Fitch Downgrades Ladbrokes to ‘BB’

(The following statement was released by the rating agency) LONDON, April 17 (Fitch) Fitch Ratings has downgraded Ladbrokes Plc’s (Ladbrokes) Long Term Issuer Default Rating (IDR) and senior unsecured rating to ‘BB’ from ‘BB ‘. The Short term IDR has been affirmed at ‘B’. The Outlook is Stable. The short term rating moncler sale on the EMTN programme rated ‘B’ is withdrawn, as it is no longer relevant to the agency’s coverage. The downgrade reflects the difficult UK betting shop environment due cheap moncler jackets mens to increased costs and taxes, together with Fitch’s concerns over the future profitability of Ladbrokes’ on line business. This trading weakness and uncertainty on digital profitability means it is unlikely that Ladbrokes will return moncler outlet sale to pre 2013 levels of operating margins and cash flow generation in 2014 may be weaker than anticipated. 2015 will also be affected by the increase in machine gaming duty (MGD) announced in the March 2014 UK budget, which we estimate will cost GBP16.5m in lost profits in 2015. As a result leverage metrics will only fall slowly from this year’s peak of 3.8x uk moncler outlet (on an adjusted funds from operations (FFO) net leverage basis) at end 2013. We forecast that Ladbrokes will not return to FFO adjusted net leverage below 3.0x moncler sale online by end 2015 and this moncler womens jackets is inconsistent with a ‘BB ‘ rating, although leverage will fall to a range comfortably within a ‘BB’ rating, as reflected by the Stable Outlook. KEY RATING DRIVERS Weak UK trading After a difficult 2013 betting shop environment characterised by higher than inflation cost increases, particularly in content costs, 2014 UK retail profitability will be negatively impacted by the increase in MGD from 20% to 25%, which could reduce operating profits at Ladbrokes by up moncler outlet store to GBP22m in a full moncler sale outlet year. High Digital Transformation cheap moncler jackets Costs Ladbrokes started slowly in the digital market and cheap moncler jackets womens has been underperforming in what is becoming a transformational requirement for a modern betting business. Fitch views the five year partnership with Playtech positively as it gives the company access to up to date technology and know how. All the transitional changes are expected to be complete by end of 1H14, and the effects on digital’s performance from 2H14 should be positive. Ladbrokes has however confirmed a continued high level of capex in FY14 for its digital operation, moncler usa within the context of a fierce advertising and expensive marketing battle between the large betting groups to recruit new active and profitable customers. Fitch is therefore concerned about the ability of Ladbrokes to convert the cheap moncler sale re launch of uk moncler sale its digital operations into sustained higher profits in 2014 and 2015. Maintained Dividends The higher 2013 operating costs have negatively discount moncler jackets affected the company’s free cash flow generation and thus deleveraging efforts during 2013. Despite this reduced cash flow generation, Ladbrokes continues its shareholder friendly policy as Continue https://www.cheapmoncler.com cheap moncler the company has decided to maintain its dividend policy (GBP81m in 2013). Deleveraging Slowing With weaker operating cash flow in 2013 and maintained dividends, Ladbrokes’ de leveraging stalled. Leverage increased to 3.8x at end 2013, moncler outlet online and Fitch does not expect it to reduce below 3.0x by end cheap moncler coats mens 2015. This reduces financial flexibility at moncler uk outlet a time of strong competition in the betting markets. FOBT Gaming Regulation If the UK government introduces moncler online store new restrictions on fixed odds betting terminals (FOBT) in 2014, Ladbrokes will probably be more affected than its competitor William Hill, as over 50% of Ladbrokes’ UK retail operating profits come from FOBT terminals and it currently has a moncler outlet weaker digital platform. Fitch estimates that in the worst case, UK government restrictions on the maximum bet per machine could reduce machine gross wins by up to 15%. The gaming industry has however already responded moncler outlet prices with a voluntary code of conduct in terms of preventing gaming addiction. Solid Liquidity The group has good liquidity with over GBP365m of cash and undrawn committed facilities at end 2013. Ladbrokes does not face any meaningful debt maturities until 2016, when the group’s GBP540m bilateral facility falls due whereas its GBP225m bond only matures in March 2017. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating action include: Further strengthening of operations with the achievement of an established competitive profile in online gaming, a fully stabilised UK retail business and lower reliance on the UK market. Positive FCF on a sustained basis. FFO adjusted net leverage sustainably below 3.0x. FFO fixed charge cover above 3.0x. Negative: Future developments that could lead to negative rating action include: Further material deterioration in UK Retail operating profits, adverse regulatory developments and no significant improvement in digital operating profits. FCF best moncler jackets in negative territory. FFO adjusted net leverage towards 4.0x due to continued weak trading, or for over 12 to 18 months due to M moncler outlet woodbury activity. FFO fixed charge cover below 2.5x. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.