Ladbrokes PLC
Imperial House Imperial Drive Annual Report Rayners Lane Annual Report and Accounts 2011 Harrow Middlesex HA2 7JW and Accounts 2011 Telephone: +44 (0)20 8868 8899 www.ladbrokesplc.com Ladbrokes plc Annual Report and Accounts 2011 105 Business and Ladbrokes plc financial highlights is a leader in the Glossary Revenue growth driven by UK Retail which was up global betting 2.7% with 16.6% growth in machines and gaming market Resilience in OTC business with amounts staked marginally up in 2011 with annual Group ABB Gaming Machines Operating profit(1)(2) 0.4% Association of British Bookmakers. Betting shops can operate machines with B2 content (including (3) old FOBT content) and B3 content, as defined by the 2005 down on an underlying basis Adjusted Cost per Acquisition Gambling Act. revenues of over with profit before tax and Total of all online and offline recruitment marketing spend net finance expense down 6.1% (including promotions and bonuses netted from revenue), all GREaT Foundation (GREaT) affiliate expenses relating to deals where affiliates are paid a A charity that funds treatment, education and research related Development of Digital one-off fee for each sign-up and all bonus costs (except those to problem gambling. £970 million relating to sign-ups from revenue share affiliates) divided by Gross Win offer on track with the aggregate number of real money sign-ups from non-affiliate Total customer stakes less customer winnings plus commission investment in technology sources and the number of real money sign-ups through affiliates i.e. the amount of money left behind by the customer. and increased marketing that are paid a one-off fee. Net Revenue AMLD (amusement machine licence duty) Gross win less fair value adjustments (e.g. fair value of reward Continued strong cash An annual duty payment relating to gaming machines. The rate points, free bets and promotional bonuses), VAT and generation underpins of duty payable varies according to machine category. associate income. dividend growth Average Monthly Active Player Days Odds On The sum of, for all Unique Active Players in the period, the number Ladbrokes’ Loyalty scheme which awards customers with a point of days they have played during the period. for every amount staked Over the Counter. These points are then Bet in Play accumulated and can be redeemed for free bets, odds enhancements (1) Betting-in-Play allows bettors the opportunity to bet on outcomes or win bonuses. Net Revenue during a live event. (£million) Operating profit Category B2 gaming machine Profit before net finance expense and tax. Gaming machine with maximum stake of £100 and maximum prize £980.3m Operating margin of £500. +0.4% Operating profit expressed as a percentage of net revenue. Category B3 gaming machine 2011 980.3m OTC Gaming machine with maximum stake of £1 and maximum prize Over the Counter. 2010 976.6m of £500. Real Money Sign-up Cost per Acquisition 2009 963.7m A new player who has registered and deposited funds into an Total of all online and offline marketing spend (including promotions account with the Company. To address the issues posed by and bonuses netted from revenue), all affiliate expenses relating to shared wallets, customers are categorised between lines of deals where affiliates are paid a one-off fee for each sign-up and all (1)(2) business according to where they first register on the gaming site. Operating Profit bonus costs (except those relating to sign-ups from revenue share (£million) affiliates) divided by the aggregate of the number of real money SIS (Satellite Information Services) sign-ups from non-affiliate sources and the number of real money Ladbrokes owns 23.4% of SIS, a leading supplier of television £193.5m sign-ups through affiliates that are paid a one-off fee. programming and sports data to licensed betting offices in the UK, Ireland, Isle of Man and Channel Islands. -4.3% EBITDA 2011 193.5m Earnings before interest, tax, depreciation and amortisation. Unique Active Player A player who has contributed to rake and/or placed a wager in FOBTs or Fixed Odds Betting Terminals 2010 202.3m the period. Computerised machines which allow players to bet on the 2009 168.5m outcome of various games and events with fixed odds, including Yield per Unique Active Player roulette. Also referred to as B2 machines. Net Gaming Revenue divided by the number of Unique Active Players in the period. Gambling Act Dividend The Gambling Act 2005 is the primary piece of legislation governing (pence per share) gambling regulations in Great Britain. 7.80p GamCare A charitable organisation which provides counselling to those with +2.6% gambling-related problems. 2011 7.80p Gambling Commission 2010 7.60p Set up under the Gambling Act 2005, the Gambling Commission regulates casinos, bingo, gaming machines and lotteries. It is also 2009 2.98p responsible for the regulation of betting and remote gambling, as well as helping to protect children and vulnerable people.
(1) Continuing operations excluding High Rollers. (2) Profit before tax, net finance expense, amortisation of customer relationships and non-trading items. Designed and produced by MerchantCantos. (3) Excludes one-off credit of VAT received in 2010 – £8.1 million at total Group level. Printed by Pureprint Group using their environmental print technology, a guaranteed, low carbon, low waste, independently audited process that For further information about the Group visit: reduces the environmental impact of the printing process. Pureprint Group is a CarbonNeutral® company and is certified to Environmental Management System, www.ladbrokes.com ISO 14001 and registered to EMAS, the Eco Management and Audit Scheme. Overview Business review Governance Financial statements areholder information information areholder ossary tatement of directors’ responsibilities responsibilities directors’ of tatement onsolidated statement of of statement onsolidated sheet balance onsolidated of statement onsolidated flows cash of statement onsolidated financial consolidated the to otes statements financial ompany sheet balance ompany financial Company the to otes orporate governance governance orporate K Retail Retail K hairman’s statement statement hairman’s igital igital report irectors’ report remuneration irectors’ isks and how we manage them manage we how and isks egulation PIs tatement of directors’ responsibilities responsibilities directors’ of tatement uropean Retail Retail uropean ive year financial record financial year ive inancial review inancial air Play – Corporate Corporate – Play air elephone esponsibility at Ladbrokes at esponsibility ndependent auditor’s report to the the to report auditor’s ndependent ndependent auditor’s report to the the to report auditor’s ndependent in relation to the Company financial financial Company the to relation in statements S Corporate information information Corporate plc Ladbrokes of members I Sh Gl in relation to the consolidated financial financial consolidated the to relation in statements C C income comprehensive C C equity in changes C N statements S I plc Ladbrokes of members C C N statements F O C K C U E D T R F R F r B C D D
104 104 105 Overview 89 101 102 103 14 44 45 statement income onsolidated 46 47 48 49 88 90 91 92 100 02 04 05 business ur review Business 06 10 review 11 Executive’s hief 12 12 13 16 19 Governance 22 24 29 directors of oard 31 and reports Statutory statements financial
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our customers our better service to to service better products and and products technology, more technology, through enhanced enhanced through Ladbrokes Ladbrokes reinvigorate reinvigorate Investing to to Investing plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 02 Our business Our business objective is to build an ‘e’ enabled international betting and gaming business
Retail Digital Pricing, Customer Regulatory excellence capability trading and brand leadership and liability management UK land based betting Betting and gaming All are critical to Ladbrokes is the most The ongoing evolution and gaming has online or increasingly optimising margin, recognised betting of tax and regulation developed to become on mobile continues to broadening product brand in the UK. plays a key part in the a genuine leisure grow. We are making range and establishing We have begun the performance of our activity. Our objective good progress in a market leading process of evolving the business. We continue is to continually evolve acquiring and developing customer offer. brand to make it more to play a lead role in the experience for improved technology, exciting, placing ensuring the industry’s Our increasing use our customers, whilst expanding our range customer experience contribution to the of data and trading optimising both of Digital products and insight right at the economy, jobs and taxes algorithms has enabled our margin and and delivering a more heart of our offer. is understood. us to make great operational efficiency. compelling and progress in expanding competitive offer the number of Bet in to customers. Play markets available to our customers round the clock.
For more information go to pages 6-13 or www.ladbrokesplc.com Ladbrokes plc Annual Report and Accounts 2011 03 Overview By focusing on our five critical success factors and restructuring our business to focus on the customer, we are developing a business for a multi channel future to deliver long-term growth and value for our shareholders.
UK Retail European Digital Telephone Retail
Ladbrokes shops are a We operate retail Ladbrokes is part Telephone betting remains familiar fixture on British businesses in Ireland, way through an a service popular with a high streets. Revenue is Belgium and also in investment programme significant number of driven by traditional Over Spain through a joint which is designed to customers in spite of the the Counter sports venture, Sportium, which enhance our Digital offer. growth of digital and mobile betting and increasingly leads the market in Better technology, more communications. Calls to by gaming machines, Madrid and is expanding products, a new online the telephone service are which have shown an into other regions, sportsbook and taken in our shops and increase in gross win including Valencia. continued innovation in our call centre in London. of 19% in 2011. in mobile are making We also operate a the business telephone service for our more competitive. High Roller customers.
Number of shops Number of shops Net revenue mix Number of sportsbook 38%, telephone calls casino 35%, games 10%, 2,127 592 poker 9%, bingo 8% 4.3m Operating profit(1)(2) Operating profit(1)(2) Operating profit(1)(2) Net revenue(1) £152.3m £13.4m £55.0m £9.5m Gross win per machine Amounts staked Unique active players(3) Unique active players(3) per week £860 £923.0m 878,000 67,000
(1) Continuing operations excluding High Rollers. (2) Profit before tax, net finance expense, amortisation of customer relationships and non-trading items. (3) A player who has contributed to rake and/or placed a wager in the period. Ladbrokes plc Annual Report and Accounts 2011 04
Dear Shareholder, Pippa Wicks who has been a Chairman’s 2011 has been a key development year non-executive director since 2004 which has seen significant investment has decided to retire at the coming statement in Ladbrokes as part of the strategy to Annual General Meeting and we thank reinvigorate the business which we laid out her for her significant contribution. in 2010. Richard and the executive team The Board continues to set the tone for high have remained absolutely focused on the standards of corporate governance, a report key objectives identified last year and have on which is set out on pages 24 to 28. made good progress in delivering them. During 2011 the Board has been applying In the Digital business we are seeing the principles relating to its role and a more competitive betting and gaming effectiveness. This included further evolving offer with a combination of better the strategy for the Company’s long-term technology, a wider product range and success, holding the executive team a more compelling customer proposition. accountable in its new matrix style structure for the execution of that strategy, and In Retail I am pleased that we have developing the board structure in a manner maintained a tight control of costs and consistent with the aim of fostering diversity. have grown operating profit(1), in spite of a difficult economic climate, with continued I believe that the Board has the right resilience in the Over the Counter business combination of skills and expertise, and and really quite impressive growth that Board meetings have a healthy level momentum in machines. of debate with the right mix of enquiry and support of the executive directors from the But there is much more to come. In 2012 non-executive directors. we expect to grow Digital revenues, building upon our investments in technology and the Dividend growth in customers that has been driven The Group recommends paying a final by the increase in marketing spend during dividend of 3.90 pence per share taking the H2 2011. Notwithstanding tough prospects full year dividend to 7.80 pence per share. for UK consumers in 2012, these are also This is line with our policy of a target exciting times in the retail business where dividend cover of approximately 2.0 times initiatives to drive a clear growth agenda underlying earnings excluding High Rollers. are already under way. The dividend will be payable on 26 April Organisational Change 2012 to shareholders on the register on In September the internal operating 16 March 2012. structure of the business was reorganised into three main business units: Product, Summary Against the background of a continuing Peter Erskine Customer and Channels. This matrix type structure means all parts of the business economic downturn I am encouraged by Chairman are now orientated around a truly the performance of the business this year. customer-led approach. All work closely Initiatives to control cost and evolve our to develop an increasingly cross-channel offer and competitiveness in Retail, strong offer, for example offering more of the growth indicators and continued mobile same games across Retail and Digital – innovation in Digital and further planned including mobile. improvements in our pricing and trading technology, position Ladbrokes well In April we announced the appointment of for 2012. Peter Erskine Ian Bull to the plc board as Chief Financial Officer. Ian, who joined us from Greene The business continues to be strongly cash considers the Group’s King plc, has a wealth of knowledge within generative, and newly agreed banking performance over the regulated leisure sector as well as facilities which run until 2016 enhance the a background in growing businesses strength of the balance sheet and provide the past year, and within both the digital and retail space. us with flexibility going forward. assesses how recent His experience in operations and of 2012 is a critical year for Ladbrokes to managing a tight focus on costs is deliver on the investments we have made organisational and now being applied effectively in the in the past 18 months and I am confident Board changes Ladbrokes business. that the plans and people are in place to position the business Board and Corporate Governance do just that. Two non-executive directors have been Peter Erskine for 2012. appointed to the plc board. Christine Hodgson, Chairman of Capgemini UK Chairman and Richard Moross, founder and Chief Executive of Moo.com will join the Board on 1 May 2012, bringing with them complementary skills and experience that will be of significant benefit as we move forward. (1) Before non-trading items. Overview £91 £91 3% 5% £83 £62.7m .9% £83 878,000 435,000 £169.4m £163.4m 8.8% £160.7m 799,000 392,000 £55.0m - -3. 767,000 +9 375,000 +11.0% -12. £55.0m £46.1m 878,000 435,000 £163.4m 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 (1) (1) and/or placed and/or a
(1) (1) (3) EBIT Measure of divisionalMeasure profitabilityof less Revenue Net equal to whichis operating relevant costsall and gamingtaxes. Players Active Unique has who player Defined any as rake contributed to Sign-Ups Money Real registeredhas who player new A depositedanand fundsinto measure a is account. online It successour attractingof at customers. new per Cost Adjusted Acquisition it average Measuring on much how spend and(marketing costs us recruitaffiliateexpenses)to each customer. new Net Revenue Net Measuremanagement used by to assessperformance the our of Digitaloffering. wager in the period. It is a measure a is period. the It in wager successour recruitingof at and retainingcustomers. KPIs — Digital — KPIs £860 16.7% .8% 15.9% £70,900 £475.9m 15.6% £201,400 £462.4m £197,100 £458.7m £66,300 3.7% £730 £860 -7.0% £62,500 £685 £183,400 + +6.9% 15.6% +17 £70,900 £475.9m £183,400 05 Measuring performance our performance key of number a use team executive the and Board The performance divisional and Group monitor to (‘KPIs’) indicators against progress measure to as well as forecasts and budgets against Group other of number a also are There objectives. strategic our results, monitor to business the by used are that metrics divisional and reviews. financial and business the within to referred are which divisions. largest two our for KPIs the of summary a provide we Here eciation and amounts written off non-current assets and before gross profits tax, plus administrative expenses. tax, plus administrative profits gross assets and before non-current eciation and amounts written off 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 (1) (1) (2)(4) per shop per (4)(5) A full list of terms is set out in the Glossary on page 105. Operating costs is a total of cost of sales after depr Pr EBIT Enablesmanagementanalyse to divisionalperformance per a on basisshopretailacrossestate. the gaugeperformance Usedto versusmarket. Operating Costs Operating to Analysiskey costs is of monitoringperformance and enablesfurtherareas for cost efficiencies identified. be to OTC Gross Win margin Gross Win OTC the monitor Measure usedto performanceprofitabilityOTC of expressedproportion a as of amountsstaked. Over the Counter (OTC) Counter the Over shop per Win Gross Measuremanagement used by to assessperformance the OTC our of productoffering (non-machine)in Retailshops. UK Gross Win per machine machine per Win Gross week per Measuremanagement used by to assessperformance the our of shops. Retail UK in offering machine Before non-trading items. Before credit. 2010 excludes the impact of the £6.7 million VAT from continuingoperations. non-tradingitems relationshipsbefore tax,netfinanceexpenseandamortisationofcustomer ofit before KPIs — UK Retail UK — KPIs (4) (5) Notes: (1) (2) (3) KPIs plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 06
Last year you described an Could you share a little more detail Chief ambition to make Ladbrokes on the key developments within Executive’s ‘favourite’ again. How have you Digital and how you expect these progressed since then? to enhance the business? review There is no doubt that we are making We have taken significant strides this year good progress. A good example is the towards building and shaping a more momentum we have achieved in our competitive Digital business. This is being machines performance where, with the achieved through a combination of right technology, the right product and a investment in technology, key personnel, determined operational mindset, we have improved commercial relationships, regained our competitive edge and are fast better online marketing and the expansion closing the gap on our competitors. of content. The speed at which we have caught up Throughout the year we have been has been a real success and the team developing a new pricing and trading should be very proud of that. I am excited platform which has enabled us to increase about our plans for machines in 2012 and I significantly the number of Bet in Play (BIP) know that the team can’t wait to get started. or in running events (matches/games) we I always saw machines as the first major test offer, as well as the number of markets in terms of reinvigorating Ladbrokes, but traded per event. In just the last six months they are only part of the clear vision for the of the year we increased our football offer business that I laid out in February 2011. from 200 events per week to an average of 700. BIP is the fastest growing area of the In 2012 we are looking to achieve a similar sports betting market and a real consumer acceleration in our Digital performance battle ground. We will continue to expand which is the next key part of the strategy. the number of events and markets in 2012. The business is well positioned to grow. We have taken great strides to increase our To make the most of having better ability to deliver to customers, significantly products we also have to ensure that expanding and improving the range of customers enjoy using them. Another key sports betting and gaming products which part of our Digital investment in 2011 has they can play through a better and easier to been the development of a more use website and a faster, more sophisticated sophisticated, attractive and up to date range of mobile apps. It is now a real test of website. Far more than a lick of paint, this our ability to execute and deliver. has seen us develop functionality, ease of use and the overall customer offer. Richer Over the past twelve months, our content, more personalisation and superior investments in new trading and search and navigation enable customers to e-commerce platforms have enabled get to their bet quicker and provide a more Richard Glynn us to plug into different technology. dynamic and exciting live betting experience. Chief Executive Officer We have continued our longstanding relationships with key suppliers like While our heritage is very much founded in Microgaming, but have changed the terms sports betting, we have also strengthened under which we work together. This means our gaming offer, which is key to enhancing we can use their market leading services our credentials as a truly multi-product, but also work with other suppliers to multi channel business. Following the ensure we offer the best products in the negotiation of a new agreement with our marketplace to Ladbrokes customers. key supplier Microgaming in the summer, Richard Glynn we now have the flexibility to offer a What has been particularly pleasing has broader range of games to customers, considers how the been the response of the Ladbrokes team. adding 61 new slots since July. business is positioned There is a great deal of talent at Ladbrokes and I’m really pleased to see the real desire We now have greater control over what 18 months after and passion our people have for taking we offer customers and how we present it on the challenges we face. The cultural to them, greatly improving our ability to starting in his role progression has been a real success evolve in line with fast-changing customer as Chief Executive this year. preferences in the digital market. This is key to developing a multi channel customer 2012 is a critical year for us all. We will and looks forward as offer where the same products are offered continue to invest in the business in a way to customers online and in Retail. he looks to build upon that drives real improvements for our progress to date in customers and also further grows our Another important area of our Digital marketing presence where we are already capability is online marketing. This is about 2012, a key year for seeing good early results. making sure that we are attracting new potential customers, whilst also stimulating We do not expect to receive any assistance operational delivery existing ones in order to drive profitability. from the economy in the near term – we Throughout the year we have restructured in the strategy to know the consumer environment will be this part of the business and continue to tough. However we have a clear strategic reinvigorate refine the way in which we use affiliate plan, are organised in the right way and are marketing, pay per click (PPC) and Ladbrokes. investing in the right areas. We have a clear search engine optimisation (SEO), set of priorities which enable us to build on the cornerstones of digital marketing. our early successes and grow the business Better management and measurement into next year and beyond. has helped improve their effectiveness and efficiency, with higher rates of conversion from website visits through to registration and sign-up. Business review 2012 will be a big year for sport. for year big a be will 2012 be this will significant How Ladbrokes? for sports huge a be needto don’t You this to forward looking be to aficionado London the of combination A summer. have to promises 2012 Euro Olympics and in 2012 Euro country buzzing. whole the Major opportunity us. big for particulara is landmarkevents are tournaments football can’t you while and companiesbetting for customer major a is it results, guarantee particularlya for recruitmentopportunity, has Euros The ours. recognisedlike brand us verysuccessful be for to ingredients the having Ireland and England both with form. good in and qualified are Olympicsthemselves the Whilst turnover, significant generate to unlikely and sporting event huge a are they opportunity great a to provide therefore the to addition In brand. our publicise standard our have we Euros, Olympics and British the Wimbledon, Ascot, of fare the as well as Open, The and GrandPrix ICC the and Chicago in Cup Ryder have Lanka, Sri so in Cup World Twenty20 andopportunityperform great well a to a be to likely is what of share our capture wait! sport.can’t I for year massive You have always been very clear clear very been always have You opportunities international that own their on reviewed be would of development the With merits. to starting business Digital the to time the now is together, come overseas? expanding be point this to beenveryup focused have We a remains There right. basics the getting on UK the in here right opportunity us huge for right the have we that sure making and of advantage take offerto and capabilities priority. the still is that opportunities are there said, That regulation and tax where and internationally engage. will and can we sensible are Denmark in operator licensed a now are We in licence online an for applied have and in million $3 invested we 2012 early In Spain. Nevada a Group, Technology Stadium the to software sportsbook of provider based places investment The casinos. Vegas Las liberalise to plans if US the in grow to well us progress. market that in betting sports In order to take advantage of this, we have have we this, of advantage take to order In the of up set organisational the changed typestructure matrix the businessinto now are We industries. other seenin expertise: of areas three organisedinto Customer. and Product Channels, learnmore to us enable Thesegroups the across behaviour customer about products the business,develop entire they how regardless of want customers more better, a deliver and them consume service all acrossexperience orientated already, have We consumption. of points offerthe to begun time, first the for channels our all acrossgames same relationships supplier maximising our – offer consistent more a delivering and customers. Ladbrokes to You placed great emphasis on on emphasis great placed You heart the at customer the putting this is how – business your of related it is and shape taking vision now have you which in way the to business? the organised has structure operating new a to move The the of view single a form to enabledus channels. and products all across customer channel that shows behaviour Customer blur, starting are to divisions product and customers of number increasing an with andproduct one than more on betting their on as well as shop a in so doing that us shows Data laptop. or mobile behaviours these exhibit who customers not. do who those than valuable more are 07 on environment consumer The at tough is Street High UK the Retail your is How moment. the this? addressing business pretty be certaincan 2012 that we think I UK for verychallenging be to continue will consumersbusinesses and alike. without almost goes it environment this In tight a maintain to continue we that saying the on build to look and costs on control over regard this in had have successwe years. of couple past the new a introduced we January In 2012 shops retail our to structure operating shops which in way the simplifies which of number average staffed, reducing are costgenerating thereby and staffhour per far extends however focus Our savings. alone. discipline cost beyond times,difficult economic in that believe I competitive a maintain that companies excellent and value deliver and edge market capture can customersservice to has structure operating new The share. the with consistent be beendesignedto gaming and betting retail the which in way years,recent in evolved experiencehas leisure/ a of more becomemuch to growing a entertainment activitywith to approach proactive a towards trend service. customer greater much place roles staff Redefined reward to us allow and this on emphasis incentives greater providing better, staff results. and performance good for push to drive a support also roles Changing as smarter and harder estate existing our effectively, more compete to look we and data market of use better making insight. customer beyond and 2012 in opening shops New trends, retail changing for account also will need growing the reflects design their and and staff between interaction more for technology. of use greater and customers maintain to ability our of confident are We machines, of growth the in momentum million £58 additional an generated which use us see will 2012 2011. in win gross machine drive to managementtools yield expansion the whilst profitability further, enable will card loyalty On Odds the of offer. machines personalise the to us in laurels our on resting be not will We to fronts all on harder pushing rather Retail; 2012. in grow and develop control, We have heard you talk before before talk you heard have We Ladbrokes the reinvigorating about important? so this is Why brand. the in strong remains brand Ladbrokes The in awareness unprompted best the with UK a presenceis retail our Whilst industry. the believed always have I advantage, huge brand the of relevance the increasing that critical. consumeris today’s to On’ ‘Game new our of launch the Since by fronted is which campaign marketing commentator football eccentric Italian the seenstrong have we Crudelli, Tiziano and actives sign-ups, the in growth sportsbook our and both of turnover products.casino creating about is campaign new The excitement real the capturing and vibrancy generate. can bet a placing that awards about not advertisingis However our Increasing results. delivering about but sense make didn’t investment marketing are we that now but year, the earlierin compelling more a develop startingto for productsbetter and more with offer, the evaluate now can and customers campaigns, from returns responseand of increasedlevel an maintain will we forward. going advertisingspend We all rely increasingly on mobile devices mobile on increasingly rely all We way the changing internet mobile the with services. and goodspurchase we which in been has betting mobile in growth The and use of ease convenience, by driven spontaneously. bet a place to facility the in 174% by grew revenue net mobile Our now customersDigital of 22% with 2011 our of size The mobile. Ladbrokes using our of many of ahead businessis mobile continually are We competitors. key ones new adding apps, existing evolving ensure offerto our innovate to looking and advantage. competitive this grow we that opportunity the that by excited all are We representsand gaming and betting mobile increasedAn us. for year big a be will 2012 specific appsproducts, gaming on focus new a of launch the and devices tablet for to driving us sportsbooksee platformwill experiencesdifferentiated genuine create users. mobile for You have spoken before about about before spoken have You your to mobile of importance the this Has offer. Digital overall progressed? also There is no doubt we are making progressmaking are we doubt no is There actives sign-ups, in growth Clear Digital. in sportsbook, the in particularly turnover, and the piecesof the all As encouraging. are expect we together come start to jigsaw particularly through further, to progress 2012. in revenue, net of growth plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 08 The change to our operational structure in September was the logical progression of our desire to evolve our commercial approach from being product or channel focused to being customer and service orientated. The new structure enables us to place more emphasis on the consistency of product quality and delivery across every channel, allowing teams to specialise in the areas of customer thinking, customer delivery and product design.
Customer Group The Customer Group is headed up by ourselves in a way which enables the Stephen Vowles. Its objective is to ensure business to learn from the behaviour of that the Ladbrokes brand and offer is our customers as it develops. We are now rooted in a deep understanding of our using this insight to shape the games and customers and their behaviour. products we offer through the Product More and more people are now consuming Group and to evolve the way in which they betting and gaming products online. are delivered through the Channels Group. Increasingly reliable and secure technology, Stephen’s team is responsible for all areas the rapid evolution of smart phone within Ladbrokes which directly touch the ownership and sophisticated marketing customer. This includes: techniques have changed the ways in which customers interact with us. As this trend has development of the brand through developed, we have also seen the evolution traditional marketing via television, Stephen Vowles radio and printed media; Customer Group of ‘multi channel’ customers, with the division between retail and digital becoming online marketing activity which less distinct. covers customer acquisition (through presence and promotions) As a business we are fundamentally and customer development (loyalty committed to ensuring that we fully and customer journey); understand this evolution and tailor our commercial approach to respond to it. research; and Operationally we have therefore aligned consumer public relations.
Tiziano Crudelli, the Italian football commentator, and Chris Kamara the football pundit, who both feature in our current advertising campaign. Business review products and services and productsof each across this on capitalise to aim we channels these our use to customersencouraging trend, mobile. and online retail, acrossproducts renegotiated have we year past the Over our of many with agreements commercial the in progressed well are and suppliers key platform, trading own our of development flexibility more us given have which of both products, of range broader a sourcing in a on customers to offered be can which enhanced This platforms. of range broader we that ensuring to critical is control of level across products of range same the offer can business, Ladbrokes the of whole the do. to started now have we that something Our mobile offer is competitive, innovative and growing growing and innovative competitive, is offer mobile mobile Our make spontaneity and 2012. in Convenience further grow strongly. to investing are we and exciting ThunderstruckMermaids & iPhone on available Millions Androidand smartphones 09 The Product Group is headed up by by up headed is Group Product The for responsible is Amesand Richard delivering and developing sourcing, on sectors and all in best-in-classproducts the for responsible also is platforms.It all our of all underpins which technology includes This products. gaming and betting management,liability and trading pricing, good made have we which in area an demonstrated well is This year. this progress of number the in growth the through we which in week per matches football Significant markets. Play in offerBet our in automation of level the increasesin 250% enableda have systems trading to week a matches 200 from increase 700. offerover now we where weeks growing the to referred already have We or us with interact to customers for trend one than more acrossproducts our use of set consistent a providing By channel. Richard Ames Richard Group Product Product Product Group plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 10
The Channels Group is led by Nick Rust whose team is focused upon delivery across all parts of the business where customers consume Ladbrokes product. His team looks to ensure that new and existing product and services ‘work’ and are delivered to consistently enhance customer experience. With a remit which covers Digital as well UK as traditional Retail, Nick’s team is also responsible for promoting our ‘multi channel’ culture, whilst ultimately working to ensure that we optimise profits. Retail The Channels team has been instrumental in the delivery of our impressive machine and mobile numbers in 2011 as well as playing a vital role in looking to replicate our machines offer outside Retail, working to make our best performing slots games available online too. They are already working hard on improving further our Channels operational competitiveness, whilst pushing the next stage of machine Group developments as well as evolving Retail delivery through increased use of Self OTC activity has been resilient throughout Service Betting Terminals (SSBTs), 2011 with stake per slip broadly flat and improved use of video content and trialling amounts staked marginally up by 0.6%. new shop formats. Whilst the growth in stakes benefited in the year from fewer race meeting abandonments (68 meetings lost in Q4 2010 versus only two in Q4 2011), this was largely offset by the lack of a major football tournament. Amounts staked adjusting for these factors was down by 0.3%. OTC gross win declined by 5.8% to £392.8 million driven by a decline in gross win margin and the lack of a major football Nick Rust tournament in the year (the World Cup in Channels Group 2010 generated gross win of £15.3 million). The gross win margin of 15.6% was 1.1 percentage points lower than 2010 and 0.9 percentage points lower than the five year margin average. This was as a result of comparatively poor football results in Q4 2011 and a low horse margin due to smaller field sizes, a lower over-round per runner and a higher than average proportion of winning favourites. OTC net revenue decline was 5.9% with OTC free bets increasing by 1.3% or £0.1 million in 2011. We have significantly improved our machine performance in 2011, building upon the strong operational improvements made in H2 2010. We completed the rollout of the new Global Draw terminals to all shops in the retail estate in May 2011, minimising both the length and impact of any adoption lag. The 2011 gross win of £360.9 million was 19.2% ahead of 2010 with momentum evident in the H2 uplift of 23.2%. Gross win per machine week grew to £860 in 2011 (2010: £730), an increase of 17.8%. In 2011 there were on average 8,050 machines in the estate versus 7,953 in 2010. At 31 December 2011 there were 8,128 machines. We expect to continue our progress in 2012 through the increasing use of yield management techniques, further The extension of Odds On will help us to personalise improvements to content from additional exclusive games launches and the growing the machines offer, enabling us to tailor menus, ability to personalise our machines offer, promotions and messages to customers. with the planned rollout of Odds On to machines scheduled for H2 2012. Business review
% % ear ear Y Y change on year change on year
£m £m 4.8 37.5 2010 2010 (1.8) (33.3) 48.1 (6.7) 31.3 19.8 (16.8) 56.0 (26.5) (16.6) 143.0 22.7 ear ended ear ended Y Y 31 December
31 December
£m £m 6.6 2011 (7.4) 2011 (2.4) 44.9 37.5 (30.9) 175.5 Y Y 31 December ear ended 31 December ear ended (1) (1) Before non-trading items. Before non-trading items. Spain Spain Operating loss (1) includes 2011 performancefor The Spain in our associatedwith startcosts up Aragon in into Madrid beyond expansion the commenced at trading where year, the in trading begin to expect We April. of end 2012. H1 during Navarra and Valencia both be to continues economy Spanish The performancedifficult and been also has national a of introduction the by impacted on introduced was which ban smoking challenging the Despite January 2 2011. market Sportiumthe remains market, in staked Amounts Madrid. in leader the and year the in 8.1% grew Madrid margin win gross a businessgenerated 18.4%. of 169 were there December 2011 31 At 91 (2010: Aragon) 64 Madrid, corners(105 (Madrid standaloneshops 18 and corners) shops). 15 (2010: only) Net revenue Betting tax profit Gross Operating costs Operating profit (1) business Belgium performance The the of a by driven beenpredominantly has tax turnover a from tax regime in change was tax. This profits gross 15% a to Flanders in January 1 2011 from introduced April 1 Brussels from in and Wallonia and to passed on fully was change This 2011. amountsseen have we and customers the throughout steadily increase staked net decreasein expected an with year in decline the offset by than more revenue increased 2011 in tax.betting Grossprofit million. £6.2 by by year the in up were costs Operating increase an by driven was This million. £4.4 commission higher and costs content in independentshop our to basedpayments of impact positive the managersfollowing tax change. the 37.5% increased 2011 for profit Operating million. £6.6 to 282 were there December 2011 31 At December 2010. 31 at 288 versus shops Belgium Belgium Belgium Amounts staked
% ear Y change on year
£m 4.9 16.3 2010 (7.4) (6.8) 75.0 0.9 79.9 77.7 1.9 1.9 10.9 (15.6) (59.4) (4.5) 556.6 7.5 121.4 22.9 678.0 10.3 ear ended Y 31 December
£m 5.7 9.2 2011 (7.9) 75.7 81.4 79.2 (62.1) 598.3 149.2 747.5 Y within European Retail Retail European within 31 December ear ended (1) (1)
staked OTC amounts staked Machines amounts Machines win gross Before non-trading items. Gross win Gross Net revenue Betting tax Operating costs Operating profit (1) continued have staked amounts OTC 5.3%) (H1: 7.5% up Ireland, in grow to extremely and economy tough a despite of Republic the in market competitive particular. in Ireland increasedby Ireland in win gross Total and machines with million £81.4 to 1.9% year respectively 0.9% and 16.3% up OTC of margin win gross OTC The year. on behind percentagepoints 0.8 was 12.7% affected horsemargins tough with 2010 H1. in festivals major the by predominantly downturn economiccurrent the with Faced and competition local on focused have we the in share market increase to drive a maintaining as well as Ireland, of Republic whole the across costs on control tight a £62.1 of costs Operating estate. Irish driven 2010 on 4.5% up were million new 10 of acquisition the by primarily year. startthe the of at shops shops 213 were there December 2011 31 At of Republic the in 208) December 2010: (31 December 2010: (31 shops 79 and Ireland we year, Northernthe During in Ireland. 78) and 10 acquired shops, new openedtwo six. closed Ireland Ireland – – Amounts staked win – OTC gross – 11 Operating profit Operating declined by £0.5 million or 3.6% to to 3.6% or million £0.5 by declined our comprises Retail European million. £13.4 Spain. and Belgium Ireland, in operations below. detail more in discussed are These European Retail
% ear Y change on year
£m 3.8 (36.8) 2010 (54.6) (28.9) (61.2) 6.0 409.2 (5.9) 256.0 16.6 665.2 2.7 149.1 2.1 417.0 (5.8) 302.8 19.2 719.8 4.7 (458.7) (3.7) ear ended 2,461.6 0.6 9,218.5 13.7 Y 11,680.1 11.0 31 December 31 December
£m 2.4 2011 (57.5) (70.4) 384.9 298.4 683.3 152.3 392.8 360.9 753.7 (475.9) 2,477.3 Y 12,960.1 10,482.8 31 December ear ended (2)
(1) mounts staked mounts evenue evenue of amounts staked and £7.1 million grossof amountsof staked and £7.1 million £10.3 amountsof (2010: win2011 in stakedand £6.5 million grossof win). G OTC net r Machines net r Machines Machines a OTC gr win gross OTC amounts OTC amounts staked reyhoundmillion tracks account for £11.0 Before non-trading items. Fair value adjustments, free bets and VAT. Despite a higher VAT rate, net revenue from revenue net rate, VAT higher a Despite 16.6%. grew machines the in million £17.2 grew costs Operating Costs 3.7%. of rise a million, £475.9 to year of impact the for allowing 2.4% up were benefited 2010 whilst openings shop new recoveryof one-off VAT a additional from underlying this, for Adjusting million. £6.7 million, £4.3 or 0.9% only up were costs discipline, consistent demonstrating headwinds. cost despite 7% a despite beenachieved has This whichhours opening shop total in increase part as of 2011 across beenextended have competitiveness drive to plan overall our share. market and items non-trading before profit Operating adjusting (7.0% 2.1% up was year the for million. £152.3 at credit) VAT 2010 for 2,127 were there December 2011 31 At Great in 2,098) December 2010: (31 shops new opened50 we year, the During Britain. are we 2012 In 21. closed and shops openings.60 for planning (3) Operating costs Operating profit (1) (2) Net revenue tax profits Gross income Associate – – – win Gross Adjustments to GW – Amounts staked – oss win UK Retail – plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 12
driven by a lower gross win margin which was down 0.5 percentage points to 6.0% due to weaker horse and football margins, particularly in Q4. Amounts staked grew 6.4% for the year as a whole, with strong progression in H2 after the commencement of increased investment in a new Digital marketing campaign, which included new TV advertising to support the brand. Digital Amounts staked, 0.6% down in H1, grew Telephone 6.4% in Q3 and 22.2% in Q4 (41% up for UK only). Growth in sportsbook actives has shown a similar pattern, up 11.2% for the year, but 24.1% in Q4. Our investment during the year in a new pricing and trading platform enabled us to offer significantly more Bet in Play markets. The number of football events traded per week reached over 700 in October. We will grow our Bet in Play offering further in 2012 supported by the launch of the new online sportsbook in Q1. Bet in Play amounts staked grew 13.4% in the year, 19.8% in H2 and now represent 49% of non-racing Year ended Year ended Year activity (2010: 42%). 31 December 31 December on year In spite of the increased popularity of the 2011 2010 change Casino net revenue grew 2.9% with active internet and mobile, telephone betting Digital £m £m % players growing 14.4% driven primarily by remains an important part of a broad Net revenue H2 marketing campaigns including a free service offering, giving customers more – Sportsbook 61.7 65.1 (5.2) spins offer. Yield per customer declined ways to bet with Ladbrokes. – Casino 56.9 55.3 2.9 10.2% vs. 2010 due to an increase in lower Difficult trading in the year, driven – Poker 14.2 18.8 (24.5) yielding actives together with volatility in – Bingo 14.0 13.7 2.2 particularly by football results in H1, meant contributions from higher value customers. – Games 16.6 16.5 0.6 the Core Telephone Betting business has Net revenue 163.4 169.4 (3.5) Poker net revenue fell by 24.5% to struggled in 2011. Net revenue was down Betting tax (0.4) – n/a £14.2 million as the market place remains 41.4% or £6.7 million. This shortfall was Operating costs (108.0) (106.7) (1.2) challenging. Active players declined 16.2% partially offset by a reduction in operating Operating profit(1) 55.0 62.7 (12.3) with yield falling by 10.5%. We will be costs as we continue to rationalise the call reviewing our poker offer in 2012, with a centre. The overall loss for the year was (1) Before non-trading items and amortisation view to improving our competitive position £4.0 million. of £2.6 million (2010: £nil) in respect of in what is a tough market. customer relationships. Year ended Year ended Year Bingo net revenue grew 2.2% to £14.0 31 December 31 December on year 2011 has been a year of transition for 2011 2010 change million with active players declining 7.1% the Digital business. Throughout the year Telephone £m £m % offset by a 9.3% increase in yield supported we have been working towards developing Amounts staked 276.5 271.1 2.0 by a new customer loyalty scheme. a more competitive offer through increased Net revenue 9.5 16.2 (41.4) investment in technology, Digital marketing Games net revenue increased by 0.6% with Gross profits tax (1.4) (2.5) 44.0 and the delivery of broader and better active players growing 5.0% driven in H2 Operating costs (12.1) (14.1) 14.2 content through new and existing by new games content including Rainbow Operating loss(1) (4.0) (0.4) n/a supplier arrangements. Riches and Monopoly. Operating loss(1) from High Rollers for the year Digital net revenue fell by £6.0 million was £3.2 million (2010: £5.0 million profit). (3.5%) to £163.4 million (2010 included £6.8 million from the World Cup) with (1) Before non-trading items. operating profit down 12.3% at £55.0 Mobile million. This has been driven by the continued decline of poker and a weak sportsbook margin, particularly in Q4 Mobile continues to grow strongly with which was affected by a high proportion revenue growth up 174% to £15.6 million – of winning favourites in horseracing and sportsbook: £10.5 million (up 144%) and generally unfavourable football results. casino: £5.1 million (up 264%). Overall 22% Active players grew by 9.9% driven by of Digital players transacted through growth in sportsbook and casino being mobile in 2011, with a third of sportsbook partially offset by a decline in poker and customers using mobile in H2 (FY 2010: bingo. Sign-ups have increased by 11.0% 12%). Mobile is a key growth area in the with strong H2 growth supported by overall digital market and we will continue increased investment in Digital marketing, to focus on improving our customer offer, including a new TV campaign which with more apps, more casino games and started in August. a new mobile platform all scheduled for H1 2012. Costs were up 1.2% for the full year, with H2 costs up 6.2%, reflecting the increase in marketing investment year on year after the start of the new campaign. Digital operating profit overall was £7.7 million (12.3%) below 2010 at £55.0 million. Sportsbook net revenue of £61.7 million was 5.2% behind 2010 (5.8% ahead adjusting for £6.8 million World Cup revenue in 2010). This decline was largely Business review The Government is reviewing the current the reviewing is Government The regulatorytaxarrangements and for detail Furtheroperators. gambling remote the forthcoming in be may plans its on fully engage will Ladbrokes Budget. 2012 recognises it ensure to Government with importanceregulationtax and the that makingmerely than rather together, work by businesses uncompetitive regulated those to commercialadvantage proving regulatory net. the outside sitting Horseracing of Funding Future The and cooperationbetweenracing Closer horseracingensuring to vital is betting shopsbetting the of feature core a remains led data a of lack The future. the for planning race and fixture to approach to failing are industries both means racing. from returns their optimise with regularly meeting is Ladbrokes racecourse Government representatives, progressa parties to interested and partnershipremoves renewed that discussions annual the from Government will We racing. of funding the around long-term a secure to work to continue partnershipbetting and betweenracing racing possiblebest the delivers that andcustomers, shop betting to product for funding sustainablelong-term delivers industry. racing the Taxation and Regulation Regulation and Taxation Operators Gambling Remote of 13
The Government is expected to confirm in confirm to expected is Government The Machine of rate the budget 2012 March the machine tax on new a is This GamesDuty. Amusementreplace will which revenues payable currently LicenceDuty, Machine payable is which VAT and machine, each on gambling A revenues. machine all on a to pointed exercise industry modelling sector single no ensuring as 15% of rate move. the penalisedby was Machine Games Duty Games Machine There are a number of tax and regulatorytax and of number a are There by examined mattersbeing currently significant have which Government industry. betting the for implications GamesDuty, Machine Theseinclude remote of regulation taxation and the future the and operators gambling horseracing. of funding role lead a play to continues Ladbrokes and Government with engaging in industry’s the ensure stakeholdersto of terms in economy the to contribution fully is growth economic and taxes jobs, tax any of impact the that and appreciated understood. fully regulatory are changes or highly a industrybetting British is The billion £1 generatingindustry taxed – only retaining and UK, the in taxes in around employs It profits. in £600million shopsbetting 8,500 in people40,000 Britain. throughout A Sustainable Fiscal Fiscal Sustainable A Regulatory and Framework plc Ladbrokes 2011 Accounts and Report Annual Regulation Ladbrokes plc Annual Report and Accounts 2011 14 Financial review
Year ended Year ended 31 December 31 December Continuing operations 2011 2010 Revenue 976.1 980.1 Profit before net finance expense, tax and non-trading items 187.7 207.3 Net finance expense (32.8) (14.0) Profit before tax and non-trading items 154.9 193.3 Non-trading items before tax (20.3) (46.2) Profit before tax 134.6 147.1 Income tax expense (16.8) (33.6) Income tax settlement credit – 261.9 Profit after tax – continuing 117.8 375.4 Profit/(loss) after tax – discontinued 0.4 (27.1) Ian A Bull FCMA Profit for the year 118.2 348.3 Chief Financial Officer
Trading summary – A reconciliation of gross win to revenue for Continuing operations continuing operations is shown below. Year ended Year ended Revenue 31 December 31 December Revenue from continuing operations 2011 2010 £m £m decreased by £4.0 million (0.4%) to £976.1 million (2010: £980.1 million). Gross win 1,078.5 1,059.3 (1) Excluding High Rollers activity, revenue Adjustments (41.3) (33.5) increased by £3.7 million (0.4%) to VAT (61.1) (45.7) £980.3 million (2010: £976.6 million) Revenue 976.1 980.1 mainly as a result of improved machines (1) performance in the UK Retail estate. Includes free bets, promotions, bonuses and other fair value adjustments.
Revenue recognition – reconciliation to The table below sets out the gross win and gross win net revenue for each division. The Group reports the gains and losses Year ended Year ended on all betting and gaming activities as 31 December 2011 31 December 2010 revenue in accordance with IAS 39, Gross Net Gross Net which is measured at the fair value of the win revenue win revenue consideration received or receivable from £m £m £m £m customers less fair value adjustment for UK Retail 753.7 683.3 719.8 665.2 free bets, promotions and bonuses. Gross European Retail 126.3 124.1 128.0 125.8 win includes free bets, promotions and bonuses, as well as VAT payable on Digital 192.7 163.4 192.5 169.4 machine income. Core Telephone Betting 9.9 9.5 16.4 16.2 High Rollers (4.1) (4.2) 2.6 3.5 Total 1,078.5 976.1 1,059.3 980.1 Business review Cash flow, capital expenditure, expenditure, capital flow, Cash facilities banking and borrowings was operations by generated Cash expense finance net After million. £240.4 paid taxes income million, £36.0 of paid capital on million £77.3 and million £18.1 of cash additions, intangible and expenditure dividend Post million. £109.0 was inflow outflows other and million £69.0 of payment million £38.1 of flow cash free million, £1.9 of year. the in generated was borrowings gross December 2011, 31 At short-term and cashless million £480.3 of resulted has million £26.4 of deposits (2010: million £453.9 of debt in a net million). £492.0 During the year the Group signed new five year facilities with its relationship banks totalling £540 million which will existing the replace These in 2016. mature million £560 arrangementstotal which 2013. in mature to beendue and had million further a £225 has The Group 2017. in matures bond which Earnings per share (EPS) – Group – (EPS) share per Earnings Underlying items, non-trading (before EPS benefit the excluding and Rollers High corporationthe tax settlementin the of to period)increased 7.7% comparative reflecting pence), 14.2 (2010: pence 15.3 operations discontinued lossesfrom the 2010. in Total decreased items) non-trading (before EPS pence), 45.4 (2010: pence 15.0 to 67.0% corporation the of benefit the reflecting the (including EPS 2010. in settlement tax pence 13.0 was items) non-trading of impact EPS diluted Fully pence). 38.5 (2010: items) non-trading of impact the (including after pence) 38.4 (2010: pence 12.9 was options. share outstanding for adjustment Earnings per share (EPS) – (EPS) share per Earnings operations Continuing Underlying items, non-trading (before EPS benefit the excluding and Rollers High corporationthe tax settlement in the of 0.7% period)increased by comparative reflecting pence), 15.2 (2010: pence 15.3 to an expense and finance net lower a corporationtax. of rate improved Total decreased items) non-trading (before EPS pence), 46.4 (2010: pence 15.0 to 67.7% corporation the of benefit the reflecting (including EPS tax settlement2010. in was items) non-trading of the impact diluted Fully pence). 41.5 (2010: pence 13.0 non-trading of impact the (including EPS pence) 41.4 (2010: pence 12.9 was items) outstanding for adjustment after options. share Dividend Dividend final announcesa today Board The taking share perpence 3.90 of dividend perpence 7.80 to dividend year the full year. last over 2.6% of increase an share, times 2.0 approximately is dividend This earningsexcluding underlying by covered Rollers. High of impact the April 26 on payable be will dividend The on register the shareholders on to 2012 2012. March 16 15 Taxation the progressin made has Group The taxhas matters and historic of resolution required. longer no released tax provisions for taxationcharge a to led has This non-trading before operations continuing anrepresenting million, £18.4 of items 18.4%, (2010: 11.9% of taxeffective rate corporation 2010 the excluding taxsettlement described below). million £1.6 of credit was a tax There 2011 in items to non-trading relation in £2.0 million). (2010: corporationtax rate the Assuming announcedare previously reductions for 13% is guidance P&L our enacted, thereafter. level this at remain will 2012 and be to anticipated is taxcash rate The 13%. circa settlement a reached Group the 2010 In recognition the in resulted which HMRC with £261.9 a of statement income 2010 the in years.prior to relation taxin credit million Non-trading items before tax before items Non-trading non-trading continuing of million £20.3 impairment an tax include before items million, £10.9 of Retail European in charge shops of closure the on loss million £1.9 and UK assetswithin of disposal and relating million £2.6 and Retail European Additionally, costs. transaction to corporate were restructuringcosts of million £4.4 Theserelate Group. the incurredacross to Group the re-organisation of to the cross-channel customer and new a structure. centric Group’s the of termination the Following the 2010, April in swaps rate interest lossesdeferred of million £0.5 remaining income the to beenrecycled have in equity expense. finance non-trading a as statement The decrease in trading profits as well as well as profits trading decreasein The the to due expense, finance overall a higher resulted has 2010, in one-offrebate interest continuing for profit decreasein 19.9% a in non-trading tax and before operations million). £193.3 (2010: million £154.9 to items Profit before tax before Profit Finance expense expense Finance non-trading before expense finance net The million £1.2 was million £32.8 of items million) £34.0 (2010: year last than lower debt. net average lower reflecting mainly of income interest also was there 2010, In rebate interest an of respect in million £20.0 settlement. tax HMRC the following Amortisation of customer customer of Amortisation relationships amortisation million £2.6 a was there 2011 In customer of respect in Digital within charge £nil). (2010: relationships Corporate costs Corporate costscorporate items, non-trading Before £23.2million to (0.9%) million £0.2 rose largelyincrease The million). £23.0 (2010: to non-cash reflects relating costs schemes incentive share long-term elsewhere. costs lower partially offset by Profit before net finance expense, expense, finance net before Profit items non-trading and tax expense, finance tax net before Profit decreased by items non-trading and million £187.7 to (9.5%) million £19.6 million). (2010: £207.3 profit activity, Rollers High Excluding tax, non-expense, finance net before customeramortisation and of items trading million £8.8 decreased by relationships £202.3 (2010: million £193.5 to (4.3%) machines improved the reflecting million) and OTC performanceweaker offset by one-off sportsbooka and VAT margins 2010. in credit plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 16 Risks and how we manage them
Risk governance Risk management Risk and responsibilities process methodology
The Board has overall The key risks are assessed The Risk Committee considers responsibility for risk by the Risk Committee the following impact areas in management as an integral using a bespoke risk assessing risks: part of strategic planning methodology and reviewed by the Executive Committee – Legal and regulatory The Executive Committee – Betting and gaming compliance (made up of executive directors At each Board meeting any – Financial management and and senior executives) makes changes to key risks are bookmaking recommendations on the overall identified and all key risks are – Reputation approach to risk management reviewed formally by the Board – Technology and identifies the key risks. twice yearly – Data integrity and fraud protection The Executive Committee is – Customers assisted by a Risk Committee The risk management processes – Employees made up of Group and divisional are reviewed by the Audit senior executives Committee annually For each risk identified within these impact areas the likelihood, The Audit Committee is Risk management forms an consequence, mitigating controls responsible for assessing the integral part of the Group’s and actions, risk owner and scope and effectiveness of internal control, planning and forecast residual risk are identified the systems established to approval process by the Risk Committee identify, assess, manage and monitor risks The overall risk level is quantified and assessed to ensure that Each key risk is assigned the appropriate mitigation Executive Committee measures and future actions member ownership have been identified
Strategy General business risks include: Achieving the strategy outlined in the Chief Executive’s review will Marketplace – changes in the economic environment, changes deliver long-term growth for the benefit of all stakeholders whilst in consumer leisure spend. minimising some of the key risks that Ladbrokes faces. Failure to Financial – availability of debt financing and costs of borrowing, achieve the strategy has the potential to affect the business and taxation, pension fund liability. its performance. How strategy is established and the associated Operational – recruitment and retention of key talent, execution risks are managed are described in Corporate governance. of international expansion. Principal risks and uncertainties There are general business risks faced by Ladbrokes that are comparable to those faced by most other businesses. In addition, there are more specific risks which are either unique to Ladbrokes or apply to the industry it operates in. The risks outlined here are those principal risks and uncertainties that are material to the Group. They do not include all those associated with Group activities and are not set out in any order of priority. Ladbrokes plc Annual Report and Accounts 2011 17
Specific risks that are material to Ladbrokes are: Business review
Risks Mitigation
Marketplace
Competition Ladbrokes faces competition primarily from other land based Ladbrokes’ performance and competitive position are continuously bookmakers, online betting exchanges and other online gambling monitored and, where appropriate, changes are instituted, including operators. In particular, the online gambling market is characterised in relation to marketing, product development, yield management, by intense and substantial competition and by relatively low cost control and investment. Acquisition opportunities, with a view to barriers to entry for new participants. In addition, Ladbrokes faces taking advantage of market consolidation, are continuously evaluated. competition from market participants who benefit from greater liquidity as a result of accepting bets and wagers from jurisdictions in which Ladbrokes chooses not to operate (because of legal reasons or otherwise).
Betting and gaming industry
Taxes, laws, regulations and licensing Regulatory, legislative and fiscal regimes for betting and gaming Regulatory, legislative and fiscal developments in key markets are in key markets around the world can change, sometimes at short monitored closely (see page 13 for further details), allowing Ladbrokes notice. Such changes could benefit or have an adverse effect to assess and adapt quickly to changes in the environment and on Ladbrokes and additional costs might be incurred in order minimise risks to the business. Ladbrokes engages with its regulators to comply with any new laws or regulations. and the relevant trade organisations with regard to the betting and gaming regulatory framework and other issues of shared concern, such as problem gambling.
Increased cost of product Ladbrokes is subject to certain financing arrangements intended Ladbrokes engages with the relevant trade associations and the to support industries from which it profits. Examples are the principal bodies of sport and event industries with regard to sports horseracing and the voluntary greyhound racing levies which rights payments, including the statutory horseracing levy, animal respectively support the British horseracing and greyhound welfare and other issues. industries. In addition, Ladbrokes enters into contracts for the distribution of television pictures, audio and other data that are broadcast into Ladbrokes’ betting shops. A number of these are under negotiation at any one time.
Operational and bookmaking
Bookmaking Ladbrokes may experience significant losses as a result of a failure Ladbrokes’ core expertise is risk management and it has developed to determine accurately the odds in relation to any particular event the skills and systems to be able to offer a wide range of betting and/or any failure of its risk management processes. opportunities and accept large bets. There is in place a highly experienced trading team and risks are spread across a wide range of events. A bookmaker’s odds are determined so as to provide an average return to the bookmaker over a large number of events and therefore, over the long term, Ladbrokes’ gross win percentage has remained fairly constant.
Sporting schedules and cancellations There are certain high profile sporting events which attract In addition to gaming machines, Ladbrokes has a number significant betting activity e.g. the Grand National and the FIFA of alternative products to fill gaps in the schedules including Football World Cup. Cancellation or curtailment of such events, for virtual horseracing. example due to adverse weather conditions, or the failure of certain sporting teams to qualify for sporting events, can adversely impact Ladbrokes’ results.
High fixed cost base Ladbrokes has a relatively high fixed cost base as a proportion of Business re-engineering initiatives have been implemented to reduce its total costs, consisting primarily of employee and rental costs the cost base. Structural contingency plans have been put in place associated with its betting shop estate. This means that falls in and where possible central facilities have been co-located. The future revenue could have a significantly adverse effect on Ladbrokes’ strategy to increase online revenues will reduce the proportion of the profitability unless the Group reduces its costs substantially in Company’s fixed costs. the short to medium term. Ladbrokes plc Annual Report and Accounts 2011 18 Risks and how we manage them continued
Risks Mitigation
Operational and bookmaking
Loss of key locations Ladbrokes has a number of key sites, in particular Imperial House at Existing business continuity plans and arrangements for offsite Rayners Lane in London, its head office and main operations centre, data storage, alternate system availability and remote working for and its premises in Europort in Gibraltar from where online betting key operational and senior management continue to be developed and gaming operations are based. as part of an ongoing process.
Information technology and communications
Technology changes The market for online gambling products and services is Ladbrokes has invested and committed considerable resources into characterised by technological developments, new product and upgrading its existing technology, IT infrastructure, communication service introductions and evolving industry standards. Failure by systems and application systems, as well as developing and Ladbrokes to use leading technologies effectively, develop its acquiring new platforms. Rigorous testing regimes are utilised to technological expertise, enhance its products and services and ensure a continued high quality of product offerings and services improve the performance, features and reliability of its technology are maintained. and advanced information systems, could have a material adverse effect on its competitive position.
Technology failure Ladbrokes’ operations are highly dependent on technology Ladbrokes has a level of resilience in place which seeks to eliminate and advanced information systems and there is a risk that such single points of failure within key technology locations. technology or systems could fail. In particular, any damage to, or failure of online systems and servers, electronic point of sale systems and electronic display systems could result in interruptions to financial controls and customer service systems.
Data disclosure Ladbrokes processes sensitive personal customer data (including Security systems are deployed to protect transactional data. name, address, age, bank details and betting and gaming history) Sophisticated hardware and security mechanisms are used to as part of its business and therefore must comply with strict data ensure all sensitive and confidential data is fully encrypted. To protection and privacy laws in all jurisdictions in which the Group provide fail-safe integrity of all data, a series of storage systems are operates. Ladbrokes is exposed to the risk that this data could be used to replicate all data processed by online services. In respect wrongfully appropriated, lost or disclosed, or processed in breach of of fraud protection, an extensive programme of data monitoring is data protection regulation. This could also result in prosecutions and in place with both prevention and detection audit controls. the loss of the goodwill of its customers and deter new customers.
Failure in the supply chain Ladbrokes is dependent on a number of third parties for the Infrastructure suppliers, network and telecommunication suppliers operation of its business. The withdrawal or removal from the and application service providers are long-term partners in providing market of one or more of these major third party suppliers, an infrastructure which seeks to ensure the delivery of sophisticated or failure of third party suppliers to comply with contractual and high performance transaction processing systems. There is obligations could adversely affect Ladbrokes’ operations. continual communication with these suppliers and providers at an operating level and service level agreements have been established to maintain high service levels. The ongoing review of business continuity plans will include key supplier alternatives. Ladbrokes plc Annual Report and Accounts 2011 19
Putting customers at the heart of our business Fair Play – Corporate We are keen to drive brand loyalty and all that the brand stands for, including trust and integrity. It is important to provide our responsibility at Ladbrokes customers with an enjoyable, efficient, secure, fair and socially responsible service and all our employees are trained to support this commitment. To check our performance, we continually seek the views of our customers and encourage feedback on our employees and services. In 2011, we introduced a number of new KPIs to measure our performance, including a Net Promoter Score (NPS) to measure how likely our customers are to recommend us to others. Our performance is also checked through third party audits (e.g. mystery shopper surveys) and by monitoring customer complaints. During 2011 our mystery shopper scores averaged Business review 85.4% customer satisfaction. Furthermore, our customer loyalty card – Odds On – continues to grow with the total number of cards used in 2011 at 581,390 representing 39% of OTC turnover. Through Odds On we have given back to our customers over We are committed to being 4.3 million free bets, with just under a million of those in 2011. a leader of our sector Ensuring responsible gambling We continue to meet the regulatory requirements in all countries in responsible business where we are licensed to operate, including those of The Gambling Commission of Great Britain, the governments of Gibraltar, the practice. Maintaining a Republic of Ireland and Northern Ireland, South Africa and Denmark, the Belgium Gaming Commission and the regional reputation for fairness and governments in Spain. Furthermore, we continue to support integrity, strengthening The Gambling Commission of Great Britain’s three key licensing objectives to: our customer focus and keep crime out of gambling; achieving high levels of ensure gambling is conducted fairly and openly; and protect children and vulnerable people from being harmed employee engagement or exploited by gambling. are all vital to growing All relevant personnel are trained to meet our high standards and our performance is monitored on a continual basis by our our business. Compliance Director and the supporting Compliance Committee. Ladbrokes continues to work with its peers and national governments to improve responsible gambling behaviour across the industry. For many years we have supported the Association of Our Corporate Responsibility (CR) programmes are in line with British Bookmakers (ABB) and the Remote Gambling Association our broader business strategy. We embed CR principles into (RGA) in defining industry-wide standards and promoting our day-to-day operations, maintaining high ethical and socially responsible behaviour. responsible standards and remaining compliant with all relevant We ensure that our customers are well informed about our CR legislation. products, about problem gambling issues and, for our online Our Fair Play CR strategy is in place to uphold our position as customers, about their own gambling history. a responsible betting and gaming company. To us, this means We provide inherent protection to try to limit the possible financial protecting children and the vulnerable, tackling problem gambling impacts on our customers from excessive gambling e.g. daily and and maintaining integrity in everything we do. Our strategy is weekly deposit limits and appropriate customer due diligence. supported by the following priorities: We protect the young and the vulnerable through clear marketing keeping our customers satisfied and well informed across the standards, strict age limits, online age verification checks and channels through which we offer our products and services; self-exclusion arrangements. engaging proactively with relevant regulators and staying compliant wherever we operate; For most people, gambling is an enjoyable and harmless leisure pursuit. However, for a small number of people gambling can attracting the best people and sustaining high levels of become a behavioural problem. Ladbrokes has a responsibility to knowledge and motivation throughout our diverse workforce; help tackle problem gambling, understand its causes and promote keeping crime out of gambling and tackling fraud and preventing its treatment. We make our employees aware of the symptoms of bribery in rigorous, systematic ways; problem gambling and train them in how to respond. minimising health and safety risks to our employees, customers Ladbrokes was a founding member of the GREaT Foundation, and the general public from our business; supporting problem gambling research, education and treatment. reducing our environmental footprint and minimising the impact Through our membership of GREaT, we support a number of of future costs; charitable organisations including GamCare, the Gordon Moody maintaining good links with the communities in which we Association and the Central and North West London National operate through our day-to-day operations and community Problem Gambling Clinic. Richard Glynn remains a trustee of investment programme; and GREaT, a position he took up in 2010. A key role for GREaT is minimising the social, ethical and environmental risks to develop a national public education and awareness strategy, associated with our business partnerships, joint ventures as part of the overall prevention of problem gambling agenda. and product sourcing. The gambleaware website continues to be supported and the We monitor our performance through appropriate key logo or website address www.gambleaware.co.uk is carried on performance indicators (KPIs) reflecting each priority of our all our websites and advertising. CR strategy. Our progress has been good and remains aligned to our strategic aims. Ladbrokes plc Annual Report and Accounts 2011 20
Supporting our business with a strong workforce We have identified and implemented a number of energy efficiency Our people are our greatest asset. We aim to be an employer of initiatives during 2011 in support of our aim to reduce our UK choice for talented, passionate people. Over the past year we have carbon footprint by 21% by the end of 2013 compared with 2008 invested in the systems, processes and interventions needed to usage. This is equivalent to a saving of more than 11,000 tonnes make Ladbrokes a better place to work. Our strategic approach to of CO2. The majority of this saving will be made in the retail estate. increasing employee engagement is informed by the results of our All of our shop linear fluorescent lighting has been upgraded to recent and most comprehensive colleague opinion survey, which incorporate high frequency technology, which has helped to reduce gives a clear steer on the areas requiring priority action. These are: our total energy spend in 2011. We have also implemented our new direction and management; wellbeing; and career development, shop-fitting specification incorporating many of the new carbon performance and recognition. A robust action plan is in place to reduction technologies. As a result our new shops are 30% more address these priorities and quarterly updates are shared across efficient. So we are making steady progress. our business. We have also introduced an employee engagement In the past we worked hard to green our UK car fleet by offering performance indicator into our business reporting. qualifying drivers lower emission cars. Continuing this effort in To underpin this, we have focused on aligning our performance 2011, we provided Smarter Driving training to 59 of our employees, management approach across the Company. We started the year who achieved an average of 13.5% fuel reduction immediately with multiple performance management systems, with different after the training. rating scales and different ways of being assessed. These have now been aligned into one format to be used consistently across Contributing to society and being a good the business. corporate citizen We contribute positively to the societies in which we operate, In 2011 we also introduced our first cross-company talent through employment, payment of taxes, contributions to growth management process. This will ensure that we find the talent in the economy and supporting industries and by supporting our across the Company and support succession planning within the local communities. We recognise the links our employees have to top levels of the business. Actions and recommendations have their own communities and through Ladbrokes in the Community been put in place and the process will be completed on a twice Charitable Trust (LICCT) we support their activities by giving yearly basis. something back. LICCT has raised over £6.2 million for good We continued to offer learning and training opportunities through causes since it was established in 2003. The funds have been a variety of resources, including BS2000 (our integrated shop raised by employees all around the UK and Ireland. During 2011 computer system), the intranet and free workshops and workbooks. LICCT donated over £600,000 to charitable and community All these new systems support our values and together with the causes across the UK. restructure of the business, allow us to assess the capabilities In addition, Ladbrokes has donated over £931,000 to community required to be successful at Ladbrokes and to help more of our safety, citizenship and problem gambling charities. managers be successful sooner. A leader in our sector Providing a safe environment for our employees During 2011 we conducted an assessment of how we communicate and customers with our key investors and what they look for in our CR performance. Maintaining the wellbeing of our employees and visitors to Our findings confirmed that within our sector we are seen as a CR our premises is important to us. To ensure this, we aim for leader. For the ninth year in succession we were pronounced one best practice health, safety and security standards throughout of the leaders in our sector in the Dow Jones Sustainability Indexes all our operations and we support a proactive culture of risk (DJSI). We were also included in the FTSE4Good Indices with a score management. We also monitor and seek to minimise the of 91% relative to the Super Sector leader. financial impacts of health and safety related claims from across our business. Managing our issues The Chief Executive is ultimately responsible for CR matters One of the important risks to the health of our employees and our and is supported by the CR Team who provides an overview customers comes from breaches of security on our premises, and advisory function for the business. such as robbery and theft. We have invested heavily in CCTV which is installed across all of our UK retail estate, both to help Overall governance of CR is the responsibility of the Board. reduce the number of incidents and to help protect employees CR and governance issues are given full consideration by the and customers. Board when defining Group strategy. During 2011 we continued working with the Safe Bet Alliance CR risks are regularly reviewed by the business and are to develop and issue a Voluntary Code of Safety & Security for considered by the Board, as appropriate, as a part of the Bookmakers. Our joint efforts were rewarded with a Tilley Award corporate risk review process (see page 16). CR matters are for bringing down the number of robberies in London. The Safe reported to the Board on a regular basis (as a minimum quarterly) Bet Alliance is a collaborative initiative which includes ABB, thus forming part of the Board calendar, along with tailored Metropolitan Police, Local Authorities Coordinators of Regulatory director briefings and, where appropriate, training. Services (LACORS) and Community Union. The Code sets out The Board reviews the key CR issues and agrees the annual CR a single national standard for betting shop safety and security. strategy. Board members are provided with adequate background Ladbrokes was the first bookmaker to have developed a Primary information to support their decision making. The Remuneration Authority relationship in the UK under the scheme for better Committee also takes account of CR issues when determining regulation. Liverpool City Council continues to act as a single point executive remuneration and benefits. of contact – a Primary Authority – for all health and safety issues CR governance and management processes are subject to affecting Ladbrokes shops all over the UK. internal audit and the reporting process is externally reviewed Our health and safety record in 2011 was good. We had no by our CR advisors, Acona Partners LLP. reportable fatalities or major injuries across our business and, following 128 health, safety and environment inspector visits in the Our full CR report UK alone, there were no enforcement notices or prosecutions for For further details of our CR policies and performance, health, safety or environmental offences. please refer to our 2011 CR Report which is available at www.ladbrokesplc.com. The website also contains CR reports Providing a greener future from previous years together with our CR policies. We seek to minimise the impact of increasing environmental Further information on our approach to responsible business costs of our operations. This year we have made an effort to is included in the Directors’ report. communicate more regularly with our employees on how they can contribute to minimising our environmental footprint. Through our employee magazine, The Score, and other channels we have carried multiple stories to help explain ‘the bigger picture’ and what individuals can do. Ladbrokes plc Annual Report and Accounts 2011 21 Corporate responsibility – Highlights of the year 2011 Business review
Awards/activities Highlights
Brand Recognition Maintained our position as the leading betting brand in the UK with 35% of adults spontaneously citing Ladbrokes before any other brand. The nearest competitor was at 20%. ClubLadbrokes 38% of our workforce actively takes advantage of the Ladbrokes employee benefits scheme www.clubladbrokes.co.uk. Colleague Opinion Survey Introduced a robust framework for measuring employee engagement, including a rolling programme of Colleague Opinion surveys. In May, more than 9,000 people (61%) shared their views. The Employee Engagement Index, which was based on eight results within the survey, came in at 65% as against a UK national norm of 75%. CRC Energy Efficiency Scheme Achieved a position of 241 out of 2,103 participating organisations in the CRC (Carbon Reduction Commitment), the UK’s mandatory climate change and energy scheme. Carbon Trust Standard Achieved the Carbon Trust Standard in September in recognition of our five year carbon plan to reduce our Carbon Footprint by 21% by 2013. Dow Jones Sustainability Indices Included again in the Dow Jones Sustainability Indices with an overall score of 77%. We are one of only three global betting and gaming companies to be included. Employee Benefits Awards 2011 Finalist for Most Effective Motivation or Incentive Strategy. FTSE4Good Indices Remained in FTSE4Good. We have been members since its foundation in 2002. GREaT Foundation Founder member of the GREaT Foundation funding research, education and treatment of problem gambling. Gold Level Sponsor, donating £834,000. HR Excellence Awards 2011 Finalist for the most Outstanding Employee Engagement Strategy. Ladbrokes Fanclub Launched Ladbrokes Fanclub, an online, one-stop resource for our employees to show recognition across the business. Mystery Shopper Scores Average Mystery Shopper score for 2011 was 85.4%. The result is high despite having made the questionnaire more challenging. Introduced Mystery Shopping on machines for the first time. Primary Authority for Better The first bookmaker to develop a Primary Authority relationship in the UK. Liverpool City Health & Safety (H&S) Regulation Council continues to act as a single point of contact – a Primary Authority – for all health and safety issues affecting Ladbrokes shops all over the UK. Tilley Award for the Received the Tilley Award for the work of the Safe Bet Alliance and our efforts to reduce the Safe Bet Alliance number of robberies across London. Ladbrokes plc Annual Report and Accounts 2011 22
01 02
03 04
05 06
07 08
09 10
Board Committees As at 16 February 2012
Audit Committee Darren M Shapland (Chaired by) John M Kelly C Pippa Wicks Nomination Committee Peter Erskine (Chaired by) John F Jarvis John M Kelly Christopher J Rodrigues Remuneration Committee Christopher J Rodrigues (Chaired by) Sly Bailey Peter Erskine John F Jarvis Ladbrokes plc Annual Report and Accounts 2011 23
Governance 05 John M Kelly OBE Independent Non-Executive Director & Senior Board of directors Independent Director John was appointed a non-executive director and Senior Independent Director in September 2010. He was founder and Chief Executive of the Gala Coral Group having led a management buy-in from Bass Plc in 1997 and subsequently became Chairman until 2009. Prior to founding Gala Coral he was a Board member at Mecca Leisure Limited and was a Board member of The Prince of Wales Business in the Community Charity from 2003 to 2010. He is Chairman of Trainline.com, Novus Leisure Limited and Kings Park Capital LLP Advisory Board as well as being a co-founder of 01 Peter Erskine Dunelmia Partners LLP. Age 64. Chairman Peter was appointed Chairman and a non-executive director in 06 Sly Bailey 2009. He was Chairman and Chief Executive of O2 until 2008 and Independent Non-Executive Director is a non-executive director of Telefónica. Prior to this he held Sly was appointed a non-executive director in 2009. Since 2003 senior positions with BT (from 1993 to 2001), UNITEL and Mars. she has been Chief Executive of Trinity Mirror plc. From 1989 to He is a member of the Telecoms and IT Advisory Board of Apax 2003, she held senior positions with IPC Media Limited including Private Equity and is Chairman of the Advisory Board on Strategy Chief Executive from 1999. Previously she was senior independent at Henley Business School, Reading University. Age 60. director and remuneration committee Chairman of EMI plc and a non-executive director of Littlewoods Plc. She is a non-executive 02 Richard I Glynn director and Chairman of the remuneration committee of the Press Association, President of NewstrAid and a governor of the Chief Executive Governance Richard was appointed Chief Executive and a director in English National Ballet School. Age 50. April 2010. He was previously Chairman of Sporting Index from 2008 to 2010, having been Chief Executive from 2001. Prior to 07 John F Jarvis CVO, CBE this he was Group Managing Director of WCT and CEO of Independent Non-Executive Director Megalomedia PLC. In 2009 he founded Alinsky Partners where he John was appointed a non-executive director in 2006. He is a worked with management, financial institutions and investors to non-executive director of Apollo Genting London Limited, effect transformation. From 2000 to 2010, he served as a special non-executive Chairman of Sandown Park and a member of trustee of Great Ormond Street Hospital Children’s Charity and The Jockey Club. Until October 2011, he was Chairman of Jarvis from 2008 to 2010 was a trustee of the Child Health Research Hotels Limited. He was previously a non-executive director of Appeal Trust of the UCL Institute of Child Health. From June 2010 United Racecourses and non-executive Chairman of Sporting to September 2011, he was a member of the Bookmakers’ Index. From 1979 to 1990, he was an executive director of the Committee of the Horserace Betting Levy Board. He is currently Company, then named Ladbroke Group plc, and Chairman of a trustee of the GREaT Foundation. Age 47. Hilton International from 1987 to 1990. Age 69.
03 Richard J Ames 08 Christopher J Rodrigues CBE Director, Product Independent Non-Executive Director Richard was appointed a director in 2009. A business school Christopher was appointed a non-executive director in 2003. graduate, he joined Ladbrokes in 2005 as Retail Commercial He is currently Chairman of International Personal Finance plc Director. He was appointed Managing Director, UK Retail in 2006 and Chairman of the national tourism body, VisitBritain. Until 2006 and assumed responsibility for Ireland in 2008. From August 2010 he was President and Chief Executive of Visa International. Prior until July 2011, he was Managing Director, Consumer Operations. to this he was Group Chief Executive of Bradford & Bingley plc, In July 2011, he was appointed Director, Product under Group Chief Executive of Thomas Cook and also held several Ladbrokes’ new organisation structure. He previously held senior senior management positions with American Express. He is a management positions with Dixons and Asda. He is currently a Steward of Henley Royal Regatta, Chairman of the Windsor director of the Association of British Bookmakers. Age 42. Leadership Trust and Chairman of the Almeida Theatre. Age 62.
04 Ian A Bull FCMA 09 Darren M Shapland FCCA Chief Financial Officer Independent Non-Executive Director Ian was appointed Chief Financial Officer and a director on Darren was appointed a non-executive director in 2009. 4 July 2011. From January 2006 to June 2011, he was Group He is Chairman of Sainsbury’s Bank plc, having been Group Finance Director of Greene King plc. Between 1997 and 2005, he Development Director from July 2010 to July 2011 and Chief held a number of senior positions with BT Group, including CEO, Financial Officer from 2005 to 2010 of J Sainsbury plc. He is also BT Retail Enterprises and CFO, BT Retail. Prior to this he was a non-executive director of Carpetright plc, having been Group with Buena Vista Home Entertainment (Walt Disney Group) from Finance Director from 2002 to 2005. He was Finance Director of 1993 to 1997 and Whitbread plc from 1990 to 1993. Age 51. Superdrug Stores plc from 2000 to 2002. Prior to this he held a number of senior financial and operational management positions with Arcadia Group plc between 1988 and 2000. Age 45.
10 C Pippa Wicks Independent Non-Executive Director Pippa was appointed a non-executive director in 2004. She joined AlixPartners LLP, London, the specialist performance improvement and turnaround firm as a Managing Director in 2003. She is also a non-executive director of Hays plc. She previously held senior positions with Pearson plc and was Group Finance Director of Courtaulds Textiles plc between 1993 and 1999. She was a non-executive director of Arcadia Group plc. Age 49. Ladbrokes plc Annual Report and Accounts 2011 24
Governance continued Corporate governance
The Board continues to be committed to high standards of strategic and annual profit plans, key public information releases corporate governance. The Board strives to provide the right (e.g. financial statements), dividends, major acquisitions and leadership, strategic oversight and control environment to disposals, material contracts, treasury and other Group policies. produce and sustain delivery of value to all of the Company’s The section “Internal control and risk management systems” on shareholders. The Board applies integrity, principles of good pages 26 and 27 contains further information on how the corporate governance and accountability throughout its activities Board operates. and each director brings independence of character and The Company seeks to ensure that the Board is supplied with judgement to the role. All of the members of the Board are appropriate and timely information to enable it to discharge its individually and collectively aware of their responsibilities to the duties. The Board requests additional information or variations Company’s stakeholders. to regular reporting as it requires. A procedure exists for directors The following describes the Board’s approach to corporate to seek independent professional advice in the furtherance of their governance and how the UK Corporate Governance Code has duties, if necessary. All directors have access to the advice and been applied. services of the Company Secretary. All directors receive an induction on joining the Board. A combination Compliance statement of tailored Board and committee agenda items and other Board In 2011 the Company was subject to and complied with all of the activities, including briefing sessions, assist the directors in provisions of the UK Corporate Governance Code published in continually updating their skills and the knowledge and familiarity 2010 by the Financial Reporting Council and which is available at with the Company required to fulfil their role both on the Board and www.frc.org.uk. on Board committees. In addition, external seminars, workshops Board and presentations are made available to directors. The Company The Board currently comprises the non-executive Chairman, three provides the necessary resources for developing and updating executive directors and six independent non-executive directors. directors’ knowledge and capabilities. The Chairman has a primary responsibility for the running of the The Board undertakes a formal annual evaluation process of Board and for relations with shareholders. The Chief Executive is its own performance and that of its committees and individual responsible for the operations and for the development of strategic directors which in 2011 was externally facilitated by Lintstock. plans and initiatives for consideration by the Board. The division Questionnaires tailored to the specific circumstances of the of responsibilities between the Chairman and the Chief Executive Company were completed by each director in relation to their has been clearly established, set out in writing and agreed by the own performance and on the effectiveness of the Board and Board. J M Kelly acts as Senior Independent Director, whose role its committees. is to provide a sounding board to the Chairman and to serve as an intermediary for the other directors when necessary. Other roles The Chairman conducts an appraisal of each director. The Senior and responsibilities of the Senior Independent Director are Independent Director, having consulted with each of the other described elsewhere. directors, conducts an appraisal interview with the Chairman. In 2011 a detailed report on the effectiveness of the Board and The Company recognises the value that diversity brings to its its committees was produced by Lintstock and the results of which boardroom and believes that the Board performs better and were considered by the Board and the individual committees and supports its overall objectives within the business strategy when actions arising were agreed. The following themes were addressed: it includes the best people representing a range of capabilities, Board composition, expertise and dynamics; Board support, time experience, perspectives and backgrounds. In line with this, the management and Board committees; strategic, operational and risk Company aims to foster a diverse Board, including a mix of oversight; succession planning and human resources management; genders and ethnicities. and priorities for change. The Board endorses the aims of the Davies’ Report entitled Whilst all directors are expected to bring an independent “Women on Boards” and when considering future appointments, judgement to bear on issues of strategy, performance, resources with the support of the Nominations Committee, will aim to build (including key appointments) and standards of conduct, the on its current position. Further information on the diversity of the independent non-executive directors were selected and appointed Board, senior management and employees is provided in the 2011 for this purpose. Corporate Responsibility report which is available at www.ladbrokesplc.com. The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. The other significant commitments of the Chairman during 2011 are detailed in his biography on page 23. There were no significant Appointment and replacement of directors changes to those commitments during 2011. A person who is willing to act as a director, and is permitted by The Board schedules eight meetings each year, but arranges to law to do so, may be appointed as a director of the Company by meet at other times as appropriate. Of the ten meetings held in shareholders in general meeting by ordinary resolution (requiring 2011, C P Wicks was unable to attend one of the unscheduled a simple majority of the persons voting on the relevant resolution) additional meetings due to other business commitments. or by a decision of the directors. No person, other than a director retiring at that general meeting, shall be appointed or re-appointed In addition, the Chairman met during the year with the a director at any general meeting unless he or she is recommended non-executive directors without the executive directors present. by the directors or, not less than seven clear days before the date The Board has a formal schedule of matters specifically reserved appointed for the meeting, notice executed by that person of his or for its decision and approval. These include the approval of the her willingness to be appointed or re-appointed is lodged at the Company’s registered office. Ladbrokes plc Annual Report and Accounts 2011 25
The articles of association of the Company provide that: Board committees The Board has four standing committees, all of which have written at every Annual General Meeting any director who has been terms of reference clearly setting out their authority and duties. appointed as a director by the directors since the last Annual The terms of reference of the Audit, Nomination and Remuneration General Meeting, or who was not appointed or re-appointed as Committees, which are reviewed annually, can be viewed at a director at one of the preceding two Annual General Meetings, www.ladbrokesplc.com. The Executive Committee, the Risk must retire from office (notwithstanding any agreement the Committee and the Compliance Committee referred to elsewhere director may have with the Company) and that any director are not formal Board committees. so retiring may offer himself or herself for appointment or Governance re-appointment as a director by the members at the meeting; Audit Committee any director may retire from office at any general meeting and The members of the Committee are: that any director so retiring may offer himself or herself for Appointment Committee appointment or re-appointment as a director by the members date role at the meeting; and Darren M Shapland 16 February 2010 Chairman if a director retires from office at any general meeting, the director John M Kelly 1 September 2010 Member shall retain office until the end of the meeting (irrespective of C Pippa Wicks 1 June 2004 Member the outcome of any resolution that the director be appointed or re-appointed as a director put to the members at the meeting). All members of the Committee are independent non-executive The UK Corporate Governance Code specifies that all directors directors. Appointments to the Committee are made by the Board of FTSE 350 companies should be subject to annual election at the recommendation of the Nomination Committee, which by shareholders. The Company is a FTSE 350 company and consults with the Chairman of the Audit Committee. all directors will be subject to election or re-election at the 2012 The Board has satisfied itself that the members of the Committee Annual General Meeting. have recent and relevant financial experience. The independent non-executive directors understand that the The Committee is provided with sufficient resources to undertake Board will not automatically recommend their re-election by its duties. It has access to the services of the Company Secretary shareholders. The Chairman and the independent non-executive (who acts as secretary to the Committee) and all other employees. directors are appointed for a specified term of approximately three The Committee is able to take independent legal or professional years, subject to re-election. advice when it believes it necessary to do so. The Companies Act 2006 allows shareholders in general meeting The Committee meets as required, but not less than three times a by ordinary resolution (requiring a simple majority of the persons year. There was full attendance at the four meetings held in 2011. voting on the relevant resolution) to remove any director before the expiration of his or her period of office, but without prejudice Although other directors, including the Chief Financial Officer, to any claim for damages which the director may have for breach attend Audit Committee meetings, the Committee also meets for of any contract of service between him or her and the Company. private discussions with the external auditor, who attends all of its meetings, and can do so with the internal auditor. A person also ceases to be a director if he or she notifies the Company of his or her resignation, ceases to be a director by The Committee is the body which carries out the functions virtue of any provision of the Companies Act 2006, becomes required by DTR 7.1.3. The main role and responsibilities of the prohibited by law from being a director, has a bankruptcy order Committee in 2011 were to: against him or her or is the subject of a relevant insolvency monitor the integrity of the financial statements of the Company; procedure, or if a medical practitioner gives a written opinion review the Company’s internal financial control and risk stating the director has become physically or mentally incapable management systems; of acting as a director and may remain so for more than three months, or is removed from office by notice signed by all the other monitor and review the effectiveness of the Company’s internal directors sent to the director, or if the Board so decides following audit function; and at least six months’ consecutive absence without permission or he oversee the Company’s relationship with the external auditor or she becomes subject to relevant procedures under the mental including the recommendation to the Board of its appointment health laws. and remuneration. Should the Committee’s monitoring and review activities reveal Powers of the Company’s directors any material cause for concern or scope for improvement, it will Subject to the articles, the directors are responsible for the make recommendations to the Board on action needed to address management of the Company’s business, for which purpose they the issue or make improvements. may exercise all the powers of the Company. The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action. The directors’ exercise of the powers of the Company to borrow money is restricted. The directors have power to issue new shares and to purchase the Company’s own shares, in each case to the extent permitted by law or as allowed by shareholder resolution (resolutions to issue and purchase shares are regularly proposed at the Company’s Annual General Meetings). Ladbrokes plc Annual Report and Accounts 2011 26
Governance continued
Corporate governance continued
The main activities of the Committee in 2011 were as follows: The Committee meets as required but not less than twice a year. Two meetings of the Committee were held in 2011 and there was with the assistance of reports received from management full attendance at these meetings. and the external auditor, the critical review of the significant financial reporting issues in connection with the preparation The main role and responsibilities of the Committee are to: of the Company’s financial and related formal statements; review the structure, size and composition of the Board (which assessing the scope and effectiveness of the systems includes an objective and comprehensive evaluation of the established to identify, assess, manage and monitor financial balance of skills, knowledge, experience and diversity of the and non-financial risks; Board) and make recommendations to the Board with regard to monitoring the integrity of the Company’s internal financial any changes; controls. The Committee does so by reference to: consider succession planning for the directors and other senior (a) summaries of business risks and mitigating controls; executives and make recommendations to the Board; (b) regular reports and presentations from the heads of key identify and nominate for the approval of the Board candidates risk functions, internal audit and external audit; and to fill Board vacancies as and when they arise; (c) the results of the system of annual self-certification of review the leadership of the Company to ensure the continued compliance with key controls and procedures; ability of the Company to compete effectively in the marketplace; monitoring and reviewing the plans, work and effectiveness of recommend candidates for the role of Senior Independent the internal audit function, including any actions taken following Director and for membership of the Audit and Remuneration any significant failures in internal controls; Committees, in consultation with the Chairmen of those reviewing, with the external auditor, its terms of engagement, Committees; and the findings of its work, and at the end of the audit process make recommendations to the Board concerning the reviewing its effectiveness; and re-appointment of non-executive directors at the end of their reviewing the independence and objectivity of the specified term of office and the re-election by shareholders external auditor. of any director under the retirement by rotation provisions or otherwise. The external auditor reports to the Committee on the actions taken to comply with professional and regulatory requirements The Committee performed the above activities as necessary and with best practice designed to ensure its independence. in 2011. The Committee has agreed a policy on the engagement of the I A Bull was appointed as an executive director and as Chief external auditor to supply non-audit services, the application Financial Officer with effect from 4 July 2011. C M Hodgson and of which it monitors. The policy, which can be viewed at R Moross were appointed as non-executive directors with effect www.ladbrokesplc.com, specifies services that may not be from 1 May 2012. Descriptions of the roles and capabilities required provided and contains a level of cost at which Committee approval were prepared and suitable candidates were identified by external is required enabling the Committee to satisfy itself that auditor advisers. In the case of C M Hodgson’s and R Moross’ appointments, objectivity and independence are safeguarded. this was following a review of the structure, size and composition (including skills, knowledge, experience and diversity) of the Board. Finance Committee This Committee meets as required to deal with all routine business Remuneration Committee that excludes matters that are specifically reserved to the Board Details of the Remuneration Committee, including membership, or to another committee and specific matters delegated to it by are set out in the Directors’ remuneration report, which should the Board requiring attention between scheduled Board meetings. be read in conjunction with this section. Any two directors can conduct the business of this Committee. Internal control and risk management systems Nomination Committee The Board has ultimate responsibility for the internal control and The members of the Committee are the Chairman of the Board risk management systems operating throughout the Group and and two or more independent non-executive directors. for reviewing their effectiveness. No such systems can provide The current members of the Committee are: absolute assurance against material misstatement or loss. The Group’s systems are designed to manage rather than eliminate Appointment Committee date role the risk of failure to achieve business objectives and to provide the Board with reasonable assurance that potential problems will Peter Erskine 18 February 2009 Chairman normally be prevented or will be detected in a timely manner for John F Jarvis 14 May 2010 Member appropriate action. John M Kelly 15 February 2011 Member The Company had procedures in place throughout the year and Christopher J Rodrigues 18 May 2007 Member up to 16 February 2012, the date of approval of this Annual Report, which accord with the Internal Control Guidance for Directors on Appointments to the Committee are made by the Board. the Combined Code published in September 1999. The Committee is provided with sufficient resources to undertake The Board has delegated the detailed design of the systems of its duties. It has access to the services of the Company Secretary internal control and risk management to the executive directors. (who acts as secretary to the Committee) and all other employees. The Committee is able to take independent legal and professional advice when it believes it necessary to do so. Ladbrokes plc Annual Report and Accounts 2011 27
The control framework and key procedures during 2011 in relation the Board regularly receives reports from Executive Heads to the financial reporting process were as follows: covering areas such as operations, forecasts, business the Group operates through five Business Units: Channels; development, strategic planning, human resources, legal Customer; Product; Finance, Development & International; and and corporate matters, compliance, health and safety and Human Resources. There is an Executive Head responsible for corporate responsibility; each of these Business Units. there is a Group-wide policy governing appraisal and approval as well as weekly updates, the Chief Executive and the of investment expenditure and asset disposals. A committee of Executive Heads meet monthly (the Executive Committee) to the Chief Executive and the Chief Financial Officer considers all Governance consider Group strategy, financial performance, business significant financial commitments (the Investment Committee). development and management issues. Other senior executives Major projects are reported on at each scheduled Board participate as appropriate. meeting. Post-investment appraisals are undertaken on a systematic basis and are formally reviewed by the Board In addition there are weekly and monthly financial and twice yearly; operational review meetings together with an annual programme of plan/reforecasting and strategy reviews attended by the a system of annual self-certification of compliance with key Chief Executive and Chief Financial Officer together with, as controls and procedures is operated throughout the Group; and appropriate, other Executive Heads and executives; the Group has an internal audit function, outsourced to the Business Units comprise executives with defined Deloitte LLP, which reports to management and the Audit responsibilities. Business Unit management meet regularly Committee on Group operations. to manage their respective operations; The role of the Audit Committee in reviewing the effectiveness of key policies and control procedures (including treasury, the systems of internal control and risk management is explained compliance and information system controls) are documented in the Audit Committee section. and have Group-wide application. There are also operating The Board also conducts an assessment of the effectiveness procedure manuals that are integrated with Group-wide controls; of the internal control and risk management systems. The high standards of business ethics and compliance with laws, assessment takes account of all significant aspects including: regulations and internal policies are demanded from employees risk assessment; the control environment and control activities; at all levels. To underpin the effectiveness of controls, it is Group information and communication; and monitoring. policy to recruit and develop management and other employees Relations with shareholders of high calibre, integrity and with appropriate disciplines; There is a regular programme of meetings with major institutional there is an ongoing process for identifying, evaluating and shareholders to consider the Group’s performance and prospects. managing the risks faced by the Group. Key risks and their In addition, presentations are made twice yearly after the financial implications are appraised by the Executive Committee announcement of results, the details of which, together with the which is assisted by a committee of Business Unit executives Group’s financial reports and announcements, can be accessed (the Risk Committee). This is an integral part of the strategic at www.ladbrokesplc.com. The Chairman met in 2011 with several planning process. The appropriateness of controls is institutional investors and their representative bodies in addition considered, having regard to cost/benefit, materiality and the to results presentations and the Annual General Meeting. Other likelihood of risks crystallising; directors are available to meet the Company’s major shareholders key risks and actions to mitigate those risks are considered at if requested. each regular Board meeting and are formally reviewed and The Senior Independent Director is available to shareholders if approved by the Board twice yearly. Each key risk is assigned they have concerns, where contact through the usual channels of executive director/Executive Head ownership; Chairman, Chief Executive and Chief Financial Officer has failed to the Board establishes corporate strategy and Group-wide solve, or for which such contact is inappropriate. business objectives which are formally reviewed annually. A report on investor relations, which includes updates on meetings Business Unit management integrate such objectives into with major institutional shareholders, is given at each Board business strategies for presentation to the Board with meeting. The Company’s brokers also present to the Board supporting financial objectives; annually. Principles of ownership, corporate governance Business Unit budgets, containing financial and operating and voting guidelines issued by the Company’s major institutional targets, capital expenditure proposals and performance shareholders, their representative bodies and advisory indicators, are reviewed by the Executive Committee and organisations are circulated to, and considered by, the Board. support Group strategies. The Group profit plan is approved The Company corresponds regularly on a range of subjects by the Board; with its individual shareholders who have an opportunity reports on financial and non-financial performance are regularly to question the Board at the Annual General Meeting. provided to directors and discussed at Board meetings. Further information on our relations with shareholders Performance against both budgets and objectives together with is contained in Shareholder information. management of business risks, are reviewed with Group management, as are forecasts and material sensitivities; Ladbrokes plc Annual Report and Accounts 2011 28
Governance continued
Corporate governance continued
Rights attaching to the shares and restrictions on voting The Trustee of the Ladbrokes Share Ownership Trust, which is and transfer used in connection with certain of the Company’s employee share 1 The Company’s share capital consists of ordinary shares of 28 ⁄3p ownership plans, held 1,258,666 ordinary shares in the Company each. Subject to any suspension or abrogation of rights pursuant at 31 December 2011 which are not voted by plan members and to relevant law or the Company’s articles of association, the which it can vote in its absolute discretion. ordinary shares confer on their holders (other than the Company A member may choose whether his or her shares are evidenced in respect of its treasury shares): by share certificates (certificated shares) or held in electronic (a) the right to receive out of profits available for distribution (uncertificated) form in CREST (the UK electronic settlement such dividends as may be agreed to be paid (in the case system). Any member may transfer all or any of his or her shares of a final dividend in an amount not exceeding the amount subject in the case of certificated shares to the rules set out in the recommended by the Board as approved by shareholders Company’s articles of association or in the case of uncertificated in general meeting or in the case of an interim dividend in an shares the regulations governing the operation of CREST (which amount determined by the Board). All dividends unclaimed allow the directors to refuse to register a transfer as therein set for a period of 12 years after having become due for payment out); the transferor remains the holder of the shares until the are forfeited automatically and cease to remain owing by name of the transferee is entered in the register of members. the Company; The directors may refuse to register a transfer of certificated (b) the right, on a return of assets on a liquidation, reduction shares in favour of more than four persons jointly or where there of capital or otherwise, to share in the surplus assets of the is no adequate evidence of ownership or the transfer is not duly Company remaining after payment of its liabilities pari passu stamped (if so required). The directors may also refuse to register with the other holders of ordinary shares; and a share transfer if it is in respect of a certificated share which is not (c) the right to receive notice of and to attend and speak and vote fully paid up or on which the Company has a lien provided that, in person or by proxy at any general meeting of the Company. where the share transfer is in respect of any share admitted to the On a show of hands every member present (or in the case of Official List maintained by the UK Listing Authority, any such a corporation, represented) and voting has one vote and discretion may not be exercised so as to prevent dealings taking every proxy present who has been appointed by one or more place on an open and proper basis, or if in the opinion of the members present has one vote (and a second vote where directors (and with the concurrence of the UK Listing Authority) the proxy has been appointed by more than one member and exceptional circumstances so warrant provided that the exercise has been instructed by one or more members to vote for the of such power will not disturb the market in those shares. Whilst resolution and by one or more other members to vote against there are no squeeze-out and sell out rules relating to the shares the resolution). On a poll every member present (or represented) in the Company’s articles of association, shareholders are subject in person or by proxy has one vote for every share of which that to the compulsory acquisition provisions in sections 974 to 991 member is the holder. Normally, the appointment of a proxy of the Companies Act 2006 and can be required by the Company must be received not less than 48 hours before the time of the to transfer their shares following certain action by a gambling holding of the relevant meeting or adjourned meeting; special industry regulator (as more specifically set out in the Company’s provision is made in the Company’s articles of association as to articles of association). the delivery of proxies for use on a poll not taken during the Significant agreements that take effect, alter or terminate meeting at which the poll is demanded. upon a change of control following a takeover bid These rights can be suspended. If the member, or any other person The agreements between Ladbrokes Group Finance plc (“LGF”), appearing to be interested in shares held by that member, has failed a wholly owned subsidiary of the Company, and eight separate to comply with a notice pursuant to section 793 of the Companies banks for the provision by the banks of revolving credit facilities Act 2006 (notice by company requiring information about interests of up to £540 million on a committed basis provide that the banks in its shares) the Company can suspend (until one week after the may give notice of cancellation if a change of control occurs. On default ceases) the right to attend and speak and vote at a general cancellation the amounts drawn would be immediately repayable. meeting and if the shares represent at least 0.25% of their class In the context of a takeover bid, the acquirer would normally the Company can withhold any dividend or other money payable arrange substitute facilities. In addition, LGF issued a bond in in respect of the shares and refuse to accept certain transfers of the March 2010. The bond has a “Put Event” that allows bondholders relevant shares. In addition, following certain action by a gambling to exercise a put option when a change of control occurs. The put industry regulator (as more specifically set out in the Company’s option allows the bondholders to require LGF to purchase the articles of association), the Company may suspend all or some of bonds at a price of 101 pence. the rights attaching to all or some of the shares held by any relevant Amendment of the Company’s articles of association shareholder to attend and to speak at meetings and to vote, to The Company’s articles of association may be amended by the receive any dividend or other money payable in respect of the members of the Company by special resolution (requiring a majority shares, and to the issue of further shares or other securities in of at least 75% of the persons voting on the relevant resolution). respect of the shares. Shareholders, either alone or with other shareholders, have other rights as set out in the Company’s articles of association and in company law (principally the Companies Act 2006). Ladbrokes plc Annual report and accounts 2011 29
Governance continued Directors’ report
A review of the Group’s activities and future developments, which Auditor and disclosure of information to the auditor fulfils the requirements of the business review, including the Each of the directors in office as of the date of approval of this financial performance during the year, key performance indicators report confirms that, so far as he or she is aware, there is no and a description of the principal risks and uncertainties facing the relevant audit information (being information needed by the auditor Group is given on pages 8 to 21 and forms part of this report. in connection with preparing its report) of which the auditor is The description of the Group’s corporate governance arrangements unaware and that he or she has taken all the steps that he or she on pages 24 to 28 also forms part of this report. A description of ought to have taken as a director in order to make himself or the Group’s financial risk management objectives and policies herself aware of any relevant audit information and to establish that Governance and its exposure to price, credit liquidity and cash flow risk is the auditor is aware of that information. contained in note 24 to the consolidated financial statements and forms part of this report. Other matters material to the Share capital appreciation of the Group’s position are contained in the At 15 February 2012, the Company had been notified of the Chairman’s statement and the Chief Executive’s review. following holdings of voting rights attaching to the Company’s shares in accordance with the Disclosure and Transparency Rules: Results Deutsche Bank AG – 3.74%; FIL Limited – 5.04%; Ignis Investment The results for the year are shown in the consolidated income statement. Services Limited – 3.10%; Legal & General Group PLC – 3.84%; and Schroders plc – 12.11%. Dividends The Trustee of the Ladbrokes Share Ownership Trust, which is The directors recommend the payment of a final dividend of used in connection with certain of the Company’s employee share 3.90 pence on each of the ordinary shares entitled thereto, ownership plans, waives dividends on shares in the Trust not making a total of 7.80 pence for the year. Subject to shareholders’ allocated to plan members. approval at the Annual General Meeting to be held on 19 April 2012, the final dividend is expected to be paid on 26 April 2012 to Further details in respect of the share capital are shown in note shareholders registered on 16 March 2012. 27 to the consolidated financial statements which forms part of this report. Annual General Meeting This year’s Annual General Meeting will be held at the Queen Corporate responsibility Elizabeth II Conference Centre on 19 April 2012 at 11.00am. The 2011 Corporate Responsibility (CR) report is available at www.ladbrokesplc.com and highlights, with which the following Directors should be considered in conjunction, are given on pages 19 to 21. The directors during the year were those listed on page 23 The processes described in the section “Internal control and risk together with B G Wallace who resigned on 31 August 2011. management systems” on pages 26 and 27 applied to CR, as did Biographical details of the directors at 16 February 2012 are on the practices described on page 24 for ensuring the Board is page 23. On 16 February 2012 the Company announced that supplied with appropriate and timely information and training and C P Wicks would not be standing for re-appointment at this year’s for assisting the directors to update their knowledge. In addition to Annual General Meeting and the appointments of C M Hodgson business presentations regularly made to the Board at which CR and R Moross with effect from 1 May 2012. was considered as appropriate, the Board conducts an annual CR Details of directors’ service contracts, their share interests and review and Board members regularly receive CR updates. CR other details of their remuneration by the Company are contained performance is included in business unit accountability systems in the Directors’ remuneration report. Pursuant to section 175 and remuneration arrangements. The Remuneration Committee in of the Companies Act 2006 and the Company’s articles of determining executive remuneration takes into account CR association, the Board has authorised situations of potential matters as described in the Directors’ remuneration report. conflict arising out of J F Jarvis being a non-executive director of The risks and opportunities relating to CR in 2011 and going Sandown Park and a member of The Jockey Club and S Bailey forward primarily revolve around the reputation of the Group and being a director of Trinity Mirror plc. the quality of its brands. Ladbrokes plc Annual report and accounts 2011 30
Governance continued
Directors’ report continued
Of particular importance was the promotion of responsible Supplier payment policy gambling and the protection of children and the vulnerable. The Company agrees payment terms for its business transactions CR also impacted (i) the performance of the Group’s employees when goods and services are ordered. It ensures that suppliers on whom the Group relies for the provision of high quality services are aware of the terms of payment and the relevant terms are to customers and (ii) the health and safety of these employees and included in contracts where appropriate. Subject to satisfactory the customers they serve. performance by the supplier, arrangements are adhered to when making payments. At the year end, the Company had Performance indicators continued to be developed in accordance no trade creditors. with Group-wide CR. No breaches of CR policies and procedures material to the Group were identified by the Board in 2011. Going concern The identification and management of CR issues, the CR reporting In assessing the going concern basis, the directors considered framework and any associated data has been reviewed by the the Group’s business activities, the financial position of the Group Company’s CR adviser, Acona Partners LLP. as described in pages 4 to 21 and the Group’s financial risk management objectives and policies as included in note 24 to the Employee policies consolidated financial statements. The Board values two-way communication between senior The directors consider that the Group has adequate resources to management and employees on all aspects of the Company’s continue in operational existence for the foreseeable future and strategy, Company performance, management effectiveness that it is therefore appropriate to adopt the going concern basis in and wellbeing. preparing its financial statements. There is a rolling three year internal communications strategy and By order of the Board delivery plan which includes interventions such as regular management roadshows, visits to operating units, responses to the colleague opinion survey and updates on performance against the Company’s strategic vision. M J Noble The internal communications services channels include face to Secretary face events, a powerful corporate intranet, audio broadcasting, 16 February 2012 SMS alerts, a Company magazine and line manager briefing packs. The UK Staff Council, which has been in place since 1996, provides a further mechanism for employee engagement. In addition, those employees who are eligible are also encouraged to become involved in the Group’s performance through participation in share schemes. Throughout the Group, the principles of equal opportunities are recognised in the formulation and development of employment policies. It is the Company’s policy to give full and fair consideration to applications from people with disabilities, having regard to their particular aptitudes and abilities. If an employee becomes disabled, the Company’s objective is the continued provision of suitable employment, either in the same or an alternative position, with appropriate adjustments being made if necessary. Employees with disabilities share equally in the opportunities for training, career development and promotion.
Directors’ indemnities and insurance The Company continues to maintain directors’ and officers’ liability insurance. In accordance with the Company’s articles of association, the Company has entered into a deed of indemnity to the extent permitted by law with each of the directors.
Charitable donations During 2011, in addition to donations made to overseas charities, Group companies donated £931,840 to UK charitable organisations for charitable purposes. Governance Member Member Member Committee role Chairman since 18 May 2007
19 July 2006 14 May 2010 Appointment date 29 October 2003 18 February 2009 31
and d certainsenior executives; r r d s agreedpolicy. pension and scope arrangementsof, eterminepolicythe for, directoreach for executive and other designated senior executives; ongoingthe eview appropriateness and relevanceremuneration the of policy; performance-relatedand any determinedesign the approve targetsof, for, schemes; pay designthe shareeview all of incentive plansBoardthe approvalandfor by shareholders; etermineand agree Boardwiththe frameworkthe broador policyremuneration the for directors, executive of Chairmanthe and the within Chairman the and certaindirectors, executives senior executive all of packages remuneration individual the et DearShareholder been have these report that pleased to am I and structure, remuneration our to changesplanned the outlined I year, last letter my In participants, of group wider a include arrangements now incentive long-term changes, the of result a As 2011. in implemented fully short-term both personalto contribution reflecttheir to differentiated well are individuals to granted awards of level the and Company. the of objectives strategic performancelonger-term the and progressing the on focused beenfully have team Executive business. The Ladbrokes the for year development key a was 2011 difficultclimate. economic a of context the in progressmade outturns reflect the bonus annual 2011 the and 2010, in out laid strategy will awards these result a as and met not were performance2009Performance Plan Share minimum the under targets the However, vest. not pay for eligible be workforcewill wider the although Committee, Executive the to awarded salary be annual no increaseswill 2012, In ensure to forthcoming year, the for structure bonus the reviewed also has Committee The freezes. pay of years two following reviews cap Committeewill the result, a business. As Digital the particular in in profit, grow to objectives Board’s the with aligned fully is it that net Digital specifiedsignificant in increase maximum a unless of 60% at bonus the of elementfinancial the under payable amount the managementteam. senior and executives the to apply will cap This achieved. is revenue to intends it and remuneration executive respect of in place taking reviews practices and the monitor to Committeecontinues The believe not arrangementsremunerationdo transparentreporting and of committedto remain emerges.We it as practice good follow motivates inadvertently issuesor governance or social raisesenvironmental, Ladbrokes for place in framework remuneration the irresponsiblebehaviours. forthcoming AGM. supportthe at your receive to shareholdershopes from and feedback all Committeeappreciates The ChristopherRodrigues J Chairmanthe Remunerationof Committee Sly Bailey Peter Erskine John F Jarvis The Committee comprises independent non-executive directors and the Chairman of the Board, namely: Board, the of Chairman the and directors comprisesCommittee independentThe non-executive Christopher J Rodrigues
remuneration report remuneration Directors’ Directors’ Governance plc Ladbrokes 2011 Accounts and Report Annual RemunerationCommittee remit, composition andactivities directors executive the respect of in policy remuneration the responsibilityfor the Committeewith the entrusts Board Ladbrokes The the of conditions and pay the account into Committeetakes the groups, these for remuneration the setting In executives. and senior 36. page on found be can workforcepay wider to relation in details Further course. of matter a workforceas wider to: are duties main Committee’s The Ladbrokes plc Annual Report and Accounts 2011 32
Governance continued
Directors’ remuneration report continued
Remuneration Committee remit, composition and activities continued Appointments to the Committee are made by the Board at the recommendation of the Nomination Committee, which consults with the Chairman of the Committee. The Chief Executive, the Group HR director and the HR director – Reward & Resourcing attend Committee meetings by invitation, other than when their personal remuneration is discussed. The Company Secretary acts as secretary to the Committee. The Committee met five times during 2011. S Bailey did not attend one meeting during the year due to other commitments. The Committee retained independent remuneration consultants (Deloitte LLP) and has taken advice during the year from them in relation to certain executive remuneration matters. Deloitte LLP is a member of the Remuneration Consultants Group and as such voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK. Deloitte LLP also provides the Company with internal audit and miscellaneous tax and consulting services. SJ Berwin LLP, one of the Company’s corporate lawyers, has also provided material advice. The Directors’ remuneration report has been prepared in accordance with the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 (Regulations) and meets the relevant requirements of the Financial Services Authority’s Listing Rules. In forming the remuneration policy, the best practice provisions set out in the UK Corporate Governance Code have been followed, and the guidelines issued by the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF) have been noted. During 2011 the Committee, amongst other items, considered the following: implementation of the policy changes established in the 2010 review; remuneration arrangements for senior hires and departures; determination of short and long-term incentive outcomes based on Company and personal performance of the executive directors and senior executives; and review of the structure, quantum and calibration of the annual bonus and performance share plans for 2012 onwards.
Remuneration policy The principles underlying the remuneration policy are that total remuneration packages should: be aligned with and support the business strategy; enable the Company to attract, retain and motivate key individuals; and be strongly aligned with shareholder value creation.
Summary of fixed remuneration arrangements for 2012 onwards Element Policy Framework Base salary To set base salaries at Salaries are reviewed annually, with reference to market practice in a competitive level. companies of a similar size and complexity, taking into account business and personal performance. Pension To provide market Executives can opt upon appointment to join the defined contribution scheme competitive or take a cash supplement equivalent to 22.5% of base salary. arrangements. For longer serving executives in the legacy defined benefit plan, they accrue benefits on base salary up to the relevant earnings cap (2011/12 £129,600) and receive a cash supplement of 22.5% of base salary above the earnings cap. Benefits To provide market Benefits include private healthcare, life assurance and a cash allowance in lieu competitive of a company car. arrangements. Summary of variable remuneration arrangements for 2012 onwards Element Policy Framework Performance Conditions Annual bonus Incentivise executive Maximum awards as a Measured annually. performance on percentage of base salary – 70% of total bonus opportunity is based on an annual basis – 170% for the Chief Executive financial performance. measured against the and 130% for other 30% is based on performance against individual key financial metrics executive directors. objectives approved by the Committee at the of the business and One third of any bonus start of the financial year. a set of demanding awarded is deferred into individual objectives. shares for a period of three years. Governance d vests for d vests for Paddy Power Punch Taverns Rank Group Sportingbet Whitbread William Hill d will vest if a share price d will vest if a share d will vest if a share price d will vest if a share d is based on Total Shareholder Shareholder d is based on Total esting will be on a straight line basis between esting will be on a straight line basis between esting will be on a straight line basis between esting will be on a straight line basis between of £2.97 is achieved. the achievement of stretching absolute EPS the achievement of stretching targets. growth price target performance conditions. Any share a period of 30 must be attained throughout consecutive dealing days. of £2.00 is achieved. price targets the minimum and maximum share (i.e. between £2.00 and £2.97). Return of the Company against a select (TSR) industry peers. of group The r Performance is assessed over a five year period. A 25% of the awar 100% of the awar V P 50% of the awar 25% of this element of the awar median performance and 100% for upper quartile performance. V median and upper quartile. of 6% per annum and 100% absolute EPS growth of 10% per annum. for growth 25% of this element of the awar V minimum and maximum EPS targets. for 2012 is unchanged and The comparator group is as follows: 888 Holdings Boyd Gaming Bwin PartyGaming Enterprise Inns Lottomatica Mitchells and Butlers OPAP on isbased emaining 50%oftheaward price share subjecttostretching are wards esting willbeonastraightlinebasisbetween years. financial three over assessed is erformance
Performance conditions continued equired equired ds as a ectors are ectors are Executive dir up to to invest required 150% of base salary and up to a four times receive matching award. In the case of the Chief Executive he was r one to invest in circa shares million Ladbrokes a four times and received matching award. A of base salary may be made in exceptional (e.g. circumstances at or retention) recruitment the Committee’s discretion. Maximum awar of base salary – percentage Executive 175% for the Chief and 150% for other executive directors. A to individual by reference performance prior to grant.
upto250% wards determined levelsare ward 33 Framework A one-off long-term A one-off plan to support the of the revitalisation business which substantial rewards value creation between £400 million to £1.3 billion for shareholders. made were Awards under this plan in 2010 to the CEO and in 2011 to other participants. It is not intended for further to be made awards under the plan in 2012. Policy Recognise and reward Recognise and reward executives for the of shareholder creation value over the longer term. Ladbrokes Plan Growth Summaryvariable of remuneration arrangements onwards 2012 for Element Performance Plan Share plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 34
Governance continued
Directors’ remuneration report continued
Remuneration mix Individual performance objectives are set at the start of the year In support of the remuneration philosophy, the mixture of fixed and and are clearly aligned to the strategic objectives of the Company. variable reward is heavily weighted towards the performance- One third of any annual bonus earned will be delivered in shares related elements. In particular, there is an emphasis on long-term under the DBP and will only vest subject to continued employment share based incentives, i.e. the Performance Share Plan and the after a three year vesting period. Ladbrokes Growth Plan. The mixture of fixed and variable remuneration is broken down Performance Share Plan (“PSP”) as follows: In 2011, as a result of the introduction of the Ladbrokes Growth Plan, the level of awards for executive directors (excluding the at target performance – 35% is fixed and 65% is variable Chief Executive) under the PSP was reduced. In addition, it was at maximum performance – 15% is fixed and 85% is variable determined that annual award levels would be based on an For the purpose of the analysis above, fixed remuneration assessment of individual performance prior to grant and will not represents base salary but excludes pension (or cash equivalent) normally be made at the maximum levels. and benefits. Variable remuneration represents annual bonus, The maximum award levels, and individual awards for 2012, are Performance Share Plan and the Ladbrokes Growth Plan awards provided in the table below: (on an annualised basis). Maximum PSP 2012 PSP Base salary, pension and benefits award level award level as a % of as % of In January 2012, no annual salary increases were awarded to the Executive base salary base salary executive directors. R I Glynn 175% 150% The table below shows the current base salaries for the I A Bull 150% 135% executive directors: R J Ames 150% 115% Base salary with effect Executive from 1 January 2012 Details of the plan design and performance conditions can be R I Glynn £580,000 found in the table on page 33. I A Bull £380,000 R J Ames £370,000 Ladbrokes Growth Plan (“LGP”) In May 2010, shareholders approved a one-off long-term incentive A summary of pension and benefits arrangements can be found in plan designed to incentivise key senior executives to create the table on page 32. Further details of the retirement benefits for significant, sustainable long-term shareholder value. individual executive directors are set out on page 41. The first award was made in June 2010 to R I Glynn. He is required to hold 1,008,946 Ladbrokes shares for the duration of the Annual bonus five-year plan. This ensures strong alignment between his interests Executive directors participate in the annual bonus plan and the and those of the shareholders. He received a four times matching Deferred Bonus Plan (“DBP”). award on his investment shares, which is subject to very stretching For 2012, the maximum bonus opportunity remains unchanged at share price growth performance targets. 170% of base salary for the Chief Executive and 130% of base The Committee also determined in 2010 that it was important for salary for the other executive directors. all key senior executives in the business to be consistently The table on page 32 provides a high-level summary of the plan incentivised. Awards were therefore made to these individuals on design in 2012. The financial element of the bonus will be similar terms as soon as practicable in 2011. It is intended that no assessed by reference to profit. In setting the level of profit further awards will be made under the plan from 2012 onwards. required to achieve threshold and maximum performance under Executive directors were required to make an investment of 150% this element, the Committee pays particular attention to the level of base salary in Ladbrokes shares and received a four times of stretch inherent in the Company’s profit plan for the year. matching award. Given the increased level of stretch in the profit plan against the Matching awards are subject to the extremely stretching share continued backdrop of unsettled economic conditions, the price growth performance targets outlined on page 33. No benefit Committee has set the threshold below which no bonus is paid at arises until the share price reaches £2.00, and maximum vesting 94% of the profit target. The maximum award under this element only occurs if a share price of £2.97 is achieved. If maximum of the bonus will be delivered for achieving 106% of the profit vesting occurs, £1.3 billion of additional value to shareholders target, which would reflect substantial improvement in profitability would have been created since the inception of the plan. in the prevailing economic conditions. Up to one third of the award may vest at the end of year three if the Given the importance of growing the Company’s Digital business, targets have been achieved at that time. A further third may vest at the Committee will cap the amount payable under the financial the end of year four if the targets have been met at this time. element of the bonus at 60% of maximum unless a significant The remainder of the award may vest at the end of year five, specified increase in Digital net revenue is achieved. subject to the achievement of the performance targets. High Rollers profits are excluded from the performance profit The Committee is mindful that absolute share price targets must calculations for annual bonus purposes, however they may be demand a real stretch performance. In particular, the Committee included in the individual performance element of the bonus for will retain responsibility to amend the targets if it is necessary to those directly responsible for this area of the business. Governance 50% 52% 46% bonus 1 year 6 months 6 months 6 months Cash and DBP shares award – award shares % of maximum Director notice period Director 491 128 221 Total value Total bonus – £000 of 2011 annual 1 year 1 year 1 year 1 year DBP – number of shares to be of shares delivered in 2015 delivered Company notice period 86 32,880 327 125,671 147 56,452 £000 Cash bonus 85% 68% 60% Financial and of base salary 4 July 2011 Date of contract 35 – Achievement % 5 March 2007 5 March 30 March 2010 30 March 1 January 2009 individual objectives i time; the at reference internalby to projections andprevailing the economic Boardthe beginning the at set by was 2011 t conditions of minimumthe threshold profit the andof plan; belowwhich paymentsno aremade 95% is maximum awards would be delivered for achieving 107% of the profit plan. profit the of 107% achieving for delivered be would maximumawards New appointments to the Board will normally be made on a one year rolling contract. rolling year one a on made be normally will Board the to appointments New the arise, may that specificcase any In loss. their mitigate departure upon to directors executive expects normally Company The other performance, service, or health age, to regard compensatoryhaving considerany payments carefully Committee will relevant. circumstancesthat are salarybase benefits and of value the to equivalent notice of lieu in payment a making by employment terminate may Company The period. notice the in respect of R I Glynn I A Bull R J Ames B G Wallace The maximum bonus opportunity for 2011 was 170% for the Chief Executive and 130% of base salary for other continuing executive executive continuing salaryother base for of 130% and Executive Chief the for 170% was opportunitymaximum 2011 bonus The for continued to subject vest only will and DBP the under shares in delivered be earned will bonus annual any of One third directors. period. vesting year a three after employment performancechallenging a stretching and targets despite year financial 2011 the for threshold plan bonus the exceeded Company The directors: executive the for follows as beendetermined bonuseshave and environment, economic Executive PSP on outlined as same the was 2009PSP the of structure The December 2011. 31 ended awards PSP 2009performance The the periodfor awards. 2012 the for page 33 on outlined as performancegroup TSR comparator same selectedindustrybasedon against the peers, was using award the of 50% andmedian below positioned was PartyGamingCompany The Bwin combined entity). the (including awards 2012 the for 33 page vest. not will award the of element this therefore for 33 page on performanceperformancesame outlined as the EPS applied targets and to subject was award the of 50% remaining The vest. not will award the of element this attainedtherefore and not was threshold minimum The awards. 2012 the Servicecontracts contracts: rolling year one conventional on employed now are directors executive all policy, Company with line In Executive R I Glynn I A Bull R J Ames take account of exceptional factors including, for example, corporate events or exceptional market or industry factors which would would industrywhich factors or market exceptional or events corporate example, for including, factors exceptional of account take inappropriate. targets otherwisethe render Executivedirectors’ shareholding guidelines one least at to value in personalequivalent shareholding a time over up build to directors executive require guidelines Shareholding the until plans incentive Company’s earnedthe shares under vested retain encouraged to are Executives salary. base year’s beenmet. has guideline shareholding Incentivesperformance – periods Decemberended 31 2011 Annualbonus on 30% remaining the performancefinancial and basedon plan profit assessed was bonus the annual against 2011 the of 70% plan: profit the respectperformance of individual In objectives. plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 36
Governance continued
Directors’ remuneration report continued
Matters relating to Board changes In 2012 the Company will continue to align employee bonus arrangements with those of the executive directors to ensure I A Bull consistency across the organisation and delivery of strategic It was announced on 15 April 2011 that I A Bull would be joining goals. The Committee considers it important to maximise this the plc Board as Chief Financial Officer reporting to R I Glynn. alignment of bonus structures whilst also retaining line of sight He was appointed to the Board on 4 July 2011. for individual business units. His base salary is £380,000 per annum and his annual and long-term incentive arrangements are made on the same basis as all other executive directors, including the Performance Share Plan and Ladbrokes Growth Plan. He received an incremental PSP award in October 2011 of a further 50% of base salary to reflect the terms of his appointment. The overall structure of his remuneration arrangements were set with reference to the remuneration review in 2010, and reflect a reduction in both fixed and variable remuneration in comparison to his predecessor. B G Wallace B G Wallace announced his intention to stand down as a director of the Company on 17 February 2011 and this took effect from This has been supported by a Company-wide initiative to improve 31 August 2011. communication, awareness and understanding of the total reward His salary, cash supplement in lieu of pension, and benefits offerings within Ladbrokes. This has included total reward entitlement ceased on his departure date. statements to all management levels including executive directors and booklets to all employees covering pay, pensions, benefits, He was eligible for a payment in respect of bonus for the 2011 bonuses, recognition and incentive arrangements. financial year, up to a maximum of 150% of salary pro-rated for time served. He also received an additional payment of £55,600 Ladbrokes is committed to strengthening and widening employee to compensate him for the PSP award he would have normally share ownership. It therefore operates an additional discretionary received in 2011. Due to a close period being in place at the share plan (Restricted Share Plan) below Board level and two time of the regular grant cycle in February 2011, the award was all-employee share incentive plans. Further details on each ultimately not made. The value of this additional payment has been of these plans are provided below: calculated taking into account his normal award potential, with assumed vesting around target levels on a time pro-rata basis. Restricted Share Plan (“RSP”) The RSP is used from time to time as an attraction and retention His 2010 PSP award will vest at the end of the original performance vehicle for key management positions. Awards vest at the end period, subject to the performance conditions being met and time of a three year period, subject to continued employment. pro-rating to reflect the proportion of the performance period in Executive directors are not eligible to participate in the plan. which he remained in employment. All share awards under the DBP vested in accordance with the scheme rules. Savings Related Share Option Scheme Awards under all other share plans were treated in accordance The Company offers a Savings Related Share Option Scheme with the relevant scheme rules. Mr Wallace did not receive a which is approved by HMRC (“the 1983 Scheme”), and is linked to Ladbrokes Growth Plan or 2011 PSP award. a Save As You Earn contract under which participants save a regular monthly sum by deducting from earnings up to £250 per J P O’Reilly month for either three or five years. Subject to common service As disclosed in the 2010 Directors’ remuneration report, in criteria, the 1983 Scheme is open to all UK employees (including accordance with his contract, Mr O’Reilly was entitled to receive a executive directors). termination payment in respect of salary, pension and benefits for his 12 month notice period following leaving in November 2010. Options are normally exercisable during a period of six months Instalments totalling £364,000 were made during 2010, with the following the expiry of three and five years (as previously selected remainder to be paid on a phased basis during 2011 subject to by the participant) from the dates of grant and there are no mitigation based on Mr O’Reilly’s earnings from other activities in performance conditions. Option prices are calculated by reference the 12 month period. The instalments payable during 2011 were to the average mid-market quotation of shares as shown by the reduced from £291,000 to £191,000 following discussion with Stock Exchange Daily Official List for the five business days Mr O’Reilly regarding his activities within the relevant period. immediately preceding the date of grant, discounted by up to 20% per share. Wider workforce remuneration The Committee takes into consideration the pay and conditions of Share Incentive Plan employees throughout the Group when determining remuneration The Share Incentive Plan which is approved by HMRC is open to arrangements for executive directors. all UK employees (including executive directors) who have completed at least 12 months’ service. To encourage employee Following two years of pay freezes within the wider employee participation, the Company provides a match of one bonus share population, Ladbrokes will be making salary increases in for every two shares purchased by employees. The bonus shares March 2012. However, as outlined on page 34 no annual salary are held conditionally upon satisfaction of a one year service increases will be awarded to the executive directors. requirement. The maximum monthly contribution by employees has been set at £75 per month. Governance Fee £7,000 31/12/11 £60,000 £43,000 £10,000 £10,000 £250,000 37 31/12/10 31/12/09 31/12/08 31/12/07 Ladbrokes FTSE250 0 31/12/06 50 100 150 The impact of the Company’s performance is reflected in the the performance in reflected is Company’s the of impact The 2009Performance Plan and 2008 Share the both of lapsing that mean would level sustainedperformance and this at awards demonstrates This vest. to unlikely is Plan Growth Ladbrokes the the and Ladbrokes at remuneration betweenexecutive link the shareholdervalue. long-term of creation Performancegraph the FTSE250, the of company constituent a is Company the As market of indication appropriate an provides index FTSE250 Company’s benchmark the to which against movements TSR performance.Company’s summariseschart the The below period year five the over performanceindex FTSE250 the against December 2011. 31 ended years: five over holding £100 hypothetical a of value in Growth *Excludesthe Chairman and the Senior Independent Director. Role Chairman Senior Independent Director member Board Audit Committee Chairman Remuneration Committee Chairman Member of one or both of Audit/ Remuneration Committee* Non-executivedirectors their in out set terms on retained are directors Non-executive service with contracts have not do They appointment. lettersof of appointment subsidiaries. The its of any or Company the either notice. without terminable is director non-executive a is directors non-executive for appointment of standardletter The request. inspectionupon for available Board the of Chairman the of fees the Committeedetermines The of each of remuneration the determines whole a as Board the and fees receive directors Non-executive directors. non-executive the reviewed. regularly are and practice market median to relative set orChairman the of remuneration the in increase no was There January 1 2012. at as directors non-executive other share bonus, annual for eligible not are directors Non-executive benefits. other pensionsor incentives, follows: as payable are fees annual The plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 38
Governance continued
Directors’ remuneration report continued
Directors’ remuneration and interests Audited information The following table shows the emoluments of the executive directors and non-executive directors for the year ended 31 December 2011 excluding gains from the exercise of share options and contributions to money purchase schemes. Annual One-off bonus value special Pension Performance 2011 2010 Base salary (cash & DBP) incentive Benefits supplement share plan Total Total Name £000 £000 £000 £000 £000 £000 £000 £000 Executive directors R I Glynn 580 491 – 18 131 – 1,220 1,020 I A Bull 188 128 – 7 42 – 365 – R J Ames 370 221 – 10 54 – 655 721 B G Wallace(1) 330 494 350 18 99 56 1,347 1,229 Total 1,468 1,334 350 53 326 56 3,587 2,970 Non-executive directors P Erskine 250 – – – – – 250 250 J F Jarvis 50 – – – – – 50 50 C Rodrigues 60 – – – – – 60 60 C P Wicks 50 – – – – – 50 50 S Bailey 50 – – – – – 50 47 D M Shapland 60 – – – – – 60 55 J M Kelly 60 – – – – – 60 20 Total 580 – – – – – 580 532
(1) In relation to B G Wallace a special one-off incentive was disclosed in last year’s Directors’ remuneration report of 70% of salary paid in March 2011. This incentive was put in place for 2010 reflecting the critical requirement to maintain continuity during the transition period following the departure of C Bell and the initial employment period of R I Glynn. Details relating to B G Wallace’s 2011 annual bonus payment and additional payment to compensate him for the PSP award he would have normally received in 2011 can be found on page 36. B G Wallace served elsewhere as a non-executive director and retained fees in 2011 (up to 31 August 2011) of £27,367. Governance – – – period end Performance (pence) date of award date of award Share price on Share – 29.02.08 304.25 31.12.10 – 29.02.08 304.25 31.12.10 – 29.02.08 304.25 28.02.11 – 29.02.08 304.25 28.02.11 awards at at awards 31 Dec 11 Outstanding of cessation) Date of award (or earlier date – 372,934 19.05.11 150.20 31.12.13 – 350,076 19.02.10 151.00 31.12.12 – 331,580 20.02.09 178.00 31.12.11 – 510,684 14.10.11 133.80 31.12.13 – 510,684 – 682,032 19.05.11 150.20 31.12.13 – 637,242 29.04.10 157.00 31.12.12 – 1,319,274 – 89,413 19.05.11 150.20 19.05.14 – 43,147 24.02.09 182.50 24.02.12 – – 132,560 – 132,842 19.05.11 150.20 19.05.14 – 132,842 – 143,061 19.05.11 150.20 19.05.14 – 170,320 24.02.09 182.50 24.02.12 – – 313,381 – 1,213(4) note See – – 1,213 – 145(4) note See – – 145 – 983(4) note See – – 983 – 1,493,240 19.05.11 150.20 30.06.15 – 1,493,240 – 1,533,598 14.10.11 133.80 30.06.15 – 1,533,598 – 4,035,784 30.06.10 127.20 30.06.15 – 4,035,784 during during the year the year cessation) (or period to Awards lapsed lapsed Awards – – – – 111,274 – 111,274 1,054,590 – – – – – – 280,260 349,113 19.02.10 151.00 31.12.12 – 66,408 529,714 20.02.09 178.00 31.12.11 – 281,116 – 627,784 878,827 – – – – – – – – – – – – – – – – – – during during the year the year cessation) (or period to Awards vested Awards – – – – – – – – – – 9,774 – – 72,780 – – during during the year the year 39 cessation) (or period to Awards made Awards – 372,934 – 510,684 – 510,684 – 682,032 – 89,413 – 132,842 – 132,842 – 143,061 – 145 – 145 – 1,493,240 – 1,493,240 – 1,533,598 – 1,533,598 879 334 879 334 767 216 9,774 43,147 52,921 89,413 9,774 72,780 awards at at awards 350,076 331,580 111,274 792,930 372,934 637,242 637,242 682,032 596,122 281,116 170,320 243,100 143,061 72,780 later date of Outstanding appointment) 31 Dec 10 (or Name R J Ames Total I A Bull Total R I Glynn Total B G Wallace 629,373 Total 1,506,611 R J Ames Total R I Glynn Total B G Wallace Total R J Ames Total R I Glynn Total B G Wallace 767 216 Total R J Ames Total I A Bull Total R I Glynn 4,035,784 Total 4,035,784 a aggregateonthe date exercise,of market subjectvalue of £6,901,190.64 the achievementto theof performance conditions. The option expires on 30 June 2020. nil cost option, which together entitle thehim value to whole a of share. The nil cost option entitles Glynn I R such to number sharesof that anhave a restricted a interest share a in held jointly with the Trustees theof Employee Benefit and Trust; B PSP 2009 His employment. in remained he period performance the of proportion the reflect to pro-rated time been have and met vested being Plan conditions performance Bonus Deferred the under awards outstanding Any 35. page on outlined as satisfied been not have conditions performance the employment. as of lapse cessation will his award following name Wallace’s G B into transferred were shares Free and Bonus employment. of cessation his following days 31 R A May2011. vested on19 B theaward dates rangedpence pence. 154.50 to from 116.20 C notachieved. G Wallace resigned from the Board on 31 August 2011. His outstanding 2010 PSP award will vest at the end of the original performance period, subject to to subject period, performance original the of end the at vest will award PSP 2010 outstanding His 2011. August 31 on Board the from resigned Wallace G LadbrokesGlynn’s I Growth Plan award comprises the following: wardswere made under the Deferred Bonus Ames J Plan R to Wallaceand G B Februaryon29 2008 based onan award pence.price 361.49 of Awards The performance PSP measuresawards are the same and foras2011 those2009, 2010 outlined awards onpage for the33. 2012 onusshares were awarded under the Share Incentive Plan monthly ona basis onaward dates between January 5 Share and pricesDecember 5 on 2011. onditionalPerformance Share Plan Awards made Februaryon29 2008 lapsed theirin entirety February as the performance on17 2011 conditions were (6) (4) (5) (1) (2) (3) Plan Performance Plan Share Shareschemes outstanding options and shares of number the with schemes,together share Company’s the under 2011 in granted options and Awards tables. following the in detailed are cessation) of earlierdate (or December 2011 31 at as plc Ladbrokes 2011 Accounts and Report Annual Deferred Deferred Bonus Plan Bonus and Shares Free Ladbrokes Ladbrokes Plan Growth Ladbrokes plc Annual Report and Accounts 2011 40
Governance continued
Directors’ remuneration report continued
Share schemes continued Number of Options options at Options exercised/ 31 Dec 11 Number of granted lapsed (or earlier Exercise Date from options at during during date of Date of price which Expiry Plan Name 31 Dec 10 the year the year cessation) grant (pence) exercisable date 1978 Share R J Ames 11,839 – – 11,839 08.04.05 253.37 08.04.08 08.04.15 Option Scheme Total 11,839 – – 11,839 International R J Ames 49,478 – – 49,478 01.09.06 325.14 01.09.09 01.09.16 Share Option 46,981 – – 46,981 25.04.06 359.97 25.04.09 25.04.16 Scheme 11,651 – – 11,651 08.04.05 253.37 08.04.08 08.04.15 Total 108,110 – – 108,110 1983 Savings R I Glynn – 7,610 – 7,610 22.06.11 118.59 01.08.14 31.01.15 Related Share Total – 7,610 – 7,610 Option Scheme B G Wallace 7,020 – – 7,020 22.06.09 130.33 01.08.12 31.01.13 Total 7,020 – – 7,020 2010 Share R I Glynn 1,177,103 – – 1,177,103 28.04.10 – 28.04.13 28.04.20 Award Plan Total 1,177,103 – – 1,177,103
(1) All options granted to executive directors have either met the applicable performance conditions or have lapsed in accordance with the plan rules. (2) The mid-market price of the Company’s shares on 30 December 2011 was 130.00 pence (31 December 2010: 122.70 pence). The highest price of shares during the financial year was 155.30 pence (2010: 162.70 pence). The lowest price of the Company’s shares during the financial year was 114.00 pence (2010: 122.70 pence). (3) B G Wallace resigned from the Board on 31 August 2011 and the table above details his options up to this date. He has six months following the date of departure to exercise his options held under the 1983 Savings Related Share Option Scheme. (4) R I Glynn was awarded a nil cost option over 1,177,103 shares as a one-off compensatory award under the 2010 Share Award Plan as part of the terms of his appointment. This award was fully disclosed at the time of his appointment and in the 2010 Directors’ remuneration report. Rights issue Adjustments to share option/awards To take account of the effects of the rights issue completed in October 2009, adjustments were made at that time to awards and options held under the Company’s employee share schemes. For the PSP, RSP and DBP, the number of shares under award were appropriately adjusted. In the case of the share options plans (1978 Scheme, International Scheme and 1983 Scheme), both the number of options under award and the exercise price were adjusted. Under the Share Incentive Plan, all participants received the right to buy one new share for every two shares already held in the plan. All of the executive directors took up their rights under the rights issue, and as a result, new shares were allotted to each individual. Ladbrokes shares previously held under the Share Incentive Plan will continue to be held in the plan on the same terms. The treatment outlined above was in accordance with the relevant scheme rules. Adjustments in respect of the 1978 Scheme and the 1983 Scheme were approved by HMRC. Governance
over ease ease 2011 £000 ector’s ector’s Incr dir in transfer in transfer value, less value, less contributions contributions
27 20 2011 2011 £000 ease in transfer transfer value over value over Incr
154 2011 £000 ransfer ransfer value at value at T 31 December December 31
2010 2010 £000 ransfer ransfer value at value at T 31 December 31 December
over over 2011 2011 £000 ease, ease, ector’s ector’s ransfer ransfer value of value of T inflation, inflation, incr excluding excluding contributions contributions less dir
over over 2011 2011 £000 ease, ease, pension pension inflation, Incr excluding excluding in accrued in accrued
4 3 17 127 over over ease ease 2011 2011 £000 pension pension Incr in accrued in accrued
41
20 2011 2011 £000 Accrued Accrued pension at 31 December December 31
16 2010 £000 Accrued Accrued pension at pension at 31 December
Name Ames J R Review of performance of Review conditions under theand PSPother share option schemes Committeeand the by reviewed schemeswere option share other the and PSP performance the the under conditions January In 2010, issue. rights the effect of dilutive reflectthe to made were adjustments appropriate andScheme schemes(1978 option share other the and PSP performance the under EPS condition an with awards to relation In the at outstanding awards for 33 IAS accordancewith in adjusted beenappropriately has target EPS relevant the Scheme), International issue. rights the of time 1.17454, of factor a reducedby were issue rights the to pricesprior share historic PSP, performance TSR the under the condition For ex-rights theoretical the by (£1.7140) issue rights the before day trading last the on price share closing the dividing by determined price (£1.4593). Retirementprovision and 2010 April in appointment salary base their since of 22.5% of supplementcash a received have Bull A I and Glynn I R respectively. 2011 July cessation of until 2007 March in Group the rejoined salary base he since of 30% of supplementcash a received Wallace G B non-Group pension transferred to were Group the with employment previous his accruedbenefits during The pension employment. disclosures. these in included not are 2006 arrangementsand in salary2011 base in of 22.5% of supplementcash a received also He (“LPP”). Plan Pension Ladbrokes the memberof a Amesis J R Cap. Earnings LPP-specific the above salary2010) base in of 30% from (reduced LPP, the of Trustees the by independentadvisorsactuarialappointed the by beenprovided have below figures value transfer The value transfer The figure. annual an accruedis benefit pensionThe policy. agreedtransfer LPP’s the accordancewith in calculated from transferredaway be to accruedwere benefit pension this if schemepension another to paid be would that amount representsthe individual. an to due or paid sum a not but LPP the of liability representsa value transfer A LPP. the Directors’pension provision LPP – Executive remaining only the Ames as J R which to 65, age at retirement on payable benefitspension the details below information The December 2011. 31 at entitled is LPP the of memberDirector pensionable servicethe all with respect of in entitlements pension total the accrued are pensions, the including shown, figures The director. a becoming to prior service Ladbrokes with any including Company further completing service,a being pensionablesalary, in increase any effect of the includes year the over increase value transfer The conditions. market in changes and date retirement pensionnormal the to closer year plc Ladbrokes 2011 Accounts and Report Annual Ladbrokes plc Annual Report and Accounts 2011 42
Governance continued
Directors’ remuneration report continued
Directors’ interests in shares The interests of the directors in the Company’s shares, excluding interests under share options, the PSP and the LGP, at the dates stated, are shown in the table below: Ordinary shares at Ordinary 31 December shares at 2010 (or 31 December later date of Name 2011 appointment) P Erskine 90,095 75,000 R I Glynn 1,310,382 1,177,103 R J Ames 197,317 71,829 I A Bull 209,570 82,986 S Bailey – – J F Jarvis 15,000 15,000 J M Kelly 18,041 – C J Rodrigues 22,646 22,646 D M Shapland 25,000 25,000 C P Wicks 1,384 1,384
(1) All the share interests above are beneficial. (2) Under the Share Incentive Plan, R J Ames holds 3,867 shares (31 December 2010: 2,691 shares) and R I Glynn holds 437 shares (31 December 2010: nil shares). Under the Deferred Bonus Plan, R J Ames holds 132,560 shares (31 December 2010: 52,921 shares) and R I Glynn holds 132,842 (31 December 2010: nil shares). (3) The following changes have occurred to the directors’ share interests since the year end: 160 shares were purchased by/awarded under the Share Incentive Plan to R J Ames (84 on 5 January 2012 and 76 on 6 February 2012) and 160 to R I Glynn (84 on 5 January 2012 and 76 on 6 February 2012). No other changes to directors’ share interests have taken place between 31 December 2011 and 16 February 2012. (4) R I Glynn was entitled to receive an interest in Ladbrokes shares with a value of £1.75 million on appointment. He is required to hold this interest for a minimum of three years forming the basis of a long-term holding in the Company. Except for the service contracts on page 35, none of the directors was materially interested during the year in any contract of significance in relation to the Company’s business entered into by the Company or its subsidiaries or, other than is shown in this report, has any interest in the shares or debentures of the Company or its subsidiaries. By order of the Board
C J Rodrigues 16 February 2012 Ladbrokes plc Annual Report and Accounts 2011 43 Statutory reports and financial statements Consolidated financial statements contents
44 Consolidated income statement 69 18 Interest in associates and other investments 45 Consolidated statement of comprehensive income 70 19 Trade and other receivables 46 Consolidated balance sheet 70 20 Cash and short-term deposits 47 C onsolidated statement of 70 21 Trade and other payables changes in equity 71 22 Provisions 48 Consolidated statement of 71 23 Interest bearing loans cash flows and borrowings 49 N otes to the consolidated 72 24 Financial risk management financial statements objectives and policies 49 1 Corporate information 74 25 Financial instruments 49 2 Basis of preparation 77 26 Net debt 49 3 Changes in accounting policies 77 27 Share capital 49 4 Summary of significant 78 28 Employee share ownership plans accounting policies 78 29 N otes to the statement
56 5 Segment information Financial statements of cash flows 58 6 N on-trading items 79 30 Retirement benefit schemes (continuing operations) 82 31 Share-based payments 58 7 P rofit before tax and net finance expense 84 32 Commitments and contingencies 59 8 Finance expense and income 85 33 Related party disclosures 59 9 Staff costs 88 Statement of directors’ responsibilities in relation to the 61 10 Income tax expense consolidated financial statements 62 11 Dividends 89 Independent auditor’s report to 63 12 Earnings per share the members of Ladbrokes plc 64 13 Discontinued operations 65 14 Goodwill and intangible assets 66 15 Impairment testing of goodwill and indefinite life intangible assets 67 16 Property, plant and equipment 68 17 Interest in joint venture Ladbrokes plc Annual Report and Accounts 2011 44
Statutory reports and financial statements continued Consolidated income statement
2011 2010 Before Before non-trading non-trading items(1) Total items(1) Total For the year ended 31 December Notes £m £m £m £m Continuing operations Amounts staked(2) 16,466.7 16,466.7 15,011.7 15,011.7
Revenue 5 976.1 976.1 980.1 980.1 Cost of sales before depreciation and amortisation (655.7) (656.7) (639.7) (639.7) Administrative expenses (82.9) (89.9) (82.9) (92.0) Share of results from joint venture and associates 1.0 1.0 3.3 3.3 EBITDA 238.5 230.5 260.8 251.7 Depreciation and amounts written off non-current assets (50.8) (62.6) (53.5) (72.9) Profit before tax and net finance expense 7 187.7 167.9 207.3 178.8 Finance expense 8 (33.4) (34.0) (34.6) (53.1) Finance income(3) 8 0.6 0.7 20.6 21.4 Profit before tax 154.9 134.6 193.3 147.1 Income tax expense 10 (18.4) (16.8) (35.6) (33.6) Income tax settlement credit(3) 10 –– 261.9 261.9 Profit for the year – continuing operations 136.5 117.8 419.6 375.4 Discontinued operations Loss for the year from discontinued operations 13 – 0.4 (8.7) (27.1) Profit for the year 136.5 118.2 410.9 348.3 Attributable to: Equity holders of the parent 136.5 118.2 410.9 348.3 Non-controlling interests –– ––
Earnings per share from continuing operations – basic 12 15.0p 13.0p 46.4p 41.5p – diluted 12 14.9p 12.9p 46.3p 41.4p Earnings per share on profit for the year – basic 12 15.0p 13.0p 45.4p 38.5p – diluted 12 14.9p 12.9p 45.3p 38.4p Proposed dividends(4) 11 3.90p 3.90p 3.75p 3.75p
(1) Non-trading items are profits or losses on disposal or impairment of non-current assets or businesses; unrealised gains and losses on derivative financial instruments; corporate transaction costs and business restructuring costs. Details of the non-trading items are given in note 6 and of discontinued operations in note 13, to the consolidated financial statements. (2) Amounts staked does not represent the Group’s statutory revenue and comprises the total amounts staked by customers on betting and gaming activities. (3) In the prior year the Group reached a settlement with HMRC which resulted in the recognition within the tax charge of a £261.9 million tax credit in relation to prior years (note 10). Finance income also increased by £20.0 million to reflect the interest consequences of the settlement (note 8). (4) A final dividend of 3.90 pence (2010: 3.75 pence) per share, amounting to £35.2 million (2010: £33.8 million), was declared by the directors on 16 February 2012. These financial statements do not reflect the dividend payable. The 2011 interim dividend of 3.90 pence per share (£35.2 million) was paid on 1 December 2011. Ladbrokes plc Annual Report and Accounts 2011 45
Consolidated statement of comprehensive income
2011 2010 For the year ended 31 December Notes £m £m £m £m Profit for the year 118.2 348.3
Currency translation differences (2.5) (7.5) Recycling of currency translation differences 13 – (10.8) Total foreign currency translation expense (2.5) (18.3)
Actuarial (losses)/gains on defined benefit pension scheme 30 (3.7) 15.6 Tax on actuarial (losses)/gains on defined benefit pension scheme 0.9 (4.2) Total actuarial (losses)/gains on defined benefit pension scheme, net of tax (2.8) 11.4
Net losses on cash flow hedges – (0.4) Tax on net losses on cash flow hedges – 0.1 Total net losses on cash flow hedges, net of tax – (0.3)
Recycling of losses on cash flow hedges 24 0.5 9.1 Tax on recycling of losses on cash flow hedges (0.1) (2.5)
Total recycling of losses on cash flow hedges, net of tax 0.4 6.6 Financial statements
Total other comprehensive expense for the year, net of tax (4.9) (0.6) Total comprehensive income for the year 113.3 347.7
Attributable to: Equity holders of the parent 113.3 347.7 Non-controlling interests – – Ladbrokes plc Annual Report and Accounts 2011 46
Statutory reports and financial statements continued Consolidated balance sheet
2011 2010 At 31 December Notes £m £m Assets Non-current assets Goodwill and intangible assets 14 629.4 610.1 Property, plant and equipment 16 201.2 207.4 Interest in joint venture 17 4.3 3.0 Interest in associates and other investments 18 14.7 14.5 Other financial assets 9.1 5.6 Deferred tax assets 10 34.9 69.3 Retirement benefit asset 30 37.4 34.5 931.0 944.4 Current assets Trade and other receivables 19 80.5 84.6 Cash and short-term deposits 20 26.4 17.9 106.9 102.5 Total assets 1,037.9 1,046.9
Liabilities Current liabilities Interest bearing loans and borrowings 23 (131.4) (108.3) Derivatives 25 (0.1) – Trade and other payables 21 (142.7) (134.4) Corporation tax liabilities (0.7) (26.2) Other financial liabilities 25 (1.0) (1.1) Provisions 22 (4.3) (1.3) (280.2) (271.3) Non-current liabilities Interest bearing loans and borrowings 23 (348.9) (401.6) Other financial liabilities 25 (10.4) (10.8) Deferred tax liabilities 10 (82.3) (93.3) Provisions 22 (9.4) (12.9) (451.0) (518.6) Total liabilities (731.2) (789.9) Net assets 306.7 257.0
Shareholders’ equity Issued share capital 27 266.2 266.1 Share premium 194.6 194.1 Treasury and own shares (113.3) (114.4) Retained earnings (49.5) (99.7) Foreign currency translation reserve 8.0 10.5 Equity shareholders’ funds 306.0 256.6 Non-controlling interests 0.7 0.4 Total shareholders’ equity 306.7 257.0
Approved by the Board of Directors on 16 February 2012.
R I Glynn I A Bull Directors Ladbrokes plc Annual Report and Accounts 2011 47
Consolidated statement of changes in equity
Attributable to Foreign the equity Issued Treasury currency shareholders Non- Total share Share and own Retained translation of the controlling shareholders’ capital premium shares earnings(1) reserve(2) Company interests equity £m £m £m £m £m £m £m £m At 1 January 2010 264.6 189.5 (112.5) (430.8) 28.8 (60.4) – (60.4) Profit for the year – – – 348.3 – 348.3 – 348.3 Other comprehensive income/ (expense) – – – 17.7 (18.3) (0.6) – (0.6) Total comprehensive income – – – 366.0 (18.3) 347.7 – 347.7 Issue of shares 1.5 4.6 – – – 6.1 – 6.1 Share-based payments charge – – – 3.8 – 3.8 – 3.8 Net movement in shares held in ESOP trusts – – (1.9) (4.0) – (5.9) – (5.9) Equity dividends – – – (34.7) – (34.7) – (34.7) Non-controlling interests –––– – – 0.4 0.4 At 31 December 2010 266.1 194.1 (114.4) (99.7) 10.5 256.6 0.4 257.0
At 1 January 2011 266.1 194.1 (114.4) (99.7) 10.5 256.6 0.4 257.0 Financial statements Profit for the year – – – 118.2 – 118.2 – 118.2 Other comprehensive expense – – – (2.4) (2.5) (4.9) – (4.9) Total comprehensive income – – – 115.8 (2.5) 113.3 – 113.3 Issue of shares 0.1 0.5 – – – 0.6 – 0.6 Share-based payments charge – – – 6.6 – 6.6 – 6.6 Net movement in shares held in ESOP trusts – – 1.1 (3.2) – (2.1) – (2.1) Equity dividends – – – (69.0) – (69.0) – (69.0) Non-controlling interests –––– – – 0.3 0.3 At 31 December 2011 266.2 194.6 (113.3) (49.5) 8.0 306.0 0.7 306.7
(1) At 31 December 2011, there was no deferred losses on cash flow hedges within retained earnings (2010: £0.5 million). (2) The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Ladbrokes plc Annual Report and Accounts 2011 48
Statutory reports and financial statements continued Consolidated statement of cash flows
2011 2010 For the year ended 31 December Notes £m £m Net cash flows from operating activities 29 186.0 277.0
Cash flows from investing activities: Interest received 0.3 12.2 Dividends received from associates 18 1.6 – Payments for intangible assets (39.9) (15.9) Purchase of property, plant and equipment (37.4) (32.9) Proceeds from the sale of property, plant and equipment 1.4 1.4 Proceeds from the sale of intangible assets – 4.3 Purchase of interest in joint venture 17 (2.5) (0.8) Purchase of interest in associates and other investments 18 – (0.2) Costs of disposal of discontinued operations – (2.7) Cash consideration in respect of sale of discontinued operations – (0.9) Cash disposed of with discontinued operations – (3.1) Net cash used in investing activities (76.5) (38.6)
Cash flows from financing activities: Proceeds from issue of ordinary shares 0.4 – Proceeds from borrowings, net of issue costs 24 126.9 221.1 Purchase of ESOP shares (2.1) – Repayment of borrowings (157.0) (435.1) Dividends paid 11 (69.0) (34.7) Net cash used in financing activities (100.8) (248.7)
Net increase/(decrease) in cash and cash equivalents 8.7 (10.3) Cash and cash equivalents at beginning of the year 17.7 28.0 Cash and cash equivalents at end of the year 20 26.4 17.7
Cash and cash equivalents comprise: Cash at bank and in hand 20 26.4 17.9 Bank overdraft – (0.2) 26.4 17.7 Ladbrokes plc Annual Report and Accounts 2011 49
Notes to the consolidated financial statements
1 Corporate information The International Accounting Standards Board’s Second Annual Ladbrokes plc (the Company) is a limited company incorporated Improvements Project (published in May 2009) made minor and domiciled in the United Kingdom whose shares are publicly amendments to a number of standards, primarily with a view to traded. The address of its registered office and principal place of removing inconsistencies and clarifying wording. The amendments business is disclosed in the corporate information section of the to these standards did not have any impact on the accounting Annual Report. policies, financial position or performance of the Group. The consolidated financial statements of the Company and 4 Summary of significant accounting policies its subsidiaries (together, ‘the Group’) for the year ended Basis of consolidation 31 December 2011 were authorised for issue in accordance The consolidated financial statements comprise the financial with a resolution of the directors on 16 February 2012. statements of the Group at 31 December each year. The underlying financial statements of subsidiaries are prepared The principal activities of the Group are described in note 5. for the same reporting year as the Company, using consistent 2 Basis of preparation accounting policies. Control is achieved where the Company has The consolidated financial statements of the Group have been the power to govern the financial and operating policies of an prepared in accordance with International Financial Reporting investee entity so as to obtain benefits from its activities. Standards (IFRSs) as adopted for use in the European Union. All intercompany transactions, balances, income and expenses The consolidated financial statements are presented in pounds are eliminated on consolidation. sterling, which is the Group’s functional and presentational Subsidiaries are consolidated, using the purchase method of currency. All values are in millions (£m) rounded to one decimal accounting, from the date on which control is transferred to the place except where otherwise indicated. Group and cease to be consolidated from the date on which Financial statements To assist in understanding its underlying performance, the Group control is transferred from the Group. has defined the following items of income and expense as On acquisition, the assets and liabilities and contingent liabilities non-trading in nature: of a subsidiary are measured at fair value at the date of acquisition. profits or losses on disposal or impairment of non-current Any excess of the cost of acquisition over the fair values of the assets or businesses; separately identifiable net assets acquired is recognised as goodwill. Where necessary, adjustments are made to the financial unrealised gains and losses on derivative financial instruments; statements of subsidiaries to bring the accounting policies used in corporate transaction costs; and line with those used by the Group. business restructuring costs. Critical accounting estimates and judgements The non-trading items have been included within the appropriate The preparation of financial information requires the use of classifications in the consolidated income statement. assumptions, estimates and judgements about future conditions. Use of available information and application of judgement are 3 Changes in accounting policies inherent in the formation of estimates. Actual results in the future From 1 January 2011 the Group adopted the following new and may differ from those reported. In this regard, management amended IFRSs and IFRIC interpretations. These did not have a believes that the accounting policies where judgement is material impact on the results or financial position of the Group. necessarily applied are those that relate to: the measurement In addition the Group has commenced amortisation of the and impairment of indefinite life intangible assets; the customer relationships intangible asset in the year (see note 4). measurement of pension and other post-employment benefit The revision of IAS 24 Related Party Disclosures simplified the obligations; the determination of the initial fair value of betting and disclosure requirements for government-related entities and gaming transactions; the recoverable amount of trade receivables; clarified the definition of a related party. It clarified that non- income tax and the valuation of financial guarantee contracts. executive directors should be included in the disclosure of key The estimates and underlying assumptions are reviewed on an management personnel compensation and the related party ongoing basis. Revisions to accounting estimates are recognised definition now includes parties with joint control over the entity in the period in which the estimate is revised if the revision affects and joint ventures in which the entity is a venturer. only that period, or in the period of the revision and future periods, The amendment to IAS 32 Financial Instruments: Presentation on if the revision affects both current and future periods. classification of rights issue addresses the accounting for rights Further information about key assumptions concerning the future issues. The definition of a financial liability has been amended to and other key sources of estimation uncertainty are set out below. classify rights issues (and certain options or warrants) as equity instruments under certain conditions. Indefinite life intangible assets The Group has determined that betting shop licences have The amendment to IFRIC 14 Prepayments of a Minimum Funding indefinite lives. Requirement provides guidance on assessing the recoverable amount of a net pension asset and permits an entity to treat the The Group determines whether indefinite life intangible assets are prepayment of a minimum funding requirement as an asset. impaired at least on an annual basis. This requires an estimation of the ‘value in use’ of the cash generating units to which the IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments intangible assets are allocated. Estimating a value in use amount clarifies that equity instruments issued to a creditor to extinguish requires management to make an estimate of the expected future a financial liability qualify as consideration paid. The equity cash flows from the cash generating unit and also to choose a instruments issued are measured at their fair value, unless this suitable discount rate in order to calculate the present value of cannot be reliably measured, in which case they are measured those cash flows. Further details are given in notes 14 and 15. at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. Ladbrokes plc Annual Report and Accounts 2011 50
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
4 Summary of significant accounting policies continued Goodwill Pension and other post-employment benefit obligations Goodwill on acquisition is initially measured at cost, being the excess The cost of defined benefit pension plans and other post- of the cost of the business combination over the Group’s interest in employment benefits is determined using actuarial valuations. the net fair value of the separately identifiable assets, liabilities and The actuarial valuation involves making assumptions about contingent liabilities of a subsidiary or associate at the date of discount rates, expected rates of return on assets, future salary acquisition. In accordance with IFRS 3 Business Combinations, increases, mortality rates and future pension increases. Due to goodwill is not amortised but reviewed annually for impairment and the long-term nature of these plans, such estimates are subject as such, is stated at cost less any provision for impairment of value. to significant uncertainty. Further details are given in note 30. Any impairment is recognised immediately in the consolidated income statement and is not subsequently reversed. On acquisition, Betting and gaming transactions any goodwill acquired is allocated to cash generating units for the Betting and gaming transactions are measured at the fair value of purpose of impairment testing. Where goodwill forms part of a cash the consideration received or receivable from customers. This is generating unit and part of the operation within that unit is disposed normally the nominal amount of the consideration but on certain of, the goodwill associated with the operation disposed of is included occasions, the fair value is estimated using valuation techniques, in the carrying amount of the operation when determining the gain or taking into account the credit profile of customers in determining loss on disposal of the operation. the collectability of the consideration. In addition, where there are indicators that any trade receivable is impaired at the balance Intangible assets sheet date, management makes an estimate of the asset’s Intangible assets acquired separately are capitalised at cost and recoverable amount. Further details are given in note 19. those acquired as part of a business combination are capitalised separately from goodwill if the fair value can be measured reliably Income tax on initial recognition. The costs relating to internally generated The Group is subject to tax in a number of jurisdictions. intangible assets, principally software costs, are capitalised if the Significant judgement is required in determining the provision for criteria for recognition as assets are met. Other expenditure is income taxes due to uncertainty of the amount of income tax that charged against profit in the year in which the expenditure is may be payable, and in respect of determining the level of the incurred. Following initial recognition, intangible assets are carried future taxable profits of the Group that support the recoverability at cost less any accumulated amortisation and any accumulated of deferred tax assets. Further details are given in note 10. impairment losses. Financial guarantee contracts The useful lives of these intangible assets are assessed to be The valuation of financial guarantee contracts and related either finite or indefinite. Where amortisation is charged on assets indemnities requires use of assumptions of the risks of default with finite lives, this expense is taken to the consolidated income of the guaranteed entities and the credit profiles of the statement through the ‘depreciation and amounts written off counterparties. Further details are given in note 25. non-current assets’ line item. Useful lives are reviewed on an Investments in joint ventures annual basis. A joint venture is an entity in which the Group holds an interest on Intangible assets with indefinite useful lives are tested for a long-term basis and which is jointly controlled by the Group and impairment annually, either individually, or at the cash generating one or more other venturers under a contractual agreement. unit level. The Group’s share of results of joint ventures is included in the A summary of the policies applied to the Group’s intangible assets Group consolidated income statement using the equity method of is as follows: accounting. Investments in joint ventures are carried in the Group consolidated balance sheet at cost plus post-acquisition changes Customer Licences Software relationships(1) in the Group’s share of net assets of the entity less any impairment in value. The carrying value of investments in joint ventures Useful lives indefinite finite finite includes acquired goodwill. Method used not 3-5 years 15.5 years depreciated straight line straight line If the Group’s share of losses in the joint venture equals or or revalued exceeds its investment in the joint venture, the Group does not Internally generated acquired acquired and acquired recognise further losses, unless it has incurred obligations to do or acquired internally so or made payments on behalf of the joint venture. generated Investments in associates Impairment testing/ annually and useful lives where an Associates are those businesses in which the Group has a recoverable amount where an reviewed at indicator of long-term interest and is able to exercise significant influence testing indicator of each financial impairment over the financial and operational policies but does not have impairment year end exists control or joint control over those policies. exists
The Group’s share of results of associates is included in the Group (1) From 1 January 2011, the Group changed its estimate of useful economic consolidated income statement using the equity method of life of customer relationships from being indefinite to a finite period of accounting. Investments in associates are carried in the Group 15.5 years and started amortising the asset over the period. consolidated balance sheet at cost plus post-acquisition changes An intangible asset is derecognised upon disposal, with any in the Group’s share of net assets of the entity less any impairment gain or loss arising (calculated as the difference between the net in value. The carrying value of investments in associates includes disposal proceeds and the carrying amount of the item) included acquired goodwill. in the consolidated income statement in the year of disposal. Ladbrokes plc Annual Report and Accounts 2011 51
4 Summary of significant accounting policies continued Recoverable amount of non-current assets Property, plant and equipment At each reporting date, the Group assesses whether there is any Land is stated at cost less any impairment in value. indication that an asset may be impaired. Where an indicator of Buildings, plant and equipment are stated at cost less impairment exists, the Group makes a formal estimate of the accumulated depreciation and any impairment in value. recoverable amount. Where the carrying amount of an asset Depreciation is calculated using the straight line method to exceeds its recoverable amount, the asset is considered impaired allocate the cost of each asset to its residual value over its and is written down to its recoverable amount. The recoverable useful economic life as follows: amount is the higher of an asset’s or cash generating unit’s fair Buildings – 50 years or estimated useful life of the building, value less costs to sell and its value in use and is determined for or lease, whichever is less, to estimated residual value. an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Fixtures, fittings and equipment – four to 10 years as considered groups of assets. appropriate to write down cost to estimated residual value. Cash and cash equivalents The carrying values of plant and equipment are reviewed for Cash and cash equivalents consists of cash at bank and in hand impairment annually as to whether there are events or changes in and short-term deposits with an original maturity of less than three circumstances indicating that the carrying values may not be months, net of outstanding bank overdrafts. recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or Financial assets cash generating units are written down to their recoverable amount. Financial assets are recognised when the Group becomes party to the contracts that give rise to them.
The recoverable amount of plant and equipment is the greater of Financial statements fair value less costs to sell and value in use. In assessing value in The Group classifies financial assets at inception as either loans use, the estimated future cash flows are discounted to their and receivables or as financial assets at fair value through profit present value using a pre-tax discount rate that reflects current or loss. market assessments of the time value of money and the risks Loans and receivables are non-derivative financial assets with specific to the asset. For an asset that does not generate largely fixed or determinable payments that are not quoted in an active independent cash inflows, the recoverable amount is determined market. On initial recognition, loans and receivables are measured for the cash generating unit to which the asset belongs. at fair value net of transaction costs. Subsequently, the fair values Impairment losses are recognised in the consolidated income are measured at amortised cost, using the effective interest statement in the ‘depreciation and amounts written off non-current method, less any allowance for impairment. assets’ line item. Financial assets at fair value through profit or loss comprise An item of property, plant and equipment is derecognised upon derivative financial instruments and guarantees provided to the disposal, with any gain or loss arising (calculated as the difference Group. Financial assets through profit or loss are measured initially between the net disposal proceeds and the carrying amount of the at fair value with transaction costs taken directly to the item) included in the consolidated income statement in the year consolidated income statement. Subsequently, the fair values are of disposal. remeasured, and gains and losses from changes therein are recognised in the consolidated income statement. Leases Leases that transfer to the Group substantially all the risks and Trade receivables are generally accounted for at amortised cost. benefits incidental to ownership of the leased item are capitalised The Group reviews indicators of impairment on an ongoing basis at the inception of the lease at the fair value of the leased item or, and where such indicators exist, the Group makes an estimate of if lower, at the present value of the minimum lease payments. the asset’s recoverable amount. Lease payments are apportioned between the finance charges Financial guarantees provided to the Group are classified as and reduction of the lease liability so as to achieve a constant rate financial assets and are measured at fair value by estimating the of interest on the remaining balance of the liability. Finance probability of the guarantees being called upon and the related charges are charged directly against income. cash inflows to the Group. Capitalised leased assets are depreciated over the shorter of Financial liabilities the estimated useful life of the asset and the lease term. Financial liabilities comprise interest bearing loans and Leases where the lessor retains substantially all the benefits and borrowings, derivative financial instruments, ante post bets and risks of ownership of the asset are classified as operating leases. guarantees given to third parties. On initial recognition, financial Operating lease payments, other than contingent rentals, are liabilities are measured at fair value plus transaction costs where recognised as an expense in the consolidated income statement they are not categorised as financial liabilities at fair value through on a straight line basis over the lease term. profit or loss. Financial liabilities at fair value through profit or loss include derivative financial instruments and guarantees. Financial liabilities at fair value through profit or loss are measured initially at fair value, with transaction costs taken directly to the consolidated income statement. Subsequently, the fair values are remeasured and gains and losses from changes therein are recognised in the consolidated income statement. Ladbrokes plc Annual Report and Accounts 2011 52
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
4 Summary of significant accounting policies continued In relation to fair value hedges that meet the conditions for hedge All interest bearing loans and borrowings are initially recognised at accounting, any gain or loss from remeasuring the hedging fair value net of issue costs associated with the borrowing. After instrument at fair value is recognised immediately in the initial recognition, fixed rate interest bearing loans and borrowings consolidated income statement. Any gain or loss on the hedged are subsequently measured at amortised cost using the effective item attributable to the hedged risk is adjusted against the carrying interest rate method. amount of the hedged item and recognised in the consolidated The Group has provided financial guarantees to third parties in income statement. respect of lease obligations of certain of the Group’s former In relation to cash flow hedges that meet the conditions for hedge subsidiaries within the disposed hotels division. Financial guarantee accounting, the portion of the gain or loss on the hedging contracts are classified as financial liabilities and are measured at instrument that is determined to be an effective hedge is fair value by estimating the probability of the guarantees being recognised directly in equity and the ineffective portion is called upon and the related cash outflows from the Group. recognised in the consolidated income statement. Derecognition of financial assets and liabilities For all cash flow hedges, the gains or losses that are recognised in Financial assets are derecognised when the right to receive cash equity are transferred to the consolidated income statement in the flows from the assets has expired or when the Group has same year in which the hedged cash flow affects the consolidated transferred its contractual right to receive the cash flows from the income statement. financial assets or has assumed an obligation to pay the received Hedge accounting is discontinued when the hedging instrument cash flows in full without material delay to a third party, and either: expires or is sold, terminated or exercised, no longer qualifies for substantially all the risks and rewards of ownership have been hedge accounting or as a result of a management decision to transferred; or cease hedging. At that point in time, any cumulative gain or loss on substantially all the risks and rewards have neither been retained the hedging instrument recognised in equity is kept in equity until, nor transferred but control is not retained. in the case of a hedge of a forecast transaction, the transaction occurs or, in the case of net investment hedging, until the Group Financial liabilities are derecognised when the obligation is disposes of its investment in the foreign entity being hedged. discharged, cancelled or expires. Where a hedged transaction is no longer expected to occur, the Derivative financial instruments and hedge accounting net cumulative gain or loss recognised in equity is transferred to The Group uses derivative financial instruments such as cross the consolidated income statement for the year. currency swaps, foreign exchange swaps and interest rate swaps, For derivative financial instruments that do not qualify for hedge to hedge its risks associated with interest rate and foreign accounting, any gains or losses arising from changes in fair value currency fluctuations. Derivative financial instruments are are taken directly to the consolidated income statement for the year. recognised initially and subsequently at fair value. The gains or losses on remeasurement are taken to the consolidated income Provisions statement except where the derivative is designated as a cash Provisions are recognised when the Group has a present flow hedge or a net investment hedge. Fair values of over the obligation (legal or constructive) as a result of a past event, it is counter derivatives are obtained using valuation techniques, probable that an outflow of resources embodying economic including discounted cash flow models and option pricing models. benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Derivative financial instruments are classified as assets where their fair value is positive, or as liabilities where their fair value is Provisions are measured at the directors’ best estimate of the negative. Derivative assets and liabilities arising from different expenditure required to settle the obligation at the balance sheet transactions are only offset if the transactions are with the same date and are discounted to present value where the effect is counterparty, a legal right of offset exists and the parties intend to material using a pre-tax rate that reflects current market settle the cash flows on a net basis. assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a The derivative financial instruments taken out as hedges finance expense. were designated and documented as hedges on the date that the relevant derivative contract was committed to, as one of Foreign currency translation the following: The presentation and functional currency of Ladbrokes plc and the functional currencies of its UK subsidiaries is pounds sterling (£). a hedge of the fair value of an asset and liability (fair value hedge); Transactions in foreign currencies are initially recorded in sterling a hedge of the income/cost of a highly probable forecasted at the foreign currency rate ruling at the date of the transaction. transaction or commitment (cash flow hedge); or Monetary assets and liabilities denominated in foreign currencies are retranslated at the foreign currency rate of exchange ruling at a hedge of a net investment in a foreign entity the balance sheet date. (net investment hedge). Ladbrokes plc Annual Report and Accounts 2011 53
4 Summary of significant accounting policies continued The carrying amount of deferred tax assets is reviewed at each All foreign currency translation differences are taken to the balance sheet date and reduced to the extent that it is no longer consolidated income statement with the exception of differences probable that sufficient taxable profit will be available to allow all on foreign currency borrowings that provide a post-tax hedge or part of the deferred tax asset to be utilised. against a net investment in a foreign entity. These are taken Deferred tax assets and liabilities are measured at the tax rates directly to equity until the disposal of the net investment, at which that are expected to apply to the year when the asset is realised time they are recognised in the consolidated income statement. or the liability is settled, based on tax rates (and tax laws) that have Tax charges and credits attributable to exchange differences on been enacted or substantively enacted at the balance sheet date. those borrowings are also dealt with in equity. Deferred tax balances are not discounted. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the Income tax relating to items recognised directly in equity is date of the initial transaction. Non-monetary items measured at recognised in equity and not in the consolidated income statement. fair value in a foreign currency are translated using the exchange Revenues, expenses and assets are recognised net of the amount rate at the date when the fair value was determined. of sales tax except: The main functional currency of overseas subsidiaries is the Euro. where the sales tax incurred on a purchase of goods and At the reporting date, the assets and liabilities of these overseas services is not recoverable from the taxation authority, in subsidiaries are translated into sterling at the rate of exchange which case the sales tax is recognised as part of the cost ruling at the balance sheet date and their income statements are of acquisition of the asset or as part of the expense item as translated at the average exchange rates for the year. The post-tax applicable; and exchange differences arising on the retranslation, since the date of Financial statements transition to IFRSs, are taken directly to a separate component of receivables and payables are stated with the amount of sales equity. On disposal of a foreign entity, the deferred cumulative tax included. amount recognised in equity relating to that particular foreign The net amount of sales tax recoverable from, or payable to, the entity is recognised in the consolidated income statement. taxation authority is included as part of receivables or payables Income tax in the consolidated balance sheet. Deferred tax is provided, using the liability method, on all Pensions and other post-employment benefits temporary differences at the balance sheet date, between the tax The defined benefit pension fund holds assets separately from bases of assets and liabilities and their carrying amounts for the Group. The pension cost relating to this fund is assessed in financial reporting purposes. accordance with the advice of independent qualified actuaries Deferred tax liabilities are recognised for all taxable temporary using the projected unit credit method. differences: Actuarial gains or losses are recognised in the consolidated except where the deferred tax liability arises from the initial statement of comprehensive income in the period in which recognition of an asset or liability in a transaction that is not a they arise. business combination and, at the time of the transaction, affects Any past service cost is recognised immediately to the extent that neither the accounting profit nor the tax profit; and the benefits have already vested and otherwise is amortised on a associated with investments in subsidiaries and associates, straight line basis over the average period until the benefits vest. except where the timing of the reversal of the temporary The retirement benefit asset recognised in the balance sheet differences can be controlled and it is probable that the represents the fair value of scheme assets less the value of the temporary differences will not reverse in the foreseeable future. defined benefit obligations as adjusted for unrecognised past service cost. Deferred tax assets are recognised for all deductible temporary differences and carry forward of unused tax assets and unused The Group’s contributions to defined contribution plans are tax losses, to the extent that it is probable that taxable profit will charged to the consolidated income statement in the period to be available against which the deductible temporary differences which the contributions relate. and carry forward of unused tax assets and unused tax losses can For defined benefit schemes, management makes annual be utilised: estimates and assumptions in respect of discount rates, future except where the deferred tax asset relating to the deductible changes in salaries, employee turnover, inflation rates and life temporary difference arises from the initial recognition of expectancy. In making these estimates and assumptions, an asset or liability in a transaction that is not a business management considers advice provided by external advisers, combination and, at the time of the transaction, affects neither such as actuaries. Where actual experience differs to these the accounting profit nor the tax profit; and estimates, actuarial gains and losses are recognised directly in in respect of deductible temporary differences associated with equity. Refer to note 30 for details of the values of assets and investments in subsidiaries and associates, deferred tax assets obligations and key assumptions used. are only recognised to the extent that it is probable that the Equity instruments deductible temporary differences will reverse in the foreseeable Equity instruments issued by the Company are recorded at the future and taxable profit will be available against which the proceeds received net of direct issue costs. temporary differences can be utilised. Ladbrokes plc Annual Report and Accounts 2011 54
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
4 Summary of significant accounting policies continued Share-based payment transactions Treasury shares Certain employees (including directors) of the Group receive Own equity instruments that are reacquired (treasury shares) are remuneration in the form of equity settled share-based payment deducted from equity. No gain or loss is recognised in profit or transactions, whereby employees render services in exchange for loss on the purchase, sale, issue or cancellation of the Group’s shares or rights over shares (equity settled transactions). own equity instruments. The cost of equity settled transactions is measured by reference ESOP trusts to the fair value at the date on which they are granted. The fair Where the Group holds its own equity shares through ESOP trusts value is determined using a binomial model, further details of these shares are shown as a reduction in equity. Any consideration which are given in note 31. In valuing equity settled transactions, paid or received for the purchase or sale of these shares is shown no account is taken of any performance conditions, other than in the reconciliation of movements in shareholders’ funds and no conditions linked to the price of the shares of Ladbrokes plc gain or loss is recognised within the consolidated income (market conditions). statement or the statement of comprehensive income on the The cost of equity settled transactions is recognised together with purchase, sale, issue or cancellation of these shares. a corresponding increase in equity, over the period in which the Dividends performance conditions are fulfilled, ending on the date on which Final dividends proposed by the Board of Directors and unpaid the relevant employees become fully entitled to the award (vesting at the year end are not recognised in the financial statements date). The cumulative expense recognised for equity settled until they have been approved by shareholders at the Annual transactions at each reporting date until the vesting date reflects General Meeting. the extent to which the vesting period has expired and the number Revenue of awards that, in the opinion of the directors of the Group at that Revenue is measured at the fair value of the consideration date, based on the best available estimate of the number of equity received or receivable from customers for goods and services instruments, will ultimately vest. provided in the normal course of business, net of discounts, VAT No expense is recognised for awards that do not ultimately vest, and other sales-related taxes. except for awards where vesting is conditional upon a market For licensed betting offices, on course betting, Core Telephone condition, which are treated as vesting irrespective of whether or Betting, mobile betting, High Rollers, Digital businesses (including not the market condition is satisfied, provided that all other sportsbook, casino, games, other number bets and mobile performance conditions are satisfied. betting), revenue represents gains and losses, being the amounts The dilutive effect of outstanding options is reflected as additional staked and fees received, less total payouts and the fair value share dilution in the computation of earnings per share as shown of reward points issued from betting activity in the period. in note 12. Open betting positions are carried at fair market value and gains The Group has an employee share incentive plan and an employee and losses arising on these positions are recognised in revenue. share trust for the granting of non-transferable options to When a bet is placed and reward points are issued under the executives and senior employees. Shares in the Group held by the Odds On loyalty scheme, the fair value of the reward points is employee share trust are treated as treasury shares and presented deferred and recorded as a liability. The deferred revenue is in the balance sheet as a deduction from equity. Refer to recognised when the reward points are used or when they expire. consolidated statement of changes in equity. Revenue from the online poker business reflects the net income The Group has taken advantage of the transitional provisions of (rake) earned from poker games completed by the period end. IFRS 2 Share-based Payment in respect of equity settled awards In the case of the greyhound stadia, revenue represents income and has applied IFRS 2 only to equity settled awards granted after arising from the operation of the greyhound stadia in the period, 7 November 2002 that had not vested on 1 January 2006. including sales of refreshments. Future accounting developments Finance expense and income The following new standards, interpretations and amendments Finance expense and income arising on interest bearing financial have been issued but were not effective for the financial year instruments carried at amortised cost are recognised in the beginning 1 January 2011 and have not been early adopted: consolidated income statement using the effective interest rate The amendments to IAS 12 Income Taxes are effective for annual method. Finance expense includes the amortisation of fees that periods beginning on or after 1 January 2012. It provides an are an integral part of the effective finance cost of a financial exception that the measurement of deferred tax assets and instrument, including issue costs, and the amortisation of any deferred tax liabilities should reflect the tax consequences that other differences between the amount initially recognised and the would follow from the manner in which the entity expects to redemption price. recover the carrying amount of an asset. Net gains and losses in respect of mark-to-market adjustments The amendments to IAS 1 Presentation of Financial Statements are on financial instruments carried at fair value, fair value adjustments effective for annual periods beginning on or after 1 July 2012 and to the carrying value of hedged items that form part of fair value require the Group to separate items of other comprehensive income hedges and foreign exchange adjustments are included in into two distinct categories: items that will not be reclassified non-trading items in the consolidated income statement. subsequently to the income statement; and items that will be Net gains and losses on financial guarantees are included in reclassified subsequently to the income statement when specific discontinued non-trading items. conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. Ladbrokes plc Annual Report and Accounts 2011 55
4 Summary of significant accounting policies continued IFRS 9 Financial Instruments was reissued in October 2010. On 12 May 2011, the IASB issued IFRS 10 Consolidated Financial The Group is required to adopt this standard for the year ended Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of 31 December 2015. The first phase of IFRS 9 addresses the Interests in Other Entities, IAS 27 Separate Financial Statements classification and measurement of financial assets. The key and IAS 28 Investments in Associates and Joint Ventures which requirements of IFRS 9 are that at initial recognition, all financial are all effective for accounting periods beginning on or after assets are measured at fair value with different requirements for 1 January 2013. subsequent measurement for debt and equity instruments. IFRS 10 establishes a single control model that applies to all The standard provides relief from the requirement to restate entities including special purpose entities. The changes introduced comparative financial statements for the effect of applying IFRS 9. by IFRS 10 will require management to exercise significant Phase 1 of IFRS 9 can be early adopted. judgement to determine which entities are controlled, and The Group has decided not to early adopt the above standards, therefore, are required to be consolidated by a parent, compared and is currently assessing their impact on its financial statements. with the requirements that were in IAS 27. There are no other IFRSs or IFRICs in issue but not yet effective IFRS 11 replaces IAS 31 Interests in Joint Ventures and removes that are expected to have a significant impact for the Group. the option to account for jointly-controlled entities using proportionate consolidation. Instead entities that meet the definition of a joint venture, based on rights to net assets only, must be accounted for using the equity method. IFRS 12 includes all of the disclosures required by IFRS 10, IAS 27, IAS 28 and IFRS 11 in one standard. These disclosures relate to an Financial statements entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required including how the entity determines that it controls another entity where judgement is used. As a consequence of the IASB consolidations project, IAS 27 is renamed Separate Financial Statements and is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. IAS 28 has been renamed Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. IFRS 13 Fair Value Measurement is effective for annual periods beginning on or after 1 January 2013. It establishes a single source of guidance for fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. In general, the disclosure requirements in IFRS 13 are more extensive than those required in the current standards. The revision of IAS 19 Employee Benefits is effective for annual periods beginning on or after 1 January 2013. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. The amendment also requires you to calculate the net interest on the pension asset based on a single discount rate. The amendments to IFRS 7 Financial Instruments increase the disclosure requirements for transactions involving transfers of financial assets. Ladbrokes plc Annual Report and Accounts 2011 56
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
5 Segment information Management has determined the Group’s operating segments based on the reports reviewed by the Board of Directors to make strategic decisions. In September 2011, the Group reorganised its internal operating structure into three main business units: Product, Customer and Channels. However, the performance of the Group’s continuing businesses is assessed and measured according to the nature of the services provided. IFRS 8 requires segment information to be presented on the same basis as that used by the Board for assessing performance and allocating resources, and the Group’s operating segments are aggregated into the five reportable segments detailed below: UK Retail: comprises betting activities in the shop estate in Great Britain. European Retail: comprises all activities connected with the Ireland (North and South), Belgium and Spain shop estates. Digital: comprises betting and gaming activities from online and mobile operations. Core Telephone Betting: comprises activities relating to bets taken on the telephone, excluding High Rollers. High Rollers: comprises activities relating to bets taken on the telephone from High Rollers. Discontinued operations comprise Hotels in both years and Italy Retail in the prior year. The Board continues to assess the performance of operating segments based on a measure of net revenue, profit before tax, net finance expense and amortisation of customer relationships. This measurement basis excludes the effect of non-trading income and expenditure from the operating segments. Transfer prices between operating segments are on an arm’s-length basis in a manner similar to transactions with third parties.
Continuing operations Group Core Discontinued UK European Telephone High operations Retail Retail Digital Betting Rollers Total (note 13) Total 2011 £m £m £m £m £m £m £m £m Segment revenue 683.3 124.1 163.4 9.5 (4.2) 976.1 – 976.1 Segment profit/(loss) before non-trading items 152.3 13.4 52.4 (4.0) (3.2) 210.9 – 210.9 Non-trading items(1) (2.6) (12.1) (1.4) (0.6) – (16.7) 0.4 (16.3) Segment profit/(loss) 149.7 1.3 51.0 (4.6) (3.2) 194.2 0.4 194.6 Corporate costs (26.3) – (26.3) Profit before tax and net finance expense 167.9 0.4 168.3 Net finance expense (33.3) – (33.3) Profit before tax 134.6 0.4 135.0 Income tax expense (16.8) – (16.8) Profit for the year 117.8 0.4 118.2 Other disclosures: Share of results from joint venture and associates(1) 2.4 (0.8) – – – 1.6 – 1.6 Depreciation and amortisation(1) 35.7 5.8 8.5 0.7 – 50.7 – 50.7 Capital expenditure(1) 36.9 9.6 30.7 0.3 – 77.5 – 77.5
(1) Non-trading items, depreciation and amortisation, share of results from joint venture and associates and capital expenditure include amounts not allocated to reportable segments of £3.1 million, £0.1 million, loss of £0.6 million and £1.7 million, respectively. Ladbrokes plc Annual Report and Accounts 2011 57
5 Segment information continued Continuing operations Group Core Discontinued UK European Telephone High operations Retail Retail Digital Betting Rollers Total (note 13) Total 2010 £m £m £m £m £m £m £m £m Segment revenue 665.2 125.8 169.4 16.2 3.5 980.1 8.3 988.4 Segment profit/(loss) before non-trading items 149.1 13.9 62.7 (0.4) 5.0 230.3 (9.1) 221.2 Non-trading items(1) (13.5) (5.6) (4.5) – – (23.6) (17.4) (41.0) Segment profit/(loss) 135.6 8.3 58.2 (0.4) 5.0 206.7 (26.5) 180.2 Corporate costs (27.9) – (27.9) Profit/(loss) before tax and net finance expense 178.8 (26.5) 152.3 Net finance expense (31.7) – (31.7) Profit/(loss) before tax 147.1 (26.5) 120.6 Income tax credit/(expense) 228.3 (0.6) 227.7 Profit/(loss) for the year 375.4 (27.1) 348.3 Other disclosures: Financial statements Share of results from joint venture and associates 3.8 (0.5) – – – 3.3 – 3.3 Depreciation and amortisation(1) 49.2 5.5 5.3 0.5 – 60.5 – 60.5 Capital expenditure(1) 30.8 4.2 12.1 1.5 – 48.6 0.4 49.0
(1) Non-trading items, depreciation and amortisation, and capital expenditure include amounts not allocated to reportable segments of £22.6 million, £0.1 million and £1.0 million, respectively.
Geographical information Revenue by destination and non-current assets on a geographical basis for the Group, are as follows: 2011 2010 Non-current Non-current Revenue assets(1) Revenue assets(1) £m £m £m £m United Kingdom 837.6 739.5 840.8 719.6 Rest of the world 138.5 119.2 147.6 121.0 Total 976.1 858.7 988.4 840.6
(1) Non-trading assets excluding deferred tax assets and retirement benefit assets. Ladbrokes plc Annual Report and Accounts 2011 58
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
6 Non-trading items (continuing operations) 2011 2010 £m £m Business restructuring costs(1) (4.4) (7.4) Corporate transaction costs(2) (2.6) (0.7) Impairment loss(3) (10.9) (9.2) Loss on closure of UK Retail shops(4) (1.2) (3.0) Loss on closure of European Retail shops (0.7) (0.1) Termination of machines contract – (8.1) Bond termination costs and termination of interest rate swaps(5) (0.5) (17.7) Total non-trading items (20.3) (46.2) Non-trading tax credit 1.6 2.0 Non-trading items after taxation (18.7) (44.2)
(1) Business restructuring costs in the year related mainly to the reorganisation of the Group to a new cross-channel, centralised structure. These costs have been incurred as follows: £1.4 million in UK Retail, £0.5 million in European Retail, £1.4 million in Digital, £0.6 million in Core Telephone Betting and £0.5 million in corporate costs. In the year ended 31 December 2010, business restructuring costs related to a strategic review resulting in changes to senior executives and operational structures within UK Retail of £0.5 million, Digital of £1.9 million, corporate costs of £4.8 million and European Retail of £0.2 million. (2) The Group incurred £2.6 million (2010: £0.7 million) in relation to corporate transaction costs reported within Corporate costs. These costs related to potential acquisition projects that took place throughout the financial year. (3) The impairment loss of £10.9 million during the year relates to Ireland shops. In the year ended 31 December 2010, the impairment loss related to Ireland shops of £5.3 million, UK Retail shops of £2.0 million and £1.9 million losses in relation to the withdrawal from the French joint venture with Groupe Canal+. (4) The £1.2 million loss on closure of UK Retail shops and £0.7 million loss on closure of European Retail shops consisted of loss on disposal of intangible assets of £0.3 million (2010: £2.6 million), loss on disposal of property, plant and equipment of £0.6 million (2010: £0.5 million) and cost accruals of £1.0 million (2010: £nil). (5) Following the termination of the Group’s interest rate swaps in 2010, the remaining £0.5 million of losses deferred in equity have been recycled to the income statement as a non-trading finance expense to match the interest payments on the underlying borrowings. In the year ended 31 December 2010, the Group repurchased £118.6 million of the £250 million 7.125% bonds due 2012 and issued £225 million 7.625% bonds maturing in 2017. The early repayment premium on the 2012 bonds of £8.6 million and £9.1 million of recycled losses relating to the early termination of interest rate swaps were reported as non-trading items.
Non-trading items relating to discontinued operations are shown in note 13.
7 Profit before tax and net finance expense Profit before tax and net finance expense has been arrived at after charging: Continuing operations Discontinued operations Total 2011 2010 2011 2010 2011 2010 £m £m £m £m £m £m Betting duty, gross profits tax, horse and dog levy 90.1 104.5 – 1.3 90.1 105.8 Depreciation of property, plant and equipment (note 16)(1) 40.9 54.9 – – 40.9 54.9 Amortisation of intangible assets (note 14) 9.9 5.7 – – 9.9 5.7 Staff costs (note 9) 268.5 272.6 – 5.8 268.5 278.4 Foreign exchange (0.3) 0.3 – – (0.3) 0.3
(1) After non-trading items of £nil (2010: £7.1 million).
Fees payable to Ernst & Young LLP were as follows: 2011 2010 £m £m Audit and audit-related services: Audit of the Group financial statements 0.4 0.4 Audit of the Company’s subsidiaries 0.4 0.4 Audit-related assurance services 0.1 0.1 0.9 0.9
Non-audit services: Tax advisory services 0.1 0.1 Corporate finance services 0.5 0.4 0.6 0.5 Total fees 1.5 1.4 Ladbrokes plc Annual Report and Accounts 2011 59
7 Profit before tax and net finance expensecontinued Analysis of expense by function is: 2011 2010 £m £m Cost of sales after depreciation and amounts written off non-current assets 719.3 712.6 Administrative expenses 89.9 92.0
8 Finance expense and income 2011 2010 £m £m Bank loans and overdrafts(1) (1.4) (2.8) Bonds and private placements at amortised cost(1) (27.2) (28.4) Fee expenses (4.8) (3.4) Finance expense before non-trading items (33.4) (34.6) – Recycling of losses on cash flow hedges (0.5) (9.1) – Losses on derivatives not in a hedging relationship (0.1) – – Bond early repayment costs – (8.6) – Losses on retranslation of foreign currency borrowings held at amortised cost – (0.8) Total finance expense (34.0) (53.1) Financial statements
Interest receivable(1)(2) 0.6 20.6 Finance income before non-trading items 0.6 20.6 – Gains on derivatives not in a hedging relationship – 0.8 – Gains on retranslation of foreign currency borrowings held at amortised cost 0.1 – Total finance income 0.7 21.4
Net finance expense before non-trading items (32.8) (14.0) Non-trading net losses (0.5) (17.7) Net finance expense after non-trading items (33.3) (31.7)
(1) Calculated using the effective interest rate method. (2) In 2010, £20.0 million of interest income was in relation to the HMRC tax settlement.
9 Staff costs The average weekly number of employees (including executive directors) was: Continuing operations 2011 2010 Number Number UK Retail 13,170 12,877 European Retail 1,566 1,515 Digital 495 522 Telephone Betting 199 304 Central services 82 71 15,512 15,289
There were no people employed relating to discontinued operations during the year (2010: 154). The number of people employed by the Group at 31 December 2011 was 15,220 (2010: 15,157). Ladbrokes plc Annual Report and Accounts 2011 60
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
9 Staff costs continued Continuing operations Discontinued operations Total 2011 2010 2011 2010 2011 2010 £m £m £m £m £m £m Wages and salaries 240.6 244.2 – 5.3 240.6 249.5 Social security costs 19.0 20.9 – 0.2 19.0 21.1 Pension costs (note 30) 2.3 3.7 – 0.3 2.3 4.0 Share-based payments (note 31) 6.6 3.8 – – 6.6 3.8 268.5 272.6 – 5.8 268.5 278.4
In addition to salary, employees may qualify for various benefit schemes operated by the Group. Eligibility for benefits is normally determined primarily according to an employee’s length of service and level of responsibility. The amounts of some benefits are proportionate to individual salary. Benefits may include paid leave for holidays, maternity and illness, as well as insured benefits. The latter can cover private healthcare for the employee and their immediate family, long-term disability, personal accident and death in service cover. Company cars, including fuel benefits, are provided predominantly to meet job requirements but also to certain executives. The principal benefit schemes are: (i) Pensions (a) Ladbrokes Group Stakeholder Pension Plan New employees in the UK are offered membership of Ladbrokes Group Stakeholder Pension Plan, a defined contribution pension scheme. Subject to meeting certain eligibility and employment grade criteria, the Group matches employees’ contributions up to a maximum of 15% of base salary. (b) Ladbrokes Pension Plan (LPP) T his was closed to new employees on 1 August 2007. Members contribute on average six per cent of pensionable salary per annum. Benefit generally accrues to provide a target pension of two thirds (for joiners after June 2002: half) of final pensionable salary for an employee attaining age 65 with at least 40 years’ membership. A spouse’s pension is payable following death. LPP – Executive Section Members contribute on average seven per cent of pensionable salary per annum. Benefit accrues to provide a target pension from all sources of two thirds of final pensionable salary for an executive attaining age 60 with at least 20 years’ membership (for joiners after June 2002, employees attaining age 65 with at least 26.7 years’ service). A spouse’s and children’s pensions are payable following death. Senior executives subject to the Earnings Cap: Following the A-Day pensions review, the pre-A-Day Revenue limits regime has been maintained as the framework for the LPP, including a LPP-specific Earnings Cap. Executive directors and senior executives have a choice between: (i) membership of the Executive Section of the LPP plus a cash supplement of up to 22.5% (30% prior to 1 January 2011) of base salary above the Earnings Cap; or (ii) a cash supplement of up to 22.5% (30% prior to 1 January 2011) of base salary in lieu of membership of the LPP. (ii) Share-based payments Details of employee share schemes operated by the Group are shown in the Directors’ remuneration report on pages 31 to 42 that forms part of the Annual Report 2011. Details of options granted in 2011 and outstanding at 31 December 2011 are shown in note 31. Details of directors’ remuneration and the policies adopted in determining it can be found in the Directors’ remuneration report on pages 31 to 42. Ladbrokes plc Annual Report and Accounts 2011 61
10 Income tax expense Analysis of charge for the year: 2011 2010 £m £m Current income tax: – UK 22.2 29.4 – overseas 4.4 2.0 – adjustments in respect of previous years(1) (34.1) (203.7) Deferred tax: – relating to origination and reversal of temporary differences 2.9 3.7 – tax rate reduction (1.8) (0.6) – adjustments in respect of previous years(1) 23.2 (58.5) Income tax expense/(credit) reported in the income statement 16.8 (227.7)
Deferred tax (credited)/charged directly to other comprehensive income (0.8) 6.6
A reconciliation of income tax expense applicable to profit before tax at the UK statutory income tax rate to the income tax expense for the years ended 31 December 2011 and 31 December 2010 is as follows:
2011 2010 Financial statements £m £m Profit/(loss) before tax: – continuing operations 134.6 147.1 – discontinued operations 0.4 (26.5)
Corporation tax charge thereon at 26.5% (2010: 28.0%) 35.8 33.8 Adjusted for the effects of: Lower effective tax rates on overseas earnings (8.0) (11.8) Recognition of tax losses (6.3) (7.0) Non-deductible expenses 3.2 3.2 Non-deductible expenses included in discontinued operations and non-trading items 3.7 19.0 Tax rate reduction (1.8) (0.6) Adjustments in respect of prior periods(1) (10.9) (262.2) Other 1.1 (2.1) Income tax expense/(credit) 16.8 (227.7) Reported as: – continuing operations in consolidated income statement (before non-trading items) 18.4 (226.3) – continuing operations in consolidated income statement (tax on non-trading items) (note 6) (1.6) (2.0) Total continuing operations 16.8 (228.3) – discontinued operations (note 13) – 0.6 Income tax expense/(credit) 16.8 (227.7)
(1) The Group has made progress in the resolution of historic tax matters and as a result reduced the level of the tax creditor required. The Group has also reassessed the availability of suitable profits of its subsidiaries against which agreed losses can be offset in the foreseeable future and reduced the level of deferred tax asset recognised. The impact of these is a net £10.9 million reduction in the income tax charge for the year. In 2010, the adjustment in respect of prior periods of £262.2 million includes £261.9 million as a result of the HMRC tax settlement. The Group reached a settlement with HMRC which covered substantially all outstanding items in respect of tax years to 31 December 2007. The settlement resulted in the recognition within the tax charge of a £261.9 million tax credit in relation to prior years. The settlement included £46.2 million relating to the recognition of a deferred tax asset. The asset primarily reflected the recognition of tax losses available for offset in future periods. The settlement resulted in a cash repayment of £80.0 million of corporation tax by HMRC, which were offset by payments of £28.1 million. There was also interest income of £20.0 million in respect of an interest rebate following the HMRC tax settlement. Ladbrokes plc Annual Report and Accounts 2011 62
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
10 Income tax expense continued Deferred tax Deferred tax at 31 December relates to the following: Consolidated Consolidated balance sheet income statement 2011 2010 2011 2010 £m £m £m £m Deferred tax liabilities Accelerated depreciation for tax purposes 0.4 2.2 (1.8) (5.9) Betting licences 72.6 81.8 (9.2) (6.4) Retirement benefit asset 9.3 9.3 0.9 0.9 Deferred tax liabilities 82.3 93.3
Deferred tax assets Retirement benefit obligation – – – 0.5 Accelerated depreciation for tax purposes (5.4) – (5.4) – Losses (25.0) (45.9) 20.9 (36.1) Share-based payments (1.7) – (1.7) – Fair value adjustments to revenue (1.9) (22.3) 20.4 (8.5) Other temporary differences (0.9) (1.1) 0.2 0.1 Deferred tax assets (34.9) (69.3)
Deferred tax charge/(credit) 24.3 (55.4)
Net deferred tax liability 47.4 24.0
The Group has further tax losses at 31 December 2011 of £90.4 million (2010: £71.3 million) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as there is insufficient certainty that there will be suitable taxable profits from which the future reversal of temporary differences may be deducted. There are no significant taxable temporary differences associated with investments in subsidiaries, associated undertakings and joint ventures. The Chancellor, in the Budget on 23 March 2011, announced an additional 1% reduction in the main rate of corporation tax, over that announced in 2010 from 28% to 26%. The standard rate of UK Corporation Tax will be reduced from 26% to 25% from 1 April 2012, and there will be progressive annual reductions of a further 1% until a rate of 23% is reached with effect from 1 April 2014. The deferred tax assets and liabilities at the balance sheet date are calculated at the substantively enacted rate of 25%. Whilst detailed calculations have not been prepared at this stage, it is estimated that the impact of the remaining annual corporation tax rate reductions would be to reduce the value of the group’s deferred tax liabilities at the balance sheet date by approximately £6.6 million, and to reduce the value of the group’s deferred tax assets at the balance sheet date by approximately £2.8 million.
11 Dividends 2011 2010 Pence per share pence pence Interim dividend paid 3.90 3.85 Final dividend proposed(1) 3.90 3.75 7.80 7.60
(1) A final dividend of 3.90 pence (2010: 3.75 pence) per share, amounting to £35.2 million (2010: £33.8 million) in respect of the year ended 31 December 2011 was declared by the directors on 16 February 2012. These financial statements do not reflect the dividend payable. The 2011 interim dividend of 3.90 pence per share (£35.2 million) was paid on 1 December 2011. Ladbrokes plc Annual Report and Accounts 2011 63
12 Earnings per share Basic earnings per share has been calculated by dividing the profit for the year attributable to shareholders of the Company of £118.2 million (2010: £348.3 million) by the weighted average number of shares in issue during the year of 907.7 million (2010: 904.6 million).
1 At 31 December 2011, there were 907.9 million 28 /3 pence ordinary shares in issue excluding treasury shares (939.6 million including 1 treasury shares). At 31 December 2010, there were 907.4 million 28 /3 pence ordinary shares in issue excluding treasury shares (939.1 million including treasury shares). At 31 December 2011, 6.2 million (2010: 12.7 million) shares were deemed anti-dilutive for the purpose of calculating adjusted earnings per share. The calculation of adjusted earnings per share before non-trading items is included as it provides a better understanding of the underlying performance of the Group. Non-trading items are defined in note 2 and disclosed in notes 6, 10 and 13.
2011 2010 Continuing operations £m £m Profit attributable to shareholders 117.8 375.4 Non-trading items net of tax (note 6) 18.7 44.2 Adjusted profit attributable to shareholders 136.5 419.6
Discontinued operations Financial statements Profit/(loss) attributable to shareholders 0.4 (27.1) Non-trading items net of tax (note 13) (0.4) 18.4 Adjusted loss attributable to shareholders – (8.7)
Group Profit attributable to shareholders 118.2 348.3 Non-trading items net of tax 18.3 62.6 Adjusted profit attributable to shareholders 136.5 410.9
Weighted average number of shares (millions) 2011 2010 Shares for basic earnings per share 907.7 904.6 Potentially dilutive share options and contingently issuable shares 9.1 2.5 Shares for diluted earnings per share 916.8 907.1
Earnings per share (pence) Before After non-trading items non-trading items 2011 2010 2011 2010 Continuing operations: Basic earnings per share 15.0 46.4 13.0 41.5 Diluted earnings per share 14.9 46.3 12.9 41.4
Discontinued operations: Basic loss per share – (1.0) – (3.0) Diluted loss per share – (1.0) – (3.0)
Group: Basic earnings per share 15.0 45.4 13.0 38.5 Diluted earnings per share 14.9 45.3 12.9 38.4 Ladbrokes plc Annual Report and Accounts 2011 64
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
13 Discontinued operations The profit/(loss) for discontinued operations comprises the following: 2011 2010 Italy Hotels Retail Hotels Total £m £m £m £m Revenue – 8.3 – 8.3 Expenses – (17.4) – (17.4) Loss before tax and non-trading items – (9.1) – (9.1) Gain on financial guarantee contracts 0.4 – 1.2 1.2 Loss on disposal of business/assets – (17.3) – (17.3) Litigation costs – (1.3) – (1.3) Profit/(loss) before tax 0.4 (27.7) 1.2 (26.5) Tax credit on trading items – 0.4 – 0.4 Tax charge on non-trading items – (1.0) – (1.0) Profit/(loss) for the year from discontinued operations 0.4 (28.3) 1.2 (27.1) Loss for the year from discontinued operations before non-trading items – (8.7) – (8.7)
There were no cash flows from discontinued operations in the year. In the year ended 31 December 2010, the net cash flows from discontinued operations were as follows: 2010 £m Net cash used in operating activities (9.1) Net cash used in investing activities (0.4) Net cash used in financing activities (0.9) Cost of disposal of discontinued operations (2.7) Cash disposed of with discontinued operations (3.1) Net cash flows relating to discontinued operations (16.2)
In the year ended 31 December 2010, the Group completed the sale of its Italian operations. The effect of the disposal was as follows: 2010 £m Initial cash consideration 4.4 Working capital adjustment (5.3) Final cash consideration (0.9) Net assets sold (24.5) Cost of disposal (2.7) Currency translation difference reclassified on disposal 10.8 Loss on disposal (17.3) Ladbrokes plc Annual Report and Accounts 2011 65
14 Goodwill and intangible assets Customer Goodwill Licences Software relationships Total £m £m £m £m £m Cost At 1 January 2010 48.6 531.9 58.7 40.5 679.7 Exchange adjustment (0.1) (1.6) – – (1.7) Additions – 2.0 13.8 – 15.8 Disposals – (3.4) (13.1) – (16.5) At 31 December 2010 48.5 528.9 59.4 40.5 677.3 Exchange adjustment (0.1) (1.5) (0.1) – (1.7) Additions – 3.6 37.7 – 41.3 Disposals – (0.4) (0.1) – (0.5) At 31 December 2011 48.4 530.6 96.9 40.5 716.4
Amortisation At 1 January 2010 – 24.7 40.8 – 65.5 Exchange adjustment ––– ––
Amortisation charge – – 5.7 – 5.7 Financial statements Impairment loss(1) – 8.5 – – 8.5 At 31 December 2010 – 32.8 34.4 – 67.2 Exchange adjustment – (0.3) – – (0.3) Amortisation charge – – 7.3 2.6 9.9 Impairment loss(1) – 10.2 – – 10.2 At 31 December 2011 – 42.7 41.7 2.6 87.0
Net book value At 31 December 2010 48.5 496.1 25.0 40.5 610.1 At 31 December 2011 48.4 487.9 55.2 37.9 629.4
(1) The impairment loss of £10.2 million in the current year relates to European Retail. The 2010 impairment of £8.5 million included £3.4 million in respect of UK Retail and £5.1 million for European Retail.
Goodwill and intangible assets included in continuing operations Goodwill relates to the consideration exceeding the fair value of net assets of business combinations including the deferred tax liability arising on statutory licence acquisitions. Licences comprises the cost of acquired betting shop licences. The acquired betting shop licences are not amortised as they are considered to have an indefinite life for a combination of reasons: Ladbrokes is a leading operator in well-established markets; there is a proven, sustained demand for bookmaking services; and existing law acts to restrict entry. Ladbrokes has a very strong track record of renewing its betting permits and licences at minimal cost. Software relates to the cost of software acquisition and the capitalised costs in respect of internally generated software. The customer relationships intangible asset relates to the Group’s acquisition of its former partner in the Nordic region. During the year, the Group has concluded that the intangible asset has a finite life of 15.5 years. As a result, it has started to amortise the customer relationships using the straight line method of amortisation. Ladbrokes plc Annual Report and Accounts 2011 66
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
15 Impairment testing of goodwill and indefinite life intangible assets Goodwill and indefinite life intangible assets are tested annually for impairment at each reporting date by comparing the carrying amounts of these assets with their recoverable amounts (being the higher of fair value less costs to sell and value in use). Goodwill Goodwill is tested for impairment by allocating its carrying amount to groups of cash generating units (CGUs) expected to benefit from the synergies of the combination. If the recoverable amount of a group of CGUs exceeds its carrying amount, the group and any goodwill allocated to that group would be regarded as not impaired. The carrying amounts of goodwill by segment are as follows: 2011 2010 £m £m Goodwill UK Retail 35.4 35.4 European Retail 13.0 13.1 48.4 48.5
No impairments were identified in both years. Licences Licences have been allocated to the individual UK and European Retail CGUs that are expected to benefit from the assets. Each CGU represents the lowest level within the Group at which the licences are monitored for internal management purposes which in the majority of instances is an individual shop. The carrying value of licences at 31 December 2011 was £487.9 million (2010: £496.1 million) allocated as £323.4 million to UK Retail (2010: £322.9 million) and £164.5 million to European Retail (2010: £173.2 million). Basis on which recoverable amount has been determined The recoverable amounts of the CGUs are determined from value in use calculations. These are based on budgets approved by management for the next three years extrapolated thereafter using a 2.5% growth rate (2010: 2.5%). This rate does not exceed the average long-term growth rate for the relevant markets. Key assumptions used in value in use calculations The key assumptions taken into account by management are the amounts staked, the gross win margin and the discount rate applied. The estimated amounts staked and gross win margin are based upon historic experience, management’s best estimate of future trends and performance taking account of industry sources. The pre-tax discount rates applied to cash flow projections for CGUs in UK and European Retail, due to the similar nature of operations, range between 10.0% and 11.5% (2010: between 10.2% and 11.7%). The recoverable amounts of certain individual European Retail CGUs were below their carrying amounts at 31 December 2011 and accordingly an impairment loss of £10.2 million has been recognised in the consolidated income statement for the year ended 31 December 2011 (2010: £8.5 million) within the non-trading ‘Depreciation and amounts written off non-current assets’ line item to European Retail. The recoverable amount of individual CGUs is sensitive to changes in cash flows or discount rate. Change in the cash flow projections or the discount rate would trigger a further impairment loss. For example, an increase of 0.5% in the pre-tax discount rate would have resulted in an impairment loss of approximately £0.7 million (2010: £0.5 million) for UK Retail and a further impairment loss of £3.1 million (2010: £5.9 million) for European Retail, or a reduction in projected cash flows of 5% would have resulted in an impairment loss of approximately £0.5 million (2010: £0.9 million) for UK Retail and a further impairment loss of £2.4 million (2010: £7.5 million) for European Retail. Ladbrokes plc Annual Report and Accounts 2011 67
16 Property, plant and equipment Fixtures, Land and fittings and buildings equipment Total £m £m £m Cost At 1 January 2010 124.8 348.0 472.8 Exchange adjustment (0.4) (1.6) (2.0) Additions 4.0 29.8 33.8 Disposals (5.6) (26.3) (31.9) At 31 December 2010 122.8 349.9 472.7 Exchange adjustment (0.4) (1.8) (2.2) Additions 4.9 33.0 37.9 Disposals (1.9) (6.4) (8.3) At 31 December 2011 125.4 374.7 500.1
Depreciation At 1 January 2010 58.5 184.0 242.5
Exchange adjustment (0.3) (0.7) (1.0) Financial statements Depreciation charge(1) 9.5 45.4 54.9 Net reversal of impairment(2) (0.6) (0.6) (1.2) Disposals (5.1) (24.8) (29.9) At 31 December 2010 62.0 203.3 265.3 Exchange adjustment (0.4) (1.1) (1.5) Depreciation charge 10.0 30.9 40.9 Disposals (1.2) (5.3) (6.5) Impairment loss(3) – 0.7 0.7 At 31 December 2011 70.4 228.5 298.9
Net book value At 31 December 2010 60.8 146.6 207.4 At 31 December 2011 55.0 146.2 201.2
(1) The depreciation charge for the prior year included accelerated depreciation of £7.1 million recorded in non-trading items (note 6). (2) The recoverable amounts of certain property, plant and equipment within individual UK and European Retail CGUs were assessed as at 31 December 2010 and accordingly an impairment reversal of £1.4 million in UK Retail and an impairment loss of £0.2 million in European Retail had been recognised in the consolidated income statement within the non-trading ‘Depreciation and amounts written off non-current assets’ line item. (3) The impairment loss of £0.7 million in the current year relates to European Retail. At 31 December 2011, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £1.3 million (2010: £1.2 million). Ladbrokes plc Annual Report and Accounts 2011 68
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
17 Interest in joint venture Share of joint venture’s net assets £m Cost At 1 January 2010 2.6 Exchange adjustment 0.1 Additions 0.8 Share of loss after tax (0.5) At 31 December 2010 3.0 Exchange adjustment (0.4) Additions 2.5 Share of loss after tax (0.8) At 31 December 2011 4.3
The joint venture is the Group’s investment in Sportium Apuestas Deportivas SA in which it holds a 50% equity interest (note 33). Summarised financial information in respect of the Group’s share of the joint venture’s net assets is set out below: 2011 2010 £m £m Non-current assets 6.3 4.4 Current assets 2.4 0.8 Current liabilities (4.4) (2.2) Share of joint venture’s net assets 4.3 3.0
2011 2010 £m £m Group’s share of joint venture’s revenue for the year 8.2 7.1 Group’s share of joint venture’s loss for the year (0.8) (0.5) Ladbrokes plc Annual Report and Accounts 2011 69
18 Interest in associates and other investments Share of associates’ Other net assets investments Total £m £m £m Cost At 1 January 2010 9.8 0.7 10.5 Additions 0.2 – 0.2 Share of profit after tax 3.8 – 3.8 At 31 December 2010 13.8 0.7 14.5 Share of profit after tax 1.8 – 1.8 Dividends received (1.6) – (1.6) At 31 December 2011 14.0 0.7 14.7
Associates Summarised financial information in respect of the Group’s associates is set out below: 2011 2010 £m £m Total share of associates’ assets 33.2 39.1
Total share of associates’ liabilities (19.2) (25.3) Financial statements Share of associates’ net assets 14.0 13.8
2011 2010 £m £m Group’s share of associates’ revenue for the year 63.1 64.7 Group’s share of associates’ profit for the year 1.8 3.8
Further details of the Group’s principal associates are listed in note 33. The financial year end of Satellite Information Services (Holdings) Limited (SIS), an associate of the Group, is 31 March. The Group has included the results for SIS for the 12 months ended 31 December 2011. Other investments Other investments consists of investments in ordinary shares, which therefore have no fixed maturity rate or coupon rate. Ladbrokes plc Annual Report and Accounts 2011 70
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
19 Trade and other receivables 2011 2010 £m £m Trade receivables 4.5 3.4 Other receivables 16.1 22.5 Prepayments and accrued income 59.9 58.7 80.5 84.6
Trade receivables are non-interest bearing and are generally on 30-90 day terms. Trade receivables are reviewed for impairment on an ongoing basis, taking account of the ageing of outstanding amounts and the credit profile of customers. Impaired receivables, including all trade receivables that are a year old, are provided for in an allowance account. Impaired receivables are derecognised when they are assessed as irrecoverable. At 31 December 2011, trade receivables with an initial fair value of £2.8 million (2010: £4.2 million) were provided for in full. Movements in the provision for impairment of trade receivables were as follows: 2011 2010 £m £m At 1 January 4.2 4.1 Charge in the year – 0.2 Utilised (1.4) (0.1) At 31 December 2.8 4.2
At 31 December, the analysis of trade receivables that were past due but not impaired is as follows: Past due but not impaired Neither past due nor < 30 30-60 60-90 90+ Total impaired days days days days £m £m £m £m £m £m 2011 4.5 2.0 2.1 0.1 0.1 0.2 2010 3.4 0.5 1.8 0.4 0.1 0.6
20 Cash and short-term deposits Cash and short-term deposits in the balance sheet comprises: 2011 2010 £m £m Cash at bank and in hand 26.4 17.9
Cash and cash equivalents in the consolidated statement of cash flows comprises cash at bank with a maturity of three months or less and overdrafts.
21 Trade and other payables 2011 2010 £m £m Trade payables 12.6 14.5 Other payables 41.3 34.1 Other taxation and social security 19.6 17.4 Accruals and deferred income 69.2 68.4 142.7 134.4 Ladbrokes plc Annual Report and Accounts 2011 71
22 Provisions
Vacant property Other provision(1) provisions Total £m £m £m At 1 January 2010 16.5 – 16.5 Provided 1.1 – 1.1 Utilised (3.4) – (3.4) At 31 December 2010 14.2 – 14.2 Provided 2.6 1.0 3.6 Utilised (4.1) – (4.1) At 31 December 2011 12.7 1.0 13.7
(1) The periods of vacant property commitments range from one to 13 years (2010: one to 13 years). Of the total provisions at 31 December 2011, £4.3 million (2010: £1.3 million) is current and £9.4 million (2010: £12.9 million) is non-current.
23 Interest bearing loans and borrowings 2011 2010 £m £m Financial statements Current Unsecured 7.125% bonds due 2012 131.3 – Loan notes 0.1 0.1 Bank loans – 108.0 Overdrafts – 0.2 131.4 108.3 Non-current Unsecured Bank loans 126.9 49.0 7.125% bonds due 2012 – 131.0 7.625% bonds due 2017 222.0 221.6 348.9 401.6 Total interest bearing loans and borrowings 480.3 509.9
All of the Group’s borrowings in 2011 and 2010 were denominated in pounds sterling.
The Group has undrawn committed borrowing facilities of £405.4 million at 31 December 2011 (2010: £718.6 million). The expiry profile of these is as follows: 2011 2010 £m £m In less than one year – 217.0 In more than one year but not more than two years – – In more than two years but not more than five years 405.4 501.6 Total undrawn committed facilities 405.4 718.6 Ladbrokes plc Annual Report and Accounts 2011 72
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
24 Financial risk management objectives and policies The Group’s treasury function provides a centralised service for the provision of finance and the management and control of liquidity, foreign exchange rates and interest rates. The function operates as a cost centre and manages the Group’s treasury exposures to reduce risk in accordance with policies approved by the Board. The Group’s principal financial instruments comprise bank loans, overdrafts, loan notes, bonds, financial guarantee contracts, and cash and short-term deposits, together with certain derivative financial instruments. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade receivables, trade payables and accruals that arise directly from its operations. The Group enters into derivative transactions, such as forward foreign exchange contracts, currency swaps and interest rate swaps. The purpose of these transactions is to assist in the management of the Group’s financial risk and to generate the desired effective currency and interest rate profile. At 31 December 2011, the Group had an interest rate swap with a nominal value of £131.0 million and a fair value of £0.1 million (2010: nil). It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken other than betting and gaming transactions. The Group’s exposure to ante post betting and gaming transactions is not significant. The Group has a £2.0 billion Euro Medium Term Note (EMTN) programme that it uses to increase the flexibility of funding with regards to source, cost, size and maturity. At 31 December 2011, one public Eurobond issue remained under this programme, being £131.3 million of the £250 million 7.125% bond, maturing July 2012. In addition, the Group has a £225 million 7.625% Sterling bond due 2017. During the year the maturity of committed facilities was extended. All existing committed borrowing facilities, maturing in 2013, were cancelled and new facilities of £540.0 million were entered into, maturing in December 2016. The main financial risks for the Group are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. Interest rate risk The Group is exposed to interest rate risk on interest bearing loans and borrowings and on cash and cash equivalents. The Group’s policy for the year ended 31 December 2011 was to maintain a minimum of 25% (2010: 25%) of total borrowings at fixed interest rates to reduce its sensitivity to movements in variable short-term interest rates. At 31 December 2011, after taking account of interest rate swaps, £222.3 million or 46.3% (2010: £352.6 million or 69.2%) of the Group’s gross borrowings were at fixed rates. Interest on financial instruments at floating rates is re-priced at intervals of less than six months. Interest on financial instruments at fixed rates is fixed until the maturity of the instrument. Interest rate sensitivity The table below demonstrates the sensitivity to reasonably possible changes in interest rates on income and equity for the year when this movement is applied to the carrying value of financial assets and liabilities. Profit before tax Equity 2011 2010 2011 2010 Effect on: £m £m £m £m 100 basis points increase (1.7) (0.8) – – 200 basis points increase (3.5) (1.7) – –
The sensitivity has been estimated by applying the basis points movement to the carrying value of the financial assets and liabilities, subject to interest at floating rates, held by the Group at the year end. Due to current low interest rates, any further decline would not have a material impact on income and equity for the year. As such, sensitivity to a decrease in interest rates has not been presented. Foreign currency risk Other than the translation of foreign currency subsidiaries, there is no significant foreign currency exposure. The Group had no foreign currency borrowings at 31 December 2011 (2010: £nil). Credit risk The Group is not subject to significant concentration of credit risk, with exposure spread across a large number of counterparties and customers. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. Any changes to credit terms are assessed and authorised by senior management on an individual basis. The Group’s High Rollers division consists of individuals who place sizeable stakes. The Group manages this activity and the associated risk exposure by utilising senior management expertise to manage the levels of stakes placed. Of the £4.5 million (2010: £3.4 million) trade receivables balance, £4.0 million (2010: £2.8 million) relates to the Group’s Core Telephone Betting and High Rollers divisions. Ladbrokes plc Annual Report and Accounts 2011 73
24 Financial risk management objectives and policies continued With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and a loan to a joint venture, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Credit risk in respect of cash and cash equivalents is managed by restricting those transactions to banks that have a defined minimum credit rating and by setting an exposure ceiling per bank. The Group also has exposure to credit risk arising from the financial guarantee contracts provided by the Group. This risk is partly mitigated by the indemnity received from Hilton Hotels Corporation for any loss incurred in connection with these guarantees. For further detail of these guarantees refer to note 25. Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of borrowings with a range of maturities. The Group’s policy on liquidity is to ensure that there are sufficient medium-term and long-term committed borrowing facilities to meet the medium-term funding requirements. At 31 December 2011, there were undrawn committed borrowing facilities of £405.4 million (2010: £718.6 million). Total committed facilities had an average maturity of 4.9 years (2010: 2.5 years). The total gross contractual undiscounted cash flows of financial liabilities, including interest payments, fall due as follows: On demand or within 1 year 1-2 years 2-5 years > 5 years Total 2011 £m £m £m £m £m Interest bearing loans and borrowings 156.7 20.4 188.1 234.2 599.4 Derivatives 0.7 – – – 0.7 Financial statements Other financial liabilities 4.0 0.5 3.3 21.3 29.1 Trade and other payables 142.3 – – – 142.3 Total 303.7 20.9 191.4 255.5 771.5
On demand or within 1 year 1-2 years 2-5 years > 5 years Total 2010 £m £m £m £m £m Interest bearing loans and borrowings 136.1 158.4 100.5 259.3 654.3 Other financial liabilities 1.7 1.0 3.8 21.3 27.8 Trade and other payables 134.4 – – – 134.4 Total 272.2 159.4 104.3 280.6 816.5
The total gross contractual undiscounted cash inflows in relation to interest rate swaps used to hedge the risks associated with interest bearing loans and borrowings are £0.7 million (2010: £nil) within one year. Cash flow hedges In the prior year, £9.1 million of losses, which had been deferred in equity, were reclassified to the consolidated income statement as a non-trading finance expense. During the year the remaining £0.5 million of deferred losses were reclassified to the consolidated income statement as a non-trading finance expense to match the interest payments on the underlying borrowings. The Group no longer has any cash flow hedges. Derivatives not designated as hedging instruments The Group uses interest rate swaps to manage its fair value exposure to interest rate movements by swapping borrowings from fixed to floating rates in accordance with the policy of the Group. Contracts with nominal values of £131.0 million (2010: £nil) have fixed interest receipts and floating interest payments based on LIBOR. The fair value of the swaps at 31 December 2011 is a liability of £0.1 million (2010: £nil) and has been charged through the consolidated income statement. These swaps were not designated as fair value hedges under IAS 39 but were economic hedges of the Group’s borrowings. Capital risk management The primary objective of the Group’s capital management is to ensure that it maintains a credit rating that enables the Group to raise funds at an economic interest rate and to maintain healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a net debt to EBITDA ratio. The target range has remained at less than 3.0 (2010: less than 3.0) times net debt to EBITDA ratio, following the refinancing of borrowing facilities to 2016. The ratio at 31 December 2011 was 1.9 (1.9 adjusted to remove loss from High Rollers) and at 31 December 2010 was 1.9 (2.0 adjusted to remove loss from High Rollers). Ladbrokes plc Annual Report and Accounts 2011 74
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
25 Financial instruments The table below analyses the Group’s financial instruments into their relevant categories: Assets/ (liabilities) at fair value Loans at through Loans and amortised profit or receivables cost loss Total 31 December 2011 £m £m £m £m Assets Non-current: Other financial assets 5.2 – – 5.2
Current: Trade and other receivables 15.2 – – 15.2 Cash and short-term deposits 26.4 – – 26.4 Total 46.8 – – 46.8
Liabilities Current: Interest bearing loans and borrowings – (131.4) – (131.4) Derivatives – – (0.1) (0.1) Trade and other payables – (133.7) (8.6) (142.3) Other financial liabilities – – (1.0) (1.0)
Non-current: Interest bearing loans and borrowings – (348.9) – (348.9) Other financial liabilities – (2.7) (7.7) (10.4) Total – (616.7) (17.4) (634.1) Net financial assets/(liabilities) 46.8 (616.7) (17.4) (587.3) Ladbrokes plc Annual Report and Accounts 2011 75
25 Financial instruments continued Assets/ (liabilities) at fair value Loans at through Loans and amortised profit receivables cost or loss Total 31 December 2010 £m £m £m £m Assets Non-current: Other financial assets 5.0 – – 5.0
Current: Trade and other receivables 17.4 – – 17.4 Cash and short-term deposits 17.9 – – 17.9 Total 40.3 – – 40.3
Liabilities Current:
Interest bearing loans and borrowings – (108.3) – (108.3) Financial statements Trade and other payables – (128.4) (6.0) (134.4) Other financial liabilities – – (1.1) (1.1)
Non-current: Interest bearing loans and borrowings – (401.6) – (401.6) Other financial liabilities – (2.7) (8.1) (10.8) Total – (641.0) (15.2) (656.2) Net financial assets/(liabilities) 40.3 (641.0) (15.2) (615.9)
Fair value of financial instruments Assets and liabilities designated at fair value through profit or loss are carried at fair value. There were no derivatives in a hedging relationship in both years. The fair value of cash at bank and in hand approximates to book value due to its short-term maturity. The fair value of the £250 million 7.125% bond at 31 December 2011, of which £131.3 million remained outstanding, was £133.7 million (2010: £138.3 million). The fair value of the £225 million 7.625% bond at 31 December 2011 was £225.8 million (2010: £228.0 million). The amortised cost of interest bearing loans and borrowings, with the exception of the £250 million 7.125% bond and £225 million 7.625% bond, the carrying value of all other assets and liabilities approximates to fair value. Fair value hierarchy The following tables illustrate the Group’s financial assets and liabilities measured at fair value at 31 December 2011 and 31 December 2010: 2011 Level 1 Level 2 Level 3 Total £m £m £m £m Liabilities measured at fair value Derivatives – (0.1) – (0.1) Financial guarantee contracts – – (7.7) (7.7) Trade and other payables – – (8.6) (8.6) Other current financial liabilities – – (1.0) (1.0) Total – (0.1) (17.3) (17.4) Ladbrokes plc Annual Report and Accounts 2011 76
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
25 Financial instruments continued 2010 Level 1 Level 2 Level 3 Total £m £m £m £m Liabilities measured at fair value Financial guarantee contracts – – (8.1) (8.1) Trade and other payables – – (6.0) (6.0) Other current financial liabilities – – (1.1) (1.1) Total – – (15.2) (15.2)
No financial instruments are classified as level 1, for which fair value is based on quoted prices in active markets for identical assets or liabilities. The Group classifies all derivatives as level 2 financial instruments, as their fair value is determined based on techniques for which all significant inputs are observable, either directly or indirectly. Included in trade and other payables are £8.6 million of ante post liabilities (2010: £6.0 million). Other current financial liabilities are deferred revenues associated with the fair value of reward points issued; both are classified as level 3 financial instruments as their fair value is measured using techniques where the significant inputs are not based on observable market data. Changes in the fair value of these instruments are recorded in the consolidated income statement. Financial guarantee contracts, included within other non-current financial liabilities, are classified as level 3 financial instruments, as their fair value is measured using techniques where the significant inputs are not based on observable market data. Further information about financial guarantee contracts, including sensitivities, and a reconciliation of changes in fair value in the year, is included below. Financial guarantee contracts The Group has given guarantees to third parties in respect of lease liabilities of former subsidiaries within the disposed hotels division. The Group received an indemnity from Hilton Hotels Corporation (HHC), at the time of the hotels disposal, in relation to any loss the Group may subsequently incur under these third party guarantees. The guarantees expire between 2012 and 2042 and the lease liabilities comprise a combination of minimum contractual and turnover based elements. The undiscounted maximum liability exposure in respect of the guarantees for all periods up to 2042 is £860.6 million (2010: £901.2 million), with a maximum indemnity receivable of the same amount. Included in the maximum liability exposure is £490.7 million (2010: £505.9 million) in relation to the turnover based element of the hotel rentals and £369.9 million (£395.3 million) in relation to the minimum contractual based element. The undiscounted maximum liability represents the total of all guaranteed rentals under the non-cancellable agreements into which the Group has entered. The net present value of the maximum exposure at 31 December 2011 is £357.1 million (2010: £385.9 million). Included in the net present value of the maximum exposure is £183.3 million (2010: £193.4 million) in relation to the turnover based element of the hotel rentals and £173.8 million (2010: £192.5 million) in relation to the minimum contractual based element. The Group monitors its exposure under these guarantees on a regular basis and seeks, where appropriate, to novate its obligations. The financial guarantees liability has been valued using a probability based model to estimate the net present value of the liabilities payable in the event of a default by the hotels covered by the guarantees, and the probability of such a default and new tenants being identified. At 31 December 2011 the Group has recognised a financial liability of £7.7 million (2010: £8.1 million) in respect of these guarantees. The reduction is due to time lapse. The change in the year in the fair value of the financial guarantees liability has been recognised in the consolidated income statement and classified in discontinued operations. No asset has been recognised in respect of the indemnity in both years. The key assumption in the probability model is the hotels default rate. A rate of 2.2% has been used at 31 December 2011 (2010: 2.2%). A 0.5 percentage point increase in the default rate would increase the financial liability by £1.3 million. Ladbrokes plc Annual Report and Accounts 2011 77
26 Net debt The components of the Group’s net debt are as follows: 2011 2010 Notes £m £m Current assets Cash and short-term deposits 20 26.4 17.9
Current liabilities Bank overdrafts 23 – (0.2) Interest bearing loans and borrowings 23 (131.4) (108.1)
Non-current liabilities Interest bearing loans and borrowings 23 (348.9) (401.6) Net debt (453.9) (492.0)
27 Share capital
Number of 281/3p ordinary shares £m Financial statements Issued and fully paid: At 1 January 2010 933,766,497 264.6 During the year 5,371,735 1.5 At 31 December 2010 939,138,232 266.1 During the year(1) 509,572 0.1 At 31 December 2011 939,647,804 266.2
(1) During the year, the following fully paid shares of 281/3 pence each were issued: 146,799 shares under the OWN Plan, 344,460 shares on exercise of options under the International Share Option Scheme, 10,148 shares on exercise of options under the 1978 Share Option Scheme and 8,165 shares on exercise of options under the 1983 Savings Related Share Option Scheme. At the Annual General Meeting held on 13 May 2011, shareholders authorised the Company to purchase up to 90,737,766 of its ordinary shares in the market. At 16 February 2012, no purchases have been made pursuant to such authority.
Number of 281/3p ordinary shares Shares issued at 31 December 2010 939,138,232 Treasury shares (31,760,568) Shares issued at 31 December 2010 excluding treasury shares 907,377,664 Shares issued at 31 December 2011 939,647,804 Treasury shares (31,760,568) Shares issued at 31 December 2011 excluding treasury shares 907,887,236 Ladbrokes plc Annual Report and Accounts 2011 78
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
28 Employee share ownership plans The Ladbrokes Share Ownership Trust (‘LSOT’) is used in connection with the Company’s Deferred Bonus Plan, the Ladbrokes Growth Plan, the Restricted Share Plan and the 2010 Share Award Plan (together ‘the Plans’) (refer to note 31 for further details of the Plans and the various performance conditions). The LSOT may also be used in connection with the Company’s other share-based plans, including the 1978 Share Option Scheme and the International Share Option Scheme. The trustee of the LSOT, Computershare Trustees (CI) Limited, subscribes for the Company’s shares or purchases them in the open market, as required, on the basis of regular reviews of the anticipated commitments of the Group, with financing provided by the Company. The Ladbrokes Share Incentive Plan (‘LSIP’) is currently used in connection with the Company’s OWN share plan (‘the OWN plan’) and Freeshare share plan (‘Freeshare’) (refer to note 31 for further details). The trustee of the LSIP, Computershare Trustees Limited, purchases the Company’s shares in the open market, as required, using: (i) deductions made from the salaries of participants in the OWN plan; and (ii) dividends paid on the shares held by the LSIP. Under the OWN plan, to match those shares acquired using participants’ salary deductions, one additional share is allotted by the Company to the LSIP for every two held per employee. All expenses of the LSOT and LSIP are settled directly by the Company and charged in the financial statements as incurred. The following table shows the number of shares held in trust that have not yet vested unconditionally and the associated reduction in shareholders’ funds.
LSOT LSIP Total Shares Cost of Shares Cost of Shares Cost of held shares held shares held shares Number £m Number £m Number £m At 1 January 2011(1) 6,531,525 7.7 1,129,829 1.5 7,661,354 9.2 Shares purchased/allotted 1,383,863 2.1 314,002 0.2 1,697,865 2.3 Vested in year (1,328,028) (2.2) (503,007) (1.3) (1,831,035) (3.5) At 31 December 2011 6,587,360 7.6 940,824 0.4 7,528,184 8.0 Market value of shares in trusts 8.6 1.2 9.8 Unallocated shares in trusts 81,563 – 81,563
(1) Includes an award of 4,035,784 shares allotted by the Company in 2010 and held jointly between the participant and Computershare Trustees (CI) Limited under the Ladbrokes Growth Plan (refer to the Directors’ remuneration report). 29 Notes to the statement of cash flows Reconciliation of profit to net cash inflow from operating activities: 2011 2010 £m £m Profit before tax and net finance expense – continuing(1) 187.7 207.3 Loss before tax and net finance expense – discontinued(1) – (9.1) Profit before tax and net finance expense(1) 187.7 198.2
Adjustments for: Depreciation of property, plant and equipment 40.9 47.8 Amortisation of intangible assets 9.9 5.7 Share-based payments charge 6.6 3.8 (Increase)/decrease in other financial assets (0.4) 1.2 Decrease in trade and other receivables 4.3 21.7 Decrease in other financial liabilities (0.1) (7.9) Increase in trade and other payables 7.1 20.5 Decrease in provisions (0.7) (2.3) Contribution to retirement benefit scheme (7.9) (6.7) Share of results from joint venture 0.8 0.5 Share of results from associates (1.8) (3.8) Other items (6.0) (5.8) Cash generated by total operations 240.4 272.9 Income taxes (paid)/received (18.1) 51.9 Finance expense (36.3) (47.8) Net cash generated from operating activities 186.0 277.0
(1) Before non-trading items. Ladbrokes plc Annual Report and Accounts 2011 79
30 Retirement benefit schemes Defined contribution schemes The total cost charged to the consolidated income statement of £1.0 million (2010: £0.9 million) represents contributions payable to these schemes by the Group at rates specified in the rules of the scheme. Defined benefit plans The Group’s only significant defined benefit retirement plan is the Ladbrokes Pension Plan, which is a final salary pension plan for UK employees. This was closed to new employees on 1 August 2007. Assets are held separately from those of the Group. Although the Group is responsible for the operation of this arrangement, professional advisers are appointed to assist the trustees in running it. The last formal actuarial valuation of the Ladbrokes Pension Plan was carried out with an effective date of 30 June 2010. The latest actuarial valuation was updated to 31 December 2011 by an independent qualified actuary in accordance with IAS 19 Employee Benefits. The value of the defined benefit obligation and current service cost have been measured using the projected unit credit method, as required by IAS 19. In July 2010, the Government announced that in future statutory indexation for pensions would be linked to the Consumer Prices Index (CPI) rather than the, historically, higher Retail Prices Index (RPI). The effect of this change was to reduce the Group’s pension liabilities. To reflect this, in the prior year the Group recognised an actuarial gain of £8.6 million outside profit and loss through other comprehensive income. In the current year, following further government publications, it has been concluded by the Group that the gap between the RPI and the CPI is expected over the long-term to be 1.0% pa compared to 0.7% pa assumed at 31 December 2010 thus further reducing the value of the Group’s pension liabilities. To reflect this, the Group has recognised a further actuarial gain of
£3.5 million through other comprehensive income. Financial statements The amounts recognised in the balance sheet are as follows: 2011 2010 £m £m Present value of funded obligations (243.3) (228.6) Fair value of plan assets 280.7 263.1 Net asset 37.4 34.5 Disclosed in the balance sheet as: Retirement benefit asset 37.4 34.5 The amounts recognised in the income statement are as follows: 2011 2010 £m £m Analysis of amounts charged to staff costs (continuing operations) Current service cost (excluding employee element) 3.3 3.5 Interest on obligation 12.4 13.0 Expected return on plan assets (14.4) (13.7) Total expense recognised in the income statement in staff costs 1.3 2.8
The actual return on plan assets over the year was a gain of £19.3 million (2010: a gain of £24.5 million). The amount recognised in the statement of comprehensive income is as follows: 2011 2010 £m £m Actual return on assets 19.3 24.5 Less: Expected return on assets (14.4) (13.7) Actuarial gains on defined benefit plan assets 4.9 10.8 Actuarial (losses)/gains on defined benefit obligation (8.6) 4.8 Actuarial (losses)/gains recognised in the statement of comprehensive income (3.7) 15.6
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income at 31 December 2011 is a loss of £28.8 million (2010: loss of £25.1 million). Ladbrokes plc Annual Report and Accounts 2011 80
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
30 Retirement benefit schemescontinued Changes in the present value of the defined benefit obligation are as follows: 2011 2010 £m £m At 1 January (228.6) (227.4) Current service cost (excluding employee element) (3.3) (3.5) Employee contributions (1.1) (1.3) Interest cost (12.4) (13.0) Actuarial (losses)/gains (8.6) 4.8 Benefits paid 10.7 11.8 At 31 December (243.3) (228.6)
Changes in the fair value of plan assets are as follows: 2011 2010 £m £m At 1 January 263.1 242.4 Expected return on plan assets 14.4 13.7 Actuarial gains 4.9 10.8 Contributions by sponsoring companies 7.9 6.7 Employee contributions 1.1 1.3 Benefits paid (10.7) (11.8) At 31 December 280.7 263.1
The Group expects to contribute £9.9 million to its defined benefit plan in 2012. The major categories of plan assets as a percentage of total plan assets are as follows: 2011 2010 Equity instruments (%) 36 42 Debt instruments (%) 64 58 100 100
Principal actuarial assumptions at the balance sheet date (expressed as weighted averages where appropriate): 2011 2010 % pa % pa Discount rate 4.9 5.5 Expected return on plan assets 5.0 5.8 Future salary growth 3% in 2012 and 0% in 2011 and 4.1% pa thereafter, 4.5% pa thereafter, plus promotional scale plus promotional scale Price inflation 2.1/3.1 2.8/3.5 Future pension increases – LPI 5% 2.1 2.8 – LPI 3% 2.4 2.7 – LPI 2.5% 1.8 2.1 Ladbrokes plc Annual Report and Accounts 2011 81
30 Retirement benefit schemescontinued In the prior year the UK government announced that the CPI rather than the RPI should be used as the basis of the calculation of inflation for the statutory index-linked features of the retirement benefits. Accordingly, the obligations of the Plan have been calculated with reference to the CPI where permitted by the scheme rules. For the year ended 31 December 2011, the price inflation rate applied for CPI and RPI are 2.1% and 3.1% respectively (2010: CPI 2.8%, RPI 3.5%). The overall expected return on plan assets was derived as an average of the long-term expected rates of return on each of the major asset classes invested in, weighted by the allocations of assets among the classes over the long term. The sources used to determine the best estimate of long-term returns include bond yields, inflation and investment market expectations derived from market data and analysts’ or government’s expectations. At 31 December 2011, the long-term expected rates of return on equity instruments and debt instruments were assumed to be 7.3% pa and 3.4% pa, respectively, for the plan. The equivalent assumptions at 31 December 2010 were 8.0% pa and 4.4% pa respectively. The post-retirement mortality assumed for most members is based on the standard SAPS mortality table with the CMI 2009 projections, which takes into account future improvements, adjusted to reflect plan specific experience. The assumption used implies that the expected future lifetime of members aged 65 in 2011 is 86.7 years for males and 88.4 years for females. For members with large pensions a longer lifetime is assumed (90.0 for males and 90.4 for females). The post-retirement mortality assumption has been updated since 2010 when expected future lifetimes were generally assumed to be 86.6 years for males aged 65 and 87.6 years for females, with longer lifetimes assumed for members with large pensions of 89.9 years for males and 90.4 years for females. Changes to the assumptions will impact the amounts recognised in the consolidated balance sheet and the consolidated income statement in respect of the plan. For the significant assumptions, the following sensitivity analysis provides an indication of the impact for the year ended 31 December 2011, excluding the impact on the associated deferred tax items: Financial statements 2011 2010 £m £m – 0.5% pa decrease in the discount rate would have the following approximate effect: Increase in the current service cost (excluding employee element) 0.5 0.6 Decrease in the balance sheet asset at 31 December 19.7 18.7 This ignores the potential positive impact that a general fall in bond yields may have on the value of the bond assets held by the plan.
– 1.0% pa decrease in the expected return on plan assets would have the following approximate effect: Increase in the amount charged to staff costs 2.6 2.4
– one year increase in life expectancy would have the following approximate effect: Increase in the current service cost (excluding employee element) 0.1 0.1 Decrease in the balance sheet asset at 31 December 5.8 5.5
– 0.5% pa increase in price inflation would have the following approximate effect: Increase in the current service cost (excluding employee element) 0.3 0.3 Decrease in the balance sheet asset at 31 December 10.1 9.8
History of the plans and experience adjustments are as follows: 2011 2010 2009 2008 2007 £m £m £m £m £m Defined benefit obligation (243.3) (228.6) (227.4) (196.5) (208.5) Plan assets 280.7 263.1 242.4 217.3 242.1 Surplus 37.4 34.5 15.0 20.8 33.6 Experience gain/(loss) on plan liabilities – 4.0 3.5 (1.7) (5.8) Experience gain/(loss) on plan assets 4.9 10.8 14.1 (37.5) (3.0) Ladbrokes plc Annual Report and Accounts 2011 82
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
31 Share-based payments Ladbrokes plc has the following share-based payment plans, all of which are settled by equity: the Deferred Bonus Plan, the Performance Share Plan, the Ladbrokes Growth Plan, the International Share Option Scheme, the 1978 Share Option Scheme, the Restricted Share Plan, Sharesave, the OWN Plan, Freeshare and the 2010 Share Award Plan. The plans and the various performance conditions are discussed in more detail below. (i) Restricted Share Plan Awards made under the Restricted Share Plan from 2010 onwards will vest in their entirety after three years. However, for awards granted prior to 2010, employees could elect for 50% of the award to vest after two years. Awards are not subject to performance conditions. (ii) Deferred Bonus Plan For certain senior executives, one third of the gross annual bonus is delivered in shares that vest after three years. For other employees, one third of the gross annual bonus is delivered in shares that vest after two years. (iii) Performance Share Plan An award under the Performance Share Plan consists of a conditional allocation of shares that will vest, subject to the achievement of performance conditions, at the end of the three year performance period. The awards have two separate performance conditions; half of the award vests based on TSR and half of the award vests based on EPS growth. (iv) Ladbrokes Growth Plan Awards are subject to share price growth performance conditions. Any share price target must be attained throughout a period of 30 consecutive dealing days and performance is assessed over a five year period. Up to one third of the award may vest at the end of year three if the performance targets have been achieved at that time. A further third may vest at the end of year four if the targets have been met at that time. The remainder of the award may vest at the end of year five, subject to the achievement of the performance targets. (v) 2010 Share Award Plan An award under the 2010 Share Award Plan consists of a one-off compensatory share award to the Chief Executive in the form of a nil cost option. The award is not subject to performance conditions and will vest after three years. (vi) International Share Option Scheme and the 1978 Share Option Scheme The share options granted are all market value options with a three year vesting period. Vested options lapse if they have not been exercised within ten years of the date of grant. All options have an EPS growth based performance condition. Options have not been granted since 2009 and there is no present intention to grant options in the future. (vii) 1983 Savings Related Share Option Scheme (‘Sharesave’) Under Sharesave, options are granted at a 20% discount to market value. The scheme operates with a savings period of either three or five years, at the end of which the option may be exercised. (viii) OWN Plan Under the OWN Plan, employees can contribute up to £75 per month to acquire shares. For every two shares purchased, the Group provides a match of one additional share. (ix) Freeshare Under Freeshare, an award of up to £250 in value was made to participating employees on reaching one year’s service. Freeshares have not been awarded since 2010 and there is no present intention to make awards in the future. For a more detailed description of each of the above plans, refer to the Directors’ remuneration report. The following table illustrates the number of shares outstanding at the beginning of the year, the number of shares granted, lapsed and vested during the year together with the outstanding share balances as at the end of the year in respect of the Restricted Share Plan, Deferred Bonus Plan, Performance Share Plan, Ladbrokes Growth Plan and 2010 Share Award Plan.
Restricted Deferred Performance Ladbrokes 2010 Share Share Plan Bonus Plan Share Plan Growth Plan Award Plan Total Outstanding at 1 January 2011 292,746 1,069,664 6,166,489 4,035,784 1,177,103 12,741,786 Granted 157,757 1,288,546 5,644,985 15,460,661 – 22,551,949 Lapsed (141,283) (46,492) (1,939,295) (1,713,864) – (3,840,934) Vested (116,142) (1,211,886) – – – (1,328,028) Outstanding at 31 December 2011 193,078 1,099,832 9,872,179 17,782,581 1,177,103 30,124,773 Ladbrokes plc Annual Report and Accounts 2011 83
31 Share-based payments continued The following table shows the number and weighted average exercise prices of share options granted, exercised and lapsed during the year in respect of the 1978 and International Share Option Schemes and also Sharesave. 1978 and International 2011 2011 2010 2010 Schemes Sharesave Number WAEP – £ Number WAEP – £ Outstanding at 1 January 11,011,991 3,599,020 14,611,011 2.09 16,706,501 2.27 Granted – 1,310,915 1,310,915 1.19 1,456,780 1.10 Exercised (354,608) (8,165) (362,773) 1.21 (9,066) 1.22 Lapsed (4,877,620) (1,120,216) (5,997,836) 2.20 (3,543,204) 2.52 Outstanding at 31 December(1)(2) 5,779,763 3,781,554 9,561,317 1.94 14,611,011 2.09 Exercisable at 31 December 3,664,062 427,228 4,091,290 2.73 6,713,742 2.57
(1) Included within this balance are options over 285,301 shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2. (2) Of the 9,561,317 share options outstanding at 31 December 2011, 6,203,843 (31 December 2010: 12,686,675) are at a price above the year end share price of 130.0 pence (31 December 2010: 122.7 pence). The total value of these shares is £14.6 million (2010: £28.4 million). The weighted average share price at the date of exercise for share options exercised during the year was £1.44 (2010: £1.52). The weighted average fair value of options granted during the year was 41.0 pence (2010: 24.9 pence). The weighted average remaining contractual life for the share options outstanding at 31 December 2011 is between three and seven years (2010: between three and eight Financial statements years). The range of exercise prices for options outstanding at the end of the year was £1.10 – £3.60 (2010: £1.10 – £3.60).
At 31 December 2011, there were 6,234,438 options outstanding with an exercise price between £1.10 and £2.00, 1,560,036 options outstanding with an exercise price between £2.01 and £3.00, and 1,766,843 options outstanding with an exercise price between £3.01 and £3.60.
At 31 December 2010, there were 8,622,081 options outstanding with an exercise price between £1.10 and £2.00, 3,416,505 options outstanding with an exercise price between £2.01 and £3.00, and 2,572,425 options outstanding with an exercise price between £3.01 and £3.60. The inputs into the binomial model are as follows: 2011 2010 Weighted average share price (£) 1.47 1.40 Weighted average exercise price (£) 1.19 1.10 Expected volatility (%) 37.5 25.0 Expected life (years) 3.94 4.19 Risk free rate (%) 2.2 3.6 Expected dividends (%) 4.6 7.4
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The Group recognised total expenses before tax of £6.6 million (2010: £3.8 million) relating to equity settled share-based payment transactions. Share awards granted during the year in respect of the Performance Share Plan: 2011 2010 Number 5,644,985 3,369,375 Weighted average fair value £1.18 £1.34
The fair value of share awards was measured by calculating the present value of the dividends receivable between the grant date and the vesting date and valuing the market related performance conditions through the use of a closed-form model, similar to a Monte Carlo simulation. Ladbrokes plc Annual Report and Accounts 2011 84
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
32 Commitments and contingencies Operating lease commitments – Group as lessee The Group has a number of lease agreements that, pursuant to their economic substance, qualify as non-cancellable operating lease agreements. These primarily relate to rents payable on land and buildings. The terms of the leases vary significantly but can broadly be summarised as follows: Lease terms Shop leases are typically 15 years with a tenant only break clause at 10 years and rent reviews every five years. Other leases are typically between three and 10 years. Determination of rent payments Rent payments are based on the amount specified in the agreement. Terms of renewal The agreements are not terminated automatically after expiry of the lease term and in the majority of cases, lease extension options have been agreed upon and in many other cases, there will be an opportunity to negotiate lease extensions with the lessor. Restrictions There are no restrictions imposed upon the Group, concerning dividends, additional debt or further leasing under any of the existing lease arrangements. Subleases The Group does sublease areas of leased properties and receives sublease payments from third parties. Lease payments recognised as an expense for the year: 2011 2010 £m £m Minimum lease payments 62.5 61.6
Analysis of minimum lease payments by division:
2011 2010 £m £m UK Retail 50.9 50.0 European Retail 11.3 11.3 Digital 0.3 0.3 Total 62.5 61.6
Future minimum rentals payable under non-cancellable operating leases at 31 December are as follows: 2011 2010 £m £m Within one year 59.2 56.9 After one year but not more than five years 160.4 158.3 After five years 106.8 108.6 Total 326.4 323.8 Ladbrokes plc Annual Report and Accounts 2011 85
32 Commitments and contingencies continued Operating lease commitments – Group as lessor The Group has entered into sublease agreements for unutilised space in the UK shop estate. These non-cancellable leases have remaining lease terms of between one and 10 years. Lease receipts recognised as income for the period: 2011 2010 £m £m Minimum lease receipts 3.6 3.7
Future minimum rentals receivable under non-cancellable operating leases at 31 December are as follows: 2011 2010 £m £m Within one year 2.2 2.4 After one year but not more than five years 4.2 3.9 After five years 1.8 1.9 8.2 8.2
Contingent liabilities Guarantees have been given in the ordinary course of business in respect of loans and derivative contracts granted to subsidiaries Financial statements amounting to £483.3 million (2010: £513.4 million). In addition, subsidiaries have guaranteed loans of £0.1 million (2010: £0.1 million) given in the normal course of business to other subsidiary companies. Bank guarantees have been issued on behalf of subsidiaries and joint venture with a value of £22.1 million (2010: £24.0 million). 33 Related party disclosures The consolidated financial statements include the financial statements of Ladbrokes plc and its subsidiaries. The principal subsidiaries, all of which are wholly owned by the Group, are listed in the following table. % equity interest Country of incorporation 2011 2010 Betting and Gaming Ladbrokes Betting & Gaming Limited United Kingdom 100.0 100.0 Ladbroke (Ireland) Limited Ireland 100.0 100.0 Ladbrokes Leisure (Ireland) Limited Ireland 100.0 100.0 Ladbrokes International Limited Gibraltar 100.0 100.0 Ladbrokes Sportsbook Limited Partnership Gibraltar 100.0 100.0 Tiercé Ladbroke SA(1) Belgium 100.0 100.0
Central services Ladbrokes Group Finance plc(1) United Kingdom 100.0 100.0
(1) Directly owned by Ladbrokes plc. In addition to the above principal subsidiaries, the Group holds a 60% interest in Ladbrokes (SA) (Pty) Limited (formerly “Main Street 684 (Proprietary) Limited”), a venture with Kai Ro (International) Holdings Limited that operates an online sportsbook in South Africa. The results of the venture are consolidated in full in the Group financial statements with a deduction for the non-controlling interest.
In January 2012, the Group acquired a majority stake in Stadium Technology Group, a Las Vegas based supplier of software and in play betting applications to sportsbook operators, for £1.9 million ($3.0 million). Ladbrokes plc Annual Report and Accounts 2011 86
Statutory reports and financial statements continued
Notes to the consolidated financial statements continued
33 Related party disclosures continued The following table provides details of the Group’s joint venture: % equity interest Country of incorporation 2011 2010 Sportium Apuestas Deportivas SA Spain 50.0 50.0
The following table provides details of the Group’s associates: % equity interest Country of incorporation 2011 2010 Satellite Information Services (Holdings) Limited United Kingdom 23.4 23.4 Asia Gaming Technologies Limited Hong Kong 49.0 49.0
A full list of subsidiary and other related undertakings will be annexed to the next annual return of Ladbrokes plc to be filed with the Registrar of Companies. Other than its associates and joint venture, significant related parties of the Group are the executive and non-executive directors of the Group. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates and joint venture and other related parties are disclosed below. Trading transactions During the year, Group companies entered into the following transactions with related parties who are not members of the Group: 2011 2010 £m £m Equity investment – Joint venture(1) 2.5 0.8 – Associates(2) – 0.2 Loans – Movement in loan balance with joint venture partner (0.4) 0.8 – Loan provided to joint venture 0.5 – Dividends received – Associates(3) 1.6 – Sundry expenditure – Associates(4) 39.4 35.7
(1) Equity investment in Sportium Apuestas Deportivas SA. (2) Equity investment in Asia Gaming Technologies Limited. (3) Dividend received from Satellite Information Services (Holdings) Limited. (4) Payments in the normal course of business made to Satellite Information Services (Holdings) Limited. Ladbrokes plc Annual Report and Accounts 2011 87
33 Related party disclosures continued Details of related party outstanding balances 2011 2010 £m £m Loan balances outstanding – Joint venture partner 4.6 5.0 – Joint venture 0.5 – Other receivables outstanding – Associates 5.0 3.4
Terms and conditions of transactions with related parties Sales to and purchases from related parties are made at normal market prices and in the ordinary course of business. Outstanding balances at 31 December 2011 are unsecured and settlement occurs in cash. For the year ended 31 December 2011, the Group has not raised any provision (2010: £nil) for doubtful debts relating to amounts owed by related parties as the payment history has been good. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates. Compensation of key management personnel of the Group The remuneration of the key management personnel is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Key management personnel comprise executive directors, non-executive directors and members of the newly formed Financial statements Executive Committee, following a reorganisation of the structure. Further information about the remuneration of individual directors, which totalled £4.2 million (2010: £3.5 million), is provided in the audited part of the Directors’ remuneration report on pages 31 to 42. 2011 2010 £m £m Short-term employee benefits 7.1 6.9 Retirement benefits 0.7 0.8 Termination benefits 0.5 1.8 Share-based payments 4.2 1.7 Total compensation paid to key management personnel 12.5 11.2
Directors’ interests in the employee share incentive plan and employee share trust are disclosed within the Directors’ remuneration report. Ladbrokes plc Annual Report and Accounts 2011 88
Statutory reports and financial statements continued Statement of directors’ responsibilities in relation to the consolidated financial statements
The directors are responsible for preparing the Annual Report Directors’ statement pursuant to the Disclosure and and the financial statements in accordance with applicable laws Transparency Rules and regulations. Each of the directors, whose names and functions are listed in pages 22 and 23 of this Annual Report, confirm that, to the best Company law requires the directors to prepare financial of each person’s knowledge and belief: statements for each financial year. Under that law the directors have elected to prepare the Group financial statements in the financial statements, prepared in accordance with IFRSs accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view (IFRSs) as adopted by the European Union. Under Company law of the assets, liabilities, financial position and profit of the the directors must not approve the financial statements unless Group; and they are satisfied that they give a true and fair view of the state of the directors’ report contained in the Annual Report includes a affairs of the Group and of the profit or loss of the Group for that fair review of the development and performance of the business period. In preparing these financial statements, the directors are and the position of the Group, together with a description of the required to: principal risks and uncertainties that they face. select suitable accounting policies and then apply them consistently; By order of the board make judgements and accounting estimates that are reasonable and prudent; state whether the applicable IFRSs as adopted by the European Union have been followed, subject to any material departures R I Glynn disclosed and explained by the financial statements; I A Bull prepare the financial statements on the going concern basis Directors unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Company’s website and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Ladbrokes plc Annual Report and Accounts 2011 89
Independent auditor’s report to the members of Ladbrokes plc
We have audited the Group financial statements of Ladbrokes plc Matters on which we are required to report by exception for the year ended 31 December 2011 which comprise the We have nothing to report in respect of the following: Consolidated Income Statement, the Consolidated Statement Under the Companies Act 2006 we are required to report to you if, of Comprehensive Income, the Consolidated Balance Sheet, in our opinion: the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes certain disclosures of directors’ remuneration specified by law 1 to 33. The financial reporting framework that has been applied are not made; or in their preparation is applicable law and International Financial we have not received all the information and explanations we Reporting Standards (IFRSs) as adopted by the European Union. require for our audit; or This report is made solely to the Company’s members, as a body, a Corporate Governance Statement has not been prepared by in accordance with Chapter 3 of Part 16 of the Companies Act the Company. 2006. Our audit work has been undertaken so that we might state Under the Listing Rules we are required to review: to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. the directors’ statement, set out on page 30, in relation to going To the fullest extent permitted by law, we do not accept or concern; and assume responsibility to anyone other than the Company and the the part of the Corporate Governance Statement relating to Company’s members as a body, for our audit work, for this report, the Company’s compliance with the nine provisions of the UK or for the opinions we have formed. Corporate Governance Code specified for our review; and Respective responsibilities of directors and auditor certain elements of the report to shareholders by the Board on
As explained more fully in the statement of directors’ responsibilities directors’ remuneration. Financial statements set out on page 100, the directors are responsible for the preparation Other matter of the Group financial statements and for being satisfied that they We have reported separately on the parent Company financial give a true and fair view. Our responsibility is to audit and express statements of Ladbrokes plc for the year ended 31 December 2011 an opinion on the Group financial statements in accordance with and on the information in the Directors’ Remuneration Report that applicable law and International Standards on Auditing (UK and is described as having been audited. Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and R W Wilson (Senior statutory auditor) disclosures in the financial statements sufficient to give reasonable for and on behalf of Ernst & Young LLP, Statutory Auditor assurance that the financial statements are free from material London misstatement, whether caused by fraud or error. This includes an 16 February 2012 assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion, the Group financial statements: give a true and fair view of the state of the Group’s affairs as at 31 December 2011 and of its profit for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the Group financial statements; and the information given in the Corporate Governance Statement set out on pages 24 to 28 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements. Ladbrokes plc Annual Report and Accounts 2011 90
Statutory reports and financial statements continued Company financial statements contents
91 Company balance sheet 96 11 Financial risk management objectives and policies 92 Notes to the company financial statements 96 12 Share capital 92 1 Basis of accounting 96 13 Reconciliation of shareholders’ funds and movements on 92 2 Change in accounting policies reserves 92 3 S ummary of significant 97 14 Employee share ownership plans accounting policies 97 15 Pensions 93 4 Profit and loss account disclosures 99 16 Share-based payments 93 5 Dividends 99 17 Contingencies 94 6 Fixed asset investments 100 Statement of directors’ responsibilities in relation to the 94 7 Debtors Company financial statements 94 8 Creditors – amounts falling due 101 Independent auditor’s report to the within one year members of Ladbrokes plc 94 9 C reditors – amounts falling due after more than one year 95 10 Provisions for liabilities Ladbrokes plc Annual Report and Accounts 2011 91
Company balance sheet
2011 2010 At 31 December Note £m £m Fixed assets Investments 6 4,864.5 4,760.5
Current assets Debtors 7 308.8 274.7 Cash at bank and in hand 3.0 3.0 311.8 277.7
Creditors – amounts falling due within one year 8 (2,911.4) (2,575.6) Net current liabilities (2,599.6) (2,297.9)
Total assets less current liabilities 2,264.9 2,462.6
Creditors – amounts falling due after more than one year 9 (10.4) (149.7) Provisions for liabilities and charges 10 – (0.8) Net assets excluding pension asset 2,254.5 2,312.1 Net pension asset 15 28.1 25.2 Financial statements Net assets 2,282.6 2,337.3
Capital and reserves Called up share capital 12 266.2 266.1 Share premium account 13 194.6 194.1 Treasury and own shares 13 (113.3) (114.4) Capital reserve 13 0.1 0.1 Profit and loss account 13 1,935.0 1,991.4 Shareholders’ funds 2,282.6 2,337.3
Approved by the Board of Directors on 16 February 2012.
R I Glynn I A Bull Directors Ladbrokes plc Annual Report and Accounts 2011 92
Statutory reports and financial statements continued Notes to the company financial statements
1 Basis of accounting Financial liabilities The financial statements have been prepared under the historical Financial liabilities comprise guarantees given to third parties. cost convention except as otherwise stated. They have been On initial recognition, financial liabilities are measured at fair value drawn up to comply with applicable UK accounting standards. plus transaction costs where they are not categorised as financial The parent Company profit for the year was £12.9 million (2010: liabilities at fair value through profit or loss. Financial liabilities at loss of £206.2 million). fair value through profit or loss are measured initially at fair value, with transaction costs taken directly to the profit and loss account. The Company has taken advantage of the exemption from Subsequently, the fair values are remeasured and gains and losses preparing a cash flow statement under the provisions of FRS 1 from changes therein are recognised in the profit and loss account. (revised 1996) Cash flow statements. The Ladbrokes plc consolidated financial statements for the year ended Financial guarantee contracts 31 December 2011 contain a consolidated statement of The Company has provided financial guarantees to third parties in cash flows. respect of lease obligations of certain of the Company’s former subsidiaries within the disposed hotels division. 2 Change in accounting policies Financial guarantee contracts are classified as financial liabilities The following new standards, amendments and interpretations and are measured at fair value by estimating the probability of the were adopted by the Company in the year. Adoption had no effect guarantees being called upon and the related cash outflows from on the results, financial position of the Company or its disclosures: the Company. Amendment to FRS 25 (IAS 32) Financial instruments: Derecognition of financial assets and liabilities Presentation on the classification of rights issues Financial assets are derecognised when the right to receive cash FRS 30 Heritage Assets flows from the assets has expired or when the Company has UITF 47 (Abstract 17) Extinguishing financial liabilities with transferred its contractual right to receive the cash flows from the equity instruments financial assets or has assumed an obligation to pay the received UITF 48 on accounting implications of the replacement of RPI cash flows in full without material delay to a third party, and either: with CPI substantially all the risks and rewards of ownership have been Improvements to FRSs transferred; or 3 Summary of significant accounting policies substantially all the risks and rewards have neither been retained Investments nor transferred but control is not retained. Investments held as fixed assets are stated at cost less provision Financial liabilities are derecognised when the obligation is for impairment. discharged, cancelled or expires. The Company assesses these investments for impairment wherever Deferred tax events or changes in circumstances indicate that the carrying value Deferred tax is recognised as an asset or liability, at appropriate of an investment may not be recoverable. If any such indication of rates, in respect of transactions and events recognised in the impairment exists, the Company makes an estimate of the financial statements of the current and previous periods that give recoverable amount. If the recoverable amount is less than the value the entity a right to pay less, or an obligation to pay more, tax in of the investment, the investment is considered to be impaired and future periods. Deferred tax assets are only recognised to the is written down to its recoverable amount. An impairment loss is extent it is probable that there will be suitable taxable profits from recognised immediately in the profit and loss account. which they can be recovered. An undertaking is regarded as a subsidiary undertaking if the No provision is made for any taxation on capital gains that would Company has control over its operating and financial policies. arise from the future disposal of any fixed assets shown in the An undertaking is regarded as an associate if the Company holds financial statements at valuation, except to the extent that at the a participating interest and has significant influence, but not balance sheet date there is a binding sale agreement. control, over its operating and financial policies. Deferred tax balances are not discounted. Financial assets Foreign currency translation Financial assets are recognised when the Company becomes The presentation and functional currency of the Company and the party to the contracts that give rise to them. functional currencies of its UK subsidiaries, is pounds sterling (£). The Company classifies financial assets at inception as either Transactions in foreign currencies are initially recorded in sterling financial assets at fair value or loans and receivables. On initial at the foreign currency rate ruling at the date of the transaction. recognition, loans and receivables are measured at fair value. Monetary assets and liabilities denominated in foreign currencies Financial assets at fair value comprise guarantees provided to the are retranslated into pounds sterling at the rates of exchange Company. Financial assets at fair value through profit or loss are ruling at the balance sheet date (the closing rate). measured initially at fair value, with transaction costs taken directly to the profit and loss account. Subsequently, the fair values are All foreign currency translation differences are taken to the profit remeasured and gains and losses from changes therein are and loss account with the exception of differences on foreign recognised in the profit and loss account. currency borrowings that provide a post-tax hedge against a net investment in a foreign entity. These are taken directly to equity Financial guarantees provided to the Company are classified as until the disposal of the net investment, at which time they are financial assets and are measured at fair value by estimating the recognised in the profit and loss account. Tax charges and credits probability of the guarantees being called upon and the related attributable to exchange differences on those borrowings are also cash inflows to the Company. dealt with in equity. Ladbrokes plc Annual Report and Accounts 2011 93
3 Summary of significant accounting policiescontinued Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. Pensions The Company is the principal employer of the Ladbrokes Pension Plan, a funded defined benefit group plan. The pension cost relating to the plan is assessed in accordance with the advice of independent qualified actuaries using the projected unit credit method. Any actuarial gains or losses are taken to equity in the period in which they arise. Any past service costs are recognised immediately to the extent that benefits have already vested and, otherwise, are amortised on a straight line basis over the average period until the benefits vest. The defined benefit asset recognised in the balance sheet represents the fair value of plan assets less the present value of defined benefit obligations as adjusted for any unrecognised past service costs. If necessary, the net defined benefit surplus is limited to the amount that can be recovered through reduced Company contributions in the future plus any refunds that have been agreed at the balance sheet date. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs. Share-based payments The cost of equity settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined using a binomial model, further details of which are given in note 31 of the consolidated IFRSs financial Financial statements statements. In valuing equity settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Ladbrokes plc (market conditions). The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the directors of the Company at that date, based on the best available estimate of the number of equity instruments, will ultimately vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. ESOP trusts Where the Company holds its own equity shares through an ESOP trust these shares are shown as a reduction in equity. Any consideration paid or received for the purchase or sale of these shares is shown in the reconciliation of movements in shareholders’ funds and no gain or loss is recognised within the profit and loss account or the statement of total recognised gains and losses on the purchase, sale or cancellation of these shares. Treasury shares Own equity instruments that are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
4 Profit and loss account disclosures As permitted by section 408 of the Companies Act 2006, the profit and loss account and the statement of total recognised gains and losses of the parent Company have not been separately presented in these financial statements.
5 Dividends 2011 2010 Pence per share pence pence Interim dividend paid 3.90 3.85 Final dividend proposed(1) 3.90 3.75 7.80 7.60
(1) A final dividend of 3.90 pence (2010: 3.75 pence) per share amounting to £35.2 million (2010: £33.8 million) in respect of the year ended 31 December 2011 was declared by the directors on 16 February 2012. These financial statements do not reflect the dividend payable. The 2011 interim dividend of 3.90 pence per share (£35.2 million) was paid on 1 December 2011. Ladbrokes plc Annual Report and Accounts 2011 94
Statutory reports and financial statements continued
Notes to the company financial statements continued
6 Fixed asset investments Shares in Unlisted Group investments at companies cost Total £m £m £m Cost At 1 January 2011 8,003.1 6.8 8,009.9 Additions 104.0 – 104.0 At 31 December 2011 8,107.1 6.8 8,113.9
Provision At 1 January 2011 and 31 December 2011 3,249.4 – 3,249.4
Net book value At 1 January 2011 4,753.7 6.8 4,760.5 At 31 December 2011 4,857.7 6.8 4,864.5
Principal subsidiaries are listed in note 33 of the consolidated IFRSs financial statements.
7 Debtors 2011 2010 £m £m Amounts falling due within one year: Amounts due from Group companies 277.7 232.5 Corporation tax recoverable 24.0 – Deferred tax 7.1 – Other debtors – 0.5 308.8 233.0 Amounts falling due after more than one year: Amounts due from Group companies – 41.7 308.8 274.7
8 Creditors – amounts falling due within one year 2011 2010 £m £m Other financial liabilities 35.1 – Other creditors 0.1 1.0 Corporation tax – 21.6 Accruals and deferred income 0.3 0.3 Amounts due to Group companies 2,875.9 2,552.7 2,911.4 2,575.6
9 Creditors – amounts falling due after more than one year 2011 2010 £m £m Amounts due to Group companies – 138.9 Other financial liabilities 10.4 10.8 10.4 149.7 Ladbrokes plc Annual Report and Accounts 2011 95
9 Creditors – amounts falling due after more than one year continued Financial guarantee contracts The Company has given guarantees to third parties in respect of lease liabilities of former subsidiaries within the disposed hotels division. The Company received an indemnity from Hilton Hotels Corporation (HHC), at the time of the hotels disposal, in relation to any loss the Company may subsequently incur under these third party guarantees. The guarantees expire between 2012 and 2042 and the lease liabilities comprise a combination of minimum contractual and turnover based elements. The undiscounted maximum liability exposure in respect of the guarantees for all periods up to 2042 is £860.6 million (2010: £901.2 million), with a maximum indemnity receivable of the same amount. Included in the maximum liability exposure is £490.7 million (2010: £505.9 million) in relation to the turnover based element of the hotel rentals and £369.9 million (2010: £395.3 million) in relation to the minimum contractual based element. The undiscounted maximum liability represents the total of all guaranteed rentals under the non-cancellable agreements into which the Company has entered. The net present value of the maximum exposure at 31 December 2011 is £357.1 million (2010: £385.9 million). Included in the net present value of the maximum exposure is £183.3 million (2010: £193.4 million) in relation to the turnover based element of the hotel rentals and £173.8 million (2010: £192.5 million) in relation to the minimum contractual based element. The Company monitors its exposure under these guarantees on a regular basis and seeks, where appropriate, to novate its obligations. The financial guarantees liability has been valued using a probability based model to estimate the net present value of the liabilities payable in the event of a default by the hotels covered by the guarantees, and the probability of such a default and new tenants being identified. At 31 December 2011 the Company has recognised a financial liability of £7.7 million (2010: £8.1 million) in respect of these guarantees. The reduction is due to time lapse. Financial statements No asset has been recognised in respect of the indemnity at 31 December 2011 (2010: £nil). The key assumption in the probability model is the hotels default rate. A rate of 2.2% has been used at 31 December 2011 (2010: 2.2%). A 0.5 percentage point increase in the default rate would increase the financial liability by £1.3 million.
10 Provisions for liabilities Deferred tax £m At 31 December 2010 0.8 Amounts credited to the profit and loss account for the year (7.9) At 31 December 2011 (shown as a deferred tax asset within debtors) (7.1)
Analysis of deferred tax by type of timing difference: 2011 2010 £m £m Deferred tax liability on pension asset (9.3) (9.3) Capital allowances 5.4 (0.8) Share-based payments 1.7 – (2.2) (10.1)
2011 2010 £m £m Reported as: Deferred tax liability on pension asset (9.3) (9.3) Deferred tax assets 7.1 – Other deferred tax liabilities – (0.8) (2.2) (10.1)
Analysis of movements in deferred tax: 2011 2010 £m £m At 1 January (10.1) (10.3) Amounts credited to the profit and loss account for the year 7.9 5.5 Tax on items recognised directly in equity – (5.3) At 31 December (2.2) (10.1) Ladbrokes plc Annual Report and Accounts 2011 96
Statutory reports and financial statements continued
Notes to the company financial statements continued
11 Financial risk management objectives and policies The financial risk management objectives and policies applied by the Company are in line with those of the Group as disclosed in note 24 to the IFRSs consolidated financial statements.
12 Share capital Number of 281/3p ordinary shares £m Issued and fully paid: At 1 January 2010 933,766,497 264.6 During the year 5,371,735 1.5 At 31 December 2010 939,138,232 266.1 During the year(1) 509,572 0.1 At 31 December 2011 939,647,804 266.2
(1) 1 During the year, the following fully paid shares of 28 /3 pence each were issued: 146,799 shares under the OWN Plan, 344,460 shares on exercise of options under the International Share Option Scheme, 10,148 shares on exercise of options under the 1978 Share Option Scheme and 8,165 shares on exercise of options under the 1983 Savings Related Share Option Scheme. Number of 281/3p ordinary shares Shares issued at 31 December 2010 939,138,232 Treasury shares (31,760,568) Shares issued at 31 December 2010 excluding treasury shares 907,377,664 Shares issued at 31 December 2011 939,647,804 Treasury shares (31,760,568) Shares issued at 31 December 2011 excluding treasury shares 907,887,236
13 Reconciliation of shareholders’ funds and movements on reserves Share Treasury Profit Called up premium and Capital and loss share capital account own shares reserve account Total £m £m £m £m £m £m At 1 January 2010 264.6 189.5 (112.5) 0.1 2,216.6 2,558.3 Loss for the year – – – – (206.2) (206.2) Issue of shares 1.5 4.6 – – – 6.1 Share-based payments charge – – – – 3.8 3.8 Actuarial gains on defined benefit pension schemes – – – – 15.6 15.6 Net movement in shares held in ESOP trusts – – (1.9) – 1.6 (0.3) Tax on items taken directly to equity – – – – (5.3) (5.3) Equity dividends – – – – (34.7) (34.7) At 31 December 2010 266.1 194.1 (114.4) 0.1 1,991.4 2,337.3 Profit for the year – – – – 12.9 12.9 Issue of shares 0.1 0.5 – – – 0.6 Share-based payments charge – – – – 6.6 6.6 Actuarial gains on defined benefit pension schemes – – – – (3.7) (3.7) Net movement in shares held in ESOP trusts – – 1.1 – (3.2) (2.1) Equity dividends – – – – (69.0) (69.0) At 31 December 2011 266.2 194.6 (113.3) 0.1 1,935.0 2,282.6 Ladbrokes plc Annual Report and Accounts 2011 97
14 Employee share ownership plans Details of the employee share ownership plans of the Company are given in note 28 of the consolidated IFRSs financial statements. The following table shows the number of shares held in trust that have not yet vested unconditionally and the associated reduction in shareholders’ funds. LSOT LSIP Total Shares Cost Shares Cost Shares Cost of held of shares held of shares held shares Number £m Number £m Number £m At 1 January 2011(1) 6,531,525 7.7 1,129,829 1.5 7,661,354 9.2 Shares purchased/allocated 1,383,863 2.1 314,002 0.2 1,697,865 2.3 Vested in year (1,328,028) (2.2) (503,007) (1.3) (1,831,035) (3.5) At 31 December 2011 6,587,360 7.6 940,824 0.4 7,528,184 8.0 Market value of shares in trusts 8.6 1.2 9.8 Unallocated shares in trusts 81,563 – 81,563
(1) Includes an award of 4,035,784 shares allotted by the Company in 2010 and held jointly between the participant and Computershare Trustees (CI) Limited under the Ladbrokes Growth Plan (refer to the Directors’ remuneration report). 15 Pensions The Company’s main pension plan is the Ladbrokes Pension Plan. This was closed to new employees on 1 August 2007. The last formal actuarial valuation of the plan was carried out with an effective date of 30 June 2010. The latest actuarial valuation was Financial statements updated to 31 December 2011 by an independent qualified actuary in accordance with FRS 17. The defined benefit obligations and current service cost have been measured using the projected unit credit method. In July 2010, the Government announced that in future statutory indexation for pensions would be linked to the Consumer Prices Index (CPI) rather than the, historically, higher Retail Prices Index (RPI). The effect of this change was to reduce the Company’s pension liabilities. To reflect this, in the prior year the Company recognised an actuarial gain of £8.6 million outside profit and loss through the statement of total recognised gains and losses. In the current year, following further government publications, it has been concluded by the Company that the gap between the RPI and the CPI is expected over the long-term to be 1.0% pa compared to 0.7% pa assumed at 31 December 2010 thus further reducing the value of the Company’s pension liabilities. To reflect this, the Company has recognised a further actuarial gain of £3.5 million through the statement of total recognised gains and losses. The following table sets out the key FRS 17 principle assumptions used for the plan. The table also sets out at 31 December 2011 and 31 December 2010, the fair value of assets, a breakdown of the assets into the main asset classes, the present value of the FRS 17 liabilities, the surplus (or deficit) of assets compared to the FRS 17 liabilities, the related deferred tax liability (or asset) and the net pension asset (or liability). 2011 2010 Assumptions: RPI Inflation 3.1% pa 3.5% pa CPI Inflation 2.1% pa 2.8% pa Pension increases: – LPI 5% 2.1% pa 2.8% pa – LPI 3% 2.4% pa 2.7% pa – LPI 2.5% 1.8% pa 2.1% pa Salary growth 3% in 2012 and 0% in 2011 and 4.1% pa thereafter, 4.5% pa thereafter, plus promotional plus promotional scale scale Discount rate 4.9% pa 5.5% pa Life expectancy for males/females aged 65 now 86.7/88.4 86.6/87.6 (members with higher pensions have a different assumption) (90.0/90.4) (89.9/90.4) Expected long-term return for: – Equities 7.3% pa 8.0% pa – Bonds 3.4% pa 4.4% pa Fair value of plan assets £280.7m £263.1m Composed of: – Equities 36% 42.0% – Bonds 64% 58.0% Present value of liabilities £(243.3m) £(228.6)m Surplus £37.4m £34.5m Related deferred tax liability £(9.3m) £(9.3)m Net pension asset £28.1m £25.2m Ladbrokes plc Annual Report and Accounts 2011 98
Statutory reports and financial statements continued
Notes to the company financial statements continued
15 Pensions continued The overall expected return on plan assets was derived as an average of the expected rates of return on each of the major asset classes invested in, weighted by the allocations of assets among the classes at the balance sheet date, using the figures shown above. The sources used to determine the expected rates of return include: bond yields, inflation and investment market expectations derived from market data and analysts’ or government’s expectations. The contributions made by the employers in 2011, in respect of the Ladbrokes Pension Plan, were £7.9 million (2010: £6.7 million). The currently agreed level of employer contributions is 22.2% of pensionable payroll, plus an additional £441,667 per month to remove the shortfall in funding identified at 30 June 2010 and £62,500 per month towards the regular expenses of maintaining the plan. These lead to an expected contribution of £9.9 million in 2012. As the plan is closed to new entrants and, under the method used to calculate pension costs in accordance with FRS 17, the service cost as a percentage of covered pensionable payroll will tend to increase over time as the average age of the membership increases. The following table sets out the amounts charged to the profit and loss account and directly in equity for the year ended 31 December 2011 in accordance with the requirements of FRS 17, together with the prior year comparative. Analysis of amounts charged to operating profit: 2011 2010 £m £m Current service cost (excluding employee element) 3.3 3.5 Analysis of the amount charged/(credited) to other finance income: Expected return on plan assets (14.4) (13.7) Interest on plan liabilities 12.4 13.0 Net return (2.0) (0.7) Total expense included in profit and loss 1.3 2.8
Reconciliation of the present value of the defined benefit obligation during the year: 2011 2010 £m £m At 1 January (228.6) (227.4) Employer’s part of current service cost (3.3) (3.5) Interest cost (12.4) (13.0) Contributions by plan members (1.1) (1.3) Actuarial (loss)/gain (8.6) 4.8 Benefits paid 10.7 11.8 At 31 December (243.3) (228.6)
Reconciliation of the fair value of plan assets during the year: 2011 2010 £m £m At 1 January 263.1 242.4 Expected return on plan assets 14.4 13.7 Actuarial gain 4.9 10.8 Contributions by the employer 7.9 6.7 Contributions by plan members 1.1 1.3 Benefits paid (10.7) (11.8) At 31 December 280.7 263.1
The actual return on the plan’s assets over the year was a gain of £19.3 million (2010: a gain of £24.5 million). Ladbrokes plc Annual Report and Accounts 2011 99
15 Pensions continued The amount recognised in the statement of total recognised gains and losses for 2011 is a loss of £3.7 million (2010: gain of £15.6 million). The cumulative amount recognised outside profit and loss at 31 December 2011 is a loss of £85.3 million (2010: loss of £81.6 million). 31 December 31 December 31 December 31 December 31 December 2011 2010 2009 2008 2007 £m £m £m £m £m Present value of defined benefit obligation (243.3) (228.6) (227.4) (196.5) (208.5) Fair value of plan assets 280.7 263.1 242.4 217.3 243.8 Surplus 37.4 34.5 15.0 20.8 35.3
2011 2010 2009 2008 2007 £m £m £m £m £m Experience adjustments on plan assets: Gain/(loss) 4.9 10.8 14.1 (39.2) (3.1) Percentage of plan assets (%) 1.7% 4.1% 5.8% 18.0% 1.3%
Experience adjustments on plan liabilities Gain/(loss) – 4.0 3.5 (1.7) (5.8) Financial statements Percentage of present value of plan liabilities (%) – 1.7% 1.5% 0.9% 2.8%
16 Share-based payments Details of share-based payments are given in note 31 of the consolidated IFRSs financial statements.
17 Contingencies Guarantees have been given in the ordinary course of business in respect of loans and derivative contracts granted to subsidiaries amounting to £483.3 million (2010: £513.4 million). In addition, subsidiaries have guaranteed loans of £0.1 million (2010: £0.1 million) given in the normal course of business to other subsidiary companies and companies in which they hold minority equity investments. Bank guarantees have been issued on behalf of subsidiaries and joint ventures with a value of £22.1 million (2010: £24.0 million). For UK corporation tax purposes, the Company has made collective payment arrangements with other undertakings in the Group. Under these arrangements the Company has a joint and several liability for amounts owed by those undertakings to HM Revenue & Customs. Ladbrokes plc Annual report and accounts 2011 100
Statutory reports and financial statements continued Statement of directors’ responsibilities in relation to the Company financial statements
The directors are responsible for preparing the Annual Report Directors’ statement pursuant to the Disclosure and and the financial statements in accordance with applicable law Transparency Rules and regulations. Each of the directors, whose names and functions are listed in pages 22 and 23 of this Annual Report, confirm that, to the best of Company law requires the directors to prepare financial each person’s knowledge and belief: statements for each financial year. Under that law the directors have elected to prepare the Company financial statements in the financial statements, prepared in accordance with United accordance with United Kingdom Generally Accepted Accounting Kingdom Generally Accepted Accounting Practice, give a true Practice (United Kingdom Accounting Standards and applicable and fair view of the assets, liabilities, financial position and law). Under company law the directors must not approve the profit of the Company; and financial statements unless they are satisfied that they give a true the Directors’ report contained in the Annual Report includes a and fair view of the state of affairs of the Company and of the profit fair review of the development and performance of the business or loss of the Company for that period. In preparing these financial and the position of the Company, together with a description of statements, the directors are required to: the principal risks and uncertainties that they face. select suitable accounting policies and then apply By order of the Board them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether the applicable UK Accounting Standards have R I Glynn been followed, subject to any material departures disclosed I A Bull and explained by the financial statements; Directors prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Company’s website and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Ladbrokes plc Annual report and accounts 2011 101
Statutory reports and financial statements continued Independent auditor’s report to the members of Ladbrokes plc
We have audited the parent Company financial statements of Matters on which we are required to report by exception Ladbrokes plc for the year ended 31 December 2011 which We have nothing to report in respect of the following matters comprise the Company Balance Sheet and the related notes where the Companies Act 2006 requires us to report to you if, 1 to 17. The financial reporting framework that has been applied in our opinion: in their preparation is applicable law and United Kingdom adequate accounting records have not been kept by the parent Accounting Standards (United Kingdom Generally Accepted Company, or returns adequate for our audit have not been Accounting Practice). received from branches not visited by us; or This report is made solely to the Company’s members, as a body, the parent Company financial statements and the part of in accordance with Chapter 3 of Part 16 of the Companies Act the Directors’ Remuneration Report to be audited are not in 2006. Our audit work has been undertaken so that we might state agreement with the accounting records and returns; or to the Company’s members those matters we are required to state certain disclosures of directors’ remuneration specified by law to them in an auditor’s report and for no other purpose. To the are not made; or fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the we have not received all the information and explanations we Company’s members as a body, for our audit work, for this report, require for our audit. or for the opinions we have formed. Other matter Respective responsibilities of directors and auditor We have reported separately on the Group financial statements As explained more fully in the statement of directors’ of Ladbrokes plc for the year ended 31 December 2011. responsibilities set out on page 100, the directors are responsible for the preparation of the parent Company financial statements Financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent R W Wilson (Senior statutory auditor) Company financial statements in accordance with applicable law for and on behalf of Ernst & Young LLP, Statutory Auditor and International Standards on Auditing (UK and Ireland). Those London standards require us to comply with the Auditing Practices Board’s 16 February 2012 Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent Company financial statements: give a true and fair view of the state of the Company’s affairs as at 31 December 2011; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent Company financial statements. Ladbrokes plc Annual Report and Accounts 2011 102
Statutory reports and financial statements continued Five year financial record
2011 2010 2009 2008 2007 £m £m £m £m £m Revenue Continuing operations 976.1 980.1 1,032.2 1,151.2 1,221.3 Discontinued operations – 8.3 31.5 27.5 30.5 976.1 988.4 1,063.7 1,178.7 1,251.8 Profit before tax and net finance expense(1) Continuing operations: UK Retail 152.3 149.1 134.5 187.9 187.8 European Retail 13.4 13.9 8.3 24.4 22.4 Digital(3) 52.4 62.7 46.1 55.1 55.0 Core Telephone Betting (4.0) (0.4) (3.3) 3.1 4.6 High Rollers (3.2) 5.0 66.9 80.1 179.0 210.9 230.3 252.5 350.6 448.8 Corporate costs(1),(2) (23.2) (23.0) (17.1) (19.8) (26.5) 187.7 207.3 235.4 330.8 422.3
Discontinued operations (1) – (9.1) (10.8) (8.0) 3.7 187.7 198.2 224.6 322.8 426.0
Net finance expense(1) (32.8) (14.0) (44.0) (65.8) (69.2) Profit before taxation(1) 154.9 184.2 180.6 257.0 356.8 Income tax (expense)/credit(1) (18.4) 226.7 (28.4) (39.4) (56.2) Profit for the year(1) 136.5 410.9 152.2 217.6 300.6 Non-controlling interests – – – – – Profit attributable to equity holders of the parent(1) 136.5 410.9 152.2 217.6 300.6 Non-trading items (19.9) (63.6) (88.2) (18.0) 38.2 Tax credit on non-trading items 1.6 1.0 10.4 1.1 2.0 Profit attributable to equity holders of the parent 118.2 348.3 74.4 200.7 340.8
Dividends (69.0) (34.7) (75.4) (85.0) (84.6)
Non-current assets 931.0 944.4 908.2 1,034.2 873.7 Equity shareholders’ funds/(deficit) 306.0 256.6 (60.4) (328.0) (450.8)
Dividend per share 7.80p 7.60p 2.98p 12.05p 11.83p Basic earnings per share(1) 15.0p 45.4p 20.3p 30.8p 40.9p Basic earnings per share 13.0p 38.5p 9.9p 28.4p 46.3p
(1) Before non-trading items. (2) In the published consolidated financial statements for the years 2009, 2008 and 2007, Corporate costs were shown separately as International development costs and Corporate costs. (3) Included in the profit before tax and net finance expense in the Digital segment is £2.6 million of amortisation of customer relationships in 2011. Ladbrokes plc Annual Report and Accounts 2011 103
Shareholder information
Shareholder enquiries – The Registrar We actively encourage shareholders to play their part in reducing Computershare Investor Services PLC our impact on the environment and elect to be notified by email For address – see the next page when your communications are available online. Sign up to receive Telephone: 0870 702 0127 eCommunications at www.investorcentre.co.uk. By providing your Website: www.investorcentre.co.uk/contactus email address you will no longer receive paper copies of annual Email: [email protected] reports or any other shareholder communications that are available electronically. Instead you will receive emails advising you when Investor Centre is a free, secure share management website and how to access documents online. Alternatively, if you would provided by our Registrar. This service allows you to view your share like a hard copy of the Annual Report please send an email to portfolio and see the latest market price of your shares, check your [email protected] or phone +44 (0) 20 8515 5730. dividend payment and tax information, change your address, update payment instructions and receive your shareholder UK tax on capital gains communications online. To take advantage of this service, please A leaflet for UK capital gains tax purposes, which includes details log in at www.investorcentre.co.uk and enter your Shareholder of rights and capitalisation issues which have occurred since 31 March 1982, is available from the Company Secretary whose Reference Number and Company Code. This information can be address is given on the next page. found on your last dividend voucher or share certificate. American depositary receipts (ADRs) Other shareholder enquiries An ADR is a receipt that is issued by a depositary bank representing For any other shareholder enquiries, please contact the Head of Investor ownership of the Company’s underlying ordinary shares. ADRs are Relations: Matt Sharff. Email: [email protected]; quoted in US Dollars and trade just like any other US security. Telephone: +44 (0) 20 8515 5730; Fax: +44 (0) 20 8868 5273; Ladbrokes has a sponsored level 1 ADR programme for which Ladbrokes plc, Investor Relations, Imperial House, Imperial Drive, Financial statements Rayners Lane, Harrow, Middlesex HA2 7JW. Deutsche Bank Trust Company Americas acts as depositary. The ADRs are traded on the Over the Counter market in the US Share dealing service under the symbol LDBKY, where one ADR is equal to one A share dealing service for Ladbrokes’ shares is available through ordinary share. The Share Centre Ltd, a member of the London Stock Exchange, When dividends are paid to shareholders, the depositary makes which is authorised and regulated by the Financial Services Authority. the equivalent payment in US Dollars to ADR holders. For enquiries, For further details, please contact: The Share Centre Ltd, PO Box brokers may contact the Deutsche Bank Trust Company Americas 2000, Aylesbury, Bucks HP21 8ZB; Telephone: 01296 414141. Broker Service Desk on +44 20 7547 6500 or +1 212 250 9100. Registered ADR holders may contact the Ladbrokes ADR Dividend information shareholder services line on +1 866 249 2593. Further information, This year, the directors are recommending the payment of a final including an ADR share price quote, is available at www.adr.db.com. dividend of 3.90 pence per share. If you add this to the interim dividend of 3.90 pence per share (paid on 1 December 2011), the Unsolicited calls total dividend recommended for 2011 will be 7.80 pence per share Over the last year the Company has become aware of a rise (2010: 7.60 pence). in shareholders receiving unsolicited calls or correspondence concerning investment matters. Calls are typically from people Ladbrokes is keen to encourage all its shareholders to have their stating they are ‘brokers’ based overseas and they offer to ‘buy’ dividends paid directly into a bank or building society account. the individual’s shares at inflated prices claiming that there is a If you wish dividends to be paid directly into your bank account ‘secret’ takeover or merger. Shareholders are advised to be very through the BACSTEL-IP (Bankers Automated Clearing Services) wary of any unsolicited advice, offers to sell or buy their shares or system, you should apply online at www.investorcentre.co.uk or offers of free company reports. Operations to buy shares at contact our Registrar for a dividend mandate form. inflated prices or to sell what often turn out to be worthless, high The table below details the interim, final and total dividends risk or even non-existent shares are commonly known as ‘boiler declared in the last five years. Please note that these dividend room’ scams. figures have not been adjusted for the rights issue in October 2009. More detailed information on boiler room scams is available at Interim Final www.ladbrokesplc.com. If you think you have been contacted by dividend dividend Total share fraudsters, you can report the matter to the FSA by calling pence pence pence 0845 606 1234 or by completing the online form available at 2011 3.90 3.90 7.80 www.fsa.gov.uk. 2010 3.85 3.75 7.60 2012 Financial calendar 2009 3.50 – 3.50 Event Date 2008 5.10 9.05 14.15 2011 full year results announcement 16 February 2012 2007 4.85 9.05 13.90 Ex-dividend date for 2011 final dividend 14 March 2012 Record date for 2011 final dividend 16 March 2012 Dividend reinvestment plan Annual General Meeting and Interim The Company provides a dividend reinvestment plan, which Management Statement 19 April 2012 enables shareholders to apply all of their cash dividends to Payment date for 2011 final dividend 26 April 2012 buy additional shares in Ladbrokes. To obtain more information and a mandate to join the plan, you should apply online at Half year results and 2012 interim dividend to be announced 2 August 2012 www.investorcentre.co.uk or contact our Registrar. Ex-dividend date for 2012 interim dividend 12 September 2012 Annual Report Record date for 2012 interim dividend 14 September 2012 A copy of our Annual Report is available to download as a pdf or Payment date for 2012 interim dividend 25 October 2012 can be viewed as an html version at www.ladbrokesplc.com. Ladbrokes plc Annual Report and Accounts 2011 104
Statutory reports and financial statements continued Corporate information
Registered number Principal offices England 566221 UK Secretary and registered office Imperial House, Imperial Drive Mike Noble Rayners Lane Ladbrokes plc Harrow Imperial House, Imperial Drive Middlesex HA2 7JW Rayners Lane Telephone: +44 (0) 20 8868 8899 Harrow Fax: +44 (0) 20 8868 8767 Customer enquiries: 0800 731 4171 Middlesex HA2 7JW www.ladbrokes.com Telephone: +44 (0) 20 8868 8899 Belgium Fax: +44 (0) 20 8868 8767 Chaussée de / Steenweg op Waterloo 715/3 www.ladbrokesplc.com 1180 Brussels Registrar Belgium Computershare Investor Services PLC Telephone: (00) 322 349 1611 The Pavilions Fax: (00) 322 349 1615 Bridgwater Road Gibraltar Bristol BS99 6ZZ Suite 6-8, Fifth Floor Telephone: 0870 702 0127 Europort Email: [email protected] Gibraltar Auditor Telephone: (00) 350 200 45375 Ernst & Young LLP Fax: (00) 350 200 520 27 1 More London Place Republic of Ireland London SE1 2AF First Floor, Otter House, Naas Road Corporate stockbrokers Dublin 22 Deutsche Bank AG, London Republic of Ireland UBS Investment Bank Telephone: (00) 353 1403 6500 Fax: (00) 353 1403 6501 Solicitors SJ Berwin LLP Spain Slaughter and May Sportium Apuestas Deportivas SA C/ Santa Maria Magdalena, 10-12, 4º Principal UK bankers 28016 Madrid Barclays Bank PLC Spain The Royal Bank of Scotland plc Telephone: (00) 34 91 790 00 00 Fax: (00) 34 91 345 35 67 Ladbrokes plc Annual Report and Accounts 2011 105 Business and Ladbrokes plc financial highlights is a leader in the Glossary Revenue growth driven by UK Retail which was up global betting 2.7% with 16.6% growth in machines and gaming market Resilience in OTC business with amounts staked marginally up in 2011 with annual Group ABB Gaming Machines Operating profit(1)(2) 0.4% Association of British Bookmakers. Betting shops can operate machines with B2 content (including (3) old FOBT content) and B3 content, as defined by the 2005 down on an underlying basis Adjusted Cost per Acquisition Gambling Act. revenues of over with profit before tax and Total of all online and offline recruitment marketing spend net finance expense down 6.1% (including promotions and bonuses netted from revenue), all GREaT Foundation (GREaT) affiliate expenses relating to deals where affiliates are paid a A charity that funds treatment, education and research related Development of Digital one-off fee for each sign-up and all bonus costs (except those to problem gambling. £970 million relating to sign-ups from revenue share affiliates) divided by Gross Win offer on track with the aggregate number of real money sign-ups from non-affiliate Total customer stakes less customer winnings plus commission investment in technology sources and the number of real money sign-ups through affiliates i.e. the amount of money left behind by the customer. and increased marketing that are paid a one-off fee. Net Revenue AMLD (amusement machine licence duty) Gross win less fair value adjustments (e.g. fair value of reward Continued strong cash An annual duty payment relating to gaming machines. The rate points, free bets and promotional bonuses), VAT and generation underpins of duty payable varies according to machine category. associate income. dividend growth Average Monthly Active Player Days Odds On The sum of, for all Unique Active Players in the period, the number Ladbrokes’ Loyalty scheme which awards customers with a point of days they have played during the period. for every amount staked Over the Counter. These points are then Bet in Play accumulated and can be redeemed for free bets, odds enhancements (1) Betting-in-Play allows bettors the opportunity to bet on outcomes or win bonuses. Net Revenue during a live event. (£million) Operating profit Category B2 gaming machine Profit before net finance expense and tax. Gaming machine with maximum stake of £100 and maximum prize £980.3m Operating margin of £500. +0.4% Operating profit expressed as a percentage of net revenue. Category B3 gaming machine 2011 980.3m OTC Gaming machine with maximum stake of £1 and maximum prize Over the Counter. 2010 976.6m of £500. Real Money Sign-up Cost per Acquisition 2009 963.7m A new player who has registered and deposited funds into an Total of all online and offline marketing spend (including promotions account with the Company. To address the issues posed by and bonuses netted from revenue), all affiliate expenses relating to shared wallets, customers are categorised between lines of deals where affiliates are paid a one-off fee for each sign-up and all (1)(2) business according to where they first register on the gaming site. Operating Profit bonus costs (except those relating to sign-ups from revenue share (£million) affiliates) divided by the aggregate of the number of real money SIS (Satellite Information Services) sign-ups from non-affiliate sources and the number of real money Ladbrokes owns 23.4% of SIS, a leading supplier of television £193.5m sign-ups through affiliates that are paid a one-off fee. programming and sports data to licensed betting offices in the UK, Ireland, Isle of Man and Channel Islands. -4.3% EBITDA 2011 193.5m Earnings before interest, tax, depreciation and amortisation. Unique Active Player A player who has contributed to rake and/or placed a wager in FOBTs or Fixed Odds Betting Terminals 2010 202.3m the period. Computerised machines which allow players to bet on the 2009 168.5m outcome of various games and events with fixed odds, including Yield per Unique Active Player roulette. Also referred to as B2 machines. Net Gaming Revenue divided by the number of Unique Active Players in the period. Gambling Act Dividend The Gambling Act 2005 is the primary piece of legislation governing (pence per share) gambling regulations in Great Britain. 7.80p GamCare A charitable organisation which provides counselling to those with +2.6% gambling-related problems. 2011 7.80p Gambling Commission 2010 7.60p Set up under the Gambling Act 2005, the Gambling Commission regulates casinos, bingo, gaming machines and lotteries. It is also 2009 2.98p responsible for the regulation of betting and remote gambling, as well as helping to protect children and vulnerable people.
(1) Continuing operations excluding High Rollers. (2) Profit before tax, net finance expense, amortisation of customer relationships and non-trading items. Designed and produced by MerchantCantos. (3) Excludes one-off credit of VAT received in 2010 – £8.1 million at total Group level. Printed by Pureprint Group using their environmental print technology, a guaranteed, low carbon, low waste, independently audited process that For further information about the Group visit: reduces the environmental impact of the printing process. Pureprint Group is a CarbonNeutral® company and is certified to Environmental Management System, www.ladbrokes.com ISO 14001 and registered to EMAS, the Eco Management and Audit Scheme. Ladbrokes PLC
Imperial House Imperial Drive Annual Report Rayners Lane Annual Report and Accounts 2011 Harrow Middlesex HA2 7JW and Accounts 2011 Telephone: +44 (0)20 8868 8899 www.ladbrokesplc.com