Chairman's statement
Sir Ian Robinson
Chairman
Dear shareholder,
In a year of difficult and deteriorating economic conditions we are pleased to report a set of strong results in our core businesses. A huge amount of effort has gone into making the most of the businesses in our portfolio and, as I explain in the strategy section below, we have carefully gone about building these businesses for the longer term.
Strategy
Our strategy remains broadly unchanged from last year with the emphasis on creating long-term value across the Group.
For the UK estate we have expanded our focus, from maximising the benefit of the operational changes introduced following the implementation of the Gambling Act in September 2007 (e.g. extended winter evening opening, changes to machine content and advertising), to encouraging growth in OTC staking through the launch of our loyalty card - OddsOn! This is a first in the industry and provides not only a way to promote brand loyalty and incentivise customers but is also a tool for capturing data to allow us to better understand our customers' needs.
In eGaming we are successfully implementing our strategy of investment into new customer acquisition through, for example, television advertising in the UK for Ladbrokesbingo.com and Ladbrokescasino.com, growing our betting-in-play offering and where appropriate tailoring regional sportsbook content (for example in the Nordic region).
We have sought to broaden the business outside Great Britain, with shop acquisitions in Northern Ireland and Italy, and we have taken our first organic steps into Italy and Spain. The focus in 2009 shall be about "proving the concept" before growing the businesses further in those countries.
Within the rest of the Group the focus is upon operational efficiency and a key area for us remains costs. In this regard we have made good progress, particularly in the UK.
As an industry leader in betting and gaming, we also continue to focus on ensuring that commercial success is achieved in a socially responsible fashion and thus both Corporate Responsibility and governance issues are given full consideration by the Board when defining strategy. Our efforts in this area have again been recognised by the Dow Jones Sustainability Indexes and FTSE4Good Indices.
Performance
This year, in spite of the deteriorating economic climate, Group gross win, excluding High Rollers, increased by 11.1% to £1,143.9 million with operating profit (1), excluding High Rollers, of £243.8 million, up 0.9% from 2007. Whilst less than last year, profits from the High Rollers business of £80.1 million are a material source of cash flow to the Group. The eGaming initiatives have performed, overall, as expected, whilst our UK Retail business,in addition to launching the OddsOn! loyalty card, delivered control of costs well within guidance. The 2008 brand awareness poll suggests Ladbrokes continues to have the highest spontaneous brand awareness. The introduction of our loyalty card is designed to further improve this position.
Financially, we have given ourselves greater flexibility by taking early action in 2008 to sign an additional £185 million of committed bank facilities, and to extend the duration of certain facilities to ensure a well-spread debt maturity profile. We remain in a strong financial position.
In uncertain times like these, the importance of the governance of the Group is elevated. With over 100 years of plc board experience, more than 80 years of bookmaking experience and a full range of skills, I think the Ladbrokes Board is well equipped to steer the Group through turbulent times.
Shareholder returns
The deteriorating economic conditions have resulted in a decline in the equity markets. There have, in general, been additional market concerns over consumer-facing companies, with betting and gaming companies subject to such sentiment. Our total shareholder return ("TSR") performance over 2008 (-40%) was in line with the UK Gaming index (2) (-41%).
For the five year historical TSR performance against the FTSE250 click here.
This year the Board has recommended a final dividend of 9.05 pence per share, payable on 1 June 2009 to shareholders on the register on 27 February 2009. The final dividend, together with the interim dividend of 5.10 pence per share, gives a total dividend of 14.15 pence per share.
Governance
Following the AGM in May 2009 I shall be stepping down from the Board. Peter Erskine, former Chief Executive of O2 plc and board member of Telefónica SA, joined the Ladbrokes Board as a non-executive director in January 2009 and will take over as Chairman on my retirement. Peter has an extensive international marketing background, experience of building brand-led businesses and a deserved reputation for creating shareholder value, which is welcomed by the Board.
In January 2009 we welcomed Richard Ames, Managing Director, UK & Ireland Retail to the Board. Richard joined the Company in January 2005 and since that time has led a number of initiatives to ensure the UK Retail business continues to perform well in what is a highly competitive environment. He has senior executive experience in retail management and brings to the Board considerable expertise.
After 38 years with the Company Alan Ross, Corporate Development Director, will not be standing for re-election to the Board at the AGM and will retire from the Company on 19 July 2009. We thank him for his major contribution over the years. Alan will continue to act as a consultant to the Group - sharing his extensive knowledge of the industry.
The Company complied throughout the year with all the provisions set out in the Combined Code on corporate governance. In uncertain times like these, the importance of the governance of the Group is elevated. With over 100 years of plc board experience, more than 80 years of bookmaking experience and a full range of skills, I think the Ladbrokes Board is well equipped to steer the Group through turbulent times.
Current trading and outlook
In the first six weeks of 2009 the UK and Irish Retail estates have inevitably been affected by the unusually high number of horserace abandonments. In addition the OTC margin was one percentage point lower than 2008. eGaming has made a good start to the year with continuing growth in net gaming revenue and the successful migration onto the Microgaming poker network last week.
Overall Group gross win, excluding High Rollers, has risen 1% in the first six weeks. High Rollers have also contributed £24 million of operating profit in the year to date.
The prevailing economic conditions are expected to remain challenging throughout 2009 and the Board remains vigilant for signs of any impact.
The Ladbrokes team
The Group has changed markedly during my eight years as Chairman, the most notable event being the reunification of the Hilton International business with Hilton Hotels Corporation and the resultant capital return of £4.2 billion to our shareholders. I have witnessed the Ladbrokes business grow from being simply a division within the Group, with gross win of approximately £500 million, to its current stand alone plc status with £1.2 billion of gross win. It has extended its retail presence in Ireland, Italy and Spain and has established itself as a world-leading provider of online betting and gaming services. This performance is testament to the continued effort of Chris Bell, the Executive team and all our employees - I would like to thank them all for their skill and hard work.
19 February 2009
(1) Profit before tax, finance costs and non-trading items for continuing operations.
(2) UK Gaming index includes Ladbrokes, William Hill, Rank, PartyGaming and 888.
Ladbrokes PLC 2009