Building a Better Ladbrokes

Annual report and accounts 2015 BUILDING A BETTER LADBROKES Ladbrokes plc Annual report and accounts 2015 2015 highlights GROUP £1,174.6 £1,199.5 – Group net revenue up 2.1% (up 4.2% excluding £1,117.7 GROUP +5.1% +2.1% World Cup) NET REVENUE £M +3.1% – Operating profit(1) excluding High Rollers at £80.6m reflects investment in our new strategy announced in July and increased taxation +2.1% 2013 2014 2015 – Statutory operating loss of £15.4m reflects exceptional items of £99.0m mainly related to shop impairments and transaction costs – Strategy reset in July 2015, encouraging customer metrics in H2 – Ladbrokes announces proposed merger with the Coral Group to form Ladbrokes Coral plc RETAIL £800.9 £811.5 £827.4 – UK Retail net revenue up 2.0% (3.5% excluding RETAIL +1.3% +2.0% World Cup) NET REVENUE £M +8.3% – Self Service Betting Terminal roll out complete, encouraging staking growth delivered – Machines growth driven by lower-staking +2.0% 2013 2014 2015 B3 and slots DIGITAL (2) £242.8 – Sportsbook staking up 29% (3) TOTAL DIGITAL £215.1 +12.9% (2) +22.9% – Gaming net revenue up 13.3% NET REVENUE £M £175.0 -1.7% – Total actives up 15%(2) +12.9% 2013 2014 2015 AUSTRALIA £53.2 – Staking up 47%, net revenue up 54%, AUSTRALIA +53.8% actives up 65% NET REVENUE £M £34.6 (4) – Number 3 in brand awareness from +765% a standing start two years ago £4.0 +53.8% 2013 2014 2015 (1) Profit before tax, net finance expense and exceptional items. (2) Ladbrokes.com (3) Includes Ladbrokes.com and Exchanges, Australia and other regulated operations. (4) Among corporate bookmakers. Building a better Ladbrokes We aim to make Ladbrokes the best loved brand, with a focus on growing our recreational customer base by giving them the best betting experiences. We are investing in retail, digital and new markets so that wherever, however and whenever our customers choose to bet, we are their bookmaker of choice. CONTENTS Strategic report Statutory reports and financial statements 02 Chairman’s statement 75 Statement of directors’ responsibilities 04 Group at a glance 76 Independent auditors’ report to the 06 Business model members of Ladbrokes plc 08 The betting year 2015 84 Consolidated income statement 10 Strategic priorities 85 Consolidated statement of comprehensive income 12 Chief Executive’s review 86 Consolidated balance sheet 17 Wherever, however, whenever 87 Consolidated statement of changes in equity 18 UK Retail 88 Consolidated statement of cash flows 20 Digital 89 Notes to the consolidated financial statements 22 European Retail 129 Company financial statements 23 Telephone and High Rollers 130 Company balance sheet 24 Financial review 131 Notes to the Company financial statements 26 Risks and how we manage them 141 Five year financial record 31 Corporate responsibility 142 Shareholder information Governance 143 Corporate information 36 Board of directors 144 Glossary 38 Corporate Governance 51 Directors’ Remuneration Report 72 Directors’ Report 01 Strategic report Chairman’s statement “ The task is clear, ‘Build a Better Ladbrokes’ and deliver the growth to return the business to one that wins more customers and rewards shareholders.” With this in mind the immediate future for Ladbrokes is one of opportunity and expectation. It was with a sense of pride that at the end of 2015 I stepped up to be Chairman of what I regard as one of the biggest and most influential bookmakers. It is a great honour to lead this Company but it also comes with a weight of expectation as we look forward to 2016. I am acutely aware that shareholders have seen recent false dawns and am mindful that your patience has been tested. While we have ended 2015 confident in the plans laid out by our Chief Executive, Jim Mullen, both for organic growth and for the proposed merger with the Coral Group, we have to acknowledge that these plans come at a cost. The cut in profits and the dividend were necessary steps as part of our journey. But the task for Ladbrokes is to look forward. 2016 will be an exciting year full of opportunities. The organic plan to grow is showing encouraging signs and creating a belief in our ability to deliver scale and drive Ladbrokes back to former heights and beyond. The proposed merger with Coral is a fast track to scale and we are pleased that shareholders gave it such a vote of confidence at the General Meeting in November 2015. The competition authorities will not be easy to satisfy, but if we are successful, as we expect to be, the opportunities created are compelling. Building for long term The appointment of Jim Mullen came after the Board decided that a new approach was needed for the business. The task set out to him was clear, build a stronger Ladbrokes and gain the scale needed to compete ever more effectively in a challenging market. Jim and his team were quick to move the business away from the short-term approach that had dominated, to one with a clear plan and longer term targets. Jim has united the Company behind his plan to create a business with more recreational customers, more digital revenue and growing profits by 2017. He has been clear from day one, that the talent in the business never left, it just needed the encouragement and investment to demonstrate its expertise, particularly around sport. It has been a focus of his tenure and we believe the encouraging customer metrics seen in the second half reflect well on just how much talent there is in the business. 02 ladbrokesplc.com In parallel to Jim’s ambition to get Ladbrokes back as the Darren Shapland also stood down from the Board after six years, sports betting destination of choice for the recreational five as Chair of the Audit Committee. We were delighted towards customer, he also took forward the discussion on the potential the end of the financial year to announce that Mark Pain would merger with Coral to the point where we now are going through be joining as the new Chair of the Audit Committee, a role he the competition authority process to bring this to fruition. will maintain in Ladbrokes Coral PLC. Mark has tremendous Throughout the year ahead, the Board are clear on the experience as both an executive and non executive Director executive team’s task, focus on delivery of the day to day and I am delighted that he has agreed to join us. business, increase our appeal to the recreational customer Finally in September we announced that this year’s set of results and be ready to exploit the opportunities offered by the merger. would be the last for Ian Bull as our Chief Financial Officer. He left us in early 2016 and has been replaced by Richard Snow, who Merger was our Director of Investor Relations. Richard is a chartered The rationale behind our merger is clear. Organically our plan accountant by training and has spent his career in banking and recognises that we need to grow to have scale to compete even in public companies. He will not join the Board but will attend all more effectively in the market. It will create an industry leading Board meetings. retail, digital and international business with huge potential to build scale, and gain wide customer appeal. With the option of a potential merger ahead, it is not surprising that there is a changing of the guard on the Board. Indeed We will have the opportunity to create a leading management I think it is essential that we keep the thinking and overview of team by choosing the best of both brands in terms of people, the business fresh while maintaining experience and knowledge. systems and operational excellence. Crucially it also offers significant ongoing synergy benefits of at least £65 million per As a Board we are keen to ensure that we take a detailed annum after year three. view on not just the issues of today but also longer-term ones. You won’t be surprised to know that key decisions such as the The case for the merger is one that you have already backed merger, our refinancing and the examinership process in the loud and clear but none of us underestimate the challenge Republic of Ireland were all heavily discussed as well as those in execution. for the longer term such as talent management, culture and Leading the way risk management systems. You can see more on our activities 2015 has seen yet more change in our market as the ever in the Corporate Governance section. growing burden of regulation and taxation created the rationale Looking ahead for consolidation. We were quick to realise that this challenge As I said in my introduction, 2016 is a year both of excitement offered an opportunity and moved early with our proposed and expectation for Ladbrokes. merger. Others followed and over time we expect more to do so. We have a strong brand and a team that is enabling that brand to We have also seen the continued evolution of the customer punch its weight in a very competitive market. We are determined and their habits, both on the High Street and in the digital world. to build on this foundation for the benefit of our customers, The customer expectation of a good retail offer is evolving and shareholders and employees. that is why we have, and will, continue to look to innovate and to build a multi-channel, or ‘One Ladbrokes’ approach, as we call it.

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