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Merger or not, Ladbrokes’ CFO faces tough task

CORAL’S CFO will take the finance reins when its merger with Ladbrokes is complete.

Paul Bowtell, the extensively-experienced finance chief of Britain’s third-biggest bookmaker, will serve as CFO of the merged Ladbrokes and Coral. He has won out by a nose as the finance board’s representative ahead of Ladbrokes’ Ian Bull.

Financial Director understands that, with Ladbrokes’ Jim Mullen lined up as CEO, Bull accepted that he would not make CFO in the new business.

The merger deal, which will require clearance from the Competition and Markets Authority (CMA) and with an unclear timeframe, would create the country’s biggest betting shop chain with a value of £2.1bn.

Form guide

Bowtell’s background comes in retail and travel. He has previously held senior financial roles at Centrica, WH Smith and Forte, before serving as CFO of TUI Travel and on the board of First Choice Holidays. He joined Gala Coral in October 2011 as CFO.

Bowtell has also held non-exec positions, including terms with Capita and SThree.

The deal is an ambitious one, with plans to counter a strong-performing William Hill. Ladbrokes Coral, as the business would be called, will push through plans to grow its online customer base, particularly among the smaller, casual, betters.

The deal would also save a projected £65m a year in synergies, Ladbrokes has told the markets in its merger proposal documentation. It would also create the most voluminous betting shop estate with 4,000 shops – although reports suggest that a sell-off of some shops would be inevitable even with a successful CMA review.

Former HBOS chief executive Andy Hornby, in charge during the bank’s collapse and calamitous rescue by Lloyds TSB, will serve as its COO – but not as a board member.

Further shares in the combined entity will be issued, with its gaming software provider Playtech taking on nearly a quarter of the new 9.9% issue. As part of that deal, Ladbrokes has accelerated payments to the provider of £75m.

Coral chief executive Carl Leaver, who will serve as deputy chairman for 12 months on completion of the deal, said job losses would be highly likely across the two head offices in London: Rayners Lane and Stratford.

It is conceivable that Bowtell’s track record at Coral has made him an attractive choice for the merged group. Its 2014 performance saw EBITDA growth across its divisions, to £263.9m (up 7%).

Ladbrokes, while the larger business, approaches the deal from a weaker position. Its chief executive Jim Mullen described Coral as being “12 months ahead of Ladbrokes” when it comes to managing a multi-channel strategy incorporating shops and online.

Half-year trading to 30 June saw Ladbrokes’ operating profit down 38% on the previous year, with a profit warning issued by Mullen: circa £20m lower than earlier estimates.

Hedging bets

Whether the deal goes through or not, Mullen has outlined a new strategy that will give current CFO Ian Bull lots of work to do – while he is in situ at least, and for Bowtell if he takes over.

Badged as “building a better Ladbrokes”, the three-year plan will be marketing-led, he said. Its UK digital recreational sports betting customer base, ie. the casual punter, will be more aggressively marketed to. It intends to increase shop footfall through increased sponsorship and investment to the look and feel of its outlets. It will invest in staff training and incentivisation, alongside offers, to grow both its retail and digital customer base.

Investment will also be made to grow its Australian business, with plans to double its current AUS$63.2m (£29.8m) revenues and increase market share. Cost-cutting is a “limited” option for Ladbrokes, with significant redundancies and centralisation that has taken place over the past three years. But there is some squeezing to be had, with £5m-£7m in yearly savings identified that focus on non-customer facing areas.

Long odds

The markets have responded gloomily to the plans, concerned at the work to be undertaken by Ladbrokes and the pessimism of a protracted battle with the CMA. Its shares stood at 118.1p as Financial Director went to press, from 128p, prior to its double announcement of new strategy and merger plans.

The Guardian reported Jefferies analyst Ian Rennardson as saying: “We think Ladbrokes is in the last chance saloon, having today announced a profit warning, a dividend cut, a share placing and an intended merger.”

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