Britain's biggest bingo club operator has decided that the numbers no longer add up for several of its least profitable clubs, after a tax increase that could spell closure for at least another 100 bingo halls across the industry.

It is understood that Gala Coral Group, which is backed by Candover, Cinven and Permira, the private equity companies, is preparing to consult staff on the closure of at least six of its 156 clubs, threatening 180 jobs.

Insiders believe that over the next two years the company may consider selling a further 40 to 50 clubs, many of them former cinemas, to focus on more modern, flat-floor venues.

The company has closed 13 bingo clubs and four casinos since the smoking ban and the scrapping of Section 21 gaming machines set the gaming industry on a long losing streak.

In December, it said that no further closures were envisaged, but Gala, which announced 200 job losses in November as part of a streamlining of its gaming and betting businesses, has decided to restart its closure programme after the surprise tax rise in April's Budget. Although the Chancellor scrapped VAT on bingo - a measure that operators had long been lobbying for - he stunned the industry by also raising duty on bingo from 15 per cent to 22 per cent.

The move forced Rank Group, operator of the Mecca Bingo chain, to rush out a profit warning on the day of the Budget. It had estimated the impact of the changes made to bingo and gaming machine taxes at about £9million a year in lost profits.

The tax rise has sparked a wave of protests, with staff and their three million customers being encouraged to bombard MPs with protests over the threat to the future of bingo. It is understood that operators are planning a demonstration outside Parliament.

Ian Burke, the chief executive of Rank, described the tax rise as “vindictive”, claiming that the hit on profits had made it twice as likely that bingo halls would go to the wall this year.

Industry figures suggest that the number of clubs has slumped from more than 700 to about 590 in recent years as the impact of social changes has been exacerbated by the smoking ban, changes to gaming machine rules and the recession. Analysts are predicting a further 100 closures as a result of the recent tax rise.

Analysts said that the unexpected increase was a response to the defeats suffered by HM Revenue & Customs (HMRC) in its legal battles with operators, including Rank and Gala Coral, over the application of VAT on interval games and gaming machines. The companies both stand to pocket more than £200 million in overpaid VAT, depending on whether HMRC opts to appeal.

It emerged yesterday that Gala, which has net debt of £2.5 billion, has also asked Lazard, its financial advisor, to look at refinancing options after tightening covenants on its bank debt meant that it could not access £200 million of cash to fund growth opportunites. Lazard is said to have mooted the idea of a debt-for-equity swap involving the £500 million of mezzanine finance. It is understood that a resolution is far from imminent.

In March, Gala's backers conceded that their investments had become worthless, only a year after pumping in a further £125 million of equity.

However, Gala is hopeful that some value will be restored, allowing it to pursue a flotation in a few years.

Source: Times Online

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