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14.12.2006 Complying with the ethical and legislative tenets controlling public companies, the 32Red.com group has issued a profits warning caused by poor trading in its Bet Direct division and said it had breached its banking covenants. The company said that trading at its telephone and internet betting operation had "continued to be difficult over recent months" with "abnormally high numbers of successful favourites in UK horseracing" severely affecting gross win. The loss-making betting division had a poor October and November, and this had caused group performance to fall "significantly below current market forecasts".
The statement continued: "As a direct result of poor trading experienced at Bet Direct, the company anticipates that the combined operating results for 32Red will fall significantly below current forecasts. The lower than anticipated EBITDA performance has resulted in a breach of the company's EBITDA covenant with the Royal Bank of Scotland (RBOS) with whom 32Red has an outstanding loan of approximately GBP 6 million."
Several analysts described the breach of the banking covenant as most likely a "technicality" and pointed out that 32Red does have the cash (GBP 5.3 million) on the balance sheet to cover its bank debt.
32Red bought the Bet Direct operation from Sportech in June this year for GBP 12.5 million. In a trading update at the end of October, the company said it had seen revenues from Bet Direct of GBP 1.57 million in the third quarter. At the time of the Bet Direct acquisition, the company said it would give 32Red more cross-selling opportunities.
The company's last interim statement in October showed total revenues rise 48 percent to GBP 6.2 million, with its poker and casino operations providing GBP1.1m of pre-tax profits. Including Bet Direct, pre-tax profits came in it at GBP 510 000.
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