Fitch: Ladbrokes' Playtech transaction unlikely to hit ratios
March 12 () - (The following statement was released by the rating agency) LONDON, March 12 (Fitch) Fitch Ratings says that the transaction announced by Ladbrokes plc (Ladbrokes, 'BB+'/Stable) whereby its online gaming business will partner with Playtech Ltd, will not cause any deterioration to Ladbrokes' 2012 lease adjusted net debt / EBITDAR of 2.8x. This is a result of sustainable improvements in performance delivered in 2012 by Ladbrokes and instalment payments for the remuneration of Playtech, which are well diluted over 2013-2019, subject to achieving EBITDA contribution and including an equity component. Fitch views the transaction as an important step towards the completion of the company's process of relaunching - mostly with internal resources rather than major M&A activity - its online gaming operations. Ladbrokes' online business will come out stronger from this enlargement of offer and software capability but remains smaller than major online competitors bwin.party and William Hill Online. Ladbrokes displayed encouraging results in 2012 that suggest how actions taken on its UK retail estate - in particular the strong performance of its machines - and on the management of its odds, are returning its operations to resilient financial performance amidst the persistence of subdued consumer spending in the UK. Excluding the impact of Euro 2012 Championship, Fitch calculates that Ladbrokes' UK retail unit reported over-the-counter (OTC) net revenue growth of 2.3% yoy for FY12 with operating profit up 14.8%. Consolidated EBITDA, excluding GBP30m of profits from high rollers and Euro 2012, was up almost 6% to GBP261m. The company continued to generate solid free cash flow (FCF) of GBP73m despite capex running at a historically high level of GBP95m and dividends maintaining a 50% pay-out. Over 2013-2015, Ladbrokes should benefit from a step up of revenues arising from the capex disbursed on the enlargement of the retail estate, the continuing growth of weekly revenues from gaming machines, a more effective online gaming offer and liability management. All this should enable annual FCF generation to remain at least at GBP50m. In addition, depending on how much of the incremental EBITDA targeted from the Playtech joint venture will not be re-absorbed by higher structural costs and marketing investment for the online unit, there will be contribution from the new operations. Consequently, Fitch expects internally generated resources to be sufficient to cover the planned possible instalment payments for the transaction with Playtech and does not anticipate adverse effects on Ladbrokes' Issuer Default Rating from the transaction. Fitch is in the process of conducting its annual review on Ladbrokes and targets publishing a fuller analysis on the company by the end of March.
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