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National Leisure's $7m loss could scare off suitors VANDA CARSON
March 3, 2010

THE corporate flirtation by National Leisure and Gaming with suitors Tabcorp, Woolworths and Tatts Group appears to be waning after the listed pub operator posted a $7.2 million loss late last week.

The suitors have been circling the company but have been unable to secure rental reductions from Gaming's landlord and a discounted price from its bankers, both of which are necessary before a deal can be struck.

Sales revenues at National Leisure and Gaming's 36 pubs were steady in the six months to December but they were weighed down by hefty rents which were set at the top of the market and inflated interest payments on the company's debts.

The company's banking syndicate extended its $182 million funding lifeline until July next year, but unless its landlord, Redcape Property Fund, also reduces its rents, it will struggle to increase profits.

The rival ING Real Estate Entertainment Fund has been discounting rents for its tenants for the past year.

National Leisure and Gaming's chief executive, Andrew Jolliffe, said that the underlying hotel business was performing well but was restricted by the company's ''incredibly challenging capital structure''. Mr Jolliffe had hoped its fortunes would turn around in the first half of the financial year, but the half-year loss shows that the NSW pubs industry remains in the doldrums.

National Leisure and Gaming also used last week's announcement to restate its accounts for the year to last June, a move which turned a marginal profit into a $7 million loss. The company, which has 30 hotels in NSW and six in Queensland, has been in discussions with Tabcorp, Woolworths and Tatts Group about the sale of its hotels and gaming licences.

On Friday the company said discussions were continuing but that "none of the company's activities in this regard, nor approaches from external parties, have to date been sufficiently developed to warrant disclosure to the market".

The company said the unwinding of the federal government's stimulus package paid in November and December 2008 had triggered a slump in poker machine and alcohol revenues a year later. The slump has also been felt at other pub operators nationwide, as well as through Tabcorp, Woolworths and Tatts Group's poker machine revenues. A second slump may hit in April.

After making $93 million in sales in the first half, the company expects sales will remain flat and to come in at $187 million for the full year. Its 900 poker machines contribute less than half of all the company's revenues, but they make up all of the company's profits.

The company had total borrowings of $182.4 million with Bank of New Zealand Australia and net assets of $15.9 million at December last year. The directors acknowledged that their debt levels were "the key risk to the group".

Source: The Sydney Morning Herald