GVC Continues To See Profits Rise Despite Shop Closures, Tax & FOBT’s
Back in July I wrote a piece looking at how GVC Holdings, which is the company that owns both Ladbrokes and Coral, had been able to defy expectations and continue to make a profit despite the industry as a whole believing that it was going to be a lean period in the wake of the government’s decision to cut the maximum stake that people could spend on Fixed Odds Betting Terminals. Despite sales being down in their retail shops at the time, the company still looked likely to make a profit thanks to online sales.
It has now emerged that GVC Holdings think that their profits for the year will be higher than they had expected, even in spite of the various ways in which the government has been clamping down on betting terminals.
Whilst the FOBT stake cut is an obvious example, there has also been the fact that the government has made up its losses on the reduced maximum stake by increasing the Point Of Consumption Tax paid by online companies. The increase say the Remote Gaming Duty move from 15% to 21%, meaning that bookies have been hit twice recently.
Online Betting Is Crucial
The major factor behind GVC Holdings’ ability to keep making a profit at such a difficult time for the betting industry is online gambling, with the group saying that online betting has risen by 12%. That’s a big chunk of the company’s overall income, coming from both Ladbrokes and Coral’s websites and online users.
That has seen their third-quarter trading move up to the point that profit guidance for the year has been increased from £650-£670 million to £670-£680 million.
The Chief Executive of GVC Holdings, Kenneth Alexander, said that he was:
“Delighted’ with the news and the financial performance of the group. He also drew particularly attention to the online changes, saying, Online momentum remains strong across all major territories, with net gaming revenue up 12% in the quarter despite the prior period containing part of the World Cup”.
But In-Store Profits Have Improved Too
Despite the fact that the company is most reliant on online profits, their in-store sales have also improved compared to the same point last year.
Whilst there was a 36% decrease in revenue from betting machines in this quarter, which is largely being blamed on the Fixed Odds Betting Terminals stake reduction, there was a 7% rise in the money taken in general by betting shops during the same period.
When the FOBT reduction was announced GVC Holdings said that it would have to close as many as 900 shops. That fitted in with news that the rest of the industry was also planning to close high street stores, with as many as 3,000 likely to close over the next few years. At the start of 2019 Ladbrokes and Coral had around 3,500 shops between them, but just shy of 200 had closed by October. The rest of the 900 shops on the firm’s list for closure are likely to be axed by April of 2021.
Profits Still Look Good
The shop closures will be painful for the staff that worked in them, not least because they’re living in a world where GVC Holdings think it’s ok to be closing them down at the same time as making millions of pounds in profit. It is especially galling when you consider that more bets are being placed in shops than in the recent past, meaning that there’s a general feeling of the betting shop making something of a recovery after some lean years of late.
It’s important to remember that what GVC Holdings are talking about is an improvement compared to last year as well as compared to the company’s own expectations. Revenue in the stores is actually down 18% on last year, but that’s better than the company expected their profits to be. It won’t cause GVC Holdings to reconsider their plans to close stores, but it is good news for shareholders. At the start of trading on the day of the announcement the company’s shares were up by 4%.
It’s unquestionably the online growth that is offering the strongest sense of protection to GVC Holdings, however. Online revenue in sports betting alone for Ladbrokes and Coral has grown by 16%, which has contributed to the company’s rising stock. That will obviously be scant consolation to the 5,000 or so people that stand to lose their jobs thanks to the company’s aggressive store closing plan, but GVC Holdings will likely feel that it’s an unavoidable decision in the wake of the government’s choice to cut the FOBT maximum stake.