Gala Coral operating profit falls following increased online investment

Gala Coral has reported a 4 per cent increase in turnover to £1,099.7m for the year ended September 28th, as strong growth from the company’s online gaming businesses helped to offset a difficult trading period in the fourth quarter.

The company said it was a “satisfactory performance” in light of difficult trading conditions, especially in the fourth quarter which saw hot weather reduce footfall in the UK retail business. Poor sports results also had a material adverse impact on the company’s results, with Q4 turnover falling by 2 per cent versus a year ago.

Full Year Turnover

Total amounts staked from online operations rose 41 per cent to £3,077.0m for the full year compared to the same period last year, which included the Euro 2012 football championships and one extra week of trading, generating gross win of £157.5m, up 42 per cent year-on-year.

All of the company’s gaming and betting websites delivered significant growth in active players during the year. Coral.co.uk actives rose 79 per cent to 468,100, Galabingo.com actives were up 19 per cent to 321,500, Eurobet.it actives climbed 38 per cent to 114.200, while Galacasino.com actives soared 182 per cent to 75,200.

The first full year of operation of Coral.co.uk following its launch in October 2012 saw gross win amount to £22.5m for the year, with sports betting stakes rising to £146.7m on the back of new TV advertising and other high profile marketing campaigns.

Sports gross win margin was 5.9 per cent, resulting in gross win for the year of £7.4m, while gaming gross win amounted to £15.1m reflecting “superior content” post-launch and the benefits of a single wallet.

Gala Coral said that actions have been taken to address the gross win margin throughout the year, including the removal of many unprofitable customer accounts, improvements to data feeds and settlement. The company added that it was confident of significant margin improvements in its next financial year.

Gross win from Galabingo.com and Galacasino.com was £25.2m, with growth driven by strong customer acquisition and high profile marketing campaigns including a tie-up with UK TV show Saturday Night Takeaway. The company said that a successful multi-channel initiative with its Gala retail business also contributed with the acquisition of over 30,000 new active players.

Eurobet.it saw gross win amount to £5.2m, with growth in gaming driven by the introduction of new slots content which helped to offset a market-wide decline in poker.

Mobile penetration grew across all sites, with over 50 per cent of UK actives and 30 per cent of Eurobet actives now accessing the sites through a mobile device.

Operating costs rose 36 per cent to £34.3m during the year, which was in-line with expectations and reflected the increased size of the new businesses, while marketing costs more than double to £34.7m. As a result, the online businesses generated EBITDA of £25.3m, a decline of 13 per cent year-on-year.

The company said that following the launch of the Coral and Gala websites, it invested heavily in marketing to drive active players and this spend, particularly in the second half of the year, will not deliver a return on the investment until the new financial year.

Total gross win from the Coral Retail business fell marginally by 0.3 per cent to £649.4m following a 2 per cent drop in OTC (over-the-counter) gross win. Machine gaming gross win rose 1 per cent to £339.2m.

Eurobet Retail saw gross win climb 8 per cent to £40.4m, driven by the relocation of underperforming licence to areas with higher footfall and the opening of the first new tender shops towards the end of the year.

The first shops were operational at the end of July, with 176 shops open at the end of the financial year. All shops are expected to be open by February 2014.

The company said that expanding the retail footprint through these new licences will also help to accelerate the recruitment of online players.

Turnover from Gala Retail fell by 6 per cent to £291.3m following a 10 per cent drop in admissions to 15.1m due to the sever snow in Q2 and the abnormally hot weather in Q4. Gala Casino contributed £92.6m in turnover prior to its sale earlier this year.

Overall, cost of sales was up 10 per cent to £292.6m, while administrative expenses rose marginally by 0.7 per cent to £812.9m. Results were impacted by exceptional items amounting to £72.9m, including a charge of £59.1m relating to the UK Court of Appeal’s recent ruling in favour of HMRC on gaming machines VAT.

As a result, operating profit fell by 31 per cent to £81.9m. Including interest payable and similar charges of £235.2m, the company incurred a net loss for the year of £218.7m compared to a net loss of £123.2m a year ago.

Gala Coral CEO Carl Leaver said: “In light of the difficult trading conditions, especially in Q4, the group posted a satisfactory performance in the year, with gross profit ahead in all our businesses with the exception of Gala Retail.

“Performance in the year to Q3 was resilient, but a prolonged period of abnormally hot weather in Q4 resulted in reduced footfall in the UK Retail businesses. This, combined with poor sports results (primarily football), resulted in a material adverse impact on Q4 EBITDA (pre-exceptionals). These trends are consistent with those highlighted by our competitors.”

Leaver added however that trends in the new financial year have been more positive with results and customer volumes returning to more normal levels, and “encouraging growth” in its online businesses.