INTERIM RESULTS HALF YEAR ENDED 30 JUNE 2013
OVERVIEW Results impacted by... • Slower machine growth than expected, recent performance volatile • MGD and content costs circa £9m in H1 Retail expansion remains compelling • Sustainable and reliable, enduring customer appeal • Positive underlying metrics and healthy payback on new shops Digital integration progressing well • Key foundations in place, clear plan for operational delivery • Joint incentive to grow Digital earnings Strong foundations will drive future performance • Key drivers of earnings growth established • Balance sheet strength a platform for growth 1
OVERVIEW Results impacted by... • Slower machine growth than expected, recent performance volatile (0.5)% LFL movement for H1 (+3.2% inc new shops) 4.0% 2.7% 1.2% 2.0% (0.0%) YOY var in 0.0% machine Jul Jan Feb Mar Apr May Jun Jun Jul GW per (2.0%) (0.2%) (0.6%) shop (4.0%) (6.0%) (5.5%) (8.0%) (10.0%) (9.2%) 2
OVERVIEW Results impacted by... • Slower machine growth than expected, recent performance volatile • MGD and content costs circa £9m in H1 Retail expansion remains compelling • Sustainable and reliable, enduring customer appeal • Positive underlying metrics and healthy payback on new shops Digital integration progressing well • Key foundations in place, clear plan for operational delivery • Joint incentive to grow Digital earnings Strong foundations will drive future performance • Key drivers of earnings growth established • Balance sheet strength a platform for growth 3
LADBROKES INTERIM RESULTS HALF YEAR ENDED 30 JUNE 2013 Financial Overview Ian Bull, CFO Review of operations Richard Glynn, CEO Q&A 4
LADBROKES HALF YEAR END 2013 GROUP PERFORMANCE SUMMARY B+/W- Half Year ended 30 June 2013 £m 2012 £m Net revenue (1) 563.0 529.0 +6.4% Net revenue ADJ (1) (2) 563.0 557.9 +0.9% Operating profit (1)(3) -19.8% 85.7 106.9 (12.2) (16.8) +27.4% Finance costs Profit before tax (1) 73.5 90.1 -18.4% High Rollers 3.4 20.5 Underlying EPS (1) (4) 7.2p 9.4p -23.4% Dividend 4.3p 4.3p - Net Debt (5) £375.5m £386.9m +£11.4m Continuing operations before exceptional items (1) Excluding High Rollers (2) 2012 net revenue has been restated for the MGD/VAT impact to enable like for like comparison. The 2012 reported net revenue was £529.0m (3) Includes amortisation of acquisition related intangible assets of £1.7m in 2013 and £1.3m in 2012 (4) Underlying EPS excludes impact of High Rollers and is based upon expected full year tax charge of 10% in 2013 (2012: 5.2%) (5) 2012 comparison in position at 31 Dec 2012 5
GROUP OPERATING PROFIT DECLINE PRIMARILY IN UK RETAIL £(18.1)m £106.9m £2.2m £(0.6)m £(4.2)m £(0.5)m £85.7m 2012 H1 PBIT UK Retail European Retail Telephone Digital Corp Costs 2013 H1 PBIT UK Retail down £18.1m – circa 50% from increased tax and content inflation Digital decline as anticipated – balance of profit in H2 Corporate costs lower due to reduced bonus payments 6
UK RETAIL TOTAL NET REVENUE UP, COST GUIDANCE LOWERED 5.9% increase Q1 : £11.6m + £2.7m Q2 : £0.9m (exc. Euros) £(5.1)m £6.5m 2.5% increase £(6.0)m £(3.2)m £17.0m £(12.5)m £(8.5)m £(6.3)m £91.3m £73.2m Net rev (LFL tax basis) up 0.7% 2012 H1 PBIT OTC stakes OTC margin Euros GW Machine GW Freebets/GPT MGD New shop LFL costs 2013 H1 PBIT costs Impact of OTC decline largely Q1 (horseracing cancellations play a part) OTC stakes (11.2%) Q1 and (5.8%) Q2 – margin up 1.6 % points to 17.8% Machines gross win up 3.2%, net revenue (comparable) up 1.3% Total retail net revenue ahead 0.7% (down 2.5% on LFL basis) 7
UK RETAIL TOTAL NET REVENUE UP, COST GUIDANCE LOWERED 5.9% increase Includes £2.5m of £2.7m LFL £(6.0)m content Consolidated inflation £(8.5)m net revenue 2.5% increase position £(6.3)m £91.3m £73.2m 2012 H1 PBIT Net revenue MGD New shop costs LFL costs 2013 H1 PBIT New machine taxation impact £6.0m in H1 (MGD net of VAT) Operating costs up 5.9% for the period LFL costs up 2.5% with 1.0% driven by LFL increase in racing picture rights Expect operating costs for full year to be up circa 7% Benefit from 73 net openings in H1 comes in H2 8
UK RETAIL MACHINE GROWTH SLOWER THAN EXPECTED 5.0% +2.0% (6.5%) (5.4%) (3.2%) 0.0% Gross win Jun wk1 Jun wk2 Jun wk3 Jun wk4 Jul wk1 Jul wk2 Jul wk3 Jul wk4 per shop (2.5%) (5.0%) (4.4%) (6.7%) (7.3%) (8.0%) (10.0%) (10.0%) (10.0%) Gross win per shop Excludes Euro effect (15.0%) Versus Euro driven footfall (17.1%) (20.0%) Slowdown in growth across market H1 ended 30 June 2013 2012 Var Growth from addition of machines only Machine gross win (£m) 209.5 203.0 +3.2% LFL movement inconsistent across period GW per shop per week (£) 3,636 3,653 -0.5% June and July down 5.5% and 9.2% June/July affected by one off factors, Ave. no. machines 8,725 8,247 +5.8% which obscure underlying rate Density per shop 3.92 3.86 +0.06 9
UK RETAIL PAYBACK PROFILE OF AVERAGE SHOPS 100,000 100,000 GW Per Shop EBITDA Per Shop Net Cash Outflow 50,000 80,000 Net cash - outflow 60,000 £s (50,000) 40,000 (100,000) 20,000 (150,000) GW & Ebitda per shop (200,000) - £s Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Chart shows average performance for shops opened in 2010 Cash payback in less than 3 years Shops take at least first quarter to establish themselves Expect more in H2 from H1 openings (and those from Q4 2012) 10
UK RETAIL FOOTFALL RESILIENCE, WEATHER IMPACTS JULY Average 450k p.w 600 500 Euros Ave. 400 July data footfall ‘000s suggests 10% - 15% p.w 300 decline 200 100 - Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Jul'13 Odds On data shows no overall change in footfall trend Stability corroborated by recent TNS data * July showing obvious impact of hot weather * TNS Omnibus Jan 2013 – 87% betting shop regulars express intention to visit same or more often over next 12 months 11
UK RETAIL Average shop no’s & YOY increase RESILIENCE IN GW PER SHOP 2228 +4% 2083 : 0% 2103 : +1% 2151 : +2% 120 96 95 95 94 93 91 90 89 100 89 89 88 88 84 82 Gross win 80 per shop £k 60 40 20 0 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 OTC GW per shop Machine GW per shop OTC gross win stable on per shop basis Machines GW has driven growth over that time Overall shop GW stable Expansion of shop estate not cannibalising existing business (1) Analysis excludes greyhound tracks. 12
DIGITAL OPERATING PROFIT IN LINE WITH REVISED EXPECTATIONS £3.7m £(3.7)m £(1.4)m £(2.5)m £(0.3)m £15.0m £10.8m 2012 H1 PBIT Sports Gaming Poker Costs & Duty Betdaq 2013 H1 PBIT Sportsbook growth offset by gaming and poker Confident in trading developments – 8.5% GW% is 2% points > 2009-2012 Staking decline from removal of ‘bad’ business, customer transition & HVC Costs as planned – expected to be in line with guidance for FY Expect 2014 costs (pre depn) flat on like for like revenues. Additional £6/7m depreciation from annualisation and Playtech integration Gaming includes; Casino, Games & Bingo 13
TRADING DEVELOPMENTS CONSISTENT INCREASE IN GW% MARGIN 4% Variance in combined UK Retail and Digital GW % 3.0% 3% 2.2% 1.9% All 2% sportsbetting 1.0% Year on year 1% -0.1% -0.6% margin 0.0% variance 0% Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 -1% -0.5% -1.0% -2% -3% -2.8% Start of trading initiatives Improved client risk management and trading function overhaul Reworking of pricing strategy - focussing on right customers Beginning to see +ve impact of increased margin expectancy Expect sustainable improvement over long term 14
EXCEPTIONAL COSTS MAJORITY RELATE TO PLAYTECH AGREEMENT Exceptional charges £m £15.6m incurred in H1 in relation to Playtech Business integration 6.4 Asset write down in mobile with move to Mobenga Impairment loss 9.2 Removal of duplication between London & Israel Playtech related 15.6 Other 6.2 Final part of transition H1 Total 21.8 Other – shop closures, corporate transaction fees Full year estimate Existing supplier discussions +ve but ongoing Cash 26 Estimate circa £11m H2 - £33m for full year Non cash 7 Total 33 15
CASH FLOW STRONG CASHFLOW PROVIDES FLEXIBILITY £m 2013 FY capex unchanged at £95m (incl EBITDA (1) 118.7 any Playtech integration) Net finance expense (11.5) Further debt reduction over period Tax (1.7) Capex (41.8) Net debt : EBITDA (1)(3) 1.6x Business combinations (2) (19.4) Revised med term target 1.3x -1.5x Other 9.0 Free cash flow 53.3 £352m undrawn against RCF to 2016 Dividend (41.9) £225m bonds in place to 2017 Debt reduction 11.4 Dividend cover reduced until earnings Opening net debt (386.9) recover Closing net debt (375.5) (1) Excludes exceptional items (2) Covers cash cost of Betdaq and Playtech agreements/transactions (3) Excludes High Rollers 16
LADBROKES INTERIM RESULTS HALF YEAR ENDED 30 JUNE 2013 Financial Overview Ian Bull, CFO Review of operations Richard Glynn, CEO Q&A 17
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