Coral connects the dots ahead of merger

Coral connects the dots ahead of merger

Thursday, September 1, 2016 Posted by Andy McCarron
Multi-channel key as Coral waves goodbye to independence

Ladbrokes Coral will be inheriting one of the more successful multi-channel efforts with the gambling sector, according to the last results statement from Coral before the merger completes later in the Autumn.

A large part of Coral’s online renaissance in the past few years is accounted for by the success of the Coral Connect programme. In the third-quarter results published on Wednesday, the company said that that multi-channel customers accounted for 48% of net revenue or £20.3m of the total of £42.3m.

A further circa 74,000 new Connect sign-ups were added over the period on top of the 160,000-plus that were signed-up in the first half. The figures are a testament to the Connect proposition and point to why Ladbrokes chief executive Jim Mullen at the time of his company’s interims at the start of August spoke of how a “small army” of retail staff can prove how retail and online can work together.

Though Coral didn’t go into any further detail regarding its own multi-channel customers, Mullen was more forthcoming earlier in the month, saying that multi-channel was the key to attracting the recreational punter.

“They tend to be dominated by the younger and more sports-orientated demographic, who demonstrate longer retention in Ladbrokes than a pure dotcom player,” he told analysts on the results conference call. “They are more valuable and their margins are higher.”

The Connect efforts at Coral have arguably been the main driver of the resurgent online business, and this continued into the third quarter with revenues up 26%. But in the retail business, it is the machines which continue to outperform with net revenue up 10% to £92.9m in the three months to the start of July. The company said slots play as a percentage of the whole increased to 40% from 38% in the third quarter 2015 while high stakes play (over the £50 ‘journey’ limit) was only 8% of total gaming revenue.

In comparison, OTC net revenues were flat at £70.7m despite a 6% fall in stakes that the company attributed partly to the closure of 29 shops over the period, but also to lower levels of recycling compared to the prior-year period, the impact of more stringent ‘source of funds’ checks and weaker underlying horseracing stakes. Retail net revenue rose 5% over the period to £165m but EBITDA was down 2% to £31.9m.

The £2.2bn merger is partly an attempt to gain scale in online, but it is the retail businesses at both that currently drive profits. Coral is at least doing better in terms of the spread of operating profit generation – it’s online business at least made an EBITDA profit of £21.6m compared with the £9.6m loss at Ladbrokes for the six months to June.

But the Coral figures prove the durability of retail and help explain the interest in the circa 350 shops the business needs to offload in order to abide by the ruling of the Competition and Markets Authority (CMA). Coral confirmed that the merged entity was in detailed talks with a number of parties that had expressed an interest in acquiring all of large parts of the parcel of Ladbrokes and Coral outlets.

Totally Gaming says: From the off, Ladbrokes Coral will be saddled with a debt load of circa £1.2bn, so the cash being generated by the combined retail operations will be vital if the company is to lower its leverage. It’s a balancing act and the success of the multi-channel efforts - and whether they prove to be more than a one-off injection of high-street customers into online – could well be the deciding factor.

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