Ladbrokes to Raise £275 million as Revenues Fall8th October 2009 8:23 am GMT
As the company continues to suffer from the effects of the challenging economic environment with both revenue and profit figures in decline in the third quarter, Ladbrokes plc said Thursday that it will propose to raise approximately £275 million by way of a rights issue, in an effort to reduce its net debt and place the company in a stronger position to absorb the impact of any further economic weakness.
Total net revenue fell 15% year-on-year for the third quarter ended September 30th, with a gross win margin lower than in the corresponding period last year. Revenues were impacted by adverse horseracing margins and an exceptionally low football margin, which fell as a result of only 6% of the first 66 English Premier League games of the season ending in the more profitable draw versus outright wins, down from 25% last year.
Net revenues from the interactive channel fell 13% year-on-year as a result of a 31% decline in the sportsbook business, despite an increase in amounts staked. Ladbrokes' online casino and bingo offerings both saw net revenues increase, up 5% and 3% respectively, offset by poker revenues which fell by 21% and games by 7%.
Active player numbers and new player sign-ups also fell in the quarter, down by 2% and 8% respectively versus the same period last year.
The UK retail channel also saw net revenue decline, down 15% year-on-year following a 22% drop in OTC net revenue, while average weekly gross win per gaming machine fell 1.2% to £663. The Irish retail channel fared even worse, with net revenue down 16% due to higher free bets. The enlarged estate in Belgium however helped net revenues there to improve 15%, while in Madrid the performance of the company's Spanish operations continues to be ahead of management expectations.
Ladbrokes' worst hit segment was telephone betting, where net revenues fell 73% versus the same period last year.
As a result of the revenue decline, total operating profit fell 58% to £22.4 million including losses from high rollers of £2.8 million, taking the year-to-date figure for high rollers to £55.6 million.
"Against a weak economic environment and a recent period of lower gross win margins, we have already announced decisive cost actions which, together with further savings recently identified, will leave Ladbrokes well positioned when the upturn comes," said Chris Bell, Ladbrokes' Chief Executive.
"Whilst we have decided not to pay a final dividend in 2009 we intend to re-instate dividend payments at the interim results next year."
In addition to the cost savings already implemented by the company, Ladbrokes said that there would be an immediate salary freeze across the group until January 2011, while the payment of a 2009 final dividend would not be recommended by the board. The company added that it has also identified £2.6 million of staffing and operational efficiencies deliverable in 2009, and a further £3.9 million next year.
Through a fully underwritten rights issue of over 300 million new ordinary shares at 95 pence per share, the company plans to reduce its net debt to £687 million by raising approximately £275 million. The 95 pence per share price represents a discount of 48% compared to the closing mid-market price of 181.2 pence in trading yesterday.
Ladbrokes said the rights issue would place the company in a stronger position to refinance its remaining debt at the appropriate time and to absorb the impact of any further economic weakness.
"Ladbrokes continues to be a profitable and cash generative business with strong positions in markets that remain attractive. We have been pro-actively managing our balance sheet and liquidity for some time and we believe it is now prudent to strengthen our financial position and to put in place a more appropriate capital structure," said Bell.
As at September 30th the company had net debt of £995 million, up from £962 million on June 30th, impacted by £31.6 million in interest payments during the quarter.
Shares in Ladbrokes plc (Co. Profile) (LSE:LAD) have fallen 8.72% to 165.40 pence per share in London this morning following the announcement.