UPDATE 1-Ladbrokes sees more pain before gain from online upgrade

Tue Feb 25, 2014 4:23am EST

LONDON Feb 25 (Reuters) - Britain's second-biggest bookmaker, Ladbrokes, said operating profit would take a hit in the first half of 2014 due to upgrades to its online service, as it ended another troubled year with a sharp fall in annual profit.

The company has struggled to keep pace with larger rival William Hill and establish itself in a growing online market, prompting a series of profit downgrades that have piled pressure on Chief Executive Richard Glynn.

A familiar sight in Britain's town centres with 2,300 retail outlets, Ladbrokes formed an alliance with software developer Playtech last year to gain ground in serving the growing number of gamblers who bet on sports events through their computer, tablet or smartphone.

But switching its gaming products to a new system has taken longer than expected.

Glynn said the group was now on track to deliver the upgrade - which will allow its customers to have a single view of all their upgraded online products in one "wallet" - in time for June's soccer World Cup in Brazil.

Benefits of the digital changes, as well as from a rollout of new betting machines in its revamped shops, would not be felt until the second half of the year and beyond, the firm said.

First-half 2014 group operating profit would be down on the 85.7 million pounds ($143 million) posted a year before but ahead of 52.6 million pounds posted for the second half of 2013.

Shares in the firm fell as much as 2 percent on the news, made worse by a tough start to 2014 in which revenue from January to Feb. 18 fell 11 million pounds on a year ago after sporting results had so far favoured customers.

"What we need to look at from the business is sequential improvement, we had our nadir in 2013 and I think sequentially we are improving from then on," Glynn told Reuters.

"We enter 2014 confident in our ability to deliver the final changes needed to establish a far more competitive offer."

Ladbrokes said annual operating profit for 2013 fell 33 percent to 138.3 million pounds, slightly below market forecasts for 142 million. Profits from its UK retail business, its largest division, fell 26 percent, hurt by a hot summer which hit footfall, and were down 74 percent at its digital division.

The firm also said it would close 40 to 50 shops in 2014.

"Management has said that first half profit is expected to be down year-on-year with sharp recovery in the second half depending on the success of the transition to Playtech technology. The finish line is a long way off," Numis analysts said in a note, retaining a "Hold" rating.

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