Hilton profits slide as high rollers desert gaming tables

A sudden decline in rich, overseas clients placing bets over the telephone and internet contributed to a 7.5 per cent fall in half-year pre-tax profits at Hilton, the hotels and gaming giant, the company's new chief executive David Michels said yesterday.

A sudden decline in rich, overseas clients placing bets over the telephone and internet contributed to a 7.5 per cent fall in half-year pre-tax profits at Hilton, the hotels and gaming giant, the company's new chief executive David Michels said yesterday.

Pre-tax profits before goodwill and exceptionals were reduced to £108.8m for the six months to 30 June, down from a comparable figure of £117.6m the previous year.

The problems were compounded by a run of bad luck at the group's Ladbrokes betting chain, which saw punters successfully backing a higher-than-average number of winners at the Euro 2000 football championship, Royal Ascot and the Epsom Derby. As a result, the Ladbrokes unit lagged behind Hilton's luxury hotels division. While the hotels arm increased its interim operating profits from £105.9m to £111m, profitability at Ladbrokes dropped from £63.5m to £51.3m in the same six-month period. Hilton shares closed down 9.5p at 235.5p.

Mr Michels said: "In my first announcement as CEO, I would have liked to have been able to report a stronger set of figures."

Nigel Reed, an analyst at BNP Paribas, said: "The high-rolling business has vanished. Whether or not it's going to come back is another matter."

Brian Wallace, finance director and deputy chief executive, explained that the group had lost £8.9m in revenues as high-staking clients "turned their attention to other things". Investors received little comfort from the company's assurance that these valuable customers have not defected to rival bookmakers but had simply stopped betting altogether.

Meanwhile, Ladbrokes saw a total of £13m wiped off its expected earnings from major horse racing and soccer events as an unusually high number of favourites romped home and a lack of draw results boosted total pay-outs.

On the positive side, the performance of the group's 1,870 high street betting shops confounded dire predictions for their fate in the new world of online betting. Pre-tax profits at the shops increased by 3.5 per cent to £35.6m. Mr Michels said: "While we share the pundit's view that, in the long run, shop revenues will decline, it will be a slightly longer run than had been thought."

Ladbrokes' own £100m venture into the internet betting market has yet to make a positive contribution to the group's figures. Investment costs, including the launch of bet.co.uk, a football-focused website, and ladbrokes.com, a tax-free gambling service, are expected to reach £10m for the full-year. Profits are not expected until 2002.

Julian Easthope, an analyst at UBS Warburg, said: "The Ladbrokes results were a total minefield.... On the e-gaming side, it's just too early to tell what will happen. We are waiting for some long-term trends to emerge." Another leisure analyst said: "The core Ladbrokes business is extremely dull. It's not a good quality business because it flies up and down and is not reliable." But, he added, the group is right to move into the internet betting market. "If you can reach people directly with a gaming product, they love to do it. Look at Las Vegas, or the National Lottery where revenues went from zero to £5.5bn almost overnight."

Paribas' Mr Reed said: "Overall, I think there's hope to come because the benefits of some of the big capital investment programmes should start to come through." As well as ploughing money into the revamping of its betting business, Hilton has set aside around £360m a year to boost the performance of its hotels interests.

The investment is beginning to pay off. Mr Michels said the integration of the Stakis hotels chain, which it acquired for £1.5bn last year, had boosted revenues by 9 per cent, excluding exchange rate movements.

He said the group would avoid "getting caught up in the consolidation frenzy for its own sake". He said there were no plans to combine the business with that of the US-based Hilton Hotels Corporation. But he confirmed that the UK group would ideally like to expand its hotels portfolio by adding the Meridien chain, currently owned by Granada Compass.

Commenting on persistent speculation that Hilton will demerge Ladbrokes from its core hotels interests, Mr Michels said: "The speculation has been around for about 10 years. There is nothing today that would encourage us [to demerge] any more than there was 10 years ago ... But that is not to say that it will never happen."

Warburg's Mr Easthope said: "I suspect that for the first time in a long time, it makes sense to leave the two businesses together. The Hilton name is something that travels internationally, the Ladbrokes one is not. So staying together might help the group to attract international gamblers to ladbrokes.com."