TODAY TOMORROW ANNUAL REPORT AND ACCOUNTS 2009 WHO WE ARE Ladbrokes plc is a world leader in the global betting and gaming market. In 2009 we took £15 billion in stakes and 670 million bets with Group revenues of over £1 billion. Benefiting from our brand strength the Company offers an all-embracing range of betting and gaming services via our retail, online and telephone operations, supported by over 15,000 skilled employees and state of the art technology. www.ladbrokesplc.com On our corporate website you will find further information about the Group CONTENTS The two minute read 02 At a glance A one page overview of the Group. Business review 04 Chairman’s statement 06 Short term priorities 08 Long term objectives 16 Changes in betting and gaming regulatory environment 18 Chief Executive’s review 20 UK Retail 22 Other European Retail 24 eGaming 26 Telephone Betting and other focal areas 28 Financial review 30 Risks and how we manage them 32 Corporate responsibility Governance 36 Board of directors 38 Corporate governance 43 Directors’ report 45 Directors’ remuneration report Statutory reports and 58 Consolidated income statement 59 Consolidated statement of comprehensive income financial statements 60 Consolidated balance sheet 61 Consolidated statement of changes in equity 62 Consolidated statement of cash flows 63 Notes to the consolidated financial statements 109 Statement of directors’ responsibilities in relation to the consolidated financial statements 110 Independent auditor’s report to the members of Ladbrokes plc 112 Company balance sheet 113 Notes to the Company financial statements 123 Statement of directors’ responsibilities in relation to the Company financial statements 124 Independent auditor’s report to the members of Ladbrokes plc 125 Five year financial record 126 Shareholder information 128 Corporate information 129 Glossary Ladbrokes plc 01 Annual Report and Accounts 2009 AT A GLANCE Group Net revenue split Our business has three key (%) distribution channels. UK Retail OTC 43% UK Retail Machines 25% Ireland 8% Belgium 5% eGaming 17% Core Telephone Betting 2% The graph excludes High Rollers, Spain (JV) and discontinued operations 1. On the high street 2. Online 2,088 shops 18 languages 18 currencies UKProducts OTC*, Machines eGaming Products Sportsbook* 35%, EBIT(1) contribution £134.5m Casino 32%, Poker 15%, Bingo 8%, Games 10% 285 shops EBIT(1) contribution £46.1m Ireland Products OTC*, Machines** EBIT(1) contribution £8.8m 3. On the telephone 298 shops Products Sports betting* Belgium Products OTC* Core EBIT(1) contribution £(3.3)m EBIT(1) contribution £3.0m 5 shops Products Sports betting* 78 corners Spain High EBIT(1) contribution £66.9m Products OTC* EBIT(1) contribution £(3.5)m Rollers * shared trading resource for odds provision and risk management ** only in Northern Ireland Financial highlights £963.7m £168.5m £694.2m Net revenue(2) Operating profit (1)(2) Group net debt at 31 Dec 2009 (1) Profit before tax, finance costs and non-trading items (2) Continuing operations excluding High Rollers 02 Ladbrokes plc Annual Report and Accounts 2009 SHORT LONG AN OVERVIEW OF OUR SHORT-TERM PRIORITIES AND LONG-TERM STRATEGY Ladbrokes plc 03 Annual Report and Accounts 2009 FITCHAIRMAN’S STATEMENT FOR THE Peter Erskine, Chairman, looks at the Group’s performance over the last 12 months and how it’s positioned for the future. Peter Erskine Chairman Dear Shareholder, 2009 – A challenging year In writing to you for the first time as Chairman of Ladbrokes Twelve months ago, when I joined the Company, it was I am very aware that 2009 represents the toughest year for expected that the industry should be relatively recession the Company since 1994/5 when the National Lottery was resilient compared to other consumer facing businesses. introduced. I was attracted to joining Ladbrokes not only However, as the year progressed, it became apparent that the because of its track record but also because of the growth changes to our customer demographic have made the business potential it offers – both in terms of building upon our UK more economically sensitive and we have seen a resultant presence and extending the brand as new markets regulate. decline in the amounts being staked. In addition to this, sporting Ladbrokes is the most recognised betting and gaming brand results have been in the customers’ favour, with a gross win in the UK and also enjoys a good international reputation. margin for the UK Retail business and eGaming Sportsbook Although 2009 has been a challenging year it does not business of at least one percentage point less than 2008. change my belief in this Company’s potential. Following this significant margin weakness combined with the accumulating effect of financing, trading risks and the overall challenges in forecasting this business, in October, the Board concluded that it was no longer prudent to pursue a strategy of purely organic debt reduction. The rights issue was successfully completed in late October with 95% valid acceptances. I firmly believe that this financial strength will underpin the Company’s future growth. 04 Ladbrokes plc Annual Report and Accounts 2009 FUTURE Importantly, the Group is demonstrating an increased focus Dividend on operational excellence. I believe that the wide-ranging In line with the disclosure at the time of the rights issue the programme of operational and strategic initiatives that we Group will not be paying a final dividend (2008: 7.71 pence have put in place will start to show increasing benefits through per share, as adjusted for the bonus element of the rights issue). the course of this year and beyond. The total dividend for 2009 is therefore 3.5 pence (2008: 14.15 pence) per share, or 2.98 pence (2008: 12.05 pence) Strategy per share as adjusted for the bonus element of the rights issue. Our customer base and core markets are changing and our long-term strategy continues to evolve and adapt. The three The Board intends to resume a progressive dividend policy, strands of our strategy, UK Retail, eGaming and International from the 2010 interim dividend onwards, with a target dividend remain as before, with the focus upon seamless execution and cover of approximately 2.0 times underlying earnings excluding consistent delivery. High Rollers. Over the following ten pages I have set out what our short- and Summary long-term priorities are and I am confident that this wide-ranging In the period from 1 January to 16 February Group net programme of operational and strategic initiatives will gain revenue (excluding High Rollers) declined 4.6% against the traction through the current year. In addition, the actions prior period in 2009, with the severe weather conditions leading we have taken to strengthen our balance sheet through the to a high level of UK and Irish horse race abandonments and rights issue, have left us with a robust financial position. football match postponements. Despite this, lower gross profits Consequently, we look forward positively with a heightened tax and operating costs resulted in January’s operating profit sense of momentum. being ahead of last year and our internal plan. People In UK Retail OTC amounts staked were down 11.2% with net I have spent much time in the different businesses since revenue down 5.8%, reflecting a stronger margin and lower last January and have been impressed by the strengths and free bets. Average gross win per machine per week was down commitment of the people. You will see in our Corporate 4.0% against the comparative period last year. The trial of new Responsibility section on page 32, the importance that we machines is well underway and early results are promising. place on our people. eGaming net revenue was down 0.5% overall with Sportsbook showing 8.0% growth. In November we strengthened the Board with the appointment of Sly Bailey, Chief Executive Officer of Trinity Mirror plc and Since the start of the year, the High Rollers business has Darren Shapland, Chief Financial Officer of J Sainsbury plc, as contributed a further £8.6 million of operating profit. non-executive directors. Both are highly experienced executives With a strengthened balance sheet we remain confident in our with a track record of significant achievements and I believe that ability to emerge from the economic downturn with a stronger, their extensive knowledge of retail and media will be of significant more focused business with good growth opportunities and we benefit as we take the business forward. are committed to rising to the challenges that lie ahead. Nicholas Jones and Henry Staunton who have been non-executive directors since 2002 and 2006 respectively have decided to retire at the coming Annual General Meeting and we thank them for their significant contribution. Darren Shapland has been appointed a member of the audit committee and will become the committee’s Chairman on Henry Staunton’s retirement. Peter Erskine In January 2010, following almost 20 years with the Company, Chairman it was announced that Chris Bell is to step down as Chief Executive. He will not be standing for re-appointment at this year’s Annual General Meeting. Chris and the Board agreed that it was an appropriate time to seek new leadership for the business. Chris’ commitment to Ladbrokes has been invaluable and to ensure continuity he has agreed to stay on in his role and do all to support the Company during the transition. The search process for his successor is ongoing and we shall update the market in due course. Ladbrokes plc 05 Annual Report and Accounts 2009 SHORTOVERVIEW There are certain areas we can prioritise which will deliver upside to Ladbrokes in a relatively short period of time. Cost control Improve machine offering The Group has a high fi xed cost base and so We recognised that there was an opportunity the priority of cost control in a deteriorating to improve our machine offering and to economic environment was well recognised.