Increase in costs wipes out retail gains

A 6.6 per cent increase in operating costs and a 20 per cent increase in gaming machine taxation saw Ladbrokes’ UK retail division post a 25.9 per cent drop in operating profit for 2013 to £133.9m. While gaming machines saw a net revenue increase of 20.2 per cent to £408.4m (mostly driven by growth in £2 stake B3 content), over the counter net revenue dipped slightly by 1.8 per cent to £392.5m.

Any gains however were wiped out by a £76.4m tax bill for Machine Games Duty which was introduced in February last year, resulting in additional tax of £12.9m during the year. The 6.6 per cent increase in operating costs was the real drain, with expenses rising £3.1m to £535.6m. The bookmaker said costs on a like for like basis rose by 3.0% with an increase in content costs representing the largest part of this, driven by a significant increase in the cost of horseracing picture rights applied across the sector. The firm also incurred a £6.2m charge for ending its existing machine supply agreement with SG Gaming in order to get the latest models rolled out by summer 2014.

The firm added: “We have enlarged our estate footprint over the past few years, expanding into areas of high footfall and unmet demand. Going forward we expect rationalisation in the market in response to the imbalance between shorter term increases in taxes and content, and slower revenue growth per unit. We will be a net closer of shops during 2014, as we optimise the estate including reducing any tail of unprofitable sites to improve our quality of earnings.”