Ladbrokes Coral defends betting terminals ahead of govt review

* Operating profit rises for merged group

* Gambling companies await review of betting terminals

* Sector has seen series of deals (Adds details, CEO and analyst quotes)

By Rahul B

March 28 (Reuters) - British bookmaker Ladbrokes Coral Group defended betting terminals on Tuesday as speculation of a government crackdown on the profitable gambling machines sent its shares lower despite a 22 percent jump in annual operating profit.

The company, created when Ladbrokes (Amsterdam: LB6.AS - news) joined forces with Coral in a $3.4 billion merger last year, said operating profit rose to 264 million pounds ($333 million), helped by growth in its digital and European retail businesses.

Shares (Berlin: DI6.BE - news) in the company were down 1.7 percent at 133p by 1015 GMT, with attention shifting to a government review of fixed-odds betting terminals due by the end of May.

One possible outcome of the review would be a reduction in maximum stake, which is currently 100 pounds every 20 seconds.

Any reduction would hurt companies such as Ladbrokes and rival William Hill (Frankfurt: 633847 - news) which retain large chains of betting shops on British high streets.

"The review was a call for evidence and we have provided evidence which suggests that the stakes are not the principal cause for problems in gambling," Ladbrokes Chief Executive Jim Mullen told Reuters.

"If that is the case, we are hoping that there would be a positive outcome for us," Mullen added.

Fitch Ratings, in a note last week, said it believes that tougher betting restrictions on in-store gaming machines would help online channels emerge as a bigger growth driver.

The issue is likely to weigh on betting companies until there is clarity.

"Reforms that undermine profitability, such as significantly reducing the amounts that can be staked at any one time, would have serious consequences for the group," said Laith Khalaf, senior analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) .

The company upgraded its forecasts for cost benefits from the merger to 100 million pounds from 65 million and said it was still assessing revenue opportunities from the combination.

The merger of Ladbrokes and Coral was one of a number in the sector, with Paddy Power (EUREX: 27913021.EX - news) and Betfair also having joined forces.

On current trading, Ladbrokes said total group net revenue was 2 percent ahead of last year for the period of Jan. 1 to March 19. ($1 = 0.7943 pounds) (Reporting by Rahul B in Bengaluru; Editing by Mark Potter/Keith Weir)