The Week Ahead: Figures due from Ladbrokes, Serco and G4S
- Credit: PA
Bookmaker Ladbrokes publishes interim results this week after announcing a £2.3billion deal with rival Coral while outsourcing giants G4S and Serco are also due to deliver updates.
The plans by Ladbrokes for a tie-up with the betting shops arm of Coral are likely to come under the spotlight on Tuesday when the bookmaker publishes half-year results.
The firms agreed the deal, set to see the combined business overtake William Hill as the biggest bookmaker in the UK, last month. However,the enlarged group is expected to have to dispose of some stores to satisfy any concerns about the deal from competition regulators.
The move brings together 2,100 shops from Ladbrokes and 1,845 from Coral. Ladbrokes Coral will have net revenue of £2.1bn and underlying earnings of £392million, while the deal is expected to bring savings of £65m a year. Completion is conditional on approval by the Competition and Markets Authority but the firms said they were “confident that the merger is deliverable” and “committed to working closely with the CMA in its review”.
Announcement that the deal had been agreed came as Ladbrokes also announced a profit warning, a dividend cut and a share placing.
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Chief executive Jim Mullen also said Ladbrokes was embarking on an “urgent, overdue and essential” three-year investment programme to boost revenues in its shops and grow its online business. He warned that it would mean operating profits for the current year £20m lower than expected and slashed the full-year dividend to 3p, down from 8.9p the year before.
Ladbrokes also revealed at the time that half-year operating profits were down 38.2% to £41.7m. Mr Mullen said that “results have continued to favour our customers”.
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Meanwhile, the group said it was placing 92m new shares, representing up to around 10% of the company, with new and existing investors to boost the balance sheet of the enlarged group.
Ladbrokes has faced a challenge adapting to online and mobile betting, which is the fastest growing part of the UK market. At 6%, it has a smaller share of UK digital betting than William Hill, Bet365, Betfair and Paddy Power.
Brokers at Jefferies said after the raft of simultaneous announcements last month that Ladbrokes was “in the last chance saloon.”
Analysts at Numis said a lengthy CMA probe would likely not see its merger with Coral completed until the second half of next year.
Gala Coral is currently owned by private equity companies Cinven, Permira and UK-listed Candover Investments. The merger does not include its 132-site Gala bingo business.
Scandal-hit outsourcing firm Serco is expected to announce solid half-year results on Tuesday as its turnaround begins to take root.
Serco said last month trading had been “a little better than we anticipated” in the period leaving investors to breathe a sigh of relief after a couple of torrid years for the group since it admitted in 2013 that it had charged the Government for tagging criminals who were dead or non-existent.
The group, which runs a vast range of services from prisons to rail services worldwide, said half-year trading profit was set to remain flat at no less than £45m. This comes despite an expected revenues slide to no less than £1.7bn, down from £2bn a year earlier, due in part to the end of contracts such as Docklands Light railway and visa processing work.
It said its performance put the business on track to meet its full-year expectation for a trading profit of around £90m, a marked improvement on the £1.3bn operating loss it suffered last year.
Brokers at Numis said: “Though the turnaround will take an extended period, we think the problem contract issues have been contained, and the balance sheet has been de-risked.”
Serco was thrown into crisis in 2013 when it had to repay the Government £68.5m for overcharging on criminal tagging contracts as well as £2m from past profits for a prisoner-escort deal.
A series of profit warnings followed, which saw Rupert Soames take the helm in May last year, after leaving temporary power firm Aggreko where he was chief executive.
Meanwhile, outsourcing rival G4S is forecast to build on its first improvement in annual profit in four years when it posts half-year results on Wednesday.
The City expects it to post interim underlying profits up 3% to £194m compared to a year ago, boosted by contract wins in the US and developing markets.
This comes after full-year profits for 2014 rose to £148m from a loss of £190m the year before, when there was a £136m hit from a review of contracts that included an offender tagging deal at the centre of an overcharging scandal.
The group is being overhauled by chief executive Ashley Almanza, having taken the helm in 2013 from former boss Nick Buckles following the tagging scandal and a previous debacle over its deal to supply security for the London Olympics.
Brokers at Stifel said: “The company had lost its way under the previous management team, growing rapidly but failing to properly invest in systems and people to ensure sustainable long-term progress.”
But the analyst said that under Mr Almanza “we expect to see emerge a leaner and stronger G4S driving some meaningful improvements in financial performance.”