UK Edition
Cost savings hike at Ladbrokes Coral prompts analyst upgrades in spite of £200m pre-tax loss
Ramped up cost savings at bookmaker Ladbrokes Coral prompted analyst upgrades even though the price of the merger pushed the combined business to a more than £200m pre-tax loss.
Chief executive Jim Mullen said cost savings would now hit £100m a year by 2019 - up from the £65m that the company had previously forecast - because the increased scale of the business would allow it to strike better deals with the likes of technology providers.
Asked why the projected cost savings had risen so much, Mr Mullen said the £65m figure had been calculated before the Ladbrokes and Coral management teams had been able to properly analyse each other’s business.
“The reason the savings came through as a larger amount is that we have now been a combined business for just more than five months so we have had access under the bonnet,” he said.
“We were able to get a better understanding of the synergy opportunities.”
Analysts at UBS upgraded their 2017 and 2018 numbers while Investec pushed up its expectations for operating profits in 2018 and 2019 with broker Stifel saying it would also upgrade its numbers.
The announcement about the savings came as the company posted a statutory pre-tax loss of £213m for the year to December 31, partly because of one-off costs linked to the merger, including £46.8m of integration costs which will partly go towards the 700 to 750 job losses expected from the merger.
On a proforma basis though - which assumes the merger had completed at the start of 2015 - Ladbrokes Coral showed a 22pc rise in operating profits to £264.3m on proforma revenue of £2.35bn.
The cost savings could be key for the business given the potential regulatory hurdle the company and its rivals face due to the Government’s forthcoming triennial review on fixed odds betting terminals (FOBTs).
The harshest of critics believe FOBTs should only have stakes of £2 compared to a maximum of £100 now. But Mr Mullen urged the review to focus on its main raison d’etre - to show, if possible, evidence which links the size of potential stakes and prizes to problem gambling.
“The focus of the review is not to be clouded by anything other than evidence,” Mr Mullen said.
Other regulations are also contributing to rising costs, with the Government implementing a 10pc horse racing levy from April. Bookmakers already paid a levy on domestic bets but the charge will now encapsulate offshore business too.
The costs of providing sports betting in Ladbrokes Coral's UK retail estate rose, partly because an increase in the number of bets made on self service betting terminals pushed up the revenue share payments it has to make to its technology provider.
In terms of current trading, 23 out of the 28 races at this year's Cheltenham Festival "went the bookmakers' way" compared to last year's which was dubbed "the worst on record" for betting companies. Sport, however, had been mixed with Roger Federer, Lincoln City, Sutton United and Wolves all upsetting the form book.
A dividend of 3p a share was also declared for the year, flat on 2015.
Shares in the company have risen roughly 14pc in the past year, outperforming both William Hill and Paddy Power Betfair over that period.