the first quarter.

Ladbrokes shares fell 8% after the unscheduled trading statement, which dashed expectations that the company was turning itself around after problems with its online operations last year.

Ladbrokes has fallen behind UK market leader William Hill, which has built up a head of steam in the growing online gambling sector and expanded overseas. It also faces competition from a number of new entrants in a crowded sector ripe for consolidation.

Private equity firm CVC yesterday said it was considering a takeover of online betting exchange Betfair, one of Ladbrokes’ rivals for online gamblers’ cash.

Ladbrokes still operates over 2,000 betting shops in Britain and Ireland and chief executive Richard Glynn said conditions on the high street were very difficult as the economies stagnate.

“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,” he said in a statement.

The company had exp-ected first-quarter profits to be lower than last year because of increased costs and the imposition of a new 20% machine games duty in its high-street shops. However, revenue from machines and online gaming still proved disappointing.

Paying out on a number of favourites at Cheltenham and a number of race cancellations elsewhere this spring have further dented returns.

Ladbrokes operating profit fell to £37.4m (€43.8m) in the three months to March, down £13m.

It forecast an annual operating profit at the bottom of market forecasts which would mean a figure of about £188m. That compares with €206m in 2012.

Analysts say Ladbrokes has work to do to match William Hill, which is due to publish its first-quarter trading statement on Friday.

“With retail trading flat at best and limited momentum online, Ladbrokes appears much more at the risk of sporting results than its closest peer William Hill,” Shore Capital said in a research note.

Ladbrokes shares have performed strongly in recent months on signs that it was getting its online strategy right after profits in its digital division halved in the first six months of 2012.

It last month agreed a partnership with Playtech, the software company that is exiting a successful online joint venture with market leader William Hill.

It also agreed a €30m deal to buy Betdaq, a smallerrival to Betfair.

Ladbrokes expects online revenues to suffer some impact from changes linked to the Playtech partnership before the full benefits are felt in 2014.

“There is going to be an integration hurdle over the next six-nine months,” said Mr Glynn, adding that the company was now in a “stronger place” thanks to recent deals.