CONCERNS ABOUT DEBT BURDEN ON GALA CORAL

12 December 2008

Online and land gambling group has GBP 4.4 billion in debt

 

Industry observers were this week expressing concern over the ability of the giant UK gambling group Gala Coral to service its substantial GBP 4.4 billion debt burden - up from last year's GBP 4.2 billion - but company officials were confident that the company would continue to prosper.

The UK newspaper The Guardian, reported: "Gambling group Gala Coral, one of Britain's largest private equity-owned employers, has seen losses more than treble as trading at its casino and bingo divisions has continued to slow sharply leaving the business straining to service its huge debts.

"Despite an additional GBP 124 million cash injection from private equity backers Permira, Cinven and Candover during the year, the company today published figures showing a pre-tax loss for the 12 months to September 27 of GBP 397 million. Much of the losses were made up of writedowns and redundancy costs as the group closed about 10 percent of its bingo clubs and casinos. More cost cutting and job losses are planned for coming months."

The newspaper went on to claim that debt investors, who dominate Gala's ownership structure, are closely assessing the group's capacity to service its debt.

Full year results for Gala Coral showed the bingo, casino and sports betting operator was still being affected by the smoking ban in the UK, which it said was the main reason behind the year-on-year fall in group earnings before interest tax, debt and amortisation (EBITDA), which fell 10 percent to GBP 362 million in 2008.

Gala Coral chief executive Dominic Harrison told the London Financial Times that he did not expect any further closures of bingo clubs “bar an absolute meltdown in the economy”, following a particularly tough 2008. Harrison emphasised that the well-documented “sharp decline” in bingo activity at the company’s land-based clubs had leveled off and “trading had started to recover from the impact of the smoking ban and the scrapping of big-jackpot gaming machines”.

In the company statement, Harrison said: “Last year was challenging for Gala Coral due to well tracked regulatory and economic impacts. I believe though that the Group responded well to these challenges and I am particularly pleased with the growth delivered by Coral – our main business. We have started the new financial year well and I am confident we will continue to outperform our competitors and meet the targets we have set ourselves in 2009.”

Gala Coral’s turnover dropped 3 percent to GBP 1.2 billion for the year ending 27 September 2008; the firm repaid GBP 97 million of senior debt during the year and its cash balance sheet increased by GBP 49 million to GBP 146 million during the period. It enjoyed net cash inflow from operations of GBP 314 million and successfully renegotiated its banking covenants.