Ladbrokes in £275m cash call

Funds raised will be used to pay down debt mountain and not for acquisitions
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The Independent Online

The bookmaker Ladbrokes has said that dire third-quarter trading, driven by unfavourable footfall results, forced its hand in launching a £275m right issue yesterday to pay down its debt mountain.

Ladbrokes blamed just four draws – a huge driver of profits for bookies – out of the first 66 English Premier League games for a 15 per cent drop in group revenues for the three months to 30 September. The bookmaker's gross win – what it makes from punters' losses before costs and tax are taken off – on football matches fell to zero during that period.

Chris Bell, the chief executive of Ladbrokes, said: "It has been disappointing this quarter. The football results have been difficult. We would normally expect of the matches played for 25 per cent to be draws but it has been 6 per cent. The punters have had a marvellous time."

The bookie's fortunes have also been hit by the biggest British clubs, such as Liverpool, Manchester United and Celtic, winning about 70 per cent of their matches, compared to a typical rate of about 55 per cent. Mr Bell said that the emergence of Manchester City, who had also enjoyed a strong start, and a string of wins for Newcastle United in the Championship had not helped.

The rights issue by Ladbrokes follows rival William Hill raising £350m in a cash call in February.

A series of British companies from the property giant Land Securities to the electricals retailer DSGi have launched rights issues this year to repair their balance sheets and drive forward their strategies.

Mr Bell said that Ladbrokes had been considering a rights issue for "well over a year" and that its decision was also based on an improvement in the stock markets, the condition of the UK economy and difficulties obtaining credit from banks at favourable rates.

"It is not for a war chest. We are not going off to buy anything. It is purely to pay down debt. We have taken a proactive decision to get us into the right place," said Mr Bell. Ladbrokes said the proceeds from the £275m cash call will be used to slash its net debt from £962m to £687m. That would reduce the ratio of debt to profits for the 12 months to 30 June 2009 to 2.6 times.

The group paid fees of just 3 per cent for the rights issue and Mr Bell said that he was pleased given that some companies have paid up to 5 per cent.

Mr Bell said: "It means the company is on a stable footing and it has a much better balance sheet. As we head through the economy's doldrums we will come out the other side stronger and we will be ready to rock and roll next year."

The rights issue – which was priced at 95p, a discount of 48 per cent to the closing price of 181.2p on Tuesday night – is fully underwritten and is open for 10 days.

Ladbrokes has been taking a number of measures to try to reduce it cost base and enable it to cut its debt burden. For instance, the company said in August it was moving its online gambling operation offshore in August.

Yesterday, the bookmaker said it has implemented a salary freeze across the group until January 2011. Ladbrokes has also said that it will not pay a final dividend, although it hopes to pay an interim dividend in 2010.

For the quarter to 30 September, Ladbrokes, which has more than 2,700 shops in the UK and Europe, posted group operating profit down by 58 per cent to £22.4m.

UK retail revenues tumbled by 15 per cent, as a set of poor horse racing results added to the bookmaker's football woes. "Horse racing results have been lower than normal. [Glorious] Goodwood was not really clever," said Mr Bell, who has also faced a big pay-out from odds on favourite Sea the Stars' Arc victory on Sunday .

Ladbrokes also said its e-gaming net revenue was down by 13 per cent, hit by a 31 per cent slump in its Sportsbook business.